Aviation Sector in India

REFERENCE NEWS:

• India's domestic air passenger traffic is projected to reach 300 million by 2030, significantly up from 153 million in 2023, said Civil Aviation Minister Jyotiraditya Scindia at the Wings India 2024 conference in Hyderabad. ?

MORE ON NEWS:

• The minister said domestic passenger traffic, which was 60 million in 2014, grew to 145 million pre-COVID and further went up to 153 million in 2023.
• The minister also said that despite the projected growth of 300 million by 2030, India will be one of the most underpenetrated markets across the top 20 markets in the world.
• Currently, India's aviation penetration stands between 3%-4%, and this is expected to rise to 10%-15% by the end of the decade. This is a notable increase, but it also highlights the vast potential for growth in the sector.
• The minister said to harness this huge potential, the government is focusing on capacity building, easing bottlenecks, and streamlining procedures in the aviation sector, aiming to support a USD 20 trillion economy by 2047. ?

STATS:

• India's aviation sector has become the third largest domestic aviation market in the world in terms of handling domestic traffic.
• Also, India is expected to overtake China and the United States as the world's third-largest air passenger market in the next ten years, by 2030, according to the International Air Transport Association (IATA).
• To cater to the rising air traffic, the Government of India has been working towards increasing the number of airports. There are 487 airports/airstrips in India, out of which Airports Authority of India( AAI) manages a total of 137 airports
• India has envisaged increasing the number of operational airports to 190-200 by FY40.
• Further, the rising demand in the sector has pushed the number of airplanes operating in the sector. The number of airplanes is expected to reach 1,100 planes by 2027.

THE IMPORTANCE OF AVIATION SECTOR TO INDIA:

• Huge potential to contribute to India’s GDP:
  • The sector is already contributing 5% to India’s GDP (source: IBEF) in an environment where just 10–11% of the population travels by air.
  • With 20-40 million more middle class families expected to start travelling by air in the near future, there is great opportunity for growth in the sector.
• Employment generation:
  •  According to the International Air Transport Association (IATA), airlines, airport operators, airport on-site enterprises (restaurants and retail), aircraft manufacturers, and air navigation service providers employ around 404,000 people in India.In addition, by buying goods and services from local suppliers the sector supported another 943,000 jobs.
• Connects India to cities around the world:
  • Air transport generates benefits to consumers and the wider economy by providing speedy connections between cities.
  • These virtual bridges in the air enable the economic flows of goods, investments, people and ideas that are the fundamental drivers of economic growth.
• Role in regional development:
  • Aviation sector acts as a hub of various activities.
  • Airports function as a growth pole, which propels the growth in the region by way of spill over effect and trickledown effect.
  • According to International Civil Aviation Organization (ICAO), if we invest one dollar in the aviation sector then we will get the return of three dollars in the regional economy.
  • Also, air services and air ports promote tourism and to cater to the needs of tourists, basic infrastructure i.e. roads, transportation also gets the boost.
  • As a result of the development of air services, there will be a diffusion of information, ideas and innovation in the region due to interaction between locals and tourists and connectivity to the cities and urban areas.
  • Also air services will promote local skills, handicrafts etc. and helps in preserving local culture and heritage.
• Airways has no physical barriers:
  • Airways have no physical barriers as in the case of other mode of transport as aircrafts are capable of making their access everywhere.
  • The inaccessible, remote locations can be easily accessed through airways. E.g. deserts of Rajasthan, high altitude regions of Leh, hilly landlocked forested states of North East India etc.
  • Disaster relief operations:
    • Air travel is used for relief operations during earthquakes, floods, accidents, and famines.
• Promotes foreign trade:
  • Airways are very important for export and import of light and valuable goods and perishable goods like meat, milk and milk products, flowers, vegetables, fruits, etc.
  • Thus, they play an important role in foreign trade.
• Provides last mile connectivity and promotes growth of MSMEs:
  • India's vast geography and uneven topography, along with many industrial clusters, particularly MSMEs, located in tier 2 cities, have historically limited last mile connectivity, impacting the growth of these MSMEs. 
  • Air transportation can offer crucial last mile connectivity to remote and inaccessible areas, promoting the growth of MSMEs and integrating these regions into national and global supply chains.

