Air passenger traffic in India to grow 21-23% in 2016-17: CRISIL

Crisil Research estimates domestic passenger traffic in India to grow 21-23 percent on-year in 2016-17, primarily on account of lower air fares following decline in fuel prices and high competition. In 2017-18, growth in domestic passenger traffic is expected to moderate to 15-17 percent on-year, on account of relatively flat fares – projected to rise 0-2 percent. Economic growth, low fares and better connectivity to tier-II and -III cities would be the key growth drivers. During the year, domestic passenger load factor (PLF), though, is expected to decline 100–200 bps to 81-82 percent because of fleet expansion.

International passenger traffic is estimated to grow 9-10 percent on-year in 2016-17 due to increase in trade, tourism and the Indian expatriate population. During the year, fares, though, are estimated to decline 1-2 percent on account on high competition on short haul routes. In 2017-18, international passenger traffic is projected to rise a further 10-11 percent on-year as the government focusses on widening the air services agreement. Among international routes, UAE routes will dominate.

Crisil Research estimates operating margin for the airline industry (GoAir, Air India, Jet Airways, SpiceJet and Indigo) to contract to 6-8 percent in 2016-17 from 12-14 percent in 2015-16, as an estimated 5-7 percent decline in air fares will negate benefits from lower fuel prices and stable rupee-dollar exchange rate. In 2017-18, Crisil Research projects operating margin to shrink to 5-7 percent because of expected increase in fuel prices, decline in PLFs and relatively flat fares.