INDIA’S domestic air passenger figures plummeted to record new levels last month, as airlines raised fares half a dozen times this year in reaction to soaring fuel prices.
August saw just 2.92 million travellers taking to the skies, compared with more than 4.16 million in May.
According to the Ministry of Civil Aviation, air passenger numbers dipped sharply over the last few months, with the June numbers of 3.53 million tumbling to 3.08 million in July. In August 2007, a total of 3.53 million Indians chose to travel by air.
Aviation experts feel this summer has been especially turbulent for Indian air travel since the country’s aviation boom began in 2004. Airline companies – grappling with soaring jet fuel prices, deferred expansion plans and layoffs – have upped fares at least half a dozen times this year, which has severely impacted air travel.
The sharp escalation in fares has resulted in fewer people flying, with the July-September period being the leanest for air travel in the country. The pricey air-ticket scenario is indeed a shocker for Indians used to 100-200 rupee (S$3-4) air tickets proffered by India’s dozen-odd low-cost carriers (LCCs) which burst onto the scene four years ago.
The rocketing fares have propelled much of the Great Indian Middle Class – a 750 million demographic – back to cheaper modes of travel such as the railways. This lucrative demographic was being assiduously wooed by the LCCs over the past four years.
Despite airlines cutting down heavily on the number of flights – 2,144 flights a week were pulled back from route maps of domestic carriers in July from nearly 11,000 weekly flights earlier – carriers are still plagued by low occupancy rates. Even a 16 per cent slash in ATF (airline turbine fuel) prices post-July – when fuel rocketed to a record US$147 a barrel – hasn’t knocked down ticket prices.
“The airlines are not yet in a position to pass on the benefits of cheaper ATF prices to passengers until further market correction takes place,” says the CEO of an Indian LCC.
Deccan Aviation Ltd-run Simplifly Deccan, which is merging with Kingfisher Airlines Ltd, saw its sharpest dip in load factors – at 39 per cent in August compared with July 2007 when it flew its planes at 67.7 per cent capacity.
Other low-fare carriers – SpiceJet, Indigo and JetLite India Ltd – also saw their load factor drop sharply to 56.8 per cent, 62 per cent and 63 per cent respectively in August compared with 71.4 per cent, 71.5 per cent and 68 per cent last year. Kingfisher flew its planes at 59 per cent capacity compared with 66.7 per cent last year.
Analysts feel that if these slim numbers spill over into the next fiscal (October-December), India’s airlines may well experience more turbulence. Already, they are expected to post a combined loss of about US$2 billion this fiscal year to March 2009.
Currently, Jet Airways is the market leader in the domestic aviation market which carried 700,000 passengers in August followed by Air India (520,000 domestic fliers), Kingfisher (429,000), JetLite (269,000), Indigo (298,000) and SpiceJet 247,000 passengers.
However, Indian airline companies are quick to assert that they cannot squarely be blamed for sliding air traffic as the prohibitively priced ATF accounts for nearly 40 per cent of their operational cost. In any case, these companies assert, Indian carriers pay much more for fuel compared with other Asia-Pacific hubs such as Singapore, Hong Kong and Colombo, mainly on account of higher ATF tax rates levied by the Indian government, which has been a contentious issue between the travel trade and the former.
ATF in Delhi, the city that houses the nation’s second-busiest airport, for instance, costs US$1,291 per kilolitre while the same in Singapore is sold at US$1,067 per kilolitre, US$1,100 per kilolitre in Hong Kong and US$1,113 per kilolitre in Colombo.
For airlines, refuelling cost in Delhi is 21.73 per cent higher than that in Singapore, according to a report by the Ministry of Petroleum and Natural Gas. Similarly, airlines in India pay 14.82 per cent and 13.87 per cent more than their counterparts in Colombo and Hong Kong pay respectively.
In view of a combination of factors – not the least of which are high ATF prices and diminishing seat loads – the whole of Asia-Pacific region is expected to see profits shrink from US$900 million in 2007 to US$300 million this year.
The International Air Transport Association (Iata) says that its revised industry financial forecast predicts the global airline industry to post losses of US$5.2 billion in 2008. According to Iata, the situation remains bleak as the “toxic combination of high oil prices and a downward spiral in demand continues to poison the industry’s profitability”.
The pricey air-ticket scenario is a shocker for Indians used to 100-200 rupee tickets proffered by LCCs.
This article was first published in The Business Times on September 17, 2008.
