Indian Aviation: HY2018 throwback

When IndiGo declared its results few weeks back, it was a shocker and a wake-up call for many who thought that Aviation is on a roll. This was quickly followed by news indicating financial stress at Jet Airways. The six months ending June has seen airlines add over 40 aircraft and the top airlines in the country added 21% capacity by Available Seat KiloMeters (ASKM), carrying 25% more passengers during the same period the previous year. The seven airlines together had 19% more departures this year than the previous one. To put it in hindsight, airlines in India carried 684.83 lakh passengers in the first six months of 2018, which is more than the passengers who flew in the entire year of 2014 (673.83 lakh).

Read: Indian domestic passenger traffic crosses 100 million mark in 2017

The growth, this time coming at the cost of profits for the airlines, has been phenomenal on the back of rising costs, growing infrastructural constraints and flat yields.  The capacity was led by IndiGo which inducted 17 aircraft effectively which comprised 9 A320ceo, 4 A320neo and 6 ATR. The airline returned back 2 A320ceo to lessors. National carrier Air India inducted 5 A320neo, 1 ATR 72-600 and 3 B77W aircraft. This was followed by 4 aircraft each by Jet Airways, Go Air, AirAsia India and Vistara. Spicejet inducted just 1 aircraft in the last six months as it awaits induction of the B737 MAX8 starting this month or next.

HY2018 capacity market

Fuller planes for all airlines is how the last six months can be categorized but it has come at a time when the fuel prices have shot up without strengthening of yields. The airlines are commanding almost as much market share as much as their capacity share, indicating that there isn’t much of a favorable advantage to any carrier except Spicejet. While 2017 closed with every airline having a story to tell, mostly a happy one, the same cannot be said for 2018.

HY-2018 Snippets

  • Low Cost Carriers (LCCs) now command 67% of the market share, up 1.4% over the same period last year
  • Regional Connectivity Scheme (RCS) – UDAN is taking off but not in a big way, the numbers are coming from capacity addition across the country
  • Vistara placed its much anticipated order for additional aircraft
  • The first B737 MAX aircraft in India was delivered
  • Capacity Share and Market share of airlines have been hand in hand

The first six months of the year have also been categorized by a lot of churn at the top. Market leader IndiGo saw resignation of its President Aditya Ghosh and later Chief Commercial Officer Sanjay Kumar. The top deck at IndiGo is being filled up with expats. Go Air, known for rapid churn at the top, saw a new CEO and CCO at helm. AirAsia India also saw the departure of its CEO and CCO.

Second Half of 2018

This site had predicted early in 2018 that this could be the toughest year yet for IndiGo and it is well turning out to be that way. However, what has also happened alongside is that the year is turning out to be much tougher for others as IndiGo continues to deploy capacity with availability of cash.

IndiGo is likely to go all out on expansion with ATR fueling the domestic ones and A320s helping start international stations. Everything though hinges on the resolution of the engine issue on the A320neo by Pratt&Whitney.

At the start of the year, three airlines were in contention to go International this year. Vistara has announced that their International foray will be announced by December. In all likelihood, they could choose 9th January 2019, their fourth birthday to start International services. Currently the airline has 21 aircraft and would induct the 22nd in September. Go Air continues to dilly dally but with AirAsia India being mum on its plans following departure of its CEO to the parent and the sudden spate of publicity around the court cases.

Air India has missed the privatization bus and if oil continues to climb north, could see reduction in services to unprofitable international destinations. The real challenge seems to be for Jet Airways as it struggles alongside its partners. The airline is in dire need of a systematic plan to get over its high debt trap which is only likely to increase as it opts for more working capital loans.

There will be more surprises for all of us and it’s better to wait for it and review again at the end of the year.

HY2018 Growth
YoY growth for First half 

Tail note

Fuel, A320neo engine issues, slot constraints will continue to be the buzz words in this half of 2018. Consolidation could get added to these buzz words. If oil continues to grow, will airlines shrink? The next 18 months are challenging and the solace could be some addition of capacity at metros except Mumbai !

Macro trends_Edit
Oil has not been kind in 2018

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8 thoughts on “Indian Aviation: HY2018 throwback

  1. Amazing !
    Had to cross check with DGCA numbers and amazed that 6 months of 2018 have been more passengers than 2014 !

    Like

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