Airlines profitability to be eroded due to lower revenues, high fixed costs: ICRA

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Domestic air passenger traffic is likely to witness a de-growth of 41 to 46 per cent in the current financial year while international traffic may see a fall of 65 to 72 per cent, according to investment information agency ICRA.

Thus the revenues of the Indian aviation industry are expected to witness significant de-growth. The profitability of the industry will also be adversely impacted due to lower revenues and high fixed costs, it said.

While some airlines have sufficient liquidity or financial support from a strong parentage which will help them sustain over the near term, said ICRA, the airlines which were already in financial stress are now facing an existential crisis.

Even for airlines with sufficient liquidity, there is a significant weakening of credit metrics and liquidity profile. Many airlines have already undertaken several cost rationalisation measures.

These include salary cuts for their employees, including leave without pay and laying off pilots and crew members to cut costs. Some airlines have also sought deferment in their lease rental payments.

However, until the cash inflows resume, the airlines will require funding support to meet their expenses, said ICRA. The credit profile of domestic airlines will thus weaken materially over the near-term.

For August, the domestic passenger traffic is estimated at 26 lakh as against 1.17 crore in August 2019, marking a decline of 77 per cent. However, it witnessed a sequential improvement of 25 per cent over 21.1 lakh domestic passenger traffic in July which had witnessed a decline of 82.3 per cent.

The average daily departures last month were 930, significantly lower than the average daily departures of 2,846 flights in August 2019 though better than 780 in July.

The average number of passengers per flight during August was 98 as against 133 passengers in August last year. Thus it is expected that the domestic aviation industry operated at a passenger load factor (PLF) of 63% in August 2020 as against 85.1 per cent in August 2019 and that too on very low capacity.

The PLF for August has sequentially improved from 55 per cent in 2020 due to increase in capacity deployment by 19 per cent. ICRA said that the second half of current fiscal will witness some recovery and overall FY21 will witness 41 to 46 per cent de-growth in domestic passenger traffic.

Overall, from May 25 till August 31, the domestic passenger traffic has been more than 70 lakh.

 

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The Dispatch Staff