Tuesday, September 04, 2018

Air fares signal Code Red

You could call it the height of irony — despite double-digit growth in passenger traffic in India, among the fastest-growing aviation markets in the world, airlines have not been able to hike ticket fares. The result: airlines’ revenues are heading North but profits are nosediving South. Blame this dichotomy on the cut-throat price competition among the country’s airlines that seems to be driving them in a race to the bottom.

In the June 2018 quarter, IndiGo’s revenue was up 13 per cent y-o-y (year-on-year), while SpiceJet’s and Jet’s revenues were up 18 per cent and 6 per cent, respectively. But all the three airlines saw their bottom lines decimated. Indigo’s profit crashed 97 per cent y-o-y, SpiceJet slipped into the red and Jet Airways posted record losses. This washout in the June quarter, an encore of what transpired in the prior March 2018 quarter, shines the spotlight on the key pain-point that ails airlines in the country — the inability to increase ticket fares to offset rising costs.

Indigo’s yield (average fare) fell about 5 per cent y-o-y in the June quarter, while Jet’s and SpiceJet’s average fares rose a mere 1.1 per cent and 4 per cent, respectively. The June quarter saw costs, primarily that of aviation turbine fuel (ATF), shoot through the roof due to the rally in oil prices and rout of the rupee. ATF is currently close to the highs seen in 2014 in rupee terms while the average airfares are at the lowest levels in real terms, an aviation industry expert points out. Industry watchers and analysts caution that the June 2018 scorecard signals the need for drastic upward revision of airfares to prevent a crash just round the corner.
04/09/18 Anand Kalyanaraman/Business Line