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.




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.




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.




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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