2025 to be mixed year for aviation, says Icra

New Delhi: The year 2025 is likely to be mixed for India's aviation sector, with jet fuel prices, grounding of aircraft, and moderation in yields seen as headwinds for the industry, according to rating agency Icra.

Improvement in passenger traffic, significant demand for leisure and business travel and increasing air passenger penetration are likely to be the tailwinds for the sector, Icra said. 

Icra estimates that in FY25, domestic air passenger traffic is expected to grow in the range of 7-10%, and international passenger traffic for Indian carriers seen around 15-20%. The rating agency also expects the industry's net loss to be between ₹20 billion and ₹30 billion in FY2025 and FY2026. 

"In terms of headwinds, ATF (aviation turbine fuel) prices are expected to be high. Even though we have seen a year-on-year decline in the prices in the current year, they continue to be elevated compared to pre-covid levels," Kinjal Shah, senior VP at Icra said responding to Mint's queries. ATF accounts for nearly 30-40% of the total cost of airlines.

Shah said the aircraft-on-ground situation is the second biggest headwind for the sector.  "Around 16-18% of the industry capacity is currently on ground. This not only impacts the supply in terms of the availability of aircraft but also has an impact in terms of higher operating costs because airlines have to bear the cost of the aircraft on the ground and at the same time, you have to take short-term leases to meet the demand. So all these will incrementally have the impact of higher cost which we have already seen in H1 FY25," she said.

As far as major factors supporting the industry are concerned, Icra expects a pick-up in air passenger traffic aided by leisure and business travel which will result in a good demand for Indian carriers. 

Also Read: Jet, set, weddings: Why Indian airlines are on a high this wedding season

Outlook

Icra's outlook on the Indian aviation sector remains 'stable' on the back of growth in passenger traffic, which will support the financial performance of the airlines. 

Other factors for the stable outlook include better pricing discipline, improvement and modernisation of airport infrastructure and growing connectivity in tier-II & III cities. 

Also Read: Rakesh Gangwal: the airline industry disciplinarian behind IndiGo’s runaway success