India's air traffic growth ahead of others in HI

Mumbai: Domestic air traffic is on an upswing, with passenger growth rates and seat occupancy hitting a five-year high. Discretionary travel has spiked over the past six months, as fares declined 15-20 per cent. Inbound traffic tourist arrivals grew 4.8 per cent between January and July, is spurring passenger growth in the domestic market.

In fact, according to the International Air Transport Association, air traffic in India has grown 19.4 per cent between January and June, which is the highest amongst top seven domestic airline markets in the world, outstripping China that grew 12.3 per cent in the same period.

According to Directorate General of Civil Aviation, domestic airlines flew 45 million passengers between January and July, compared with 37.6 million in the corresponding period last year, growth of 21 per cent.

While airline executives say low fares are driving demand in India, sector analysts see it as a sign of revival in the economy. While rating agency Moody's has cut the country's domestic growth forecast to seven per cent from 7.5 per cent, lead economic indicators are showing early signs of a pick-up. Sales of passenger and commercial vehicles, too, are growing. But lower ticket prices, driven by lower fuel costs, are a major factor in traffic growth.

"In many of the sectors, the differential between a flight ticket and an AC train ticket is only a few hundred rupees. This differential accounts for less than one per cent of the monthly income of most individuals and is seen as negligible vis-à-vis the convenience, comfort and time savings of an air journey," said K Vinod Cartic, senior consultant, business and financial services, Frost & Sullivan.

CRISIL Research expects domestic air passenger traffic to record 15-17 per cent growth in 2015-16 driven by economic growth, largely flat fares and enhanced connectivity to smaller towns, made possible by entry of new airlines. Intense competition and lower fuel prices are expected to keep a check on fares.

"We expect domestic growth in FY16 at about 15 per cent. We are seeing a combination of economic recovery and lower fares due to falling fuel prices. Lower fares are stimulating growth to higher-than-expected levels and will continue in the near term especially in the September quarter but impact on yields is visible," said Kapil Kaul of the Centre for Asia Pacific Aviation.

"The growth is largely being led by increase in leisure travel and visiting friends' and relatives' traffic," added Manoj Chacko, chief executive of Kuoni Business Travel.

Foreign tourist arrivals during January-July were up 4.8 per cent at 4.47 million on a year-on-year basis. Average load factor in the first half of 2015 was 83.6 per cent, against mid-70 per cent loads seen in 2010-14, a J P Morgan Asia Pacific Equity Research stated.

The revival in passenger volumes is being seen after slow growth from 2012-2014. In 2014, domestic carriers flew 67.3 million passengers, growth of 9.7 per cent over 2013. In 2013, domestic air traffic had grown at 4.4 per cent over 2012, while 2012 had seen passenger numbers decline over 2011.

Experts, however, caution that this growth might not be sustainable. "We are unlikely to see a stable industry emerge unless pricing and capacity is stabilised. Capacity will be moderate in 2015-16 but from the next, expect domestic capacity to open up significantly and that could impact pricing," Kaul said.

"Traffic growth in India has been higher than capacity growth in the June quarter because of lower fares. Look at the US airlines. The carriers there did not drop fares and are reaping high profits," a senior executive of a private airline said.

"Strong air passenger traffic growth, capacity discipline approach and lower fuel prices benefited the airlines to post a turnaround at the operating level in 2014-15. However, we believe they need to sort out capital structures to reduce interest costs and losses at the net level," said Binaifer Jehani, director, CRISIL Research.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.