Is the Indian aviation sector heading for its worst year in the past six years? Recent numbers from the Directorate General of Civil Aviation (DGCA) show that domestic air passenger growth was just 3.15 per cent in the first seven months of 2019. That's just a fraction of the 21.8 per cent growth achieved during the same period of 2018. The weak consumer sentiments, capacity correction after the fall of Jet Airways and high airfares have contributed to the subdued air passenger traffic.
Since the beginning of 2019, air passenger traffic started slipping, but the real trouble started when Jet Airways went out of business in April. It led to sudden vacuum in capacity, which meant higher airfares. Though rival carriers like IndiGo, SpiceJet and Vistara were quick to fill the vacuum, the current capacity, as experts point out, is more sustainable. But it's not going to last long as airlines have drawn out aggressive capacity addition plans for the future. IndiGo, for instance, has plans to increase capacity by 30 per cent in the 2019/20, which means the airline will add 65 aircraft in the current financial year. Similarly, SpiceJet has plans to induct 35 planes during 2019/20.
The overcapacity conundrum which got corrected by Jet's shutdown is expected to make a comeback in the sector, and will force airlines to bring down fares to fill those extra seats. In a mad rush to keep their PLFs high, airlines might be heading for profit-less growth from the fourth quarter onwards. This is in sharp contrast to the record-profit run of IndiGo and SpiceJet. In the first quarter of 2019/20, IndiGo reported net profit of Rs 1,203 crore and SpiceJet Rs 262 crore.
Aviation veterans say domestic players haven't learnt from past mistakes. Overcapacity took the life of Kingfisher Airlines (in 2012) and Jet, but all airlines are still chasing market share by adding more capacity than required.
Prior to Jet's shutdown, the sector was dealing with overcapacity that pulled down fares and pumped up the air travel. For instance, domestic passenger traffic growth in 2016, 2017 and 2018 stood at 18.6 per cent, 17.3 per cent and 23.18 per cent, primarily supported by low airfares and the government's push to making flying affordable through UDAN (Ude Desh Ka Aam Naagrik) scheme.
But unlike the last time, lower airfares might not result in high air passenger growth, primarily due to weak consumer sentiments across the economy. There's a FUD (fear, uncertainty, and doubt) factor that is affecting every spending decision of consumers today, be it purchase of FMCG or consumer durables a car or air tickets.
A recent statement by civil aviation minister Hardeep Singh Puri shows that even the ambitious UDAN scheme has largely been unsuccessful. Out of 705 routes awarded under the scheme, just 174 have become operational till date. Hence, incremental passenger growth from UDAN is expected to be slow.
It's likely that growth in domestic aviation might be lower than the industry benchmark. Globally, the typical aviation growth rate is about two twice the GDP growth. If the Indian economy is expected to grow at 6.9 per cent in 2019/20, aviation would grow at 14 per cent. But there are no signs that passenger growth would even cross 10 per cent mark for the whole year in the backdrop of several unfavourable factors.
Copyright©2021 Living Media India Limited. For reprint rights: Syndications Today