MUMBAI (NewsRise) -- Airline passenger traffic in India improved further in August, stirring hopes of a rebound in travel demand, even as rising airfares and a slowing economic growth pose hurdles.
The number of passengers flown last month rose 3.9% on-year to about 11.8 million, according to government data. The growth in passenger traffic mildly improved from 3% in the month of July.
India's air travel had been growing at an annual pace of more than 20% in the past few years on the back of rising incomes and the advent of no-frills carriers. 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.
The growth in August was modest even after excluding the share of Jet Airways (India) from the year-earlier period. Jet Airways, once India's largest private carrier, was grounded in April after it ran out of cash, leaving thousands of employees stranded and triggering a capacity crunch in the industry.
Between January and August, domestic airlines have carried about 94.4 million passengers, up 3.2% from a year earlier, the data showed.
The capacity shortage created by the exit of Jet Airways pushed up airfares, allowing top carriers such as IndiGo, owned by InterGlobe Aviation, and SpiceJet to make a windfall in the past quarter. IndiGo's profit hit a record high in the quarter ended in June. Passenger yields, a proxy for air fares, grew 3% to 5% between July and August.
Credit rating agency Crisil expects domestic air fares to jump 7% to 9% this fiscal year, the biggest gain since the fiscal year 2013, when Kingfisher Airlines grounded its fleet after running out of cash.
Further, the surge in crude oil prices, triggered by supply shortfalls following recent attacks on key Saudi Arabian oil facilities, pose a fresh challenge to the industry. Fuel costs account for nearly a third of the operating cost of airlines.
While jet fuel prices were down 9% in September, analysts warn that the recent spurt in crude prices may spike fuels costs in the coming months.
On Friday, India's Aviation Minister Hardeep Singh Puri said the government has no plans to cap the soaring air fares. Instead, he said the government is considering cutting taxes on jet fuel.
Meanwhile, a slowing domestic economy poses a double whammy to the industry as a prolonged credit crunch sapped consumer sentiment. India's gross domestic product grew at the weakest pace in nearly six years between April and June.
To be sure, some analysts expect the demand to improve in the coming months amid the surge in spending during the festival season starting next month.
"August is in the middle of the lean season for travel and that is reflected in the low growth in the market," said Sharat Dhall, the operating chief of the consumer unit at Yatra.com, a travel services firm. "However, we are hopeful that the growth rates will pick up especially as we are heading into the festival months, when traditionally people travel to celebrate with family and friends."
--Dhanya Ann Thoppil