2024 seems to be on track to become the best year for Indian aviation. With the provisional estimates of more than 150 million domestic and 68 million international passengers taking to the sky in 2023, the total air passenger traffic is predicted to be well north of 225 million in the coming year.
Yields continue to be strong and a confluence of factors notably consolidation within the airline sector, significant weakness of competitors and OEM supply chain challenges means that there is strong demand chasing limited supply. The euphoria will only be tempered by input costs, VISA processing times, operational challenges and overseas competition. For the year ahead, all data and patterns point to the fact that travel demand will continue to be strong, and the outlook for air travel out of India looks extremely strong.
Domestic travel – dominance of metro’s to continue
Domestic travel in 2024 will continue to be dominated by the six metropolitan cities of Delhi, Mumbai, Bengaluru, Chennai, Hyderabad and Kolkata. Together these account for more than 55% of all passengers with Delhi leading the charge followed by Mumbai and Bengaluru.
The economy class passenger dominates the skies with business and premium economy together accounting for less than 5% of the total travel demand. Interestingly Tier2 and Tier3 cities will continue to see an increase in premium demand and in associated bookings. If 2023 patterns are to be followed, the cities of Kochi, Lucknow, Bhubaneshwar, Srinagar, Udaipur witnessed consistent demand for premium offerings (business class and premium economy) through the year.
With newer destinations like Ayodhya already being included in domestic networks and enhanced airport capacity in Goa, Port Blair and Tiruchirappalli – the domestic traveller is set to have a better travel experience (albeit a more expensive one).
For now, with only two airlines – namely, Vistara and Air India - with a business class offering, the ability to capture the premium will continue to be dependent on schedule. Interestingly both airlines are owned by the Tata group and set to merge and in time this could also open up space for a domestic competitor with a similar offering.
Airline-wise the market for 2024 will continue to be dominated by Indigo which ended 2023 with an average market share north of 60%. This was followed by the Tata owned airlines namely Air India, Vistara, AIX Connect (erstwhile AirAsia India) with a market share of 26%.
Challenges with capacity driven by supply chain challenges impacting OEMs, engine issues on the Pratt and Whitney engines, the insolvency of GoFirst (yet to be resolved) and the weakness at SpiceJet are forecast to continue. Together these mean a variance of almost 150 aircraft from planned capacity. But the capacity shortfall is likely help keep yields strong. That too in an election year. And in a year where the travel base is only forecast to return stronger.
International travel – Middle East and N. America traffic to drive revenue
International travel trends may have significant surprises in store. Starting with the sheer volume of travel to the shape of travel to the patterns of demand. As has been the case for several years, the Middle East will continue to dominate the traffic flows with upto 47% of all India originating international traffic headed to the region. Within the Middle East region, Dubai will continue to be a clear leader capturing almost 12% - 14% of the traffic.
For 2023, Dubai had a confluence of factors aligning including VISA policies, hotel capacity, costs and an exponential growth in events. Compare this to London and Singapore, which attracted 4% - 5% of the total international travel demand but the reasons were much different. For Singapore, it was a combination of point to point and onward traffic mostly towards Australia and Oceania while for London it was driven by diaspora demand. These patterns are forecast to continue.
The international traveller is likely to see additional offerings as Indigo and the Tata owned airlines led by Air India expand their international networks, Akasa starts its international operations and SpiceJet counters with offerings of its own. Air India will also continue to revise its offerings and the jury is out on Indigo and whether its newer aircraft will have a dual configuration, leveraging its position to service premium demand.
Looking at the traffic spread across continents, and forecasts for 2024, Europe will continue to be dominated by London with upto 30% of traffic originating in India and flying to Europe headed there followed by Paris capturing 10% of the Europe bound traffic. The United States will continue to be dominated by New York followed by San Francisco each capturing 10% of the Indian originating traffic headed to the USA and newer cities like Dallas which have seen a growing Indian diaspora population are likely to be included in airline networks.
India originating traffic headed to South East Asia will continue to be dominated by Singapore and Bangkok with the former capturing 30% of the traffic and the latter approx. 22%. Similar to last year, countries like Vietnam and Nepal will likely continued to attract significant traffic due to a combination of pricing, policies and popularity.
Finally, looking at overseas hubs and traffic originating in India connecting via hubs, Dubai again is likely to lead followed by Doha and Abu Dhabi. Majority of the traffic connecting via these hubs has traditionally been bound to N. America. The weakness of the European hubs with regards to traffic originating from India is slowly but surely coming to the forefront. And with Air India focusing on an international strategy that effectively bypasses hubs and with Indigo increasing point to point international flying, the share of India originating traffic flown by Indian carriers is set to increase.
The premium segment: lots of work ahead
The most fascinating aspect of air travel demand and perhaps the most perplexing will continue to be the premium segment. In the domestic segment, this continues to be very small and AT-TV estimates that the premium demand (including premium economy) is less than 5% of total demand. But due to the pricing this commands and the impact on revenue this cannot be overlooked.
In the year ahead, the premium demand in the international segment will continue to be driven by specific routes. On a total capacity basis this demand is less than 10% of total demand. But on specific routes, the flown premium demand can be north of 15%. This is both a function of capacity, traveller profiles on the route and pricing.
Given the potential that this segment holds the rewards in the future will accrue to airlines that can develop and position a product fit for purpose. And in 2024, as Air India starts to ramp up its product offering, a competitive response from overseas airlines is all but certain. Into this mix will also be enhancements to frequent flyer programs, to complimentary offerings and most importantly to the growing premium economy segment.
—The author, Satyendra Pandey, is Managing Partner of the aviation services firm AT-TV. The views expressed are personal.
(Edited by : C H Unnikrishnan)
First Published: Jan 15, 2024 12:04 AM IST
