CAPA India Outlook FY2023 has been shared. Highlights of the study have some key indicators for the Indian aviation industry. These include:

    Domestic Traffic

  • Domestic traffic is expected to reach 130-140 million passengers, perhaps remaining slightly lower than the FY2020 levels. The impact of higher fares on demand is becoming visible in Q2 with traffic recovery slowing down.
    International Traffic

  • International traffic is expected to reach 55-60 million passengers, around 20% below pre-COVID.
    Airline Financials

  • Airline losses are expected to moderate from around USD3 billion in FY2022 (including adjustments) to around USD1.4-1.7 billion.
  • LCCs are expected to account for around USD400-600 million and FSCs around USD1.0-111 billion.
  • The removal of fare caps may lead to significantly higher losses.
    Financial Assumptions

  • Brent Crude is assumed at USD105/barrel and the USD=INR78-80

  • Airlines are unlikely to continue with current fare levels, especially in Q2. Fares are expected to moderate significantly in Q2 and going forward.
  • The removal of price regulation will see the return of pre-COVID competitive intensity.
    Airport Financials

  • Indian airport operators are expected to report a modest profit of USD420 million.
  • If the revenue share for FY21 and FY22 is to be paid in FY23 the industry may end up breaking-even.

  • Aircraft deliveries are expected to be moderate at around 40+ inductions
  • Net additions to the fleet will be lower due to some of these aircraft being for replacement.
    Fleet Financing

  • Aircraft financing — especially for narrowbody deliveries — may be particularly difficult for one or two carriers.

  • The aviation industry will require recapitalisation of around USD2.0-2.5 billion.
  • Up to USD1.4 billion of requirements can be easily raised, however around USD800 million may be difficult, as was the case last year.
  • IndiGo’s earlier planned QIP is likely to be back on the table.

  • We continue to believe that consolidation is inevitable amongst Indian airlines, even after Air India’s privatisation. The long-term impact of COVID and likely losses in FY2023 will make it very difficult for the sector to raise funds for some of the airlines.
  • Consolidation is also expected in the airport sector within the next 12 months, possibly sooner.
    Market Structure

  • Indian aviation will consolidate around 2-3 major players in each segment which will have a critical impact on consumer interests and competition in the near term, which would need to be addressed:
    • Airlines: 2 at present, possibly 3 later
    • Airports: 2 at present, a third may emerge later, however one of the incumbent operators will become much stronger especially after the expected consolidation.
    • Ground handling: 2-3
    • MROs: 2-3
    • Distribution: 2-3

For airlines, this post-COVID phase is characterised by a very hostile cost environment, increased competition and tough economic conditions, a combination that will prove highly challenging.