Indian aviation industry losses to swell to Rs 210 billion in FY21: ICRA
Mumbai/IBNS: The profitability of the Indian aviation industry is estimated to be adversely impacted in FY2021 with a significant net loss of approximately Rs 210 billion, against net loss of Rs 127 billion in FY2020 with the industry debt level increasing to approximately Rs 500 billion (excluding lease liabilities) over FY2021-22, credit rating agency ICRA said in a report.
The credit rating agency said the industry could require an additional funding of Rs 350-370 billion over FY2021 to FY2023.
“The two listed airlines have together lost nearly 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. This resulted in a lower daily loss of around Rs. 26 crore for the two listed airlines in Q2 FY2021, against approximately Rs 37 crore in Q1 FY2021," said Kinjal Shah, Vice President, ICRA Limited.
"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,” Shah added.
The rating agency said 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 said.
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, ICRA said.
“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,” Shah added.
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.
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.