Indian skies are likely to see 100 million domestic fliers for the first time in a year by March 2017 and touch the 130 million mark by 2018, states an annual projection report by industry think tank, the Centre for Asia Pacific Aviation (CAPA). However a new tax structure might make economy class travel steeper and airports might run out of space to handle the demand, the report warns.
After a strong FY2016, traffic growth has accelerated further in FY2017, with India likely to overtake Japan in 2017 to become the world’s third largest domestic market behind the USA and China. In reaching this milestone, India will have achieved average domestic traffic growth of over 15% per annum since the liberalisation of the sector commenced in FY2004.
Strong economic fundamentals have contributed to the growth – although traffic has been over-stimulated by low fares. India is expected to achieve 7.5% GDP growth in FY2017, with the IMF projecting that economic performance should improve still further over the next five years.
India Domestic Airline Market Share Nov-2016
Traffic growth remained strong in Dec-2016 and there were no signs of a slowdown. However, the purchase of air travel using some withdrawn denominations was permitted until the first half of Dec-2016 which may result in a delayed impact in the first half of FY2018.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.
Traffic growth at Indian airports FY2016 to FY2018F
Domestic traffic could grow by nearly 25% in FY2018 and approach 130 million passengers. The next financial year is expected to be the third consecutive year of domestic growth above 20%. Growth could be as high as high as 25% but may be tempered by 3-5 percentage points because of the impact of demonetisation.
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.
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.
Source: Extract from CAPA’s India Aviation Outlook Report FY2017/18
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