Indian airlines industry expected to see profits next year, first time since start of pandemic: Crisil Report

India's domestic airlines industry is predicted to bounce back into profitability next fiscal year, according to a report by credit rating agency Crisil. This would be the first time since the outbreak of Covid-19 that the industry has been profitable.

The report states that the industry is expected to reduce its net loss by 75-80 percent year-over-year to Rs 3,500-4,500 crore this fiscal year compared to around Rs 17,500 crore last fiscal year.

The industry's turnaround in operating performance is being supported by a strong recovery in passenger traffic and easing cost pressures, Crisil said. Domestic and international passenger traffic has recovered to 90 percent and 98 percent, respectively, in the nine months through December of this fiscal year, compared to the corresponding period in fiscal year 2020 (pre-pandemic).

Business and leisure travel rebounded strongly even as international scheduled services resumed. The festival season has accelerated recovery in the second half, it said.

The removal of fare caps is also helping airlines pass on cost increases, Crisil added. "Next fiscal, we expect passenger traffic to cross the pre-pandemic level and pricing to remain higher by 20-25 percent over those levels. Consequently, airlines are expected to clock 25-30 percent revenue growth next fiscal vis-a-vis pre-pandemic," said Gautam Shahi, Director, Crisil Ratings.

Furthermore, profitability will be aided by lower interest costs, driven by debt reduction owing to the privatisation of a large airline in the last quarter of the previous fiscal year, it said.

Better operating performance and expected equity infusions would keep airlines' reliance on debt (excluding lease liabilities) limited over the near-to-medium term.

Kshitij Jain, Associate Director, Crisil Ratings, said: "The aviation sector is also likely to raise equity of Rs 8,000-10,000 crore over the next two fiscals, which will be utilised towards increasing fleet size and revamping the existing fleet." This will provide a much-needed boost to the capital structure, he said.

However, Crisil noted that timely infusion of equity, debt contracted for capex towards fleet expansion, and a resurgence of Covid-19 cases due to the spread of any new virus strains will remain key monitorables.