Return to profitability

The report, Indian Aviation: A Review of 2009 and Outlook for 2010 expects India's 7 private airlines, operating 11 separate brands to achieve combined profits of over US$ 250 million in 2010-11.

However with combined debts of US$ 10 billion, the three main airlines - Air India, Jet Airways and Kingfisher Airlines - can't take recovery for granted.

The report written by Centre for Asia Pacific Aviation (CAPA) warns, "Airlines should not allow growth to distract them from focusing on restructuring their operations and profitability".

Domestic and International growth

Following 12 consecutive months of year-on-year decline in domestic traffic, July 2009 saw a return to growth. This continued and is set to lead to growth in domestic traffic of 15% during 2010, an increase on the expected 10% increase for the year.

International traffic that remained positive in the downturn is expected to receive a boost of 10-12%. These improved figures are set to improve profitability and yield.

Focus on budget travel

The most significant industry development has been the new focus on low cost air travel. A model that did not exist six years ago is expected to account for 70% of domestic capacity within 2010.

Five years ago, the report says 80% of air travel was for business; today the figure has been halved.

This change in emphasis has made cost more of an issue. The report explains that the transition to low-cost operations, "should allow the big three carriers to develop a more competitive cost structure, which is essential for their survival".

Further infrastructure investment

Recognising that infrastructure constraints would stifle the industry, the Government have spent US$ 10 billion on airport upgrades. This investment is now having a positive influence on customer experience and aircraft turnaround times and utilization. A further US$ 20 billion is expected in the next decade.

Change in industry structure

With competition still fierce CAPA expects consolidation, describing it as both "desirable and inevitable". In addition, the report encourages Government to make further reforms, amongst them a change in rules on Foreign Direct Investment.

International carriers attracted by the long term opportunity that India presents, are keen to enter the market. Despite the predicted industry turnaround, creating joint ventures through equity sale provides the quickest way for India's airlines to reduce debt levels.