ICRA projects domestic air passenger traffic growth of 7-10 per cent in FY2025 – ET TravelWorld

ICRA has projected an increase in domestic air passenger traffic to 164-170 million for FY2025, reflecting a growth of 7-10 per cent compared to the previous year. During the first half of FY2025, domestic air passenger traffic stood at 79.3 million, growing by 5.3 per cent year-on-year.

This growth was somewhat impacted by extreme heatwaves and other weather-related disruptions. Meanwhile, international passenger traffic for Indian carriers showed a stronger growth of 16.2 per cent in the same period.

This trend is expected to continue, with international passenger traffic projected to reach 34-36 million for the full year, representing a year-on-year growth of 15-20 per cent. Despite challenges, ICRA has maintained a stable outlook for the Indian aviation sector, with continued growth in both domestic and international passenger traffic.

Kinjal Shah, Senior Vice President & Co-Group Head at ICRA, commented: “ICRA expects the industry to report a net loss of INR 20-30 billion for both FY2025 and FY2026, which is a significant improvement compared to past losses, supported by stronger pricing power among airlines.

The spread between revenue per available seat kilometre (RASK) and cost per available seat kilometre (CASK) saw some moderation in the first half of FY2025, mainly due to higher fuel prices and increased overall costs.

However, this is expected to improve in the second half of FY2025 as passenger traffic remains strong. Industry debt metrics are expected to remain stable, with interest coverage of 1.5-2.0x times.”

The key drivers of airlines’ cost structure are aviation turbine fuel (ATF) prices and the INR-USD exchange rate. The average ATF price decreased by 6.8 per cent year-on-year to INR 96,192/KL in the first eight months of FY2025, although it remains above pre-Covid levels ( INR 65,261/KL in FY2020).

ATF costs account for approximately 30-40 per cent of airline expenses, and a significant portion of operating costs, including aircraft leases and maintenance, are denominated in US dollars. Although some airlines benefit from earnings in foreign currency through international operations, they generally have net foreign currency liabilities.

The industry continues to face challenges due to supply-chain issues and aircraft engine failures. As of September 30, 2024, around 144 aircraft, or 16-18 per cent of the total fleet, were grounded, reducing industry capacity as measured by available seat kilometres (ASKMs).

However, this percentage has improved from 20-22 per cent in September 2023. Global supply-chain disruptions have also limited the availability of aircraft, engines, and parts, which has hindered airlines’ ability to increase capacity.

Additionally, challenges in recruiting pilots and cabin crew for certain airlines have led to flight cancellations and delays, further impacting the sector’s performance. These issues have increased operating costs due to grounded aircraft, higher lease rates, and lower fuel efficiency from the use of older leased aircraft.

As of September 30, 2024, the industry’s fleet comprised 853 aircraft, with approximately 144 grounded. Despite this, airlines have announced large aircraft purchase orders, with around 1,660 aircraft deliveries pending, nearly double the current fleet size.

However, many of these orders are intended to replace older aircraft with newer, fuel-efficient models. ICRA believes that fleet capacity growth will be gradual, as ongoing supply-chain challenges may delay aircraft deliveries.

Moreover, much of the new fleet will be used to expand international operations, where Indian carriers currently hold a 43-44 per cent share of traffic to and from India. This indicates potential for further growth in the international segment over the medium term, Shah concluded.