ICRA: Indian Aviation Industry To Report Net Loss Of ~Rs. 210 Billion

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A representational picture of aircraft at Bengaluru airport. Source: teamvtaviation/Instagram

ICRA on Thursday said that it expects the profitability of the Indian aviation industry to be adversely impacted in FY2021 due to lower revenues and high fixed costs.

ICRA said it estimates the industry to report a significant net loss of ~Rs. 210 billion in FY2021, against net loss of Rs. 127 billion in FY2020, with the industry debt level increasing to ~Rs. 500 billion (excluding lease liabilities) over FY2021-22 and the industry requiring additional funding of Rs. 350-370 billion over FY2021 to FY2023.

According to Kinjal Shah, Vice President, ICRA Limited: “The two listed airlines have together lost ~Rs. 31 crore per day during H1 FY2021. As the airlines gradually recommenced domestic operations, along with continued chartered and cargo operations, thereby resulting in significantly higher yields, their daily cash burn started reducing.”

Ms. Shah pointed out that this resulted in a lower daily loss of ~Rs. 26 crore for the two listed airlines in Q2 FY2021, against ~Rs. 37 crore in Q1 FY2021. “With a sequential improvement in domestic passenger traffic, and continued cost rationalisation initiatives by the airlines, further supported by the benign aviation turbine fuel (ATF) prices, the daily cash burn for airlines has further reduced in Q3 FY2021,” she said.

The recovery in domestic passenger traffic is contingent on the following five factors – containment of the spread of COVID-19, which in turn is dependent on the development of a vaccine and its wide availability, willingness of consumers to undertake leisure travel, recovery in macroeconomic growth, which in turn impacts consumer sentiments and ability to travel, Central and various state government-mandated travel restrictions and quarantine norms, and recovery in business travel.

The ongoing increase in the number of infections, and expectations of non-availability of a vaccine on a wide scale until H2 CY2021, will in turn continue to impact consumer willingness to travel and even business travel as businesses and corporates continue their work-from-home policy.

“ICRA thus expects FY2021 to witness a higher decline of 62-64% in domestic passenger traffic, than its earlier estimates of 41-46% decline. With this, the domestic passenger traffic will reach much lower than the FY2011 levels. The recovery in air travel is expected to be gradual once the COVID-19 threat is allayed,” Ms. Shah added.

ICRA Report Highlights:

  • ICRA expects the profitability of the Indian aviation industry to be adversely impacted in FY2021 due to lower revenues and high fixed costs. ICRA estimates the industry to report a significant net loss of ~Rs. 210 billion in FY2021, against net loss of Rs. 127 billion in FY2020, with the industry debt level increasing to ~Rs. 500 billion (excluding lease liabilities) over FY2021-22 and the industry requiring additional funding of Rs. 350-370 billion over FY2021 to FY2023
  • This resulted in a lower daily loss of ~Rs. 26 crore for the two listed airlines in Q2 FY2021, against ~Rs. 37 crore in Q1 FY2021. With a sequential improvement in domestic passenger traffic, and continued cost rationalisation initiatives by the airlines, further supported by the benign aviation turbine fuel (ATF) prices, the daily cash burn for airlines has further reduced in Q3 FY2021
  • Thus, ICRA expects the FY2021 international passenger traffic for Indian carriers to witness a significant YoY decline of ~88-89%, higher than its earlier estimates of ~67-72% decline
  • ICRA thus expects FY2021 to witness a higher decline of 62-64% in domestic passenger traffic, than its earlier estimates of 41-46% decline. With this, the domestic passenger traffic will reach much lower than the FY2011 levels. The recovery in air travel is expected to be gradual once the COVID-19 threat is allayed.

Aviation Industry On Recovery Path

The impact of the pandemic will be more profound and last longer on international travel compared to domestic travel. In addition to the above factors determining the recovery in passenger traffic, the recovery in international travel is also contingent on the opening up of scheduled international operations by the Government of India, the macroeconomic shock to the global economy and the government-mandated travel restrictions and quarantine norms of various countries.

“Thus, ICRA expects the FY2021 international passenger traffic for Indian carriers to witness a significant YoY decline of ~88-89%, higher than its earlier estimates of ~67-72% decline,” Ms. Shah said.

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SpiceJet’s Bombardier Q400 aircraft in Mumbai. Source: aviation.mumbai

Due to the low base of FY2021, the passenger growth in FY2022 for both domestic and international operations will be robust; however, it will still be significantly lower than even FY2016 levels.

ICRA Maintains Negative Stress

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 by way of equity infusion. ICRA has thus maintained its negative credit outlook on the Indian aviation industry.

 

 

 

 

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Aditya Anand
Deputy Editor, AviatorsBuzz Aditya Anand in his nearly two decades of Journalism experience has tracked Aviation, Travel, and Hospitality closely and reported on it for major publications like The Hindu, Mumbai Mirror, and MIDDAY.

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