The domestic passenger traffic has reported robust growth of 25.6% in July 2016. The growth was 22.2% for 4m FY2017 and it has consistently remained above 20% mark for most of the months over the last 20 months. In spite of the lean season, increasing capacity, intense competition and resultant lower ticket prices remained key drivers for traffic growth. The ATF prices continued to increase sequentially for the fifth consecutive month; however the airlines are absorbing the impact to ensure healthy load factors.
Though the domestic ATF prices stand at a lower level on YoY basis, sequentially there has been gradual increase over last five months. The same is impacting profitability of airlines considering intensely competitive market.The domestic ATF prices declined by 7.8% YoY during July 2016. However, on a sequential basis, the prices increased by 5.4% during the month. This is ~37% higher than the February 2016 prices.
‘In spite of high utilization levels (domestic PLF at 84.1%), high competitive pressures and rising ATF price remains a challenge to airline profitability. Nevertheless, the prices of domestic ATF have declined in August and September 2016 by around 4% each, and the same is expected to provide some relief to the airlines’, says Subrata Ray, Sr Group Vice President at ICRA ratings.
In the past, the airlines partially passed on the benefit of low fuel prices to customers by lowering ticket prices, which has fuelled demand. However, considering pressure on profitability, the recent price drops are not expected to result in decline in airfares considering overly competitive prevailing airfares. The profitability of the airlines is likely to remain under pressure as compared to the previous year.
Estimated fuel CASK (cost per available seat km) of the domestic airline industry, which had come down to ~Rs. 0.82 in February 2016, increased to ~Rs. 1.10 in July 2016 (higher by 5 paisa than June 2016) on account of fuel price hikes. On the other hand, the yields are likely to remain lower due to non-peak season and intense competition.
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