January 14 Airlines are expected to report “record losses” this fiscal to ₹20,000 crore — 44 per cent more than the ₹13,853 crore it reported in FY21— owing to the twin headwinds of the third wave of the Covid-19 pandemic and high aviation turbine fuel (ATF) prices, a report by CRISIL said. 

However, the third wave has already caused domestic air traffic to plummet 25 per cent in the first week of January. 

A similar trend was observed during the second wave in April and May 2021, when air traffic declined 25 per cent and 66 per cent respectively, on a sequential basis.

According to the agency, which analysed the financials of India’s three large listed airlines ― IndiGo, SpiceJet, and Air India ― that have a 75 per cent market share between them, the sector is expected to see delayed recovery - beyond next fiscal and most likely “beyond fiscal 2023”.

Domestic air traffic had seen a swift recovery after the second Covid wave and reached 86% of the pre- Covid level in December 2021 (compared with December 2019. Regular international flights were expected to start after January 2022. 

The continued suspension of scheduled international flights further hurts the sector as international routes are generally more profitable. 

“The three large listed airlines have already reported a net loss of ₹11,323 crore in the first half of fiscal 2022. The sharp jump in domestic air traffic would have cushioned the losses in the third quarter, but the net loss will increase significantly in the fourth quarter as the third wave has brought back travel restrictions and flight cancellations,” Nitesh Jain, Director, CRISIL Ratings, said. 

Domestic passenger load factor (PLF), a key operating metric, improved to 80 per cent in December 2021 from 50 per cent in May 2021, driven by increasing passenger traffic. 

Although PLF improved, it remained significantly lower than 88-90 per cent in the pre-pandemic times leading to persistent operating losses, the CRISIL report added. 

The agency, in its report, said ATF prices had hit an all-time high of ₹83 per litre in November 2021, rising from an average price of ₹44/litre in fiscal 2021 and ₹63/litre in April-June 2021. While ATF prices declined 6-8 per cent in December 2021 and January 2022 because of reduced value-added tax by various states, they remain high at ₹77-78 per litre.

Persistent operating losses led to a 35 per cent increase in debt (excluding lease liabilities) to above ₹54,000 crore from March 2020 to September 2021. Continuing net losses will keep balance sheets stretched, leading to a negative outlook on the sector.

While the increasing Covid-19 infection will sharply impact air traffic over the next few weeks, CRISIL Ratings expects a swift recovery from March 2022 onwards.

“In the milieu, airlines are likely to continue to conserve cash, including deferring maintenance as well as major capital expenditure, while renegotiating leases of aircrafts and keeping a leash on other fixed costs. Besides sustenance of cost control measures, a prolonged third wave, onset of newer variants are a competitive intensity with launch of new airlines are downside risks,” the report said. 

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