Domestic air traffic to rise to 164-170 million in FY25: Icra

Domestic air traffic is projected to rise 7-10% to 164-170 million in the current fiscal year, while the aviation industry's loss is pegged at ₹2,000-3,000 crore during the same period, according to rating agency Icra.

In the first half of 2024-25, Icra said domestic air passenger traffic stood at 79.3 million, marking a 5.3% annual growth that was partly impacted by the severe heat wave and other weather-related disruptions.

The international passenger traffic growth for Indian carriers increased and stood at 16.2% in the first half of the current financial year.

On Tuesday, the rating agency said domestic air traffic is expected to jump 7-10% on an annual basis to 164-170 million in FY2025.

Icra maintained a 'stable' outlook on the Indian aviation industry, amidst continued growth in domestic and international air passenger traffic.

Kinjal Shah, Senior Vice President & Co-Group Head at Icra, said the industry is expected to report a net loss of ₹20-30 billion in FY2025 and FY2026 each, significantly lower than the losses witnessed in the past supported by improved pricing power of the airlines.

"The spread between revenue per available seat kilometre and cost per available seat kilometre saw some moderation in H1 FY2025 over FY2024 due to higher fuel prices and overall increased costs amid grounding of aircraft, while yields moderated marginally as airlines strove to maintain adequate passenger load factors.

"Nonetheless, the same is expected to pick up in H2 FY2025, amid healthy passenger traffic," Shah said.

Airlines' cost structure is typically driven by two key components, Aviation Turbine Fuel (ATF) prices and the INR-USD movement.

On a year-on-year basis, Icra said average ATF prices eased by 6.8% to ₹96,192/KL in the first eight months of FY2025, though exceeding the levels seen during the pre-Covid period (first eight months of FY2020) of ₹65,261/KL.

Fuel costs account for around 30 to 40% of an airline's costs, while about 35-50% of the operating expenses, including aircraft lease payments, fuel expenses and a significant portion of aircraft and engine maintenance expenses are denominated in dollar terms.

"Some airlines also have foreign currency debt. While the domestic airlines also have a partial natural hedge to the extent of earnings from their international operations, overall, they have net payables in foreign currency," the rating agency said in a release.