Feeling The Heat

After a dream run, India's domestic transportation sector is now finding itself bogged down by demand slowdown, inventory pile-up, high fixed cost, rising petroleum and ATF prices and, of course, the unprecedented summer heat

- Ashish Sinha

A SCORCHING summer, coupled with the turmoil of general elections and a broader decline in consumer demand, appears to have pushed the domestic transportation sector into the slow lane after nearly three years of runaway growth. This downturn is visible in the automotive industry where dealerships are offering discounts of Rs 25,000 and up to Rs 1 lakh to reduce inventory. These incentives mix cash discounts, corporate deals, and additional fittings and gadgets to entice buyers. Meanwhile, the commercial vehicle (CV) sector is seeing a month-on-month decline, exacerbated by the high base effect of previous years’ robust sales.

Air travel, too, is marred by delays, cancellations, soaring ticket prices, and reduced fleet availability due to operational issues. Airlines are grappling with rising aviation turbine fuel (ATF) costs, which erode profitability amid the summer’s peak travel season. While new aircraft orders loom on the horizon, the immediate challenge is to maintain the aging fleet to accommodate the surge in passengers.

Air passenger traffic has recovered, and yields have improved, but elevated ATF prices and a depreciated rupee against the US dollar have posed significant cost challenges for airlines. Average ATF prices in FY24 stood at Rs 103,499/ KL, 14 per cent lower than FY23’s Rs 121,013/KL but 58 per cent higher than the pre-Covid (FY20) level of Rs 65,368/KL. In Q1 FY25, ATF prices remained 5.4 per cent higher YoY but declined 6.5 per cent sequentially in June 2024. Fuel costs constitute 30-40 per cent of airlines’ expenses, with 45-60 per cent of operating expenses, including aircraft lease payments and maintenance, denominated in dollars. Airlines also have foreign currency debt, with some natural hedging from international earnings. To expand profitability margins, airlines must adjust fares in line with rising input costs.