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The Indian aviation industry is expected to witness sustained growth in demand in the medium term, despite the supply chain crunch, according to Jagannarayan Padmanabhan, Senior Director at research and ratings agency Crisil Ltd.
He added that the Indian aviation market is growing and there is enough room for more airlines to operate. In this interview with businessline, Padmanabhan explores growth estimates, supply chain considerations, and the potential impact on airfares. Despite a quasi-duopoly, the discussion delves into avenues for customer influence and the role of emerging competition.
What are the hits and misses for Indian aviation in 2023?
Bounce back and sustained growth in air travel, the path to profitability being re-established for airlines and airport operators, Indigo flying 100 million passengers, and aircraft leasing taking wings in GIFT City are some of the hits. Go-Air suspending commercial operations due to technical issues, grounding aircraft due to supply chain issues, and elevated ticket prices in certain pockets are some of the misses.
What is the growth estimate for the sector in 2024?
We expect a growth of 12 per cent to 14 per cent in 2024.
Is the growth sustainable?
From a demand perspective, we can see sustained growth for the medium term, Supply side issues related to supply chain issues for aircraft engines and profitability issues on select airlines can be some of the key monitorable issues, along with ticket prices being in the affordable range, i.e. ~ ₹4,000–5,000 for a distance of 1,000 km
Will supply chain constraints impact growth in 2024?
Aviation growth is tightly linked to economic growth, and with the interest rate cycle peaking and modest growth being expected, its important we don’t face any further supply-side shocks. We are certainly not out of the woods on this one.
India is almost a duopoly. So where does the customer go now? Air fares on select routes and select time periods are way above pre-Covid levels.
While the structure almost mirrors a duopoly, it is important that the customer asserts their position and rewards those airlines from a value and product delivery perspective. The Indian aviation market is growing, and there is enough room for more airlines to operate. While we could see a sudden spurt in ticket prices, a sustained increase or maintaining prices at elevated levels will encourage travellers to explore alternate modes. Aside from that, the real competition for this duopoly will have to come from railways.
Supply disruptions post-Covid continue, or are supply chains falling back in place?
One airline has gone bust, another is struggling with finances and maintenance, and a third has internal concerns over pilots’ retention. So, is the customer benefiting at all? Does the government need to step in with some regulations, especially pricing mechanisms?
There is certainly a void in terms of product availability and innovation for the customer. Its also good that some of the established airlines are sticking to the tried-and-tested model. As the dust settles down (that is, Covid recovery in full), we could see more differentiated products being offered in the market. Pricing should still be left to market forces.
How are the finances of the two major airlines expected to be? And what sort of losses or recoveries can one expect in the aviation sector in 2024?
From a sectoral perspective, we see finances being dictated by the operating efficiencies of individual airlines; there is no structural challenge as such.
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