September 2016: EDITOR Devangshu Datta

EDITOR Devangshu Datta

The civil aviation industry seems to be in a sweet spot at the moment with a series of positive developments over the past couple of years. Low crude prices have significantly reduced operational costs and passenger traffic is growing strongly.  The release of the National Civil Aviation Policy (NCAP) has also helped clarify future direction and the policy has generally been seen as positive in its approach.

In addition, there has been some movement on the airport front, with the Mopa greenfield project finally being awarded. On the investment side, IndiGo successfully launched an IPO, new airlines took off and incumbents invested in capacity. FDI norms have also been eased for air transport and brownfield airport projects.

However, these gains are negated to some extent by persistent issues. Several airport projects remain stalled though movement on Mopa is welcome.  The new airport at Durgapur currently has no scheduled flights, which means it could become a white elephant. A comprehensive ATF policy is required since taxes on it remain high and vary from state to state. Airlines, thus, remain vulnerable to any spike in crude prices.

Competition is also increasing with four new players – Vistara, a full-service carrier, and regional players like Air Pegasus, TruJet and Air Carnival – in the domestic market.  Just two Indian operators, Indigo and GoAir, seem to be profitable and yields could drop as competition increases.

The NCAP proposal to introduce the concept of “hybrid till” tariffs at airports could lead to higher aeronautical charges for airlines and higher airfares for passengers. This would be a dampener on demand. Stakeholders also say that other aspects of economic regulation, such as the rate of return, regulatory asset base, separation of airport assets and costs, etc., have not been clarified.

Also, while the NCAP proposal of 0/20 is an improvement on the erstwhile 5/20, it does not place domestic airlines on an equal footing with foreign airlines, which suffer no such restrictions. So, it’s still not clear whether this will enable Indian operators to claim a larger share of the international market.

Despite these issues, the industry is riding on the back of double-digit growth in passenger traffic and steady gains on the freight side. As long as crude prices remain soft and GDP growth remains strong, the industry will not face too much turbulence.