Domestic Airlines to Trim Losses by Upto 90% This Fiscal: Icra

Mumbai: The domestic airlines industry is expected to trim its aggregate net loss by up to 90 percent to Rs 100 crore in FY18 from around Rs 1,000 crore a year-ago period aided by expected strong peak season demand in the remaining half of this fiscal, ratings agency Icra said in a note on Tuesday.

The projections, however, do not include the financials of full-service carrier Vistara and budget airline AirAsia India.

It has to be noted that the loss is primarily on account Air India losses, while all other major airlines are expected to report profits during the fiscal ending March 2018, Icra said.

The study said, the domestic travel demand moderated to 16.3 percent in the April-September period after having grown at above 20 per cent over the last two years.

Though the jet fuel prices remained higher during the first half of the current fiscal on a year-on-year, the ability of the airlines to pass-on the same supported the profitability of the industry during this period, it said.

"With peak season demand expected to be robust in H2 FY2018, the aggregate net loss of the industry is expected to reduce to around Rs 500 million to Rs 1 billion in FY2018 from around Rs 10 billion in the previous year," ICRA assistant vice president and co-head for corporate sector Ratings, Kinjal Shah, said.

Significantly, Icra report comes on the day IATA projected a higher net profit of $38.4 billion for the airlines in 2018, primarily driven by strong demand.

Healthy passenger load factors supported by a decline in competitive intensity due to moderation in capacity addition and suspension of operations of three regional airlines has augured well for the industry profitability, the rating agency said.

"This coupled with a gradual improvement in the core growth drivers like economic environment, tourism demand and regulatory support and a strong demand during the peak season is expected to support the industry profitability during H2 FY2018," it said.

In the last one year, regulator DGCA has suspended the flying permit of Air Pegasus, Air Costa and Air Carnival, all regional airlines following their failure to mop up required funds for carrying out operations.

All the major airlines are expected to report higher net profits in FY2018 as compared to the previous year. However, with many of them having large capacity expansion plans which may be either owned (through debt funding) or on operating lease, the debt level of the industry is expected to remain high in the medium term," the Icra executive said.

The report, however, cautioned that any unfavourable changes in jet fuel prices "may pose short-term liquidity problems for the industry."

Historically, weak operating performance and high investment requirements had impacted the financial health of the industry severely, as per the note.

"However, with steadily improving operating performance as well as lower air turbine fuel (ATF) prices over the last three years, the aggregate industry debt is expected to reduce to around Rs 620 billion - Rs 630 billion as on March 2018 from around Rs 710 billion as on March 2015,"according to Icra.