The Indian aviation sector is showing remarkable recovery with traffic picking up owing to pent-up travel demand and resumption of regular international flights. Notwithstanding global headwinds, the outlook for the sector remains strong on the back of airport expansion and entry of a new airline. Leading airport operators comment on the progress in the aviation sector, the impact of government initiatives and the future outlook…
What has been the progress in the aviation sector over the past one year?
The aviation sector has come out stronger after a difficult period over the past year, with travel demand returning with a vengeance. In fact, in some markets such as Jammu & Kashmir, tourist traffic surpassed the pre-pandemic numbers. The opening of international borders has also spurred both outbound and inbound tourism, bringing in economic benefits. However, the rising crude oil prices and the weakening of the Indian rupee have been pushing airlines to be more efficient in operations.
Rajeev Kumar Jain
Even though the industry took a major hit with Covid-19, a rapid recovery was observed after the second wave of the pandemic, underscoring the resilience of demand for air travel in the country. A surge of 75 per cent in air traffic is expected during 2022. Some notable developments were:
- Entry of Akasa Air: The airline plans to operate approximately 72 planes in the next four years.
- Revival of Jet Airways: The consortium plans to induct 20 aircraft and is in conversation with Boeing and Airbus for orders.
- Privatisation of Air India: In October 2021, Tata Sons won the bid to acquire state-run Air India. It will increase the presence of Air India in the
- Lease of six airports by AAI: This will improve the airport infrastructure.
The global aviation sector witnessed contrasting growth trends across the world, with the developed world opening up significantly due to high vaccination coverage and the East Asian economies, specifically China, stuttering due to lockdowns and restrictions. Global trade also witnessed supply chain bottlenecks affecting the cargo volumes the world over.
The Indian aviation sector witnessed a roller-coaster ride during 2021-22 with the second and third Covid-19 waves. With vaccination coverage reaching 70 per cent levels and international skies being opened in March 2022, and price curbs being lifted in August, the sector is gradually limping back to normalcy. However, the Russia-Ukraine conflict impacted the sector with aviation turbine fuel (ATF) prices increasing by about 80 per cent in the past one year. While leisure and tourism traffic was resilient owing to revenge travel, business travel is yet to recover to pre-pandemic levels. Indian international traffic has recovered to about 70 per cent of 2019-20 levels and domestic traffic to 94 per cent, while cargo recovery has been 97 per cent. The recovery at Hyderabad airport has been 91 per cent for domestic and 93 per cent for international passenger traffic. The Regional Connectivity Scheme continued to usher in a new era of travel for Tier II and Tier III cities.
There is increased focus on sustainability, with the Indian aviation sector pledging to net zero carbon emissions by 2070. As part of these efforts, GMR Hyderabad International Airport added another 5 MW solar plant to meet its power demand and Delhi International Airport is procuring hydropower for its needs. As a strategic project, Airbus has signed an MoU with Groupe ADP, GMR Airports, Axens and Safran for a joint study on the future of sustainable aviation fuel in India. The airlines space is vibrant with activity. The Tatas have taken over Air India, Akasa Air has made an entry into Indian skies and Jet 2.0 is all set to make a comeback.
“The aviation sector has come out stronger after a difficult period over the past year, with travel demand returning with a vengeance.” Daniel Bircher
What has been the impact of the key initiatives taken by the government?
The Ministry of Civil Aviation (MoCA) has successfully convinced most state governments to reduce VAT from 18-30 per cent to 1-4 per cent. Recently, the government also announced the removal of fare caps effective August 31, 2022, which will allow airlines to increase passenger seat load factors, while offering tickets at discounted fares to passengers. These measures will support the recovery and growth of the sector to beyond pre-Covid levels by the year end.
“The outlook for the next one to two years seems bright, subject to crude prices coming to normal levels of $60-$65 per barrel.” Rajeev Kumar Jain
Rajeev Kumar Jain
The government took the following initiatives:
- Introduction of Emergency Credit Line Guarantee Scheme (ECLGS) to tide over the liquidity issues faced by 26 sectors including aviation, power, construction, iron and steel, road, real estate, wholesale trading, textiles, consumer durables, logistics, hotels, restaurants and tourism, and mining.
- Cap on maximum and minimum airfare prevented a price war and protected passengers.
- However, these relief measures were not sufficient. In other countries, governments provided cash support both to airports and airlines.
Favourable policy decisions such as the opening up of international skies for passenger travel and the removal of price bands for airline tickets to bring the industry to normalcy are welcome. Over the past five years, UDAN has significantly increased regional air connectivity. MoCA’sDigiYatra initiative has been rolled out in Hyderabad, Delhi, Bengaluru and Varanasi airports, with a POC roll-out on facial recognition initiated in August 2022. This is expected to reduce the processing time at various touchpoints at the airports.
What are the key challenges in the sector that remain unaddressed?
Rajeev Kumar Jain
Both airlines and airports are not making money due to the slow recovery of international passenger traffic and a steep increase in aviation fuel prices. Airlines have incurred mammoth losses. Aviation fuel is yet to be brought under the GST regime.
High ATF prices continue to be the biggest challenge for the sector in the short to medium term. The DGCA has raised concerns over the growing number of non-compliances regarding safety in the sector. The sector needs a stringent adherence to safety norms. An uncertain supply chain is leading to producers holding on to their inventories, thereby leading to increased costs. An imbalance of trade has resulted in cargo yields rising, forcing some manufacturers to shift to the sea route.
What is the sector outlook for the next one to two years?
Aviation is a business that requires a high level of efficiency to remain profitable in a market that is still dominated by discounted airfares. It is critical for airlines and other players to have the option to operate from an airport infrastructure that supports customer-centric and efficient aeronautical processes. Therefore, the Noida International Airport will offer technology-enabled seamless and customer-friendly airport transfer processes, along with the option to optimise feet utilisation, supporting domestic and international growth. On the cargo side, the airport will provide flexible, modular cost-effective logistics infrastructure along with quick, convenient and intermodal connectivity to and from manufacturing hubs. The Uttar Pradesh government is working towards enhancing the accessibility for the airport and coordinated approach for a seamless logistics ecosystem. While the central and state governments are working to address the infrastructure requirements, Noida International Airport is developing a multi-modal hub to strengthen the aviation ecosystem and make logistics globally more competitive. Government-supported investor-friendly taxation will also bring in more suitors with international experience to build world-class logistics infrastructure. Overall, we strongly believe in the potential of the Indian aviation market, backed by strong demographics and rising demand and aspiration for air travel.
Rajeev Kumar Jain
The outlook for the next one to two years seems bright, subject to crude prices coming to normal levels of $60-$65 per barrel. Both CPI and WPI inflation should come down to ensure recovery of demand at a faster pace.
The aviation sector is facing exciting times ahead with the entry of new airlines and the expansion of airports. With new entrants like Akasa Air and old ones like Jet Airways set for a comeback, we can witness a price war, leading to increased demand for passenger traffic. India has become the third largest aviation market and airlines are expected to increase their fleet. Currently, India has around 700 aircraft and the number is expected to increase by 1,000 in the next 10 years. With major airports such as those in Hyderabad, Bengaluru and Delhi set to open expanded terminals, congestion will reduce. The transition period is going to be a focus area for these airports.
“The sector is facing exciting times ahead with the entry of new airlines and expansion of airports.” S.G.K. Kishore