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ViewCube: Wind in the tail

Air passenger traffic growth should pick up next fiscal


Our view


Brisk passenger traffic to challenge infrastructure, attract capex


Air passenger growth is expected to decline this fiscal to ~3% from 12% in fiscal 2019, owing to the grounding of Jet Airways. Between April and October 2019, growth slowed to 1% on-year, but this should rebound to ~11% next fiscal, helped by the low-base effect.


The primary driver of growth in air travel is the country’s gross domestic product (GDP) growth. The number of passengers’ flown-to-GDP multiplier is likely to increase from 2.1x over the past five years to 1.8x over the next five years, implying a five-year compound annual growth rate (CAGR) of 10-11% in passenger traffic over fiscals 2020 to 2024


There are two other factors driving passenger growth. One is the increasing preference for air travel. The differential between AC railway tickets and flight tickets has narrowed from Rs 4.7 per km to Rs 3.2 per km over the past decade. This has led to a 15% growth in air passenger traffic and flat growth in rail traffic over the past five years.


Second is increasing connectivity to Tier II and III cities. Low-cost carriers have introduced direct flights to smaller cities such as Rajkot, Mangaluru, Allahabad, Jabalpur, and Raipur.


Air passenger traffic at non-metro airports grew at 19% CAGR, compared with 14% at metro airports over the past five financial years.


Sixteen new non-metro airports commenced operations over the past five years. With the increasing connectivity to non-metro cities, the share of non-metro airports in terms of passenger traffic increased from 30-35% in fiscal 2015 to 35-40% in fiscal 2019, and is expected to be 40-45% by fiscal 2024.


Improved connectivity and deepening air-travel penetration into tier 2 and tier 3 cities are expected to drive the share of domestic passenger traffic in total traffic to 83-84% in fiscal 2024 from 80% currently.