Dreaded JAS quarter over, what next for aviation sector?

The July, August and September or JAS quarter is often the dreaded quarter in Indian aviation.

The July, August and September or JAS quarter is often the dreaded quarter in Indian aviation.

The yields are at their lowest and so are the loads. This phenomenon has changed after COVID, or so one thought, as traffic mirrored the waves of the pandemic and not the traditional traffic patterns.

Q2FY24 closed with a 5 percent drop in traffic over Q1. Indian aviation saw 3.68 crore passengers in Q2FY24, compared to 3.85 crore in Q1. The fall is the sharpest when the COVID years are kept aside.

In FY17, Q2 saw a growth of 2.71 percent over Q1; in FY18, the drop in Q2 was 0.2 percent over Q1. In FY19, the drop was 1 percent in Q2 over Q1. The COVID years saw Q2 having three-fold traffic, compared to Q1 on one occasion and a drop in another.

The drop, which was normal in yesteryears, had seen the gap minimise between Q1 and Q2 traffic, leading up to COVID when the traditional traffic patterns went for a toss, like never before.

Why the drop

The drop in the number of passengers is also linked to capacity being taken out of the market. Go First stopped operations in early May and IndiGo saw additional groundings due to Pratt & Whitney issues (engine issues) in Q2.

The compounded effect was that the industry could not come up with additional capacity, operating the same number of flights as in Q1. It was an achievement in itself because of the capacity that went out from the market, due to the grounding of Go First.

However, since the capacity was the same, there were reasons to believe that the drop could have been averted and if at all the drop could have been lower. A 5 percent drop is an indication that all is not well with air traffic.

Are the numbers good in isolation?

These are the highest ever Q2 passenger numbers that the industry has seen, which is a feat in itself. This shows that the industry has been fairly resilient even as schools and offices started along with ‘back-to-office’ being the trend.

The first 10 days of October have been good as compared to the previous month but the uptick has not been as much as to expect a stellar quarter, just yet. The holiday season is just about to begin, starting with Dussehra, Diwali and ending with Christmas and New Year holidays. Traffic during the season peaks with each passing holiday week.

The numbers for the first 10 days of October have not been encouraging. In fact, it has also breached below the 4-lakh mark, below the last month's average. The uptick in numbers will be seen as we cross Navratri and Dussehra, which has holidays in certain states, followed by Diwali, which is a holiday season in almost all states of the country.

Tail note

Passenger numbers have been down by 5 percent over the previous quarter in domestic skies. What has been its implication on profitability? We will know in the next month or so. As work from home takes a backseat, which way will the industry sway? Will people take more breaks or will the frequency go down as earlier they had the flexibility to work from anywhere?

The focus will shift back to business travel. With the Air India group slated to add capacity in the immediate future, the yields could also come under pressure if passengers don’t return to the level which the airline needs to break even.

In such a situation, who will be the first one to drop fares and go after loads and not yields? The market could get turbulent -- just as geopolitics and oil prices. In a surprising announcement, a few airlines have restricted sales to certain routes, in an indication that the forward loads are not as strong as one might have expected them to be.