For the first time in a year, domestic air traffic declined month on month this May, indicating a deepening economic slowdown. Though this is the peak month for air travel, traffic fell to 54.48 lakh in May against 54.96 lakh in the same month last year, according to data released by the Director General of Civil Aviation (DGCA). Demand (Revenue Passengers per km) fell by 0.33 percent last month even as operators added capacity by almost 6% — the decline in RPKM is a first in the last 12 months.
Exorbitant fares across some domestic sectors (especially on the Delhi-Mumbai route) and decline in corporate traffic has hit demand for airline seats. A senior aviation consultant said increasingly, companies are relying on video conferencing and other telecommunication modes to hold meetings instead of paying for exorbitant domestic air travel prices.
But make no mistake. Though less passengers are opting for air travel, several factors are making sure airlines do not suffer. First, Aviation Turbine Fuel (ATF) prices have cooled over the last two months but ticket prices have not come down; second, capacity addition has been rationalised which means there are less empty seats on aircraft. All this means airline yields — revenue per passenger — are increasing.
A report by Kotak Institutional Equities shows that crude prices have corrected by 20 percent over the past two months and are unlikely to gallop immediately, indicating a stable cost (US Dollar denominated) environment for airlines. But rupee depreciation remains a worry. Dollar-denominated costs form about 70 percent of the cost of running an airline. So even when yields are up, rupee depreciation has meant continued losses for almost all domestic carriers.
The DGCA data clearly show that planes are flying at least three quarters full. The lowest seat factor (which means number of seats occupied as a percentage of seats in a plane) was recorded for Air India’s domestic service at 77.1% (77.3%) whereas IndiGo managed to fill almost 9 out of every 10 seats at 86.3% (82%). SpiceJet was 82% (80%) and JetLite was 80.5% (76.8%). Jet Airways was 77.1% (77.3%) whereas Go Air was 78.1% (80.8%). The percentages in brackets are previous year numbers.
Then, IndiGo remained the undisputed king of Indian skies for two months in a row. DGCA data show IndiGo maintained a clear lead this May with 24.9 percent market share —which means one in every four domestic passenger was booked on an IndiGo flight. It also reported passenger load factor of over 86 percent , which means almost 9 of 10 seats on IndiGo flights were occupied by paying passengers, the highest among all domestic carriers.
Low fares and consistently high on-time performance have helped IndiGo inch past stalwarts to reach this milestone – fliers want on time journey at reasonable prices. And low fare (LCC) airlines seem to be satisfying both these needs. During May, combined market share of LCCs – IndiGo, SpiceJet, Go Air, JetLite – was well above the halfway mark at 57.1 percent. So every other domestic passenger is flying the LCCs.
Also, Jet Airways remains the largest airline group within India, with Jet and JetLite commanding almost 28 percent share of the market. So between Jet airlines and IndiGo, also, more than half the domestic market is covered.
SpiceJet, which is offering connections to smaller towns and cities on its Q400 fleet, is also gaining ground; its share stood at 18.5 percent this May, a peak air travel month against just 14.2 percent in May last year.
For May, Kingfisher’s market share stood at 5.2 percent, the least among all domestic airlines. The Kotak report says Kingfisher could make further capacity reductions in the September quarter (it is already flying a fourth of its original capacity). “Normally, the second quarter is weakest for airlines, when load factors and hence yields,are low and cash losses peak. In our opinion, further cash losses and lack of working capital support from banks can lead to more (smaller than before) capacity cuts by Kingfisher.”