Domestic Air Traffic in July Went 42-Month Low: ICRA

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India’s domestic passenger traffic growth, which was supported by peak season demand in the previous month, witnessed a 42-month low level of 12.5% in July 2017.

According to an ICRA note, high base effect – where the passenger traffic had grown by 30% and 26% in July of 2015 and 2016, respectively – impacted the growth. Further, many of the airlines are focusing on improving yields in order to support profitability and that would have affected some demand during the lean season. Additionally, moderation in capacity addition during last few months has also suppressed the passenger traffic growth rate to some extent.

Anand Kulkarni, AVP and Associate Head, Corporate Sector Ratings, ICRA, says, “The growth in the industry capacity (measured in available seat kilometres – ASKMs) continued to remain moderate in July 2017 at 13.2%, primarily due to below average capacity addition by the market leader, Indigo, which has been facing delays in deliveries of new aircrafts as well as operational issues in the delivered aircraft.”

The aviation turbine fuel (ATF) prices declined in the month of July 2017, but average prices increased marginally during Q2 FY2018. The increase, however, is not expected to have a material impact on profitability of the airlines. Moderate growth in supply as well as adequate passenger load factors (PLF) and yields will support profitability of the industry in Q2 FY2018. Nevertheless, the capacity addition in H2 FY2018 which is expected to be healthy due to sizeable planned capacity addition by various airlines and the resultant higher competitive intensity might impact the yields going forward.

The Indian airlines have been increasing focus on international operations as witnessed in increasing capacity deployment, due to higher opportunities on international routes from India. The same is evident from increasing capacity deployment by some of the carriers on international routes while some others are already focusing on the space since last few years. The expression of interest by Indigo in acquiring predominantly international operations of Air India indicates growing appeal of international routes for Indian airlines.  The Indian airlines continued to outperform the industry on international routes with a passenger traffic growth of 13.1% in July 2017, as against 9.5% for the industry. The market share of the Indian carriers on international routes increased to seven-year high of 37% in July 2017 on account of the consistent outperformance.

“Given the favourable international scenario, few more Indian and international airlines are likely to enter into international flying from India in the near future to tap the opportunity. The domestic space, however, will continue to remain critical for the carriers as it provides sizeable potential as well as feed-in traffic for the international routes. Though technical glitches have impacted capacity addition in the industry to some extent in the current fiscal, the long term capacity addition plan is likely to remain intact,” concludes Kulkarni.

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