Indian aviation: passengers, position, profits

This piece originally appeared on Livemint.com

 

In a year in which new-economy sectors made all the news, one old-economy business finally delivered a maturing it had been promising for two decades now: domestic aviation. The stage for this coming of age was set in 2015, when the price of aviation fuel—the biggest cost head for an airline—tumbled and the sector started turning in 20%-plus growth in passengers. But 2015 was also coming off a turbulent 2014. In comparison, 2016 was challenged by a high base and it bested that, as airlines steadily added routes, flights and passengers—catapulting India up the global ranks in domestic aviation.

 

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Why Indian airlines favour international flights over domestic ones

This piece originally appeared on Livemint.com

 

India this month relaxed rules for new airlines wishing to fly overseas. The consistent demand from these airlines for easier rules has been due to a single reason: the favourable economics of international flights over domestic ones.

Higher growth and margins

Jet Airways leads all airlines in international air passenger traffic in and out of India. International operations accounted for 56% of Jet’s revenues in 2015-16, but it started flying abroad in 2004.

Today, a more illustrative representation of the potential of the international segment for a new airline is IndiGo, which started foreign flights in 2011. At Rs1,470 crore, international flights accounted for 9.1% of IndiGo’s total revenues in 2015-16. But on every headline growth and profitability metric, IndiGo’s international piece is outperforming its domestic piece (launched in 2006). That’s partly because of the longer distances flown, even for IndiGo, which does short-haul international flights only, unlike Air India and Jet, which do both short-haul and long-haul flights.

 

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Greater share of India’s international air traffic

The share of Indian airlines in India’s international air passenger traffic has increased in the last decade. In 2014-15, 15 airlines accounted for 75% of this traffic. In this bucket are all the five Indian airlines allowed to fly abroad, with a cumulative share of about 37%. IndiGo and SpiceJet, which started international flights only in 2011 and 2010, respectively, and oriented their international operations around shorter routes, are already ranked nine and 10, respectively.

 

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Volumes in the shorter routes

For an Indian airline looking to fly international, volumes are in the shorter routes to the Middle East and Asia-Pacific. The likes of IndiGo and SpiceJet have capitalized on this, in the process mostly preserving their low-cost character and fleet portfolio. Among the top 15 countries, which account for 88% of India’s international traffic, 12 are short-haul routes with India. Likewise, of the top 15 city routes, which account for 30% of India’s international traffic, 13 are short-haul.

 

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Source: Directorate General of Civil Aviation (DGCA), financial results of InterGlobe Aviation Ltd (which operates IndiGo) and Jet Airways (India) Ltd.

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News in Numbers, June 16, 2016: India’s first civil aviation policy, coffee not cancer-causing…

$7 billion

What is it? The amount Didi Chuxing has raised recently.

Why is it important? This is double of what Uber had raised about a fortnight ago, leaving the Chinese company flush with $10 billion in cash – signalling intensifying competition in China. This may force Uber, which spent $1 billion this year to grow its share in China, to increase its focus on India that only makes it a tougher battle for Ola Cabs in India.

Tell me more: Uber, which received $3.5 billion funding from Saudi Arabia’s wealth fund a few days ago, is looking at the leveraged-loan market to raise as much as $2 billion. Didi has a pact with US’ Lyft, India’s Ola and Grab in Southeast Asia – to take on Uber- to use each other’s apps when customers travel to other markets in their network.

 

Rs 2,500

What is it? The maximum airlines can charge per hour of flying on regional routes, as per India’s first National Civil Aviation Policy.

Why is it important? This, along with other rules, are aimed to encouraging more people to take up air travel and boost economic growth. The policy is aimed at helping the government achieve its target of growing domestic passengers from 80 million to 300 million by 2022. India’s annual trips per capita is just 0.04 compared to 0.3 in China.

Tell me more: The other decisions include: allowing all airlines to fly international routes but they need to deploy 20 aircraft or 20% of their total capacity (whichever is higher) for domestic operations, development of ‘no-frills’ airport at an indicative cost of Rs 50-100 crore and stricter rules for making airlines fly on underserved routes.

 

1,000

What is it? The number of studies on humans and animals reviewed by an international working group of 23 scientists, after which they concluded that there is inadequate evidence to show that drinking coffee causes cancer.

Why is it important? This surely brings cheer to the millions of coffee-lovers across the world, who may or may not have known that the World Health Organization (WHO) had listed the beverage as a “possibly carcinogenic” agent for nearly 25 years. While coffee drinking has been observed to have reduce the risks of liver and uterine cancers, the evidence was inconclusive for 20 other types of cancer.

Tell me more: The scientists, however, found positive associations between drinking very hot beverages (65 degree Celsius or more) and cancer of the esophagus and it is now classified as “possibly carcinogenic”.

