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Indian private carriers are tapping more overseas routes

Indian private carriers are tapping more overseas routes

Indian carriers are clearly chasing international routes to increase their revenues, and to overcome the pressure on profit margins from domestic operations

An IndiGo aircraft takes off from Delhi's Indira Gandhi International Airport Photo: Vivan Mehra An IndiGo aircraft takes off from Delhi's Indira Gandhi International Airport <em>Photo: Vivan Mehra</em>
The Kalanithi Maran-controlled SpiceJet has been quietly expanding its list of overseas destinations. Since the beginning of this calendar year, the listed private carrier has started flights from New Delhi to Riyadh (Saudi Arabia) and Guangzhou (China), and from Lucknow to Sharjah in the United Arab Emirates.

Meanwhile, IndiGo, India's largest domestic carrier by market share, has stepped up the frequency of its operations between Mumbai and Muscat (Oman) from three flights a week to daily service. It plans to induct 28 Airbus A320 aircraft into its fleet by December next year. The carrier currently operates 17 daily flights to the Gulf region from Indian cities. Jet Airways has also introduced daily services from Kochi to Kuwait via Abu Dhabi from May 16.

International traffic growth in the current fiscal year is expected to be more buoyant than domestic

Indian carriers are clearly chasing international routes to increase their revenues, and to overcome the pressure on profit margins from domestic operations. International routes traditionally deliver higher margins for airlines. Jet Airways, for example, had an operating profit margin of 16.5 per cent from its international operations compared with a 30.9 per cent loss from domestic operations in the January-March quarter this year. More than half of Jet's revenues come from international operations.

SpiceJet has turned in a stellar performance on overseas routes. The proportion of its revenues from international operations to total revenues has jumped six times, from 1.8 per cent in the January-March quarter of last year to 11 per cent in the same period this year, says Mahantesh Sabarad, aviation analyst at Fortune Equity Brokers. "In the coming one year period, we expect that around 20 per cent of the airline revenue will come from international operations," says a SpiceJet official. "We are adding eight Boeing 737 aircraft to our fleet this fiscal year and most of them will be deployed on international routes."

The domestic market is not seeing growth, says Sabarad. According to a recent note by the aviation consulting firm, Centre for Asia Pacific Aviation

(CAPA), international traffic growth in the current fiscal year is expected to be more buoyant than domestic and could grow by 10 to 12 per cent as Indian carriers expand. "Jet is already profitable on international operations and is expected to further strengthen its performance in the coming year as a result of its increasing cooperation with Etihad. IndiGo and SpiceJet are nearing break-even on overseas routes," says Kapil Kaul, CEO (South Asia) at CAPA. His consultancy estimates that IndiGo, SpiceJet, Jet Airways and GoAir will report combined profits of $250-300 million in 2013/14.

The airlines also find it cheaper to fly international because of lower costs. SpiceJet CEO Neil Mills remarked recently that Delhi-Commonwealth of Independent States operation is cheaper than Delhi-Chennai. The high price of aviation turbine fuel in India, in particular, is a major challenge for domestic operations, says the SpiceJet official quoted above.