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Aviation

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 Earlier vs new forecasts
2021-22 S1 – Covid-
2020-21 2020-21 2021-22 2021-22 2021-22
(S2) (old
Parameter (old estimates – (new YTD (Oct) (S1) (old estimate – (S1) (new (S1) (new 19 is brought
estimate –
Aug 2020) estimate) Aug 2020) estimate) estimate) under control
Aug 2020)
by the end of
Passenger traffic this fiscal
Domestic passenger traffic (55-60)% (60-65)% -80% 95-100% 130-140% 65-70% 70-80%

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International passenger traffic (75-80)% (80-85)% -93%* 2.7-2.8x 3.1-3.2x 1.9-2x 2.3-2.4x S2 – Covid-
Domestic freight Traffic (40-45)% (30-35)% -52%* 50-55% 30-40% 35-40% 20-30% 19 persists
International freight traffic (55-60)% (40-45)% -60%* 40-45% 20-30% 30-35% 5-15% till H2 of the
next fiscal
Capacity
Domestic ASKs (45-50)% (50-55)% (-85)%$ 80-85% 1-1.1x 60-65% 70-80%
International ASKs (70-75)% (75-80)% (-86)%$ 2-2.1x 3.2-3.3x 1.5-1.6x 2.7-2.8x
Utilisation
Domestic PLF 65% 65-70% 55-60% 75-80% 75-80% 70-75% 70-75%
International PLFs 55-60% 55-60% NA 70-75% 70-75% 65-70% 65-70%
Ticket prices
Domestic ticket prices 0-5% 5-10% 8-12% (5)-0% (5)-5% (5)-0% (5)-5%
International ticket prices 4-6% 4 – 6% NA (5)-0% (2-10)% (5)-0% (2-8)%
Profitability
Revenues (60-65)% (60-65)% NA 130-140% 160-170% 90-100% 110-120%
EBITDAR margin (8-12)% (5)-(8)% NA - 15-20% - 5-10%

Note: * As of Sep’20; Unscheduled traffic including Vande Bharat Mission and Air Bubble flights; $ - Till June

Classification: INTERNAL
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 Domestic capacity has seen sequential uptick with easing of
lockdowns and quarantine requirements
Airlines have to adhere to capacity restrictions
Daily passenger numbers witnessing sequential pick up
imposed by the Ministry
3500 60% 500 100%
450 8 32 39 31
3000

Pax travelled per day(‘000)

50% 400 90%
Departures per day

2500 350
40% 80%

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2000 300
30% 250 70%
1500 200
20% 150 60%
1000
100 50%
500 10%
50
0 0% 0 40%
May June July Aug Sep Oct Nov May June July Aug Sep Oct Nov
FY20 FY21 FY21 as a % of FY20 FY20 FY21 PLF FY20 PLF FY21
M-o-M % rise in pax numbers
Source: DGCA, Statistics tweeted by Hon. Aviation Minister, CRISIL Research Source: DGCA, Statistics tweeted by Hon. Aviation Minister, CRISIL Research

• Domestic services resumed with 33% cap on capacity; Current cap at 70%
Drivers:
• Ease in quarantine measures by various states and opening of tourist destinations
• Return of a portion of business traffic led by SMEs
• Returning to/from home destination
• Visiting friends and family (VFR) the key drivers for rising pax numbers in the near future
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 Set back by a decade, domestic passenger traffic may barely touch
fiscal 2018 level next fiscal
Domestic passenger traffic expected to drop to fiscal 2011
Extended fare cap to push up fares this fiscal
level this fiscal
200 87% 87% 87% 82-88% 100% 10%
77% 75-80% 70-75% 5-10%
6%
150 65-70% 80%
180-190 5% 3%
140 142 60% (5)-5%
100 123 125-130 1% 1%

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95-100 40% 0% -2%
50 20% FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22P
54 50-55 0
-5% -7%
0 0%
-10%
-10%
Fares

Domestic Pax PLF -15%

Source: DGCA, CRISIL Research Source: Company reports, CRISIL Research

Advent of festive season in Q3 may see revival of passenger traffic

Share in demand On year growth in domestic
Quarter Impact Takeaways
(Trend) passengers
Q1 24% (-93)% • Services resumed in end May
High
• Airlines allowed to deploy 30% capacity
23% (-75)% • Travel limited to essential
Q2 High
• Airlines allowed to deploy 45% capacity
Q3 26% (50 to 45%) • Festive season sees traction with VFR traffic and SME business traffic
High
driving growth combined with migration/reverse migration traffic
Q4 (25 to 20)% Medium • Leisure travel picks up
27%

