‘Higher passenger traffic, free pricing, lower costs make tailwind for Indian airlines profitability next fiscal’

Chennai, March 1 : Increased passenger traffic, free pricing and easing of cost pressures make the tailwind for the Indian airlines flying towards profitability next fiscal, said credit rating agency CRISIL Ratings in a sectoral report.

"Indias airlines industry, for the first time since the onset of pandemic, is expected to be back in black next fiscal.

The industry is also likely to pare its net loss by 75-80 per cent on-year to Rs 3,500-4,500 crore this fiscal, compared with about Rs 17,500 crore last fiscal," CRISIL said.Strong recovery in passenger traffic and easing cost pressures are supporting this turnaround in operating performance of airlines.

A CRISIL Ratings analysis of three airlines that account for about 75 per cent of domestic air traffic indicates as much.Domestic and international passenger traffic recovered to 90 per cent and 98 per cent, respectively, in the nine months through December this fiscal, compared with the corresponding period of fiscal 2020 (pre-pandemic).

Business and leisure travel rebounded strongly, even as international scheduled services resumed.The festival season has accelerated recovery in the second half.

This pace is likely to be maintained next fiscal, as the Indian economy remains resilient in the face of global headwinds, CRISIL Ratings said."Next fiscal, we expect passenger traffic to cross the pre-pandemic level and pricing to remain higher by 20-25 per cent over those levels.

Consequently, airlines are expected to clock 25-30 per cent revenue growth next fiscal vis-A-vis pre-pandemic.That, along with expected moderation in average aviation turbine fuel prices will drive a significant turnaround in operational performance of airlines, enabling them to become profitable next fiscal," said Gautam Shahi, Director, CRISIL Ratings.

Profitability will also be aided by lower interest costs, driven by debt reduction owing to privatisation of a large airline in the last quarter of previous fiscal.Better operating performance and expected equity infusions would keep airlines reliance on debt (excluding lease liabilities) limited over the near-to-medium term."The aviation sector is also likely to raise equity of Rs.8,000-10,000 crore over the next two fiscals, which will be utilised towards increasing fleet size and revamping the existing fleet.This will provide a much-needed boost to the capital structure.

Consequently, dependence on incremental debt (excluding lease liabilities) for airlines would remain limited over the near to-medium term, as major part of recent large fleet purchase orders by airlines are expected to be received from fiscal 2026 onwards, and thus support their credit profiles," said Kshitij Jain, Associate Director, CRISIL Ratings.Timely infusion of equity, debt contracted for capex towards fleet expansion and a resurgence of Covid-19 cases due to spread of any new virus strains, though, will remain key monitorables, CRISIL Ratings said.

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