Domestic airlines to post upto $700 mn profit, says aviation consultancy

Air India
India will see negative to low single digit air traffic growth in FY20, but could see airlines report industry-wide net profit of upto $700 million, aviation consultancy CAPA said in its report on Thursday. This would be first industry-wide net profit for airlines in India since 2003, it said.

In February, CAPA had estimated a growth of 14-16 per cent in domestic air travel, a 10-12 per cent growth in international air travel and induction of 90 aircraft in FY20. The estimate has now been revised following the grounding of Jet Airways.

Jet, which had around 14 per cent and 12 per cent share in overall domestic and international seat capacity in India, closed down on April 17. Jet had 119 aircraft. The grounding has led to a decline in traffic, but has improved the yields for airlines. Average fares were 10 per cent higher between January-May and upto 12 per cent higher in last two months. Air India, too, could be a significant beneficiary of Jet's collapse on international routes and CAPA says Air India could break even at the net level in FY 2020. In FY2018 Air India reported a net loss of Rs 5348 crore.

CAPA's best case scenario estimates industry-wide airline profit  $500-700 million. In its February estimate it had estimated an industry wide loss of $550-700 million.

"Domestic traffic growth will be muted, with full-year traffic growth expected to be below 5 per cent  year- on-year. This will largely be as a result of growth picking up from Q3, with traffic expanding by 5-8 per cent  in the second half. The high double-digit growth rates observed during the last five years are unlikely to return for the foreseeable future. International traffic is likely to be flat at best, and could show a slight decline of up to 5 per cent. Growth is expected to resume from FY 2021," CAPA said.

"Three of the key structural challenges facing Indian airlines (over-capacity, pilot shortages, and airport infrastructure constraints) have eased significantly as a result of Jet’s closure. This should allow the remaining carriers to enhance their profitability, strengthen their balance sheets and create a more viable industry," it added.

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