Indian domestic air passenger traffic goes from bad to worse

The bad news just does not stop for the domestic Indian civil aviation industry.

Recently released figures show an alarming drop to only 8.6 million domestic passengers for the third quarter of (July-September) 2008, with a miserable 2.68 million passengers for September 2008. This represents a 17% reduction over the same period last year, a 19% reduction from the previous month, and whopping 25% drop from the preceding quarter. Compare this with 33% annual growth in the previous three years.

Most industry experts attribute this drop due to the 25-30% reduction in capacity by airlines, and the 10-15% increase in fares.

Jet group (Jet Airways and JetLite) are still the dominant force in the industry, and with their new found ally the Kingfisher group (Kingfisher and Deccan) control almost 60% of the market.

Despite the deep cuts, flight load factors continue to drop. Experts feel there is an excess capacity of 20% or about 300 flights, which need to be cut, before the demand-supply balance is reached. This is evidenced by the sharp capacity rationalisation undertaken by Kingfisher Red (formerly Simplifly Deccan), which helped the airline raise its load factors from a miserable 39% in August to a more respectable 51.7% in September.

While all airlines have been witnessing a drop in traffic from the beginning of this year, the Kingfisher group shows a sharp decline of over 30% from the first quarter (Jan-Mar) of 2008 to the third quarter (Jul-Sep) of 2008.

The "perfect storm" of collapsing demand, increasing costs, and a global financial meltdown, has truly let loose its fury on the Indian domestic civil aviation industry. The FUD factor (Fear, Uncertainty, Doubt) is further curtailing traffic as India Inc., rushes to save costs. There is no doubt on the severity of the impact. The blame lies squarely with the airlines who followed a herd mentality and blindly rushed in to buying capacity, while growth was at 33% a year.

The airlines may not have had a plan to deal with 33% declines, but without a doubt, they need immediate rationalisation of the insane Aviation Turbine Fuel (ATF) taxation structure, that is killing the Indian civil aviation industry. It is time Mr. Murli Deora and Mr. P. Chidambaram start listening to the pleas of their cabinet colleague Mr. Praful Patel.

ATF price rationalisation may not solve all the problems, but at least, it is a start.