A breath of fresh air for airline sector

By: |
Published: January 5, 2019 1:33:54 AM

The moderation, according to the report, is driven by the top-50 routes, with other routes growing over 20% on yearly basis.

The moderation, according to the report, is driven by the top-50 routes, with other routes growing over 20% on yearly basis.

While many airlines in India are reporting losses, air travel has significantly outperformed long-distance AC railway travel over the last four years—airlines have garnered around 80% share in growth volumes of long-distance AC railway travel.
A Kotak Institutional Equities research shows that, in the four years to FY19, airlines will see a CAGR volume growth of 20%, as compared to 5% CAGR for the Indian Railways. In the four-year period, airlines have reduced their pricing by almost 20%, as compared to a static base pricing of the Indian Railways. Moreover, airlines have benefited in volumes because of the railways’ flexible-pricing scheme.

The good performance of the airlines has come at the cost of profitability—as their tariffs have grown at around 2% CAGR over the past nine years, and input costs grew 5% during the period. The report underlines that with the shift of growth in volumes to airlines, they may hike prices.

There is inelasticity of demand for air travel against the price increase—a 20% hike in prices led to a modest 4% decline in volumes in FY13. However, what may moderate the pace of price increase by airlines is the recent relaxation by the Indian Railways of its flexi-fare scheme.

Data also show that the growth in the domestic air volume has moderated to 11% year-on-year in November 2018 (it was 13% year-on-year in October 2018), after growing 20% over H1FY19. The moderation, according to the report, is driven by the top-50 routes, with other routes growing over 20% on yearly basis.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition