India’s aviation sector to post losses, even as reversal starts

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By Sanjay Singh

New Delhi, September 14: Even as India’s domestic aviation sector has now started showing signs of reversal from a long slowdown especially since Covid-19 struck in March 2020, domestic carriers are still likely to report a net loss of Rs 15,000 crore to Rs 17,000 crore in the financial year 2022-23, with aviation turbine fuel (ATF) prices and depreciation of the Indian rupee adding to its widening losses, according to a report by ICRA, a leading rating agency.

The negative forecast from ICRA comes as a time when the Indian government has removed capping on domestic fares from August 31. Airfares in the domestic sector were capped to stop airlines from charging excess fares amid the Covid-19 pandemic.

Even the demand for air travel has picked up after two and a half years, since the Covid-19 pandemic hit the industry. Airlines in India have now started recruiting pilots and cabin crew. According to ICRA, while the Ministry of Civil Aviation (MoCA) has discontinued the fare restrictions with effect from August 31, 2022, a sharp hike in airfares would be deterred by the intense competition and airlines’ endeavours to maintain or expand their market shares.

Despite an expected improvement in passenger traffic, the industry is estimated to report a net loss of around ₹15,000 crore to ₹17,000 crore in FY23 as against an estimated net loss of around ₹23,000 crore in FY22, according to ICRA.

Due to high aviation turbine fuel (ATF) prices and the recent depreciation of the India rupee against the US dollar, both of which have a major bearing on the cost structure of airlines. Also a fast-paced recovery in domestic passenger traffic is expected in FY23 aided by improving demand in both leisure and business travel segments.

This is attributable to the receding infection level and consequent normalcy in the operating environment. With the waning effect of the pandemic, domestic passenger traffic is expected to witness year-on-year growth of 52-54 per cent in FY23.

The ratings agency expects the recovery in domestic passenger traffic to pre-Covid levels by FY24. Further, with the resumption of scheduled international air operations for Indian carriers since March 27, 2022, and the reversion to bilaterally agreed capacity entitlements, the international passenger traffic for Indian carriers is on a strong growth trajectory (YoY growth of 4.03 times in Q1 FY23) due to pent up demand and is expected to reach or marginally surpass pre-Covid levels in FY23, it says.

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