June 7, 2017 TnH Global

Indian aviation sector to get $25 billion investment by 2027

India, the third largest domestic air travel market, is estimated to see an investment of $25 billion in the next decade in the airports sector, a demand for 935 more planes and traffic growth of 13%, Morgan Stanley said.

Through the UDAN scheme to bring small cities and towns to the air transport network, the government is taking the right step to increase connectivity and also boost utilisation of airports, thereby helping those become more profitable, Morgan Stanley said in areport on Indian aviation.

The report said the share of air travel in air and rail travel combined in India will grow to 15.2% by 2027 from 7.9% now. “India’s domestic air passenger traffic reached 100 million in 2016, behind only that of the US (719 million) and China (436 million) and ahead of Japan (97 million). We forecast a 13% domestic air traffic compounded annual growth rate (CAGR) 2016-26, the highest such rate of any key region globally and higher than India’s 11% CAGR 2011-16,” said the report, shared exclusively with ET.

The firm lauded government’s regional connectivity scheme as a “key catalyst for growth”. Binay Singh, executive director at Morgan Stanley and author of the report, called it “the scheme to look at”. Through UDAN, the Narendra Modi government is facilitating affordable air travel, enabling the active role of state governments as also the private sector to have a profitable participation in India’s aviation movement, he said.

The report, however, said the profitability of airlines that are part of this scheme would depend strongly on the viability gap funding. The fund — with 80% of the corpus coming from a cess on passengers flying non-regional routes and the rest from state governments — is aimed at financing losses of airlines operating flights on the interior routes at low ticket prices. “Assuming an airline bids for zero VGF, a passenger load factor of 70% is needed just to make a 20% margin on earnings before interest taxes, depreciation, amortisation and lease rentals (EBITDAR),” the report said.

News Source: economictimes.indiatimes.com