India's domestic passenger traffic to see 7-10% growth in FY25, net losses to decline

Domestic passenger traffic is set to witness 7-10 per cent growth (year-on-year) in FY25 as the Indian aviation industry is likely to navigate towards clearer skies, a report showed on Thursday. Rating agency ICRA forecasts the domestic passenger traffic to reach 164-170 million in FY25.

It maintained a stable outlook on the Indian aviation industry, amidst the continued growth in domestic and international air passenger traffic, and a relatively stable cost environment.

According to the report, net losses of Indian aviation industry in FY25 and FY26 are projected to lower to Rs 20-30 billion from Rs 30-40 billion.

Also, the international air passenger traffic for Indian carriers is expected to expand by a healthier 15-20 per cent in FY25.

“The estimated loss for FY25 is lower than earlier estimates of Rs 30-40 billion on account of better pricing discipline witnessed by the airlines in FY2024 and YTD FY2025 as compared to our earlier expectations and a relatively stable cost environment,” said Suprio Banerjee, Vice President and Sector Head, Corporate Ratings, ICRA.

The industry debt metrics in FY25 are expected to remain range-bound at the improved levels of FY24, Banerjee added.

Aviation fuel price (ATF) prices and the rupee-dollar movement are two factors that have a major bearing on the airlines' cost structure.

The average ATF prices increased to Rs. 99,468/KL in the first five months of FY25, from Rs 65,309/KL during the same pre-Covid period.

Fuel costs account for 30-40 per cent of the airlines' expenses, while 35-50 per cent of the airlines' operating expenses – including aircraft lease payments, fuel expenses, and a significant portion of aircraft and engine maintenance expenses – are denominated in dollar terms.

Further, some airlines also have foreign currency debt. While domestic airlines also have a partial natural hedge to the extent of earnings from their international operations, overall, they have net payables in foreign currency, said the report.

Although the industry witnessed a 10 per cent capacity addition in FY24 over 725 aircraft as on March 31, 2023, the total number of aircraft in operation reduced to 664 as on March 31, 2024, due to the grounding of several aircraft of select airlines.

“There are large aircraft purchase orders announced by various players in the industry and as per the indicative numbers, the total pending aircraft deliveries is around 1,660, which is more than double of the current fleet in operations,” added Banerjee.