The ongoing crisis at Jet Airways, grounding of Boeing 737 MAX 8 planes by domestic airlines and the recently-concluded repair work at the Mumbai airport have taken a heavy toll on India's flourishing aviation and hotel industry, leading to a disruption of holiday plans this season. The entire travel and tourism sector contributes Rs 5.9 lakh crore to India's GDP.
India's air passenger growth has declined from 11.85 million in October 2018 to 11.35 million in February 2019. While the fleet of domestic carriers has reduced by 16 per cent from December, leading to hundreds of cancellations and sky-high fares, it is now the hotel industry's turn. The industry has been hit by at least 5 per cent fall in average room rates over the past few weeks.
The disruption in the travel and tourism sector is getting worse by the day. A series of untoward events have contributed to the dramatic fall in the air passenger growth, which has, in turn, affected the entire hotel and tourism market.
India's air passenger growth which was registering a healthy 20 per cent each month till October last year has come down to 7.42 per cent in February. Total passengers taking domestic flights have fallen from 11.85 million in last October to 11.35 million in February. Experts believe that with the deepening of troubles at Jet Airways, a further 2 percentage points drop in passenger growth is expected.
"There's enhanced air traffic right now due to general elections. Once the elections are over, the passenger growth will come down further," says Harsh Vardhan, chairman, Starair Consulting.
Jet, which is undergoing a revival plan prepared by its lenders, has practically shut down. The Mumbai-based airline had a fleet of 119 aircraft but is currently operating at about one-fifth capacity of 26 planes. SpiceJet had to ground thirteen Boeing 737 Max-8 planes, from a fleet of 75 planes, last month after the regulator DGCA (Directorate General of Civil Aviation) prohibited the flying of these planes owing to successive fatal incidents involving Lion Air and Ethiopian Airlines. All this happened in the middle of the 22-day-long repair work at the Mumbai airport, the second busiest in the country, which was operating 230 fewer flights than its average 950 scheduled flights per day.
Although the Mumbai airport repair work is over, lesser seat capacity has given an opportunity to airlines to hike fares. For the longest time, Indian carriers were selling tickets at artificially lower rates due to high competition and aggressive capacity additions by low-cost carriers (LCCs) such as IndiGo and SpiceJet. IndiGo, which is facing a pilot crunch, has not been able to add capacity as planned, resulting in extra pressure on the overall availability of seats.
India is a price-sensitive market where the rise in fares corresponds with lower air travel. Nearly 60 per cent of the air passengers in India travel by LCCs. "Fares across all major sectors are high at the moment, which has dampened the overall demand," says an aviation expert.
The hotel sector is bearing the brunt of lower air traffic as passengers have cut back on their travel plans. Hotel chains that are witnessing lower occupancies have reduced their room rates by at least 5 per cent across India, says the expert. The average room rate stood at Rs 5,759 per room in 2017/18.
From the tourism point of view, this is a lean period for the sector but the domestic holiday demand is likely to pick up by mid-April. Destination travel, which typically peaks in May-June due to summer vacations, is likely to be affected this time. "International tourists don't come to India over the next few months. Domestic travellers drive the tourism market in summers but it's likely that they will cut back on their spending," says Vardhan.
Cash crunch, high operating costs (taxes, fuel charges, and landing and parking rates) and low margins have marred the domestic aviation sector with almost all airlines in a distressed situation. IndiGo, SpiceJet, and Jet have reported quarterly drop in net profits in December quarter. Jet, for example, reported quarterly loss of Rs 588 crore in last quarter. The reduction of ATF (aviation turbine fuel) rates and stable rupee-dollar exchange rates have given some breather to the airlines; however, the lingering effects of artificially low fares over the past few quarters continue to keep airlines on the edge.