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Ahead of IndiGo and SpiceJet earnings, passenger occupancy levels show fatigue

Flight occupancy held steady initially after airlines resumed operations when the coronavirus lockdown restrictions eased but the average number of passengers per plane has been falling in the past two weeks.

July 28, 2020 / 10:47 AM IST
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Last weekend marked the completion of two months since airlines resumed operations in India. Only 19.84 lakh people in India flew in June. The numbers were very close to what this column had predicted, even before air traffic took off again!

Restart of flights operations came with a cap of 33 percent of approved summer schedule, which was further increased to 45 percent later. The government has extended the cap of 45 percent by three months, until November 24 and the fare cap at both ends—minimum and maximum—also stands extended from August 24 until November 24. This is a tacit admission that the government is no more as buoyant as it was in the past about normalcy returning to aviation.

There were 801 departures and 64,009 passengers on 25th July, two months after operations re-started. Last July, over three and half lakh passengers took to the skies daily. With the country adding over a lakh new COVID19 cases in two days, more cities and states are focusing on curtailing travel.

While load factors have hovered around 60 percent or lower in June, the interesting bit to find out here is who are the passengers. It was largely believed that air traffic would go down after the initial spike but it has been steady in the initial days. However, the last two weeks have seen the passenger numbers remain the same even while the number of flights go up, indicating a fall in traffic.

Who are the passengers?

There has always been curiosity on who the current passengers are. A little digging into this throws out some interesting facts. While business travel is yet to resume among corporates, there is some amount of business travel which has started as governments and private enterprises start production units across the country and trade picks up.

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There also are passengers who have either been away from their workplace or have now decided to go back to hometowns as companies extend work from home options. The third set of travellers are those who are coming in from abroad as part of Vande Bharat mission.

Post the mandatory institutional quarantine, passengers take domestic flights to reach their hometown. July saw higher participation from private airlines which also led to a direct flight to the multiple airports across the country and not via Delhi or Mumbai, thus limiting opportunities for domestic flights to cater to these passengers.

What are the challenges?

The last two weeks of data clearly shows that the gap between supply and demand is increasing and the addition of supply is not having any effect on the demand.

For airlines, this means a double whammy. While the fares have remained capped, the fuel (ATF) prices have gone up nearly 30 percent since the time they were first capped in May and to top it all the demand hasn’t picked up. The average per flight load has now dropped to below 80 in most cases and while the mix of current deployment is not known in Indian skies, this ranges from 50 seat regional jet to the 232 seat A321neo across airlines.

IndiGo, India’s largest airline, will declare its Q1 results on July 29. The first quarter was a washout, with over half of it being grounded. The same day SpiceJet will also declare its results, but for Q4 and full results for last financial year.

The results will give some guidance on where the industry is headed financially. Potentially, airlines are sitting on over 50 percent of excess aircraft, for which there is a rental to be paid. Leave Without Pay (LWP) and a slight reduction in workforce may not be of help to tide over the crisis. A crisis which doesn’t seem to end very soon.

Tail Note

There has been positive news on the vaccine front, but the vaccine is still months away. Will the airlines dig in till then? Do all or most of them have the capability to sustain for the long haul?

Globally, airlines have either raised debt or performed a sale and leaseback for aircraft to improve liquidity. However, most of the aircraft in India are on lease with little or no scope to raise funds. This leaves the airline with little options. The lack of support from the government in cash or non-cash measures has meant that airlines and airports are on their own - like most other industries.

As IndiGo looks to raise cash, SpiceJet is looking to induct widebody and that is what makes Indian aviation a puzzle where the richest are trying to fortify further while the not so rich are looking at ways which have proven to be disastrous in the past for players in other geographies!

Ameya Joshi runs the aviation analysis website Network Thoughts.
Ameya Joshi
first published: Jul 28, 2020 10:43 am

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