Urban Transport Infrastructure November 2018 Urban Transport Infra November 2018 | Page 37

Airport & Aviation
India's struggling aviation sector and the way forward
India is already the second biggest aviation market in Asia after China. Just recently, India surpassed Japan
as the second largest domestic aviation market in Asia. By 2025, India is expected to emerge as the third
largest domestic aviation market in the world after China and the US.
W
hen Indigo Airlines
(Interglobe) reported
its first loss in 12
quarters, the alarm
bells surely started ringing for the
aviation sector. On the positive side,
the Indian domestic aviation sector
has been growing at ~18% on an
annualized basis. However, the
business model of airline companies
was increasingly under strain. Jet
Airways has been under a liquidity
crisis for a long time. But, nobody
expected that Indigo Airlines, with a
42% market share, would also face
the squeeze. Actually, the squeeze
was coming on two fronts. First, with
heightened competition among the
players, fares were getting beaten
down and that was denting their
profitability. Second, the costs of fuel
were going up. With the price of
Brent crude edging towards $80/bbl,
the prices of aviation turbine fuel
(ATF) had crossed the level of
Rs70,000/KL.
Understanding RASK and CASK
One of the most important
variables used to measure
the
WWW.URBANTRANSPORTNEWS.COM
profitability of aviation companies is
the spread between RASK and
CASK. The revenue per average seat
kilometer (RASK) measures what the
airline earns per seat on each
kilometer travelled. This RASK is
highly vulnerable to the pricing
power of the airlines. Normally, the
higher the competition in the
industry (as it is in India today), the
lower is the RASK. The cost per
average seat kilometer (CASK)
measures the cost the airline incurs
(fixed and variable) per seat on every
kilometer travelled. The CASK is,
needless to say, highly vulnerable to
the cost of ATF, which accounts for a
chunk of the cost of running the
airline. With ticket prices falling and
ATF prices rising, it is this spread
between RASK and CASK that has
narrowed and even gone into negative
territory in most cases.
Big challenge on the revenue front
India is already the second biggest
aviation market in Asia after China.
Just recently, India surpassed Japan
as the second largest domestic
aviation market in Asia. By 2025,
37
GLOBAL AVIATION
Summit 2019
January 15-16, 2019
The Grand Hyatt
Mumbai, India
Urban Transport Infrastructure | November 2018