Stiff competition in the skies meant airlines in India were unable to raise airfares for the most part of 2018, and it appears that things are unlikely to change in the coming year as well, as airlines continue to push their capacity expansion to new limits. 2019 will also be the year when low cost carriers (LCCs) will commence flights to long-haul destinations, challenging the incumbent full service carriers (FCCs), and thereby leading to a reduction in international fares.
Also, falling fuel prices may act as the catalyst in this development, as the carriers, after having bled heavily, find some breather to continue the fight, analysts claim.
The development comes even as India, among the fastest growing aviation markets in the world, posted its 50th consecutive month of double-digit growth (15.0 per cent) in November. While this was a step down from the 19.6 per cent posted in September, the strong upward trend in traffic remains in place, supported by structural changes, including ongoing rise in living standards as well as large increases in the number of airport connections within the country, claims the latest report released by airline lobby group International Air Transport Association (IATA).
Talking about the low fares, John Nair, head (business travel) at Cox & Kings Ltd, said it was a rewarding year for fliers as airfares remained stable despite crude oil prices rising. "Domestic airfares will remain depressed as carriers are dumping capacity," said Nair, adding that LCCs running more international routes, especially long-haul ones, would mean affordable airfares to foreign destinations.
Airlines like IndiGo and GoAir are said to be planning long haul routes, while Vistara, a FCC from the Tata Group and Singapore Airlines, is also planning to fly international in 2019.
However, Sharat Dhall, COO (B2C) of online travel company Yatra.com, said the one challenge that could dampen the growth story is the lack of additional flying slots at key metro cities.
Aloke Bajpai, CEO and co-founder of rival travel portal Ixigo seconded this argument. "Airport capacity is a constant problem, especially in cities like Mumbai. With an increase in passenger growth and airports reaching saturation point, addressing airport capacity expansion is the need of the hour," Bajpai said.
But while fliers rejoice, rating agency ICRA has given the entire airline industry a negative outlook, since many of the carriers have weak balance sheet structures. And with rising losses in the near term, the industry would need equity infusion of over Rs 350 billion in the next 3-4 years. Kinjal Shah, vice-president and co-head, Corporate Sector Ratings, ICRA, said, "While passenger traffic growth remained strong during FY-2018 and H1 FY-2019, the industry faced a double whammy with increasing ATF prices and depreciation of the Rupee. The cost pressures are expected to continue in the balance part of FY-2019, resulting in further weakening of the industry's financial health."
Fliers, Rejoice!
- Falling fuel prices, airlines’ increasing capacity mean more low-cost flights.
- With LCCs commencing operations to international destinations, even overseas travel may become cheaper.
- But experts worry about the sector’s overall health
