Domestic aviation traffic is expected to see fast-paced growth with normalcy returning to operations and widening vaccination coverage, but this upturn will do little to aid airlines’ recovery. In its monthly sectoral update for the aviation industry, ratings agency ICRA notes that sharp escalation in aviation turbine fuel (ATF) prices and the prevalent inflationary pressures will dampen earnings recovery in the current fiscal.
Meanwhile, the upcoming relaunch of Jet Airways and the entry of budget airline Akasa Air will intensify competition in the Indian aviation market, forcing airlines to sacrifice margins for the sake of market share amid high fuel prices, ICRA says.
The agency has maintained a negative outlook on the Indian aviation industry in light of the current challenges to revival.
“Elevated ATF prices will continue to pose a major threat to earnings and liquidity profile of the airlines in the near to medium term. Also, the depreciation of the Indian rupee against the U.S. dollar (which adversely impacts lease rentals, maintenance cost and other overheads) will have a major bearing on the cost structure of airlines. This apart, likely near-term relaunch of Jet Airways and the entry of low-cost domestic carrier, Akasa Air, will further intensify the competition in the domestic aviation industry. The airlines’ effort to maintain and/or grow their market share will limit their ability to expand margins in an elevated fuel cost environment,” the agency states.
The aviation industry is expected to have reported a net loss of approximately ₹25,000-26,000 crore in FY22 on account of delayed recovery due to the third Covid-19 wave. Following this, the earnings recovery in FY23 will also be gradual due to steep rise in ATF prices. Fuel prices have been on fire since the beginning of this year as supply was hit following Russia’s invasion of Ukraine and subsequent sanctions against the former nation.
ICRA notes that while the airlines have been steadily raising air fares, the same has not been adequate to offset the impact of the sharp rise in ATF prices. Going further, the agency expects a positive impact of civil aviation ministry’s decision to remove restrictions on air fare from August 31, as airlines will then be able to pass on the escalated input costs to consumers through fare hikes.
However, airlines will be wary of sharply hiking air fares in order to strike a balance between projected intense competition in the near term and efforts to maintain their market shares, it says.
In ICRA’s view, air traffic yields (as measured in passenger revenue per kilometre) have increased 25-30% over the pre-Covid levels on domestic routes. It expects the industry aggregate loss to moderate to ₹14,000-16,000 crore in FY23 with the help of expected recovery in passenger traffic and lower interest burden following the significant reduction in Air India Limited’s debt post-disinvestment. Overall, the industry will require an additional funding support of ₹20,000-22000 crore between FY22 and FY24.
17/08/22 FortuneIndia.com
To Read the News in full at Source, Click the Headline
0 comments:
Post a Comment