Indian Aviation Industry

Introduction

The civil aviation industry in India has emerged as one of the fastest growing industries in the country during the last three years. India has become the third largest domestic aviation market in the world and is expected to overtake UK to become the third largest air passenger* market by 2024^.

Market Size

India’s passenger* traffic stood at 115.37 million in FY21. Domestic passenger and international passenger traffic declined at a CAGR of -9.02% and -28.64%, respectively, from FY16 to FY21, owing to COVID-19-related restrictions on flights in FY21. In FY21, airports in India pegged the domestic passenger traffic to be ~105.2 million, a 61.7% YoY decline, and international passenger traffic to be ~10.1 million, an 84.8% YoY decline, over the fiscal year ended March 31, 2020. In March 2021, the average daily passenger traffic stood at 546,702.90.

Between FY16 and FY21, freight traffic declined at a CAGR of -1.77% from 2.70 million tonnes (MT) to 2.47 MT. Freight traffic on airports in India has the potential to reach 17 MT by FY40.

Aircraft movement declined at a CAGR of -7.79% from 1.60 million in FY16 to 1.20 million in FY21. From FY16 to FY21, domestic aircraft movement decreased at a CAGR of -6.44% and international aircraft movement declined at a CAGR of -18.52%. India’s domestic and international aircraft movements reached 1,062 thousand and 135 thousand, respectively, in FY21.The expenditure of Indian travellers is expected to grow to Rs. 9.5 lakh crore (US$ 136 billion) by 2021.

To cater to the rising air traffic, the Government of India has been working towards increasing the number of airports. As of 2020, India had 153 operational airports. India has envisaged increasing the number of operational airports to 190-200 by FY40.

Further, the rising demand in the sector has pushed the number of airplanes operating in the sector. The number of airplanes is expected to reach 1,100 planes by 2027.

Investment

According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), FDI inflow in India’s air transport sector (including air freight) reached US$ 2.95 billion between April 2000 and March 2021. The government has allowed 100% FDI under the automatic route in scheduled air transport service, regional air transport service and domestic scheduled passenger airline. However, FDI over 49% would require government approval.

India’s aviation industry is expected to witness Rs. 35,000 crore (US$ 4.99 billion) investment in the next four years. The Indian Government is planning to invest US$ 1.83 billion for development of airport infrastructure along with aviation navigation services by 2026.

Key investments and developments in India’s aviation industry include:

• In June 2021, SpiceJet announced its ambitious target to fly 100 million domestic passengers on Sustainable Aviation Fuel (SAF) blend by 2030 under the aegis of World Economic Forum (WEF).
• In April 2021, Boeing, an aircraft manufacturer, announced that it has partnered with the Indian Aviation Academy (IAA) and the University of Southern California (USC) to conduct safety management system training sessions for all stakeholders in the domestic aviation industry.
• In March 2021, the Indira Gandhi International (IGI) Airport in Delhi announced a key expansion project to increase its passenger handling capacity. The expansion project includes a new terminal, advanced facilities, an additional runway and improved capacity to handle more passengers.
• In March 2021, the government announced plan to set up two water aerodromes in Assam and four water aerodromes in Andaman & Nicobar Islands this year to boost tourism and connectivity.
• In March 2021, the government submitted a proposal to develop a water aerodrome project at the Ujjani Dam, under the Ministry of Civil Aviation’s UDAN-RCS (regional connectivity scheme).
• On March 25, 2021, Union Minister of Civil Aviation Hardeep Singh Puri inaugurated the Kurnool Airport, Orvakal, Andhra Pradesh, in a virtual ceremony. The flight operations at Kurnool airport will commence on March 28, 2021 under the Regional Connectivity Scheme – Ude Desh Ka Aam Nagrik (RCS-UDAN).
• On February 25, 2021, the Airports Authority of India (AAI) issued tenders for construction of the first phase of an international airport at Dholera in Gujarat, entailing an investment of Rs. 987 crore (US$ 135.07 million). The new facility is being set up in greenfield city under the Delhi–Mumbai Industrial Corridor (DMIC) project at Dholera.
• On January 19, 2021, the Airport Authority of India (AAI) signed a concession agreement with Adani Group for three airports—Jaipur, Guwahati and Thiruvananthapuram. The concession period is 50 years from the date of commercial operations.
• On December 21, 2020, IndiGo announced that it has collaborated with Urban Drive car rental company to offer self-driven and chauffeur driver services across 60 Indian cities.
• In October 2020, Zurich Airport International signed the concession agreement for the development of Jewar Airport on the outskirts of Delhi. The agreement has granted Zurich Airport International the licence to design, build and operate Noida International Airport (NIAL) for the next 40 years.
• In October 2020, the Airports Authority of India (AAI) announced plan to upgrade runways at seven airports across the country by March 2022.
• In January 2020, IndiGo became first Indian carrier to have an aircraft fleet size of 250 planes and became the first airline to operate 1,500 flights per day.
• AAI plans to invest Rs. 25,000 crore (US$ 3.58 billion) in next the five years to augment facilities and infrastructure at airports.
• UK group to invest Rs. 950 crore (US$ 135.9 million) in Turbo Aviation's new airline TruStar.

