The paradox is striking. On the one hand, more and more Indians are taking to the skies. But on the other, airlines’ bottom-lines are shrinking.
In the recent December quarter, domestic air passenger traffic grew 23 per cent y-o- y to 2.72 crore. But all the three listed carriers — IndiGo Airlines, Jet Airways and SpiceJet — saw their earnings dip in what is considered a seasonally strong quarter. The profit of IndiGo and SpiceJet fell about 25 per cent y-o- y, while that of Jet Airways saw a much steeper fall of about 70 per cent. What gives?
Two factors — rising costs, especially that of fuel, and lower ticket prices — took a toll. With crude oil staging a comeback the past few months, the cost of aviation turbine fuel (ATF) headed north. As a percentage of sales, the carriers spent about 4-7 percentage points more on fuel in the recent December quarter, compared with the year-ago period. But rather than increasing ticket prices to offset the impact, the carriers took sharp cuts. Yields in the quarter fell about 16 per cent y-o- y for IndiGo, 10 per cent for SpiceJet and 3 per cent for Jet Airways. Blame this on price wars in the intensely competitive Indian skies.
The problem got compounded by demonetisation during the quarter with airlines slashing fares to offset the impact of the high-value note ban on passenger traffic. So, despite high passenger numbers, airlines’ revenue growth lagged far behind costs.
21/02/17 Anand Kalyanaraman/The Hindu Business Line
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In the recent December quarter, domestic air passenger traffic grew 23 per cent y-o- y to 2.72 crore. But all the three listed carriers — IndiGo Airlines, Jet Airways and SpiceJet — saw their earnings dip in what is considered a seasonally strong quarter. The profit of IndiGo and SpiceJet fell about 25 per cent y-o- y, while that of Jet Airways saw a much steeper fall of about 70 per cent. What gives?
Two factors — rising costs, especially that of fuel, and lower ticket prices — took a toll. With crude oil staging a comeback the past few months, the cost of aviation turbine fuel (ATF) headed north. As a percentage of sales, the carriers spent about 4-7 percentage points more on fuel in the recent December quarter, compared with the year-ago period. But rather than increasing ticket prices to offset the impact, the carriers took sharp cuts. Yields in the quarter fell about 16 per cent y-o- y for IndiGo, 10 per cent for SpiceJet and 3 per cent for Jet Airways. Blame this on price wars in the intensely competitive Indian skies.
The problem got compounded by demonetisation during the quarter with airlines slashing fares to offset the impact of the high-value note ban on passenger traffic. So, despite high passenger numbers, airlines’ revenue growth lagged far behind costs.
21/02/17 Anand Kalyanaraman/The Hindu Business Line
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