Factors contributing to the growth of the aviation sector

From an over-regulated and under-managed sector, the aviation industry in India has
now changed to a more open, liberal and investment-friendly sector, especially after
2004. The civil aviation sector in India has moved into a new era of expansion. Some
major factors contributing to this are:
 Higher household incomes
 Strong economic growth
 Entry of low cost carriers (LCC)
 Increased FDI inflows in domestic airlines
 Increased tourist inflow
 Surging cargo movement
 Cutting edge information technology (IT) interventions
 Focus on regional connectivity
 Modern airports
 Sustained business growth and
 Supporting Government policies
Key Drivers of Growth of Indian Aviation:
Growth rate of the economy has been steadily rising. For instance,
in the period 1990-91 to 2003-04, the CAGR of India’s GDP works out to
5.7 per cent which then rose to 8.6 per cent during 2004-05 to 2010-11.
The growing economic activity resulted in greater business travel by
professionals and greater leisure travel by individuals. These income
groups drive the consumption pattern in India and are primarily
concentrated in urban areas. NCAER analysis reveals that the middle
income group population in 2010 stood at 160 million individuals i.e. 13.3
per cent of the total population, which is expected to rise to 547 million in
2025 (i.e. 37.2 per cent of the total population).
About 62 per cent of the population is in the working age group of
15-60 years and this proportion is set to increase in future indicating a
larger employee base, greater business travel and greater economic
activity. Mckinsey Global Institute’s projections state that India’s urban
population will be 590 million by 2030 i.e. about 40 percent of the total
population of India. The number of million plus cities will increase to 68 by
2030 of which 13 cities will have more than 4 million and six cities will
have more than 10 million persons.
Low Cost Carrier (LCC) model which made air travel affordable for
common man got established firmly in the domestic market since 2004.
This stimulated the pent up demand for air travel. LCCs along with the
LCC brand of Full Service Carriers (FSCs) constituted 63.3 per cent of the
market share in 2009. The domestic traffic is rapidly shifting towards the
LCC model. Market sources suggest that this has crossed 67 per cent
during 2011-12. Also, the LCCs are reported to have displayed strong
operational performance immediately after the recovery witnessed in
2010. This leads us to believe that Low Cost Operations in a price
sensitive market like India appear to be a more sustainable business
model.
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Opening up of the airport infrastructure to private sector participation
fuelled the growth of the air traffic in India. Total investment made by
private airport operators in the last five years was to the tune of Rs 30,000
crores spread across Greenfield development of Hyderabad and
Bengaluru international airports and modernization of Delhi and Mumbai
international airports. Airports Authority of India (AAI) continued its
unparalleled role in creating air connectivity across the nation, incurring an
expenditure of around Rs 12,500 crores during the 11th Plan period.
Rapidly expanding air transport network aided by massive investments in
the airport infrastructure could be cited as one of the key reasons for the
surge in air passenger traffic in India.
In line with the trend observed in growth of India’s GDP, the tourism
sector has displayed stellar performance during the last decade. During
the period from 2001 to 2010, the average annual growth rate of foreign
tourist arrivals in to India and Indian national departures from India grew
by 9.2 per cent and 11.5 per cent respectively. Domestic tourism was not
to be left behind. Domestic Tourist Visits within India stood at 740.2 million
for the year 2010. In fact the average annual growth rate of Domestic
Tourist visits within India for the decade ending 2010 is estimated to be
13.5 per cent. The number of foreign tourist arrivals in India stood at 5.6
million in the year 2010 as against 3.46 million in 2004 and 2.54 million in
2001. Similarly, the number of Indian National departures from India stood
at 12.1 million in 2010 as against 6.21 million in 2004 and 4.56 million in
2001. In areas with difficult terrain, air transport offers the fastest mode of
connectivity to remote and inaccessible regions. Given the thrust of the
Government of India to enhance connectivity in remote and inaccessible
regions of the country and concerted efforts of some State governments in
