Indian Airlines Forecasts to Reduce Net Losses, Grounding of Planes Continues
Indian Airlines Forecasts to Reduce Net Losses, Grounding of Planes Continues

Indian airlines are anticipated to announce a reduced net loss of Rs 3,000 to 4,000 crore in the ongoing and upcoming financial years, thanks to robust growth in passenger traffic and pricing stability, as per a report released on Monday. In February, the domestic air passenger traffic was estimated to be around 127.5 lakh, according to the credit rating agency Icra.

The aviation industry has been facing challenges in its supply chain and dealing with issues related to Pratt & Whitney (P&W) engines. IndiGo, for instance, had to ground over 70 planes due to problems with P&W engines.

The report predicts that by March 31, 2024, approximately 24-26 percent of the total fleet of Indian airlines will be grounded. This is attributed to the global recall of engines by P&W and other ongoing engine-related issues, leading to prolonged testing periods ranging from 250 to 300 days.

Despite these challenges, the report suggests that the industry's earnings recovery will be gradual due to its high fixed-cost nature. It anticipates a significant reduction in net loss to "Rs 30-40 billion in FY2024 and FY2025" as airlines continue to see healthy growth in passenger traffic and maintain pricing stability.

The aviation sector faced a net loss of Rs 170-175 billion in FY2023 due to high aviation turbine fuel (ATF) prices coupled with the depreciation of the Indian Rupee against the US Dollar. However, this was an improvement from the net loss of Rs 217 billion in FY2022, driven by airlines' ability to increase yields without affecting demand.

Icra provides a stable outlook for the Indian aviation industry, citing ongoing recovery in domestic and international air passenger traffic, a relatively stable cost environment, and expectations of this trend continuing into FY2025. Despite the grounding of aircraft leading to increased operating expenses, Icra believes that healthy yields, high passenger load factors, and partial compensation from engine Original Equipment Manufacturers (OEMs) will help mitigate the impact to some extent.

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