Airlines set to soar, 20% rise in profit expected
Chandigarh, February 13
The domestic airline industry will see operating profit rise more than 20% next fiscal, after a near-tripling this fiscal, fuelled by a strong recovery in passenger traffic, ability to pass on volatile fuel prices to flyers, and reduced fluctuation in foreign exchange rates, according to CRISIL Ratings.
On route to recovery
- As per Crisil Ratings, passenger traffic will grow 18–20% this fiscal and continue to grow at same rate next fiscal
- Fuelled by strong recovery, Airlines are in better position to pass on fuel costs to flyers
- Another factor supporting improvement in profitability is steady exchange rate
An analysis of three airlines, which account for two-thirds of India’s air traffic, indicates as much, according to CRISIL Ratings. Passenger traffic should ascend 18–20% this fiscal (on-year), comfortably surpassing the pre-pandemic level, with business and leisure travel soaring. This trajectory is expected to sustain next fiscal, too, given economic growth. The rise in passenger traffic has strengthened the ability of airlines to pass on fuel costs (comprising 40-50% of the total cost) to flyers.
Another factor supporting improvement in profitability is lower foreign exchange (forex) losses compared with last fiscal, driven by a relatively steady exchange rate. Forex volatility impacts the profitability of airlines as two-thirds of their total debt (including lease liabilities) and about a third of their total costs are denominated in foreign currency.
Mohit Makhija, Senior Director, CRISIL Ratings, said: “Next fiscal, operating profit growth is expected to be in the vicinity of 20% from Rs 18,000-20,000 crore estimated this fiscal, even as technical issues in some engine types could ground some aircraft and limit the increase in operational fleets. The impetus to passenger traffic growth should continue next fiscal, though growth in operating profits will normalise given high base of this fiscal.”
