Suprio Banerjee, Vice President & Sector Head – Corporate Ratings, ICRA Limited
“The domestic air passenger traffic for June 2023 is estimated at ~125.2 lakh, lower by ~5% in comparison to 132.1 lakh in May 2023. However, it witnessed a YoY growth of ~19% in comparison to ~105 lakh in June 2022 and 4% higher than pre-Covid levels of ~120 lakh in June 2019.
For Q1 FY2024 (April-June 2023), the domestic air passenger traffic stood at ~385.68 lakh, reflecting a YoY growth of 19% over Q1 FY2023 (April-June 2022), wherein the traffic stood at 324.24 lakh and ~10% higher than pre-Covid levels (i.e., April-June 2019) of 351.08 lakh.
The airlines’ capacity deployment in June 2023 was higher by ~1% than that of June 2022, but it was lower by 4.8% in comparison to the pre-Covid levels (June 2019). It is estimated that the domestic aviation industry operated at a passenger load factor (PLF) of ~93% in June 2023, against ~79% in June 2022 and ~89% in June 2019 (pre-Covid levels).
Despite a healthy recovery in passenger traffic, the domestic aviation industry continues to face challenges on account of elevated ATF prices and depreciation of the INR vis-à-vis the US$ compared to the pre-Covid era, both of which have a major bearing on the airlines’ cost structure. However, ATF prices have witnessed a sequential decline over the past five months till June 2023. In July 2023, the prices witnessed a marginal sequential increase of 2%. However, on a Y-o-Y basis, it remained lower by 34% over July 2022. Nevertheless, the same remains at elevated levels when compared to the pre-Covid era. The airlines’ efforts to ensure fare hikes proportionate to their input cost increases will be key to expanding their profitability margins.
In addition, supply-chain challenges being faced by airlines, which include the availability of spare parts and engine issues, have recently plagued the sector, resulting in the grounding of certain aircraft for some airlines, thus impacting their overall capacities. This also negatively impacts the airlines’ cash flow generation, given the business’s high fixed-cost nature.”