CRA expects FY20 to witness a muted domestic capacity growth of ~3%

The Indian aviation industry continues to be in bad shape plagued by challenges. The domestic passenger traffic growth reduced to six-year low of 3.3% in 8M FY2020. A series of events during the current fiscal such as discontinuation of operations of Jet Airways (India) Limited (with effect from April 18, 2019), grounding of the Boeing 737 Max (B737 Max) aircraft due to technical issues with its flight control software, and issues with the Pratt & Whitney engines for Airbus 320 neos (A320 neos) have impacted the industry’s capacity and thereby passenger growth. Moreover, many domestic airlines are focussing on expanding on the international routes. Thus, during 8M FY20, the domestic industry capacity, as measured by available seat kilometers (ASKM) increased by a marginal 2.6%.

Kinjal Shah, Vice President and Co-Head, Corporate Sector Ratings, ICRA, “On the back of higher yields due to capacity constraints, the domestic airlines witnessed improved profitability during Q1 FY2020. However, pressure on yields and increased maintenance costs and foreign exchange (forex) losses (including on financial leases) impacted the profitability of the industry during Q2 FY2020. The two listed airlines have together lost ~Rs1.8cr per day during H1 FY2020, however, this is lower than the Rs5.5cr per day during H1 FY2019.”

Though the industry gained some respite from the benign aviation turbine fuel (ATF) prices during 9M FY2020, the low pricing power of the industry and inability to raise fares has resulted in losses for the airlines. Since January 01, 2020, the ATF price has increased Y-o-Y by 11.1%. However, the average ATF price over the 10-month period, April 2019 to January 2020 is still lower by 6.1% vis-a-vis the average ATF price over April 2018 to January 2019.

The competitive intensity in the industry continues to be high due to sustained capacity addition, thereby limiting ability of the airlines to increase fares. Going forward, the industry is likely to continue with the capacity expansion plans. The industry has an order of ~780-790 aircraft currently, on a total fleet base of 682 aircraft as on date. However, ICRA expects FY2020 to witness a muted domestic capacity growth of ~3%.

Furthermore, as Indigo and Go Air resolve their engines issues and SpiceJet waits for clearance of the B737 Max aircraft, the estimated domestic ASKM growth is likely to be around 18% in FY2021. This is also supported by the temporary allocation of slots of Jet Airways to other airlines to start new flights to fill the supply gap.




About Gosip4U

Gosip4U is the digital wing of india - India's leading media and communications group with its interests spanning across country.

0 comments:

Post a Comment

Please add comment