The aviation think tank and consultancy firm Centre for Asia Pacific Aviation said that the aviation industry is heading into a higher-cost environment at a time when it can least afford to
Aviation think tank and consultancy firm Centre for Asia Pacific Aviation (CAPA) projected that domestic air passenger traffic in the financial year (FY) 2022 will be 80-95 million, up from 52.5 million in FY 2021, but below the FY 2020 number of 140 million passengers.
While stating that there would be moderate recovery in June with an acceleration in air traffic from the second quarter, CAPA said there will also be rising confidence and continued traffic recovery in the second half of this financial year and that international air passenger traffic will be in the range of 16-21 million.
According to the consultancy, airlines are estimated to need around US$5 billion of re-capitalisation in FY 2022 just to survive, and Air India and IndiGo combined will represent around US$4.5bn of the approximately US$8bn of losses.
CAPA said the second half of the year is expected to see more domestic traffic.
“As was the case in the second half of FY 2021, we expect to see rising confidence and continued traffic recovery in the second half of this financial year—partly due to the easing of restrictions and the expansion of bubble agreements, but also due to the prospects of increased international deployment by Indian carriers. For example, Vistara is likely to launch routes to North America and other long-haul destinations with its fleet of four 787s,” CAPA said in its airlines outlook for FY 2022.
CAPA, however, said that international traffic is likely to be constrained because of border restrictions and that it will be particularly sensitive to discrete decisions taken by governments on such matters, which is unpredictable.
CAPA said that the aviation industry is heading into a higher-cost environment at a time when it can least afford to.
“Our projections assume an average oil price of US $70/barrel and an exchange rate of US $1= ₹75. It is possible that oil could spike to US$75/barrel, and the currency could depreciate to ₹77 per dollar. Airport charges are also expected to be a potential challenge. It is possible, in certain scenarios, to see a domestic user development fee (UDF) of around ₹1,000 per departing passenger, and an international UDF of ₹2000-2500,” CAPA’s estimation stated.
In the domestic market, fare and capacity regulation are expected to continue for a large part of FY 2022, according to CAPA. It also said that removing caps may be more challenging than it was to introduce them.
“The government may need to develop a framework to conduct a financial stress test of carriers prior to removing price and capacity regulations,” the aviation consultancy said.
It also said that international operations to/from India are expected to continue under air bubble agreements for much of FY 2022, with the capacity available under these bubble agreements expected to increase from October.
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