India Aviation Outlook: Traffic up, losses down but operating environment remains challenging

The last few years have been without doubt some of the most challenging in India's aviation history. Over-capacity, high input costs, intense competition and a negative policy and regulatory environment conspired to threaten the viability of virtually the entire aviation value chain. India's airlines alone have lost more than USD10 billion combined since FY2009. Airline debt stands at around USD11.3 billion, rising to close to USD14 billion if liabilities to vendors are included. At an industry level airline debt is now equivalent to more than 100% of airline revenue.

In FY2015 traffic increased and losses declined but this was largely a function of lower fuel prices. There was little else which happened that contributed to the improved performance. Looking ahead to the remainder of FY2016, the positive external factors are that fuel prices are expected to stay close to current levels while India's economic outlook is improving. Robust traffic growth is expected to continue, and with modest capacity expansion, Indian carrier financials should see further improvement.