Domestic passenger traffic growth drops to 15.7 percent

A study conducted by credit-rating body ICRA revealed a decline in the domestic passenger traffic growth in February 2017.

After witnessing a consistent 20 percent year-on-year (YoY) growth since October 2015, numbers dropped to 15.7 percent in February 2017.

ICRA attributed the decline to off-peak season for the industry along with high base effect where the industry growth has remained robust over last three fiscals. The traffic growth for the 11-month FY2017 period remained robust at 22.5 percent YoY.

The traffic growth on international routes, however, remained moderate with the industry reporting 6.8 percent YoY growth during February 2017. Nevertheless, performance of the Indian carriers on international routes continued to remain better than the industry, with 12.1 percent growth in traffic.

The 11-month FY2017 growth for Indian carriers was 11.6 percent YoY, better than 8.5 percent YoY growth for the industry, which translated into gradual improvement in market share of the Indian carriers on international routes.

In line with the fall in demand during off-peak season, the growth in capacity addition, measured in available seat kilometers (ASKM) on domestic routes was lower at 13.8 percent as against around 20 percent for the last 15 months.

The industry reported healthy domestic passenger load factor (PLF) of 87.2 percent in February 2017 and 84.6 percent in the 11m FY2017 period, at the expense of lower yields. The international PLFs for Indian carriers remained weaker as compared to the domestic performance with 79 percent PLF in February 2017 and 78.4 percent during 11m FY2017.

Continued low airfares due to intense competition remained a key driver for the growth. ICRA, however, expects the sizeable fleet expansion by the incumbents and scaling up of operations by new airlines to continue going forward, resulting in sizeable capacity addition in the industry.

"We have highlighted in the past about pressure on performance of regional airlines due to intense competition in the industry. The same is reflected in suspension of operations of Air Pegasus and Air Costa from July 2016 and February 2017, respectively. Apart from competition, profitability of the Indian airlines also remains vulnerable to increase in aviation turbine fuel (ATF) prices and cost efficiencies," said Kinjal Shah, AVP and Co Head, Corporate Sector Ratings, ICRA Ltd.

"Going forward, the profitability of the airlines would remain contingent on ATF prices, considering the yields are likely to remain under pressure. In the context of sizeable planned capacity addition in the industry, structural changes and cost efficiencies would remain critical for commercial viability of airlines," she added.