22-Aug-2012 11:01 AM

Story of exceptional growth in Indian domestic market takes diversion

Analysis

The story of exceptional growth in the Indian domestic market took a diversion for a third consecutive month in Jul-2012, with a 9.9% year-on-year decline to 4.53 million passengers. Year-on-year reductions in passenger numbers commenced in May-2012, with a 0.9% year-on-year reduction in passenger numbers to 5.4 million, while Jun-2012 witnessed a larger 3.8% year-on-year decline to 5.10 million passengers.

India was the only major domestic market worldwide that failed to show an expansion in demand (RPKs) in Jun-2012 compared with the previous year. This was preceded by almost three years - or 35 consecutive months - of uninterrupted growth, most of it at double-digit rates (all but six of these months witnessed double-digit growth). Up until Feb-2012, India's growth rate was among the highest in the world with double-digit increases in passenger carriage, supported by strong domestic demand and economic growth.

Summary

Indian domestic market witnessed a decline in passenger numbers for the third consecutive month in July 2012, with a 9.9% YoY decrease.
Kingfisher Airlines' severe cutbacks have significantly impacted the growth of the domestic market.
Despite recent declines, the Indian domestic market has shown significant growth in recent years, with an 83% increase in traffic since July 2006.
IndiGo became the largest carrier in the domestic market in July 2012, surpassing Jet Airways/JetLite for the first time.
Kingfisher Airlines' market share slumped to just 4.2% in July 2012, making it the smallest carrier in the market.
The Indian aviation sector is currently in a low-growth phase, but long-term prospects remain positive, with India expected to become the world's third-largest aviation market by 2020.

India domestic traffic (RPKs) growth by country: May-2012 vs Jun-2012

The severe cutbacks by Kingfisher Airlines in particular have put a brake on growth in the domestic market, with the 9.9% contraction in passenger numbers in Jul-2012 marking the slowest month of domestic passenger growth since Apr-2009 when passenger levels declined 15.2%.

Indian carriers domestic passenger numbers: May-2006 to Jul-2012

Despite the recent reversal of growth trends, the domestic Indian market has shown significant growth in recent years, with domestic traffic in Jul-2012 increasing 83% from Jul-2006 levels, 30% above Jul-2007 levels, 49% above Jul-2008 levels, 26% above Jul-2009 levels and 11% above Jul-2010 levels. Overall, air traffic in India has witnessed a compounded annual growth of 16.5% during the 2004/05 to 2011/12 period, with domestic traffic reporting a cumulative annual growth rate of 18.5% and international traffic witnessing growth of 14% over this period.

Total weekly services on the domestic network increased from 8724 in 2006 to 12,107 in 2011 and the number of airports handling scheduled air services increased from 50 in 2000 to 82 in 2011. Total domestic passengers carried by all scheduled and non-scheduled operators increased from 36.2 million in 2006/07 to 60.7 million in 2011 (calendar).

4.5 million passengers in Jul-2012

In 1H2012, the growth trend remained, with 30.9 million domestic passengers, a 3.7% year-on-year increase. In the seven months to Jul-2012 there was a 1.7% increase in domestic passenger numbers to 35.5 million.

Indian carriers domestic passenger numbers and growth rate: Jun-2010 to Jul-2012

The nation's airlines in recent months have left capacity virtually unchanged but on a positive note, yields have been stronger in recent months. Increased fare levels, of up to 30% on some sectors, have however had a negative impact on demand.

India domestic capacity (ASKs) and demand (RPKs) development: Jul-2011 to Jul-2012

IndiGo becomes largest airline group in India

IndiGo was again the largest carrier in the domestic market in Jul-2012, with more than one in four domestic passengers travelling on the nation's most popular LCC, which has seen a steep growth trajectory since its launch in Aug-2006. IndiGo was the only carrier to handle over 1 million passengers in the month, a lean month for domestic travel in the Indian market, with 1.2 million passengers. This compares to 882,000 passengers at Jet Airways, 824,000 at Air India, 808,000 passengers at SpiceJet. JetLite (325,000), GoAir (316,000) and Kingfisher Airlines (156,000) all handled under 350,000 passengers.

India domestic market share by carrier: Jul-2012

In a milestone event, IndiGo overtook the combined Jet Airways/JetLite as the largest airline group in the domestic market for the first time. The Jet Airways Group had a 26.6% market share with Jet Airways holding 19.4% and JetLite a 7.2% market share. IndiGo president Aditya Ghosh, commenting on the development, said, "We have never chased market share. But being the largest airline in the world's largest democracy is truly humbling". Jet Airways Group has been the largest carrier in the domestic market since Jul-2009, when it took over from Kingfisher Airlines (Kingfisher previously took over the largest group carrier title from Jet Airways in Dec-2008).

IndiGo has increased weekly capacity by over 30% in the past 12 months, while Jet Airways has been moderating its domestic capacity growth over the last few years with capacity growth coming largely from changes in aircraft configuration related to the transfer of services to its low-cost subsidiary Jet Konnect.

IndiGo monthly passenger traffic: Jan-2006 to Jul-2012

Kingfisher Airlines market share slumps to 4% in dramatic turn of events

The combined market share of IndiGo, JetLite, SpiceJet and GoAir, reached 59% in Jul-2012. Unsurprisingly, Kingfisher's market share was the weakest, at just 4.2%, as the carrier sharply cut capacity, operating only 12 to 13 aircraft and 90-100 daily services in its summer schedule, compared with 66 aircraft in 2011, resulting in a sharp slump in passenger carriage.

Kingfisher Airlines monthly domestic traffic: Jan-2006 to Jul-2012

Kingfisher Airlines, in a remarkable turn of events, slipped from being India's largest domestic carrier to its smallest in the space of only six months amid significant network cuts by the struggling carrier.

Kingfisher Airlines will likely remain as the nation's smallest carrier in the coming months, as it continues its much-curtailed schedule and amid a "holding plan" put in place pending recapitalisation and a return to full utilisation of the aircraft fleet.

IndiGo reports fullest aircraft in Jul-2012

Jul-2012 load factors data shows that in addition to transporting the largest number of passengers in the month, IndiGo, as usual, reported the strongest load factor at 75.5%, although this was down significantly from 86.5% in Jun-2012, reflecting seasonal trends as the peak summer season ends and the domestic market enters its lean season. No airline reported month-on-month load factor gains in Jul-2012, while IndiGo and Air India were the only two airlines which reported marginal increases in load factors in Jun-2012. The sharpest decline, as expected, was seen at Kingfisher, reporting load factors of only 53% despite operating a quarter of the number of aircraft it did a year earlier.

Indian carriers seat factor: Jul-2012

Indian aviation sector in low-growth phase but long-term prospects remain positive

Domestic traffic in India has been flat in 2012 amid exceptional circumstances in the market, with Kingfisher Airlines and Air India both severely curtailing capacity amid strike action and financial woes. CAPA estimates that domestic passenger traffic will grow by 8-10% in FY2012/13 and more likely towards the lower end of the range. Much will depend upon the impact of oil prices and other input costs on airfares. The short-term cost and regulatory environment remains very hostile. CAPA will present its analysis on the 1Q financial performance of Indian carriers later this week.

While the Indian aviation sector is now in a low-growth phase, long-term fundamentals remain positive. India is poised to emerge as the world's third largest aviation market before 2020 with CAPA forecasting airport traffic to reach 450 million passengers (360 million domestic and 90 million international) along with 6.5 million tonnes of cargo by 2020.