CAPA's comprehensive 200-page India Aviation
Outlook Report FY2017/18, to be released in Feb-2017 at the CAPA India
Aviation Summit stated that the domestic traffic could grow by nearly
25% in FY2018 and approach 130 million passengers in India. The next
financial year is expected to be the third consecutive year of domestic
growth above 20%. Growth could be as high as 25% but may be tempered by
3-5% because of the impact of demonetisation.
However, the purchase of air travel using some withdrawn
denominations was permitted until the first half of December 2016 which
may result in a delayed impact in the first half of FY2018. As of now,
it is difficult to fully factor in what the impact may be, if any. The
introduction of the GST next year may possibly also have a short-term
negative impact on economic growth for a couple of years until more
positive results emerge.
Based on aircraft deliveries, competitive dynamics and the
positive outlook for the economy, domestic growth at 20% or higher could
continue for up to a further two years. The pace of aircraft inductions
in FY2018 will be one of the key drivers of traffic growth. This is
however subject to deliveries of A320neos proceeding as scheduled and
operators being able to deploy the equipment as planned, as some
operational challenges have been experienced.
With LCCs taking delivery of the clear majority of narrow body
aircraft coming into the market (an estimated 50 out of 65 inductions),
their share of the domestic market is expected to rise from around 65%
today to reach 75-80% within two years.
The last time that LCCs had a similar market position was in
early 2011 when their share stood at over 70%. However, on that occasion
it was as a result of a blurred demarcation between the full service
and low cost operations of Jet Airways and Kingfisher. Airline business
models in the market are better defined today and LCCs will have a
clearly dominant position.
International traffic is expected to expand at 10-12% in FY2017
and FY2018, but bilateral restrictions preclude achieving true
potential. Most of the ten largest international carriers are achieving
year-round average load factors of 90% or higher, indicating constrained
capacity. Without India’s unhelpful restrictions, international growth
could be in the region of 15-17% per annum which would result in
international traffic volumes doubling within five years. However,
demonetisation could negatively impact demand for short haul tourist
destinations such as Dubai, Singapore and Thailand.
Several Gulf and Asian carriers are seeking additional
entitlements to the tune of up to 150,000 weekly seats. Bilaterals have
become a key issue in India’s geo-political relations with markets such
as the UAE, Qatar, Turkey, Hong Kong, Singapore and Malaysia. The Indian
government may only agree to more modest incremental expansion in seats
than is being sought by some countries.