Airlines: Traffic to zoom beyond 100 mn in 2017

With 23 per cent domestic passenger growth in the eight months till August, India has emerged as the fastest growing air travel market in the world, outperforming China, which grew 10 per cent. Brazil and Russia have seen a decline.

What's more, domestic air traffic is poised to grow around 15 per cent in 2017, on the back of low fares, improved regional connectivity and economic growth, say executives and experts.

Low fares have led to a rise in discretionary travel and higher demand for airlines. Sector-wide passenger load factors rose to 83.7 per cent in the eight months of calendar year 2016 from 82.6 per cent in the corresponding period in 2015, and too on increased capacity. The domestic jet fuel price is 10 per cent lower year-on-year, giving airlines the cushion to decrease fares. On an average, fares are 10 per cent lower over last year and in July-September airlines took to last-minute discounting matching Rajdhani air-conditioned 2-tier train ticket fares.

"The healthy growth underlines relatively strong demand from both business as well leisure travellers. Competitive pressures and lower fuel prices have been a facilitator through low fares," said Subrata Ray, group vice-president, corporate sector ratings, ICRA. With induction of new aircraft, airlines are opening direct routes and this, too, is pushing passenger growth. "We expect 15 per cent traffic growth per annum for the next three years. Domestic traffic will exceed 100 million in 2017 and airlines will continue to increase capacity to keep market share," said Boeing's senior vice-president (Asia-Pacific), Dinesh Keskar. He said the regional connectivity scheme (first flight expected in January 2017) will further boost growth.

"We expect growth will continue to be robust, as there are large capacity additions planned by various airlines. However, fares are likely to remain under pressure, as the capacity addition in the near term is greater than intrinsic demand growth," said Vistara's chief strategy and commercial officer, Sanjiv Kapoor. Vistara, which inducted its 13th aircraft in October, will be adding four more in 2017. GoAir, which has 20 aircraft, plans to increase its fleet size to 27 by March 2017.

IndiGo is making the highest capacity addition among all domestic airlines and plans to add 24 Airbus A320neos by March 2017. It has 118 A320 aircraft at present, including eight A320neos. Air India, too, plans to expand its capacity and regional network.

But the rapid growth of the industry has thrown up its own set of challenges. "Continued enhancement of infrastructure is critical to keep pace with growth," said Keskar.

"Shortage of slots in key metro airports such as Mumbai, Delhi and Bengaluru and other infrastructural constraints are the biggest risks to growth. If oil prices rise sharply we will expect air fares to rise and demand growth will moderate," said Kapoor. Rising fuel prices could impact growth plans of the industry and could also lead to deterioration in service quality, say experts, even as availability of skilled manpower, remains a concern.