Domestic air travel expected to keep soaring in 2024, says ICRA

 

The momentum in air passenger traffic is expected to continue into the financial year 2025 (FY2025), though further expansion in yields from the current levels may be limited, according to a report by rating agency ICRA.

The domestic air passenger traffic was estimated at 132.8 lakh in June 2024, around 3.7% lower than the previous month but about 6.3% higher compared to the same period last year.

For the first quarter of FY2025, the total domestic air passenger traffic was recorded at 402.7 lakh up 4.4% year-on-year.

ICRA’s outlook for the Indian aviation industry remains stable, driven by the continued recovery in both domestic and international air passenger traffic, as well as a relatively stable cost environment. However, the pace of recovery in industry earnings is likely to be gradual due to the high fixed-cost nature of the business.

The report projects the net loss for the industry to be in the range of INR 3,000-4,000 crore in FY2025, similar to the previous financial year. This is a significant improvement from the record loss of INR 170-175 billion reported in FY2023.

One of the key challenges facing the industry is the supply chain issues and engine failure problems, which have impacted capacity availability. ICRA estimates that around 24-26% of the total fleet of Indian airlines was grounded by March 31, 2024, due to these issues.

The testing by engine manufacturer Pratt & Whitney (P&W) is expected to take around 250-300 days, resulting in increased operating expenses, higher lease rentals, and lower fuel efficiency.

Additionally, the industry has faced challenges related to the availability of pilots and cabin crew, leading to several flight cancellations and delays. These issues have impacted capacity availability and added to customer grievances.

Despite these challenges, the industry has witnessed improved pricing power, reflected in higher yields (over pre-COVID levels) and a better revenue per available seat kilometer-cost per available seat kilometer (RASK-CASK) spread.

However, the airlines’ ability to raise yields proportionate to their input cost increases will be key to expanding their profitability margins. In summary, the Indian aviation industry is expected to maintain the momentum in air passenger traffic, but it continues to face operational and financial challenges that will need to be addressed for a sustainable recovery.