Domestic air traffic to accelerate from July, says CAPA

Aviation think tank and consultancy firm Centre for Asia Pacific Aviation (CAPA) projected that domestic traffic in financial year (FY) 2022 will be 80-95 million, up from 52

Aviation think tank and consultancy firm Centre for Asia Pacific Aviation (CAPA) projected that domestic traffic in financial year (FY) 2022 will be 80-95 million, up from 52.5 million in FY2021, but below 140 million passengers in FY2020.

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While stating that June would see moderate recovery with acceleration in air traffic from the second quarter, CAPA also stated that there will be rising confidence and continued traffic recovery in the second half of this financial year. It added that international traffic will be in the range of 16-21 million.

According to the consultancy, airlines are estimated to need around USD 5 billion of re-capitalisation in FY2022 just to survive, and Air India and IndiGo combined will represent around USD 4.5 billion of the approximately USD 8 billion loss.

CAPA said the second half of the year is expected to have far more positive domestic traffic.

“As was the case in the second half of FY2021, 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, e.g. 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 FY2022.

CAPA also said that based on current settings, international traffic is likely to be constrained towards the lower end of the range because of border restrictions, and that it will be particularly sensitive to discrete decisions taken by governments on such matters, which is unpredictable.

The think tank further 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 USD70/barrel and an exchange rate of USD1= ₹75. It is possible that oil could spike to USD75/barrel and the currency could depreciate to ₹77 during some periods. Airport charges are also expected to be a potential challenge. It is possible in certain scenarios to see a domestic UDF (user development fees) of around ₹1,000 per departing passenger, and an international UDF of ₹2,000- ₹2,500,” CAPA’s estimation stated.

In the domestic market, fare and capacity regulation are expected to continue for a large part of FY2022, said 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 for conducting a financial stress test of carriers prior to removing price and capacity regulations,” the aviation consultancy said.

It also said that international operations to and from India are expected to continue under air bubble agreements for much of FY2022, with the capacity available under these bubble agreements expected to increase from October.