Domestic carriers are expected to post an operating profit of Rs 8,100 crore in the 2015-16 fiscal to bounce back from the Rs 1,500-crore loss posted in 2013-2014 on the back of a sharp fall in fuel prices, according to rating agency Crisil Research.
This works out to a spectacular 14 percentage point improvement in operating profit margin to around 11 per cent in the 2016 fiscal, Crisil has said in a report.
However, net profit remains a distant destination for Air India, Jet Airways and SpiceJet because of the high debt burden that has to be serviced.
These airlines can earn a net profit only if the debt burden is halved, which will require a massive capital infusion of close to Rs 35,000 crore, the report added.
"We believe Indian airline companies will have one of the best business environments to operate in for a long time. Falling crude oil prices are a big positive.
We expect about 25-per cent lower air turbine fuel prices for fiscal 2016 compared with fiscal 2014.
More importantly, the fall is accompanied by an improving demand scenario unlike fiscal 2010, when the players were unable to benefit significantly due to weak demand," Crisil Research senior director (industry and customised research), Prasad Koparkar said.
Given their current financial position and improvement in passenger load factors (PLFs), airlines are likely to retain a large proportion of the benefit of lower crude prices Crisil also sees a two-to-fourper cent increase in average realisation of airlines due to lower discounts being offered.
Despite the entry of new players in the domestic market, competition is expected to be moderate, the report said.
Crisil further said that existing airlines will go slow with domestic capacity additions due to current financial stress.
In fact, SpiceJet has reduced its fleet from 58 to 37 aircraft in the current year while capacity addition by new entrants such as AirAsia India and Vistara is expected to be gradual.
Crisil expects PLFs to improve 300-400 basis points over the next couple of years. But the flight path to net profit for the industry will be another story especially for Jet, AI and Spice-Jet, which account for about 75 per cent of the commercial aircraft fleet in India but over 93 per cent of the sector's debt of Rs70,500 crore as of March 2014.