By Staff Correspondent
India’s aviation sector may soon attract more significant corporate entities due to factors like surging airfares, according to a research report by JM Financial. The government’s target to develop 100 airports by 2024 through the UDAN Scheme and an investment of $1.83 billion in airport infrastructure by 2026 only add to this allure.
The report points to potential corporate interest in the sector should high airfares persist, as it represents a low entry barrier. This trend was evidenced by Akasa Air, which achieved a 5% market share within a year.
Go First’s bankruptcy in May, a company with a 6.4% market share and a fleet of 26 operational planes, has bolstered existing operators through an 18% quarter-on-quarter surge in fares and passenger load factors exceeding 90%, according to the JM fare tracker.
The report suggests the pace of airport infrastructure development will accelerate, with the Central government planning to boost the number of airports from 148 to 200-220 by FY25. Additionally, plans are underway to raise metro airports’ capacity from 221 million passengers annually to over 456 million within the next decade.
The Draft Aircraft Bill 2023 could impose a cap on airfares, a notable departure from the current situation where the Ministry of Civil Aviation (MoCA) and Directorate General of Civil Aviation (DGCA) do not regulate airline fares. This draft bill would allow them to disapprove or revise tariff rules for air transport service operators.
Improved profitability prospects for the sector stem from a 13.7% quarter-on-quarter dip in aviation turbine fuel prices and a steady Indian Rupee exchange rate.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, sees long-term potential for India’s aviation industry, expecting it to be the world’s third-largest air passenger market by 2024. Factors like an increasing middle-class, competition among low-cost carriers, airport infrastructure development, and a supportive policy framework are all expected to contribute to this growth.
Passenger numbers in India are expected to increase from 158 million in 2017 to over 520 million by 2037, accompanied by a fourfold expansion in the nation’s airplane fleet to around 2,500 aircraft by 2038.
Despite the optimistic outlook, the report questions if this profitability can be maintained, particularly given the potential challenges posed by a duopoly market. Even smaller players such as SpiceJet and Akasa Air are projected to significantly improve their balance sheets during this profitable period.
Significant market shareholders, like the TATA group, hold a 26.3% domestic market share and have ambitious expansion plans, while airlines like IndiGo and Akasa Air are placing large orders for new aircraft to secure steady delivery streams.
The aviation boom in India highlights the potential for significant investment and growth in the sector, backed by strong demand, infrastructure development, and supportive policies.
