Why delays are not the only challenges for airlines

The Indian aviation industry is currently navigating through several challenges, facing not only significant flight delays due to adverse weather conditions but also grappling with broader industry issues. Airlines are facing the wrath of passengers because of long delays in flights, sometimes by as much as 13 hours, owing to adverse weather conditions such as the dense fog in northern India.

The Directorate General of Civil Aviation has issued new guidelines asking airlines to cancel flights that are expected to be delayed by over three hours, well in advance. Also, the regulator has instructed airlines to publish accurate real time information on flight delays. Whether this hurts passenger count remains to be seen.

However, this situation is short lived as the weather conditions will normalize soon. The bigger worry for the Indian aviation industry is on the supply side. A combination of supply challenges and rising airfares is weighing on passenger growth. In December, passengers carried by domestic airlines grew at about 8% year on year, the slowest pace in 22 months.

Moreover, the ongoing March quarter (Q4FY24) may see a rise in grounded aircraft. India’s largest airline by market share, Ltd, which runs IndiGo, expects its grounded aircraft count to be in the range of mid 30s in Q4. This is over and above its already grounded aircraft, which means the total count would be around 75 by FY24 end.

Given these factors, the trajectory of airfares is crucial. Notably, the longer an aircraft remains idle, it would mean a rise in expenses without incremental revenue. Therefore, comments by IndiGo on the capacity growth in FY25 need to be tracked. In FY24, IndiGo’s capacity is expected to grow by more than 15%.

For investors in shares of IndiGo, its strong market position is a plus. The airline’s market share continued to be above 60% for the eighth consecutive month in December. IndiGo’s shares have risen by 45% in the past year. Having said that, competition is intensifying and that’s a concern. The market share of the Air India group hit a high of 27% in December.

Falling aviation turbine fuel (ATF) price, which forms a significant portion of an airline’s operating expense, offers some relief. ATF prices in January are over 8% lower than the Q3 average. “Spot jet fuel suggests ATF may slip further month on month," said analysts at Jefferies India in a report on 15 January.

No wonder IndiGo scrapped fuel surcharges from 4 January. All said the future of Indian airlines hinges on easing of supply chain constraints..