Infra Vaani | Indian Aviation Sector Assessment: Stupendous Growth Amid Boom Demands Structural Rebooting

In this multi-part series of evaluating the performance of 10 years of Prime Minister Narendra Modi, thus far I have covered key mobility sectors of railways, metro rail, and roads and highways. This part IV, creates the balance scorecard of the aviation sector.

The aviation story begins with a historical evolutionary context, thereafter it analyses what Prime Minister Modi inherited in 2014 before impartially evaluating the last ten-year performance. Also, as part of charting out the pathway for the next government, I dig deeper into the sectoral opportunities and challenges including the need for structural reforms, rebooting and reimaging of the sector.

Telling A Tale

Some dates have historical salience. Indubitably, March 10, 2024, was such a day for the aviation sector of Bharat. On that day, Prime Minister Narendra Modi inaugurated 15 airport projects in the country, completed at a cost of Rs 10,000 crore. The projects dedicated to the nation included expanded terminal 1 of Delhi Airport, and 13 new airport terminal buildings at Lucknow, Pune, Kolhapur, Gwalior, Jabalpur, Delhi, Aligarh, Azamgarh, Chitrakoot, Moradabad, Shravasti, and Adampur. Additionally, on that day, the prime minister also laid the foundation stone for new terminal buildings at Kadapa, Hubballi, and Belagavi airports.

Even if the above happened during the build-up to the general elections to elect the 18^th Lok Sabha, I posit it reflects the new reality of rising Bharat. It also forces me to comprehensively deep dive into the actual performance of the government in the last ten years in the entire gamut of the aviation sector. But before that, I step back and create the abridged evolutionary historical development of the aviation sector in India that forms the backdrop of my analysis of the performance in the ten-year regime of Prime Minister Narendra Modi.

Abridged History

The Indian aviation sector had a modest experimental beginning on February 18, 1911. That day French pilot, Henri Pequet, piloted the first airmail service from Allahabad to Naini, a distance of 10 kilometres in 23 minutes in what was the first airmail service of the world.

But the man who brought India onto the aviation map was none other than Jehangir Ratanji Dadabhoy Tata (JRD Tata) nicknamed “Jeh”. He was the first Indian to get a pilot license in 1929 and founded Tata Airlines in 1932 which was renamed Air India in 1939. In a brief time, under the leadership of JRD Tata, Air India gained the reputation of being one of the most efficient, customer-friendly, prestigious airlines in the world.

Prime Minster Nehru’s Folly

The Air Corporations Act, 1953 passed by the Parliament under Prime Minister Jawaharlal Nehru nationalised the airlines’ industry and obliterated then functional eight airlines including Air India (others being Deccan Airways, Airways India, Bharat Airways, Himalayan Aviation, Kalinga Airlines, Indian National Airways, Air Services of India), duly collapsing them into two state-owned companies – Indian Airlines (for domestic business) and Air India (for international business), which throttled the growth of aviation sector in India and stymied competition.

Cockpit Re-Entry

Aviation in India remained a government monopoly till 1991. From 1992, the private sector was allowed to spread its wings. East-West Airlines, founded in 1992, was the first national-level private airline to operate in the country, the first to operate charter and non-scheduled services under the Air Taxi Scheme until 1994, when the Air Corporation Act was scrapped and private airlines re-entered the fray to operate scheduled airlines starting with East and West Airlines, Air Sahara, Modiluft, Damania Airways and NEPC Airlines, followed with Jet Airways and Kingfisher and others.

The New Era

The era of low-cost airlines was ushered in with the establishment of Deccan Airlines by GR Gopinath, a retired Indian Army captain and the founder of Air Deccan and soon arrived Indigo, Go Air and Spice Jet.  The Tata Group, which gave birth to the Indian aviation sector, re-entered the airline business with Vistara, a joint venture of Tata Sons Private Limited and Singapore Airlines Limited. The latest airline to fly in the Indian sky is Akasa Air which entered operations in 2022.

In a significant act of consolidation and rebranding, the Tatas have bought back AIX Connect, formerly known as AirAsia India and have started the merger process and rebranding of Air India, AirAsia and Vistara under the Air India umbrella. Singapore Airlines remains a partner in Air India.

