Airfares expected to rise 7-9% this fiscal, highest since 2013; limited capacity additions since Jet Airways was grounded: Crisil

  • Domestic passengers traffic is expected to grow 6-8% in FY20, as against a healthy 19% growth registered in the year ended March 2019 on account of non-revival of Jet Airways

  • The 7-9% expected rise in airfares will be the highest since fiscal 2013, which had then seen Kingfisher Airlines going bust

  • The carriers operating margin had come off after touching a decadal high of around 30 percent in 2016, Crisil said

Mumbai: Air passengers are likely to shell out the highest fares for domestic travel this fiscal with the ticket prices expected to spike 7-9 percent during the period because of limited capacity additions since the grounding of Jet Airways, rating agency Crisil Research said on Wednesday.

Crisil also forecasts domestic passengers traffic to grow 6-8 percent in FY20, as against a healthy 19 percent growth registered in the year ended March 2019, on account of non-revival of Jet Airways, which ceased all operations in April due to liquidity crisis and is now under insolvency proceedings.

The 7-9 percent expected rise in airfares will be the highest since fiscal 2013, which had then seen Kingfisher Airlines going bust, it said. "This is way below the 14 percent growth logged in
fiscal 2019 and the compound annual growth rate (CAGR) of 18 percent was seen in the last five years. Nevertheless, is higher than our earlier estimate of 2 percent growth and factors an upward revision in capacity addition plans of low-cost carriers (LCCs)," Crisil added.

 Airfares expected to rise 7-9% this fiscal, highest since 2013; limited capacity additions since Jet Airways was grounded: Crisil

File photo of passengers at the Chhatrapati Shivaji International airport in Mumbai. Reuters

Even if Boeing 737 Max aircraft, which have been grounded globally since March following two fatal crashes, resumes operations post H1FY20, the domestic passenger traffic growth for the industry could grow faster by about 80-100 bps at best to 7-9 percent it said.

The LCCs, led by a robust expansion of domestic capacity by SpiceJet and IndiGo, on their part are expected to post strong double-digit growth of 25-30 percent in passenger traffic for fiscal 2020, it said. Consequently, Crisil Research expects domestic passenger load factor (PLF) for the industry to remain flat at around 86 percent in fiscal 2020, the rating agency said.

PLF is a metric that measures how much of an airlines passenger-carrying capacity is used.

With the improvement in fares and likely robust growth in passenger traffic for budget carriers, Crisil said it anticipates the EBITDAR (earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs (EBITDAR) margin to rebound to 24-25 percent this fiscal from 15-16 percent in fiscal 2019.

The carriers operating margin had come off after touching a decadal high of around 30 percent in 2016, Crisil said, adding the recovery this time will be led by a significant jump in airfares due to sudden squeeze in capacity by airlines, following the grounding of the Jet Airways.

With the improvement in EBITDAR margin, the LCCs operating cash flows are expected to touch a decadal high of Rs 4,700-5,200 crore this fiscal, Crisil Research said.

Updated Date: Sep 12, 2019 07:40:33 IST