In the near term, the balance sheets of Indian carriers will remain stressed until the carriers are able to reduce their debt burden.
By A Correspondent
ICRA expects domestic air passenger traffic to witness a strong Y-o-Y growth of ~50-55% in FY2022 supported by the fast pace of vaccination and gradual relaxations in restrictions by the regulatory authorities. However, this recovery will be on a much lower base of FY2021 Also this will be significantly lower than pre-Covid levels, given the recovery to pre-Covid levels is expected by FY2024.
Throwing more light on the industry trends and the outlook in the near to medium term, Mr. Suprio Banerjee, Vice President and Sector Head, ICRA Limited, says, “With the onset of the second wave of the pandemic and the later emergence of the Omicron variant, the recovery in passenger traffic remained gradual, in the current fiscal. Further, elevated aviation turbine fuel (ATF) prices (higher by ~68% on Y-o-Y basis in 11M FY2022) and continued fare caps continue to pose a major challenge for the profitability of the airlines. Thus, the Indian aviation industry[1] is expected to report a net loss of ~Rs 250-260 billion in FY2022 as per earlier estimates of ICRA. However, expected commencement of scheduled international operations and the waning ‘Omicron’ wave, will result in a notable recovery in passenger traffic in FY2023. Coupled with lower debt levels, estimated to reduce to ~Rs. 1000 billion (including lease liabilities) in FY2022 driven by notable reduction in debt levels in Air India Limited before the stake sale, the net losses are likely to reduce to ~140-160 billion in FY2023. This is even though airlines will have to pay much higher fuel bills in FY2023 owing to sharp rise in crude oil prices amidst rising geo-political development surrounding the Russia-Ukraine conflict. Accordingly, it is estimated that the industry will require an additional funding in the range of Rs. 200-220 billion over FY2022 to FY2024.”
The recovery in domestic air passenger traffic is expected to be supported by pent up demand in the leisure travel segment and gradual recovery in business travel as corporate offices move towards the resumption phase, post the third wave. The impact of the pandemic has been more profound and long lasting on international travel, compared to domestic travel, with scheduled international operations still under suspension.
In the near term, the balance sheets of Indian carriers will remain stressed until the carriers are able to reduce their debt burden through a combination of improvement in operating performance and / or through equity infusion. While debt reduction in FY2022 is largely driven by notable reduction the debt level in Air India Limited before its stake sale, ICRA continues to maintain its Negative credit outlook on the Indian aviation industry, given the elevated ATF prices, overhang of the recent Covid wave and continued suspension of scheduled international travel.