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 Airline domestic capacity deployment capped by govt this fiscal;
fleet to see marginal drop next fiscal
Supply seen dropping to FY13-14 levels; FY22 capacity seen rising to fiscal 19 levels Airlines utilising fleet breadth to best serve ops

250 220-240
Up gauging
200
156 159 155-160
134
Billion-km

150 130-140
80 75-80

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100 76
Airlines deploying larger capacity aircraft on routes
50
which have artificial congestion or capacity caps
0
• Pune Airport due to runway repairs
• Kolkata airport due to cap on number of flights
ASK's
from Mumbai and Delhi
Source: DGCA, CRISIL Research
• Delhi-Srinagar , Mumbai-Ahmedabad routes,
Faster return of older generation aircraft to see overall fleet reduce in fiscal 2022 which have high traffic but where airlines want to
damp frequency

Down gauging

Strategically important or temporary thinner

routes due to reduced traffic see deployment
of smaller capacity aircraft

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 International passenger traffic to fall off a cliff due to pandemic
Share of Indian carriers to improve due to preference for direct flights over 6th freedom traffic
International pax to drop below FY08 level due to the pandemic India has operationalised air bubble flights with 21 countries
90 37% 75-85 50% Top 10 countries accounted for Operationalised air bubbles
40-42% 45%
80 69 40-44% three-fourth of the traffic in CY19 accounted for ~60% of traffic in
70 30% 31% 65 66
40-42% 44-48%40% CY19
34% 35%
60 30%
37% 45-50
50 25% UAE UAE
35-40 20%
40 30 32
15% United States of America

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30 10% Singapore
20 8-12 5%
Thailand France
10 0 0%
Qatar Canada

Malaysia Germany
Passenger Traffic Share of indian carriers
Source: AAI, CRISIL Research Oman Netherlands

Capacity in FY21 to be below FY08 level Saudi Arabia Bangladesh

200 182 United Kingdom United Kingdom

150 Sri Lanka Japan

Billion-km

102 112
92 95-100 Qatar
100 80-85 Hong Kong
54 62
50 Source: DGCA, CRISIL Research
18-25
0 Air bubble flights only allow 3rd and 4th freedom traffic
3,4 th Freedom  Indian carriers stand to benefit as
Source: DGCA, CRISIL Research 5,6 th Freedom X direct traffic preferred over stops

Hub carriers accounted for ~ 30% of CY19 traffic

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 Freight demand less impacted compared with pax; green shoots for
dedicated cargo operations visible
Domestic freight demand seen at fiscal 2014 level International freight demand seen at fiscal 2014 level
‘000 tonnes ‘000 tonnes
1000 850-950 3000
2500-2600
900 2500
761 737 2200 1800-1900
800 697 2003
700 650-700 2000 1855
600-650 1656 1600-1700

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600 508 475-525 1443 1543 1450-1550
1500
500
400 1000
300
200 500
100 0
0

Source: DGCA, CRISIL Research Source: DGCA, CRISIL Research

Demand for freighter and cargo only flights rises as scheduled capacity reduction on Domestic and specially on International routes sees drop in belly capacity
• SpiceJet only Indian passenger commercial airline, with dedicated • To boost share of Indian carriers in International cargo, DGCA has limited
freighters non-scheduled cargo flights by foreign carriers to 6 airports only
• Current freighter fleet of 17 a mix of turboprop, narrow body and wide • SpiceJet leases wide body freighters to operate cargo flights to Africa,
body Europe and CIS countries
• Witnesses 8x on-year revenue growth in H1FY21; • Delta launches daily Mumbai – JFK/ATL freighter service due to demand
• IndiGo to deploy 10 aircraft solely for cargo operations with cargo on • Air India launches cargo only flights to some International destinations
seats

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 Airlines face Rs 1.2-1.4 lakh cr revenue forgone over fiscals 2020-2022
Indian airlines are staring at a revenue forgone of
Revenues to fall 60-65% on year in the current fiscal Rs. 1.2 to 1.4 lakh crore due to the pandemic
over fiscals 2020 to 2022
200%
160-170%
1.6
150%
1.4
110-120%
1.2

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100%
1.0
50% 0.8
24% 28%
14% 19%22% 0.6
0%
0% 0.4
FY18 FY19 FY20E FY21P FY22P-S1 FY22P-S2 0.2
-50% 0.0
FY17 FY18 FY19 FY20 FY21E FY22P
(65-60)%
-100% Pre-Covid revenues Post Covid revenues -S1
On-year change in revenues for Indian airlines Listed players revenue growth
Source: Company reports, CRISIL Research Source: Company reports, CRISIL Research

• In the absence of Covid, airlines were projected to report double digit growth in fiscals 2021 and 2022 due to increasing spending power, lesser
air penetration as compared to other developing countries, greater focus of Indian carriers on International expansion on short and medium haul
routes; Development of new airports; Traction in the UDAN scheme
• Airline revenues in FY22 to reach fiscal 2017 levels; putting the industry back by 3-4 years
Source: Company reports, CRISIL Research

