Domestic air passenger traffic is estimated at 132.8 lakh (1.32 crore) in June 2024, 6.3% up on a YoY basis and 3.7% lower than 137.9 lakh in May 2024. The airlines’ capacity deployment in June 2024 was also higher than in June 2023 by 7% and lower by 3% over May 2024, the aviation industry data shows.
For Q1 FY2025, the total domestic air passenger traffic was recorded at 402.7 lakh, up 4.4% YoY. Further, for 2M FY2025, the international traffic for Indian carriers stood at 53.4 lakh, up 17.5% YoY.
Releasing the data today, the ratings agency ICRA says its outlook on the Indian aviation industry is "Stable", amid the continued recovery in air traffic, with a relatively stable cost environment and expectations of the trend continuing in FY2025. "Moreover, the industry witnessed improved pricing power, reflected in the higher yields (over pre-Covid levels) and, thus, the revenue per available seat kilometre–cost per available seat kilometre (RASK–CASK) spread of the airlines," ICRA says.
Despite a healthy recovery in air traffic and improvement in yields, the movement of the latter will remain monitorable amid elevated aviation turbine fuel (ATF) prices and depreciation of the INR vis-à-vis the USD over pre-COVID levels, says ICRA. Both of these two factors have a major bearing on the airlines’ cost structure.
Average ATF prices stood at ₹103,499/KL in FY2024, lower by 14% than ₹121,013/KL in FY2023, but significantly higher by 58% than the pre-Covid level of ₹65,368/KL in FY2020. In Q1 FY2025, the average ATF price of ₹100,776/ KL was higher by 5.4% on a YoY basis. In July 2024, the average ATF price was 97,067/ KL, higher by 0.6% on a sequential basis and higher by 4.8% on a YoY basis.
Fuel cost accounts for 30-40% of the airlines’ expenses, while 45-60% of the operating expenses—including aircraft lease payments, fuel expenses and a significant portion of aircraft and engine maintenance expenses—are denominated in dollar terms.
In terms of recovery, ICRA says it's going to be "gradual" for the domestic aviation industry, primarily due to the high fixed-cost nature of the business. “The Indian aviation industry is expected to report a similar net loss of ₹30-40 billion in FY2025 as seen in FY2024, though significantly lower than ₹170-175 billion in FY2023.”
Supply chain challenges and engine failure issues have also impacted capacity availability, leading to increased operating expenses, lease rentals, lease rates, and lower fuel efficiency.
In FY2024, Go Airlines (India) grounded half of its fleet due to faulty P&W engines, thus stalling its operations. InterGlobe Aviation (IndiGo) also grounded more than 70 aircraft due to the P&W engine issue. “It is estimated that 24-26% of the total fleet of Indian airlines in operations was grounded by March 31, 2024,” says the ratings agency.
ICRA says considering the bulk recall of the engines globally by P&W and other existing issues with the original equipment manufacturer’s (OEM’s) engines, the testing by P&W is likely to take longer, around 250-300 days. "This will result in increased operating expenses towards the cost of grounding, increased lease rentals due to additional aircraft being taken on lease to offset the grounded capacity, rising lease rates and lower fuel efficiency."
Besides, some airlines are also facing financial distress and stretched liquidity issues. "The credit metrics and liquidity profile of others will remain under stress over the near term, despite some improvement relative to the last few years."
