According to credit rating agency ICRA, domestic air passenger traffic increased 5.1% year over year to an estimated 138.9 million in May, a remarkable 14% increase above pre-COVID levels. In addition, ICRA stated that the prognosis for the Indian aviation sector is steady due to the ongoing recovery in both domestic and international air travel, a reasonably constant cost environment, and projections that the trend would continue until FY2025.

It further stated that the airlines' capacity deployment in the preceding month rose by 6% on an annual basis and by around 2% over April 2024. The organisation estimates that 154 million domestic passengers flew in FY24, representing an approximate 13% year-over-year increase. According to the ratings agency, it thus exceeded the pre-COVID levels of over 142 million in FY2020. It also stated that the foreign passenger traffic for Indian carriers was approximately 29.68 million in the previous fiscal year, representing a year-over-year increase of almost 24%.

Additionally, it stated that the industry saw increased pricing power, as seen by the greater yields (compared to pre-Covid levels). It is anticipated that the growth in air passenger traffic that was observed in FY2024 will continue into FY2025. But yields may not be able to rise much above their present levels.

According to ICRA, the average ATF price in FY2024 was Rs 103,499/KL, which was 14% less than Rs 121,013/KL in FY2023 but 58% more than the pre-COVID levels of Rs 65,368/KL in FY2020. The average ATF price increased by 5.4% year over year in Q1 FY2025. It fell sequentially by 6.5% in June 2024.

Thirty to forty percent of airline costs are related to fuel costs. Approximately 45?60% of operational costs are expressed in dollars, including fuel costs, aircraft leasing payments, and a sizeable amount of engine and aircraft maintenance costs. A few airlines are in debt in foreign currencies. Overall, the report stated that domestic airlines' net payables are in foreign currency, despite the fact that they have a partial natural hedge in the form of their earnings from overseas operations. The airlines' efforts to ensure that fare increases are commensurate with increases in input costs will be crucial to increasing their profitability margins.

Because the industry has significant fixed costs, the rate of recovery in earnings is anticipated to be modest, according to the agency. The sector had a net loss of around Rs 170?175 billion in FY2023 as a result of rising ATF costs and the rupee's decline vis--vis the US currency.