Domestic air traffic set for double-digit growth again
The first of a three-part series analyses how the aviation industry is an outlier in the midst of an overall economic slowdown
Despite the dismal start to the year with Jet Airways collapsing and domestic traffic slowing, the industry is showing signs of emerging from the doldrums. In the first of a threepart series, ANEESH PHADNIS analyses how the aviation industry is an outlier in the midst of an economic slowdown.
Despite the dismal start to the year with Jet Airways collapsing and domestic traffic slowingdown, the aviation industry is showing signs of emerging from the doldrums.
Airlines flew more than 70 million passengers between January and June —a 3 percent growth over last year. Airline executives and analysts say they expect domestic air traffic to return to double digit growth in the next few months. One reason is that airlines have ramped up capacity and expanded their presence in tier-II markets.
Growth turned negative in April with Jet’ s demise but has picked up again with 2.8 percent in May and a 6 percent rise in June. While the present demand is being driven by low fares as it isa season ally weak quarter, fuel prices are lower compared to last year, bringing relief to carriers .“After the Jet crisis, the reduction in capacity in the peak quarter saw a massive jump in fares and some sectors saw fare increases in excess of 30 percent. The turbulence from the Jet crisis impacted the aviation sector and the domestic market witnessed low single digit growth rates in the first quarter of FY2020. Growth rates are likely to bounce back into double digits shortly as significant capacity is being deployed by existing carriers,” said Balu Ramachandran, head of air and distribution at Cleartrip.com.
In the preceding quarter, airlines added 65-70 planes to compensate for the capacity lost by Jet’ s closure. The maximum number of planes —31— was brought in by Spice Jet. Spice Jet had plans to add 60 plane sin FY 20, but now has indicated it will add up to 13 in the winter season. The capacity guidance has been lowered due to uncertainty around return into service for Boeing 737 Max aircraft. “We look forward to their( Boeing 737 Max) swift return to service in the near future that will help Spice Jet increase its margins and provide a superior level of service ,” Spice Jet Chairman A jay Singh said after announcing the firm’ s record ~261- cr ore quarterly profit.
The pick-up
“Immediately after King fisher Airlines closure, we had seen a similar di pin traffic. But no with as already started pickingup. Fordomestic, Icansayitisat pr e-April levels ,” said G MR group’ s director IP ra bhak ar aR ao.
In di Go is expected to add 35 to 40 planes between August and next March while Tat a group airlines Air Asia India and Vista raw ill add 20 planes. While the first quarter saw airlines filling up the slots vacated by Jet in Mumbai and Delhi, most of the growth in the coming months is likely from non-metro sandtier-IIcities where the airlines are adding capacity.
Airlines are introducing destinations such as Sil char and Di b rug a rh( In di Go) and Bhopal, Gwalior, Jharsuguda, and D ur gap ur( Spice Jet ). Abroad, the additional destinations are Yang on and Hanoi(IndiGo) and Singapore and Dubai (Vistara). SamirPatel, vicepresident (network planning), GoAir, saidthe airline had been growing at healthy double digits in the past and this would continue, without losing its focus on profitability and customer satisfaction.
“Go Air will take delivery of one aircraft every month on average. Newer routes are being developed. Go Air has added eight international markets and will continue to explore more routes ,” said Pa tel.
Pricing issue
Pricing, however, remains a challenge for airlines. The In di Go management cautioned about lower yield sin the second quarter after reporting a record ~1,203 cr ore profit in the first quarter of FY 2020.“We do not expect any meaningful impact of Jet Airways to continue as all airlines have now replaced the capacity vacated by Jet. Unfortunately, weare witnessing some lower fares in the 0-15 day booking window and expect this to add some pressure to our unit revenue in the second quarter,” said IndiGo CEO Ronojoy Dutta.
On the positive side, the operating environment is more benign than last year. Crude oil prices are lower in the second quarter on a year-on-year basis. "Brent crude was $70 a barrel last year and now it is at $65. While there is a seasonal weakness, the lower fuel price is a silver lining ,” said San to sh Hire des ai, analyst with SB I CAP Securities. Ameya Joshi who runs aviation website Network Thoughts was optimistic .“We could see a steady 812 percent growth from October onwards and airlines may try to push up fares and look for profitability .”
Positive outlook
On international travel, demand remains positive .“The near-term outlook remains positive as capacity allocation to other carriers in recent weeks has helped ratio na lise fares compared to the highs witnessed in the early quarter soft his year. Also, there opening of Pakistan' s air space and the consequent di pin air fares by 40 percent will help rev ive demand for international travel ,” said a Make My Trip spokesperson.
In the company’ s latest annual report, Dut ta talked of In di Go’ s future market targets .“We are targeting countries that have high out bound tourist markets such as Russia, China and Israel and plan to start service to these countries soon .”
While United and Air Canada are resuming services to India, Virgin Atlantic is re-entering the Mumbai following Jet’ s closure. KL Mis adding flights at Mumbai and Ben ga lu ru.