Mumbai: Indian companies are not planning to cut their travel budgets despite a slowing economy. Many conglomerates, including the Tatas and the Essar Group, have said they are not restricting travel budgets, traditionally the first victim in such a scenario.
Between January and August, domestic travel grew 18.6% and debt-ridden airlines are preparing to make best use of this expansion. Typically, the quarter ended December is a peak season for airlines because of festivals. Of the total air traffic, 50% comes from pure corporate travel.
Robust air passenger growth comes at a time when India’s factory output growth dropped to a 21-month low in July, signalling a slowing of the economy. The economic growth in the first quarter of this fiscal year (April-June) slipped below 8%. India’s economy will expand 7.8% this year, the International Monetary Fund said in its World Economic Outlook report on 20 September, slower than the 8.2% estimated in June.
The Indian central bank has raised its key policy rates 12 times since March 2010 to combat persistently high inflation, which has been above 9% for 13 months in a row.
According to the Directorate General of Civil Aviation (DGCA), passengers carried by domestic airlines in August grew 19.92% from the year-ago period.
“We find the travel budgets are growing this year. A casual look at the travel expenses (which include all forms of travel) of over 500 corporates, indicates that they expanded 16-17% in fiscal 2011,” said Mahantesh Sabarad, senior vice-president (equity research) at domestic brokerage Fortune Equity Brokers (India) Ltd.
Travel expenses had actually contracted by 9-10% in fiscal 2010 from the previous year, he said.
A senior Tata group executive said officials were asked to fly economy class instead of business during the 2008 crisis, but no restrictions have been imposed on travel at this point of time.
A senior Essar Group executive said, “It is business as usual” for the group companies and there are no restrictions on executive travel.
Neither divulged travel budgets for their respective groups.
Another Tata group executive, requesting anonymity, said group companies made the necessary investments to fuel growth immediately after the slowdown in 2008 and “things are not as bad as one paints”.
“This indicates that the corporates exercised restraint after the global slowdown seen in fiscal 2009, but let go these restrictions in fiscal 2011. Even into this year (fiscal 2012), the travel budgets do not appear to be slashed,” said Sabarad of Fortune Equity.
International Air Transport Association (Iata) sees a similar trend in international passenger demand. Passenger demand has been stronger than anticipated despite the gloomy economic outlook, it said on Tuesday.
Iata has raised the growth forecast for the international passenger traffic for the year to 5.9% from 4.4% in June. The grouping represents 230 airlines, accounting for 93% of scheduled international air traffic.
“We haven’t seen any indicators of travel purchase slowing or travel behaviour changing for Indian firms. Corporates’ travel budget is growing,” said Manoj Chacko, executive vice-president (commercial) at Kingfisher Airlines Ltd.
According to him, India is still showing good growth and with consumption growing, corporate travel, which has a strong correlation with consumption, cannot slow.
“We are not witnessing any impact of a slowing economy,” said a senior Jet Airways (India) Ltd executive, but added that it wasn’t easy to leverage this “as some airlines are dropping fares to capture market share”.
Ahead of the peak season (October-December), Jet Airways has increased the fuel surcharge by Rs 200 per ticket on the domestic sector, citing rising jet fuel prices. Others have followed the country’s largest airline by passengers carried in making similar increases.
In the global aviation market, India is a high-growth and high-potential market for travel because the economy is growing on the back of strong internal demand and a rising middle class, said Sandeep Shastri, vice-president and general manager of global business travel in India for American Express Co.
“We are witnessing a double-digit growth in travel spending and frequencies among some of our clients in the Asia-Pacific region in general and India in particular,” he said. American Express operates one of the world’s largest travel agency networks in at least 140 countries worldwide.
According to a survey by the business travel division of American Express, airfare growth was strong in India in the June quarter, with business class travel growing 4%.
“Airlines are going to make a little more money in 2011 than we thought. That is good news. Given the strong headwinds of high oil prices and economic uncertainty, remaining in the black is a great achievement,” said Tony Tyler, Iata’s director general and chief executive officer.