Indian Aviation is Soaring!

“The civil aviation sector in India has once again seen a new inflection point,” Jyotiraditya Scindia, Minister of Civil Aviation stated. “The mega-orders for over 900 passenger jets placed by IndiGo and Air India are a testament to India’s unprecedented growth potential in the civil aviation sector. This latest order by one of our foremost carriers for 500 aircraft with Airbus talks of the potential of civil aviation in the country.” At the recently concluded Paris Air Show, Air India firmed up its order for 250 Airbus aircraft as well as up to 290 new Boeing jets, while IndiGo placed a firm order for 500 Airbus A320 family aircraft.

The aviation industry in India is experiencing a remarkable surge, propelled by a multitude of factors. Surging air traffic demand, a burgeoning middle class with rising disposable incomes, a demographic dividend, and substantial orders for over 1,200 planes by various Indian carriers, coupled with improvements in aviation infrastructure, are all contributing to the market’s growth. Indian airlines have already placed orders for more than 1,100 aircraft, scheduled to be delivered in the coming years. Among them, the country’s largest airline, IndiGo, is set to receive approximately 500 planes. Go First, Akasa Air, and Vistara are also poised to receive 72, 56, and 17 aircraft, respectively, and SpiceJet has aircraft on order.

The order once again attested to the unprecedented growth experienced by the sector since 2014 as well as the aspirations of 1.4 billion people who were desirous of travelling by air, said India’s Civil Aviation Minister. “Coming very close on the heels of the Air India order, this largest recorded order by a carrier [IndiGo] with a global aircraft manufacturer sets another landmark. What is also important to understand are its direct and indirect economic multiplier effects. every $1 invested in the civil aviation sector yielded $1.3 in terms of new growth as well each direct job created resulted in another 6.1 indirect jobs being created.” It is time now for the civil aviation ecosystem to have a very firm footprint in India as we realise the workings of economies of scale and market size in this industry, the Minister added.

Presently, there are around 700 commercial aircraft operating in India, with the majority falling into the narrow-body category. Airbus boasts approximately 470 aircraft in commercial service, while Boeing accounts for around 159 planes. India’s promising aviation market has seen the civil aviation industry become one of the country’s fastest-growing sectors in recent years.

STRONG PASSENGER & TRAFFIC GROWTH

India has become the world’s third-largest aviation market. According to the International Air Transport Association (IATA), India is expected to come behind only China and the United States to become the world’s third-largest air passenger market by 2030. This rising demand has prompted a surge in the number of operating aircraft, which is predicted to reach 1,100 planes by 2027. In the fiscal year 2022, airports in India estimated that domestic passenger traffic would reach 166.8 million, reflecting a 58.5 per cent year-on-year increase. Furthermore, international passenger traffic was projected to reach 22.1 million, marking a 118 per cent year-on-year increase compared to the fiscal year 2021. Aircraft movements in the same period reached 2,029,090, emphasising the need for increased airport capacity. Projections indicate that freight traffic at Indian airports could reach 17 million tonnes by fiscal year 2040.

According to the Ministry of Civil Aviation’s (MoCA) annual report, 2022, the number of domestic passengers carried by scheduled domestic Indian Carriers has witnessed a growth of 48.9 per cent in the year 2022 as compared to the previous year 2021 (up to December 31). During the period January to December 2022 a total of 43.4 million passengers were carried on international routes by Scheduled Indian/foreign carriers as against 17.2 million in the corresponding period in 2021, thereby witnessing a growth of 152.7 per cent.

The growth has continued through 2023. Passengers carried by domestic airlines registered an annual growth of 36.10 per cent and monthly growth of 15.24 per cent, according to the Ministry. Further, domestic airlines carried 636.07 lakhs passengers during January-May 2023 and the overall passenger growth in May 2023 increased by 3.26 lakhs (2.52 per cent) as compared to April 2023.

The country’s aviation system handled nearly 200 million passengers in the financial year 2022-23, with 12.9 million passengers in March alone. The first quarter of 2023 witnessed 37.5 million domestic flight passengers, marking the best first quarter ever for Indian aviation, according to CAPA India.

Domestic traffic alone contributes around 69 per cent of total airline traffic in South Asia, according to India Brand Equity Foundation (IBEF). By 2023, India’s airport capacity is expected to handle 1 billion trips annually. Despite the setbacks caused by the COVID-19 pandemic, the Indian aviation industry has made a complete recovery, as evident from the air traffic movement. In the fiscal year 2023 (April-December 2022), air traffic reached 236.71 million, compared to 131.61 million in the same period the previous year.

In April 2023, domestic aviation achieved a post-pandemic record with 40,000 flights in a single month. Daily passenger numbers reached as high as 4,50,000 and are projected to reach 5,00,000 by the end of 2023. The MoM growth rate between April 2022 and April 2023 has increased by 22.18 per cent.

