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Aviation Sector Update

The Indian Aviation space has gone through quite a few changes in the last few months, the most prominent one being Jet Airways going down under. In today's post we look at how traffic growth and load factors have varied in the sector, how market share dynamics have changed post the exit of Jet, and what lies ahead for the aviation space in the days to come.

Traffic growth & passenger load factors:

Traffic growth in 2019 was positive but extremely muted driven by weaker macro-economic conditions that put pressure on discretionary spend, as well as the exit of a key player from the aviation space. Growth which bottomed out at -4.5% in April '19 (Jet exit), recovered steadily in the periods post that, growing at 6.2% in Jun and 11.2% in November. December numbers, however, were depressed at 2.56%. For the year, traffic grew at a mere 3.7%, a sharp fall from the 18% in 2018.

Load factor numbers however looked healthy at north of 90% for both major carriers with Spicejet numbers falling marginally from 92.8% to 92.7%, and Indigo numbers reporting a slightly steeper fall from 91.4% to 90.1%.

Market share dynamics:

One player that started the year with a nearly 12% market share (Jet Airways), making it the third largest player in the space has now disappeared. That created a temporary vacuum in April this year that was quickly filled up by leaders SpiceJet & Indigo. SpiceJet, the #2 player in the country that began the year with a 13.3% market share has gained three percentage points rising to 16.5%. Market leader Indigo now controls nearly half the market, growing its share by 5 percentage points from 42.5% to 47.5%, with other market players distributing the rest of the spoils amongst themselves.

In a market with new entrants like Vistara chipping away market share, the exit of one player should bring some relief to the space. That being said multiple players trying to grow their share in an oligopolistic and highly price sensitive market is expected to keep the market extremely competitive in the years to come.

What lies ahead?

Macro-economic weakness is expected to continue in the foreseeable future. As individuals and corporates continue to cut costs wherever possible, the sector is likely to see impediments to growth over the short term. The issues with Boeing planes which were partially mitigated by the availability of Jet's unused planes will also begin to surface as these airlines begin serving new routes.

Privatization of Air India, gradual reduction of tax pressure on one of the most heavily taxed sectors in the country, and growth of airport infrastructure could all be positive catalysts that help the sector over the medium to long-term. We will continue to track the space closely, and keep our readers informed on how things shape up in the space.

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