ICRA expects Indian airlines’ FY24 net loss to shrink by up to 82% on healthy traffic, yields

“Building on the fast-paced recovery in FY2023, ICRA estimates the domestic air passenger traffic to grow by 8-13% in FY2024, thus reaching 150-155 million, surpassing the pre-Covid levels of 141.2 million seen in FY2020. The momentum is expected to continue in FY2025 as well with a similar estimated YoY growth, aided by rising demand for air travel and improving airport infrastructure,” ICRA said.

It added that international passenger traffic is likely to touch the pre-pandemic peak of 25.9 million (in FY19) in the current fiscal, with an estimated 25-27 million passengers.

“The air passenger traffic momentum witnessed in the current fiscal is expected to continue in FY2025, though further expansion in yields from the current levels may be limited. Thus, the industry is estimated to report a similar net loss of around Rs 30-50 billion (3,000-5,000 crore) in FY2025 as well,” said Suprio Banerjee, Vice President & Sector Head – Corporate Ratings at ICRA.

On the risks from elevated jet fuel prices and rupee depreciation, the ratings agency said that both have a “major bearing” on Indian carriers’ cost structure.

“Fuel accounts for around 30-40% of the airlines’ expenses, while around 35-50% of the airlines’ operating expenses–including aircraft lease payments, fuel expenses, and a significant portion of aircraft and engine maintenance expenses–are denominated in US dollar terms. Further, some airlines have foreign currency debt. While domestic airlines also have a partial natural hedge to the extent of earnings from their international operations, overall, their net payables are in foreign currency,” ICRA said.

According to the agency’s analysis, the average jet fuel prices in April-December of the current financial year have been 59 per cent higher compared to FY20, but 17 per cent lower than the average price for FY23.

ICRA noted that already around 20-22 per cent of India’s commercial aircraft fleet of over 700 planes is grounded due to global supply chain issues, and in view of the powder metal contamination issue with a large number of Pratt & Whitney (P&W) engines globally, up to 24 per cent of the India’s aircraft capacity could be grounded by the January-March quarter.

The country’s largest carrier IndiGo expects aircraft groundings in the “mid-thirties” in the January-March quarter due to engine inspections in view of the powder metal issue with P&W engines. The groundings due to this issue will be in addition to the 40-odd IndiGo planes that are grounded due to earlier issues with P&W engines.

“This will result in high operating expenses towards cost of grounding, increase in lease rentals due to additional aircraft being taken on lease to offset the grounded capacity, along with increasing lease rates and lower fuel efficiency, which adversely impact the airline’s cost structure, and thus overall cash flow generation,” Banerjee said.

However, no major impact is likely on operations and active capacity due to mitigation measures by IndiGo, which include extending lease periods for a few aircraft, retaining older planes for a longer period, and taking more planes on lease. According to Banerjee, new aircraft deliveries will also partly compensate for the higher number of grounded aircraft in the coming months.