CHALLENGES FACED BY THE AVIATION SECTOR:

• Infrastructure deficit:
  • Inadequate hangar space and unavailability of land to expand airports at their current sites, particularly in major cities, are two of the major constraints that face the sector.
    • For example, the airports of Chennai and Mumbai are already close to saturation due to non-availability of land.
  • The number of runways has not increased accordingly to cater to the increase in air traffic, and new runways that are to come up are years away.
  • So the airlines are forced to fly unviable routes and for passengers the fares in constrained airports will inevitably rise.
• Higher price of Aviation Turbine Fuel (ATF) and spare parts:
  • Aviation Turbine Fuel (ATF) is the lifeblood of aviation.
  • Indeed, ATF, or jet fuel, constitutes up to 40 percent of an Indian airline’s cost base and consequently, ends up as one of the largest expense items. Globally, this figure averages roughly 20 percent.
  • Other than ATF, the other large expense item for airlines is the maintenance and repair (MRO) of aircraft.
  • Maintenance and repair taxation in India remains the highest globally.
    • With an 18 percent GST levy, providers have to compete on sale price with overseas players that only pay 5 percent.
  • Along with high price of ATF, the higher tax on aircraft engines and spare parts results in high operating costs and low profit for airlines.
• Higher Airport (aeronautical) charges:
  • Airport (aeronautical) charges levied by Airport Authority of India are higher.
  • According to a latest survey, the airport charges levied by the Indian airports (Domestic and International Terminal) are amongst the highest in the Asian and the Gulf countries. This adds more burden to aviation companies.
• Air safety concerns:
  • Repeated incidences of runway excursions, lag in air traffic signals, etc., raise safety concerns in the Indian aviation sector.
• Severe competition:
  • Established Airlines are threatened by low cost carriers, which are eating up their market share.
  • In order to consolidate their market share, top premium airlines were forced to reduce their ticket fares to around 15-20 per cent.
  • Such a slash down in price will lead to a price war in the long run amongst the airlines with the only goal of increasing their market share.

WAY FORWARD:

• Taxation and pricing of aviation turbine fuel (ATF):
  • Taxation and pricing structure of aviation turbine fuel (ATF) should be aligned to global benchmarks by considering bringing under the ambit of GST.
• Improve the aviation infrastructure:
  • There is a need to complete the ongoing projects under the UDAN initiative in a time-bound manner.
  • In addition, the existing capacity of international airports needs to be augmented.
  • Indian airspace is going to see an increase in the number of aircraft flying, hence air space management, arrivals and departures at airports must be made more efficient for safe operations.
• Non-aeronautical revenues:
  • Vacant real estate near Airports Authority of India (AAI) airports in all major centres can be monetised to increase non-aeronautical revenues.
• Research in aviation technologies:
  • Long term plan need to be formulated for advanced research in aviation technologies.
  • It will help in creating a manufacturing ecosystem in the country.
  • There is a need for promotion of collaboration between original equipment manufacturers (OEMs), industry and educational institutes to assimilate the latest technology and management practices in the aviation industry.

CONCLUSION:

• According to IATA, Air transport market in India is forecast under the “current trends” scenario to grow by 262% in the next 20 years. This would result in an additional 370.3 million passenger journeys by 2037. If met, this increased demand would support approximately US $126.7 billion of GDP and almost 9.1 million jobs.

PRACTICE QUESTION:

Q. “The underpenetrated Indian market provides significant headroom for growth for aviation sector”. Discuss the prospects and challenges associated with development of aviation sector in India. (15 marks, 250 words)