India’s Domestic Air Travel Rebounds, Surpassing Pre-Covid Levels, Despite Challenges

India’s domestic passenger traffic in April 2023 recorded a significant year-on-year (YoY) growth of 22 percent, surpassing Pre-Covid levels by 17 percent, according to a report by rating agency ICRA. The report states that domestic air passenger traffic for April 2023 was estimated at 128.6 lakh, a slight decrease of 0.2 percent compared to March 2023. However, the YoY growth of 22 percent was primarily attributed to the marginal impact of the Omicron variant in April 2022. In comparison to Pre-Covid levels (April 2019), April 2023 witnessed a notable 17 percent increase in domestic passenger traffic.

The ICRA report also highlights that airlines increased their capacity deployment in April 2023 by 8 percent compared to April 2022, and 9 percent compared to the Pre-Covid levels of April 2019. Furthermore, for the 11-month period of FY2023, international passenger traffic for Indian carriers stood at 216.0 lakh, nearly reaching Pre-Covid levels (11M FY2020) of 217.8 lakh, although it remained 9 percent lower than the peak levels of 238.0 lakh in 11M FY2019.

ICRA recently revised the outlook on the Indian aviation industry from negative to stable due to the rapid recovery in domestic passenger traffic during FY2023 and the anticipated continuation of this trend in FY2024. The industry has also experienced improved pricing power, reflected in higher yields and a favorable revenue per available seat kilometer to cost per available seat kilometer (RASK-CASK) spread for airlines. This positive trend is expected to persist as the industry regains pricing discipline, benefits from a sequential decline in aviation turbine fuel (ATF) prices over the past four months, and maintains relatively stable foreign exchange rates.

However, despite the robust recovery in passenger traffic, the domestic aviation industry continues to face challenges stemming from elevated ATF prices and the depreciation of the Indian rupee compared to the Pre-Covid era. These factors significantly impact the airlines’ cost structure, with fuel costs accounting for 30 to 40 percent of their expenses. Additionally, a significant portion of operating expenses, including aircraft lease payments, fuel expenses, and aircraft and engine maintenance costs, are denominated in US dollars, as some airlines also carry foreign currency debt. Although domestic airlines have a partial natural hedge through earnings from their international operations, their overall net payables remain in foreign currency.

To expand profitability margins, airlines’ efforts to raise fares in proportion to the increased input costs will be crucial. The report also notes that the competitive landscape in the domestic aviation industry is set to undergo changes with the entry of new players and the consolidation of Air India, Air Asia India, and Vistara.

Author: Jaun Shahi

Journalist, Sub-Editor, Travellers’ World Jaun is a soft-spoken and gentle soul who thrives as a Journalist with his exceptional observation skills and an eye for intricate details. He is a true multitasker who efficiently handles various tasks and always brings a professional approach to everything he does. His genuine team spirit makes him an integral part of the TW family, as he consistently collaborates and supports his colleagues.