India’s aviation industry is set for significant growth, with air passenger traffic expected to increase by 8-11% year-on-year, reaching around 407-418 million passengers in the current fiscal year, according to a report by ICRA.
This expected surge is being driven by a resurgence in both leisure and business travel, improved connectivity to emerging domestic destinations, and a sustained increase in international travel. The previous fiscal year saw air passenger traffic climb to 376.4 million, marking a 15% year-on-year increase and surpassing pre-Covid levels by 10%. This robust recovery is expected to continue, with ICRA’s sample set projecting revenue growth of around 15-17% year-on-year in the fiscal year that commenced on April 1.
A key factor contributing to this optimistic outlook is the improved regulatory environment overseen by the Airports Economic Regulatory Authority (AERA). AERA sets tariffs for major airports across India, with these rates established for five-year periods, referred to as control periods (CP). The regulatory regime has matured significantly over the past four to five years, evident in the reduction of implementation delays related to tariff orders. These delays have decreased to less than 1.5 years for the third CP, down from 3-3.5 years during the first and second CPs.
Progress has also been made in addressing long-standing issues within the sector, such as the cost of equity, return on security deposits, forex losses, and the treatment of real estate income. Notably, the discrepancy between the capital expenditure proposed by airport operators and the amounts approved by the regulator has narrowed to approximately 10% during the third CP, compared to 25-30% in the first two CPs. The anticipated growth in passenger traffic is expected to significantly benefit airport operators and other aviation stakeholders. The combined efforts of the operators, regulator, and other parties involved in the aviation sector have created a more stable and predictable regulatory environment, fostering an atmosphere conducive to growth and development.
India’s aviation sector is on track for a period of strong growth, supported by increased travel demand, regulatory improvements, and successful resolution of critical issues. This positive trajectory underscores the resilience and potential of the Indian aviation market as it continues to recover and expand in the post-pandemic era.
