Domestic airlines industry may see up to Rs 17,000 cr loss in FY23: Report

The domestic airlines industry is projected to post a loss of Rs 15,000-17,000 crore in the current fiscal as their financial performance is likely to remain under pressure in the near term, a report said on Friday.

Credit rating agency ICRA said the recovery in domestic passenger traffic has been healthy but elevated Aviation Turbine Fuel (ATF) prices will continue to pose a major threat to earnings and the liquidity profile of the airlines in the near-to-medium term.

The domestic passenger traffic grew around 26 per cent year-on-year to about 114 lakh in October. In the year-ago period, the number was at 90 lakh passengers.

However, the latest October figure remained 8 per cent lower when compared to the pre-pandemic traffic level, the rating agency said in a report.

ICRA has a negative outlook on the domestic aviation industry.

According to the report, the depreciation of the Indian rupee against the US dollar will have a major bearing on the airlines' cost structure. The debt levels, including lease liabilities, are expected to be around Rs 1,00,000 crore in the ongoing financial year.

The airlines' efforts to maintain and/or grow their market share will limit their ability to expand margins in an elevated fuel cost environment, which will pose a serious challenge to industry's earnings recovery in FY23, the report said.

"While a meaningful improvement in passenger traffic is expected in FY2023, the pace of recovery in the industry earnings will be sluggish and the industry is expected to incur a net loss of around Rs 150-170 billion owing to elevated costs.

"However, this will be notably lower compared to the estimated net loss in FY2022, primarily driven by recovery in passenger traffic and lower interest burden, following the significant reduction in Air India Limited's debt before the divestment by the Government of India," ICRA said.

Further, it said the hardening of airfares driven by strong cost headwinds and recent issue of supply disruptions for spares and components will further cripple capacity deployment.

Lately, the airlines have been steadily raising air fares but the same has not been adequate to offset the impact of the sharp rise in ATF prices, it said.

In ICRA's view, the domestic yields for H1 FY2023 are expected to have increased by around 30-35 per cent over the pre-Covid levels.

In addition to the surge in airfares, delays in delivery of components and spares for aircraft and engines have been lately impacting the sector, thereby leading to grounding of certain aircraft for some domestic airlines.

The airlines are in discussions with the Original Equipment Manufacturers (OEMs) for easing the supply issues and are also looking at leasing of aircraft, including wet lease, to counter capacity constraints during the upcoming winter holiday season, it added.