Thursday, February 21, 2019

More and more people are taking to the air

The country has seen an explosive growth in domestic air passenger traffic over the past few years: from 6.73 crore in calendar 2014, the number of passengers more than doubled to 13.89 crore in calendar 2018. With an average annual growth rate of nearly 20 per cent over the past few years, India is among the fastest growing major aviation markets in the world.

Low-cost carriers, primarily IndiGo Airlines, have been driving this solid growth. IndiGo has rapidly grown its market share and cemented its position as the country’s largest airline: from 31.8 per cent in 2014, its domestic market share grew to 41.5 per cent in 2018. Though other major airlines such as Jet Airways, Air India, SpiceJet and GoAir too have benefited from the tailwind, they have all ceded market share to IndiGo.

The huge market potential has also attracted many new players to the domestic skies over the past five years — Air Asia India and Vistara (the Tata Group has stakes in both), Air Costa, Air Pegasus, Truejet, Air Carnival, Zoom Air, Air Deccan and Air Odisha. The most recent entrants are Star Air and Air Heritage (January this year).
But the Indian aviation market, despite strong passenger growth, is brutal when it comes to competition, costs, ticket pricing and the operating environment.

High costs, especially that of aviation turbine fuel, and low ticket fares due to intense competition (a fallout of the huge capacity additions) have taken a toll on the financials of most airlines including the listed ones over the past couple of years.

Debt-laden Jet Airways is now waging a do-or-die battle for survival. Also, many of the smaller airlines such as Air Costa, Air Pegasus and Air Carnival have had to shut shop. Besides, Air Odisha, Air Deccan and Zoom Air have not been operating flights for some time now.
Among the new entrants, Air Asia India, Vistara and Truejet have held their own, steadily growing passenger traffic and market shares over the past few years, even if on a low base. How the paradox of strong passenger growth and weak financial performance plays out in the Indian aviation sector needs to be seen. More shakeouts cannot be ruled out. Also, the slowdown in domestic passenger traffic growth in January 2019 to about 9 per cent year on year, the weakest in many years, needs watching.

21/02/19 Anand Kalyanaraman/Business Line

0 Comments: