Wednesday, December 14, 2016

Reduced yields impacting profitability of airlines: ICRA

Domestic air passenger traffic continued its healthy growth rate in the current fiscal, with YoY growth of 22.5 per cent in H1 FY2017. Addition of capacity by the new airlines and rapid expansion of capacity by the existing ones have resulted in 20.4per cent YoY growth in the industry available seat kilometers (ASKM) in H1 FY2017, consequently intensifying the competition. The same prompted all the airlines to resort to variety of fare promotions in order to improve their passenger load factors (PLF). Moderation of jet fuel prices in FY2016 had provided a generous cushion to all the carriers, thereby enabling them to reduce fares, which in turn has supported significant passenger growth. However, there has been hardening of jet fuel prices starting from March 2016, where the prices have increased by ~41 per cent sequentially over the last nine months, which has eroded the cushion for the airlines.

 As per ICRA analysis, the industry ASKMs are slated to grow at a strong CAGR of 20-25 per cent over the next three to four years. Sizeable order backlog of Indigo, Go Air, Jet Airways and SpiceJet; expected fleet expansion of Vistara and AirAsia in order to target international flying; and start of new airlines like Air Carnival and Zoom Air will continue to drive the capacity expansion in the industry.

 ICRA believes that passenger growth potential in India remains high in the long-term; however, due to lack of any immediate support from the core growth drivers, the demand pull and resultantly pricing power of the airlines would remain limited in the near term, thereby impacting profitability.
13/12/16 Travel Trends Today
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