Indian Airlines May Post Lower Losses Than Estimated Earlier Thanks To Improved Earnings And Cost Control
Rating agency ICRA has revised its forecast for net losses of major Indian airlines in the current financial year (2024-25) and next (2025-26), estimating the cumulative losses to be around Rs. 2,000-3,000 crores. This is a reduction of 25-33% from its earlier estimate of Rs. 3,000-4,000 crore losses. ICRA attributes this to the airlines demonstrating better revenue management as well as a relatively stable cost environment.
ICRA notes that spreads between revenue and costs per seat kilometer for airlines have increased, showing their improved ability to earn more despite rising expenses. While losses are still expected, this revision indicates the sector may be more resilient than earlier projections. Although ICRA has trimmed its domestic air traffic growth forecast for this year to 7-10% from 8-13% due to a high base and weather impacts, international traffic is pegged to rise a healthier 15-20%.
Aviation turbine fuel costs, constituting 30-40% of expenses, have risen but the stable exchange rate has offered some relief on dollar-linked outgoings. Over 15% of the total fleet remains temporarily grounded too, crimping capacity. However, with strong passenger demand and deft cost optimization, losses may not escalate to earlier estimated levels for the industry. ICRA continues to maintain a stable outlook, anticipating sustainable growth in both domestic and international air passenger traffic.
This revised loss estimate is still higher than ICRA's projection of about Rs. 1000 crore losses for financial year 2023-24, with pressure on fares and the likely fuel price rise posing challenges. Yet the modifications underscore airlines achieving better financial flexibility in adynamic operating environment.
