July Decline in Domestic Air Traffic Growth Due to End of Tourist Season Says ICRA

September 2019
July Decline in Domestic Air Traffic Growth Due to End of Tourist Season Says ICRA

The domestic passenger traffic (DPT) growth, which was supported by peak season demand in the previous month, plummeted to 1.8 per cent in July 2019. For the four months of the 2019-20 fiscal, the DPT has witnessed a YoY growth of a mere 1.6 per cent. According to a note from the country’s second largest credit rating agency, this was primarily attributable to the end of tourist season.

Kinjal Shah, Vice President & Co-Head, Corporate Sector Ratings, ICRA has said, “The growth in the industry capacity, measured in available seat kilometres (ASKM)s, continued to be muted in July 2019 at 3.5 per cent. This was primarily due to the eventual discontinuation of the operations of Jet Airways with effect from April 18, 2019. Furthermore, the Indian airlines have been increasing focus on international operations, as witnessed in increasing capacity deployment due to higher opportunities on international routes from India. The same is evident from increasing capacity deployment by some of the carriers on international routes.”

Overall, the Indian airlines continue to underperform the industry on international routes, with passenger traffic drop of 14.7 per cent in July 2019, as against 0.6 per cent for the industry. The market share of the Indian carriers on international routes declined by 528 bps YoY to 32.1 per cent in July 2019 on account of the underperformance.

The aviation turbine fuel (ATF) prices had declined sequentially by 0.3 per cent and 5.5 per cent in June 2019 and July 2019, respectively. However, ATF prices increased sequentially by 3.3 per cent and declined YoY by 7.9 per cent in August 2019, while September 2019 again witnessed a sequential as well as YoY decline of 0.9 per cent and 9.1 per cent, respectively. The decline, however, may not have a material impact on the profitability of the airlines if they continue to witness pressure on passenger load factors (PLF), which have been declining sequentially since May 2019.

“Given the favourable international scenario, few more airlines are likely to enter into international flying from India or expand capacities on international routes in the near future to tap the opportunity. The domestic space, however, will continue to remain critical for the carriers as it provides sizeable potential as well as feed-in traffic for the international routes. As the airlines continue to expand their fleet, resulting in a gradual correction in the demand-supply imbalance and thus a further moderation in airfares, the domestic passenger traffic growth is expected to increase in the near to medium term,” concluded Shah.

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