India’s aviation sector remains robust but external pressures pose the biggest risks for growth, according to the CEO of Vistara Airlines.
Aviation demand in India is “still progressive” and headed in a positive direction, Vinod Kannan told CNBC in an exclusive interview.
However, factors such as fuel costs as well as the strong U.S. dollar could impact growth, he added.
“The airlines within India have always been extremely sensitive to external pressures. Fuel costs, for example, and the U.S. dollar compared to the Indian rupee because depreciation always has an impact on our bottom line,” he told CNBC’s Sri Jegarajah.
Fluctuations in oil prices is also something that needs to be watched closely, he added.
Brent crude prices have risen 6.46% in the last 12 months, while U.S. crude prices are up 7.64% in the same period, according to FactSet data.
India is witnessing an aviation boom, with the world’s most populous country set to be the fourth-largest global travel spenders by 2030, largely due to a growing middle-income population that will see a substantial rise in household earnings.
The domestic air passenger traffic in India in the financial year ended March 2024 is estimated to stand at $154 million — up about 13% year-on-year, according to credit rating agency ICRA.
“Outlook on the Indian aviation industry is stable, amid the continued recovery in domestic and international air passenger traffic, and relatively stable cost environment and expectations of the trend continuing in fiscal year 2024-25,” it said.
The Indian government has taken significant steps in recent years to strengthen the aviation sector and boost infrastructure.
The number of operational airports in the country has doubled from 74 in 2014 to 148 in 2023, based on official government data.
Aviation has always played a critical role in India’s economic growth, said Kannan.
“There’s also a multiplier effect because for every job that we create in aviation, there’s three or four associated jobs in the ecosystem,” he said, adding the government “is very well aware of this.”
“I think it’s only going to improve.”
Last week, the National Company Law Tribunal gave the green light for the merger of Vistara and Air India, according to Reuters.
Tata Group owns a 51% stake in Vistara; the remaining 49% is owned by Singapore Airlines.
The Indian conglomerate, which also owns businesses ranging from IT to steel to automakers, announced the merger of Vistara and Air India in November 2022. Singapore Airlines will have a 25.1% stake in Air India following the merger.
“With this merger, we would be the biggest international airline out of India,” Kannan said, adding that in terms of India’s domestic market share, “we would look at around 30% of the total.”
That would allow the carrier to scale up significantly, the CEO said.
— CNBC’s Charmaine Jacob contributed to this report.
Source: CNBC