Domestic Air Passenger Traffic Growth May Dip To Six-Year Low, Says ICRA 
The silhouettes of travelers are seen as a plane takes off. (Photographer: Patrick T. Fallon/Bloomberg)  

Domestic Air Passenger Traffic Growth May Dip To Six-Year Low, Says ICRA 


Domestic passenger traffic growth is expected to decline to a six-year low of 4.5 percent in the current fiscal and the financial health of the aviation industry will continue to deteriorate, ICRA said on Thursday.

The domestic air passenger volume grew in double digit for five consecutive years, it said in a release. The rating agency, however, expects Indian carriers to trim combined losses by 22 percent to Rs 7,800 crore this fiscal as against Rs 10,000 crore in the year-ago period, helped by parking of almost of the Rs 58,000 crore debt of Air India in the special purpose vehicle from its balance sheet.

Excluding Air India, the rest of the industry is expected to report net loss of around Rs 1,500 crore in the fiscal with a total debt of around Rs 7,000 crore as on March 31, 2020, it said in a statement.

The industry prospects are expected to gradually improve, contingent on the movement in the jet fuel prices, it said. A series of events during the current fiscal such as grounding of Jet Airways earlier this year, grounding of the Boeing 737 Max aircraft due to technical issues and the recurrent problems with the Pratt & Whitney engines in A320neos have impacted the industry's capacity and and thereby the passenger growth, ICRA said.

Also, many domestic airlines are focusing on expanding on the international routes. ICRA therefore expects FY2020 to witness a muted domestic capacity growth, as measured by available seat kilometre of around 3 percent in the fiscal, it said.

Also read: Domestic Air Passenger Traffic Grows By 3.98% In October

The domestic passenger traffic growth for fiscal year 2020 is also expected to be lower at 4.5 percent, after five years of double digit growth. While the jet fuel prices have been benign in the current fiscal, the yields continue to be under pressure, it said adding coupled with rupee depreciation, this has squeezed revenue per available seat kilometre - cost per available seat kilometre spread, exerting significant pressure on the operating profitability of airlines.

"While the average ATF price over April -November period was lower by a round 7.7 percent as compared to April -November period, the airlines have witnessed maintenance cost escalations during the current fiscal," said Kinjal Shah of ICRA.

Furthermore, as the competitive intensity remains high, pressure on yields is expected to continue. therefore, despite the expected passenger growth over the medium-term and the ongoing cost rationalisation initiatives of airlines, the financial health of the industry will continue to deteriorate, she added.

The domestic aviation industry had benefitted significantly during second half of FY2019 when yields witnessed an improvement due to the decline in industry capacity owing to the grounding of aircraft of Jet Airways.

Further, supported by the transfer of debt of Rs 29,500 crore billion from Air India a special purpose vehicle, the industry is expected to report a lower net loss of Rs 7,800 crore in FY2020 vis-a-vis an estimated around Rs 10,000 crore net loss in FY2019. The airline industry maintains strong capacity addition plans, as reflected in the large order book of the domestic airlines.

As the issues with the Boeing 737 Max and the Airbus 320neos are solved, ICRA estimates the domestic ASKM growth at around 15-18 percent per annum, over the medium-term, off-setting demand growth. it said.

The domestic passenger traffic growth is expected to remain healthy at around 13-15 percent over the medium-term, supported by low penetration levels, favourable macro environment, regulatory push towards regional connectivity and development of new airports, ICRA said in the statement.

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