Indian domestic air passenger traffic increased by 23%

In August, India's domestic air passenger traffic increased by approximately 23 per cent year-on-year, reaching 12.4 million passengers, according to credit rating agency Icra. This figure was also 6 per cent higher than the pre-COVID levels observed in August 2019, which stood at around 11.8 million passengers. On a month-to-month basis, there was a 3.2 per cent growth in traffic compared to July, with 12.1 million passengers travelling on domestic routes.Furthermore, capacity deployment in August grew by 10 per cent compared to August 2022 but was slightly lower, down by 1 per cent, when compared to pre-COVID levels from August 2019.Icra's outlook for the domestic aviation industry is considered 'stable,' given the rapid recovery in domestic passenger traffic during the previous fiscal year and expectations that this trend will continue into the current fiscal year. The industry has also seen improved pricing power, resulting in better yields and a favourable revenue per available seat kilometre (RASK) compared to the cost per available seat-kilometre (CASK) for airlines.This positive trend is expected to continue, primarily due to year-on-year declines in aviation turbine fuel (ATF) prices since April and relatively stable foreign exchange rates. However, despite healthy passenger traffic recovery, the industry still faces challenges related to elevated ATF prices and rupee depreciation against the US Dollar when compared to pre-COVID levels, both of which significantly impact airlines' cost structures.Icra noted that the recovery in industry earnings is likely to be gradual due to the high fixed-cost nature of the airline business. The industry is estimated to have reported a net loss of around Rs 170-170.5 billion in FY23 due to elevated ATF prices and currency depreciation. However, this is an improvement compared to the net loss of around Rs 217 billion in FY2022. The net loss is expected to decrease significantly to Rs 30-50 billion in FY24 as airlines continue to witness healthy passenger traffic growth and maintain pricing discipline, following industry consolidation.