Indian Aviation Sector To Report Net Loss Of Rs 30-40 Bn In FY25: Icra

The rating agency Icra expects the Indian aviation industry to report a similar net loss of Rs 30 to 40 billion in FY2025 as seen in FY2024, which is significantly lower from levels of Rs 170 to 175 billion in FY2023.

The rating agency stated that supply chain challenges, engine failure issues, and crew and pilot availability remain near-term headwinds. The airlines’ ability to raise yields proportionate to their input cost increases will be key to expanding their profitability margins, it added.

Icra's outlook on the Indian aviation industry is Stable, amid the continued recovery in domestic and international air passenger traffic, with a relatively stable cost environment and expectations of the trend continuing in FY2025. 

Moreover, the industry witnessed improved pricing power, reflected in the higher yields (over pre-Covid levels) and thus, the revenue per available seat kilometre–cost per available seat kilometre (RASK–CASK) spread of the airlines. 

The momentum in air passenger traffic witnessed in FY2024 is expected to continue into FY2025, though further expansion in yields from the current levels may be limited.

Despite a healthy recovery in air passenger traffic and improvement in yields, the movement of the latter will remain monitorable amid elevated aviation turbine fuel (ATF) prices and depreciation of the INR vis-à-vis the USD over pre-Covid levels, both of which have a major bearing on the airlines’ cost structure. 

Icra added that average ATF prices stood at Rs. 103,499/KL in FY2024, which was lower by 14 per cent than Rs 121,013/KL in FY2023, but significantly higher by 58 per cent than the pre-Covid levels of Rs. 65,368/KL in FY2020. In Q1FY2025, the average ATF price remained higher by 5.4 per cent on a YoY basis. In June 2024, it declined by 6.5 per cent sequentially.

Fuel cost accounts for 30 to 40 per cent of the airlines’ expenses, while 45 to 60 per cent of the operating expenses—including aircraft lease payments, fuel expenses and a significant portion of aircraft and engine maintenance expenses—are denominated in dollar terms. Further, some airlines have foreign currency debt. 

While domestic airlines have a partial natural hedge to the extent of their earnings from international operations, overall, their net payables are in foreign currency. The airlines’ efforts to ensure fare hikes, proportionate to their input cost increases, will be the key to expanding their profitability margins, it added.