Domestic airlines poised to recover profitability in next fiscal forecasts Crisil

Crisil, the credit rating agency, released a report on Wednesday projecting that the domestic airlines’ industry will return to profitability in the next fiscal year, marking the first time since the Covid outbreak. The industry is expected to benefit from reduced cost pressures and a decrease in leverage, which will support credit profiles. The report predicts that the industry will be able to reduce its net loss by 75-80 percent year-on-year to Rs 3,500-4,500 crore this fiscal year, compared to approximately Rs 17,500 crore in the previous fiscal year.

According to Crisil, the rebound in passenger traffic and relief from cost pressures are contributing to the airlines’ improved operating performance. They based their assessment on analyzing three airlines that collectively constitute around 75 percent of the country’s domestic air traffic.

The nine months ending in December of the current fiscal year saw domestic and international passenger traffic recover to 90% and 98%, respectively, compared to the corresponding period of fiscal 2020 prior to the pandemic. The statement further stated that both business and leisure travel experienced a robust recovery, especially with the resumption of international scheduled services, and that the festival season contributed to an acceleration of recovery in the second half.

Crisil Ratings, the Indian economy shall maintain its current pace in the upcoming fiscal year despite global headwinds. This is largely due to the resilience of the Indian economy. Additionally, the removal of fare caps is enabling airlines to pass on cost increases.

Crisil Ratings predicts that passenger traffic will surpass pre-pandemic levels in the next fiscal year, with pricing expected to remain 20-25% higher than those levels. Compared to the pre-pandemic period, airlines are expected to achieve revenue growth of 25-30% in the next fiscal year.

Domestic airlines

Gautam Shahi, Director at Crisil Ratings, made these predictions. According to Shahi, a projected decrease in the average cost of aviation turbine fuel, in addition to other factors, will contribute to a notable improvement in the operational efficiency of airlines, allowing them to generate profits in the upcoming fiscal year.

Additionally, the reduction of debt resulting from the privatization of a major airline in the previous fiscal quarter will lead to decreased interest expenses, further enhancing profitability.

We expect airlines’ dependence on debt (excluding lease liabilities) to remain low in the near-to-medium term due to improved operating performance and anticipated equity infusions. Associate Director of Crisil Ratings, Kshitij Jain, suggested that the aviation industry will secure Rs 8,000-10,000 crore in equity funding over the next two fiscal years, which they will allocate towards expanding the fleet and modernizing existing aircraft.

Jain stated that this would give a significant push to the capital structure, addressing a long-standing need. In the near-to-medium term, the airlines’ ability to rely on additional debt (excluding lease obligations) would constrain them. Jain’s analysis suggests that the majority of the recent large fleet purchase orders scheduled for delivery in the fiscal year 2026 and beyond will strengthen the creditworthiness of airlines.

The agency responsible for evaluating ratings, however, emphasized keeping a close watch on the timely injection of capital, securing debt for capital expenditures toward increasing the fleet.

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