Flying High: A Study on the Airline Preferences of Individuals in Urban India

Robust Performance, Supported By Growing Demand

Domestic air passenger traffic has been growing at a healthy rate driven by growing economic activity and affordable air fares. Further, addition of new players as well as capacity enhancements by incumbents has resulted in a Compound Annual Growth Rate (CAGR) of 9% over the last three fiscals in the industry average monthly available seat kilometers (ASKMs) to 8,150 million. The industry capacity has recovered from the sharp cuts experienced during FY2015 due to the financial crisis at SpiceJet. In addition to capacity growth, the industry passenger load factor (PLF) has also grown from an average level of 75% to 83% over FY2013 to FY2016, steered by the strong traffic growth. As a combination of the aforementioned factors, the industry average monthly revenue passenger kilometers (RPKMs) has increased at a CAGR of 12.7% - from 4,700 million in FY2013 to 6,750 million in FY2016, although at the expense of marginally lower yields. Nonetheless, compared to other countries, the domestic air traffic growth (as measured in RPKMs) has been by far the highest in India during FY2016. It stands at a much higher level than the global domestic RPKM growth of 6.7% during the same period. Although the domestic ASKMs reported a CAGR of 9% over FY2013 to FY2016, the growth is outpaced by passenger traffic growth of ~14% during the same period. Lack of anticipation of demand growth and cautious approach towards capacity expansion by many of the players translated into this lag in capacity addition. Indigo has been the only outlier with Available Seat Kilometers (ASKM) growth of ~22% during this three-year period, while the industry (excluding Indigo) grew at a paltry rate of 3%. The international traffic to/from India has also been growing at a steady pace over the past decade, registering a CAGR of 10.5% between FY2006 and FY2016. Though the pace has slowed down over the last three years (7.7% growth during FY2016) due to the weak economic environment, overall the international traffic growth has remained satisfactory. Of the current 10 scheduled domestic airlines operating in India, Indigo continues to enjoy a dominant market share - ~37% for FY2016 - primarily driven by rapid capacity addition and healthy PLFs on the back of superior on-time performance, while the other incumbents have faced some market share erosion by the new entrants FICCI-KPMG (2016).