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Business News/ Companies / Air travel soars as fares drop
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Air travel soars as fares drop

January-July passenger traffic grows 21.13% as cheaper fuel sparks fare cuts

Domestic airlines carried 45.58 million passengers during the period, against 37.63 million during January-July 2014, according to data released by DGCA on Tuesday. Photo: Hindustan TimesPremium
Domestic airlines carried 45.58 million passengers during the period, against 37.63 million during January-July 2014, according to data released by DGCA on Tuesday. Photo: Hindustan Times

Mumbai: Finally, passengers are back on board for domestic airlines.

Cheaper tickets aided by low fuel prices led to a 21.13% growth in air travel during January-July against the year-ago period, regulatory data showed.

Domestic airlines carried 45.58 million passengers during the period, against 37.63 million during January-July 2014, according to data released by the Directorate General of Civil Aviation (DGCA) on Tuesday.

In the month of July, the growth was even sharper: 29.31%.

The return of air passengers has led airlines and aircraft makers to revisit their business models.

For instance, IndiGo, India’s largest domestic airline by passengers carried, confirmed on midnight of 15 August (and announced on Monday) an order to buy as many as 250 Airbus A320neo single-aisle jets. At the listed price, the order is worth $26.5 billion.

In 2005, IndiGo placed an order for 100 A320s, all of which have been delivered. With Monday’s announcement, IndiGo has ordered 530 aircraft from the A320 family. Out of this 530, it has taken delivery of 100 planes.

IndiGo president Aditya Ghosh said strong passenger growth, apart from the prospects of an under-penetrated market in India, was one of the reasons that convinced IndiGo to opt for such a massive order.

Last week, the US-headquartered plane-maker Boeing Co. raised the forecast for India and estimated a demand for 1,740 planes in India over the next 20 years, anticipating that more people will travel by air over the course of time. The price tag for these planes is estimated at $240 billion.

In its annual Current Market Outlook (CMO) released on Wednesday, Boeing raised its prediction for aircraft demand by 8.75% compared with its 2014 forecast. In March 2014, Boeing said airlines in India will need 1,600 new aircraft, valued at $205 billion, in the next 20 years.

The basis of the forecast: lower operating costs and higher passenger growth.

Dinesh A. Keskar, senior vice-president, sales, Asia-Pacific and India, at Boeing Commercial Airplanes, said fuel prices have decreased 33% from their October 2013 peak even as Indian airlines pay up to 50-60% more for fuel than the airlines in the US.

Fuel costs are approximately 45-55% of the revenue of domestic players. A 4% reduction in fuel costs can potentially add around 2% to the operating margin, according to analysts.

Keskar said India’s domestic passenger traffic is at the highest levels. More than 66.4 million domestic passengers travelled by air in 2014. “We are expecting 75 million passengers flying this financial year," he said.

DGCA’s latest data showed that IndiGo is leading the pack of domestic airlines with a market share of 35.8%, followed by Jet Airways (India) Ltd with 19.2% and state-run Air India Ltd at 16.2%.

“The growth of 21% is phenomenal. It is aided by lower fares, which are possible due to lower fuel charges," said Ameya Joshi, an independent aviation analyst.

But there are dangers ahead.

Joshi warned that India is a very cost-sensitive market where people will fly when the fares are low and will go away to other modes when fares increase.

“Hopefully, airlines will manage to commoditize air travel this time around so more people fly even when the fares go up later," Joshi said.

Citing the case of SpiceJet Ltd, Joshi said the airline has had a great run with a third consecutive month of 90%-plus (14% more than last July) seat occupancy. IndiGo and GoAir have increased their seat occupancy by 11.5% over last July, he said.

“The higher load factors at SpiceJet seem to be a fallout of innovative strategies to get more passengers to fly, like no hand baggage fares," Joshi said.

Last year, every airline had seen lower loads during June-July, a trend which was reversed by many this year.

Keskar of Boeing pointed that increased fare discipline is required to grow profitability, referring to stimulating fare tactics offered by Indian airlines.

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Published: 18 Aug 2015, 02:21 PM IST
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