Omicron a concern, but unlikely to hinder aviation sector's 2022 flight

India's aviation sector is expected to maintain its high growth altitude in 2022 on a year-on-year basis, despite fears triggered by the new Omicron Covid-19 variant.

Accordingly, the domestic passenger traffic is expected to inch even closer to the pre-Covid levels, whereas the Omicron variant, while remaining a major concern, might not substantially impact operations.

Lately, passenger traffic has witnessed a strong month-on-month recovery with 10.5 million being carried in November 2021 as compared to 12.3 mn passenger carried in February 2020 (pre-Covid).

As per data, during January-November 2021, the airline players carried 72.4 million passengers, a growth of 30 per cent YoY.

However, the domestic passenger traffic at 104-105 lakh in November 2021, continues to be lower by around 19 per cent compared to the pre-Covid levels.

"With regards to year 2022 as a whole, we should see healthy demand panning out both in the domestic and international market starting from second quarter of the calendar year," said Jagannarayan Padmanabhan, Director and Practice Leader, Transport and Logistics, Crisil Infrastructure Advisory.

"Impact of Omicron will be felt more in the international traffic and substantially lesser in the domestic circuit. Having said that these are still early days, if the number of cases increases substantially then there could be an impact on non-essential travel even in the domestic routes."

Post the second wave of the pandemic, overall passenger traffic has witnessed a strong month on month recovery.

Besides, passenger traffic in FY21 had declined to the levels lower than that of FY11 level. It, however, clawed back in FY22.

"We estimate FY22 traffic should be better than FY16 levels of around 85 million. We believe the growth momentum is likely to continue with higher number of offices opening up and employees returning to office; expectations of gradual increase in the business travel. Besides pick-up in in the leisure travels is also likely to ensure healthy demand going forward," said Rabin Bihani, Senior Analyst, India Ratings and Research.

"Unless there is spike in Omicron or third wave, we believe, demand momentum shall continue to remain healthy. Government has also allowed airlines to operate at 100 per cent capacity now."

Nonetheless, higher fuel prices will remain a significant challenge for the aviation industry, given that it constitutes for over a third of the revenue.

In 2021, ATF prices have witnessed a substantial increase.

During April-November 2021, average ATF prices have increased by about 80 per cent on a YoY basis.

Apart from higher fuel prices, competitive intensity is also likely to intensify with a new airline entering the sky and an expected return of an old player.

"Industry earnings are expected to be adversely impacted in FY2022 due to lower revenues and higher ATF costs - Given the onset of Covid-19 2.0, the demand recovery will be delayed for FY2022," said Suprio Banerjee, Vice President & Sector Head, ICRA.

"Consequently, debt levels are likely to remain high for the industry and are estimated to be range bound at around Rs 1,200 billion (including lease liabilities) for FY2022, with the industry requiring an additional funding support of Rs 450-470 billion over FY2022 to FY2024."

In addition, Banerjee said the outlook reflects the view that the financial performance of Indian airlines is likely to remain weak as material recovery in passenger traffic to pre-Covid levels is likely to be gradual, following continued restrictions on international travel and subdued demand from the corporate traveller segment.

(Rohit Vaid can be contacted at rohit.v@ians.in)

--IANS

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