Clipped wings: Post-Covid pandemic recovery in air travel stalls

The post-Covid recovery in air travel in India has stalled, putting a question mark over the stretched finances of airlines.

According to government data, the number of passengers handled by Indian airports in September 2022 was still nearly 22 per cent lower than that in December 2019. Also, the monthly passenger movement at airports has moved in a narrow band since March this year, showing little sign of growth.

Airports in India handled around 24.94 million passengers in September this year, against the pre-pandemic high of 31.85 million passengers in December 2019 and 24.43 million in March this year. The passenger numbers in September 2022 were also nearly 7 per cent lower than the recent high of 26.85 million in May this year.

Between April and September this year (when there were no Covid curbs), airports in India handled 25.01 million passengers a month on average, still down nearly 14 per cent from 29.1 million passengers a month on average in the 2019 calendar year.

The biggest decline has been in foreign tourist arrivals.

According to government data, around 500,000 foreign tourists arrived in India in August this year -- 59 per cent lower than 1.22 million arrivals in December 2019 and 38 per cent lower than 800,000 arrivals in August 2019. Visits by foreign tourists are highly seasonal, with arrivals peaking in December and January; they hit a seasonal low during May-June every year.

This is putting pressure on airline finances. "A slower-than-expected recovery in air travel after the pandemic slump in 2020 and 2021 is a double whammy for airlines as the operating and interest costs are up significantly compared to what they faced in 2019. This has translated into losses despite a rise in ticket prices," says Dhananjay Sinha, director and head of strategy & equity, Systematix Institutional Equity.

He expects air travel to remain in the slow lane, given recessionary conditions in the world’s major economies, recent decline in global trade, and its spill-over effects on the Indian economy.

For the market leader InterGlobe Aviation that runs IndiGo, net loss rose to Rs 2,647 crore in April-September 2022 period (H1FY23), against a net loss of Rs 1,552 crore in the second half of FY22. Similarly, it reported a higher loss in Q2FY23 (of Rs 1,583.33 crore) compared to a net loss of Rs 1,064.3 crore in Q1FY23. The company's net sales were also down 2.8 per cent on a quarter-on-quarter basis in Q2FY23.

SpiceJet reported a net loss of Rs 1626.7 crore in the first half of FY23, up sharply from a net loss of Rs 434.7 crore in H2FY22.

Many brokerages, however, are betting on a rise in passenger traffic to fuel an improvement in airlines finances in the second half of FY23.

“The festival season and recovery in corporate travel would be the key revenue drivers in the coming quarters with yields expected to be higher than that of Q1FY23 levels. International tourism can also help drive earnings,” write Swarnendu Bhushan of Motilal Oswal Financial Services in his recent report on InterGlobe Aviation. The brokerage expects the airline to report a net profit of Rs 753 crore in FY23 which means a record-high half yearly net profit of Rs 3,404 crore in H2FY23. The brokerage expects IndiGo’s revenue to rise by 13.8 per cent sequentially to Rs 29,437 crore in H2FY23, from Rs 25,871 crore in H1FY23.

Others are also betting on a decline in fuel price to drive earnings improvement in airlines. “Crude oil prices are down nearly 30 per cent from their 52-week high. This will translate into lower operating costs for airlines in H2FY23, allowing them to report profits or, at worst, a sharp decline in losses,” says G Chokkaligam, founder & MD Equinomics Research & Advisory Services.