Indian Aviation Industry Net Losses of Rs 21,000 in FY2021: Icra Reports

Credit rating agency Icra Limited in a recent report said Indian airlines will post net losses of about Rs 21,000 crore during the fiscal year (FY) 2021, a result of the travel restrictions and impact on passenger traffic due to the coronavirus pandemic.

Icra said Indian airlines would require additional fundings to the tune of Rs 37,000 crore over FY2021 to FY2023 to recover from losses and debt, adding that the agency maintains a "negative credit outlook" on the Indian airline industry.

The report read: "The Indian aviation industry's capacity and passenger growth have been significantly impacted since the Covid-19 pandemic, due to which the Ministry of Civil Aviation (MoCA) stopped international travel operations with effect from March 23, 2020 and domestic travel operations with effect from March 25, 2020. Post the initial recommencement of operations of the scheduled domestic flights with effect from May 25, 2020 to a limited extent i.e. maximum 1/3rd of their respective approved capacity of Summer Schedule 2020, the MoCA permitted increasing the capacity to 45% with effect from June 27, 2020 and further to 60% with effect from September 02, 2020. However, the recovery in domestic passenger traffic has been rather subdued, even though there is substantial sequential improvement. With effect from November 11, 2020, the MoCA has increased the permitted capacity to 70%,andfurtherto80%witheffectfromDecember03,2020".

The profitability of the Indian airlines remains adversely impacted during FY2021 due to lower revenues and high fixed costs even though passenger traffic continues to improve sequentially.

During FY2020, Indian airlines had reported net losses of Rs 12,700 crore.

The overall airline industry debt is expected to increase to about Rs 50,000 crore, excluding lease liabilities by FY 2022, Icra said in its report.

"The two listed airlines [ndiGo and SpiceJet Limited] have together lost about Rs 31 crore per day during H1 FY2021 [April-September 2020]," the report further read, adding that daily loss for airlines has been reduced to Rs 26 crore during the September quarter due to improvement in domestic passenger traffic, and cost rationalisation initiatives by the airlines.

The report added that the recovery of domestic passenger traffic is however dependent on several factors, which include containing the spread of covid-19 infections, development and availability of vaccines, willingness to undertake leisure travel, and recovery in macroeconomic growth, among others.

Increase in the number of infections, and expectations of non-availability of a vaccine on a wide scale until the second half of calendar year 2021 are expected to impact air travel, it added.

"ICRA thus expects FY2021 to witness a higher decline of 62-64% in domestic passenger traffic, than its earlier estimates of 41-46% decline. With this, the domestic passenger traffic will reach much lower than the FY2011 levels," it said. The report added that a recovery in air travel is expected to be gradual once the Covid-19 threat diminishes.

However, with the international air travel heavily dependent on opening up of scheduled international operations by the government of India as well as easing of quarantine norms and restrictions initiated by various countries, the impact of the coronavirus pandemic on international air travel is expected to linger on longer as compared to domestic flights.

"Thus, Icra expects the FY2021 international passenger traffic for Indian carriers to witness a significant YoY [year-on-year] decline of about 88-89%, higher than its earlier estimates of about 67-72% decline," the report added.

"In the near term, the balance sheets of Indian carriers will remain stressed until the carriers are able to reduce their debt burden through a combination of improvement in operating performance and/or by way of equity infusion," the report read.