India’s domestic air passenger traffic is projected to increase by 7-10% to reach 164-170 million in FY25, while the aviation sector is likely to incur a net loss of ₹2,000-3,000 crore, according to ICRA.
Steady Growth Amid Challenges
During the first half of FY25, domestic air passenger traffic reached 79.3 million, reflecting an annual growth of 5.3%, despite disruptions caused by severe weather conditions, including a heatwave. Meanwhile, international passenger traffic for Indian carriers grew by 16.2% during the same period, showcasing robust demand in the global segment.
ICRA maintained a ‘stable’ outlook on India’s aviation industry, highlighting continuous growth in both domestic and international passenger traffic.
Industry Losses to Decline
Kinjal Shah, Senior Vice President & Co-Group Head at ICRA, stated that the aviation sector is projected to report net losses of ₹20-30 billion in FY25 and FY26 each, a significant improvement compared to previous years. This improvement is attributed to better pricing strategies by airlines, which are helping mitigate rising costs.
However, the industry faced challenges in the first half of FY25 due to increased fuel prices and grounded aircraft, which caused a marginal dip in revenue per available seat kilometre (RASK). Despite this, Shah expects passenger traffic and profitability to recover in the second half of FY25, driven by healthy demand.
Fuel Prices and Cost Structure
Aviation Turbine Fuel (ATF) prices eased by 6.8% year-on-year to ₹96,192 per kiloliter during the first eight months of FY25, though this remains significantly higher than pre-COVID levels of ₹65,261 per kiloliter (FY20).
Fuel expenses account for 30-40% of airline costs, while 35-50% of operational expenses, including lease payments and maintenance, are denominated in US dollars. Airlines with foreign currency debt face additional financial pressure, although international operations provide a partial natural hedge through foreign earnings.
Key Factors Impacting Growth
- Improved Pricing Power: Airlines are focusing on maintaining high passenger load factors while moderating ticket yields.
- Fuel Costs: Though easing slightly, ATF prices remain a critical factor affecting profitability.
- Currency Fluctuations: The INR-USD exchange rate continues to influence operating expenses for Indian airlines.
Conclusion
India’s aviation sector is on a path of steady recovery, with projected growth in domestic air traffic and reduced industry losses. While challenges like fuel costs and currency fluctuations persist, improved pricing strategies and robust passenger demand are expected to drive better performance in the coming years.
