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Air travel demand – a reflection of Economy?

Air travel demand – a reflection of Economy?

by Editor
October 11, 2022
in Opinions
Reading Time: 3 mins read
0

In May 2021, Domestic airlines carried 1.20 cr passengers across India. This includes Indians, NRIs and foreign passengers who flew across the 120+ operating airports in India. It was five times over the same month in 2021 when the country witnessed the peak second wave of the Covid-19 pandemic and the economy was shut down for over 6 weeks. Though subsequent waves continued to come and go, they have remained at best – waves, merely touching the feet and going away.

Airports are looking full and so are the aircrafts. Directorate General of Civil Aviation – DGCA – the monitoring authority of Indian aviation reported that the load factor, the number of seats sold vs. total carried was 89% for Spicejet followed by Go First at 86%. Though market leader Indigo had a nearly 60% market share in terms of total tickets sold, the load factor for the airline was quite low – perhaps due to higher than average fares. And rightly so. With the shutting down of Jet Airways and Kingfisher, Indigo has emerged the top airline for business trips, passing on the family groups and vacationers to other operators like Air Asia, Air India and Spicejet.

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When the demand is higher than usual, it just makes sense to charge more from discerning passengers. And that’s what Indigo is doing. They are passing on higher fares to those who are probably not paying for the fares – corporate travellers, whose tickets are sponsored by their respective companies. In effect, this clearly means that businesses and companies have opened up their travel budgets for the teams to travel. When employees travel, it is just not the flight costs but also the entire ecosystem that benefits. One could estimate that at least 80% of these 1.20 cr passengers availed taxi / cab services to- and fro the airports. This, is perhaps the largest propeller of the economy.

The cab drivers on the other hand fill fuel, undertake repairs and maintenance of their vehicles, spending their earnings across their own ecosystem. Once inside the airport, travellers spend money on F&B inside the aircraft as well as at the airports at departure and arrival areas. This, on the other hand propels the airport concessionaires who employ thousands of employees and these employees spend their salaries within their own ecosystems. This domino effect is cyclical and continues to swell over time. It is clearly evident in Tourism dependent economies such as Maldives, Malaysia, Thailand to name a few internationally as well as in India such as Himachal, Goa, Kerala, etc.

Travel Retail India was poised to touch USD 1 Bn by 2020 but fell short of due to the impending Coronovirus related travel impact since Jan. ‘20. Of the 100+ airports back then, the amount of money spent across India Airports was around Rs. 5,000 Cr annually. In 2019, Singapore Airport & Incheon Airport (South Korea) reported a sale of over USD 1.1 Bn while Dubai Airport had revenues of USD 1.20 bn for the same year. Though India used to ferry over 120 mn flyers annually, the spend at airports was negligible at USD 6 per pax at an average. In FY 2024, if things continue to remain the way they have been in Q1 FY 2223, Indian Travel Retail could touch USD 1 Bn. With Adani group managing half a dozen airports, mostly Tier 2 towns, the opportunity to build a spectacular Travel Retail business is in the offing.

Chennai and Kolkata Airports remain the only two major metro cities where the airport operations continue to be managed by AAI – the primary governing body of Indian Aviation. Both the State Governments have stiffly negated the idea of privatisation of their respective airports while those at Bangalore & Hyderabad with similar air traffic numbers have emerged among the world’s best with their world class offering & operations.

Air traffic is a clear indication that the Indian economy is back in action and traction. If the economy and businesses perform in Q2 is as real as it is being projected, then there is no doubt that FY 2223 would be equal to or better than FY 1819 which went on to become one of the best years for Indian aviation as well as the Indian economy.

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