NEW DELHI: After two years of slack, India's air traffic growth has seen a strong recovery and demand prospects have turned bright, although only for the 'fittest' airlines such as IndiGo and Jet, an HSBC report has said.

According to the global financial services major, the demand outlook remains bright amid strong economic growth expectations and the rising propensity of Indians to travel abroad.

After two years of poor performance, traffic growth has resumed sharply in India. "Indian carriers not only flew 21 per cent more passengers during January-March period but also improved their overall utilization to five-year highs," HSBC said in a research report.

Moreover, rising income and ease of travelling abroad are expected to continue to boost outbound travel.

"Whilst IndiGo is well placed domestically based on its revenue performance, it has seen its fortunes at home undermined by rising competition," HSBC said, adding "in the relatively more benign international segment, Jet Airways appears the best placed Indian airline to benefit from the prospect of rising outbound travel demand".

According to the report, low jet fuel prices and strong demand rebound create a benign operating environment for the aviation sector. Moreover, the medium-term demand outlook is supported by rebounding economic growth and growing propensity of Indians travelling abroad.

But "market fragmentation" is rising and during the last year, three new airlines (Air Costa, AirAsia India, Vistara) have launched domestic operations and a fourth (Air Pegasus) has already been granted a flying permit.

"There are 10 carriers that now fly in the domestic Indian market and this is probably indicative of further risks to pricing power," the report said.