Indian civil aviation industry on to the next level


The country's regional connectivity scheme (RCS), more popularly known as 'UDAN'—(Ude Desh ka Aam Nagrik – translated from Hindi as 'the common man will fly') is expected to transform India's  aviation landscape. The government has already approved the construction of 18 Greenfield airports requiring an investment of USD4.66 billion.

In less than a decade from now, circa 2026, India is forecast to become the third largest civil aviation market in the world, next onlyto the US and China.

The passenger numbers, not so much cargo, are highly encouraging and these certainly will catapult India into one of the top aviation markets in the world, the International Air Transport Association (IATA) boldly forecasts.

The upward trend in the Indian aviation market since a couple ofyears has been on expected lines. From January to August 2017, domestic airlines carried

75.41 million passengers, up from 64.46 million during the corresponding period in 2016, thereby, registering a growth of 16.97 percent.


According to the Center for Aviation or CAPA, domestic air traffic is expected to grow 25 percent and cross 130 million in financial year 2017-18. This is high-growth trajectory and for those in the airline business, these are good times, provided theyget their act right.

And we have few examples of how business models have gone awry, leading to airlines shutting shop, so to say, in quick time. The classic case of Kingfisher Airlines and now two regional players – Air Costa and Air Pegasus – folding up are grim reminders of how the airline business can be a tricky one.

The bad apples aside (including the national carrier Air India which has been accumulating huge losses), CAPA estimated that India's airlines reported a combined profit of US$122 million in fiscal 2016, first time in a decade. This included record profits at IndiGo, Jet Airways, SpiceJet, GoAir and Air India Express.

Huge Middle Class, Key Driver

While there are lessons to be learnt, India has to grab the opportunity that has come its way, thanks to the huge middle class population it has and also due to economic growth and pro- active policies ofthe government.

This should be music to the ears of airlines—air passengers will grow at a compound average growth rate of 3.7 percent to double from 3.8 billion air travellers in 2016 to 7.2 billion travellers by 2035, as per IATAforecast.

Air cargo, however, is lagging behind growing at 9 percent, but expected to do well in the near future as the government is creating an eco-system forthe segment to thrive.

The present government, led by Prime Minister Narendra Modi, has been laying emphasis on development. With this 'mantra' the aviation sector recently introduced far-reaching policies, first the National Civil Aviation Policy or NCAP, under which regional connectivity is a keycomponent.

The regional connectivity scheme (RCS) or better known by its other name 'UDAN' (Ude Desh ka Aam Nagrik translated from Hindi as 'the common man will fly') is expected to transform the aviation landscape of India. Under this scheme fares are capped at Rs2,500 (US$ 37.5) for half the seats in an one-hour flight.

UDAN, Networking India

As part of UDAN, on September 27, 2017, the President of India, Ram Nath Kovind, inaugurated the swank new Shirdi Airport in Ahmednagar and the inaugural Alliance Air commercial flight to Mumbai.

The small town in western Maharashtra is a world-famous pilgrim spot for the 'samadhi' temple of a 20th century saint, known as Saibaba, who is revered by all communities. That the town did not have air connectivity was solely because the concept of regional aviation is yet to take off in its totality in India.

There is enormous potential for regional aviation to grow and mainline airlines have started making forays into this segment. Low cost carrier SpiceJet is already in, while the leader in terms of market share – Indigo – made it known it would also jump into the fray, having ordered 50 ATR aircraft.

This has become possible due to the policies of the government with modern airports and no-frills airports coming up in different parts of the country; advanced information technology and foreign direct investment (FDI), among others.

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. It is growing and growing at a healthypace.

The Minister for Civil Aviation, Ashok Gajapathi Raju, keeps egging the industry through various modes, one of which is twitter and some samples are: “ Growth rates in civil aviation encouraging; intend to keep the momentum going.” “Another month of record growth for  Indian aviation—August records 24 percent—highest worldwide.” “Another month of record growth for Indian aviation,  maintains  its  top  rank  with 23.4 percent growth in September 2016.”

Some of the major initiatives undertaken by the government with Raju at the aviation helm include UDAN

wherein players such as Air India (Alliance Air), 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 percent ofthe fare.

The government 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 US$4.66 billion.

Besides, it has approved the proposal to  revive  50  unserved  a n d underserved airstrips in three financial years starting from 2017-18 at an estimated cost of US$698.7 million.

