The overall outlook for the civil aviation sector looks positive. Fuel prices remain at moderate levels; traffic growth rates have accelerated; airline financials have seen upticks. Several operators are looking to increase fleet size and are braced to fly new routes. At the same time, airport infrastructure seems set for long-awaited expansions. Recent policymaking has been coherent and appears to be geared to enabling expansion in what is being touted as the fastest growing aviation market in the world.
At the moment, traffic is growing at comfortable double-digit rates and consensus assumptions factor in at least 10 per cent compound annual growth rates in both freight and passenger segments until 2025-26. That will make India the third largest aviation market globally. At the same time, the new Regional Connectivity Scheme (RCS) aims to link a whole new set of destinations by opening new routes, thus widening and deepening the domestic market.
The RCS is a key element in the new National Civil Aviation Policy (NCAP), and its outcomes will be crucial. It’s early days yet but the concept seems to be working so far. Plans are on the anvil to revive some 50 underserved and unserved airports which could be linked via the RCS. However, some other details of the NCAP may need revisiting. For instance, the abolition of the 5/20 rule seems to offer an undue advantage to newcomers. The NCAP also glosses over the need to develop institutions and set up a more process-driven approach.
Traffic growth has led to massive congestion at metro airports and capacity expansions are urgently required in all of them. Work has already started at Bengaluru and clearances for such expansion plans are at various stages for Mumbai, Delhi and Hyderabad. Apart from these, the Airports Authority of India has initiated capacity expansion processes at many other airports. The long-awaited new airports in Mopa, Goa and Navi Mumbai have also been bid out. Greenfield airports at Pakyong and Itanagar will offer more connectivity to two mountainous states.
The dynamics of the domestic market will change as fleet size expands and new carriers enter the market. Between them, Indian carriers intend to add 100-125 planes over the next two years. This flood of orders is driven by decent financial performance in the recent past and optimism about the future. Most major carriers, including the laggard Air India, are reporting operating profits. Plans to disinvest Air India have been cleared in principle but are still unclear in detail. There are at least four proposals for setting up new airlines although three smaller airlines have ceased operations. It’s heartening to see concrete movement after a long period of stasis. Airport expansions have to proceed at a reasonable pace with projects being completed on schedule. This is an inherently high-risk cyclical business. Given fleet expansions, operators will be stressed if growth falters. However, so long as growth continues, the sector policy remains pragmatic and fuel prices stay within a reasonable band, the prospects seem excellent.