Indian Aviation Expects 8-13% Surge in Domestic Passengers: ICRA Report

Despite grappling with supply chain challenges and engine failures, the Indian aviation industry is poised for significant growth in the coming years, as per a recent report by ICRA, a leading credit rating agency.

ICRA's report predicts an impressive 8-13% surge in domestic air passenger traffic for the fiscal year 2024, surpassing pre-COVID levels. The momentum is expected to persist into FY2025, driven by increasing demand for both leisure and business travel, coupled with improvements in airport infrastructure.

Indian carriers are anticipated to witness a robust rebound in international passenger traffic, with estimated year-on-year growth rates of 7-12% for FY2024 and FY2025, surpassing pre-pandemic levels.

The report also forecasts a significant decline in the industry's net loss, which is expected to be in the range of Rs 30-40 billion for FY2024 and FY2025, compared to Rs 170-175 billion in FY2023.

ICRA maintains a Stable outlook on the Indian aviation industry, citing a continued recovery in domestic and international air passenger traffic and a relatively stable cost environment.

Suprio Banerjee, Vice President and Sector Head - Corporate Ratings, ICRA Limited, highlighted the industry's improved pricing power, reflected in increased yields and favorable spreads. The report expects this trend to continue, aided by a decline in aviation turbine fuel (ATF) prices and stable foreign exchange rates.

Despite facing challenges, the industry's net loss is projected to significantly decrease due to lower ATF prices and a stable cost environment. The average ATF price witnessed a YoY decline of 15% in 11M FY2024.

However, the report notes that the industry is grappling with supply chain challenges, with engine failures impacting nearly 20-22% of the total industry fleet as of September 30, 2023. Powder-coating-related concerns in engines are expected to result in additional grounding of aircraft in Q4 FY2024, affecting 24-26% of the industry's capacity by March 31, 2024.

The Indian aviation industry currently has a total order book of 1,700 aircraft, but deliveries are expected to be gradual over the next decade, influenced by supply chain challenges faced by engine and aircraft manufacturers. Despite these hurdles, the industry remains poised for growth, driven by increased passenger traffic and favorable economic factors.