Restrictions impede achieving true potential of aviation: CAPA

India’s status as the fastest growing aviation market could be hampered because of infrastructure planning adequacies, a fast emerging shortage of skills, flawed policy initiatives, and weak regulatory oversight, suggests an extract from CAPA’s India Aviation Outlook 2017/18. CAPA estimates that India’s airlines reported a combined profit of $122 million in FY2016, the first time in a decade. Lower fuel prices combined with modest capacity growth and strengthening economic fundamentals were largely responsible for surging traffic and an improvement in airline financials in FY2016. Domestic traffic was up 21.2 per cent while international grew by a more modest 7.7 per cent. India’s domestic market is on track to surpass 100 million passengers in FY2017. After a strong FY2016, traffic growth has accelerated further in FY2017, with India likely to overtake Japan this year to become the world’s third largest domestic market behind the USA and China. However, the report states that risks are also heightened. The next financial year is expected to be the third consecutive year of domestic growth above 20 per cent. Growth could be as high as 25 per cent but may be tempered by 3-5 percentage points because of the impact of demonetisation. The introduction of the GST next year may possibly also have a short-term negative impact on economic growth for a couple of years until more positive results emerge. International traffic is expected to expand at 10-12 per cent in FY2017 and FY2018, but bilateral restrictions preclude achieving true potential, Traffic growth is being stimulated above its underlying demand as a result of excess capacity and competitive fares. The downward pressure on yields, combined with cost creep, is expected to push the consolidated industry result back into the red for the 12 months ending 31-Mar-2017. Capacity constraints at India’s metro airports have already become visible particularly in Mumbai and Chennai. The potential of growth is enormous; but unless government bites the bullet, it will be seriously constrained.