leverage potential of domestic air travel market
The International Air Transport Association's recent observations on India's aviation sector indicate both how well the sector is progressing as well as how far it still has to go before it can emerge at the top of the pack. On the one hand, the report notes that the Indian domestic travel market grew the fastest in 2015 — at an impressive 18.8 per cent in a market of 80 million domestic passengers. This is on expected lines given that Indian civil aviation sector has been continuously experiencing high passenger growth in recent years.
Between 2009 and 2011, for example, the compound annual growth rate of domestic traffic was 17 per cent while experts at FICCI and KPMG believe that India is also well on its way to become the third largest aviation market by 2020. This past year's high of 18.8 per cent compares favourably with other major powers — for instance, Russia grew at 11.9 per cent while China was at 9.7 per cent and the US at 5.4 per cent. Unsurprisingly, relatively low fares — about 15 to 20 per cent lower in 2015 on a year-on-year basis — was one of the most important factors that drove the sector. While the figures are no doubt impressive, and indicate it is still important to view the growth within the context of market size so as to differentiate between a mature market such as the US which has as many as 708 million domestic passengers and emerging market like India which has only 80 million. In between the two, China has about 394 million domestic passengers.
This brings us to the next point - that while India's growth rates are impressive no doubt, it is still functioning far below its potential. The fact that India is the world's second most populous country, and its economy has been growing at rates that make the developed world envious means that India already has a large captive market that is ready for take-off.
However, for everybody to really get on board, supply side issues have to be fixed to keep up with the demand. For example, even today there are some State capitals that are not well-connected to the national capital. Similarly, large parts of the country are still not effectively covered by the aviation sector. Reaching out to Tier Two and Tier Three cities is imperative to broaden the domestic flyer base. In addition, there is the complex matter of further liberalisation of the aviation sector and introducing policy reforms that will give the sector a boost instead of constraining it. In this context, the BJP-led NDA Government's new aviation policy is a big step in the right direction, as this paper has argued earlier.