Headwind

Ever since the liberalisation, the biggest battle that the aviation industry in India has had to wage is against a stiff headwind of more than 50 airlines starting operations with a bang and folding up soon, blown to bits in crashlanding. The latest airline to fold is Go Air. The biggest casualty of this headwind is that today, the Indian aviation industry has become a duopoly, with Indigo and resurgent Air India Group accounting for more than 90 per cent of the domestic aviation market.

Fast Forward to Circa 2024

Fast forward to 2024, the story of Indian aviation has been transformative. With the modest beginning of one airport (Juhu Aerodrome, later Santacruz Airport), the number of operational airports has taken to 150 and that number is growing. As regards domestic traffic, Bharat now ranks third, next only to the US and China and soon is likely to be overall third.

On A Prowl

About a decade ago, the Indian aviation sector had 14 million domestic passengers, which has now grown ten times. While in the earlier era, airlines chased passengers, today, they are struggling to add more capacity, resulting in high fares. The load factor of most airlines is already up between 85-90 per cent, a level that is considered ripe to add fresh systems capacity. And such is the situation even though so far railways and roads and highways account for maximum passenger trips with barely 3-4 per cent country’s population taking to air currently.

With Bharat already having dethroned China as the most populous country in the world and soon to become the world’s third largest economy and having an increasingly mobile younger age population, the aviation industry of the country is headed for a boom time.

Highs and Lows

The year 2023 was a mixed bag for the aviation industry. The highs were domestic fliers breaking the pre-Covid record and record orders for purchase of new planes by Indigo (500) and Air India (470) with the newest baby in the sky, Akasa Airlines, to further add to the tally. Lows too were significant, with Go Air going bust in 2023 and in the process becoming the first airline company in India to suo-motto file for bankruptcy, IndiGo’s engine problems meant a sizeable number of planes were grounded, adding woes both to operations and finances; Spice Jet survives in the conundrum of a myriad of financial and legal troubles, and Akasa Air facing major pilot issues.

The highs are indicative of major opportunities in the market, with the result that no nation in the world is buying as many aeroplanes as Bharat. With 1000 new planes already ordered, India, from the current 713 will have more than 2000 aircraft in ten years. Such type of expenditure on new aircraft has no parallel in the recent history of aviation globally.

Nonetheless, lows present humungous operational headwinds and major financial chaos to a sector saddled with debts, losses and high-cost structure to an already beleaguered industry where the mortality rate of airlines is ultra-low.

The Decade That Was

With the aviation industry at the take-off point for fast-paced growth, a major question arises – what has been the contribution of Prime Minister Narendra Modi’s government in the last 10 years?

1. The revival of Air India: The biggest success story of the government was the strategic sale of Air India which was perennially in a “terminal coma” to the original owners – the Tata Group. This has not only revived Air India but has changed the aviation industry structure from a monopoly of IndiGo to at least a duopoly of IndiGo and Air India group with the latter doggedly fighting to wrest the market share.
2. Substantially enhanced capital expenditure: As per the official data, the government has invested more than $11 billion in airports over the past decade This is truly staggering a number and if that is not enough, the government plans to further invest $15 million.
3. Quantum jump in operational airports: The country has today 150 operational airports and the number is growing fast and is likely to reach 230 by 2030. The controversy as to whether India in 2014 had 67 or 74 or slightly more airports pales into insignificance if one sees many tier II/III cities getting wings and the speed with which the new terminals are being opened and capacity being significantly enhanced at existing airports.
4. Quantum jump in traffic: Covid-19 dealt a mortal blow to air traffic globally with India being no exception. But leaving Covid-19 chaos behind, domestic air passenger traffic in Bharat hit a record high in 2023, dwarfing the pre-pandemic peaks. It was estimated at an all-time high of 15.2 crore passengers, beating the previous record of 14.4 crore passengers in 2019.
5. Bharat Rising moment: With the opening of new airports in tier II and III cities and previously unserved markets, there is a perceptible structural shift in the pattern of traffic being handled at airports. Though the shift is not truly significant so far, the winds of change are already blowing. In 2014, the top 10 airports accounted for 75 per cent of domestic footfall with the top six accounting for 65 per cent. In 2023, the share of the top 10 airports was down to 68 per cent. I call it the Bharat rising moment. Days are not far when the share of the top six airports will drop below 50 per cent. The writing on the wall is already there.
6. Direct employment: With around 2,50,000 people directly employed in India’s aviation sector in 2014, in early 2024, it has already crossed 4,00,00 people with substantial indirect employment created as well. India is already home to the world’s largest number of women pilots, a number that is growing fast. As regards pilots only, Indian scheduled operators are likely to require 10,900 additional numbers in the next ten years.
7. Increasing penetration: With fast-growing new airports and capacity augmentation at existing airports, India is already on a fast-forward march to improving per capita penetration of air passenger traffic which in 2019 was just 0.13 passenger seats per capita for Indians, compared with 0.52 for Chinese, 0.57 for Brazil and 3.03 for Americans.
8. Increase in cargo traffic: Cargo transportation, including both domestic and international, has grown by 65 per cent, from 2.2 million tonnes to 3.6 million tonnes in past ten years. This is significant considering the rather poor track record of the cargo sector. It has not really taken off but is at the take-off stage.

