Indian domestic aviation sector, which clocked 18% CAGR over FY14-19, was impacted in FY20 and FY21 due to COVID-19 pandemic. Looking ahead, we expect overall air passenger traffic to record a phenomenal 30% CAGR over FY21-FY26E, due to low base and expected strong revival. Air passenger traffic growth has a strong co-relation with GDP growth with a 1.5x multiplier. With GDP growth expected at ~7% over a long-run, the aviation industry is expected to record double-digit growth of 12-13% over the next decade. We expect the industry to stage strong bounce-back in the post pandemic scenario on lower base.
Therefore, we expect air passenger traffic to record 64% growth in FY22E followed by 76% and 9% growth in FY23E and FY24E, respectively.
Average air fare/km, which fell by 11% over FY14-FY20, resulted in decline in average air fare – as a percentage of per capita – declining from 5.5% to 3% over FY14-FY20 leading to better affordability.
Considering reducing differential between rail fare and air fare, massive shift from rail to air travel expected over next decade. This would also lead to steady improvement in pricing power.
Over FY06-FY21, the LCCs gained market share by 24 percentage points (accounting for 85% of domestic aviation market in FY21), which supported increase in PLF of industry.
Higher PLF and control on cost would expand operating margin of the aviation companies. Other cost control parameters like increasing block hours, reducing ownership cost/ASK by increasing owned aircrafts and introduction of new aircraft with more seats per aircraft and ~10-15% better fuel efficiency would drive their profitability.
