India airline passenger growth slips to slowest in eight months as fares rise

Number of passengers flown last month rose about 17% on-year to 11.9 million.

Air passenger traffic in India grew at the slowest pace in eight months in May as rising fuel prices inflated fares in the world’s fastest-growing aviation market. The number of passengers flown last month rose almost 17% on-year to 11.9 million, according to government data.

Growth in domestic passengers is decelerating for the second straight month after the pace of expansion hit a record 28% in March. India’s air travel has grown at an annual pace of more than 20% in the past few years as rising incomes and the advent of no-frills carriers prompted more people to shun trains for long-distance travel.

The south Asian nation is already the largest aviation market after the U.S. and China with domestic traffic of more than 100 million passengers. A steady rise in fuel prices over the past one year has forced airlines to increase fares. India’s aviation industry barely turned around in the fiscal year ended in March 2016 after making losses for almost a decade.

Last month, market leader IndiGo, owned by InterGlobe Aviation, said it will levy up to 400 rupees ($5.9) in fuel surcharge on long-haul domestic flights. Jet fuel prices, which account for more than a third of the industry’s costs, have risen more than 30% in the past one year. Analysts were expecting the fares to increase gradually to absorb the fuel costs, based on the assumption that airlines will add more capacity.

While most carriers have rolled out a fleet expansion plan taking into the account the rising demand, the lack of availability of landing strips and parking slots at major airports remain a looming threat on the industry’s prospects. Airlines in India, which operate about 500 aircraft, have ordered an additional 1,000 planes to be delivered over the next few years, according to an estimate by HSBC.

Between January and May, domestic airlines have carried about 57.2 million passengers, up about 23% from a year earlier, the data showed. IndiGo filled nearly 91% of its seats in May, similar to the previous month, while state-owned Air India saw its so-called load factor slip to 81% from the previous month’s 84%. Jet Airways (India) filled a little over 80% of its seats, compared with 86% in April.

SpiceJet filled 95% of its seats, while the load factor at India’s newest carrier Vistara fell to 86%. Budget airline AirAsia saw its load factor expand to 90%. Shares of InterGlobe lost 7.5%, and that of SpiceJet closed 0.1% higher in Mumbai trading. Jet Airways lost 1.8%, while the benchmark S&P gained 0.7%.

Brokerage Citibank maintained a ‘sell’ rating on shares of InterGlobe Aviation, and reduced the target price to 1,070 rupees, saying that elevated fuel costs were only partially offset by higher yields and margins could come under pressure in the current quarter.

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