Friday, December 22, 2017

Despite a raft of policy facilitations, domestic airlines are flying into two major headwinds

Despite a raft of policy facilitations, domestic airlines are flying into two major headwinds-crippling infrastructure constraints at major airports, and an uptick in fuel prices-which could mean growth in domestic air passenger traffic may have peaked out for the medium term.

CRISIL Research sees growth decelerating ~800 basis points (bps) to 13-15% annually in the five fiscals through 2022, compared with a blistering 22% seen in fiscals 2016 and 2017. This fiscal, it's seen slowing 300-500 bps to 17-19%.

Passenger traffic took off in the past two fiscals as fares fell following a decline in crude oil prices to an average USD 48 per barrel in 2016 compared with USD 108 in 2014. That also brought down the operating cost-aviation turbine fuel accounts for ~30-35% of the cost-of carriers.

CRISIL Research expects the average price of crude oil to be USD 50-USD 55 per barrel over the next five fiscals, so fares would nose up and moderate passenger traffic growth.

Prasad Koparkar, Senior Director, CRISIL Research, said, ''The bigger problem, however, is the severe congestion at airports metastasizing into structural gridlocks. Mumbai and New Delhi airports (63% of domestic passenger traffic either originate or terminate at these two airports) are edging towards capacity crunch during peak hours, which is amplifying the infrastructure constraints.''

Mumbai's problem is it has only one operational runway (the second one is in cross alignment, so can't be used), while Delhi has three. And capacity utilisation at other metro airports such as Hyderabad and Bengaluru have already crossed the 100% mark.

Plan to build a new runway at Mumbai has been mired in issues of rehabilitation of slum-dwellers abutting the airport, acquisition of private land, and removal of obstructions such as buildings in the take-off and landing paths.
20/12/17 IRIS