While the International Air Transport Association's 2017 projection that India would become the world's fifth-largest air transport market by 2025 and the third-largest by 2036 appears likely to lag thanks to the coronavirus pandemic, it did much to spur optimism in its aviation sector's potential. However, there remain several pitfalls ahead, including weaknesses in government policy, ease of doing business, and travel and tourism competitiveness.
Last year, the country saw total traffic fall to 115.4 million domestic and international passengers from 341 million in 2020, according to data provided by the India Brand Equity Foundation (IBEF). Recent forecasts indicate passenger numbers will likely fall to less than 100 million in 2022 as India continues to impose sweeping pandemic restrictions.
Sidanth Rajagopal, a partner and member of the K&L Gates aviation finance team in London and Dubai, told AIN that though India’s aviation sector was growing, progress remained slow. Implementing a sound plan from its start, IndiGo had avoided other airlines’ troubles. “You are seeing airlines surviving and excelling, despite the failures of others," he said. "From a cultural point of view, historically, flying in India was seen as a prerogative of the rich. It’s only over the past 10 years that it’s suddenly become accessible to the common man.”
In October, the Tata Group announced the acquisition of 100 percent of state-owned Air India, along with subsidiary Air India Express. Rajagopal said Air India’s success was not assured given the $7 billion of losses incurred by previous management.
IndiGo stands out: according to the Directorate General of Civil Aviation, for the month of September 2021, it controlled a 56.2 percent market share, SpiceJet 8.5 percent, Air India 12.1 percent, Go Air 8.2 percent, Air Asia India 5.8 percent, and Vistara 8.7 percent. Jet Airways is attempting a comeback, while start-up Akasa Air ordered 72 Boeing 737 Max aircraft at the Dubai Airshow last November ahead of service launch in mid-2022.
As of early 2021, the Airports Authority of India managed 125 airports, of which 90 remained operational, according to the IBEF. Projections for 2040 call for a total of 200 airports in India.
The government designed its Regional Connectivity Scheme (RCS) to democratize aviation and create new routes and destinations. However, Rajagopal stressed the difficulty inherent in proposing to investors that they put money into facilities in Tier Three, Tier Four, or Tier Five cities and towns, and characterized the idea that investors could commit billions of dollars simultaneously up and down the country to boost infrastructure as fanciful.
“Population is India’s biggest gift and curse,” he said. “A small town can have a bigger population than certain cities in other parts of the world. Connecting them through air transport is the only way you can develop India to replicate connectivity in the U.S. aviation market, which is enormous. That’s what India needs: the RCS is the right way forward, or a form of the right way forward.”
IBA analyst Finlay Grogan told AIN Indian commercial aviation had lagged in both demand and supply. Airlines long suffered from high input costs related to fuel, goods and services taxes, and Rupee weakness, which affects U.S. dollar-denominated aircraft leasing expenses. Whereas the size of the global leased fleet reached 50 percent during the Covid pandemic, Indian carriers lease some 73 percent of their aircraft, IBA’s analysis platform InsightIQ shows.
“These factors drive up input costs, typically limiting the headroom airlines have to stimulate demand in what is an extremely price-sensitive market, with low fares yielding thin margins,” said Grogan.
Simon Wong, a partner at law firm Stephenson Harwood in Hong Kong, told AIN that the growth of civil aviation in India depended on the growth of the middle class. India's population and geographical spread rivals those of China, but the size of its fleet, at around 700 aircraft, remained a small fraction of China’s 6,000.
“Indian airlines are going through a degree of consolidation,” he said. “It would be interesting to see how the aviation ambition of the resourceful Tata plays out, now that it owns three airlines: Vistara, AirAsia India, and Air India group. Tata now controls some 232 aircraft through whereas Indigo operates some 265 aircraft. The two rivals together make up more than 75 percent of India’s fleet.”
Rajagopal was quick to praise airport planners when merited. “Delhi is one of the best airports in the world," he said. "It is enormous and very efficient. I have landed in Delhi, and from the airplane to the taxi has taken me 20 minutes. The same thing in Heathrow has taken me four-and-a-half hours.”
Grogan said that while structural short-term challenges would remain, reasons for optimism exist looking for the longer-term. “IndiGo is potentially poised to ease the country’s reliance on foreign carriers for international services; the government’s intent to create a domestic leasing sector, and the recent redrawing of the airline landscape, with Tata’s acquisition of Air India, and the establishment of Akasa Air make India a market to watch closely,” he concluded.