Indian civil aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers, modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity. Currently, India is the ninth-largest civil aviation market in the world, with a market size of around US$ 16 billion and aims to become the third-largest aviation market by 2020 and the largest by 2030. Domestic air travel is expected to grow 9.5 per cent annually between 2011 and 2031, according to aircraft-maker Airbus. Currently, only about two per cent of India’s population uses airlines, providing a massive opportunity to expand the market.
According to a report titled ‘India Aviation Report’, prepared by KPMG and FICCI, the country is all set to become the third largest aviation market by 2020. With 81 million trips, India’s domestic aviation market grew over 20.3 per cent in 2015, the highest ever growth rate recorded in the world. This shows that we are on track and the target 2020 is achievable. “Indian aviation will support 19 million jobs and US$170 billion in GDP. We see the potential for 350 million passengers by 2034, we see an enormous potential for the airlines and of course for aviation to play a vital role that it can do in connecting the Indian economy within India and also to the world. But for this the government needs to move forward with the right policy approaches and those policy approaches are the ones that embrace the idea of partnership with the industry and deep consultation with industry. If the government will consult the industry, talk to the experts, we can do this together,” Tony Tyler, Director General, International Air Transport Association (IATA), said.
Current scenario:
India has 10 airlines, including scheduled and regional airlines. They are IndiGo, Jet Airways, Air India, GoAir, SpiceJet, AirAsia (India), Vistara and regional airlines such as Air Costa, Air Pegasus and TrueJet. IndiGo improved its market share to a fourth-month high of 38.7 per cent in April. State-run Air India improved its share to 15.1 per cent in April from 14.7 per cent in March, while budget carrier SpiceJet saw its share go up marginally to 12.9 per cent from 12.8 per cent in the preceding month. Jet Airways posted a decline to 15.9 per cent in April from 17.6 per cent in March, while Go Air witnessed a growth to 8.5 per cent from 8.3 per cent in the previous month. Air Costa and Vistara saw a modest improvement while AirAsia India’s share declined in April.
This indicates that the civil aviation industry is now growing leaps and bound. This is evident from the unprecedented growth in flyer’s community. Passenger traffic in 2015 increased at a rate of 20.3 per cent to 81.1 million from 67.4 million in the corresponding period a year ago. This has further improved during Jan-Mar 2016 when the growth rate touched to over 24 per cent. “We have grown in last three months by over 25 per cent. Some people attribute this growth to fall in crude prices but then the oil prices have fallen everywhere in the world. But no one saw this growth. No other country in the world has achieved this kind of growth during the period,” RN Choubey, Secretary, Ministry of Civil Aviation said at a function to celebrate SpiceJet’s 11th anniversary in New Delhi. He opined that the industry offers a great growth. “We have 300 million middle class. It is surprising that a middle class Indian flies once in five years that also one way. The middle class income in term purchasing power parity is equal to some of the European country. We are trying to chart how an average Indian can fly finally. Indian airlines need to capture the moment by bringing in smaller planes and connecting to tier-II & III cities,” he added.
The latest financial results also suggest that Indian aviation industry is in the recovery mode. Jet Airways, SpiceJet and Indigo posted an impressive net profit of Rs 986 crore together for the quarter ended March 2016. Their combined net loss was Rs 1,190 crore in the same quarter last year. The figures indicate a healthy rebound for the aviation industry. Another private airline, GoAir is expected to rake in over US$20 million in profits during fiscal 2016. And state-owned carrier, Air India, too, is set to record operational profits for the first time in nine years. Naresh Goyal, Chairman, Jet Airways said, “Jet Airways has been revitalised as a business in the last two years. Our focused efforts have resulted in significant improvement in operational performance leading to record profitability.” According to InterGlobe Aviation, the mother company of IndiGo, the net profit during the quarter under review inched up by 0.3 per cent to Rs 579.31 crore from Rs 577.33 crore in the like period of 2014-15. SpiceJet reported more than three-fold rise in net profit at Rs 73.19 crore in the March quarter.
High flying market
At present, Indian airlines together have around 400 operational planes and about 500 on order. Plane manufacturer Boeing announced that India needs 1,740 planes over the next 20 years. In its annual Current Market Outlook (CMO), Boeing raised its prediction for aircraft demand by 8.75 per cent compared with 2014’s forecast. In March 2014, Boeing said airlines in India will need 1,600 new aircraft, valued at US$205 billion, in the next 20 years.
According to Airbus, India will need to add more than 1,610 planes worth US$224 billion over the next 20 years as demand grows. The European planemaker’s global market forecast for 2015-34 says this will include 1,230 new single-aisle aircraft apart from A380 wide body planes and freighter aircraft.
As of now, over 220 Airbus aircraft are operational in India, flown by Air India (66 A320 Family), IndiGo (108 A320), Jet Airways (four A330-200 + four A330-300), GoAir (19 A320), Air Asia India (six A320), Vistara (10 A320), and SpiceJet (three A320 Family). Airbus also has a backlog of over 520 aircraft, of which 519 are the new A320neo planes. The said aircraft in backlog involve orders from IndiGo (430 A320neo), Jet Airways (five A330-200), GoAir (72 A320neo), and Vistara (four A320 + seven A320neo), among others.
