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Tuesday, 11 December, 2018, 10 : 00 AM [IST]

ICRA gives negative outlook for the aviation industry

ICRA has a negative outlook on the airline industry. The strong passenger demand is offset by capacity additions leading to intense competition and continued pressure on yields. Many of the industry players have weak balance sheet structure; and with rising losses in the near term, the industry would need Rs. 350 billion equity infusion over the next 3-4 years. 

Rise in aviation turbine fuel (ATF) price and rupee depreciation has squeezed RASK-CASK (revenue per available seat kilometer - cost per available seat kilometer) spread, exerting significant pressure on operating profitability of airlines. This will result in significantly higher losses (at net level) in FY2019 vis-a-vis FY2018, notes ICRA. 

The airline industry maintains strong capacity addition plans, as reflected in the large order book of the domestic airlines. ICRA estimates domestic available seat kilometer (ASKM) growth at 17-18% p.a. over the medium-term, off-setting demand growth. The domestic passenger traffic growth is expected to remain healthy at 15-16% over the medium term, supported by low penetration levels, favourable macro environment, regulatory push towards regional connectivity and development of new airports.

According to Kinjal Shah, Vice President  & Co-Head, Corporate Sector Ratings, ICRA, “While the passenger traffic growth remained strong during FY2018 and H1 FY2019, the industry faced a double whammy with increasing ATF prices and rupee depreciation. The cost pressures are expected to continue in the balance part of FY2019, resulting in further weakening of the financial health of the industry.”
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