Government Initiatives

Some major initiatives undertaken by the Government are:

• The Ministry of Civil Aviation (MoCA) increased capacity of domestic flights to 65%, from 50%, effective from July 05, 2021.
• The Ministry of Civil Aviation (MoCA) is hopeful that aspiring commercial pilots will soon be able to get trained in India without having to leave the country. In this regard, the government in July 2021 announced setting up eight new flying academies across the following five airports: Belagavi and Kalaburagi in Karnataka, Jalgaon in Maharashtra, Khajuraho in Madhya Pradesh, and Lilabari in Assam.
• On May 08, 2021, AAI commenced commercial operations at Rupsi airport—Northeast India’s 15th airport and Assam’s 7th airport.
• In March 2021, on the launch of the ‘Azadi Ka Amrit Mahotsav (India@75)’ by the Government of India, the Ministry of Civil Aviation (MoCA) has proposed 392 routes under the UDAN 4.1 bidding process.
• The Airport Authority of India plans to abolish royalty and offer steep discounts in lease rent to encourage MRO units to set up facilities at its airports.
• The government is planning to start 14 more water aerodromes across the country, after the successful launch of seaplane service by Prime Minister, Mr. Narendra Modi, between the Statue of Unity near Kevadiya in Gujarat's Narmada district and Sabarmati Riverfront in Ahmedabad in October 2020.
• In November 2020, the Government of India announced that it is likely to increase the total number of allowed domestic flights to 75% of the pre-COVID-19 levels, as it expects a rise in passenger numbers due to the festive and holiday season.
• In September 2020, the Government of India sanctioned Rs. 108 crore (US $ 14.73 million) for Jagdalpur, Ambikapur and Bilaspur airports in Chhattisgarh under the UDAN scheme for upgrade and development.
• Under Union Budget 2021-22, the government lowered the custom duty from 2.5% to 0% on components or parts, including engines, for manufacturing of aircrafts by public sector units of the Ministry of Defence.
• Under Union Budget 2021-22, the Indian government expanded the scope for ‘Krishi Udaan’ in convergence with Operation Green Scheme, wherein air freight subsidy of 50% for agri-perishables would be provided to North East states and 4 Himalayan states/UTs. The expansion of product-coverage will boost the ‘Krishi Udaan’ scheme and improve air cargo transportation from these states.
• In February 2019, the Government of India sanctioned the development of a new greenfield airport in Hirasar, Gujarat, with an estimated investment of Rs. 1,405 crore (US$ 194.73 million).
• Regional Connectivity Scheme (RCS) has been launched.

Achievements

Following are achievements of the Government:

• 3,13,668 domestic passengers flew on February 28, 2021—the highest number since resumption of domestic flights on May 25, 2020.
• Under RCS-Udan scheme, approximately 34,74,000 passengers were flown and 335 routes were awarded during 2019, covering 33 airports (20 unserved, 3 underserved, 10 water aerodromes).
• As of December 31, 2020, ~31 lakh Indians have been repatriated under the Vande Bharat Mission (VBM). The VBM has so far involved 6,373 Air India flights and 474 flights by private Indian carriers. About 1,035,471 Indian nationals have been repatriated by Air India, whereas 74,675 Indian nationals have been brought back by private carriers.
• In April 2020, the government introduced the ‘Lifeline Udan’ flights to transport essential medical cargo to remote parts of the country to support India’s war against COVID-19. Under this scheme, about 600 flights flew more than 5 lakh kms and transported about 1,000 tons of essential cargo.

Road Ahead

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% 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 2020. The expenditure of Indian travellers is expected to grow up to Rs. 9.5 lakh crore (US$ 136 billion) by 2021. Due to rise in demand in air travel, India will need 2,380 new commercial airplanes by 2038.

References: Media Reports, Press Releases, Press Information Bureau, Directorate General of Civil Aviation (DGCA), Airports Authority of India (AAI), Union Budget 2021-22

Note: Conversion rate used in July 2021, Rs. 1 = US$ 0.01346

Note: * - International and Domestic, ^ - As per International Air Transport Association (IATA) forecasts

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.