Second half to be better for local carriers

Domestic carriers have some tailwind coming up in the second half of the year, with passenger traffic showing signs of recovery.

“Currently, factors like big-ticket announcements by the central government, stability in exchange rates and industrial climate are all hinting at a better economic performance, which will have a direct impact on air travel,” said a top official at one of the domestic airlines.

An official of another airline concurred. “The market is expected to be stable in the second half of the year.”

Both asked not to be named.

As such, 2012 was not a good year for the industry, though the carriers managed to gain from the limited capacity post withdrawal of Kingfisher Airlines. Jet Airways too withdrew services on some unprofitable routes.

According to data provided by the Directorate General of Civil Aviation, passengers carried by domestic airlines between January and November, 2012 declined 2.94% on year to 534.14 lakh.

But this is a huge improvement on earlier months.

“We saw a double-digit decline in September and October (month on month) last year in domestic passenger traffic. That has changed since November and now the decline is just around 3-4% month on month. So, things are moving in a positive direction,” said the first official quoted above.

The carriers are gearing up to meet the upcoming demand.

“As the market stabilises, there will be more capacity addition across the industry. Any addition in capacity will boost demand. For us, the capacity addition will be in line with the demand,” said the second official.

Things could look up going forward, if only a tad, say analysts. Going by them, the low base of last year and an overall improvement in the macroeconomic situation will drive growth.

“We expect domestic traffic to recover from 2HCY13 on account of improvement in consumption demand, led by macro recovery, lower base of the previous year, and train fare hikes. The emerging demand-supply scenario would likely result in a modest domestic yield growth of 4-5% in 2013,” Anand Kumar, analyst with Merrill Lynch, wrote in a recent note.

Amrit Pandurangi, senior director, Deloitte, concurred. “2012 was bad for air traffic growth. So, with a low base, growth is bound to be visible,” he said.

“However, the growth is expected to be marginal, in the range of 5-6%, which is not really significant if you compare it with the peak years 2-3 years back,” said Pandurangi.

Among others, Suresh Nair, regional manager (India, Sri Lanka and Bangladesh), AirAsia too feels full recovery will take a while.

“Unless the fares come down, I don't see the numbers going up. There has to be some stimulus, the way SpiceJet offered. It will be difficult for airlines to sustain if the fares are not corrected,” he said.