Wednesday, July 10, 2019

Will Indian airlines rise up to the Third Quarter challenge?

The capacity crisis in Indian skies was short lived. From overcapacity is killing airlines due to undercutting of fares to there is under capacity in India and airlines have hiked fares was very quick.

The argument was aided by an unfortunate event — the suspension of Jet Airways. While there is no evidence to prove that Jet Airways fall was a result of capacity, the principle of survival of the fittest played a huge role in the fall of the airline, amidst capacity addition (dumping?) by low-cost carriers.

The fall of Jet Airways had started in third quarter of last financial year, exactly this quarter last year when the airline reported a loss of Rs 1,297 crore. It was also the quarter when IndiGo posted a loss of Rs 652 crore.

World over, airlines adjust capacity to demand. A very popular way of planning for airlines, especially in Europe and North America. Unfortunately, the same is yet to take roots in India.

Indian airlines have gone full cylinders on when it comes to induction and data released by Airports Authority of India (AAI) and Directorate General of Civil Aviation (DGCA) for the last four years shows that there has been a fall in passenger numbers in the July – September quarter and rarely has this been matched by airlines with a dip in capacity, leading to emptier seats and pressure on yields culminating in lower profitability or losses, as was the case last year.
Airlines tend to get into a vicious cycle, going by the trend. An airline or airlines put together to add capacity in the market, in a quarter which is traditionally week and seen a dip in passenger numbers.

To fill up the additional seats, there is discounting. While this attracts passengers, they are the lowest yielding passengers who may not help recover the cost of operations. Going by the data, it is clear that even discounting would not have helped since there has been a dip in numbers which is far worse than remaining steady at best.
10/07/19 Ameya Joshi/CNBC TV18

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