How IndiGo has benefited the most from 20% growth in Indian air traffic

When yesterday I wrote about IndiGo losing market share for three consecutive months (Fourth month of record load factors for Spicejet as passenger numbers continue to grow), there were questions which came at me on Why and How can this happen? Market share and load factors are just one of many parameters which denote success of an airline and the airline with best market share and highest load factors can also be loss making!

IndiGo, infact has had one of the best years so far as it carried 60.46 lakh passengers more previous year till August, which is a growth of 45% and has been the biggest beneficiary of the 20% YoY growth.

Growth in passengers

Between January and August 2015, a total of 523.55 lakh passengers flew one of the 11 airlines now in operation in India. This is 20.84% more than last year when 433.24 lakh passengers flew during the same period.

While the average growth has been close to 21%, the maximum was seen in June – a jump of 30% over last June, with 66.01 lakh passengers flying in 2015 compared to 56.9 lakh in 2014. The month of May saw the lowest of growths at 16% primarily on account of May being a peak tourist month.

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New players fueling growth? Not Really

When Spicejet started coming out of its near death experience in December, it started with a revenue management technique of having periodical offers and sale period to shore up passenger loads. The airline said this would help get more revenue at lower yield because the passenger numbers would go up. The financial results indicate that the strategy is working. Few other airlines including Jet Airways and IndiGo have tried following this model selectively and these lower ticket prices have fueled growth.

While Air Asia India started with a promise of 30% lower fares it could not hold on to that for a long time and is now back in the game with two based at Delhi & Bengaluru competing with all the major players on more or less the same cost.

Vistara on the other hand is being positioned as a premium full service carrier and would not have an intention of going after the deal driven game of loads. However the airline has been giving offers in premium cabins to shore up loads and thus revenue on the back of strong competition from Jet Airways on the routes where Vistara operates.

Air Costa has not seen any incremental capacity since it has stabilized at 4 aircraft for a very long now and so is the case with Go Air which has had a constant network with 19 aircraft for the entire 2015.

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Who benefited the most?

As the pie expands, everybody benefits. But IndiGo benefited the most. Out of the 90.31 lakh additional passengers in 2014, 60.46 lakh have flown IndiGo. The airline took 67% of this additional traffic. This was followed by Jet Airways which flew 26.74 lakh extra passengers amounting to 29.6% of the pie.

This numbers are higher because Spicejet carried 29% lesser passengers than 2014 owning to its reduced fleet and network. The airline which had carried 80.94 lakh passengers last year carried only 57.54 lakh passengers. So while the traffic grew with 90.31 lakh additional passengers, also on platter were 23.4 lakh passengers of Spicejet.

On the contrary the newer airlines – Air Asia India & Vistara got 7.9% and 6.1% of the pie respectively having carried 12.69 lakh passengers in 2015 till August.

The growth in passengers was led by IndiGo – 46% and Jet Airways – 36%, followed by Go Air at 13% and Air India at 8%.

More passengers more flights?

While IndiGo and Jet Airways saw an increase in passenger numbers by 46% and 36% respectively, their departures increased by 26% and 8% in the same period indicating flights being fuller than previous years which is clearly indicated in the higher load factors.

Overall there was an increase of only 6% in domestic departures for this period in 2015 over 2014, clearly indicating a huge growth in occupancy which is not capacity driven but driven by cheap fares.

One wonders how the growth would have been for the market and Spicejet had Spicejet not experienced what it did in December and shifted to this model of Revenue Management?

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Tail piece

While the industry continues to grow at breakneck speed, infrastructure is back in focus again. With Mumbai facing congestion and Delhi nearing maximum Air Traffic Movements, the growth is going to be in cities other than these. Kolkata and Chennai continue to be constrained and the same is true for Bengaluru till the next phase of expansion is completed.

While lower fuel cost has helped airlines increase utilization, with IndiGo announcing some red eye flights, and lower fares, the commoditization of air travel will take a back seat of infrastructure issues are not sorted out soon.

Jet Airways has almost peaked out on the utilization with a fine balance between domestic and international on the narrow body fleet. Both Jet Airways and Air India are likely to see wide body aircraft being deployed on the domestic sector. Spicejet will take time to reach its all time peak levels and while the airline will continue with higher load factors, it is time till it reaches it all time high passenger numbers.

As for IndiGo, the airline may not cross 40% market share as predicted by few analysts and agencies but once the A320 NEOs start arriving, the growth will be rapid with even more number of passengers on board.

Other links on IndiGo

IndiGo’s fleet planning – the missing 30

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