The domestic passenger traffic growth remained range-bound during the current fiscal as reflected in 16.2 per cent year-on-year growth during 5m FY2018. This is marginally higher than year-on-year traffic growth of 15.7 per cent for the month of August 2017 which in turn was slightly better as compared to the previous month.
The performance is in line with ICRA estimates of 15-17 per cent growth for FY2018. The moderation in passenger traffic growth after two years of 20 per cent plus growth is primarily on account of lower than expected capacity addition, airlines’ efforts to strengthen yields and high base.
Says Kinjal Shah, VP and Co-Head, Corporate Sector Ratings, ICRA, “While on one hand, the passenger traffic growth is witnessing moderation on the back of increased efforts by airlines to strengthen the yields, on the other, the aviation turbine fuel (ATF) prices are on a sequential uptrend from August 2017 to October 2017. In such a scenario, the industry might need to relook at various strategies including pricing, discounting and cost efficiency measures.”
“Though moderate capacity addition on the domestic routes in the current fiscal has supported the passenger load factors (PLFs) of the airlines, any acceleration in the capacity addition will intensify the competition, thereby putting pressure on profitability of the airlines.”
Though ICRA does not expect any sizeable impact on profitability of the airlines during Q2 FY2018, the Q3 FY2018 performance remains to be seen considering the quarter being important for airlines due to peak season.
As for industry capacity addition, it has remained moderate during 5m FY2018, primarily on account of below average capacity addition by the market leader, Indigo.
Nevertheless, the domestic industry capacity addition in the near to medium term is likely to be healthy due to sizeable planned capacity addition by various airlines and start of regional operations by some of the leading airlines.
Indian airlines continued with their strong focus on international operations, the same is witnessed in 12 per cent year-on-year growth in capacity deployment and 15.9 per cent year-on-year growth in passenger traffic in August 2017.
The Indian airlines continued to outperform the industry on international routes, which reported year-on-year growth of 10.2 per cent in August 2017. Thus, the market share of the Indian carriers on international routes increased further to 37.5 per cent in August 2017.
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