Challenges before Indian Aviation Industry

Why in news?

The Indian civil aviation industry is likely to report an aggregate loss of about Rs 88 billion in FY2019.

What is the status of Indian aviation industry?

• The domestic air passenger traffic has grown at a healthy compounded annual growth rate (CAGR) of 20.9% over FY2015-18.
• The growth trajectory has continued in the current year as well, with a robust year-on-year growth of 20.3% during 4M-FY2019.
•  The passenger load factors (PLFs) for the domestic aviation industry have been on an uptrend, starting from FY2015.
• The same continued during FY2018, with a superlative 87%, a year-on-year improvement of 270bps, and that too on a high base.
• The revenue per available seat kilometre (RASK) of domestic airlines has been declined to Q1-FY2019 from FY2018.
• With the Regional Connectivity Scheme, or UDAN-RCS and the development of new airports, ICRA expects that the domestic passenger traffic will continue to grow at a healthy pace (i.e. 15.5-16.5% per annum) over the medium term.

What are the prospects about the industry?

• ICRA estimates the domestic ASKM growth at about 18% in FY2019.
• The key drivers for the industry capacity growth continue to be the sizeable order book of airlines, which is in excess of 1,000 aircraft at present.
• Additional capacity deployment is also expected due to start of regional operations by IndiGo, Jet Airways and SpiceJet, as well as other regional carriers.

What are the challenges faced by Indian aviation industry?

• The industry is facing a double whammy with the increasing aviation turbine fuel (ATF) prices and the depreciation of the rupee against the dollar.
• Coupled with pressure on yields, this has aggravated the turbulence in the industry.
• The industry’s capacity addition during FY2018 (available seat kilometres, or ASKM) was impacted by delays in aircraft deliveries on account of technical glitches with engines for the domestic market leader.
• ATF represents the single-largest cost element for airlines, accounting for 30-40% of the total operating expenses.
• As such, the profitability of airlines is significantly impacted by ATF prices, which have been subject to high volatility.
• However, despite this increase in ATF prices, most airlines have witnessed a pressure on their yields owing to increased competitive intensity fuelled by the capacity growth.
• In addition, some airlines also have foreign currency debt, While the domestic airlines have a partial natural hedge to the extent of earnings from their international operations, overall they have net payables in foreign currency.

Source: Financial Express

The domestic airlines industry, despite strong traction on growth, is facing challenging times.