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Aviation in 2016: Flight airborne; ATF price, congestion cloud outlook

December 28, 2016 01:23 am | Updated 01:24 am IST - NEW DELHI:

Year 2016 could be termed a win-win time for flyers as low airfares allowed more passengers to travel even as a host of passenger-centric measures were taken to enhance the flying experience such as the cap on ticket cancellation charges levied by airlines.

Domestic air traffic grew at 23 per cent to a record 9 crore from January-November this year, as per Directorate General of Civil Aviation (DGCA) estimates.

According to International Air Transport Association (IATA), India’s air traffic grew at a significantly higher rate even in October when air traffic growth moderated in other countries such as China (14.1 per cent), Brazil (-5.5 per cent), Russia (2.5 per cent) and Japan (0.8 per cent).

A dip in aviation turbine fuel prices by eight per cent on an average in 2016 allowed airlines to offer fares that were lower by about 14 per cent. Aviation turbine fuel cost contributes about 40 per cent of the total cost of the operations of airlines.

Airlines indulged in a fare war throughout the year – even in peak festive seasons benefiting customers and allowing airlines to fill up more seats. On the flip side, this dented airline yields – passenger revenue earned for each seat flown per mile – as the airlines were deploying additional capacity on various routes.

Then there were a host of passenger-centric measures taken by the Centre such as capping cancellation fee, increasing compensation on delays and boarding denial along with lowering additional baggage fee. The authorities also experimented with a plan to do away with baggage tags.

However, there is still a long way to go with scope for measures such as self-baggage drop, paper-less boarding passes, RFID tags for baggage and WiFi on board aircraft for domestic flights, said Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG.

Gainers and losers

One of the biggest gainers of the huge traffic growth in 2016 was low-cost carrier IndiGo which increased its overall market share to 39.2 per cent in January-November this year from 36.8 per cent in the year earlier period. New entrant Vistara managed to double its market share to 2.5 per cent from 1.2 per cent while AirAsia’s market share increased comparatively slower to 2.3 per cent from 1.7 per cent. The market share of SpiceJet increased to 12.7 per cent from 11.5 per cent. However, while GoAir saw a marginal decline in its share, full-service carriers Jet Airways and Air India saw a sharp dip in their market shares.

Rising global oil prices could be a cause for concern for the fliers and airlines should brace up for it, Mark D Martin, Founder and CEO of Martin Consulting said. He said Brent crude prices had gone up to almost $55 a barrel from $38 a barrel in April this year. “By March, when the prices will go above $65 a barrel, it can be a bit painful for the airlines,” Mr. Martin said. Mr. Dubey asked the oil firms to sell ATF at global average prices for the next five years as ATF prices in India are already almost 70 per cent higher than the global average.

Soaring air traffic is creating an infrastructure bottleneck, especially at the airports. Mr. Martin said airspace congestion and longer hold time for aircraft during winter operations might lead to an increase in operating costs of airlines. Mr. Dubey said the government should lease out top 30 Airports Authority of India (AAI) airports to private operators.

Torpid airports

The government has ambitious plans to revive 50 no-frills airports in the next three years, for which bids have been invited from private players to operate regional flights. So far, 35 potential air operators have submitted requests to fly on 65 routes under the regional connectivity plan.

The Centre plans to subsidise the losses incurred by airlines flying on routes defined under the regional connectivity scheme by charging a levy on each departing flight of domestic airlines. Major domestic airlines have dragged the Centre to the courts challenging the levy of up to ₹8,500 on domestic flights from December 1.

If the scheme — expected to take off in January 2017 — manages to make some headway in connecting the hinterland to the rest of the country, the government can claim to have cracked a long-standing challenge.

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