Airlines could fly high again by FY2023: New routes, gains from railways will aid in regaining traffic volumes

New routes started by airlines in FY21 yielded 230,000 new journeys in March 2021 versus March 2020 or 2.8 million new journeys on an annualised basis.

The airline business, which has been one of the worst affected due to Covid-induced travel restrictions, may not immediately recover, but stands a good chance to regain pre-Covid levels of traffic on the back of new routes that did not exist some four years back. Another factor that may help carriers recover traffic volumes is through gains from existing rail routes.

For instance, in FY21, 10 million passengers travelled on air routes that did not exist four years ago. These new routes helped the overall market volumes grow by 8% over this period and the momentum has continued.

“Such a secular growth trend coupled with share gains from rail in existing routes should help domestic air volumes recover to FY20 levels in FY23, compensating for the reduction in corporate business travel,” Kotak Institutional Equities has observed in its report. Airlines covered domestic 1,154 routes (including return journeys) in March 2021 versus 1,033 routes a year ago.

New routes started by airlines in FY21 yielded 230,000 new journeys in March 2021 versus March 2020 or 2.8 million new journeys on an annualised basis. This represents 2% growth over pre-Covid base of annual domestic air volumes. Majority of this new volume growth originated from connections between two non-metro city airports.

Such non-metro to non-metro traffic now accounts for 10% of traffic versus 5% three years ago. The share of metro-to-metro in air traffic has fallen quite meaningfully to 20% versus 30% three years ago. Dominant share of volumes are thus coming from non-metro cities.

Analysts said routes started four years ago have added 10 million journeys and thus helped grow the base of air travel by 6% over the past three years. They point out that airlines have been making continuous gains from railways on existing routes. Therefore, the combined effect of the two factors can mitigate the effect of lower instances of corporate business travel due to Covid-19 by FY23.

In recent media interviews, Ronojoy Dutta, CEO of Indigo Airlines, has said it may take anywhere between 18 and 24 months for recovery from the present situation and come back to the pre-Covid levels of travel demand. He has said while leisure travel would take a backseat, the chances of transmission of virus from one passenger to another on board is very low, so air travel is the safest mode of travel.