“The orders once again attested to the unprecedented growth experienced by the sector since 2014 as well as the aspirations of 1.4 billion people who were desirous of travelling by air,” said the Civil Aviation Minister

To accommodate the rising air traffic, the Indian government seems to be actively working to expand the number of airports. As of 2022, India had 131 operational airports, with plans to increase this figure to 220 by 2025. Over the past eight years, the number of airports in India has more than doubled, from 74 to 141, and there are plans to open approximately 80 additional airports within the next five years. “The number of airports has gone up from 74 in 2014 to 147 in 2022. We aim to take this to 220 by 2024-25. Under National Infrastructure Pipeline (NIP), CAPEX of more than 98,000 crore is likely to be incurred during the period FY 2019-20 to FY 2024-25, where AAI would be incurring approximately 25,000 crore and remaining expenditure shall be borne by airport developers under PPP mode,” stated the Ministry’s report.

India’s aviation sector, like much of the world, faced significant challenges during the pandemic. However, it has made a robust recovery.

TRENDS & TURBULENCES

The post-pandemic era has witnessed notable changes in the Indian aviation industry. Most notably, Air India has been privatised and returned to the Tata Group from government ownership. This development comes with substantial investments and expansion plans, including a threefold increase in the airline’s fleet over the next five years. In 2023 alone, Air India plans to add 42 planes, including 11 Boeing 777s and 31 Airbus A320neos. Other significant developments include the entry of Akasa Air, targeting the growing low-cost traffic market, the merger of Vistara into Air India, and the recent grounding of Go First. These transformations signify the dynamic and evolving nature of India’s aviation industry.

Despite the positive trends being stronger, there are potential challenges and turbulence in the Indian aviation industry. These include the increasing cost of airline fuel, which accounts for a significant portion of airline expenses, and the potential decline in corporate travel budgets due to global economic uncertainties. One of the key areas that require attention is aviation fuel taxation, as India currently has the highest fuel tax rates globally, pointed out CAPA. Airlines have been urging the government to bring aviation fuel under the new tax regime of goods and services tax (GST).

Due to high demand during the summer travel season, airfares on specific domestic routes witnessed a significant increase, particularly for last-minute bookings, especially in May. In addition to that, Go First’s insolvency made the matter worse. In response, Civil Aviation Minister asked airlines to develop a system to ensure reasonable airfares, particularly on routes previously served by Go First. On June 8, the minister announced a reduction in airfares on certain routes from Delhi by 14 per cent to 61 per cent. Although the costs have been on a rise since last year due to pandemic after effects as well as Russia-Ukraine war which led to increase in the cost of air-turbine fuel and hence the airfares too.

Additionally, there may be concerns about the capacity to accommodate a large number of aircraft, considering the substantial aircraft orders placed by Indian carriers, and hence the infrastructure availability.

ROUTE FURTHER

According to data from CAPA, the industry is poised for exponential growth, with projections indicating that passenger numbers could surpass 1.3 billion over the next two decades. However, achieving such ambitious targets would require significant efforts to scale up the country’s aviation ecosystem. The existing National Civil Aviation Policy, which was released in 2016, also can be considered for a refresh given the transformations that the industry has witnessed in the last couple of years.

CAPA India called for a new policy that aims to shape Indian aviation’s transformational vision for the next 20 years. CAPA India has outlined a roadmap for the formulation of a new civil aviation policy that can propel the industry to unprecedented heights. Under a more conservative linear growth scenario, CAPA predicts that India could reach a market size comparable to pre-Covid China. This signifies the immense potential for India to become a major player in the global aviation landscape. The economic impact of this growth is substantial, with CAPA India estimating that by 2043, aviation could contribute up to $1 trillion annually to the Indian economy. This calculation takes into account direct, indirect, induced, and catalytic impacts, emphasising the wide-reaching benefits that a thriving aviation sector can bring to the country.

Despite some turbulences, India’s aviation industry appears well-supported by multiple factors. The country’s large and expanding population, estimated to reach 1.5 billion by 2030, coupled with a growing middle class, will generate a significant increase in domestic and international passengers. Low-cost carriers are also playing a vital role in making air travel accessible to more people. The Indian government has recognised the potential of the aviation sector and is investing heavily in its development. New airports are being built, existing ones are being expanded, and air traffic management systems are being improved. With the right policies and a focus on quality, cost, and passenger interests, India is on track to be the third-largest aviation market by 2025.

Improved pricing power, healthier yields, and favorable external factors contribute to the positive outlook. As the industry continues to evolve, both domestic and international passenger traffic are expected to exceed pre-Covid levels, driving further economic growth and prosperity for the nation.