Domestic air passenger traffic up by 23% in August ‘23

India’s domestic air passenger traffic for August 2023 witnessed a YoY growth of approximately 23%, with approximately 1.24 crore passengers, according to a report from credit rating agency ICRA. 

This figure exceeded pre-COVID levels, surpassing August 2019’s 1.18 crore passengers by 6%.

Compared to the preceding month, air traffic exhibited sequential growth of about 3.2%, with 1.21 crore passengers flying on domestic routes in July.

Icra also highlighted that capacity deployment during the reporting month expanded by 10% when compared to August 2022. However, it was marginally lower by 1% when measured against the pre-COVID levels of August 2019.

According to the ratings agency, the outlook for the domestic aviation industry is ‘stable.’ This optimism is grounded in the industry’s rapid recovery in domestic passenger traffic during the previous fiscal year, with expectations of this trend continuing into the current fiscal year. The industry’s improved pricing power, evidenced by better yields and the revenue per available seat kilometre – cost per available seat kilometre (RASK-CASK) spread of airlines, is a noteworthy development.

Icra anticipates this positive trend to persist due to the YoY decline in aviation turbine fuel (ATF) prices since April of the current year and relatively stable foreign exchange rates. However, the report does acknowledge that jet fuel prices remain elevated compared to pre-COVID levels.

Despite the robust recovery in air passenger traffic, the domestic aviation industry continues to grapple with challenges, primarily from high ATF prices and rupee depreciation against the US Dollar compared to pre-COVID levels. Both factors significantly impact the airlines’ cost structures.

The gradual nature of industry earnings recovery is attributed to the industry’s high fixed-cost structure. In FY23, the industry is estimated to have incurred a net loss of approximately INR 17,000-17,500 crore due to elevated ATF prices and the US dollar’s depreciation. However, this figure represents an improvement from the net loss of around INR 21,700 crore reported in FY2022. The airlines’ ability to bolster yields without deterring demand contributed to this improvement.

Looking ahead, Icra expects a significant reduction in net losses for FY24, projecting them to be INR 3,000-5,000 crore. This optimistic forecast is based on expectations of sustained and healthy passenger traffic growth, continued pricing discipline, and industry consolidation.

Source: Economic Times