‘Passenger Traffic Growth In June 2017 Back To 20% Due To Seasonal Demand’

Riding on the back of a healthy seasonal demand and thereby a healthy passenger load factor (PLF), the domestic passenger traffic growth in June 2017 returned to 20 per cent level after staying below the level for previous four months.

Moderation in capacity addition during last few months had suppressed the passenger traffic growth rate to some extent, said Indian credit ratings agency ICRA.

The Indian airlines continued to outperform the industry on international routes, where the passenger traffic growth in June 2017 was 13.6 per cent against that of 8.6 per cent for the industry. Increasing capacity deployment on international routes is also reflected in increasing market share of the Indian airlines on international routes.

The industry’s profitability is expected to be supported by moderate supply growth coupled with healthy PLFs resulting in better yields as well as sequential decline in aviation turbine fuel (ATF) prices resulting in improved cost structure.

ICRA expects the cost pressures to remain eased going forward as well; however the yields might moderate to some extent. Capacity addition and consequent degree of competitive intensity will be the key determinants for the yields going forward.

Anand Kulkarni, AVP and Associate Head, Corporate Sector Ratings, ICRA, “The financial performance of the industry will be comfortable during Q1 FY2018 due to seasonal demand, strengthening of yields and favourable cost environment.”

“Though the demand might moderate to some extent during Q2 FY2018, the overall cost structure will remain supported by moderate fuel prices during the quarter. ICRA anticipates healthy capacity growth going forward and yields will remain vulnerable to the pricing discipline in the industry.”

As for the growth in industry capacity (measured in available seat kilometres – ASKMs) it remained moderate in June 2017 at 14 per cent, primarily due to below average capacity addition by the market leader, Indigo. The airline has been facing delays in deliveries of new aircrafts as well as operational issues in the delivered aircrafts.

However, going forward, the industry capacity addition is likely to remain healthy with planned expansion by existing airlines and scale up by new airlines.

 The recent suspension of operations of three regional airlines has also opened doors for incumbents to pick and choose comparatively lucrative routes – primarily in the southern parts of India – for scaling up their operations. These routes might provide an added opportunity for the industry to deploy the additional capacity.