ICRA expects domestic air passenger traffic to grow by 8-13% in next two years: Kinjal Shah

Robust passenger growth: Ahead of the Union Budget 2024-25, the aviation sector has several expectations from the Finance Minister Nirmala Sitharaman's speech. Among the expectations of the aviation sector include bringing Aviation Turbine Fuel (ATF) under Goods and Services Tax (GST) ambit and rationalisation of the UDAN scheme for better connectivity. 
In an interview with Republic Business, Kinjal Shah, Senior Vice President & Co-Group Head - Corporate Ratings, ICRA Limited said that bringing the Aviation Turbine Fuel under the GST is a long -pending demand of the aviation sector.

On ATF and UDAN  

One of the major expectations of the Indian aviation industry is the rationalisation of the duty structure of aviation turbine fuel as well as the inclusion of the same under GST. This has been the expectation for over a long time now. The budget is expected to reiterate the focus on improving the regional connectivity through either the UDAN scheme. The budget is also likely to focus on new airports and expansion of new ones and enhance airport capacities at some of the key airports because of the constant airport issues faced by airlines. It will also focus on connectivity with unserved airports to boost tourism.

On aircraft leasing and footfalls  

In line with the government's “Aatmanirbhar” and “Make in India” initiatives, the budget could also focus on incentivising the Maintenance Repair Overhaul (MRO) which is currently feeble in India. The government should also push towards building the requisite infrastructure for promoting the aircraft leasing business domestically. 
As far as domestic and international air traffic is concerned, we are seeing a sizable growth year on year. The domestic passenger traffic in FY24 was 154 million, which was much higher than pre-COVID levels, which was 142 million in FY20 which was higher by 8 per cent. The international passenger traffic for Indian carriers already surpassed the pre-COVID level and in fact, it had peaked in FY19. In FY 24 the international traffic for Indian carriers surpassed this level. We are seeing good growth in domestic and international passenger traffic supported by both business travellers as well as leisure travel. ICRA expects domestic passenger traffic will continue to grow at 8-13 per cent over the next two years, that is FY25 and FY26.

On demand and supply mismatch  

As far as demand-supply mismatch is concerned, India has a large aircraft order in place by the airlines. The current orderbook stands at 1700 odd aircraft which is more than double the current fleet and existence. These deliveries are expected to be gradual, spanning over the next decade, and will be encountered by the supply chain challenges by aircraft and engine OEMs. 

ICRA expects that with the demand of domestic and international passengers picking up and with gradual deliveries of the aircraft we expect demand and supply balance to be maintained. This will also be supported by increasing air travel penetration in India. Currently despite the growth, we have conducted studies where it shows the air travel penetration is quite low.