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Additional air traffic difficult to sustain unless airport infrastructure is developed: Experts

To be sure, India’s domestic air traffic grew at 18.8% in 2015, the fastest clip in the world, according to data from the International Air Transport Association (IATA).

, ET Bureau|
Updated: Jul 14, 2016, 03.33 AM IST
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To be sure, India’s domestic air traffic grew at 18.8% in 2015, the fastest clip in the world, according to data from the International Air Transport Association (IATA).
To be sure, India’s domestic air traffic grew at 18.8% in 2015, the fastest clip in the world, according to data from the International Air Transport Association (IATA).
MUMBAI: The aggressive fleet expansion by Indian carriers may far outstrip the growth in demand for air travel, forcing airlines to take a hit on margins. The additional capacity will also be difficult to sustain unless airport infrastructure in the country is rapidly developed, said industry experts.

Wadia-group owned budget carrier Go Air on Tuesday said it has signed an initial pact to buy 72 of 180-seater Airbus A320neo planes. Taking these into account, Go Air, IndiGo, SpiceJet and Jet Airways will have ordered a total of 691 planes since 2011. Most of these are narrow-bodied planes, primarily used for domestic operations.

Data from a recent note by global consultant CAPA-Centre for Aviation shows that India’s current fleet size is about 63% of South Asian carriers’ fleet size, but its order book is 95% of the total orders from this region. Airbus has said it will deliver one plane every week to Indian carriers for the next ten years.

Malaysian low-fare carrier AirAsia Bhd too has placed an order for 100 A321neos. Some of these, or the older planes they replace, will come to its Indian unit. SpiceJet is planning an order of about 100 planes, Air India has said it will lease 44 planes in the A320 family, and Vistara too is expected to place an aircraft order shortly. “We shall see significant oversupply over the next 5-7 years.

The orders just placed don’t worry me as they will be delivered several years later. But even going by the previous orders, a total of about 110 planes will be delivered between April 16 and March 18. There will be an impact on yields — there is already a double digit dip — and airlines will return to profitless growth, especially as the cost creep continues,” said Kapil Kaul, CEO, South Asia at CAPA.

To be sure, India’s domestic air traffic grew at 18.8% in 2015, the fastest clip in the world, according to data from the International Air Transport Association (IATA). But this will peter out, said analysts.

“Our domestic supply-demand model shows an implied annual growth rate of only 14% between FY17 and 20E on the basis of current order book perspective. As such, aircraft supply based on current order book will lag demand leading to potential upward pressure on yields," said Ansuman Deb of ICICI Securities in a recent note.

IndiGo has said the fleet expansion is necessary to unlock India's massive potential for air travel demand: a miniscule percentage of its 1.3 billion population currently travels by air. Others have said the potential will remain unrealised if the country’s airport infrastructure isn’t developed.

“Where are they going to get (flight) slots? Where are they (the planes) going to be parked? Where are they going to fly? Because for the next five years, Mumbai is not going to have a new airport.

The other metro airports will also take 4-5 years to build new runways. If they are going to be deployed in routes which are secondary or tertiary, then obviously there will be a lot of capacity added and there will be pricing pressures,” said Sanjiv Kapoor, chief operating officer of Vistara, the joint venture carrier between Tata Sons and Singapore Airlines.
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