An Overview of Indian Aviation Market

India Is Growing And Young, And Underserved

India is growing faster than China and is expected to become the largest country in the world in just a few years. The population is young, with over half of the population under age 35. This has significant implications for aviation in India. First among these is a youthful travel appetite that, unlike their parents, won’t look to all-day trains to get around. Over half of the country is defined as middle class, meaning that they have enough disposable income to travel for leisure and take flights occasionally. Another key point of this group is that, like youth around the world, this population has grown up with technology and smartphones. This creates the opportunity for Indian airlines to develop digital relationships with their customers and move away from larger third-party ticket distribution systems, just as the U.S. and Europe have for leisure travel. Lastly, leisure travel in India, as it grows, will not be centred only in the largest cities, meaning that airline networks will need to increasingly offer non-stop service in and among all size cities.   Despite this growth and underlying strong economic base for air travel, the country is far behind the rest of the world in its airline offerings. China, a similar sized population, has almost 4,000 aircraft among its national airlines’ fleet while India has only about 700. That means the entire Indian aviation network is smaller than Southwest Airlines, which has over 700 planes on its own. As the Indian population grows in both size and economic wealth, the country will need more airports, more gates, more runways, and more aircraft to meet this growing demand. Here is what’s interesting about the growth of Indian aviation: In 2000, 199 million kilometres were flown by scheduled airlines, there were 39 nonscheduled airlines in operation, and there were 225 aircraft across India using a grand total of 50 operational airports. Fast forward to 2019, where 1,550 million kilometres were flown by scheduled airlines, 72 non-scheduled airlines were in operation, and a whopping 680 aircrafts were flying across the country using a grand total of almost 125 operational airports. What does that mean? The number of kilometres flown has grown by 7.8x, the number of aircraft in use has increased by 202% and there is 2.5 times the number of operational airports in India than there were less than 20 years ago… that’s fantastic growth! These statistics place India as the seventh largest civil aviation market in the world and poise the nation to become the world’s third largest by 2024. Adding to the magnitude of these numbers, India plans to open an additional 100 airports by 2024. While the underlying fundamentals of flying in India will not change, this conversation begs the question: what is going to be the key driver for aviation growth in India? Incidentally, there are three. Heightened demand across the country, increased private sector investment, and last but not least, increased public sector involvement. These are all poised to take India to new heights. A growing corporate sector, and consequently a rising middle class, is poised to be the largest demographic contributor to growth in the Indian aviation sector in the near term. This will result in increased spending on leisure travel (including both domestic and foreign tourism), as well as strengthened demand for the industry at large. When combined with strong growth in external trade, these factors will result in India requiring 2,380 new commercial aeroplanes by 2038. Secondly, increased private sector investment is expected to provide the Indian aviation industry with an unprecedented push. According to the leading national credit agency, CRISIL, investments of up to Rs. 420 – 450 billion (~US$ 6 billion) are expected to flow into the Indian airport infrastructure by FY23. These will be further bolstered by increased private sector participation through Public-Private partnerships (PPP). The Airport Authority of India is driving modernization to aid this, and this has resulted in increased greenfield projects as well as the development of low-cost airports across the country. Finally, public sector support will further buoy the Indian aviation industry with varied strategies and policies. Aside from the Indian government has been encouraging private sector participation, they have allowed foreign investment of up to 49%. This is applicable to scheduled air transport service, regional air transport service and domestic scheduled passenger airlines. Alongside encouraging FDI, the Indian government has made infrastructure a strong focus in the near term, and this has resulted in increased liberalization (for example, the Open Sky Policy) within the sector. Furthermore, the Airport Authority of India plans to abolish royalty and offer steep discounts in lease rent to encourage the setting up of maintenance, repair and overhaul facilities at Indian airports.