this respect, there is a strong likelihood of demand emanating from these
areas in future.
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The air traffic density can be measured by linking urban per capita
income with air passengers. Taking 1000 passengers per million urban
capita, a recent study has arrived at a comparative picture. Air traffic
density in India using this measure is very low at 72 as compared to China
(282), which is 4 times higher; Brazil (231), which is 3 times higher;
Malaysia (1225) is 17 times higher, U.S.A. (2896) is 40 times higher and
Sri Lanka (530), which is 7 times higher. This indicates the untapped
market potential given the projected burgeoning young population and
rising disposable income levels in future.
Greater economic activity and the consequent greater integration of
 businesses globally would mean greater business travelers across
national boundaries. Also, the growing trend of outbound Mergers and
Acquisitions (M & A) i.e. Indian firms acquiring International firms in order
to capture markets and resources abroad, where the M & A transaction
value for the year 2010 touched almost $ 50 billion and is set to grow
further in future implies greater business related travel.
Global air traffic is seen shifting to Asia Pacific region during the last
few years. This is on account of the slowdown in Europe and North
America. Within the Asia Pacific region China and India are the two fastest
growing economies and they are becoming the epicenter of supply and
distribution. Global air traffic Forecasts for 2030 in this context also point
to that direction. Traffic share of Asia- Pacific in the global traffic are likely
to move up and on the contrary traffic share of North America and Europe
are set to decline correspondingly.
Open Sky Agreements between nations forge greater competition in
the International air travel segment. Increasingly it is recognized that
Nation States need to evolve viable mechanism by which they all stand to
achieve trade gains and efficiency in international market access in as far
as Air traffic rights are concerned. That is yet to happen. Five Indian
Carriers out of six have now started international operations. It is therefore
expected that such reforms in market access arrangements as and
when it
happens will potentially enhance traffic to and from India. Further,
deregulation of the international air traffic markets would enable the LCCs
to capitalize the opportunities of newer markets first and enhance growth
of international traffic.
India’s impressive growth in international and domestic trade over
past few years has augured well for the air-cargo industry in India. The
entry of leading private air-cargo companies has brought in a wave of
increasing automation, mechanization and process improvement initiatives
at major air-cargo terminals in the country. Such investments in air-cargo
handling at key airports such as Delhi, Mumbai, Bengaluru, Hyderabad,
etc. are expected to yield higher air-cargo throughput and improved
service levels. The current share of air-cargo compared to other modes of
cargo-transportation is fairly low in India. The potential for air-cargo growth
in India can be gauged from the fact that some of the global airports such
as Hong Kong, Dubai and Incheon (Seoul) handle more cargo volume
than all Indian airports put together. Trans-shipment at Indian airports is
currently negligible. Major bottlenecks are absence of dedicated
transshipment infrastructure at airports and lack of clarity on the
transshipment Customs procedures.
HISTORY OF AVIATION SECTOR
History of Indian Civil Aviation:
Over 100 years old, the Indian aviation sector has earned the
distinction of being the ninth largest in the world. Today’s giant leaps
though have come from a small step taken by Henry Piquet on February
18,1911, when he flew his Humber bi-plane six miles from Allahabad to
Naini junction carrying only mail and introduced the concept of air travel in
India. For the next 21 years, the country witnessed such flights that flew
off and on without any timetable.
They began making way for schedule air travel- that operate as per
a timetable-when 25 year old Jehangir Ratanji Dadabhoy Tata got the first
pilot license issued in India on February 10,1929. In July 1932, business
tycoon J.R.D., who would go on to be hailed as the Father of Indian Civil
Aviation, established the aviation department in Tata Sons. Soon to be
called Tata Airlines, it planned the first schedule flight in India- a mail
service on the Karachi-Ahmadabad-Bombay-Bellary-Madras, route to be
the India connection to Imperial Airways’ London-Karachi flight.

