Domestic air traffic to rise 11% in Oct as leisure, biz travel increases

Domestic air passenger traffic is expected to rise 11 per cent year-on-year (YoY) in October, reaching 126.4 lakh compared to around 114 lakh in October 2022, according to the rating firm ICRA. 

On a sequential basis, domestic air passenger traffic growth is expected up 3.2 per cent compared to 122.5 lakh in September 2023 and 3 per cent higher than pre-Covid levels of 123 lakh in October 2019.

According to ICRA, in the 7 months of FY24 (April-October 2023), domestic air passenger traffic reached approximately 879.93 lakh, showcasing a year-on-year (YoY) growth of 19 per cent compared to 740.75 lakh reported in the same period last year. 

 

ICRA

 

The traffic is also about 6 per cent higher than the pre-Covid levels in the same period (April-October 2019), which recorded 826.73 lakh.

The rating agency gave a Stable outlook for the Indian aviation industry “on the back of the fast-paced recovery in domestic passenger traffic in FY2023 and 7M FY2024; and expectations of the trend continuing in the remaining five months of FY2024 owing to the upcoming festive season.”

The rise in both leisure and business travel, coupled with a decline in crude oil prices and capacity deployment, is expected to add to the growth in passenger traffic.

ICRA

Jet fuel prices to drop by 6 per cent in November 

According to the rating agency, in November 2023, aviation turbine fuel (ATF) prices dropped by 6.0 per cent to 112,683/KL and were also lower by 8.3 per cent on a year-on-year basis.

Post the pandemic, crude oil prices experienced a significant drop, reaching a low of around $19 per barrel in April 2020, marking the sharpest decline since Q4 CY2018. While crude oil prices gradually increased afterwards, currently standing at approximately $80 per barrel, this uptick is attributed to geopolitical tensions, said ICRA. 

In FY23, the average ATF prices were Rs 121,013/KL, while in the first 8 months of FY24, they stood at Rs 103,189/KL. This is a contrast from the pre-Covid level of Rs. 65,368/KL in FY20.

ICRA

Jet fuel prices exhibited a sequential decline since April 2023, but this trend shifted in July 2023 when prices began to rise. There was a 1.3 per cent year-on-year increase in October 2023.

“Despite a healthy recovery in air passenger traffic, the domestic aviation industry continues to face challenges from elevated Aviation Turbine Fuel (ATF) prices and depreciation of the rupee vis-à-vis the US dollar compared to pre-Covid levels, both of which have a major bearing on the airlines’ cost structure,” said ICRA. 

Fuel costs make up approximately 30-40 per cent of airlines' expenses, with around 45-60 per cent of total operating expenses, including aircraft lease payments, fuel, and a significant portion of maintenance expenses, denominated in dollars. Some airlines also have foreign currency debt.

According to the rating agency, while domestic airlines partially hedge through international earnings, their net payables remain in foreign currency. To enhance profitability margins, airlines' success in implementing fare hikes proportionate to input cost increases is crucial.

Rise in daily traffic 

In October 2023, the average daily departures reached approximately 2,910, an increase from the average daily departures of around 2,703 in October 2022 but lower than the pre-Covid level of around 3,031 in October 2019, said ICRA. Sequentially, it exceeded the average daily departures of approximately 2,861 in September 2023. 

The average number of passengers per flight in October 2023 was 140, slightly lower than the 143 passengers per flight in September 2023 but higher than the 136 passengers per flight in October 2022 and significantly higher than the pre-Covid levels of around 123 in October 2019. 

On April 17, 2022, domestic passenger traffic surpassed 4,00,000, marking the first time the daily passenger count exceeded this milestone since the onset of the pandemic. By April 30, 2023, daily passenger traffic surged to 4,56,082, surpassing previous historic highs

The estimated passenger load factor (PLF) for the domestic aviation industry in October 2023 was around 86 per cent, marking an improvement from approximately 83 per cent in October 2022 and 84 per cent in October 2019.

Capacity development post Covid-19

In October 2023, the capacity deployment was around 8 per cent higher than in October 2022, with 90,223 departures compared to 83,789, according to the ICRA report.  While this marked a 5.1 per cent sequential increase, it was approximately 4.0 per cent lower than the pre-Covid departures of 93,950 in October 2019.

ICRA

Amid the onset of the COVID-19 pandemic, the Ministry of Civil Aviation (MoCA) initially limited airlines' permissible capacity deployment on domestic routes to 50 per cent of pre-Covid levels, effective June 1, 2021. 

The gradual increase in capacity deployment led to the removal of restrictions from October 18, 2021. 

Aviation Industry losses to narrow 

In FY23, the industry reported a net loss of approximately Rs 170-175 billion, an improvement from Rs. 217 billion in FY2022, noted the agency. This reduction is attributed to airlines enhancing yields without dampening demand. As per ICRA, the net loss is anticipated to further decrease to Rs 30-50 billion in FY2024, supported by healthy passenger traffic growth and pricing discipline amid ongoing industry consolidation.

“While some airlines have adequate liquidity and/or financial support from a strong parent, supporting their credit profile, the credit metrics and liquidity profile of the others will remain under stress over the near term, despite some improvement relative to the last few years, said the rating agency. 

Notably, Go Airlines (India) Limited faced challenges with faulty Pratt & Whitney engines, resulting in payment defaults and insolvency filing. The National Company Law Tribunal (NCLT) imposed a moratorium on Go First's assets, preventing lessors from repossessing aircraft. Despite legal challenges, the Supreme Court dismissed Go First's plea. The airline also lost its IATA code.