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 Steep drop in fuel price unlikely to cushion EBITDAR margins;
historical correlation with fuel prices to come unstuck
Correlation of EBITDAR margins and fuel price to come unstuck in fiscal 2021 due to Covid-19
40.0% 112 120
(Percentage) 106
($/bbl)
35.0% 34%
108 40-45 100
30.0% 29% 28%

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25.0% 84 23% 22.6% 80
20.0% 19.4%
19% 65 18-22%
16.7% 17%
15.0% 14% 14% 60
38-43
10-12%
10.0% 10.8% 40-45
9%
7.7% 56
45 47 9.1% 4-8% 40
40-45
5.0%
3.2%
0.0%
20
-3.1%
-5.0% (5-8)%
EBITDAR Margins EBITDAR Margins listed players Brent Crude ($/bbl)
-10.0% 0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21P FY22PS1 FY22PS2
Source: CRISIL Research Source: Company reports; CRISIL Research

• EBITDAR margins and fuel price moved in inverse proportion

• Demand destruction due to the pandemic is likely to see margins plummet despite a close to 50% drop in fuel prices

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 Airlines are rationalising their fixed costs to cushion margins

FY2020E Parameter Reasoning

Fuel prices have reduced and airlines

Fuel
utilising newer generation aircraft
Fixed and
semi- Supplementary lease rentals to reduce
Rentals Lease rental
variable due to reduced flying
3%

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Others Employee , 30%
13% Employee Airlines have cut manpower, given LWP,
18% expenses VRS, rationalised salaries

Landing fees Parking of fleet due to inactivity to push

10% Repair and Airport charges
up charges on per unit basis
Maintenance
15% Maintenance on ground to maintain
Fuel Maintenance aircraft to cancel out benefit of lower
41% heavy maint. cost on per unit basis

Airlines have cut costs in order to

Others
cushion their margins
Variable, 70%
Expected to remain same on per unit
Commission
basis
Source: CRISIL research

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 Pandemic to worsen already weak balance sheets of Indian airlines
Airlines have weak balance sheets due to price wars and Various steps undertaken by airlines to raise
competition funds/revenues to stave off the pandemic effects
50000
Networth Debt Airline Steps taken
40000 • Looking to raise QIP worth Rs. 4,000 crore
IndiGo
30000 • SLB of owned aircraft to generate funds
• To operate air bubble flights to London on leased wide body
20000
aircraft

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Rs crore

10000 • Operating long haul charters under VBM through Hi-Fly

SpiceJet
0 • Commenced sea plane services
Private carriers State carriers Indian airline industry • Wet-leasing of long haul wide body aircraft for non-stop
-10000 operations on medium haul routes
-20000 • Rs 600 crore equity infusion by owners in FY20
-30000 • Rs 75 crore equity infusion by owners (Tata and SIA) in FY21
Vistara
• Commenced flights to London under air bubble; Paris and
-40000
Frankfurt the other likely air bubble destinations
Source: Company reports; CRISIL Quantix; CRISIL Research
AirAsia Rs. 300 crore debt debt to be raised in the form of debentures
• All airlines had a negative networth as of FY19 barring an FSC and India
an LCC
• Designated carrier under VBM.
• Airlines to report losses in FY20 based on analysis of results of
• Operating short, medium, long and ultra-long haul routes
listed players to further pressurise networth of carriers Air India under VBM and air bubble arrangements with limited
• FY21 would be challenging for Indian carriers due to weak balance competition from 3rd and 4th freedom home carriers only
sheets, sharp drop in revenues and margins coupled with no direct • Looking to raise Rs 6-7k crore funds using aircraft as collateral
aid by the Govt

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 Global scenario – airlines entering bankruptcy, with stronger
players seeking state aid
Airline Status Outcome
Air Mauritius Voluntary administration Bailout by Mauritian government
South African Airways Liquidation Government to provide bailout

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Placed employees on furlough for the first time in its
Southwest Airlines Reports first loss since 2011
history. Accessed US government aid

United Airlines Applied for US government aid $3.5B grant and $1.5B as low-interest loan

Lufthansa Applied for government aid Received €9 billion from German government
Sold to Bain Capital. To operate as only a domestic player
Virgin Australia Seeking bankruptcy protection
now
British Airways Likely to cut 12,000 jobs
American Airlines Applied for government aid $4.1 billion as grant and $1.7 billion as low-interest loan
Group to receive $12 billion aid from French and Dutch
Air France - KLM Seeking state aid
Govt’s
Source: CRISIL Research

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Thank You

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