Challenges Galore

Given the fact that between FY15 and FY20, air traffic in Bharat logged a compound annual growth rate of around 12 per cent, and in the decade ahead is likely to have a healthy double-digit growth, the sector is already beset with a multitude of challenges, starting with the inability to fast ramp up the capacity. China and India’s comparison reveals that against 700 odd aircraft in India, to service the same level of population (China’s population is now below that of Bharat and will dip further fast), China has 5000 aircraft. If that is the reality, the FICCI estimate of additional new 3500 aircraft in India by 2047 will be too little.

Though the challenges are many, the following are the key issues that must be addressed fast in the more likely scenario of the Modi government or whoever comes to power after the general elections.

1. Dearth of all-weather airport: In a large part of the country, winter is a major slayer of the aviation industry. But the reality is, there is not even one airport in the country (not even Delhi) which is full proof to winter traffic disruptions, delays and flight cancellations.
2. Lack of infrastructure: Fast-growing traffic means significant high pressure on both airside and city-side infrastructure at airports. Whether it is a lack of adequate runways or commensurate consumer facilities, both are becoming increasingly deficient. As a wheelchair-bound, frequent flyer, I can tell innumerable tales of the lack of sensitivity of airline staff.
3. Vanishing airlines: Running airlines is tough in any market, even in the best of times, margins are thin if at all. Nonetheless, the Indian story is a sorry situation with an ultra-low survival rate of airlines. The issues are both structural as well as country-specific and airline-specific. High aviation fuel costs due to high taxation and other avoidable costs must be trimmed fast.
4. Make in India aircraft: A major reason for the trauma of the airline industry is the dollar dependence whether it is the purchase of new aircraft or leasing of them or expatriates. The world’s fastest-growing aviation market, which is already a space superpower, must shed the dollar dependency. Also, 35-50 per cent of the airlines’ operating expenses—including aircraft lease payments, fuel expenses, and a significant portion of aircraft and engine maintenance expenses—are dollar-denominated. The sooner the amend, the better it will be for Viksit Bharat.
5. Grounded aircraft: Whether it is due to supply chain reasons or engine trouble, in recent years, there has been an alarming rise in grounded aircraft across airlines. Around 25-30 aircraft stay grounded. Again, Make in India is the only long-term sustainable solution. And the time starts now. It is worth noting that the longer an aircraft remains idle, it would mean a rise in expenses without incremental revenue.

Time to Protect the Future

As per the Ministry of Civil Aviation’s ‘Vision 2040’, air passenger traffic will increase sixfold to 1.1 billion including 821 million domestic and 303 million international passengers. The government expects air cargo movement to quadruple to 17 million tons in 2040. Also, the aviation industry will likely contribute up to $1 trillion annually to the Indian economy in the decade starting 2040. Even the best of governmental efforts are likely to fall short if not planned, coordinated and executed fast and challenges are not ameliorated at the war footing.

If the country must reap the benefit of the boom, it is ‘Wake Up Sid’ time.

The author is Multidisciplinary Thought Leader with Action Bias and India Based International Impact Consultant. He works as President Advisory Services of Consulting Company BARSYL. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.