Indian carriers are also trying to grab the opportunity. IndiGo, with 806 flights connecting 40 destinations, has been expanding rapidly. It launched 30 new flights in June. Commenting on the new flight schedule, Aditya Ghosh, President IndiGo said, “We are delighted to announce the take-off of these new flight services, while also introducing a new route on our domestic network. India needs more air travel and we are happy to take advantage of this opportunity to provide more choices to our customers with our hassle-free and consistent product that IndiGo has become synonymous with. We are confident that these flights will prove to be popular and convenient to our passengers.”
GoAir, which has 8.5 per cent market share in domestic traffic, recently, took the delivery of its first A320 neo aircraft. With this addition, GoAir adds its 20th aircraft into the existing fleet of 19 A320 aircraft. Wolfgang Prock-Schauer, CEO, GoAir said, “With the induction of the first of our 72 neo aircraft on order, we have reached a fleet strength of 20 aircraft. With this expansion, we will be able to strengthen our domestic network and will also be available to fly on international routes.”
Ajay Singh, who last year took over the airline, rescuing it from the brink of collapse, told at a news conference recently that operations has stabilised and the carrier is cleaning up legacy issues. Last November, SpiceJet disclosed plans to buy more than 150 planes and that it was in talks with both Boeing and Airbus. Its current fleet is mostly Boeing planes.
New Policy to speed up the growth
The new Civil Aviation Policy is expected to be announced soon. “It is in advance stage now. We think that the policy which will be unveiled shortly will be helpful for the flying community,” P Ashok Gajapathi Raju, Union Civil Aviation Minister, told T3 on the sideline of an event in Delhi.
According to the revised draft, the government intends to create an ecosystem that will enable 30 crore domestic ticketing by 2022 and 50 crore by 2027. Similarly, it aims to increase international ticketing to 20 crore by 2027. The other goal of the government is to ensure safety and increase regional connectivity. The government is also exploring the possibility of doing away with the 5/20 rule. Under the 5/20 rule, a carrier needs to have atleast five years of operational experience and a fleet size of minimum 20 aircrafts to be allowed to fly abroad. The policy proposes a regional connectivity scheme (RCS) by offering concessions to the airlines, incentivising them to fly on regional routes. The government has also proposed a fare cap at Rs 2500 for an hour’s flight on regional routes. As per the scheme, the Centre will fund 80 per cent of the airline’s losses and the rest will come from the states. The draft policy proposes a regional connectivity fund to be set up by levying a two per cent cess on domestic and international tickets. As per the draft, Indian carriers will be free to enter into code-share agreements with foreign carriers for any destination within India on a reciprocal basis. International code share between Indian and foreign carriers will also be completely liberalised, subject to Air Service Agreements (ASA), which India has with 109 countries, between India and the relevant country. To facilitate ‘ease of doing business’, the draft policy has also proposed liberalising the bilateral air traffic rights regime.
However, some of the provisions of the policy have invited strong criticism from the global aviation body IATA. “Certainly having an aviation plan like this is a step in the right direction but I do have to say that I am concerned about some aspects of it. Particularly where it’s going to ride cost to the industry or in some cases deviate from what are well accepted, tried and tested global principles. I have written to Raju, Minister of Civil Aviation and Choubey, Civil Aviation Secretary about these issues in the last week,” Tyler earlier said in an email sent by IATA. Tyler outlined three main concerns. “The first one concerns the proposed two per cent regional connectivity fund levy. Then there is an issue about the proposed auctioning of traffic rights. And finally, I am very concerned about the proposal to use dual or multiple till when we are looking at how India’s charges should be regulated,” he said. According to him, the two per cent connectivity fund levy is going to add a huge burden of cost to the industry in India. Tyler was also surpised to know about the auctioning of traffic rights. “I have never heard of the auctioning for traffic rights before. This is something that no country does. They don’t do it for very good reasons. If you auction traffic rights the consequences will be very hard to predict. One of them I feel would be the concentrating of the market in a few powerful hands. So I think it could be a very anti-competitive move and it’s something that is really unprecedented in world aviation,” he opined.
Infrastructural advances
The draft civil aviation policy had mooted the idea of developing no-frills airports to boost regional connectivity. “New airports that will be built should be demand driven. Developing infrastructure without knowing its potential does not make any sense,” said Choubey.
According to data provided by Raju in Parliament, there are 30 airports in the country from which no aircraft took off or landed after these became operational. In 2014-15 and 2013-14, these airports earned a revenue of Rs 0.69 crores and Rs 0.40 crores and incurred an expenditure of Rs 11.13 crores and Rs 12.97 crores, respectively. Beside these, there are 25 airports termed operational that see no flights as airlines don’t find the locations viable. However, the new policy will be addressing these issues.
The Union government has put the onus on states to secure commitments from airlines to start operations before dormant airports can be revived. The Union Civil Aviation Ministry has told the state governments that the first movers to bring a proposal for revival of airports will have an advantage as they will have priority in the limited central funds to be set up for the regional connectivity scheme. “We have told states if they want their airports to be revived and connected under the regional connectivity scheme they must start working with the airlines and persuade them to choose one of the destinations in their state. If airlines show interest, we will start revival of the airports,” Choubey added.
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 per cent is the upwardly mobile middle class. Once the new policy is approved by the government and in the action, India would be well placed to achieve its vision of becoming the largest aviation market by 2030.
