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Elevated ATF prices, rupee depreciation likely to pose serious threat to recovery of domestic carriers: ICRA

18 Aug 2022 Evaluate

Credit ratings agency ICRA in its latest report has said that elevated Aviation Turbine Fuel (ATF) prices and rupee depreciation are likely to pose a serious threat to the recovery process for domestic carriers. In India, ATF accounts for around 45 per cent of the operational cost of an airline. Besides, as much as 35-50 per cent of the airlines' operating expenses are US dollar driven.

According to the report, an area of concern remains the ATF prices, which surged by around 77 per cent Y-o-Y in August, given the elevated crude oil prices due to geo-political issues arising from the Russian invasion of Ukraine. On an aggregate basis, it said a return to normalcy will lead to recovery in passenger load factors, which, in turn, will aid revenues; however, these two factors will continue to weigh on the domestic airlines’ earnings in FY23. It believes that the domestic air traffic yields have moved up by 25-30 per cent over pre-Covid levels on domestic routes. The industry earnings in FY2023 will continue to reel under pressure owing to the elevated jet fuel prices, coupled with the depreciation of the Indian Rupee against the US dollar.

On a month-on-month basis, the ratings agency said domestic air passenger traffic was 7 per cent lower in July compared to the June passenger volumes of 10.05 million, given some impact of the cyclicality in passenger travel, mainly arising from the lean period during the monsoon. It also said the hardening of fares impacted leisure travel during the month which, in turn, also impacted the volumes. It also said the removal of ceiling on airfares from August 31 will help domestic airlines to bring their ticket prices in line with the supply-demand dynamics.  

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