 

0.79%

What is it? The year-on-year decline in exports in May to $22.17 billion.

Why is it important? This is the slowest pace of contraction in 18 months, driven by exports of gems and jewellery, chemicals and engineering goods. Commerce and Industry Minister Nirmala Sitharaman said that the decline in exports has bottomed-out though the pick-up may be slow. The Federation of Indian Export Organisations expects double-digit growth in exports from October onwards, which could help in achieving $300 billion in exports in 2016-17.

Tell me more: Imports declined 13.16% in May to $28.44 billion, leaving a trade deficit of $6.27 billion.

 

1.15 lakh tonnes

What is it? The quantity of pulses procured by the Indian government during the kharif and rabi seasons for buffer stock creation, against the target of 1.5 lakh tonnes this year.

Why is it important? Despite this, a sudden shortage in stocks has pushed the prices of pulses to as much as Rs 170 per kg. To bring down the prices of pulses, the government has increased the buffer stock of pulses to 8 lakh tonnes for this year and the Cabinet has okayed imports of pulses from Myanmar and some African countries.

Tell me more: The food ministry has asked private agencies that import pulses to dispose off the stocks within 45 days to ensure proper supply in markets and the state governments to take action against the hoarders.

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News in Numbers, June 8, 2016: India closer to its NSG aspirations, Amazon’s India push…

$21.3 billion

What is it? The estimated cost of delay and additional fuel consumption due to freight vehicles being stopped at check posts and/or state borders, long queues at check posts, poor road conditions etc., according to a study.

Why is it important? Underscores the need for Goods and Services Tax – which would bring in a single tax rate in place of the myriad existing ones, and reduce paperwork at checkposts and state borders. This would cut some costs. However, it would also need better infrastructure – wider roads and focus on multi-modal transportation – and action against unnecessary police intervention.

Tell me more: The study by IIM-Calcutta and logistics firm Transport Corporation of India gave the break up of the cost incurred due to delays and cost of fuel consumption due to such delays: $6.6 billion and $14.7 billion respectively.

 

35

What is it? The total number of member-nations of the Missile Technology Control Regime, an international anti-proliferation grouping, with the latest addition being India.

Why is it important? This would help India to buy high-end missile technology and also bring it closer to becoming a member of the Nuclear Suppliers Group (NSG), a body that controls global nuclear trade. Though India has received support from the US for India’s entry into this coveted group, China has been against this and favouring Pakistan’s membership.

Tell me more: India has the capabilities of exporting nuclear fuel such as thorium and supply nuclear technology in the future but it cannot do so until it is a member of the NSG. India’s entry into this group will also give it a strategic victory over Pakistan as it can block it from joining the NSG.

 

6.5%

What is it? The present Repo rate – the rate at which the central bank lends to the banks.  It was kept unchanged by the Reserve Bank of India (RBI) on Tuesday.

Why is it important?  RBI holding the rates was expected, but it comes at time when there is debate – fuelled primarily by Rajya Sabha member Subramanian Swamy – on whether the central bank is too reluctant to bring down rates, which might help small and medium industries.

Tell me more: The RBI has cited concerns about an upside in inflation risks mainly due to increase in international commodity prices, especially oil, and the implementation of the Seventh Central Pay Commission. The central bank may not go for any interest rate cuts this year as RBI’s survey of professional forecasters have assigned the highest probability of 49% for average inflation to be 5-5.9% in 2016-17 against its target of containing it within 5%. The RBI also left the cash reserve ratio, the portion of their deposits that banks have to keep with the central bank, at 4%.

 

Rs 404

What is it? The amount a passenger would have typically got as refund, if they had cancelled a Delhi-Mumbai ticket costing Rs 2,419 (base fare: Rs 1,559) booked on June 7.

Why is it important? Highlights how cancellation charges can sometimes exceed the base fare amount (in this case, it is 1.29 times the base fare). India’s aviation regulator will reportedly announce new rules barring airliners from levying cancellation charges exceeding the base fares.

Tell me more: A couple of months ago, airlines in India offered discounts and brought down airfares but increased the cancellation charges up by 50-100%.

 

$3 billion

What is it? Additional investment commitment by Amazon in India.

Why is it important? This is likely hit Indian e-commerce firms such as Flipkart and Snapdeal, which have been struggling to raise funds to keep up in the race as competition intensifies. It also shows how badly Amazon needs to win in India, after losing out to Alibaba Group Holding in China. In July 2014, the company had announced a $2 billion investment in the country, which it spent in less than two years.

Tell me more: With the additional funds coming in, Amazon’s total pledged amount would exceed $5 billion (over Rs 33,000 crore) in India.

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