India’s aviation industry set for long-term ascent despite short-term turbulence- Jefferies

New Delhi: India’s aviation sector continues to chart a robust long-term growth trajectory, underpinned by favourable demographics, rapid infrastructure expansion, and rising discretionary income, despite short-term operational headwinds, according to a recent report by global brokerage firm Jefferies.

Currently the world’s third-largest aviation market by passenger volume, India contributes only around 4% to global air traffic, even though it accounts for nearly 18% of the world’s population. This disconnect signals a substantial under-penetration in air travel, presenting tremendous runway for future growth.

Jefferies cited data from IATA and Airbus, projecting that India’s air passenger traffic is set to triple over the next 20 years. Airbus anticipates a compound annual growth rate (CAGR) of 8.9% in revenue passenger kilometers (RPK) through 2044, far outpacing global averages.

A key trend reshaping India’s aviation landscape is the increased internationalisation of Indian carriers. IndiGo, for example, has seen its international capacity rise to 30% of its total network, up from the low double digits a decade ago, and is expected to reach approximately 40% by 2030.

This shift is echoed in fleet strategies, with both IndiGo and Air India placing large orders for widebody aircraft to support their global ambitions. The move toward direct long-haul international connectivity not only strengthens airlines’ positioning but is also boosting ancillary airport revenue streams, particularly in retail and duty-free sales at metro airports.

Infrastructure expansion:

India's airport infrastructure is scaling up to match the surging demand. From 74 operational airports in FY14, the count has more than doubled to 157 in FY24, and is projected to reach 350–400 by FY47, as per data from the Ministry of Civil Aviation.

While domestic air travel grew at a 14% CAGR between FY09 and FY19, international traffic is now outpacing domestic growth, with a projected 16% CAGR between FY23 and FY25 as global travel demand rebounds post-pandemic.

On the supply side, India’s active fleet has nearly doubled over the past 15 years to approximately 850 aircraft. IndiGo leads the fleet expansion with the largest order book, followed by Air India and Akasa Air. Notably, 78% of India’s fleet comprises narrow-body jets, underscoring the domestic-heavy structure of the current aviation market.

Challenges:

Despite these bullish projections, Jefferies cautioned that several structural and short-term challenges persist:

•Aircraft supply bottlenecks due to OEM production constraints

•High aviation turbine fuel (ATF) taxation, which continues to erode airline margins

•Underdeveloped MRO infrastructure, prompting dependence on overseas maintenance

•Geopolitical risks linked to regional airspace volatility

•Air safety-related sentiment concerns, particularly following recent high-profile incidents

These issues, if left unaddressed, could temporarily derail progress and delay investment returns across the value chain.

IndiGo and GMR Airports in Focus:

Amid these dynamics, Jefferies remains optimistic about key industry players, particularly IndiGo, which it views as the best-positioned airline in India given its dominant domestic market share, growing international presence, and strong earnings potential.

The brokerage projects mid-teen earnings growth for IndiGo and considers its EV/EBITDA multiple of ~12x for FY26–27 to be reasonable in a global aviation context.

For GMR Airports, which operates major Indian hubs including Delhi and Hyderabad, Jefferies forecasts a 25% EBITDA CAGR between FY25 and FY28, driven by revised tariff structures, land monetisation efforts, and the recovery of airport retail business.

Air travel is becoming a lifestyle priority

Beyond macroeconomic and capacity indicators, Jefferies noted a structural shift in consumer behaviour. The share of household discretionary spending on travel has increased from 14% in 2010 to 16% in 2020, and is projected to rise further to 20% by 2030.

Although premium rail services are expanding in India, the absence of a high-speed rail network and the time inefficiencies of long-distance train journeys continue to support the sustained preference for air travel, particularly among the emerging middle class and young urban professionals.

India’s aviation sector, despite facing fuel cost pressures, infrastructure gaps, and air safety concerns, remains a long-term growth engine in Asia’s transportation landscape. As passenger traffic scales up and international ambitions take flight, the industry stands at a defining juncture, one that will require regulatory agility, public-private collaboration, and a sharp focus on infrastructure resilience and safety innovation.