The Indian aviation industry will witness revenue de-growth of 44 per cent in FY2021. Overall, the industry will witness 41-46 per cent de-growth in domestic passenger traffic and 67-72 per cent de-growth in international passenger traffic for the Indian carriers in FY2021, said ICRA on Thursday.

The profitability of the industry will also be adversely impacted in FY2021 due to lower revenues and high fixed costs (35-42 per cent of the total cost of airlines).

ICRA, the credit rating agency in a webinar on Thursday spoke about its forecast on the Indian aviation industry with an aggregate of Air Asia India Ltd, Air India Ltd, Go Airlines Ltd, Interglobe Aviation Ltd, Tata SIA Airlines Ltd and Spicejet Ltd.

Kinjal Shah, Vice President, ICRA, said: “Considering the daily net loss of ₹75-90 crore during the shutdown of operations and the expected weak demand, the Indian aviation industry will require additional funding of ₹325-350 billion over FY2021-23. The industry level debt is expected to increase to ₹465 billion over FY2021-22.”

In view of the Covid-19 outbreak, domestic travel has been ceased with effect from March 25. This has had a severe impact on air travel, with the domestic passenger traffic witnessing a YoY de-growth of 33 per cent. The domestic passenger traffic in FY2020 witnessed a seven-year low growth of 0.7 per cent.

Unlike the previous years where the Indian carriers outperformed the industry growth, during 10M FY2020, the Indian carriers, with a YoY de-growth of 8.3 per cent in passenger traffic, underperformed the industry. For FY2020, the international passenger traffic for the Indian carriers is expected to have YoY de-growth of 13.5 per cent

While some airlines have sufficient liquidity and/or financial support from a strong parentage, which will help them sustain over the near term, some airlines, which were already in financial stress, are facing existential crisis. Furthermore, even for the former, it has resulted in significant weakening of their credit metrics and liquidity profile.

Many airlines have already started undertaking salary cuts for their employees, including leave without pay and laying off pilots and crew members to cut costs. However, until the cash inflows resume, the airlines will require funding support to meet their expenses.

Also, the directives from the Directorate General of Civil Aviation (DGCA) to refrain from booking tickets until further notice and providing full refund on cancellation of those tickets which were booked between March 25 to April 14 (first lockdown period) for travel either in the first lockdown period or the second (April 15 to May 03) for both domestic and international travel without levy of cancellation charge, is resulting in further cash flow pressures for the airlines.

For all other domestic and international bookings which have to be cancelled due to Covid, the airlines have offered a credit shell with a validity of one year. Thus, even when the operations resume and passengers start flying, a large percentage of passengers may be using these credit shells, and which may not bring any significant additional cash inflows.

“Thus, the liquidity position of airlines has deteriorated sharply due to the high fixed costs and accumulated liabilities from sold but not flown tickets. Overall, the credit profile of domestic airlines will weaken materially over the near-term,” added Shah.