India’s airlines industry, for the first time since the onset of the pandemic, is expected to be back in the black next fiscal. The sector is also likely to pare its net loss by 75-80 per cent on-year to ₹3,500-4,500 crore this fiscal, compared with ₹ 17,500 crore last fiscal. A strong recovery in passenger traffic and easing cost pressures supports this turnaround in airlines’ operating performance.

A CRISIL Ratings analysis of three airlines that account for 75 per cent of domestic air traffic indicates as much.

Domestic and international passenger traffic recovered to 90 per cent and 98 per cent, respectively, in the nine months through December of this fiscal, compared with the corresponding period of fiscal 2020 (pre-pandemic).

Business and leisure travel rebounded strongly, even as international scheduled services resumed. The festival season has accelerated recovery in the second half. This pace is likely to be maintained next fiscal, as the Indian economy remains resilient in the face of global headwinds.

The removal of fare caps is also helping airlines pass on the cost increases.

Says Gautam Shahi, Director, CRISIL Ratings, “Next fiscal, we expect passenger traffic to cross the pre-pandemic level and pricing to remain higher by 20-25 per cent over those levels. Consequently, airlines are expected to clock 25-30 per cent revenue growth next fiscal vis-à-vis pre-pandemic. That, along with expected moderation in average aviation turbine fuel prices will drive a significant turnaround in operational performance of airlines, enabling them to become profitable next fiscal.”

Profitability will also be aided by lower interest costs, driven by debt reduction owing to the privatisation of a large airline in the last quarter of the previous fiscal. Better operating performance and expected equity infusions would limit airlines’ reliance on debt (excluding lease liabilities) over the near-to-medium term.

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Says Kshitij Jain, Associate Director, CRISIL Ratings, “The aviation sector is also likely to raise equity of ₹ 8,000-10,000 crore over the next two fiscals, which will be utilised towards increasing fleet size and revamping the existing fleet. This will provide a much-needed boost to the capital structure. Consequently, dependence on incremental debt (excluding lease liabilities) for airlines would remain limited over the near-to-medium term, as major part of recent large fleet purchase orders by airlines are expected to be received from fiscal 2026 onwards, and thus support their credit profiles.”

Timely infusion of equity, a debt contracted for capex towards fleet expansion and a resurgence of Covid-19 cases due to the spread of any new virus strains, though, will remain key monitorable.