New Delhi: Indian airlines are staring at a revenue loss of ₹1.3 trillion between fiscal 2020 and 2022 due to the ongoing covid-19 pandemic that has severely hit demand, rating agency Crisil said in a report on Wednesday.
Airlines are also unlikely to recoup from this loss and bounce back to pre-pandemic levels of double-digit growth at least in the medium term, said the report.
“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,” the report prepared by CRISIL Research said.
“But 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,” it added.
Meanwhile, airfares, which are currently capped by the government, are expected to drop during the upcoming festive season, as airlines would try to lure passengers.
“Interestingly, the fares, capped by the government, are higher on-year today. However, as airlines look to stimulate demand with the onset of the festive season amid the expected removal of the fare cap from end- August, ticket prices on domestic routes are expected to come off from the third quarter and will on average be lower on-year this fiscal,” the Crisil report said.
The number of domestic passengers carried by Indian airlines during fiscal year 2020 is expected to be around 78 million to 83 million, similar to fiscal 2016, the report said adding that demand could pick up during the festive season.
“Domestic demand is likely to be subdued in the seasonally weak second quarter as well. But, the third and fourth quarters are expected to see increased travel owing to the festive season, although it will still be lower on-year,” it said.
However, Crisil said it doesn’t see air traffic demand improve during fiscal 2022, unless the pandemic is brought under control.
“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,” it added.