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Airlines may cut losses to Rs 10,000 cr this fiscal: CRISIL

Published: Apr 17, 2021

MUMBAI, APR 17, 2021: LOWER domestic air traffic compared with pre-pandemic levels coupled with high fuel prices and only a gradual recovery in international operations will lead to airlines continuing to log net losses of around Rs. 9,500-10,000 crore, said ratings agency CRISIL.

A study of the top three airlines, who account for 78 per cent of total passenger traffic, indicates the losses in 2021-22 will be 35-40 per cent below the 2020-21 mark when they had been an estimated Rs. 14,000-15,000 crore.

A resurgence of COVID-19 infections across the country, especially in Mumbai and Delhi, which account for 36 per cent of overall air traffic, is expected to stall the recovery seen over the past six months.

"In fact, average daily domestic passenger air traffic has fallen in April by almost 20 per cent to around 2.35 lakh compared to February, 2021," they added.

Domestic traffic, which accounts for 75 per cent of airline revenues, is expected to surge 120-130 per cent this fiscal on a low base (68 per cent decline in FY21), though it will still be significantly lower at 70 per cent of FY20 level.

Says Mr Gautam Shahi, Director of CRISIL Ratings, "Domestic traffic fell 85 per cent in the first half of last fiscal due to lockdowns and restrictions on operations. Despite the second wave-induced fresh curbs, which will temper recovery, domestic traffic in the first half of this fiscal is likely to be 3.5-4 times higher on-year, on a low base.

"The second half should see good recovery in traffic, supported by acceleration in the vaccination drive and people gradually taking to travel after prolonged stay at home."

A gradual recovery in international operations in the second half of FY22 will also boost traffic, he added.

However, airlines have also seen their cost of operations spurt due to a rise in the price of Aviation Turbine Fuel (ATF) as it shot up 30 per cent since November.

"This will offset the benefits from some of the initiatives the carriers undertook to reduce cost - employee costs, rentals, etc. - last fiscal, and which are being carried forward into the current fiscal," noted the ratings agency.

Net-net, a ramp up in domestic operations with relaxation of seat capacity and pricing constraints have hit an impasse with the second wave. But, absence of full restriction on operations this fiscal and a gradual recovery in domestic and more profitable international operations will help offset part of the impact of higher ATF prices.

"Therefore, net losses for key airlines are seen reducing 35-40 per cent on-year in fiscal 2022, though will still be 20-25 per cent higher than fiscal 2020," said Mr Sushant Sarode, Associate Director of CRISIL.

Last fiscal, net losses curtailed liquidity and airlines availed of additional debt as well as moratorium on debt repayment to make up for the shortfall in cash accrual vis-a-vis fixed obligations. A 25-30 per cent increase in debt (excluding lease liabilities) last fiscal and continuing net losses in the current fiscal will keep their balance sheets under pressure.