Indian skies are likely to see 100 million domestic fliers for the first time in a year by March 2017 and touch the 130 million mark by 2018, states an annual projection report by industry think tank, the Centre for Asia Pacific Aviation (CAPA). But a new tax structure might make economy class travel steeper and airports might run out of space to handle the demand, the report warns.
The report reinstates that traffic patterns were in sync with its February prediction of domestic traffic touching the 100 million mark in 2017.
“Last year represented a turnaround in the fortunes of India’s aviation industry after several very difficult years. 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 2016. Domestic traffic was up 21.2% while international grew by a more modest 7.7%,” said Kapil Kaul chief executive officer and director South Asia for CAPA.
Uncertainty over the impact of new taxes such as the Goods and Services Tax (GST) is a concern.
“Although intended to simplify India’s complex tax code and generally viewed as being positive for the economy, a higher effective tax rate for economy class air travel could possibly increase fares by 9-12%. Given the price sensitivity of Indian passengers, this could have a significant negative impact on demand,” read the report. It added that the tax also spike costs for aircraft leases, spare parts and distribution costs.
But despite the healthy traffic growth, India’s big metro airports are still scrambling for space, the report added.
“The situation at key metros such as Mumbai and Chennai is particularly acute as these airports are fast approaching saturation. But more importantly, India faces the very real prospect of an airport capacity crisis,” added Kaul.
Projected growth rates indicate that most of the 40 largest airports in the country will exceed their design capacities within the next decade, the report said adding that the bidding process for the delayed Navi Mumbai airport might again its February 2017 deadline.
The report concluded that domestic air traffic is likely to grow at up to 25% in the financial year 2018 indicating a sharp spike over current growth rate of 21%.