The aviation industry has been making notable progress on the back of several favourable conditions. A rise in income levels, a positive change in income distribution, and urbanisation have led to an increase in demand for air travel. The commencement of new routes by airlines, enhanced regional connectivity through the Regional Connectivity Scheme Ude Desh ka Aam Naagrik (RCS-UDAN), and the coming up of new airports have supported this rising demand. Since 2014, India has witnessed the construction of 83 aerodromes, taking the total number from 74 in 2014 to 157 currently (including heliports and water aerodromes).
Infrastructural headway
Capacity enhancement at airports
Airport infrastructure has grown in number and size over the years. As per data by the Airports Authority of India (AAI), airports in India handled over 370 million passengers during 2023-24, a 15 per cent increase in comparison to more than 320 million passengers during 2022-23. To further handle the growing demand, the government is constructing new airports. Mega greenfield airports such as those in Noida and Navi Mumbai are currently under construction and operations are likely to commence for the initial phases soon. Existing airports have also constructed new terminal buildings to cater to the additional demand. Further, terminal buildings at airports have undergone expansion to cater to the rising air traffic and offer passengers a better travel experience.
With the vision to increase the cargo handling capacity of India to 10 million tonnes (mt) by 2030, airports are witnessing cargo capacity expansion. During 2023-24, the total cargo handled at airports in India reached over 3 mt. New facilities have been created for catering to the rising cargo requirements such as those at the Chandigarh, Durgapur and Pune airports. The upcoming Noida International Airport is also focusing on cargo capacity augmentation through the integrated multi modal cargo hub. Existing airports are further targeting to expand their cargo handling capacities. For example, the Kempegowda International Airport at Bengaluru anticipates a 20 per cent rise in cargo volumes in 2024-25 and has plans for cargo capacity additions in the future.
Smart and sustainable initiatives
Airports have become more customer-centric in their approach. In order to ease passenger congestion, airports have adopted new-age technologies to reduce the waiting time and enhance the overall travel experience. Some of these initiatives are the Digi Yatra facility, biometric immigration, passenger flow management systems, and self-baggage drop facilities. The Digi Yatra facility which uses face recognition technology for faster passenger processing at various points is currently available at 24 airports. Airports are also moving towards the increased use of building information modelling (BIM) for construction, enabling digital visualisation in various dimensions.
Further, in line with the country’s net zero targets, domestic airports are moving towards the use of renewable energy. Around 73 airports are now making use of 100 per cent green energy through the installation of solar power plants and also procuring green energy through open access. The Cochin International Airport in Kerala, was the first airport in the world to be fully powered by solar energy. In a recent development, CleanMax and Bangalore International Airport Limited have signed a 25-year long-term power purchase agreement to generate and supply renewable energy from a 45.9 MW solar-wind captive power project. Other sustainable initiatives undertaken by airports include the use of LED lighting, sustainable materials for construction, maximising the use of daylight, and management and recycling of wastewater.
Airlines have been at the forefront of adopting technologies to ensure enhanced efficiencies (such as for route optimisation, in turn, saving fuel), and improve passenger convenience (such as ticket booking through artificial intelligence technologies and chatbots).
The sector is witnessing an increase in the use of sustainable aviation fuels (SAFs). In line with this, indicative blending targets have been set – 1 per cent and 2 per cent by 2027 and 2028 respectively – initially for international flights. The use of SAF is expected to reach 20 per cent within the next five years.
Advancing MRO segment
Several government initiatives point towards a favourable outlook for the maintenance, repair and overhaul (MRO) sector, with targets to expand it from $2 billion to $4 billion, further driven by the expected aircraft fleet increase. Some of these initiatives are the integrated goods and services tax of 5 per cent on all parts of aircraft or aircraft engines, the 100 per cent foreign direct investment via the automatic route for MROs and others. The government may also consider extending the production-linked incentive (PLI) scheme. Meanwhile, plans are afoot to develop MRO hubs at the upcoming Dholera and Noida airports.
Aircraft fleet
The aircraft fleet has been expanding at a notable pace. In 2014, the sector had a fleet of around 400 aircraft, however, by December 2023, the number had increased to over 770 aircraft. The fleet size is further expected to increase, with key airlines having placed notable orders over the past year. Air India and IndiGo together placed an order of more than 900 aircraft in June 2023. Other airlines also witnessed the trend of increased orders like the order for 150 aircraft placed by Akasa Air in January 2024.
In line with the increase in fleet size, airports are also pushed to carry out infrastructural expansions on the airside. These are in terms of additional parking bays, aprons, etc. Further, they are undertaking runway expansions to increase capacity as well as handle larger aircraft. For instance, the runway at Coimbatore airport, Tamil Nadu, is undergoing expansion to accommodate larger aircraft.
Market dynamics
Airline segment
Dynamic market conditions have been an ongoing trend in the industry. IndiGo has been a market leader, holding the majority share of around 60 per cent during the year for domestic passengers. Post the ongoing mergers of Vistara into Air India and Air Asia into Air India Express, the four airlines would function under the Tata Group, which will become the second major player in the market. Tapping the existing opportunity, new entrants have now emerged. Akasa Air commenced services in 2022 and has already made headway by commencing international operations in March 2024. Fly91 commenced operations in March 2024. Further, some of the regional players such as FlyBig, Star Air and IndiaOne Air have received a boost through the RCS-UDAN and the opening up of shorter routes that can be operated using smaller aircraft. In the recent past, a few key players such as Jet Airways and Go First have exited the sector due to financial crunches and other operational issues. While four to five airline players are key to ensuring healthy competition in the market, opinions relating to the emerging duopoly are divided.
Airport operators
Over the past years, airport privatisation has been gaining traction. AAI has leased out various airports through the public-private partnership (PPP) mode for operation, management and development. Currently, there are two major players, namely GMR and Adani, in this segment. GMR entered the segment with Delhi airport whereas Adani forayed the field when it won the bids for six airports (Ahmedabad, Guwahati, Jaipur, Lucknow, Mangaluru and Thiruvananthapuram) in 2019. Adani also operates Mumbai airport, having acquired the stakes of GVK and two other firms in 2021, hence holding a 74 per cent stake in the airport. In addition to this, these players operate various airports and have under-development airports in the pipeline. Another player in the segment is Fairfax, which has a 64 per cent share in Bengaluru airport. Also, the upcoming Noida International Airport is a 100 per cent subsidiary of Zurich Airport International AG.
Financing trends
In recent years, airports have received investments from domestic as well as international investors. Key players involved in airport operations, including GMR and Adani, have raised funds and debt through the issue of debentures, bonds, etc. For example, in March 2024, GMR Hyderabad International Airport Limited raised Rs 5.4 billion through the issue of 10-year non-convertible debentures. Asset level investments are also seen at Bengaluru airport where Fairfax acquired an additional 7 per cent share, taking its total share to 64 per cent as of 2023. Aircraft leasing and financing are also being promoted through the International Financial Services Centre in Gujarat International Finance Tec-City.
Conclusion
Various trends in the sector such as a focus on passenger convenience, the adoption of smart and sustainable initiatives, and airport capacity expansions point to the country emerging as a key aviation hub in the near future. Airports such as those at Bengaluru and Mumbai also have targets to serve as global hubs. Further, the emerging dual airport system is coming into play with key metros likely to have two major airports in the next few years. These projects are seen as positive growth drivers and will cater to the rising passenger traffic.
Looking ahead, the overall outlook for the sector, both in terms of airport capacity and airline conditions, seems promising.
Naina Gulati and Shreya Annie Mathew
