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Air traffic slumps to new low

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May 15, 2008

It's confirmed — higher airfares are driving down air travel growth.

Air traffic in April, which is considered a good month for airlines, grew by just 8.65% to 38.92 lakh passengers from 35.92 lakh passengers during the same month last year. This is much below the 10-12% air traffic growth in the lean quarter (January, February and March) of this calendar year.

Analysts say slowdown in demand was largely due to higher fares. "Last couple months, demand has been growing at 10-12%, but 8.65% is very low, considering that April is a good month for airlines. It means that at current prices, consumers are not travelling as much as they used to before. It will take some time before they recalibrate and return back to air travel," said an analyst with a domestic broking house.

Passenger growth of airlines has been consistently tumbling since December. It fell from 27% in November to 13.3% in December, 12.2% in January and 11.3% in February.

For the first time in the last 3-4 years, it has now dropped to single digits.

As per the data released by the civil aviation ministry on Wednesday, full service carrier (FSC) Jet Airways continued to dominate the Indian skies with largest share of the aviation pie at 21.6%. Combined with JetLite, the Naresh Goyal-owned airline's market share, at 29.6%, was 1.7 percentage points higher than that of the Kingfisher-Deccan combine (27.90%).

However, Jet's share this April is lower than what it was last year in April (22.3%).

State-run Air India's (domestic) share has also slipped this year at 15.1% as against last year's 22%. The airlines, which have garnered higher market share than last year, are JetLite (formerly Air Sahara), Kingfisher Airlines, IndiGo, SpiceJet and GoAir.

Budget carrier IndiGo's market share has jumped the highest, from 6.5% to 11.5%. It has overtaken rival SpiceJet by 1.4 percentage points.

IndiGos followed by Kingfisher Airlines, whose share rose by 3.4 percentage points. Market share of SpiceJet and GoAir this April has gone up by 1.4 and 1.8 percentage points over last year.

Market share of Air India, Jet Airways, Deccan and Paramount have been eroded by 6.9, 0.7, 4.7 and 0.3 percentage points in the last one year.

Meanwhile, flying prices of hotel rooms and airline tickets are dampening the spirits of Indian travellers.

Le Passage to India managing director Arjun Sharma says soaring travel costs have impacted the travel industry drastically. "Just six months back, the (travel) industry was growing at 27-30%. Today, it is clocking only 10-12%. The downswing is due to a combination of factors — not just the hike in airfares but also rising (hotel) room rates and other such costs," says Sharma.

"It is very important to have healthy airlines for a robust growth in the travel industry. However, looking at the way oil (aviation turbine fuel) prices are shooting up, the bottomlines of airlines are likely to get hit," says Sharma.

A senior executive of a budget airline voiced similar concerns. "The slowdown in growth doesn't concern us as much as rising costs," said the executive. He said that, on a base of 40 million air passengers a year ago, a growth of 10-15% is healthy. "It means that air traffic has increased by 6 million YoY (year-on-year)."

Industry experts say what is happening in the Indian travel industry is a reflection of the global trend. Data released by International Air Transport Association (IATA) shows that the load factor in March this year was down 1.7 percentage points to 76.1% from 77.8% during the same month last year.

There are, however, few travel firms like SOTC Holidays of India and Futura Travel (Essar's inhouse travel agent), which have defied the general trend in the industry.

"Our business has not been affected by inflation in the travel sector. We continue to consistently grow at 25-28%. That is because Indian leisure and business travellers are no longer as cost-sensitive as they used to be. With easy access to funds, they are no longer shy of splurging on luxury holidays," says SOTC Holidays of India senior general manager Anil Rai.

Jason Samuel of Futura Travel also says the Indian travellers' aspiration is only soaring. "Earlier, if you asked an economy class travel to upgrade to business class, he would resist because of the cost involved. Today, he does it willing," says Samuel.

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Air traffic slumps to new low
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