Edition 22
From being optimistic, I have become cautiously optimistic about air traffic in India in the immediate term. The Diwali traffic wasn’t as per earlier projections and in all likelihood the quarter would end with traffic lower than the Oct to Dec quarter of 2019. The last week, though, has been a miraculous turnaround, starting with the world cup final weekend.
Airlines will be adding capacity at breakneck speed, this time led by Air India and IndiGo is trying everything to keep up that barrage of capacity – especially when it sees anywhere between 30 to 40 additional aircraft being grounded in the next quarter.
IndiGo has rarely moved away from its plan in the past, so much so that it is one of the handful of airlines the world over which would have executed 100 aircraft plans as is. A lot changed since then, starting with the engine issues. Delayed deliveries, In-Flight Shut Downs (IFSD), inspections, groundings, lack of spare engines, the list is countless. Seven years since the A320neo was inducted in India, the challenges continue in one form or another. The planes, or rather the lack of it will matter to IndiGo more than ever right now. Since 2006 when it started, the airline has not seen competition come back as a force to recon with. Kingfisher Airlines, Jet Airways and a few other regional carriers have gone down at periodic intervals and most others have not kept pace with growth. This will be the first time that it would see competition in the form of Air India group, with AirAsia India’s much talked about competition in 2014 being nothing but tall claims and Akasa Air getting into its own spiral at the end of first year of operations.
My mind goes back to over a decade ago when Jet Airways and Kingfisher Airlines were neck to neck in market share and each month was a challenge to get more passengers on its seats. At some point, one of them came out of the market share game and instead started talking about profitability. The truth is that neither made profits, but one talked about it while the other talked about market share.
Lately, airlines have focused on high yields. This has come at the cost of lower load factors. How is it impacting revenue? We will know soon. The math is very simple. You get the same revenue when you fly 100 passengers at 100 rupees each or fly 80 passengers at 125 rupees each. In the first case, the yield is 100, and in the second, it is 125. In the first case, there remains a doubt in the mind if the fares could have been increased, while in the second, the doubt remains if you could have got more passengers with a slight decrease in fares. There never is an equilibrium. As all indicators point to a slow down of traffic this quarter, how will airlines respond? Was the sudden spurt in traffic a result of the sudden sales that were announced pre Diwali?
For me, the highest cost for an airline is the cost of an empty seat, and it may well make sense to chase load factors again than yields.
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