India June air traffic tops pre-covid level but capacity deployed falls 5%: Icra

New Delhi: Domestic air traffic in June rose 4% from pre-covid levels to approximately 12.5 million passengers, ratings agency Icra said, indicating continued revival of the Indian aviation market.

While domestic air traffic in June was around 5% lower sequentially, it witnessed a year-on-year growth of 19%. This has taken the growth in domestic air passenger traffic in the June quarter of 2023-24 to 38.6 million, 19% higher on year and 10% higher than pre-covid levels.

Airlines, however, have not been able to deploy higher capacity than pre-covid levels, partly due to supply chain issues and also due to the void left by the suspension of Go First in May.

Airlines’ capacity deployment in June was higher by a meagre 1% on year and was down 4.8% from pre-covid levels of June 2019. 

Icra has maintained a stable outlook on the Indian aviation industry on the back of the fast-paced recovery in domestic passenger traffic in 2022-23 and expectations of the trend continuing in 2023-24.

The mismatch between demand and capacity led to expensive air fares during the June quarter. In fact, the passenger load factor, or capacity utilization, for Indian airlines stood at nearly 93% in June, up from approximately 79% in June 2022 and around 89% in June 2019 (pre-Covid levels).

Airlines also witnessed improved pricing power, reflected in improved yields and also visible in the revenue per available seat km – cost per available seat km (RASK-CASK) spread of the airlines, said Suprio Banerjee, vice president & sector head - Corporate Ratings, Icra.

“The same is expected to continue as the industry regains some pricing discipline, coupled with the sequential decline in aviation turbine fuel prices as witnessed over the last five months and the relatively stable foreign exchange rates,” Banerjee said.

While jet fuel prices have witnessed a sequential decline over the past five months till June, prices witnessed a marginal sequential increase of 2% in July. On a year-on-year basis, it remained lower by 34%.

“The average ATF prices stood at ₹121,013/Kl in FY2023 and ₹95,646/KL in Q1 FY2024 compared to ₹64,715/ Kl in FY2020. The ATF price remains at elevated levels when compared to the pre-covid era. The airlines’ efforts to ensure fare hikes proportionate to their input cost increases will be key to expanding their profitability margins,” Banerjee said.

Indian airlines are expected to have reported a net loss of ₹110 billion to ₹130 billion in FY23 due to elevated ATF prices twined with depreciation of the Indian rupee against the US dollar. The net loss is likely to narrow to ₹50 billion to ₹70 billion in FY24 as airlines continue to witness healthy passenger traffic growth and improve their RASK-CASK spread through better pricing discipline, Icra added.