Exclusive Aviation Survey (Part 9)

India has recently undergone a substantial change in the composition of its fragmented domestic aviation market, after a period of intense competition and protracted losses. Three major airline groupings have emerged since the start of the year, as a result of merger and acquisition: Air India-Indian (which will shortly introduce the low cost Air India Express brand in the domestic market); Jet Airways-Air Sahara (now rebranded JetLite, operating a value-based business mode) and Kingfisher –Air Deccan (a marriage between the extremes of full service and low cost operators).

What we are seeing this year is only the end of the beginning, and despite signs of consolidation more entrants are expected in this market. The Centre’s recent investor survey reveals that despite recent heavy losses, there is still keen interest in investing in the Indian domestic airline market.

This is not surprising, as India displays the key indicators that investors look for in emerging markets: large populations and high GDP growth. Our survey results suggest that whilst investors rank airports as their favoured targets, domestic airlines are still ranked surprisingly high. The low cost model is ideally designed for markets such as India, with a large landmass, poor surface transport, and a rapidly emerging but highly price sensitive middle class.

Being so immature in terms of consumer penetration, the Indian market will almost certainly continue to enjoy quasi un-forecastable high growth rates, thus remaining attractive to investors. It would seem, therefore, that the Indian aviation sector has the potential to ultimately deliver win-win results to all stakeholders, although the challenge now for India is to encourage the sector by means of a sound fiscal environment, created by good government policy.