Robust traffic growth projected
South Asian air travel is expected to grow 8.3 percent per year over the next 20 years. Domestic, regional, and interregional travel to the Middle East and Southeast Asia will be the largest flows.
South Asia's demographics are favorable to air transportation growth. The region's population totaled 1.6 billion in 2013, and a growing share of this population is entering the workforce. The region's real GDP is forecast to grow an average 6.5 percent per year through 2033.
The 2014 elections of business-friendly candidates raised optimistic expectations for India's economy. If current economic policy liberalization, market reform, and investment trends continue, India's economy is projected to become the world's fourth largest.
New partnerships abound
Reform of foreign direct investment rules in 2012 allowed foreign airlines to acquire up to 49 percent of an Indian airline. Abu Dhabi's Etihad Airways promptly acquired 24 percent of Jet Airways. The partnership immediately strengthened the Jet Airways balance sheet and promises long-term benefits from network synergies with Etihad and its equity partners.
Air India joined Star Alliance in June 2014, becoming the first Indian airline to enter a global alliance. Air India's membership adds more than 400 daily flights connecting more than 50 destinations to the alliance's network. Increased global connectivity could boost Air India's revenue by about 5 to 6 percent in the near term.
The Tata Group also moved swiftly to partner with foreign airlines, announcing tie-ups with AirAsia and SIA. Both links are structured as joint ventures, with the foreign airlines owning 49 percent and Indian partners owning 51 percent. AirAsia started India operations in June 2014; the venture with SIA, named Vistara, is expected to launch in the third or fourth quarter.
Market reforms support further growth
The Directorate General of Civil Aviation recently moved toward easing regulation of the Indian aviation market. A new startup airline (Air Costa) was approved in 2013 and several new operators gained Air Operators Permits and No Objection Certificates in 2014.
Also helpful is the expansion in 2014 of the visa-on-arrival program from 11 countries to 180, offering 30-day visas at 26 ports of entry. Under consideration are taxation reforms, including rationalization of aviation fuel taxes, which can currently reach 35 percent; reduction of taxes on maintenance, repair, and overhaul, which encourage Indian airlines to outsource MRO to neighboring regions; and reduction of duties on engine spare parts.