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Fitch Expects Gradual Recovery For Indian Aviation With Risk Of Higher Competition

Domestic passenger traffic remains weak since flights resumed in late May after a two-month restriction with September data showing a 66 per cent year-on-year drop (58 per cent decline for 9M 20).

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Fitch Ratings expects average revenue passenger kilometres for India's airlines to remain 40 per cent below 2019 levels in 2021 despite recovering from being 65 per cent lower in 2020.

Domestic passenger traffic remains weak since flights resumed in late May after a two-month restriction with September data showing a 66 per cent year-on-year drop (58 per cent decline for 9M 20).

The government restricted airline capacity at 70 per cent of the March level and imposed fare bands until late February 2021.

"We expected market leader IndiGo to further consolidate its position from a 60 per cent share of domestic passengers in July due to liquidity pressure at rival airlines," said Fitch in its latest outlook for the sector released here on Wednesday (local time).

"However, its share declined to 57 per cent in September, which indicates smaller players are intensifying competition to regain share. This could limit gains for the industry from better traffic in 2021."

For the global airline sector, Fitch expects operating conditions to improve in 2021 but only relative to the unprecedented downturn in 2020.

Spiking coronavirus cases in various regions and inconsistent travel restrictions will keep airline traffic low at least through the first part of 2021 with limited improvement expected relative to levels in 3Q 20 and 4Q 20.

Recent positive news about vaccine development along with pent-up leisure demand may drive a more robust rebound in the 2H 21.

Nearly all airline ratings remain under pressure as traffic remains severely depressed. Fitch expects more airline bankruptcies in 2021, particularly among smaller and less well-capitalised airlines.

Modestly higher traffic and cost-cutting efforts will help stem cash burn compared with 2020. However, the combination of higher debt and prolonged weakness in operating profits will drive weak credit metrics for the sector at least over the next 18 to 24 months.

Successful development and distribution of effective coronavirus vaccines and treatments will be essential for air traffic to rebound toward pre-crisis levels. Positive early news on the Pfizer and Moderna vaccines has positive implications.

While the distribution of a vaccine is sufficient to spur a more rapid rebound in travel will take time, Fitch believes positive early developments on vaccines at least reduce risks toward downside scenario in which traffic will plateau at low levels through 2021, and potentially leaves room for a more robust return to air traffic in the 2H 21. 

(ANI)

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


ANI

ANI

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