Power Pack

Airline Services

1
• Industry Overview :3

• Domestic Traffic : 15

• International Traffic : 21

• Market Share : 27

• Margin and Profitability : 33

2
 Industry Overview

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Moderate domestic passenger traffic growth in December 2018

• The Indian aviation sector grew 18.6% between January and December 2018, against
the same period last year, carrying almost 13.90 crore passengers.
• In December 2018, domestic passenger traffic grew 12.9% on-year, while domestic PLF
decreased 200 bps on-year to 87.5%.
• Growth in international passenger traffic for domestic carriers slowed to 11% on-year.

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Domestic passenger traffic growth improves to 12.9% in December 2018
Monthly domestic passenger traffic

Source: DGCA, Crisil Research

5
Monthly market share

Source: DGCA, Crisil Research

6
Top 6 routes accounted for 16.2% of total domestic passenger traffic in the
country
• The top 6 routes during December 2018 comprised of five metro to metro routes and
one metro to non-metro routes.
• The total share of these 6 routes fell to 16.2% of the domestic passenger traffic
compared to 18.6% a year ago, and has declined by 2% onyear.
• This is due to fall in passenger traffic on Mumbai-Delhi, Delhi-Hyderabad and Delhi-
Pune routes by 5%, 6% and 3% respectively

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On-year passenger traffic in top 6 routes

Source: DGCA, Crisil Research

8
Domestic PLFs decreased 200 bps to 87.5% on-year in December 2018
Trend in domestic PLFs

Source: DGCA, Crisil Research

9
International passenger traffic grew 11% in December 2018
• Growth in international passenger traffic for Indian carriers slowed to 11% on-year in
December 2018.
• Growth was fueled by a robust 70% increase in passenger traffic on-year for IndiGo.
• Among other domestic carriers, the international passenger traffic for SpiceJet and Air
India increased by 22% and 8% on-year respectively, while the international passenger
traffic for Jet Airways declined by 11% during the same period.

10
Monthly International passenger traffic Monthly international PLF

Source: DGCA, Crisil Research

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Domestic airlines fly way behind global ones on profitability
• Domestic airlines have trailed global peers on profitability in the last five years because
of low passenger load factor (PLF), revenue per revenue passenger kilometer (RPKM)
and high fuel cost, despite lower employee cost.
• Not surprisingly, their operating margins were negative compared with double digits for
global airlines.
• Interestingly, and contrary to general perception, our analysis shows operating margins
are low not just because of higher fuel cost – it is actually PLF that drives margins.
• A 1% increase in PLF lifts margins by about 150 bps.
Domestic airlines fly way behind global ones on profitability
• Profitability of domestic airlines is well below that of global peers because of poor PLF
and revenue per RPKM, and high fuel cost -- and despite lower employee cost.
• On average, operating margins of domestic airlines have been negative in the last 5
years compared with double digits for global airlines.
• The study covered the financial performance of 16 airlines (10 global and 6 domestic)
including low-cost and full-service global carriers such as Singapore Airlines, Air Asia,
Air China, Emirates, Southwest, Air Canada, Jet Blue, Ryan Air, Lufthansa and EasyJet,
and Indian ones such as Jet Airways, Air India, Indigo, Spice Jet, Go Air and Jet Lite
(which together had about 99 per cent domestic market share -- based on RPKM – in
2014-15)
5 years average operating margins of global and Indian airline companies

Source: DGCA, Crisil Research

Domestic Traffic
Growth in economy and connectivity has boosted the domestic passenger
traffic in 2017-18
• In 2017-18, despite a rise in fares, domestic passenger traffic grew 19% on-year.
• The growth was driven by a rise in economy, improving connectivity and a shift in mode
of travel.

