Demand recovery
Two years after flight operations ground to a halt, passenger traffic is showing signs of robust recovery. In April 2022, 10.5 million passengers took domestic flights, only 5% less than in April 2019. In March, the deficit was 7%. Icra estimates show international traffic crossed pre-covid levels at 1.9 million passengers in April.
However, the recovery has not been without hiccups. After flights were suspended in late March 2020, domestic flights resumed in a calibrated manner in May 2020 and international operations were restricted to air-bubble arrangements. The growth in international passengers was muted, but domestic traffic registered a healthy rise. However, the traffic was badly hit again by the Delta and Omicron waves. The demand is expected to be stronger this year, especially in metro to non-metro and tier-II and tier-III traffic, but concerns such as rising airfare and restrictions on travel and tourism for international flights remain.
Occupancy rate
One operational metric that offers insight into aviation companies’ performance is occupancy rates. Low occupancy rates would typically mean suboptimal efficiency and lower margins, as per-seat cost would be higher. When operations resumed in May 2020, the government allowed airlines to operate at only 33% capacity, which was raised to 100% by October 2021. As a result, only 73 passengers on average flew on each domestic flight in May 2020, compared with 139 in May 2019. Occupancy rates rose as permissible capacity rose. Between September 2020, when permissible capacity was raised first, and February 2021, occupancy rates rose by 3.7% on average every month. However, the Delta wave brought it crashing to May 2020 levels though allowed capacity was 80% then. By March 2022, the occupancy rate had inched close to 2019 levels, but it dipped again in April, to 128, compared with 135 in April 2019.
Load optimization
Passenger traffic went through ups and downs, but a bright spot was the quicker revival of cargo movement. For instance, in October 2021, when airlines were allowed to operate at full capacity, domestic freight volume was 85% of pre-pandemic levels, compared with 71% for passenger traffic. International freight volumes were 17% higher than pre-pandemic levels compared with the 48% lower for passenger traffic.
Thus, freight transport may also have accounted for a higher share of airline revenues, as SpiceJet’s earnings suggest. The airline’s freight revenue accounted for 33% of its total revenue in April-December 2021. Its share was 21% and 1% in the same periods in 2020 and 2019, respectively. Pharmaceuticals, medical equipment, and e-commerce drove freight volumes, according to Icra.
Fuel-fare conundrum
Crude oil prices have seen a gradual revival since the collapse in April 2020. This reflected in aviation turbine fuel (ATF) prices as well, which touched pre-pandemic levels for the first time in March 2021. The last four months, however, have seen a steeper rise in prices because of geopolitical tensions. On 1 May 2022, the ATF price reached an all-time high in India.
High jet fuel prices, which make up 30-40% of the operating cost for an airline, have a direct bearing on airfares, which could take a toll on traffic in the domestic segment.
When domestic flights resumed in May 2020, the government had fixed fare bands for airfares. Reports suggest many companies want the bands either raised (the last increase was in August 2021) or done away with. The government argues that these bands prevent price wars in low-demand periods and shield consumers from high prices in high-demand periods.
Losses, losses
The fact that the long-pending sale of Air India came through last fiscal year shows the extent to which the pandemic has ravaged the finances of airlines. Even IndiGo, which is the domestic market leader and traditionally has had strong financials, reported huge losses in FY21 and FY22 (April-December period). The December quarter turned out to be profitable for the first time in two years. SpiceJet also returned a small profit. But, both companies are expected to report losses in Q4FY22 because of Omicron’s impact and high fuel prices.
Icra estimates the total sectoral losses to be ₹25,000 crore- ₹26,000 crore in 2021-22, 19-24% higher than 2020-21, before moderating to ₹14,000 crore- ₹16,000 crore in 2022-23. The moderation will largely come from demand recovery and lower debt levels of Air India before the sell-off. The industry will require funding support of ₹20,000 crore- ₹22,000 crore over the next two fiscals, the agency said in its latest outlook report.
