Analysis: How airlines adjusted departures even before government changed rules

Representative Image.

Since Indian aviation was opened up again after lockdown last year, it has been in a vice-like grip of regulations. Be it fares or capacity, airlines can’t seem to catch a break.

While fare caps have only moved up, capacity caps have varied a lot. Only IndiGo, India’s largest airline, has been vocal about asking the government to remove any capacity caps and allow unrestricted capacity. This, despite the fact that it lost Rs  34 crore a day in the first quarter of FY22.

(There has been a lot of confusion about what capacity caps really mean. Many have believed that a 50 percent cap typically means only 50 percent seats can be sold in a plane. However, capacity caps translate to the number of flights or departures that an airline can order as a percentage of a schedule during a season.)

This year, India went through a deadly second wave of COVID-19 which started in April and peaked in May. Airlines were allowed to operate 80% of pre-COVID19 capacity in May and the government reacted late to the ground situation by capping it downwards to 50 percent starting in June.

By then, the second wave had subsided, and relief was on the horizon. But while the government took its time to react, airlines had already reacted to the ground reality.

An exclusive analysis shared by ICF, a global consulting and digital services company, throws light on multiple aspects of capacity and its bearing on Indian aviation in recent months.

Steep capacity cuts

Three airlines were on their knees in May. AirAsia India deployed only 13 percent of its pre-COVID departures. GoFirst (the erstwhile GoAir) and SpiceJet deployed 16 percent and 19 percent departures, respectively.

All three airlines also saw a severe drop in departures from April to May. The departures stood at 53 percent each for AirAsia India and SpiceJet and 60 percent for GoFirst in April.

This translates to just 26 daily bi-directional flights for AirAsia India, 39 for Go First and 83 for SpiceJet. Unsurprisingly, SpiceJet lost its second position in market share in the first half of 2021 to Air India group. GoFirst and AirAsia India saw their May operations at just one-fourth of what they operated in April while SpiceJet saw two-thirds of its operations being curtailed in May over April, according to ICF data.

Is it because of the financial difficulties that the airlines were willing to shrink or were they adjusting to the market realities? SpiceJet widened its losses in Q1-FY22, IndiGo’s results prove that the airline lost more by operating than it would have by not operating flights.

SpiceJet clearly has a challenged balance sheet and GoFirst is awaiting clearances to list and raise over Rs 3,000 crore. AirAsia India is a mysterious case with Malaysia based AirAsia Bhd having reduced its shareholding significantly and the Tata group yet to put forward any concrete plan for growth. The airline has been recording lowest load factors amongst major carriers in the last few days.

Source: ICF

Who was driving the capacity and who is leading the recovery?

In May, only 32 percent capacity being deployed. For once, it was not led by IndiGo.

While in absolute numbers, IndiGo operated the maximum flights among all airlines in May, it was Air India that had a higher number of departures. The govern,ent carrier had 57% of its departures deployed compared with 34% for IndiGo. TATA-SIA owned full-service carrier Vistara operated one-fourth of its pre-COVID capacity.

As the second wave subsided, and the capacity cap moved to 65 percent, IndiGo closed July with 64 percent of pre-COVID departure count, followed by Vistara which quickly ramped up its schedule to move to 57 percent in July from 25 percent and 38 percent in May and June, respectively. Air India continues deploying higher capacity with 54 percent in July.

Star Air is operating over its pre-COVID19 capacity, thanks to RCS-UDAN regional flights being kept out of purview of capacity caps and the airline having a large presence on these routes. However, the total flights for the airline are still insignificant to make a larger impact on industry numbers, according to ICF.

Where are we headed?

The first few days of August have been phenomenal. Last-minute revision of fare caps, sale driven revenue management and opening up of the economy have all helped daily passenger numbers cross 2 lakh. While IndiGo and Vistara seem to make the most of the current situation, Go First, Spicejet and AirAsia India seem to be in ‘evaluate and react’ mode rather than putting a firm foot forward.

If this trend continues, the two FSCs—Air India and Vistara—are likely to further claw market share away from LCCs in the weeks and months to come. The only cause of concern is the Covid cases.

How long will the seesaw continue?

The government’s capacity caps on the airline sector have been in place for 15 months now. May saw airlines deploy 32 percent capacity when the cap was 80 percent and June saw 37 percent capacity deployment when the cap was 50 percent. This stark difference indicates that the government should have either a frequent review of capacity or do away with it in a phased manner. The capacity cap adjustment for June turned out to be too little too late, and away from the market reality.

Even the strongest proponents of removal of capacity caps such as IndiGo or Vistara have shied away from deploying the allowed capacity, which is an indication that airlines are capable of adjusting their deployed capacity reasonably, in sync with market demand. Airlines do not need to burn any more cash than they already have and they know it.