Monday, August 27, 2018

India's aviation sector: The capacity conundrum

By all appearances, India’s aviation sector is sitting pretty. A cursory look at data from the civil aviation regulator suggests that the country’s airlines are in cruise mode—domestic passenger traffic for the six months till June has grown by 22 percent from a year ago and all major airlines are flying at higher load factors (a measure of capacity utilisation) compared to last year.
However, appearances are often deceptive. Like retailers try to sell a perishable commodity at throwaway prices before it gets spoilt, unsold seats in airlines too have been going for a song. While this has elevated traffic and load factor figures, analysts say the numbers are an unsustainable aberration.
“Airfares are so low that we are stealing people out of buses and taxis at fares that simply don’t cover costs,” says Sanjiv Kapoor, chief strategy and commercial officer of the full-service airline Vistara. This means growth in the aviation market is being driven by excess seat capacity and low fares.
To put things in perspective, a one-way ticket on the high-traffic Bengaluru-Delhi route, booked 15 days in advance, starts at ₹3,530. In comparison, a three-tier AC fare on the Rajdhani Express on this route is ₹3,800, when booked two weeks prior to the travel date. “This is ridiculous considering it’s an over-two-hour-long flight,” says Devesh Agarwal, editor, Bangalore Aviation, an aviation news web portal. “The same thing happened in 2012 and the moment airlines increased fares, the market [passenger traffic] disappeared,” adds Agarwal. “It’s what is called profitless growth—passenger traffic is going up only because airfares are so low.”
27/08/18 Anshul Dhamija/Forbes India

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