Rising crude prices slow down domestic passenger traffic growth in 2017-18
• In 2017-18, domestic air traffic growth slowed down due to an increase in fuel prices and
infrastructural constraints at major airports.
• Despite a 3% on-year rise in fares, domestic air traffic grew 19% on-year to 123.3 million
passengers
Dip in domestic passenger traffic growth trajectory

Source: DGCA, Crisil Research

Supply constraints & revenue optimization led to a rise in domestic PLFs
for fiscal 2018
• Driven by a rising demand and connectivity the PLF for domestic carriers increased to
87%, as supply was restrained on account of a delay in aircraft induction by players such
as Indigo and Go Air.
• Moreover, the airliners were more centric towards Revenue optimization by increasing
the PLF to offset the rising costs to some extent as they were unable to have a pass on of
costs.

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Domestic PLFs rise in 2017-18

Source: DGCA, Crisil Research

19
Indian carriers PLF

Source: DGCA, Crisil Research

20
 International Traffic

21
International passenger traffic grew at a steady pace in 2017-18

• International passenger traffic reported a steady CAGR of 9%, during 2012-13 to 2017-
18.
• This was driven by growth in tourism, increase in air service agreements, and increase
in trade.
• Due to strong competition from foreign players, share of domestic carriers has
decreased marginally in 2017-18.

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International passenger traffic grew by 11% in 2017-18

• In fiscal 2018, international traffic (Indian and foreign carriers) in India grew 11% to
65.5 million passengers.
• Growth was driven by growth in tourism, increase in air service agreements and trade.
• Further, international traffic carried by Indian carriers increased by 13% y-o-y to 23.8
million passengers led by Indigo.
• In terms of RPKM, Air India and Jet Airways contributed around 87% of the
international market for domestic carriers.

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International passenger traffic (domestic and foreign carriers) in India

Source: DGCA, Crisil Research

24
Market share of Indian, foreign and other carriers (based on passenger
carried)

Source: DGCA, Crisil Research

25
International market share among Indian carriers (based on passenger-Km)

Source: DGCA, Crisil Research

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 Market Share

27
New entrants to widen their market share despite competition; some airlines
may fail
• Competition in the Indian aviation space is heating up with the dominance of
incumbents such as Air India, Jet Airways, IndiGo, SpiceJet and GoAir challenged by
new entrants such as Vistara, AirAsia India, and TruJet.
• The new entrants have been expanding their footprint in both trunk and new routes
through direct flights, to increase their share to about 9% in terms of revenue passenger
kilometre in fiscal 2018 in the domestic market.

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Market share of domestic airline industry
Fiscal 2017 Fiscal 2018

Source: DGCA, Crisil Research

29
Passenger traffic handled by new airlines jumps three-fold in three years

Source: DGCA, Crisil Research

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New entrants to widen their market share despite competition; some
airlines may fail
• Competition in the Indian aviation space is heating up with the dominance of
incumbents such as Air India, Jet Airways, IndiGo, SpiceJet and GoAir challenged
by new entrants such as Vistara, AirAsia India, and TruJet.
• The new entrants have been expanding their footprint in both trunk and new routes
through direct flights, to increase their share to about 9% in terms of revenue
passenger kilometre in fiscal 2018 in the domestic market.

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New entrants to widen their market share despite competition; some
airlines may fail
Market share of domestic airline industry
Fiscal 2017 Fiscal 2018

Source: DGCA, Crisil Research

32
 Margin and Profitability

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Cool-off in crude to support operating margins in fiscal 2020

• The falling crude oil prices in November 2018 and cut in excise duty on aviation turbine
fuel will likely bring the operating margins of airlines into positive territory in fiscal
2020.
• Moreover, the increasing share of new-generation aircraft will support margin
expansion.

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Operating margin for the industry to recover

• The operating margin for listed players stood at negative 7% in the first half (H1) of this
fiscal as compared with 11% in the same period a year ago.
• However, the margins to improve on account of a cool-off in crude oil prices and better
fare environment as against H1 levels.
• For fiscal 2020, the operating margins to improve to 5-7% owing to:
1. 5-10% fall in crude oil prices.
2. Marginal depreciation the dollar-rupee exchange rate
3. Improvement in fares
4. Flattish PLF

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Operating margin for the industry to recover
Operating margin profile for industry

Source: DGCA, Company Reports, Crisil Research

36
Player-wise operational performance in fiscal 2018

Source: DGCA, Company Reports, Crisil Research

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