Undeterred by demonetisation, the domestic air passenger traffic reported a year-on-year growth of 24 per cent in December 2016. The growth was propelled by peak season demand along with prevalent low airfares due to competition. The traffic growth on international routes was however impacted slightly, with the industry reporting 7.7 per ceny y-o-y growth during the month.
Performance of Indian carriers on international routes was better, with 16.1 per cent growth in traffic Domestic passenger traffic growth was healthy at 22.9 per cent during nine-month FY2017.
The rate of capacity addition, measured in available seat kilometers (ASKMs), on domestic routes was healthy at 20.6 per cent for nine-month FY2017, driven by sizeable fleet expansion by the incumbents and scaling up of operations by new airlines. The same has been impelling the airlines to continue with competitive airfares, thus impacting the yields. Though the industry has been able to report healthy domestic passenger load factor (PLF) performance (88.7 per cent in December 2016 and 83.9 per cent in nine-month FY2017) in the current fiscal, the same was inadequate to offset decline in yields. Effect of fleet expansion by airlines has also trickled down to international routes, which reported 10.9 per cent y-o-y growth in ASKMs during nine-month FY2017; however, due to comparatively weaker brand positioning of the Indian airlines on international routes, the PLF performance remained weaker than the domestic performance.
Anand Kulkarni, AVP and associate head, corporate sector ratings, ICRA, said, “ICRA has been emphasising on pressure on profitability of airlines operating in the country due to competitive environment and increasing aviation turbine fuel (ATF) prices in the current fiscal and the same has been reflected in decline in profitability of the listed airlines in Q3 FY2017. As per ICRA estimates, the fuel cost per ASKM (CASK) of the domestic aviation industry increased to INR 1.08 in December 2016 from a low of INR 0.82 in February 2016 and the same is expected to increase further in Q4 FY2017. Going forward, the profitability of the airlines would be negatively impacted in Q4 FY2017 as the airline yields continue to remain under pressure and the ATF prices maintain the uptrend. The ATF prices in February 2017 are ~50 per cent higher on y-o-y basis. Further, the capacity addition in the industry is expected to continue at a healthy pace given the proposed fleet expansion plans of various airlines.”
In the domestic market, IndiGo continued to remain the leader during nine-month FY2017, with a market share of 40.2 per cent. Other key players like Jet Airways and Air India conceded their market shares to IndiGo as well as new airlines. Among the new airlines, Vistara and AirAsia reported improvement in their capacity deployment, PLFs and hence market shares. The regional airlines (Air Costa, TruJet, Air Pegasus and Air Carnival), however, continued their underperformance and hence reported modest contraction in their market shares.