2008 was a torrid year for domestic airlines in India, as recently released figures by the Ministry of Civil Aviation (MoCA) show.
Domestic passenger traffic for the year 2008 fell 5% from 42.58 million to 40.77 million (Fig. 1), driven by the increase in fuel costs, and the massive hikes in air fares, which are yet to fully retreat, and capacity reductions by the airlines.
The Low Cost Carriers (LCCs) Indigo, SpiceJet, and JetLite, improved their market shares at the expense of Full Service Carriers (FCCs) Air India, Jet Airways, and Kingfisher Airlines. IndiGo is the big winner this year with a four per cent market share gain. Air India (the former Indian Airlines), gave up a big three per cent share. (Fig. 2)
The notable exception is Go Air (now called No Go Air due to its numerous flight cancellations), and the former Air Deccan, now christened Kingfisher Red after their acquisition. Kingfisher Red lost five per cent market share, while Kingfisher Airlines gained only three per cent, resulting in an overall loss of two per cent market share to competitors. Clearly the strategy at Kingfisher is not working.
While most airlines and airline groups lost in actual passenger numbers, LCCs IndiGo, SpiceJet, JetLite (the former Air Sahara now a subsidiary of Jet Airways), and Paramount, gained passengers. (Fig. 3).
The capacity swapping at Kingfisher group is clearly visible, and when performance of both Kingfisher Airlines and Kingfisher Red is combined, actual passenger numbers went down 10.5 per cent, from 12.56 million to 11.25 million.
The first two quarters of 2008, provided no clue to the excess capacity in the Indian airline industry. The “perfect storm” of increased fuel prices and reduced economic activity started rearing its ugly head towards the end of Q2 (April, May, June), and kicked the industry in it’s teeth in Q3, with a mind numbing 25 per cent drop in traffic. (Fig. 4). Q4 has provided some seasonal relief, but Q1 of 2009 will see numbers dropping back again.
With the exception of Paramount, which has a small niche regional market, all the airlines saw massive drops in passengers in Q3. (Fig. 5). Most airlines staged a recovery in Q4, but the surprise is Jet Airways. It’s passenger numbers tanked almost 20 per cent in Q3 and continued the downfall by another 15 per cent in Q4.
The market share of LCCs followed the increase in air fares, as passengers shifted from the FSCs. SpiceJet share in Q3 reflected its financial problems, prior to the Ross bailout. (Fig. 6)
It is an ignominious performance that the pioneer in the air travel bubble, Air Deccan (now Kingfisher Red) has lost over six per cent market share over the year. Clearly many of the “first time flier” passengers have chosen not to repeat, either returning back to trains and buses, or moving to other carriers like IndiGo and SpiceJet.
The data highlights the price sensitive nature of the Indian traveller. IndiGo appears to have a winning formula with its low prices and efficient service. Fancy gimmicks do not work. At a time of economic slowdown, the FSCs have to get their act together quickly. By holding fuel surcharges to unjustifiably high levels, they are surrendering ground to the LCCs and surface transport.