CAPA Weekly - India Aviation Outlook 2018/19
India’s remarkable domestic aviation growth to continue in 2018, according to CAPA's India Market Outlook, with 20% expansion for the second year in a row. Internationally the potential is there, but India's silly bilateral restrictions prevent full realisation of potential.
Transcript
Binit SomaiaThis week, CAPA released its preliminary outlook for Indian aviation for financial year 2018-19. With Indian carriers expected to induct 125 aircraft in the coming year, an unprecedented rate of induction, we project that domestic capacity will increase by about 25%, stimulating traffic growth of around 20%. This would be the fourth consecutive year-on-year growth rate of around 20%, which would mean that the domestic market would have more than doubled in just four years, an incredible rate of expansion.
On the international front, traffic has been growing a relatively healthy rate of about 10% to 12%. Well, that's what we expect in 2019, but we believe that this is below its true potential and that market is being constrained by the impact of India's bilateral policy. Most of the largest foreign carriers operating to India have exhausted their bilateral seat entitlements, which means that they cannot grow as they would like. For many months of the year, average load factors are in the range of 90%, which means that traffic is being spilled.
These bilateral restrictions were ostensibly intended to protect Air India, but it's a strategy that hasn't worked. Air India has absorbed billions of dollars of subsidies over the last few years. However, with the proposed privatisation of Air India in 2018, a development which we believe would be extremely positive for the industry as a whole, we believe that it's possible that bilateral restrictions may be loosened after the privatisation.
On the financial front, the profile for 2019, or financial year 2019, is expected to be similar to this year with consolidated industry losses of around $430 to $460 million. These losses could increase if oil prices exceed $70 a barrel, and our estimates don't include the impact of compensation from OEMs.
This is really a tale of two business models, with low cost carriers expected to report profits of $468 to $515 million and four service carriers losing $900 million or more, much of which is contributed by Air India. With India's economic outlook remaining very positive and large numbers of aircraft scheduled to enter service, the prospects for traffic growth are extremely positive. However, this will undoubtedly place great pressure on India's airport infrastructure and skills. It should be an interesting year.
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