India’s domestic air passenger traffic to shrink by 40-45% in FY21

CRISIL said Covid-19 to crimp airline margins despite lower crude prices this fiscal.

Jul 16, 2020 01:07 IST India Infoline News Service

Even though there lower crude oil prices currently, yet this could safe Indian aviation industry from witnessing heat of Covid-19 pandemic which resulted in a nationwide lockdown. In its research note titled "Stormy flight", CRISIL an S&P Global company, said, Covid-19 to crimp airline margins despite lower crude prices this fiscal.

On Wednesday, CRISIL's note said, "Curtailed mobility of people due to the Covid-19 pandemic and related restrictions will shrink India’s air passenger traffic in both domestic and international sectors by 40-45% and 60-65%, respectively, this fiscal."

On the domestic front, the air passenger traffic is expected to be 78-83 million this fiscal, similar to fiscal 2016. While CRISIL projects international passenger numbers at 25-30 million, which was the level last seen in fiscal 2008.

CRISIL's note adds, "The demand destruction can be gauged from the fact that even after resumption of domestic air services, the load factor is hovering at 50-60%, with the primarily unidirectional flow of traffic, limited largely to essential travel and those returning to their home cities/ countries."

In the milieu, CRISIL's note says, "Indian carriers are expected to log operating losses this fiscal despite lower crude oil prices. And with the Covid-19 pandemic still raging in much of the world, a revival to pre-pandemic levels appears unlikely even next fiscal."

According to the rating agency, one would have assumed that the expected plunge in crude oil prices to $38-42 per barrel in fiscal 2021
compared with $64-66 per barrel in fiscal 2020 would have helped airline companies to an extent on the margin front as it forms a sizeable 30-45% of an airline’s cost base. However, because of the outsized impact of the demand destruction, airlines are curtailing capacity deployment, thereby restricting opportunities for airline companies to accrue the benefit of low crude oil prices.

"This is a serious jolt to the Indian domestic air travel industry that had logged double-digit growth in seven of the past ten fiscals before its fortunes took a turn for the worse with the bankruptcy and grounding of a couple of major carriers," CRISIL explained.

That said, the pandemic has resulted in a Mayday for the domestic airlines in India. Currently, Indigo holds the majority market share in the country's aviation industry, followed by other airlines like SpiceJet, Air India, AirAsia, GoAir and Vistara. 

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