2016 ends on a high note for Indian Aviation

Airlines in India ended a dream 2016 carrying 99.88 million passengers, falling just short of the 100 million passenger mark.

Two airlines stood out in the entire year, Spicejet which kept their load factors above 90% for the entire year and IndiGo which went from strength to strength despite the issues with A320neo. The airline which limited its expansion in terms of number of stations added umpteen flights to cross the 40% barrier of Market Share. How both these airlines perform financially would be known in few days from now when the airlines file their Q3 results with the stock exchange.

2016 – A quick re-cap

2016 saw the announcement of National Civil Aviation Policy which replaced the 5/20 rule with 0/20. The two airlines which lobbied the most, Vistara and AirAsia India ended the year with 13 and 8 aircraft respectively. Vistara, which completed 2 years of operations in January, has 20 aircraft on firm order, with the remainder 7 being A320neos. Air Costa got its regional license converted to a National one but the airline has been struggling and is now down to two aircraft. Air Pegasus, the all ATR operator based in Bengaluru suspended operations in July. The airline is expected to re-start operations in March 2017 with investments from Fly Easy, which itself tried starting operations a few times and was proposed to be based in Bengaluru.

The country is becoming a perfect case study for Low Cost Carriers (LCC) dominating the scene. 63.8% of all passengers flew on one of the Low Cost Carriers in 2016. This also has a lot to do with the capacity induction being driven by LCCs. While Jet Airways and Air India increased domestic Available Seat Kilometers (ASKM) by close to 7%, IndiGo saw an increase of 28% in ASKMs in 2016 over 2015.

Vistara and AirAsia India saw exponential growth in passenger numbers due to lower base, while IndiGo carried 32% more passengers than 2015. Spicejet, which is yet to reach 2014 levels when it contracted its fleet, recorded a 10% growth in passengers. Go Air seems to have benefited from multiple factors, starting with historic slots in Mumbai which saw minimal expansion in 2016. The airline which deployed 10% more ASKMs, saw 18% increase in passengers which flew with it.

December saw 95.52 lakh passengers fly with Spicejet, IndiGo and Go Air recording 90%+ Load factors. Vistara recorded 85.1% load factor which was its best ever since inception.

Passenger growth story in India has been largely driven by cheaper tickets. Has the industry managed to commoditize air travel is something which will be known when the fares go up, either to accommodate the rising cost of oil or for better margins of airlines.

 Annual Departures GrowthDeparture ShareAnnual Passenger GrowthPax Share

LF 2016

Pax Flown 2016

Market Share 2016

What to look forward in 2017?

Oil & Dollar: The worst combination would be higher oil prices and a weaker rupee, which will lead to substantial increase in operations cost for airlines. This increase will have to be passed on to the customers which in turn is likely to put pressure on demand.

Infrastructural Constraints: Major airports in the country either do not have slots or have planned closure in early 2017. This will impact movements; which in-turn will impact traffic. While capacity will be re-deployed, the disruption will be considerable for top 4 airlines.

UDAN & Smaller Airlines: Ambitious scheme UDAN will see light of the day in Q1 of 2017 based on bids. Air India is likely to play a major part followed by smaller airlines like Trujet. Few more may start and try spreading wings. The environment will remain competitive as ever and eternal question marks over survival of airlines with fleet size less than 5 will remain.

Change in RDG: The Route Dispersal Guidelines are to change effective Winter 2017. If the airlines do not object and the government sticks to its stand, there will be significant changes in network for the airlines. The impact will be positive for the passengers as additional capacity in North East

ICAO Audit: There are reports of ICAO audit in November. In 2012, when ICAO declared India as one of the worst performing nations in Air safety, FAA – the US regulator had downgraded India’s rating. These ratings were restored in 2015, after which Air India launched its services to San Francisco – the worlds longest flight by distance and on Ahmedabad – London – New York route. The downgrade does not allow the airlines of a country to start additional International flights, but the airlines can continue the existing flights. Air India is slated to add flights to Washington from July.

If the ratings are downgraded again, it could hurt the International expansion plans of Vistara and AirAsia India which would be hoping to start International operations in late 2017 or early 2018.

2017 – Airline Outlook

IndiGo – The airline could induct over 40 aircraft in CY2017 and add more International destinations where bilateral rights are available. A lot would still depend on how Airbus performs on A320neo delivery. Market share will not see a big increase as others add capacity. Unlikely to reach 50% share.

Air India – Main player in the UDAN scheme, the ATRs could crisscross more than what they already do. Main theme will be consolidation in domestic.

Jet Airways – Will this be the year when Jet Airways joins an Alliance and will it be Sky Team? Further reduction of B737 deployment from domestic and start of SAARC & South East Asian services. Will lead to drop in market share.

Spicejet – This year again the focus looks like consolidation with start of 2-3 International destinations as part of expansion. Gradual expansion of market share but better profits.

Go Air – The airline could go International before the end of 2017, though delayed from the original plan. Entire expansion plan dependent on A320neo delivery.

Vistara – Strengthening the hub in Delhi with even more interlines and additional code share flights. If the code share / Interline traffic sees good growth, airline could double frequency on short sectors from Delhi to feed the International traffic.

Growth is assured but another 20%+ year will be a miracle & dream.

Here’s wishing every airline in India a profitable 2017 with tail winds.

Link to Indian Aviation records 20% growth in 2015 where the predictions which came true for 2016 have been mentioned

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