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Published on 28/12/2018 1:47:33 PM | Source: IANS

Traffic soared on low fares as airlines bled on high fuel prices

Posted in Special Event Reports| #Aviation Sector #Special Report

 

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Even as strong headwinds -- soaring jet fuel prices and low yields -- induced financial turbulence, the country's civil aviation sector maintained robust traffic growth rate during 2018.

The double-whammy of high fuel cost and low fares necessitated by extreme competition magnified as the rupee depreciated and interest-rates remained high. 

On an average, aviation turbine fuel (ATF) prices witnessed a year-on-year increase of 27 per cent during January-December 2018, while the rupee depreciated at an average of 5 per cent against the dollar during the same period.

According to industry observers, the rise in fuel costs was particularly acute for the Indian carriers as it makes up to 34 per cent of their operating expenses which is well above the global average of 24 per cent. 

Consequently, the country's airline sector bled heavily. The second quarter earning results of listed airlines presented a gloomy picture.

Ratings agency ICRA gave a negative outlook for the industry, stating the strong passenger demand was offset by capacity additions leading to intense competition and continued pressure on yields.

"Severely mauled by the twin blows of significant increase in aviation turbine fuel (ATF) prices and the depreciation of the INR against the USD, the Indian aviation industry continues to grapple tough times in the current fiscal," Kinjal Shah, Vice President - Corporate Sector Ratings, ICRA told IANS. 

"As if this was not enough, low pricing power of the industry and inability to raise fares has resulted in mounting losses for the airlines."

Nevertheless, passengers were delighted as major airlines flew-out to un-served domestic destinations and budget carriers planned international expansions. 

Besides, attractive fares and economic expansion allowed a substantial increase in first-time flyers, which lifted the country's passenger traffic. 

"Increasing use of technology has made it easier for travellers to plan, book and fly. This, coupled with an increase in disposable income and attractive air fares, has led people from tier III and IV cities to chose air over train travel," Aloke Bajpai, CEO and Co-founder, ixigo told IANS. 

As per Directorate General of Civil Aviation (DGCA) data, India's domestic air passenger traffic grew by 11.03 per cent to 1.164 crore in November, while it rose by 19.21 per cent during the January-November 2018 period.

"Passengers carried by domestic airlines during January-November 2018 were 1,262.83 lakh as against 1,059.34 lakh during the corresponding period of previous year, thereby registering a growth of 19.21 per cent," the DGCA said in its latest domestic traffic report released on December 21. 

Similarly, International Air Transport Association (IATA) data showed that India's domestic air passenger traffic grew in double digits for the 50th consecutive month in October.

Another key industry trend of cost-cutting was witnessed across the board, even the government tried to get its hands-off Air India. 

However, government's efforts to divest stake in Air India failed as "no response" was received even after the deadline for submitting the EOI bids was extended.

On December 20, 2018, the Centre sought Parliament's nod to infuse Rs 2,345 crore into the financially strained national carrier under its 'Turn Around Plan'.

Further, the government sought the Parliament's nod for providing Rs 1,300 crore 'Grants-in-Aid General' to Air India Asset Holding, a Special Purpose Vehicle to which AI's debt worth Rs 29,000 crore will be offloaded.

Additionally, an inter-ministerial panel has decided to divest the government's stake in Air India Air Transport Services Ltd (AIATSL).

In terms of air safety, India retained its 'Category 1' rating under the International Aviation Safety Assessment (IASA) programme, apart from Drone Regulations 1.0 that were implemented in December.

The year also saw 15 companies being awarded contracts to operate flights and chopper services to destinations like Kargil, Darbhanga, Pakyong (Gangtok), Cooch Behar, Jorhat and Almora, among others, under the second round of the "Udan" air regional connectivity scheme.

The Udan-II routes were awarded to SpiceJet, IndiGo, Jet Airways, Turbo Megha Airways and Pawan Hans, among others.

In addition, over Rs 5,000 crore was sanctioned for upgrading and expanding the Lucknow, Chennai and Guwahati airports, even as the government estimated capital expenditure of around Rs 1 lakh crore to create capacity across various airports in the next five years.

On the Ministerial level, there was a change of guard at the Rajiv Gandhi Bhavan, as Commerce and Industry Minister Suresh Prabhu took additional charge of the ministry after P. Ashok Gajapathi Raju resigned from the cabinet in line with his TDP's decision to walk out of the NDA government.