The domestic airlines industry is set to fly into profitability for the first time since the COVID-19 outbreak in the next fiscal, amid easing cost pressures and reduction in leverage to support credit profile, said a report on March 1. expected to be filled.
According to a report by credit rating agency Crisil, the industry is likely to reduce its net loss by 75-80% year-on-year to Rs 3,500-4,500 crore in this fiscal, as against around Rs 17,500 crore in the previous financial year . ,
“A strong recovery in passenger volumes and easing cost pressures are driving this turnaround in the airlines’ operating performance,” Crisil said. The estimates are based on CRISIL rating analysis of three airlines that account for about 75% of domestic air traffic.
Domestic and international passenger traffic recovered by 90% and 98% respectively in the nine months to December of this fiscal compared to the same period in FY20 (before the pandemic).
Business and leisure travel has strengthened with the resumption of international scheduled services, it said and added that the festive season has accelerated the recovery in the second half.
Crisil Ratings said this momentum is likely to be sustained in the next fiscal as the Indian economy remains resilient to global headwinds. “Removal of fare cap is also helping airlines to increase costs,” it said.
“In the next financial year, we expect passenger volumes to cross pre-pandemic levels and pricing to be 20-25% higher than those levels. 30% revenue growth is expected.” -pandemic,” said Gautam Shahi, director, Crisil Ratings.
“With the expected reduction in average aviation turbine fuel prices, there will be a significant turnaround in the operating performance of airlines, enabling them to become profitable in the next financial year,” Mr Shahi said.
“Profitability will also be aided by lower interest cost, driven by reduction in debt due to privatization of a large airline in the last quarter of the last fiscal.”
In addition, better operating performance and expected equity inflows will limit airlines’ debt dependence (excluding lease liabilities) in the near- to medium-term.
Kshitij Jain, assistant director, Crisil Ratings, said: “The aviation sector is also likely to raise equity to the tune of Rs 8,000-10,000 crore over the next two financial years, which can be used to increase fleet size and retrofit existing fleets.” Will go.” “This will provide a much-needed boost to the capital structure,” he said.
Consequently, reliance on incremental debt (excluding lease liabilities) for airlines will be limited in the near- to medium-term, as the major portion of recent large fleet purchase orders by airlines are expected to be received from FY26, and this The type of credit profile in their support, as per Mr. Jain.
The rating agency, however, noted that timely infusion of equity, debt contracted for capex for fleet expansion and any resurgence of COVID-19 cases due to the spread of the new virus would remain key watchdogs.