ICRA affirms "stable" outlook on Indian aviation industry, though with challenges

ICRA, an Indian rating agency, has affirmed a 'stable' outlook for the Indian civil aviation industry, projecting a modest 4-6 percent growth in domestic air passenger traffic for the financial year 2025-26. This projection comes despite several challenges, including cross-border escalations, the AI171 tragedy, and ATC-related disruptions, all of which have dampened travel sentiment to varying degrees. ICRA anticipates international air passenger traffic growth for Indian carriers to be in the range of 13-15 percent during the same period. The agency emphasizes that yield movements will be closely monitored due to their dependence on aviation turbine fuel (ATF) prices and the INR to USD exchange rate, both of which significantly impact airlines' cost structures.

ICRA notes that while average ATF prices have decreased year-over-year, fuel costs still constitute a substantial portion (30-40 percent) of airlines' operating expenses, including aircraft lease payments. The agency forecasts a net loss of Rs 95-105 billion for the Indian aviation industry in 2025-26, an increase from the estimated net loss of around Rs 55 billion in 2024-25. This projected increase in losses is primarily attributed to a slowdown in passenger traffic growth coinciding with rising aircraft deliveries. However, these expected losses remain significantly lower than those reported in 2021-22 and 2022-23.

ICRA acknowledges that some airlines face financial challenges and liquidity issues. While certain airlines benefit from adequate liquidity or financial support from strong parent companies, others continue to grapple with pressured credit metrics and liquidity profiles, despite recent improvements. The rating agency's assessment highlights the mixed financial landscape within the Indian aviation sector, with some players better positioned to weather the challenges than others. The stable outlook reflects an expectation of continued growth, albeit at a tempered pace, alongside ongoing financial pressures for certain airlines.