New Delhi: Air traffic growth is likely to slow down marginally this fiscal from last year and profitability of airlines will be under pressure, rating firm Icra Ltd said on Tuesday.
The firm expects domestic passenger traffic to grow by 13-15% during 2017-18, backed by capacity addition and competitive airfares.
In June last year, Icra has projected 20-25% domestic growth for 2016-17.
The 2016-17 fiscal ended at 21.8%—the second consecutive year with 22% traffic growth.
“Icra remains cautious about sustainability of industry profitability considering possible oversupply, resultant predatory airfares, susceptibility to adverse fuel prices and airport infrastructure bottlenecks. The rapid capacity addition in the recent past along with sizeable fleet expansion plans of various airlines in the near future might increase the competitive intensity further and consequently impact profitability of the airlines going forward,” Anand Kulkarni, AVP and associate head (corporate sector ratings), Icra, said.
Mint reported on 21 April that higher fares slowed air passenger traffic growth to an 18-month low in March.
Passenger traffic grew 14.9% to 9 million passengers during the month, as against 7.8 million a year ago, according to data released by the directorate general of civil aviation (DGCA).
The last time it fell below 15% was in September 2015, when it grew 14.56%. To be sure, the slowdown was on a higher base.
“The industry passenger load factor reported a YoY decline for the first time in last nine months, which might be an indication of supply outpacing demand,” Icra said on March flight occupancy. “The growth was impacted by high base effect along with lower passenger load factor (PLF) during the month.”
The 2016-17 growth was led by higher supply, intense competition and resultant lower airfares.
In spite of increased competitive intensity, IndiGo consolidated its leadership position with over 40% domestic market share for 2016-17, which was a result of rapidly expanding fleet coupled with lower yields.
Jet Airways and Air India ceded market share during the year, whereas new airlines—Vistara and Air Asia—continued to expand their respective market shares gradually. Suspension of operations of two regional airlines—Air Pegasus and Air Costa—resulted in contraction of market share of regional airlines during the year, the report added.
The fleet expansion also resulted in addition of sizeable capacity on international routes.
Though the passenger traffic growth on international routes in FY2017 was a moderate 8.4%, Indian airlines, with year on year growth of 11.8%, outperformed the industry growth on the back of capacity additions.
Resultantly, market share of Indian carriers on international routes crossed 35% for the first time in the last five years.
Air India, Jet Airways have significant international operations while SpiceJet and IndiGo are also flying to West Asia and Southeast Asia.