Domestic air passenger traffic surges in May 2024: ICRA report

Domestic air passenger traffic in India saw a notable increase in May, reaching approximately 138.9 lakh passengers, marking a 5.2 per cent rise from April's 132.0 lakh passengers, according to a recent report by ICRA, a leading credit rating agency.

This figure represents a 5.1 per cent year-on-year (YoY) growth compared to May 2023, and is significantly higher by 14 per cent when compared to pre-Covid levels.

According to the report, the airlines in India expanded their capacity deployment by 6 per cent compared to May 2023, and by 2 per cent over April 2024.

For the fiscal year 2024 (FY2024), which runs from April to March, domestic air passenger traffic totalled approximately 154 million, showing a YoY growth of 13 per cent.

The report indicated that the international passenger traffic for Indian carriers also demonstrated remarkable growth.

For FY2024, it stood at approximately 296.8 lakh, reflecting a 24 per cent YoY increase.

This figure is 30 per cent higher than the pre-Covid levels of 227.3 lakh, and it has surpassed the previous peak of 259 lakh recorded in FY2019.

In the first two months of FY2025 (April-May 2024), domestic air passenger traffic reached around 270.9 lakh, indicating a 3.8 per cent YoY growth over the same period in FY2024.

The report further said that despite a healthy recovery in air passenger traffic and improvement in yields, the movement of the latter will remain monitorable amid elevated aviation turbine fuel (ATF) prices and depreciation of the INR vis-à-vis the USD over pre-Covid levels, both of which have a major bearing on the airlines' cost structure.

The average ATF price stood at Rs 103,499/KL in FY2024, which was lower by 14 per cent than Rs 121,013/KL in FY2023, but significantly higher by 58 per cent than the pre-Covid levels of Rs. 65,368/KL in FY2020.

In Q1 FY2025, the average ATF price remained higher by 5.4 per cent on a YoY basis.

However, in June 2024, it declined by 6.5 per cent sequentially.

“Fuel cost accounts for 30-40 per cent of the airlines' expenses, while 45-60 per cent of the operating expenses—including aircraft lease payments, fuel expenses and a significant portion of aircraft and engine maintenance expenses—are denominated in dollar terms,” said the ICRA report.

It said that while domestic airlines have a partial natural hedge to the extent of their earnings from international operations, overall, their net payables are in foreign currency.

“The airlines' efforts to ensure fare hikes, proportional to their input cost increases, will be the key to expanding their profitability margins,” the report said.

The report further said that some airlines have adequate liquidity and/or financial support from a strong parent, supporting their credit profiles, the credit metrics and liquidity profile of others will remain under stress over the near term, despite some improvement relative to the last few years.