As the Directorate General of Civil Aviation (DGCA) declared its monthly summary of air traffic in India for July, the Indian aviation market had grown just 3 percent, month over month (MoM) and a similar number year on year (YoY).
What a difference a few months make. The market has grown leaps and bounds in the last five years. India recorded 52.16 lakh domestic passengers in July 2014, across all airlines. Come July 2019, IndiGo alone carried 56.93 lakh passengers. These five years from 2014 to early 2019 were characterised by double-digit growth, nearly touching 20 percent on most occasions.
But the bubble burst with the suspension of services by Jet Airways and growth dived to near zero levels with flat growth in March and negative growth in April – very month when Jet Airways suspended services.
With peak period in sight, the government – which was in the middle of the world’s largest election — scrambled to look for ways to get back the capacity and allocate slots with hitherto unwritten rules, linked to addition of immediate capacity.
SpiceJet benefited the most out of these slot allocations, as it increased its presence at Mumbai manifolds. While every airline except Air India benefited from the distribution of slots, the exact rules followed for distribution remain under wraps!
An analysis by Network Thoughts based on data released by DGCA shows that over the last couple of years passenger growth is characterised by growth in capacity in the market and this curve has not been any easier to read since December 2018!
To make it even simpler, the numbers were converted to per day levels. While this is not a standard practice for analysis, it helps remove the differences that crop up due to the difference in number of days ranging from 28 to 31 each month.
At a daily level, one can see how each month the capacity by ASK and passengers have gone hand in hand in India. You add capacity, you get passengers – when capacity is stagnated, passenger growth stagnates.
India sees very high load factors with airlines like SpiceJet having recorded 50 months of 90 percent plus load factors. Overall load factors have been upwards of 85 percent for LCCs and touching 80 percent in most cases of FSCs. This leaves very little room to accommodate additional passengers and those would come in at relatively higher fares. With a cost sensitive market like India where average fares have not gone up for a while, the higher fares are a turn-off and only essential travel takes place at those price points.
This cycle of high capacity leading to possibility of empty seats leading to airlines dropping fares to attract passengers and gain revenue leading to the market getting used to cheaper fares and that becoming the only mode to attract passengers is one full of risk for the industry.
A classic example of this was seen after the collapse of Jet Airways when capacity constraints led to higher fares, the passenger numbers dropped. But this period was characterised by higher fares in the market and handsome profit for airlines.
Cut to May-June-July
While there was a sudden induction of capacity by airlines to tide over the crisis, all the slots were not given out. Neither the airports, nor the ministry or regulator shared the exact number of slots of Jet Airways and how they were distributed.
However, Wolfgang Prock-Shauer, the COO at IndiGo gave out certain details during the conference call with analysts while discussing the First quarter results for Fiscal year 2020. He said that Jet Airways had 108 slots at Mumbai and 52 at Delhi and both the airports have not released all the slots yet. IndiGo happened to get roughly 30% of domestic slots of Jet Airways, while having a market share of close to 50%, indicating that the distribution was not in proportion to the market share airlines commanded.
The double digit growth in India market was characterised by double digit increase in capacity and suddenly the capacity was only replacing older capacity. While the
capacity was coming back at a very fast pace, it was replacement and not incremental. Will the double-digit growth be back?
The industry is talking about recession, financial markets are under pressure and government is being looked at for some sort of stimulus package. In such times, showcasing aviation as a sector with great growth numbers would have been possible had all the available capacity been distributed!
Oil is still low which gives airlines some breathing space against a weaker rupee but everything on the growth front hinges on how much capacity can be inducted in the market. If the capacity side constraints continue and regulator or airports do not release the additional slots to the market, in all likelihood getting back to double digit growth is a challenge, leave aside breaching the 20% mark again!
Spicejet and Vistara are (almost) done with inducting the ex-Jet Airways B737s. IndiGo and GoAir are expected to re-start taking deliveries of their A320neos and these four will be the prime movers in capacity, but only if it is released!
While it wouldn’t
hurt the airlines in this quarter, it will hurt the passengers in the next one with festivals and holiday season leading to another spike in air travel! Ameya Joshi is the founder of aviation analysis blog NetworkThoughts. Read Ameya Joshi's columns