Long-Term Market
Robust traffic growth
South Asian air travel is expected to grow 8.4 percent per year over the next 20 years, outpacing all other regions in our long-term forecast. Traffic will remain focused on the Asian continent, with the largest flows comprising domestic travel and travel within South Asia and flights to and from the Middle East and Southeast Asia.
Economic development and socioeconomic shifts are leading to rapid economic growth and expansion of air travel. A growing share of South Asia's large population (totaling 1.65 billion in 2011) is entering the workforce for the first time, boosting economic activity and incomes. Real gross domestic product (GDP) grew 7.3 percent per year from 2001 to 2011. Emerging markets averaged only 6 percent growth during the same period. Incomes increased even faster, with GDP per capita growing by about 10 percent per year. With continued government support of economic policy liberalization, market reform, and investment, India could become the world's fourth-largest economy within 20 years.
South Asia's airlines have been helped by liberalization in key markets, including the domestic Indian market, and flights between India and the Middle East. Liberalization allows airlines to open routes, add frequencies, and try new business models. As a result, air transport has become more convenient and less expensive throughout South Asia.
Consolidation and reform in India
Indian carriers recently suffered record-breaking financial losses, but there are reasons to hope for profitable future growth. Kingfisher's contraction in 2011 and 2012 reduced capacity in the market, allowing healthier airlines to take international and domestic market share, even as they implemented much-needed fare increases.
The Government of India is helping with targeted reforms. Air India has long held a right of first refusal for international traffic rights. Exercise of this right has been detrimental to other Indian carriers, but not to foreign carriers. The Government's priorities having changed in early 2012, full utilization of traffic rights by Indian airlines will now be encouraged. The Government also allowed reform in airline fuel purchasing. This will offer some relief to Indian airlines, which face some of the highest fuel prices in the world. Further opportunities include a proposal to allow foreign airlines to acquire 49 percent of Indian airlines. The proposal has languished for years, but support for action is building. For Indian carriers with weakened balance sheets, foreign direct investment would be a welcome source of funds.
