Domestic airlines to post USD 700 mn profit despite slump in air traffic

India will see negative to low single-digit air traffic growth in FY20 but could see airlines report an industry-wide net profit of up to USD 700 million, Center for Asia Pacific Aviation (CAPA) said in its recent report. 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% in domestic air travel, a 10-12% growth in international air travel and induction of 90 aircraft in FY20. The estimate has now been revised following the grounding of Jet Airways.

“Domestic traffic growth will be muted, with full-year traffic growth expected to be below 5% year-on-year”

Jet, which had around 14% and 12% share in overall domestic and international seat capacity in India, closed down on 17 April. Jet had 119 aircraft. The grounding has led to a decline in traffic but has improved the yields for airlines. Average fares were 10% higher between January-May and up to 12% higher in the last two months.

Air India, too, could be a significant beneficiary of Jet’s collapse on international routes, and CAPA says Air India could breakeven at the net level in FY20. In FY2018 Air India reported a net loss of Rs 5,348 crore.

CAPA’s best case scenario estimates industry-wide airline profit USD 500-700 million. In its February estimate, it had reported an industry-wide loss of USD 550-700 million.

“Domestic traffic growth will be muted, with full-year traffic growth expected to be below 5% year-on-year. This will largely be as a result of growth picking up from Q3, with traffic expanding by 5-8% 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%. Growth is expected to resume from FY 2021,” CAPA said.