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Airlines see traffic pick up, but are not yet out of the woods: Experts

Forum Gandhi Mumbai | Updated on August 17, 2021

Domestic air passenger traffic grew 132% on a y-o-y basis

With the government easing Covid curbs and increasing the operating capacity for airlines to 72.5, from 65 per cent now, and passenger traffic beginning to pick up, the aviation sector could see improvement by the end of the year.

According to credit rating agency ICRA, with 47,200 departures in July, the airlines’ capacity deployment was around 90 per cent higher than in the same month last year at 24,770. On a sequential basis, the number of departures in July was higher by 49 per cent.

A direct impact of the deployment of more aircraft could be seen on the domestic passenger traffic. It grew 56-57 per cent at around 48-49 lakh in July, compared to over 31.1 lakh in June. On a Y-o-Y basis, it was 132 per cent higher.

Kavita Chacko, senior economist, Care Ratings said that while travel continues to be strictly on need basis, “the rebound in domestic air travel has been better than expected in the last two months.”

Steady rise in passenger volume

Acuite Ratings said that a steady rise in domestic passenger volumes observed since June will help the airlines to reduce the losses. “As the risk of a third wave progressively reduces and the progress in vaccination happens, the operating cash flows of the airlines’ companies are set to see a distinct improvement over H2FY22,” it said.

However, according to Koushik Jagathalaprathaban, Partner, AT-TV, a consultancy firm, the skies will be clear for Indian airlines only when there is more relaxations on fares, capacity and international travel.

Another expert requesting anonymity said that he was worried about the passenger yields but “on an overall basis, I don’t think it could get worse,” he added.

Both IndiGo and SpiceJet have reported massive losses in the first quarter of FY22. On the other hand, almost all airlines are raising funds to tide through the pandemic. “Only once this is eased and the pandemic is under control, can there be durable improvements in domestic air travel. As far as international flights are concerned, it would be restricted to the bubble arrangement at least for the next two0three quarters,” Jagathalaprathaban said.

Analysts from ICICI securities said that as such, current times could be right for entry of new airlines, considering the significantly weaker balance sheet for incumbent airlines. However, capacity control of existing airlines and allowing new airline will be contrasting measures. Price regulation will also be a difficult exercise going ahead with increasing demand in festival season.

Published on August 16, 2021

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