Domestic carriers are expected to post losses to the tune of $1.3-1.4 billion this fiscal amidst an expected increased costs and other factors, according to a report slated to be released next month.
"The structural viability of airline business models will continue to face pressures with costs expecting to increase and yields likely to remain soft with new entrants coming into the market," Sydney-based aviation think-tank Centre for Asia Pacific (CAPA) said in its FY2015 outlook, which is slated for release next month.
In the face of it, combined airline losses are expected to reach $1.3-1.4 billion in FY2015, it said adding in the last seven years accumulated losses have reached $10.6 billion.
Forecasting a sluggish economic recovery, Capa said: "conditions may not improve substantially until the third or fourth quarter. As a result domestic traffic growth in the current fiscal is expected to be modest, although the international market will be more robust."
Pointing out that several incumbent carriers are in a precarious financial position with average cash balances equivalent to less than three weeks revenue, the report said airlines other than IndiGo will require $1.6 billion of funding this year just to sustain their business models.
"The prospects for further direct investment in airlines remains very uncertain in the current climate," it added.
IndiGo is expected to continue to outperform the market and remain the sector's leading bright spot, although very intense competition has significantly reduced its profitability, Capa said.
The carrier's positive outlook could see it place an order for a further 200-250 aircraft at the Farnborough Air Show in next month and possibly conduct an IPO later in the year, the report said.
On the capacity expansion, Capa expects ithe growth in the domestic market will largely be driven by start-up carriers.
"Domestic capacity is expected to expand by around 8-10 per cent, somewhat higher than the traffic projection. Most of this growth is expected to be generated by AirAsia India, Tata-SIA, and possibly Air Costa, all of which combined could deploy up to 18-20 aircraft in the market by the end of the fiscal," the report said.