Indian aviation industry is set to fly high

The Indian aviation sector is experiencing a robust recovery, with domestic air passenger traffic on the rise in H2 FY24. Icra, a leading rating agency, predicts a positive outlook for the industry in the second half of the fiscal year 2023-24. In September, domestic air passenger traffic is estimated to reach 12.3 million, according to ICRA’s prediction. While this is 1.3% lower than August, it is nearly 19% higher than the year-ago period and around 7% more than the pre-covid level of September 2019. In the period from April to September, domestic air traffic saw a 7% increase compared to the same period in 2019.

This positive momentum is attributed to steady growth in passenger traffic, pricing discipline, and industry consolidation. Despite challenges like fuel costs and currency fluctuations, the Indian aviation sector is poised for a promising future.

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ICRA’s estimations indicate that the Indian aviation industry is on a positive trajectory. In September, domestic air passenger traffic is expected to reach approximately 12.3 million. While this is a 1.3% dip from August, it’s crucial to note that this figure represents a remarkable 19% increase compared to the same period last year. Even more impressively, it is around 7% higher than the pre-Covid levels witnessed in September 2019. The April-September period has seen domestic air traffic surge by 7% when compared to the corresponding period in 2019.

“Icra’s outlook on the Indian aviation industry is stable on the back of the fast-paced recovery in domestic passenger traffic in FY2023 and H1 FY2024 and expectations of the trend continuing in H2 FY2024. Moreover, the industry witnessed improved pricing power, reflected in the improved yields and thus the revenue per available seat kilometre – cost per available seat kilometre (RASK-CASK) spread of the airlines,” said the rating agency.


Amidst this recovery, the Indian aviation industry continues to grapple with significant challenges. One major hurdle is the elevated prices of aviation turbine fuel, a crucial component accounting for roughly 30-40% of airlines’ expenses. Additionally, the depreciation of the Indian rupee against the US dollar compared to pre-Covid levels presents a substantial challenge. 

A large portion of airlines’ operating expenses, including aircraft lease payments, fuel expenses, and a significant share of aircraft and engine maintenance expenses, are denominated in US$. This currency fluctuation impacts the airlines’ cost structure significantly.

Furthermore, the average price of jet fuel has surged in recent times. In 2022-2023, the average price stood at ₹ 121,013 per kiloliter, and in the current fiscal year, it has maintained an average of ₹ 101,833 per kiloliter, compared to the pre-Covid average of ₹ 65,368 per kiloliter. This increase has prompted Indian airlines to impose fuel surcharges on airfares to offset the rising fuel costs.

Despite these challenges, Indian airlines are proactively striving to bolster their profitability margins. Their focus is on ensuring that fare hikes are commensurate with the increases in input costs. It’s important to highlight that domestic airlines have a partial natural hedge to the extent of earnings from their international operations. 

However, the majority of their net payables are in foreign currency. Therefore, their efforts to manage fare hikes in response to rising input costs are pivotal to expanding their profitability margins.

Positive outlook

Icra predicts a positive shift in the financial performance of Indian airlines. The agency anticipates a significant reduction in losses, estimating that in the fiscal year 2023-2024, losses will range from ₹ 30-50 billion. This optimism is fueled by steady growth in passenger traffic, the enforcement of pricing discipline, and ongoing industry consolidation. It’s worth comparing these projections with the net losses experienced in the previous two fiscal years, which stood at nearly ₹ 170-175 billion in 2022-2023 and ₹ 217 billion in 2021-2022.

The Indian aviation sector’s revival story is one of resilience and adaptability. Despite the challenges posed by fuel costs and currency fluctuations, the industry is showing a remarkable recovery in domestic air passenger traffic. With ICRA’s positive outlook for H2 FY24, backed by improved pricing power and expectations of a stable future, the Indian aviation industry seems set to soar to new heights in the coming months. However, the industry will need to navigate these challenges effectively to maintain its upward trajectory and ensure long-term sustainability.

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