While industrial growth triggered by the first leg of economic liberalisation in early nineties led to a sea change in India’s social fabric over the last couple of decades, In fact, for more than 40 years since independence, Indian aviation was a public sector monopoly, with
The government’s decision to deregulate international air traffic in 2004 allowed private Indian carriers to extend their services to international routes. Leveraging positive policy ambience, airlines such as IndiGo and SpiceJet carved a niche for themselves by adopting a low-cost business model.
A few factors such as foreign direct investment (
These have catapulted the size of Indian aviation to $16 billion, making it one among the top 10 aviation markets in the world and leading to bullish outlook among industry watchers. “The new entrants have now better business models to keep the business sustainable,” says Charles Dhanaraj, professor of Strategy and Global Leadership at IMD, Lausanne, Switzerland.
In terms of additional passengers per year, India is expected to be among the top five air domestic travel markets globally by 2034, according to the
Aircraft movements, passengers and freight at Indian airports are expected to grow at 4.2 %, 5.3% and 5%, respectively, for the next five years, according to estimates by
There is increasing potential for moving high value goods domestically through air freight where there will be more movement in the coming years,” says Charles.
Investment galore
Significant growth in FDI inflows and a slew of government initiatives provided fodder for the sector’s transformation. FDI inflows in air transport during April 2000 to November 2014 stood at $543 million, as per data released by Department of Industrial Policy and Promotion (DIPP). Recent investments from private players include IndiGo’s order for 250 A320neo airplanes from Airbus for $25.5 billion; AirAsia’s plans to add 10 more aircraft to its fleet by end of 2015, taking its total fleet to 15 aircraft;
Government initiatives
The government, which has been bullish about pushing the sector’s growth, has projected that around 500 airports would be required by 2020. It has already approved the construction of five budget airports to improve regional connectivity and work on them will start from FY15 and launched tourist visa on arrival (TVoA) enabled by electronic travel authorisation (ETA) to 43 countries besides plans to privatise national airline Air India. Also, the Ministry of Civil Aviation also plans to list Airports Authority of India and Pawan Hans on the stock exchanges.
The private sector is sought to be involved in a big way through the PPP model, with significant state support in terms of financing, concessional land allotment and tax holidays.
Air Costa is one of the carriers that aim to leverage the expected growth in air transport between tier 2 and 3 cities. “We aim to tap the burgeoning tier II market by stimulating growth through better air connectivity to the tier I cities. Our choice of Embraer aircraft (E170 with 67 seats and E190 with 112 seats) complements this vision. From operating two Embraer aircraft to 4 destinations with 300 employees, we have grown to 4 aircraft serving 9 destinations with close to 750 employees within a year,” says Air Costa CEO Capt. KN Babu.
Economy, Trade and Tourism
The aviation sector meets growing transportation needs of consumers—airlines registered in India carry 50 million passengers and 1.1 million tonnes of freight a year to, from and within India; more than 130,000 international flights depart India annually destined for 70 airports in 50 countries; domestically, more than 664,000 flights make 89 million seats available to passengers annually, destined to 73 airports. It also offers better connectivity—for instance, daily, there are 8 flights between Delhi and Dubai and more than 59 flights from Delhi to Bombay.
The sector makes significant contribution to Indian
Among customers of airlines serving Indian airports, 76 per cent are local residents who get an economic benefit estimated to be worth INR 832 billion annually.
This is in addition to the long-term benefits to the economy. Through investments and use of advanced technology, the aviation sector generates more gross value added (GVA) per employee than the economy as a whole, raising the overall productivity of the economy.
Benefits are also accrued to the economy through the growth of ground-based infrastructure including airport facilities and the aerospace manufacturing space.
Air transport lies at the heart of Indian tourism. Through its speed, convenience and affordability, air transport has expanded the possibilities of travel for tourists and business travelers alike, allowing an ever greater number of people to experience diversity of culture.
Tourism, both for business and leisure purposes, makes a large contribution to the Indian economy, with foreign visitors spending over Rs 548 billion in the Indian economy each year. Around 89% of these visitors arrive by air, which means foreign visitors who travel by air spend approximately Rs 488 billion.
Considering air freight makes up 34.6% of the value of global trade, aviation also provide a huge fillip to trade in the country.
Hampering environment
However, the growth of aviation happens at the cost significant damage to the environment, including contribution to global warming. Aviation contributes to climate change by altering the composition of atmospheric gases. In addition to CO2, emissions from aviation combustion processes comprise NOx, SOx and VOC which pollute the fabric of atmosphere.
According to Intergovernmental Panel on Climate Change (IPCC), CO2 emissions will grow 2.8% annually between 2000 and 2050 and are projected to make up 16% of total transportation carbon emissions, pointing to the need for a shift towards solar powered aircrafts in the long run. IPCC also calculates the climate impact of aviation to be 1.96 times that of CO2 impact. In addition to its contribution to climate change, aviation hampers ambient air quality, affecting public health. This is besides the negative environmental impact of noise pollution contributed by the growing number of aircraft.
Against the background of Modi government’s Land Acquisition Bill, which aims to ease the process of acquisition of land for industrial purposes, land acquisition for the proposed airports too will prove to be a tough nut to crack both politically and economically.
While the government's decision to allow airlines to import jet fuel will help airlines cut fuel costs by up to 20 per cent, lack of infrastructure at the hands of local airlines to import fuel directly would mean domestic carriers continuing to pay heavy federal and state taxes for buying fuel from domestic oil firms, adding to the debt pile-up of airlines most of which are losing money.
There are also concerns about supporting infrastructure and taxation. “There is a huge need for up gradation of the airports at tier 2 cities where the major growth should happen, “ says Charles. “There is still scope for improvement in the airport infrastructure. Another concern is over-taxation – central and state taxes on fuel and maintenance as well as service taxes on air tickets are likely to hamper growth,” says Ramesh Lingamaneni, chairman of Air Costa.
However, the clear silver lining is the expected growth in the number of aircraft as well as domestic and international passengers from India. This projected growth, along with India’s low air traffic density—72 compared with 282 in China and 2,896 in the US—signals a huge untapped potential, considering rising disposable income levels and the burgeoning young population.
As IATA CEO Tony Tyler put it, the world is focused on Indian aviation – from manufacturers, tourism boards, airlines, global businesses to individual travellers, shippers and businessmen. Consensus among these stakeholders, right policies and focus on quality, cost and passenger interest will transform India to one of the largest aviation markets within a couple of decades.
Image: thinkstock