Domestic air passenger traffic expected to shrink by 40-45% in FY21: Crisil

Curtailed mobility of people due to the Covid-19 pandemic is expected to shrink India's domestic air passenger traffic by 40-45 per cent in FY21, rating agency Crisil said on Wednesday.

Similarly, India's air passenger traffic in the international sector is expected to plunge by 60-65 per cent, Crisil Research said in a report.

"The demand destruction can be gauged from the fact that even after resumption of domestic air services, the load factor is hovering at 50-60 per cent, with primarily unidirectional flow of traffic, limited largely to essential travel and those returning to their home cities or countries," the report said.

"In the milieu, Indian carriers are expected to log operating losses this fiscal despite lower crude oil prices. And with the Covid-19 pandemic still raging in much of the world, a revival to pre-pandemic levels appears unlikely even next fiscal."

The report cited this as a serious jolt to the Indian domestic air travel industry that had logged double-digit growth in seven of the past ten fiscals before its fortunes took a turn for the worse with the bankruptcy and grounding of a couple of major carriers.

Consequently, the report said the number of domestic air passengers is expected to be 78-83 million this fiscal, similar to fiscal 2016.

"In the first quarter, passenger demand was weak as air services, grounded since March 25, resumed only on May 25, and with capacity limitations in place," it said.

"Domestic demand is likely to be subdued in the seasonally weak second quarter as well. But, the third and fourth quarters are expected to see increased travel owing to the festive season, although it will still be lower on-year."
 

Besides, the report pointed out the fares, capped by the government, are higher on-year today.

"However, as airlines look to stimulate demand with the onset of the festive season amid the expected removal of the fare cap from end-August, ticket prices on domestic routes are expected to come off from the third quarter and will on average be lower on-year this fiscal," it said.

Furthermore, the report expects international air traffic to mirror the domestic trend.

"Delayed resumption of international operations is likely to translate into a steep drop in passenger numbers for fiscal 2021. Crisil Research projects passenger numbers at 25-30 million, which was the level last seen in fiscal 2008," the report said.

"While international operations are expected to resume in August, there is uncertainty with regard to granting of air travel permissions by different countries, and because of a visa application backlog. Also, the seasonally strong third quarter is expected to post a decline on-year as travellers would be apprehensive to undertake international leisure travel."

In addition, it said the growth is only expected in the fourth quarter over a low base, led by travel for VFR and business.

"But, unlike in the case of domestic air fares, international air fares are expected to rise 4-6 per cent on-year despite the low passenger traffic volume," the report said.

"The reason for this dichotomy is the drop in capacity on international routes by global carriers due to bankruptcies and fleet retirement. The rise is on the back of already elevated fares in fiscal 2020 due to a shortage in capacity following the grounding of Jet Airways, which had a significant international network."