Air traffic soared on low fares, high fuel prices

The double-whammy of high fuel cost and low fares necessitated by extreme competition magnified as the rupee depreciated and interest-rates remained high.  On an average, aviation turbine fuel (ATF) prices witnessed a year-on-year increase of 27 per cent during January-December 2018, while the rupee depreciated at an average of 5 per cent against the dollar during the same period.

Industry observers say the rise in fuel costs was particularly acute for the Indian carriers as it makes up to 34 per cent of their operating expenses which is well above the global average of 24 per cent. Consequently, the country’s airline sector bled heavily. The second quarter earning results of listed airlines presented a gloomy picture. Ratings agency ICRA gave a negative outlook for the industry, stating the strong passenger demand was offset by capacity additions leading to intense competition and pressure on yields.

“Severely mauled by the twin blows of significant increase in aviation turbine fuel (ATF) prices and the depreciation of the INR against the USD, the Indian aviation industry continues to grapple tough times in the current fiscal,” Kinjal Shah, Vice President - Corporate Sector Ratings, ICRA said.  “As if this was not enough, low pricing power of the industry and inability to raise fares has resulted in mounting losses for the airlines.”

Passengers were delighted as major airlines flew-out to un-served domestic destinations and budget carriers planned international expansions. Besides, attractive fares and economic expansion allowed a substantial increase in first-time flyers, which lifted the country’s passenger traffic. 

“Increasing use of technology has made it easier for travellers to plan, book and fly. This, coupled with an increase in disposable income and attractive air fares, has led people from tier III and IV cities to chose air over train travel,” Aloke Bajpai, CEO and Co-founder, ixigo said.