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Last Updated : Jan 17, 2018 04:35 PM IST | Source:

Budget 2018: Rising crude, congestion to cap domestic airline passenger traffic growth

Crisil Research expects GST exemption for MRO, which is in the 18% slab at present, to boost industry.

Crisil Research
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CRISIL Research expects domestic passenger traffic to grow 17-19% in fiscal 2018 compared with 22% in fiscal 2017, on account of rise in fares and airport congestion.

In fiscal 2019, we expect growth to moderate further to 15-17%, as fares are expected to feel the heat of higher crude oil prices. Moreover, even as Ude Desh Ka Aaam Nagrik (UDAN) scheme is undergoing a second round of bidding, over 70% of the 128 routes allocated under the first phase were not operational as on October 2017.

Despite upcoming fleet expansion from existing as well as new carriers, we expect domestic Passenger Load Factors for the industry to remain flattish at 84%.

On the international front, we expect the growth in international passenger traffic to remain steady at 9-10% for fiscals 2018 and 2019, similar to 9% in fiscal 2017.

Over the next five years, we expect international passenger traffic to rise at a compounded annual growth rate of 9-10%, owing to rise in tourism, air service agreements, and international trade.

We also expect the share of domestic carriers to rise, supported by increase in carriers eligible for international operations, delay in enhancement of bilateral seat entitlements, and enhancement of tie-ups between domestic and foreign carriers.

CRISIL Research estimates operating margin for the industry to remain more or less flat at 9-11% in fiscal 2018, despite up-trending crude oil prices, owing to a marginal increase in air fares due to slow capacity expansion in the first half.

Margins are expected to remain unvarying in fiscal 2019 too, as induction of fuel efficient aircraft and marginal rise in fares are expected to neutralise the impact of a rise in crude oil prices.

Budget expectations

1. GST exemption for maintenance, repair and overhaul (MRO), which is in the 18% slab at present. This would boost the domestic MRO services industry.

2. Equity infusion of Rs 18 billion for Air India, similar to last fiscal. As per the turnaround plan, Air India has received equity infusion of Rs ~265 billion between fiscals 2012 and 2018, out of Rs 422 billion planned until fiscal 2032.

First Published on Jan 17, 2018 03:50 pm
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