anna alert: Indian domestic growth rates slowing

The most recent data from the Airports Authority of India shows that India’s phenomenal growth in domestic air travel demand is showing clear signs of slowing down. Since a peak last April when year-on-year traffic had grown at nearly 60%, the growth rate rapidly declined to between 30% and 40%. In March 2007 growth declined futher to below 30% for the first time in ages.

Chart: Indian domestic air traffic growth

Data from the DGCA in India shows how during 2006 the top two domestic airlines, Jet Airways and Indian Airlines lost market share as the LCCs stimulated huge new traffic volumes. By the end of the year Air Deccan had overtaken Indian Airlines in terms of passenger numbers and Kingfisher had overtaken Air Sahara to claim fourth place. Newcomer Indigo had grabbed an impressive 5% of the market within six months of launch.

Chart: Indian airlines domestic market share ‘06

Recent months have seen dramatic changes and consolidation taking place as Jet Airways finally agreed to take over Air Sahara and Indian Airlines and Air India formally merged. Most recently Kingfisher has taken a controlling stake in Air Deccan with the stated intent of raising fares to economically viable levels. However, Air Deccan’s business model was all about stimulating new traffic with very low fares so it will be fascinating to see how this develops. Experience suggests that simply raising fares may not necessarily increase overall revenue.

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