According to a report released on Monday, Indian airlines are expected to post a reduced net loss of Rs 3,000 to 4,000 crore in the current and upcoming financial years. This improvement is attributed to robust growth in passenger traffic and effective pricing strategies.
In February, domestic air passenger traffic reached an estimated 127.5 lakh, as stated by credit rating agency Icra in its report. Additionally, the aviation industry has been contending with supply chain disruptions and challenges stemming from issues with Pratt & Whitney (P&W) engines. IndiGo, for instance, grounded over 70 aircraft due to problems related to P&W engines.
“It is estimated that 24-26 per cent of the total fleet of Indian airlines in operations will be grounded by March 31, 2024. Considering the bulk recall of the engines globally by P&W and other existing issues with the OEMs engines, the testing by P&W is likely to take longer at 250-300 days,” the report said.
Meanwhile, it said the pace of recovery in industry earnings is likely to be gradual owing to the high fixed-cost nature of the business.
According to the report, the projected net loss is anticipated to decrease significantly to “Rs 30-40 billion in FY2024 and FY2025” as airlines maintain healthy passenger traffic growth and pricing discipline. The industry experienced a net loss of Rs 170-175 billion in FY2023 due to elevated aviation turbine fuel (ATF) prices coupled with the depreciation of the Indian rupee against the US dollar.
However, this figure represents a notable improvement from the net loss of Rs 217 billion in FY2022, driven by airlines’ enhanced ability to increase yields without adversely affecting demand, as stated by Icra. Despite challenges such as high operating expenses due to aircraft grounding, Icra provided a stable outlook for India’s aviation sector, citing ongoing recovery in domestic and international air passenger traffic and a relatively stable cost environment.
Additionally, the report mentioned expectations for this trend to persist into FY2025, with healthy yields, high passenger load factors, and partial compensation from engine Original Equipment Manufacturers (OEMs) helping mitigate the impact to some extent.
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