Indian airlines eye 8-10 per cent passenger growth in FY2025

The Indian aviation sector is poised to experience significant growth in FY2025, driven by a surge in domestic travel demand, according to a report by ICRA. Passenger traffic is projected to grow by 8-10 per cent year-on-year, following a sharp 37.7 per cent growth recorded in FY2024. This growth is expected to drive capacity additions, with the overall capacity increasing by 8-10 per cent in FY2025.

Despite the positive outlook, the airline industry continues to face challenges. Elevated aviation turbine fuel (ATF) prices and the depreciation of the Indian Rupee against the US Dollar are likely to exert pressure on the cost structure of airlines. While this may partially be offset by fare hikes, airlines' profitability is expected to remain sensitive to such macroeconomic variables.

Industry-wide profitability, which saw improvement in FY2024, is expected to be supported by robust passenger demand, improved pricing, and a higher load factor. The sector witnessed a capacity utilisation of approximately 85 per cent in FY2024. Going forward, airlines are expected to maintain healthy passenger load factors due to sustained demand.

ICRA’s report also highlights that airlines have benefited from improved cash flows in the last year, aided by better yields and higher operational efficiency. As a result, airlines’ credit profiles have shown improvement, with some airlines managing to reduce their debt levels. However, cost control will remain crucial in the face of fluctuating input costs, especially fuel.

The report concludes by emphasising that while the sector is on a growth trajectory, airlines need to continue focussing on cost management to mitigate the pressures of fluctuating fuel prices and exchange rates. This will ensure that profitability remains sustainable amid the robust demand forecast for the domestic market.