India's aviation industry to grow

India’s aviation industry will return to a growth of 11 per cent Compounded Annual Growth Rate (CAGR) in the medium-term as some of the cyclical variables become less spiteful, credit rating agency, ICRA, said.

Over the past five years, the industry has grown at a CAGR of 9.2 per cent.

India’s favourable demographics characterised by the burgeoning middle-aged population, rising disposable income levels and accompanied willingness to spend on air travel are likely to drive demand besides relatively low penetration of air travel and improving infrastructures, it said in a report.

The agency also opined that the overall operating environment for Indian carriers was now showing an improving trend.

This is not just supported by the industry’s efforts to maintain pricing discipline but also by attempts to rationalise cost structure, follow a strategy of unbundling services to expand ancillary revenues and supported by the government’s efforts to allow foreign airlines to acquire stakes in domestic carriers and import jet fuel directly.

“While directly sourcing jet fuel faces practical constraints which are yet to be resolved, allowing foreign carriers to invest in domestic carriers could address the issues of funding constraints of airlines,” it said.

Foreign airlines are now allowed to take up to 49 per cent in domestic commercial carriers.

The industry is also expected to maintain capacity discipline in the near- to-medium-term, it said.

According to the report, after years of steady increase in capacities, the industry has witnessed a 3.2 per cent decline in capacity during the current fiscal year, largely prompted by discontinuation of services by Kingfisher Airlines and to an extent by route rationalisation measures of other airlines.

“While expected deliveries of new aircraft are significant, we believe a majority of these will either replace less-fuel efficient models, expiring leases and aid in improving expansion plans of airlines on regional routes,” it said.

A sizeable share of these aircraft may also get deployed on international routes as low-cost carriers expand presence on international routes, especially the short-haul ones, it added.