Saturday, August 11, 2018

India Aviation Experiences Downturn

Fortunes have reversed for Indian airlines that had been growing at an average of 18 percent a year for the past three years. An exceedingly competitive fare environment, the adverse impact of a depreciating rupee, and increasing fuel prices have resulted in the sector showing signs of stress. “Cost pressures amidst weakness in fares are turning the operating environment adverse for operators,” Santosh Hiredesai, analyst at Mumbai-based SBICap Securities told AIN.
Fares for a two-hour flight between Delhi to Mumbai can be as low as $48.
Given the infrastructure constraints at airports and in the airspace, Hiredesai says capacity rationalization often results in sharp improvement in industry yields. He said when Kingfisher Airlines ceased operations in 2013, followed by budget SpiceJet reducing capacity, yields surged by 20 percent and passenger load factors improved by 600 basis points (bps). “While timing the next phase of industry consolidation is difficult, [if and when] it happens, the airlines with strong balance sheets will benefit with a high market share and improved profitability,” said Hiredesai.
According to a report released in August by Centre for Aviation (CAPA), the total order book by Indian carriers has passed 1,000 aircraft, making it the third largest in the world behind the U.S and China. CAPA expects that a further 100 widebodies could be ordered within the next 12 months. CAPA believes the orders are in part due to the positive outlook for the market but also the result of “a strategic compulsion to keep pace with the market leader, IndiGo…..It is possible that some orders could be rationalized as the operating environment changes. Market pressures are expected to result in the industry consolidating over the medium term around three large budget carriers and two Full Service Airlines,” says the report.
10/08/18 Neelam Mathews/AINonline