The domestic passenger traffic (DPT) growth in July 2019 has moderated to 3 per cent Y-o-Y from a Y-o-Y growth of 6.2 per cent in the previous month, June 2019. For the four months of the current fiscal, 4M FY2020, the DPT has witnessed a Y-o-Y growth of a mere 1.7 per cent. The growth trend in FY2020 so far has been rather fluctuating, in April 2019, the DPT growth reported a Y-o-Y de-growth of 4.4 per cent, the first after six years of monthly Y-o-Y growth. The DPT rebounded marginally in May 2019, with a Y-o-Y growth of 3.3 per cent and further in June 2019 with a Y-o-Y growth of 6.2 per cent. As per ICRA note, this is primarily attributable to the gradual increase in capacity as airlines continued their capacity expansion and also some airlines started redeploying some of the grounded aircraft of Jet Airways.
Dwelling deeper, Kinjal Shah, Vice President and Co-Head, Corporate Sector Ratings, ICRA, says, “Overall, the subdued growth in the domestic passenger traffic growth can also be attributed to the muted capacity increase. During June 2019, the domestic capacity (as denoted by available seat kilometers or ASKMs) witnessed a modest Y-o-Y growth of 3.1 per cent. For 3M FY2020, the domestic ASKM growth was a muted 2.0 per cent. This is majorly attributed to the eventual discontinuation of the operations of Jet Airways with effect from April 18, 2019. Furthermore, Indigo and SpiceJet, which together accounted for 62.8 per cent of the domestic airline industry capacity during June 2019, witnessed a 30.3 per cent and 30.5 per cent Y-o-Y increase in their ASKMs, respectively, during 3M FY2020. However, the addition has been higher on the international routes than domestic, thereby impacting the overall domestic industry capacity addition. For 3M FY2020, while Indigo’s ASKMs for international operations increased Y-o-Y by 60.4 per cent, the addition to domestic ASKMs was only 24.9 per cent. Similarly, for SpiceJet, while its international ASKMs increased Y-o-Y by 39.0 per cent for 3M FY2020, its domestic ASKMs increased by only 28.1 per cent.”
As the airlines continue to expand their fleet, resulting in a gradual correction in the demand-supply imbalance and thus a further moderation in airfares, the domestic passenger traffic growth is expected to increase in the near to medium term. Indigo has announced a 30 per cent increase in its capacity in FY2020 (approximately half of which will be for the domestic operations), while SpiceJet has announced an increase of 80 per cent. During 3M FY2020, while AirAsia and Go Air witnessed Y-o-Y improvement in their passenger load factors (PLFs), all other airlines reported a Y-o-Y decline in their PLFs.
As per ICRA, with regards to key cost component for the aviation industry, aviation turbine fuel (ATF) prices, after 18 months of Y-o-Y increase, the same in February 2019 witnessed a Y-o-Y decline of 5.1 per cent. However, the ATF prices increased again from March 2019, with the April 2019 ATF prices higher by 3.1 per cent Y-o-Y and 1.1 per cent sequentially. May 2019 witnessed a further Y-o-Y and sequential increase of 0.4 per cent and 2.4 per cent, respectively. However, June 2019 witnessed a Y-o-Y and sequential decline of 6.5 per cent and 0.3 per cent, respectively. The ATF prices witnessed a further sequential decline of 5.5 per cent and Y-o-Y decline of 9.2 per cent in July 2019, but increased sequentially by 3.3 per cent and declined Y-o-Y by 7.9 per cent in August 2019.
“The industry reported sizeable improvement in profitability in Q4 FY2019 and Q1 FY2020 due to the increase in air fares post a decline in capacity due to the grounding of aircraft of Jet Airways and its eventual discontinuation of operations. However, with the capacity expansion planned by the various airlines, the industry is likely to start facing pressure on yields and thus profitability,” concludes Shah.