India’s international traffic has logged a compounded annual growth rate (CAGR) of 10.5 per cent in the last 10 years, ratings agency ICRA said today.
“The international traffic to/from India has also been growing at a steady pace over the past decade, registering a CAGR of 10.5 per cent between FY 2006 and FY2016,” it said.
Besides a 16 per cent growth in passenger traffic in the previous fiscal coupled with lower jet fuel prices has helped domestic airline improve their performance during the period despite increased competition, it said in a note.
The ratings agency also said that with new carriers expected to enter the market, the competitive intensity in the domestic aviation industry is likely to increase further.
The robust growth of 16 per cent in passenger traffic in FY2016, coupled with continued benign fuel prices has seen strong improvement in the performance of the Indian carriers in FY2016, despite increased competitive intensity, the ratings agency said in the note.
“With the fuel cost accounting for about 40-50 per cent of the operating expenditure for airlines in India, there has been a 17-18 per cent reduction in the total cost over the last two years.
Further, in view of the tight liquidity conditions in the past, the airline strategies have moved from chasing market share to one focused on improving profitability, resulting in the route rationalisation, cutting back on capacity expansions, fleet rationalisation, and renegotiation of maintenance contracts, among others,” ICRA senior vice president Subrata Ray said.
Rigorous cost rationalisation measures, including shutting down loss-making routes, renegotiation of maintenance contracts, and rationalisation of manpower should help domestic airlines to improve their operating performance to some extent going forward, it said.
While Icra expect the domestic airlines to continue to sustain the improved performance in FY2017, on account of favourable jet fuel pricing environment and the improved growth in passenger traffic, the Indian aviation industry is still subject to structural challenges and intense competition, the note observed.
According to the note, with new carriers expected to enter the runway, the competitive intensity in the domestic aviation industry is expected to increase going forward, with potentially significant over-capacity in the next 12-24 months if the demand growth is not sustained in the event of fare hikes due to an increase in fuel prices
“Thus, it is crucial for the airlines to remain focused on cost controls,” it added.