India’s civil aviation industry is on a high-growth trajectory. India aims to become the third-largest aviation market by 2026.
The Civil Aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity.
As per the IATA, India will become the third largest aviation market in the world in terms of passengers by 2026. Furthermore, the IATA also expects the air passengers to grow at a compound average growth rate (CAGR) of 3.7 per cent to double from 3.8 billion air passengers in 2016 to 7.2 billion air passengers by 2035.
India's air cargo is estimated to grow at 9 per cent over the next few years, according to Mr Ashok Gajapathi Raju, Secretary of Ministry of Civil Aviation, Government of India.
India has become the world’s fastest growing domestic travel market for the 22nd time in a row, recording a 26.6 per cent year-on-year growth in January 2017, according to the IATA.
India has replaced Japan to become the third largest domestic aviation market globally, recording a total of 100 million domestic flyers in 2016, as compared to 97 million flyers in Japan during the same period, according to Centre for Asia Pacific Aviation (CAPA).
According to CAPA, domestic air traffic is expected to grow 25 per cent and cross 130 million in financial year 2017-18.
The number of departures from India increased 20 per cent year-on-year to touch 131 million in 2016, according to the data by the IATA.
CAPA estimates that India’s airlines reported a combined profit of US$ 122 million in fiscal 2016.
According to data released by the Department of Industrial Policy and Promotion (DIPP), FDI inflows in air transport (including air freight) between April 2000 and March 2017 stood at US$ 1.01 billion.
Key investments and developments in India’s aviation industry include:
- Rolls-Royce Holdings Plc, the UK-based aircraft engine manufacturer, has opened a new defence service delivery centre (SDC) in Bengaluru, which would deliver real-time solutions for improving capability and provide faster front-line support to over 750 aircraft engines used by the Indian Air Force, Indian Navy and State-owned Hindustan Aeronautics Ltd (HAL).
- Qatar Airways is planning to start India’s first fully owned foreign airline in partnership with Qatar Government's investment arm, Qatar Investment Authority, as per Qatar Airways.
- Indian budget airline carriers Indigo and GoAir, plan to expand their network to Gulf cities like Doha, Sharjah and Dammam in 2017, which would likely boost the growth of Indian aviation sector.
- GVK Power & Infrastructure Ltd., which operates the existing airports in Mumbai and Bangalore, has won the right to build Mumbai’s second airport in Navi Mumbai, which will require an investment of Rs 16,000 crore (US$ 2.48 billion) to build the airport with a capacity to handle 10 million passengers annually in the first phase, expected to be operational by 2019 and 60 million passengers a year by 2030.
- IndiGo, having 42 per cent of the Indian aviation market has entered into a partnership with global distribution system services operator Travelport, to expand its global presence by distributing its ancillary products to the portal’s customers across 180 countries.
- Several European countries, including Greece, Netherlands, Georgia and Sweden, have shown interest in signing an open sky agreement with India, following the change of rules in India's National Civil Aviation Policy (NCAP), which is expected to significantly enhance the country's international connectivity.
- During the International Civil Aviation Negotiations (ICAN) 2016 held in Nassau in December 2016, India has signed Open Skies Agreement to encourage connectivity and passenger travel between India and Jamaica, Guyana, Czech Republic, Finland, Spain and Sri Lanka, apart from resolving other issues such as greater traffic rights, new service agreements and code sharing with several other countries.
- In the Union Budget 2017-18, the Civil Aviation Ministry received a substantial increase of over 22 per cent in budgetary allocation at Rs 5,167.60 crore (US$ 775.14 million) for the next financial year.
Some major initiatives undertaken by the government are:
- Indian airline companies like Air India, Air Deccan, SpiceJet, Air Odisha and Turbo Megha, have been awarded with the right to fly to 128 routes across India, requiring them to cap half the seats at nearly 50 per cent of the fare, under the Government of India’s regional aviation scheme named UDAN.
- The Government of India has approved the construction of 18 Greenfield airports in the country, which would be executed and financed by the respective airport promoters, and are estimated to require an investment of Rs 30,000 crore (US$ 4.66 billion).
- The Cabinet Committee on Economic Affairs, Government of India, has approved the proposal to revive 50 un-served and under-served airstrips in three financial years starting from 2017-18 at an estimated cost of Rs 4500 crore (US$ 698.7 million).
- The Government of India has started a new regional connectivity scheme (RCS) called Ude Desh ka Aam Nagrik (UDAN) under which fares will be capped at Rs 2,500 (US$ 37.5) for half the seats in an one-hour flight, as per Mr Jayant Sinha, Minister of State Civil Aviation. The Government of India has also received bids from 11 airlines for the same.
- Mr Jayant Sinha, Minister of State for Civil Aviation, has stated that the government plans to double the number of airports in India over the next two to three years to cater to the increased passenger traffic due to developing regional air travel market.
- The Ministry of Civil Aviation along with Airports Authority of India (AAI) plans to develop small airports with frugal facilities, and encourage private airlines to bid for routes connecting these small airports with existing larger airports, thereby increasing regional air traffic.
- AAI plans to increase its capital expenditure for 2017-18 by 25 per cent to Rs 2,500 crore (US$ 375 million), primarily to expand capacity at 12 airports to accommodate rising air traffic, as per Mr Guruprasad Mohapatra, Chairman, AAI.
- The Ministry of Civil Aviation has revised its air services agreement with Netherlands, which would enable air carriers from both the countries to operate up to 28 flights each week, up from current weekly limit of 21 flights, which would benefit regional carriers as well as enhance connectivity between the countries.
- The Executive Development Programme of Rajiv Gandhi National Aviation University in collaboration with Indo US – American Cooperation Program, inaugurated by Mr Ashok Gajapathi Raju, Minister for Civil Aviation, aims to promote skill development of senior leadership and close the gap of increasing demand for trained people in the aviation sector.
India’s aviation industry is largely untapped with huge growth opportunities, considering that air transport is still expensive for majority of the country’s population, of which nearly 40 per cent is the upwardly mobile middle class.
The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions that would boost India’s civil aviation industry. With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2026 .
Exchange Rate Used: INR 1 = US$ 0.0155 as of April 17, 2017.
References: Media Reports, Press Releases, Press Information Bureau, Directorate General of Civil Aviation (DGCA), Airports Authority of India (AAI), Union Budget 2017-18