Airfare to remain under pressure in FY25: ICRA

Domestic air passenger traffic to remain 164-170 million in FY25, reflecting a growth of 7-10% while the average fare per passenger per mile will remain under pressure as airlines strive to maintain passenger load factors, says rating agency ICRA.

Releasing the aviation outlook for 2025, the rating agency said that the domestic air passenger traffic during first half of FY25 stood at 79.3 million, witnessing a YoY growth of 5.3%, partly impacted by the severe heat waves and other weather-related disruptions.

“ICRA expects the industry to report a net loss of Rs 2000-3000 crore in FY2025 and FY2026 each, significantly lower than the losses witnessed in the past supported by improved pricing power of the airlines,” said Kinjal Shah, Senior Vice President & Co- Group Head, ICRA.

The spread between revenue per available seat kilometre and cost per available seat kilometre (RASK-CASK) saw some moderation in H1 FY2025 over FY2024 due to higher fuel prices and overall increased costs amid grounding of aircraft, while yields moderated marginally as airlines strive to maintain adequate passenger load factors (PLFs).

“Nonetheless, the same is expected to pick up in H2 FY2025, amid healthy passenger traffic. The industry debt metrics in FY2025 are expected to remain stable, with interest coverage of 1.5-2times,” she added.

The ICRA said that supply-chain challenges and engine failure issues continue to plague industry performance. It is estimated that almost 144 aircraft 16-18% of the total industry fleet as on September 30, 2024, have been grounded, thus affecting the overall industry capacity (as measured by available seat kilometres or ASKMs).

“As on September 30, 2024, the industry had a total fleet of 853 aircraft (including 144 aircraft on ground). 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 almost double the current fleet in operations,” it said.

ICRA believes that capacity addition for the industry will only be gradual as the supply chain challenges faced by the aircraft and engine OEMs may result in intermittent delays in deliveries. Furthermore, a sizeable part of the fleet addition by airlines will be meant for expanding international operations.