Addition of aircraft to hit airlines’ profits

Capacity expansion may lead to moderation in fares, says ICRA

The aggressive fleet induction by Indian airlines to fill the gap created by Jet Airways’ closure is expected to lead to lower yields, said ICRA in a note.

"With the capacity expansion planned by the various airlines, the industry is likely to start facing pressure on yields and thus profitability,” said Kinjal Shah, vice-president and co-head, corporate sector ratings, ICRA.

Providing an example of the planned capacity expansion, Ms. Shah said while Indigo had announced a 30% increase in its capacity in FY2020 (approximately half of which will be for the domestic operations), SpiceJet had announced an increase of about 80%.As the airlines would continue to expand their fleet, resulting in a gradual correction in the demand-supply imbalance, and it would lead to further moderation in airfares, she said.

Ms. Shah said the domestic passenger traffic growth is expected to continue to increase in the coming period.

During May 2019, all the airlines reported a month-on-month improvement in their passenger load factors (PLFs) while on a Y-o-Y basis, only Air India and GoAir had reported improvement in their PLFs.

De-growth in April

ICRA in a note said after reporting a Y-o-Y de-growth of 4.4% in domestic passenger traffic in April 2019, the first after six years of monthly Y-o-Y growth, the domestic passenger traffic rebounded marginally in May 2019, with a Y-o-Y growth of 3.3%.

“This is primarily attributable to the gradual increase in capacity as airlines like SpiceJet started redeploying some of the grounded aircraft of Jet Airways.

“This has, in turn, resulted in some moderation in the airfares during April 2019 and May 2019. For 2M FY2020 (April-May), the domestic passenger traffic growth had sufferedreported a Y-o-Y de-growth of 0.5%,” ICRA said.

Indigo and SpiceJet, which together accounted for 62% of the domestic airline industry capacity during April 2019, have added 15 and 25 aircraft, respectively during April and May 2019. This means an increase of 7% and 33%, respectively, over their March 2019 fleet, ICRA added.

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Printable version | Feb 29, 2020 1:14:58 AM |

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