Overview
The domestic airline industry is anticipated to observe a 11-14% downturn in operating profits, ranging from ₹20,000-21,000 crore this fiscal, a drop from ₹23,500 crore achieved last fiscal. This decrease is attributed to weak demand witnessed in the first quarter, alongside an expected reduction in yields. This trend runs counter to the robust recovery noted over the last three fiscals following the COVID-19 pandemic.
Key Insights
Despite the lower operating profits, the credit profiles of the airlines are likely to remain stable owing to healthy liquidity and planned equity injections from certain airlines.
Three airline groups, which collectively represent over 90% of India’s air traffic, indicate these trends. The first quarter showed disruptions due to:
- Increased tensions along India’s western borders leading to airport closures.
- A major aircraft incident in June that diminished demand and triggered capacity reductions under stricter safety checks.
This resulted in passenger traffic growth slowing to 5.2% compared to 7.1% year-on-year in the same quarter last year.
However, growth is projected to recover in the latter half of the fiscal year, accounting for 50-55% of total annual traffic, with an expected growth rate between 7-9% aligning with last fiscal’s 8.1% growth.
Quotes
Gautam Shahi, Director at Crisil Ratings, notes:
“Despite steady traffic growth, sustaining the passenger load factor will come at a cost—that of a moderation in yields this fiscal, primarily due to weak demand in the first quarter. Passenger yield is expected to decrease by 2-4%, contrasting with a 3% increase last fiscal.”
Vinit Patil adds:
“Given the fleet expansion, we predict net debt (including lease liabilities) in the airline sector to increase by 10% year-on-year to ₹1.1 lakh crore by March 2026.”
Financial Projections
| Particulars | FY24 | FY25 | FY26P | YoY Change |
|---|---|---|---|---|
| Passengers Carried (Crore) | 22.3 | 24.1 | 25.8-26.2 | 7% to 9% |
| 15.4 | 16.4 | 17.4-17.6 | 6% to 7% | |
| Yield (Rs/seat km) | 5.8 | 6.0 | 5.75-5.85 | -2% to -4% |
| Fuel Cost (Rs/seat km) | 1.96 | 1.78 | 1.60-1.64 | -8% to -10% |
Note: P = Projected
Source: DGCA, Annual airline financials, Crisil Ratings analysis.
