India’s aviation sector has experienced remarkable growth since the economic reforms of the 1990s, allowing the country to become more integrated with the world. In 2024, it surpassed Brazil and Indonesia to become the third-largest domestic aviation market, following the USA and China.
Keep reading to know the latest trends, developments and challenges in India’s aviation sector!
Evolution of India’s Airline Industry
India’s civil aviation industry dates back to 1911, when the first commercial flight took off from Allahabad to Naini (Uttar Pradesh). For several decades, the sector remained relatively stagnant, primarily dominated by state-owned carriers. However, the economic reforms of the 1990s marked the beginning of a new era, facilitating the entry of private players as part of the government’s open-sky policy, which spurred growth and competition in the sector.
Current Market Landscape
The civil aviation industry has been the fastest-growing sector for the last three years. India’s domestic traffic contributes to 69% of the total airline traffic in South Asia, indicating its complete dominance over the region. Based on orders and expected deliveries of aeroplanes, India is anticipated to have over 1,100 planes by 2027.
The COVID-19 pandemic dealt a significant blow to India’s civil aviation industry due to lockdowns and travel restrictions. However, the sector has successfully recovered, as evidenced by passenger traffic figures. In FY24, domestic passenger traffic in India stood at 306.79 million, marking a 13.5% growth compared to the previous fiscal year. Similarly, international passenger traffic in FY24 reached 69.64 million, reflecting a year-on-year growth of 22.3%.
Total aircraft movements also witnessed steady growth of 3.85% between FY17 and FY24, increasing from 2.05 million to 2.67 million. Furthermore, to cater to the growing demand for air traffic, the Government of India is actively working to increase the number of functional airports to 220 by 2025.
Aviation Demand During the Festive Season
The airline industry experiences a significant boost during the festive season for several reasons:
Homecoming: Many people studying or working away from their hometowns return home for festivals, leading to increased flight demand for specific locations.
Religious Pilgrimage: Major festivals like Ganesh Chaturthi, Navratri, and Diwali see many individuals travelling for religious pilgrimages to seek blessings.
Vacation: Many people take advantage of festival holidays to go on short vacations, further fueling demand for international travel.
The domestic passenger traffic has recovered phenomenally from the COVID-19 pandemic setback to record the highest traffic in FY24.
How Airlines Manage Surge in Demand
Airlines employ various strategies to manage increased demand during festive seasons:
Increased Flight Frequency: Airlines often increase flight frequencies to popular destinations to accommodate rising demand. For instance, they may introduce more flights to Mumbai and Kolkata during the Ganpati and Durga Puja festivals.
Dynamic Pricing: Airlines use dynamic pricing models during festivals, adjusting fares based on competitor prices, supply, and demand using advanced software and algorithms.
Discounts and Offers: Airlines offer discounts, cashback, vouchers, and special deals to attract customers. They also collaborate with travel agencies and online platforms to enhance service.
Challenges Faced by India’s Aviation Sector
The aviation sector faces several significant challenges:
High Operational Costs: Rising prices of aviation turbine fuel (ATF) burden the industry, with ATF accounting for 40-50% of total operating costs, compared to 20-30% in other countries.
Regulatory Bottlenecks: The non-ratification of the Cape Town Convention by India hampers the leasing environment, resulting in higher leasing rates for Indian airlines.
Lack of Skilled Manpower: India requires 2,840 planes over the next 20 years, necessitating an additional 41,000 pilots and 47,000 technical staff. However, insufficient investment in human capital poses a significant risk to operational capacity.
Lack of Infrastructure: Congestion at airports has become common, with recent reports of flight delays and passengers waiting on the tarmac. The government has taken temporary measures to address these issues, but a permanent solution is still needed.
Government Initiatives to Boost India’s Civil Aviation Industry
Several significant government initiatives are aimed at bolstering the civil aviation industry:
- With robust support and proactive engagement with private players, the number of functional airports in the country has doubled from 74 to 148 between 2014 and 2023 (December).
- The government’s flagship scheme, UDAN, has seen phenomenal success. As of December 2023, a total of 517 routes have commenced operations, connecting 76 airports. Over 2.47 lakh flights have operated under UDAN, carrying more than 13 million passengers.
- The 2024 Final Budget announced an allocation of Rs 2,357.14 crores towards the civil aviation industry for FY25, with Rs 502 crores earmarked for the UDAN scheme.
What’s in it for Investors?
With the privatisation of Air India and the Tata Group becoming its new owners, there is renewed enthusiasm regarding the sector’s growth outlook. Additionally, Indigo and Air India have placed significant orders for 1,000 and 250 aircraft, respectively, signalling an impending boom in the industry.
The table illustrates the one-year and three-year return percentages of major airlines in India.
What’s Next?
India’s airline industry is a key driver of the economy. As the country is set to become the third-largest economy by 2030-31, the demand for air travel is expected to increase manifold, as more people with disposable income opt for air travel for both business and leisure.
While there are currently no significant demand-side risks for the aviation industry, the recent collapse and insolvency of major airlines like Go Air and Jet Airways highlight the challenges Indian airlines face in a dynamic environment. It is essential for the government to engage in dialogue with all stakeholders and provide the necessary support to prevent such occurrences in the future.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
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