Amid recovery in domestic passenger traffic in FY2023, the earnings recovery for domestic airlines will be slow-paced due to elevated ATF prices in addition to the rupee depreciation against the US dollar, said the rating firm ICRA on Monday.
"The domestic aviation industry continues to witness recovery, with domestic passenger traffic for November 2022 estimated at nearly 117 lakh, about 3 per cent higher compared to nearly 114 lakh in October 2022 and about 11 per cent higher in comparison to the domestic passenger traffic in November 2021. Although, it fell short by nearly 10 per cent, compared to pre-Covid levels of November 2019," the report said.
The airlines' capacity deployment in November 2022 was slightly higher (less than nearly 1 per cent) than in November 2021. However, it was lower by about 12 per cent than the pre-Covid levels.
It is estimated that the domestic aviation industry operated at a passenger load factor (PLF) of nearly 89 per cent in November 2022, against 80 per cent in November 2021 and 90 per cent in November 2019.
ICRA said that a steady rise in prices of aviation turbine fuel (ATF) and a general inflationary environment continue to dampen the industry earnings, with ATF prices in December 2022 higher by nearly 53 per cent on a YoY basis. Although, the same declined by 2.2 per cent sequentially.
While airlines have been increasing yields, in ICRA's view, the same has not been adequate to offset the impact of the rising ATF prices.
The delay in delivery of components and spares for aircraft and engines continues to impact the sector, thereby leading to the grounding of certain aircraft for some domestic airlines, it said.
"A quick recovery in domestic passenger traffic is expected in FY2023, aided by normalcy in operations and the waning pandemic. However, the earnings recovery for domestic airlines will be slow-paced due to elevated ATF prices in addition to the rupee depreciation against the US dollar amid a heightened competitive environment," said the ICRA.