Rise of the Indian Aviation Market

Rise of the Indian Aviation Market

Last updated: Feb, 2023
Rise of the Indian Aviation Market

India has become the third-largest domestic aviation market in the world and is expected to overtake the UK to become the third-largest air passenger market by 2024. Indian aviation also contributed 5% of the GDP, creating a total of 4 million jobs. In addition to it, there is a US$ 72 billion gross value-added contribution to GDP by this industry.

The advantages and significance of the aviation sector can be highlighted by the following ideas:

  • The aviation sector offers global connection, which is crucial for advancing international trade and business. Further, it greatly influences how a nation's economy is shaped by linking it to other nations and continents.
  • It also plays a crucial role in promoting tourism by offering a robust transportation network. The promotion of the tourism industry also helps the economy and employment sector both domestically and globally. Everyone is aware of how the pandemic affected our social lives as well as how the global economy suffered. People get familiar with other people's religions, practices, and cultures as a result of travel. In addition, it also fosters a sense of integrity and cohesion among people.
  • The aviation sector has played an important role in natural catastrophes or even in conflicts. During times of famine, supplies, human transport, and food are all handled by the aviation sector. In addition, a specially outfitted plane responds to forest fires and even protects crops by spraying pesticides and fertilizer on them.
  • The aviation industry not only transports passengers from place to place but also greatly contributes to the transportation of all types of cargo around the world.

India has a vast history in the field of aviation. During the initial years of the Indian aviation industry, the operations of air transport were entrusted to three public undertakings, namely:

  • Air India for international services
  • Indian Airlines for domestic services and services to neighbouring countries
  • Vayudoot

The improved connectivity across the globe has contributed to the growth of the aviation sector at a faster rate. There have been a lot of changes since the inception of the sector, but despite all these, it has always proved its value and considerable power. These values continue to increase because of the vast geographical coverage of the country and the continuous industrial growth. Economic growth, along with the rising working class of the Indian middle class, also contributes to the industry and as a result, the Indian government is planning to set up new airports 220 by 2025.

The government is focussing on building infrastructure with the support of the private sector to make it more feasible with collaboration. Nearly US$ 11.8 billion (INR 98,000 crores) over a four-year period would be spent by the Ministry of Civil Aviation on the construction of new greenfield airports and the development of existing brownfield airports. Out of this, the private sector will contribute US$ 7.5 billion (INR 62,000 crores), while the Indian government will invest US$ 4.3 billion (INR 36,000 crores) through AAI.

Growth of Aviation Sector in India
In India, remarkable growth has been noticed in the sphere of civil aviation. The speed and carrying capacity of modern aircraft are providing commendable and far beyond what we used to experience decades ago. India is already among the top 10 aviation markets, serving over 83 million domestic passengers annually, and the volume of air traffic, both in terms of passengers and goods, is growing at a good pace. During April-September 2022, domestic freight traffic increased by 19.9% as compared to the same period of last year.

Here are some of the key facts explaining the growth of Indian aviation:

  • During the month of September 2022:
    • A total of 197.25 thousand aircraft movements (domestic & international) were reported, registering a growth of 34.3% from the previous year
    • Passenger traffic was registered at 24.94 thousand, an increase of 61.6% from the previous year
  • India’s airport capacity is expected to handle 1 billion trips annually by 2023
  • India’s domestic traffic makes up 69% of the total airline traffic in South Asia. Total passenger traffic across the country during April- September 2022 was 150 million.
  • There has been a growth of over 33% in the number of passengers carried by Indian domestic carriers in 2021 as compared to 2020. (838.14 lakh passengers in 2021 while 630.11 lakh passengers in 2020).
  • The country now has about 140 airports, up from 74 in 2013-2014 (including Heliports and water domes). By 2024-2025, the number is expected to reach 220.
  • In 2013-14, there were 400 aircraft in the nation and currently, there are 710 aircraft with more than 100 planes expected to join each year.
  • The Ministry of Civil Aviation (MoCA) stated that it is likely to employ 1 lakh more people by 2024, which shows an increase in direct employment from 2.5 lakhs to 3.5 lakhs.

Some of the key factors which will drive the growth of the aviation sector are mentioned below:

1) Higher Household Income
As the GDP of India grew 8.7% in FY 2022 after a contraction of 6.6% during the previous fiscal year, there has been more business travel by professionals and greater leisure travel by individuals due to increasing income groups which drive the consumption pattern in India and primarily based out of urban areas, contributing more to the aviation industry.

2) Entry of Low-cost Carriers (LCC)
This is the model which has made air travel affordable for the common man and has been operating in the domestic market since 2004. The market suggests that this model is driving domestic traffic and thus, has shown strong operational performance over the years.

3) Increased FDI Inflows
The inflow of FDI contributes to the better development of the infrastructure of the aviation industry.

  • Up to 100% FDI in civil aviation in India is permitted in Non-scheduled air transport services under the automatic route
  • Up to 100% FDI is permitted in helicopter services and seaplanes under the automatic route
  • Up to 100% FDI is permitted in MRO for maintenance and repair organizations; flying training institutes; and technical training institutes under the automatic route
  • Up to 100% FDI in the aviation sector is permitted in Ground Handling Services subject to sectoral regulations & security clearance under the automatic route

4)  Increased Tourist Inflows
With the increase in the tourism industry, air travel growth has also increased over the years. For Foreign Tourist Arrivals (FTA), air travel is the most chosen mode of transportation. In 2021, out of 1.52 million FTAs in India, 87.5% of individuals entered via air routes, 11.8% via land routes, and 0.7% via sea routes. Around 53.6% of FTAs arrived in India through the Delhi and Mumbai airports. In 2021, tourism's foreign exchange earnings (FEE) were US$ 8.7 billion compared to US$ 6.958 billion in 2020, registering a growth of 26.4%.

5) Development of Modern Airports with New Technologies
Modern airports come up with developed infrastructure in terms of speed, capacity, sustainability goals, etc, and hence contribute more to the aviation industry. One of the examples is the newly opened greenfield international airport at Mopa in the state of Goa. It has been developed with an investment of US$ 348 million, the first phase of Mopa International Airport will handle around 4.4 million passengers per annum which can be extended to a saturation capacity of 33 million passengers per annum. This airport has been developed with several sustainable infrastructure plans, including a solar power plant, green buildings, LED lights on the runway, rainwater harvesting, and a modern sewage treatment plant with recycling facilities.

6) Supporting Government Policies
Government interventions play a major role in the development of the aviation industry in India. One of the schemes launched by the government in support of the growth of aviation was the UDAN (Ude Desh Ka Aam Nagrik) scheme which was released in June 2016 with the motive of offering half of the flights at subsidized fares and is expected to be in process for a period of 10 years (till 2026).