In a promising development building on the rapid rebound witnessed in FY2023, leading credit rating agency ICRA forecasts an impressive 8-13% growth in domestic air passenger traffic for FY2024. The anticipated surge is poised to propel the figures to an estimated 150-155 million passengers, surpassing the pre-Covid levels of 141.2 million recorded in FY2020.

Buoyed by escalating demand for air travel and advancements in airport infrastructure, the momentum is expected to persist into FY2025 with a similar year-on-year growth projection. The figures during the first 8 months of FY2024 showcase a robust domestic air passenger traffic of 100.7 million, reflecting a remarkable 17% year-on-year growth and exceeding pre-pandemic levels by 5%.

Noteworthy is the remarkable rebound in international passenger traffic for Indian carriers, which, at 23.9 million in FY2023, exceeded pre-Covid levels, although it trailed behind the peak figures of 25.9 million in FY2019. Projections for the current fiscal year indicate an optimistic outlook, with an estimated 25-27 million international passengers.

Adding to the positive outlook, airlines are experiencing enhanced pricing power, evident in improved yields and the positive spread between revenue per available seat kilometer and cost per available seat kilometer (RASK-CASK). ICRA, consequently, maintains a stable outlook for the industry, attributing it to healthy passenger traffic growth, improved yields, and a stable cost environment.

Suprio Banerjee, Vice President & Sector Head – Corporate Ratings, ICRA Limited, commented on the industry’s momentum, stating, “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 ~Rs. 30-50 billion in FY2025 as well.”

Despite the positive recovery in passenger traffic and yield improvement, concerns loom over the movement of yields, particularly in the face of elevated Aviation Turbine Fuel (ATF) prices and the depreciation of the Indian Rupee against the US Dollar compared to pre-Covid levels. With ATF prices standing at Rs. 103,189/KL in 9M FY2024, a 59% increase from FY2020 levels, the industry is treading cautiously.

Fuel expenses constitute a significant portion of airlines’ expenses, with 30-40% allocated to fuel. Additionally, a substantial portion of operating expenses, including aircraft lease payments and maintenance, is denominated in US dollars. The recent supply chain issues have exacerbated the challenges, leading to approximately 20-22% of the total fleet currently grounded.

Banerjee highlighted the imminent impact of supply chain disruptions, particularly related to concerns about powder-coating in Pratt & Whitney (P&W) engines, stating, “The recent issue related to powder-coating related concerns in engines manufactured by Pratt & Whitney (P&W) is expected to lead to additional aircraft to be grounded by Q4 FY2024 of this fiscal – amounting to approximately 22-24% of the industry capacity.”

Despite ongoing challenges, the industry is gearing up for continued growth, with pending aircraft deliveries of around 1,500. However, supply chain bottlenecks at aircraft Original Equipment Manufacturers (OEMs) may result in a gradual addition of capacity. Furthermore, a significant portion of the fleet expansion is geared towards replacing older aircraft with more fuel-efficient models, maintaining a delicate balance between supply and demand.

In FY2023, Indian carriers accounted for approximately 42% of international traffic to and from India, indicating ample growth potential for these carriers in the global aviation landscape over the medium term.