India’s airport industry has witnessed significant growth over the past few years. The total number of airports has increased from 74 in 2014 to 149 in 2023, with plans to further increase this to upwards of 200 by 2030. This growth can be attributed to the government’s efforts in developing greenfield airports, implementing infrastructure expansions at existing airports and improving regional connectivity through the Regional Connectivity Scheme (RCS)-Ude Desh ka Aam Nagrik (UDAN).
Progress in greenfield airport infrastructure
The development of greenfield airports has become a driving force of growth, facilitating the addition of significant capacities. The Indian government has, so far, accorded in-principle approval for setting up 21 greenfield airports. Of these, 12 airports have been operationalised. During 2023, of these 12, three airports, namely, Mopa, Shivammogga and Rajkot, were operationalised. According to the Ministry of Civil Aviation (MoCA), India’s domestic passengers are expected to cross 300 million by 2030, almost doubling from the 153 million in 2023. The development of these greenfield airports has thus become necessary and is expected to cater to the increased demand for air travel in many cities.
Focus on airport modernisation and sustainability
VAT reduced on ATF
According to sources, over the past few years, 31 states and union territories (UTs) have reduced value added tax (VAT) on aviation turbine fuel (ATF). The VAT in these states and UTs lies between 1-5 per cent. Five other states and UTs – Bihar, Tamil Nadu, Delhi, West Bengal and Assam – continue to levy 20-30 per cent VAT on ATF and are planning to reduce this in the near future, spurring growth in the aviation sector. Moreover, MoCA is in discussions with the Ministry of Finance to bring ATF into the ambit of GST. This will help airlines enjoy the benefit of input tax credit, which is not currently applicable as jet fuel is taxed under VAT.
Digital uptake and greening of airports
New-age airports are characterised by their adoption of technology and digital solutions, aimed at enhancing the passenger experience and providing a “plug and play” environment for airlines. Several airports are leveraging data analytics for optimised scheduling and route planning, and predictive maintenance algorithms to ensure the reliability of cargo aircraft. E-boarding, self-check-in kiosks, 3D baggage scanners and video surveillance systems are now becoming common features at airports. The DigiYatra app has been launched at 13 airports, catering to around 85 per cent of passenger traffic. By the end of 2024, plans are in place to expand this facility to 25 other airports.
The growing number of airports is coupled with a commitment to sustainability, with airports focusing on adopting sustainable initiatives. The Airports Authority of India (AAI) has prepared a roadmap to achieve 100 per cent renewable energy usage for all operational airports by 2024 and net zero emissions by 2030. Presently, 66 airports operate on 100 per cent green energy. The primary cause of carbon emissions at airports is the use of traditional energy sources, which can be replaced with green energy to help lower the carbon footprint. Therefore, MoCA has recommended that developers of planned greenfield airports as, well as all operational airports, work towards reaching carbon neutrality and net zero, which includes the use of green energy. The aviation sector is also investing in fuel-efficient aircraft and sustainable aviation fuel. Several domestic airlines have already conducted demonstration flights using bio-fuel blended with aviation turbine fuel.
Enhanced regional connectivity
With the introduction of RCS-UDAN, regional connectivity from unserved and underserved airports in India has improved. Six airports, including Rourkela, Hollongi, Jamshedpur, Cooch Behar, Utkela and Shivamogga, were operationalised in 2023 alone, and 60 new RCS routes were launched. Furthermore, under UDAN 4.2 and UDAN 5.0, 154 new RCS routes have been awarded. With the launch of this scheme, flying has become more accessible to the general public, enabling balanced regional growth.
Airlines industry
New airlines and return of players
New players have emerged in the airline market. Akasa Air completed one year of operations in August 2023. Having served more than 4.3 million passengers, it has achieved a significant milestone by operating a published network of 35 unique routes across 16 destinations. During this period, it has also transported over 25,000 tonnes of freight over its network.
The newest addition to the Indian airline industry, Fly91, commenced commercial operations in March 2024. It is a regional carrier and aims to improve air connectivity from Tier II and Tier III towns across India. It has been assigned its initial routes as part of RCS-UDAN.
Zooom Airlines resumed operations in 2024 after a hiatus in 2020. With this return, it aims to enhance regional connectivity. The revival comes after the Directorate General of Civil Aviation renewed its flying permit.
Increase in aircraft induction
Airlines have been taking major steps to increase their fleet through orders for new aircraft and aircraft induction. In 2023, Air India (470 aircraft) and IndiGo (500 aircraft) placed an order for a total of 970 aircraft from Boeing and Airbus. Akasa Air, a relatively new player in the airline market, reportedly placed an order for 150 aircraft. Together, this takes the total order to 1,120 planes since February 2023.
In terms of aircraft induction, during 2023, scheduled airline operators inducted a total of 112 aircraft, taking the total number of aircraft endorsed on the Air Operator Certificate to 771. With this induction and the new aircraft orders, according to MoCA, the fleet size of Indian carriers is expected to reach 1,500 to 2,000 by 2030.
Financing trends
The growing demand for air travel and the expansion of airport capacity have put the Indian airport sector on a rapidly expanding trajectory. Increasing the number of projects offers the chance for privatisation. A capex of over Rs 980 billion was planned for the airport sector during the period 2019-20 to 2024-25, with AAI spending approximately Rs 250 billion. Airport developers will incur the remaining expenditure under the public-private partnership (PPP) model. PPP in the airports sector is expected to increase due to the requirement for a larger proportion of capex. According to the India Infrastructure Finance Company Limited (IIFCL), major capex is projected for non-metro airports, with the total debt requirement to support this plan estimated at Rs 350 billion over the next five years. The share of PPP airports in passenger traffic is likely to reach 70 per cent by financial year 2025, underpinned by the operationalisation of greenfield PPP airports and capacity expansion at brownfield PPP airports.
Profitable returns and a robust project pipeline have bolstered the confidence of lenders and investors. Both local and foreign investors have been making large investments in airports, at both company and asset levels. One noteworthy instance is the majority stake acquisition (64 per cent) of Bangalore International Airport Limited by Fairfax India Holdings Corporation. Moreover, National Investment and Infrastructure Fund Limited made its entry into the airport sector in December 2022, with the announcement of a primary investment in Mopa airport, and more recently, in Bhogapuram airport.
Lending to the aviation industry has demonstrated an upward trend over the past few years. This can be attributed to various factors, such as approved loans worth Rs 92.97 billion and disbursed funds of Rs 43.45 billion to six major airports – Delhi, Mumbai, Hyderabad, Navi Mumbai, Noida (Jewar) and Mopa –(as of December 2023) by IIFCL; Power Finance Corporation Limited’s first financing for a greenfield airport project in Andhra Pradesh (October 2023); and GMR Goa International Airport Limited raising Rs 24.75 billion (November 2023) with the issuance of non-convertible debentures to repay existing debt and fund capex.
Future outlook
The number of airports in the country is expected to grow, leading to an increase in passenger and cargo handling capacities as well. Therefore, the sector is expected to offer opportunities in terms of airport privatisation, the provision of maintenance, repair and overhaul services, and cargo infrastructure development. According to India Infrastructure Research, passenger traffic is expected to reach over 590 million (both domestic and international) by 2027-28 from around 330 million in 2022-23, and cargo traffic is projected to reach around 4.5 million tonnes (mt) by 2027-28 from around 3.15 mt in 2022-23. Going forward, enhancement of airport passenger and cargo capacities should be planned beyond the next five to seven years, to avoid all possible future bottlenecks.
Naina Gulati
