Airlines turning around

Quoting Business Standard: Rise in corporate travel and low fares the drivers; 26 per cent growth in August raises hopes.

After being in the doldrums for over a year, the $14-billion Indian aviation industry is showing signs of recovery. Carriers, as well as experts, expect 10 per cent growth in passenger traffic against their earlier prediction of not more than 5 per cent.

Last year, passenger numbers dropped 10.5 per cent. In August, domestic sector traffic rose 26 per cent year-on-year, which is the first time in almost a year that a double digit growth has been recorded.

“After registering a fall of 10.5 per cent in 2008-09, the industry was expected to grow marginally. But considering the growth registered in the last three months, it is poised to grow by 10 per cent this fiscal,” said Mahantesh Sabarad, a senior aviation analyst with Centrum a leading financial company.

However there are others who are more optimistic. “The growth in the aviation industry would be one and a half times the gross domestic product. With good times around, the sector is going to witness 14-15 per cent growth,” said Rajeev Batra, executive director, KPMG.

“Surely, the revival has come much earlier than was anticipated. Our projections for the year were that the market would revive in the third quarter of this financial year but it revived early in August,” said Kapil Kaul, CEO (Indian sub-continent and West Asia), Centre for Asia Pacific Aviation in India.

Airlines say various factors are behind the revival. Corporate travel, which is nearly 30 per cent of the business, is limping back to normalcy. Airlines have been able to keep rates low. The average airline ticket price has come down from Rs 3,956 in 2008 to Rs 3,400 in 2009.

“This rise in the numbers has come because of lower fares and it remains to be seen how much the airlines would be able to take forward the lower fares,” said Ajay Prakash, general secretary, Travel Agents Federation of India.

“Yes, airlines should concentrate on improving yields from last-minute travel. The norm worldwide is that if you buy tickets at the last minute, you pay more but here the tickets sold at the last minute are brought down to cheapest level,” said Mohit Srivastava, head of online sales at Makemytrip.com, a travel portal.

After three consecutive hikes, Aviation Turbine Fuel (ATF) prices were slashed by 3.2 per cent in line with softening international rates. The average reduction works out to Rs 1,285 per kilolitre. ATF accounts for 40 per cent of the total operation cost of the airlines.

Analysts and industry players also say that the good figures will continue, as the markets are reviving and the market looking upwards.

“Yes, It is a revival. There is financial stability in the market and the market is responding to the present fare structure, which will broadly remain,” said Nikhil Vohra, an aviation analyst.

“The figures show a revival. The August figure last year showed a fall of 16.5 per cent, so there is also a base affect. But even month on month the growth is of 1 per cent,” said Sabarad.

It is also widely felt that this growth trend is to continue and in the coming months. “This revival in August has come on reasonably cheap fares and the upsurge in the market and this is to continue,” said Batra.

“August figures have been good because of aggressive pricing by the airlines and September figures are also looking brilliant,” said Srivastava.

I am very bullish on Spicejet, even though it has increased tremendously over the last 3 trading sessions. Its the only Indian airline company that is making money, while others are losing money. I expect a smart increase in profitability for the airline.

More analysis on Spicejet will follow.