Growing fleet size

The commercial fleet is made up of 496 aircraft as of March 2017 with orders for over 650 aircraft. There are 14 Scheduled Operators – Air India; Alliance Air; Air India Charters; Air Asia; Blue Dart Aviation; GoAir; IndiGo; Jet Airways; JetLite; SpiceJet; Quikjet Cargo; TruJet; Vistara, and; Zoom Air.


Economic fundamentals

Strong economic fundamentals have contributed to the growth – although traffic has been over-stimulated by low fares. India is expected to achieve 7.0 percent GDP growth in FY2017, with the International Monetary Fund (IMF) projecting that economic performance should improve still further over the next fiveyears.

CAPA said the pace of aircraft inductions in FY2018 will be one of the key drivers of traffic growth. It said that within the next two years, LCCs will most probably have a domestic market share of 75-80 percent within the next twoyears.

As regards international traffic, CAPA said, it would expand at 10 to 12 percent in FY 2017 and FY 2018. International traffic is dominated either by Middle Eastern carriers or from South East Asia,both seeking additional entitlements to the tune of up to 150,000 weeklyseats.

Meanwhile, LCCs are expected to grow more aggressively on international rules from the summer of 2017. The two major LCCs, IndiGo and SpiceJet have modest  international  connections,while they primarily remain a domestic player.

IndiGo's share of traffic has crossed 40 percent and could approach 55-60 percent within the next two years, a remarkable achievement in such a large and competitive market.

Losses plague national carrier

Losses are projected to increase at Air India, AirAsia India and Vistara. The total industry level losses could reach USD250-300 million. It is for this reason the government is mulling with the idea of disinvesting in Air India, though no serious player has come forward to bail out the beleaguered airline.

CAPA said with expected cost creep of 10%, a 5-7% decline in yields, oil at USD55-60 per barrel and an exchange rate of USD1=INR73-75, industry losses could widen further to USD380-450 million in FY2018, although most LCCs are expected to remain profitable.

Airports development

With airline expansion, the corollary has to be airport development which has been at a tardy pace. Kapil Kaul, chief executive officer (CEO) for South Asia at CAPA, has stated that India could run out of capacitywithin three to five years. "We are not ready beyond 2020-2021."

Though under the newly unveiled regional connectivity scheme UDAN, the union government has ambitious plans to open 50 unused airports by 2020 and has also given approval for 18 greenfield airports, the problem remains unresolved due to traffic growth emanating from large cities.

According to the government's own estimates, India needs to triple airport capacity within 15 years at humongous cost. The government has envisaged development of 175 civilian airports to take the total number of operational airports up to 250 from 75 at present.

Focus on infrastructure development

Minister of State for Civil Aviation, Jayant Sinha told the media: “We have been doing very detailed and thorough planning on  a city-by-city level for airport capacity. Of course, passenger traffic in India has been growing dramatically and in the last three years since our government came in, it has almost doubled. And that really means that we have to be able to ensure sufficient airport and adequate airport capacity. Now when you look at airport capacity, you have to look at it really in three categories.Firstly,t h e government is streamlining terminals in existing airports to enhance throughput and make much more convenient and comfortable passenger experience.

“For instance, we are enabling self check-ins, we are working on security lines, putting in more counters, we are expanding terminals in some cases. For instance, if you look at Terminal 1D in Delhi, we expanded the gates and building so that you could have more gates where people can take buses. We are making existing terminals higher throughput, higher volumes through all of this efficiency improvements and that is happening in manyairports.” Second, the government is focusing on building entirely new terminals. At Guwahati  International  Airport,  for instance,the  government  is streamlining and improving the efficiency of existing terminal and starting the process of building a new terminal.

Greenfield airports are the third area where the government expects significant private sector interest. After awarding development and operations contract for Mopa International Airport in North Goa last year, the government is considering new airports at Pune and Guwahati. The Centre has already given an in- principle approval for 18 greenfield airports.

“We have new greenfield airports getting going in Goa, for instance, where GMR has just been awarded the Mopa Airport. We have a bidding process underway in Navi Mumbai where that will be awarded and a new airport will come up there and we are looking for an entirely new greenfield airport in Pune where land has been identified. And then finally even in Guwahati, we are considering a new greenfield airport, because Guwahati is a very important regional hub for us. We really want to make sure that we have sufficient capacity in Guwahati.”

The story of Indian aviation i s interestingly poised, passenger and cargo numbers are rapidly increasing, while the government, and also the private sector, is making substantial investments in creating an eco-system forthe sectorto thrive.

The flight path of Indian aviation looks great, maybe with a bit of turbulence here & there, but it is hoped that its maturity will pilot the sector to great flying.