India, SE Asia airlines to see improved earnings: Fitch

Mumbai: Driven by higher demand, lower fuel costs and ongoing industry restructuring, the earnings outlook for Indian and south-east Asian airlines should improve in 2016, says Fitch Ratings.

However, the ratings firm cautioned that the operating environment will be challenging due to strong competition and capacity expansion.

“Macroeconomic growth should help bolster demand and top-line growth for the region’s airlines, and data so far in 2015 is already showing strong demand growth,” Fitch Ratings says.

Seat occupancy or passenger load factors (PLF) in India and south-east Asia have risen steadily, with the average PLF across seven major airlines based in the region hitting multi-year highs above 80% in third quarter of calendar year 2015, it said.

“The continued decline in global oil prices will also provide a much-needed boost to airline earnings, with Brent crude falling further so far in fourth quarter of 2015. Industry consolidation and restructuring should also result in improved profitability,” Fitch Ratings said in a Wednesday report.

Nonetheless, aggressive competition and capacity expansion remain key risks for the sector over the longer term, it cautioned.

“Capacity growth in south-east Asia and India has slowed in 2015 as airlines focused on profitability, but a huge order book for new aircraft remains, which could make it difficult to improve profitability for the sector,” it added.

India is projected to become the world’s fastest-growing major economy by 2016-17—the third year of the Narendra Modi government—with a growth rate of 6.5%, topping China’s 6.3%, the International Monetary Fund (IMF) said in its latest World Economic Outlook Update earlier this year. This is likely to boost domestic and international travel. Consultancy firm Capa India forecasts that Indian domestic traffic will grow at 15% for the current fiscal year.

India’s airlines are expected to post a lower combined loss of $500-550 million in the year to 31 March, down from the June estimates of $680-750 million, according to Capa India in its India outlook report released in October.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.