The domestic aviation industry is set to grow at 11 per cent in the medium-term as some of the cyclical variables become less spiteful, ratings agency Icra said in a report.
The industry witnessed a sub-10 per cent compounded annual growth rate in the past five years, it said.
However, pressures in the near-term remains, the report said, adding that the rising disposable incomes and the willingness to spend on air travel is likely to drive demand going forward.
The higher cost of travel and the impact of economic slowdown have affected passenger traffic growth during the current year, which, over the past five years has grown at a CAGR of 9.2 per cent, the report said.
According to the agency, after years of steady increase in capacities, the capacity addition declined 3.2 per cent during the current fiscal largely due to the grounding of Kingfisher Airlines and route rationalisation by other carriers.
The overall operating environment for the domestic carriers is now showing an improving trend on the back of government allowing foreign airlines to invest up to 49 per cent in private domestic carriers, the industry's effort to maintain pricing discipline and attempts to rationalise cost structure by both full-service as well as budget carriers, besides enhancing ancillary revenues.
With multiple headwinds, sharp increase in operating losses and accompanying weakness in their balance sheets, the carriers have adjusted their business models and they have also implemented rigorous cost rationalisation measures right from phasing out loss-making routes to renegotiation of maintenance contracts to ride over the turbulent phase, the report said.
These initiatives are likely to help domestic carriers in overcoming the adverse impacts of high oil prices and currency depreciation, the report stated.
According to the report, allowing 49 per cent FDI in domestic carriers could address their funding issues, which have long been facing difficulties.