Domestic air traffic in India is expected to grow by 7-10% in the current fiscal year, reaching between 164 million and 170 million passengers, according to ratings agency Icra. Despite the growth in traffic, the aviation industry is projected to incur losses ranging from Rs 2,000 crore to Rs 3,000 crore during the same period.
In the first half of FY2024-25, domestic air traffic stood at 79.3 million passengers, reflecting a 5.3% year-on-year growth. This growth was slightly tempered by disruptions caused by a severe heat wave and other weather-related issues. Meanwhile, international passenger traffic for Indian carriers saw a notable rise of 16.2% during the first half of the financial year.
Indian aviation sector set to witness strong growth
Icra has forecasted that domestic air traffic will continue to grow by 7-10% on an annual basis, reaching a total of 164-170 million passengers by the end of FY2025. The agency maintained a ‘stable’ outlook for the Indian aviation sector, driven by strong growth in both domestic and international travel.
Kinjal Shah, Senior Vice President and Co-Group Head at Icra, noted that while the industry is still expected to report net losses of Rs 2,000-3,000 crore in both FY2025 and FY2026, these losses will be considerably lower than those seen in previous years, thanks to improved pricing power among airlines.
“The spread between revenue per available seat kilometre and cost per available seat kilometre saw some moderation in H1 FY2025 over FY2024 due to higher fuel prices and overall increased costs amid grounding of aircraft, while yields moderated marginally as airlines strove to maintain adequate passenger load factors.
“Nonetheless, the same is expected to pick up in H2 FY2025, amid healthy passenger traffic,” Shah said.
Airlines face higher costs despite lower ATF prices
Airlines’ cost structures are primarily influenced by two key factors: Aviation Turbine Fuel (ATF) prices and the movement of the Indian Rupee (INR) against the US Dollar (USD).
According to Icra, average ATF prices in the first eight months of FY2025 saw a 6.8% decline, falling to Rs 96,192 per kiloliter (KL), although this remains higher than pre-Covid levels (FY2020), when the price stood at Rs 65,261 per KL.
Fuel costs typically account for 30-40% of an airline’s overall expenses. Additionally, around 35-50% of an airline’s operating costs, which include aircraft lease payments, fuel, and a significant portion of aircraft and engine maintenance expenses, are incurred in US Dollars.
“Some airlines also have foreign currency debt. While the domestic airlines also have a partial natural hedge to the extent of earnings from their international operations, overall, they have net payables in foreign currency,” the rating agency said in a release.