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Business News/ Companies / News/  Bumper Q3 for airlines as air traffic, fares take off

Bumper Q3 for airlines as air traffic, fares take off

After a gloomy start because of the Omicron wave, Indian airlines are ending the year on a high note as record demand for air travel and high airfares boost revenue

Photo: APPremium
Photo: AP

After a gloomy start because of the Omicron wave in January, Indian airlines are ending the year on a high note as record demand for air travel and high airfares boost revenue.

Air travel has boomed with the onset of the holiday season, with daily air traffic in December more than doubling to nearly 420,000 in December from around 200,000 in January. India witnessed a record number of air travellers on 24 December, as 435,500 people took to the skies on 2,904 flights. This was also higher than the daily average of 2,900 flight departures and 400,000 air passengers in the pre-covid year of 2019.

“The aviation sector witnessed a record number of flyers in the second half of 2022, setting the tone for a positive 2023 for the industry. We are seeing a strong recovery in both international and domestic segments, buoyed by festive travel, tourism, as well as the return of business travel," an IndiGo spokesperson said.

IndiGo, India’s largest airline, is currently operating more than 1,600 daily flights, its highest ever, with more than 290 aircraft to 76 domestic and 26 international destinations.

IndiGo and Vistara grew their fleet to over 290 and 54 aircraft in 2022, from 217 and 22 in 2019. Naturally, their passenger traffic has also risen in sync—IndiGo carried 12.97 million passengers in October and November, compared with around 12 million in the same period of 2019.

Similarly, Vistara carried 2.14 million passengers in October and November against 1.43 million in the same period in 2019.

“This could possibly be one of the best quarters in terms of revenue for Vistara in its history. They may break even, too, but cost pressures are also high in terms of jet fuel prices. However, they seem to be on track to post a very strong Q3(Oct-Dec)," an industry expert said on condition of anonymity.

The rise in air travel and costlier airfares are expected to result in strong revenue performance, and the yield scenario is likely to be healthy, an analyst said. High jet fuel prices and rupee volatility will, however, continue to put pressure on the profitability of airlines, the person added.

A global shortage of engines, aircraft parts and new aircraft has resulted in a shortage of capacity, which has spelt both good and bad news for airlines. While the disruption in capacity amid high demand has hit earnings, the limited supply of seats has helped airlines set prices higher.

In a recent note, Kotak Institutional Securities said it expects IndiGo to flex its pricing muscle more in the near future.

“IndiGo highlighted its endeavour to play its inventory show card to further take pricing up—the firm opens up more of its inventory as time to travel comes closer. Having spread its network enough, it would unlikely see a case for weakening profitability on such count," Kotak Institutional Securities said in its report.

The grounding of 13% of the domestic industry fleet over engine supply issues will boost airfares in the second half of the fiscal, Elara Capital said in a recent note. The broking firm expects IndiGo to post a strong second half, with an expected year-on-year rise of 25% in yield for the December quarter.

“In view of all-time high traffic and one of the highest yields, it should be the best quarter for aviation companies. All these companies would clock record high topline for December quarter," Mitul Shah from Reliance Securities said.

The last quarter has also been challenging for some airlines, especially SpiceJet and GoFIRST. The two airlines have struggled to deploy capacity due to a variety of reasons related to funding as well as engine shortage. SpiceJet carried 1.7 million air passengers in October and November against 4.1 million in the same period of 2019. For GoFIRST, domestic air traffic during the two months of the current quarter was 1.67 million against 2.8 million in the same period of 2019.

“High aviation turbine fuel (ATF) prices and the general inflationary environment continue to stifle earnings, with ATF prices in December being higher by around 53% on a y-o-y basis, although the same declined by nearly 2.2% sequentially. While airlines have been increasing the yields, the same has not been adequate to offset the impact of rising ATF prices," said Suprio Banerjee, vice-president and sector head of corporate ratings, ICRA Ltd.

IndiGo, too, remains cautious about the lingering effects of covid-19, geopolitical issues, rising prices of crude, and continuing supply chain challenges.

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Published: 28 Dec 2022, 10:56 PM IST
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