The Indian Aviation 2015 Growth Story Deciphered

DGCA data showed that India flew 81 million domestic passengers in 2015, a 20 percent rise over 2014. Many celebrated it as one of the best years in Indian aviation. But since 2000 there had been five years, including 2015, when domestic passenger numbers grew by more than 20 percent. This review put 2015 in that longer picture.

2004 to 2011: growth, mergers and a slump

• 2004, the year after Air Deccan began, saw 25 percent growth. Its low fares brought in new flyers. Capacity grew 12 percent and load factors rose about 6 percentage points.
• 2005 saw most of today's low cost carriers begin, including GoAir and SpiceJet, and Kingfisher too.
• 2006, the year IndiGo began, saw 45 percent traffic growth. 2007 saw 31 percent growth and average load factors of 70 percent, the best until then.
• Capacity grew faster than demand. In 2007 six airlines became three: Jet Airways bought Sahara, Indian Airlines merged into Air India and Kingfisher bought Air Deccan. With a slowing world economy, domestic traffic fell 6 percent in 2008 and load factors hit a five year low.
• 2009 saw lower fuel prices. MDLR closed, Kingfisher cut domestic flying for international, and Paramount cut flights. Full service capacity fell and low cost capacity rose, so load factors came back to 70 percent.
• In 2010 low cost carriers stimulated demand with price. Load factors reached 76 percent and demand grew 19 percent. Growth carried on in 2011.

2012 to 2014

In 2012 Kingfisher stopped flying and IndiGo added many aircraft, so there was no net capacity growth. Low capacity, four year high fuel prices and less competition raised fares, and demand fell 3 percent. In 2013 capacity grew, load factors rose slightly and demand rose 4 percent, held back by high fuel prices. IndiGo's pace of growth after Kingfisher's fall was unmatched.

2014 was another turning point. Fuel prices began to fall. SpiceJet ran a string of sales that filled seats that would have flown empty, raising its cash flow and load factors, and other airlines copied it much later. The year ended with slightly higher load factors, demand up more than 11 percent and capacity up 6 percent, mostly from IndiGo. AirAsia India started, and SpiceJet shrank as lessors took aircraft back.

2015

SpiceJet rebuilt capacity, bringing back five aircraft and taking some on wet lease. IndiGo added 11 aircraft. Vistara began and ended the year with nine. AirAsia India added three, TruJet and Air Pegasus ended with two ATRs each, Air India Regional added four ATR 72-600s and Air India five new A320s. In all, 41 narrowbody and regional aircraft were added, and Air Costa returned one, for a net addition of 40, not counting SpiceJet's wet leases. With higher utilisation and SpiceJet's smaller base in 2014, capacity grew about 11 percent. Without SpiceJet's cut, which left it with 38 percent fewer departures in December 2014 than in January 2014, capacity growth would have been in single digits.

Cheap fuel, competition and sales lowered fares, and the average load factor for the year was 82 percent, up 6 points on 2014 and the highest in the 15 years from 2000 to 2015. More capacity and fuller aircraft together led to nearly 20 percent growth. The graphs left out charter flights and may not include AirAsia India's 2014 figures.

Will the growth last?

Low fuel prices had already raised utilisation through red eye flights in 2015, and more airlines might copy them. But some could be cut. IndiGo seemed to have dropped its 02:00 Mumbai to Delhi flight (6E 154) and its 23:30 Delhi to Mumbai flight (6E 155) in the summer schedule, bringing the daily frequency down from 17 to 16.

• 2016 could add 60 to 80 domestic mainline and regional aircraft: about 30 A320s at IndiGo, close to 10 at GoAir, 4 A320s at Vistara, around 4 at AirAsia India, and about 10 regional aircraft.
• If the 5/20 rule is dropped, AirAsia India and Vistara might fly internationally, which could draw capacity from domestic routes. GoAir was expected to start international flights.
• Load factors were already in the low 80s, so they would add little to growth. Growth in 2016 would mostly come from capacity, at 13 to 20 percent, giving about 93 million domestic passengers, within a range of 91 to 97 million. Signs of overcapacity might show up, given real demand and airport bottlenecks.
• The months with the highest growth in 2015, including January, February, April, July, October, November and December, might see the lowest growth in 2016, since price had driven much of it.

The author expected 2016 to be driven by optimism, which could tip into over optimism. Growth rates would fall in 2016 and again in 2017, because most growth rested on attractive fuel prices. History tends to repeat itself, and the graphs could help readers predict the future.