Aviation Upturn

Realignment of capacities and routes

With airport operators and airlines adding capacity amid surging traffic after the Covid-19 pandemic, and In­dian carriers expanding their footprint in the air cargo business, the aviation sector in the country is witnessing massive expansion. Further, the regional connectivity scheme has ma­de air travel more affordable, with an initial bo­ost to airport infrastructure.

Traffic trends

With the resumption of scheduled international operations since March 27, 2022, and reversion to bilaterally agreed capacity entitlements, international passenger traffic for Indian carriers is currently on a growth trajectory. It surged to 7.61 million in April-May 2022, nota­bly surpassing the international passenger traffic of 1.87 million during April-May 2021 by al­most 307 per cent. Similarly, domestic air passenger traffic grew by around 190 per cent year on year to 43.59 million in April-May 2022 as compared to 15.05 million in April-May 2021. This healthy ramp-up in passenger traffic (international and domestic) was fuelled by the lifting of Covid-19 restrictions and the ope­ning up of international and domestic borders.

Indian airports also experienced an overall increase in freight traffic at international and domestic airports. The traffic increased from 501,234 million tonnes (mt) in April-May 2021 to 540,265 mt in April-May 2022, registering an increase of 7.8 per cent.

Recent developments

Under the Union Budget 2022-23, the Ministry of Civil Aviation (MoCA) has been allocated Rs 106.67 billion. Of this, around Rs 6 billion has been earmarked for the regional connectivity sc­heme, UdeDesh ka AamNaagrik, while Rs 92.59 billion has been granted to AI Asset Ho­ldings Limited to service the loans transferred to the special purpose vehicle for the financial restructuring of Air India. The allocation for fi­nancial year 2022-23 for MoCA is 85 per cent lower than the revised estimate for financial year 2021-22. MoCA was allocated a sum of Rs 32.24 billion for financial year 2021-22. How­ever, the government incurred high expenses during the divestment of Air India and, as a result, the revised estimate for MoCA during 2021-22 stood at Rs 726.52 billion.

To cater to the rising air traffic, the Gover­n­ment of India has been working towards incre­a­sing the number of airports in the country. In a recent development, the Airports Authority of India (AAI) signed an operation and management (O&M) agreement for the operationalisation of five airports owned by the Uttar Pradesh government for 30 years. These five airports are Aligarh, Azamgarh, Chitrakoot, Muirpur and Sh­ra­vasti. As per the agreement, AAI will operate and manage the airports and provide all ne­ce­s­sary services such as communication na­vi­gation surveillance/air traffic management, and obtaining and maintaining aerodrome lic­ences. The Uttar Pradesh government will complete the initial capital work to make airports ready for commercial operation, and hand over all movable and immovable assets along with relevant approvals and documents to AAI for O&M. This is the first time AAI is entering into an O&M agreement with a state government for operationalisation of state-owned airports.

In another development, the Cabinet Com­mittee on Economic Affairs has approved the proposal for development of Phase I of the new greenfield airport at Dholera, Gujarat. The project entails an estimated investment of Rs 13.05 billion and is expected to be completed with­in 48 months. This airport is expected to be­come a major cargo hub to serve the industrial region. It will also cater to the nearby re­gi­on and serve as a second airport in Ahme­da­b­ad city. Additionally, AAI has also undertaken construction work on a new greenfield airport in Rajkot, Gujarat. Spread over 2,534 acres, with an estimated investment of Rs 14.05 billion, the new airport is envisioned to be a transportation hub for people travelling from Gujarat.

Further, the rising demand in the sector has pushed forward airlines in the country. A new airline, Akasa Air, is set to take wings soon. The airline has secured the air operator certificate (AOC) from the Directorate General of Civil Avi­a­tion (DGCA), MoCA and is expected to start commercial operations with two aircraft by the end of July 2022. It plans to induct around 18 aircraft by the end of financial year 2022-23. Jet Airways also has a new lease with the receipt of its revalidated AOC from the DGCA. The airline will resume its commercial operations in India by the second quarter of financial year 2023.

Potential of air cargo

Over the past three years, the aviation industry has struggled with several Covid-19 affected issues, but the cargo sector came out as the silver lining. The sector delivered to the best of its capability on several fronts such as helping the country with emergency medical supplies and helping airlines/airports generate cash flows to help them survive. SpiceJet turned into a major cargo operator during the Covid-19 pandemic, and its survival was due to cargo revenue. It registered revenues close to Rs 37 billion during financial year 2021-22. IndiGo outperformed the market, even in the absence of freigh­ters, clocking close to Rs 30 billion in cargo revenue during financial year 2021-22. Even Air India Express achieved exceptional cargo performance, with revenues around Rs 2.5 billion during financial year 2021-22.

The overall air cargo market in India has experienced a growth rate of 9-10 per cent since financial year 2013-14. Over the past two years, airlines have witnessed a 520 per cent increase in cargo revenue. As of May 10, 2022, Indian cargo revenue stands at Rs 20 billion with 3.1 mt of cargo of cargo, having grown at a compound annual growth rate of 13 per cent. The air cargo market in India has un­tapped domestic and international potential, and the government has a vision of achie­ving 10 mt of annual cargo throughput by 2030. The setting up of a new cargo airline, Pra­dh­a­an Air Express, endorses this vision. In­dian airlines is looking at expanding its revenue from the cargo business.

The way forward

India’s aviation industry still possesses a huge potential for growth, and the government, al­ong with the private sector, is working towards ta­pping this. In the coming four years, MoCA plans to invest around Rs 980 billion in setting up new greenfield airports and expanding existing brownfield airports. Of this, Rs 620 billion will be invested by the private sector and Rs 360 billion by the government through AAI. The government is also planning to expand 42 bro­wnfield airports and set up three new greenfield airports through AAI, while the private sector will expand seven existing brownfield airpor­ts and set up three new greenfield airports. Ad­ditionally, in March 2022, the government ac­corded in-principle approval for setting up 21 greenfield airports across the country.

The Covid-19 pandemic had severe effects on the Indian aviation sector. Before the pandemic, in 2019-20, Indian airports saw over 0.34 billion passengers. However, this number declined during 2020-21 and stood at around 0.12 billion. Despite this, with the opening of borders and lifting of Covid-19 restrictions, the country saw a slight increase in the number of passengers during 2021-22 (0.2 billion). Fur­ther, with the opening up of new airlines, co­n­s­tr­uction of new airports, and significant op­portunities in the air cargo sector, the aviation sector is expected to experience a boom. Ac­c­ording to government estimates, airports acro­ss the country are expected to witness over 0.34 billion passengers in 2022-23 – around 70 per cent more than in 2021-22.

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