On October 15, 1932, J.R.D. operated a tiny single-engine de

Havilland Puss Moth (VT-ADN) from Drigh Road Airport, Karachi, to
Bombay’s Juhu airport via Ahmadabad. He landed in what is now Mumbai
with mail that had left London exactly a week back. Former British Royal
Air Force pilot Neville Vintcent took over from J.R.D. in Bombay and
operated the rest of the route, arriving in Madras (now Chennai) a day
later. The first west- bound flight –with just mail- from India left Madras on
October 17, 1932. The same year, Indian aviation witnessed another
landmark in aviation as Urmila K. Parekh became the first Indian woman
to obtain a pilot’s license. This milestone marked the beginning of a
radically new chapter in the nation’s life, as after Independence many
women successfully made their careers in aviation, something previously
considered too ‘adventurous’ for aspiring women pilots. Prem Mathur
became the first woman to obtain a commercial pilot’s license in 1947 and
fly domestic airlines. Other noted women pioneers in the industry include
Chanda Sawant Budhabhatti – Founder/President of Indian Women Pilots’
Association, 1967 and Durba Banerjee – the first woman pilot to fly with
Indian Airlines in 1956. While the construction of civil airports in India had
begun as early as 1924, the country’s first aircraft rolled out in July 1941 –
a Harlow trainer which was followed by a ten-seater glider designed by Dr.
V.M.Ghatage at Hindustan Aeronautics Limited (HAL). Meanwhile, Tata
Airlines continued to add both aircraft and services, and in 1946 was
renamed as Air India Ltd., two years later establishing its international
division which began a weekly Bombay-Cairo-Geneva-London flight using
the Constellation VT-CQP “Malabar princess”.
In August 1953, the government nationalised Air India which the
story of Indian Aviation revolved around AI-IA for almost four decades
during which the airline achieved other goalposts like becoming an all-jetengine
airliner with big planes like the Boeing 747s in its fleet. The ‘90s
saw the launch of several important players including Jet Airways. Many of
them began as air taxis but slowly became schedule commercial airlines.
But only Jet airways of the first crop of major private Indian carriers
survived. The second wave of private airlines came in from 2003 when
India woke up to the concept of low cost airlines. With the advent of lowcost
carriers, Indian flyers took to the sky more frequently and with utmost
enthusiasm. India has seen passenger traffic increase at an extraordinary
speed in the past decade. In 2017, the country is expected to witness
passenger traffic of 327 million. As a result, airports sprouted in nontraditional
places and destinations that were earlier labelled countryside
are now becoming gateways to tourist spots around the country.
Over the next 10 years, several Greenfield (all new) airports are
expected to come up, complementing existing airports and relieving the
burden on airports which see heavy traffic. Renovating old airports is
another part of this refurbishment of the Indian airport sector. With
sophisticated terminals, state-of-the-art check-in counters, better baggage
handling and increase in passenger conveniences, Indian airports are
about to receive more than just a fresh coat of paint. The focus is on
building sustainable airports that can withstand the test of time, without
becoming redundant in a few years. Karnataka is one such state where
four new airports are slated to come up in the next few years, with two – in
Shimoga and Gulbarga- opening to passengers at the end of 2012 in a bid
to push tourism in these areas.
The new Mopa airport in north Goa and a brand new Greenfield
airport in Maharashtra’s Sindhudurg will ease the heavy foreign passenger
traffic descending on the shores of India’s sunshine state every holiday
season. North east states, that were previously sparsely-connected should
also see better connectivity in the coming few years. Two airports, one
each at Kohima in Nagaland and Itanagar at Arunachal Pradesh will be
developed. Durgapur, the steel city in northern West Bengal is also in the
process of getting a Greenfield airport that should relieve the busy Kolkata
airport. Airports such as Kolkata are getting a second wing with large scale
renovation taking place. Delhi, which was a stark example of previously
illequipped airports, is now one of the best in the world, with the brilliant new
terminal 3 becoming the face of air travel in India. Many of the world’s best
airports lack the glitz and fitments that the new Indira Gandhi International
Airport sports. The Hyderabad airport was also developed by the GMR
Group that constructed the Delhi airport and is one of the best in the
country, if not the world. Similarly, Mumbai, Bengaluru and Kochi have
also gone the private route as Indian airports are finally shaking off the
third-world tag.
Aviation experts believe that airports have ceased to be just ports of
entry and exits but are playing an important and direct role in the
economy. Delhi is already in this path with a dedicated metro line, while
Mumbai’s International airport is slated to have a commercial centre to
rival the best in the world.

The future of Indian aviation looks promising,

even as globally the industry is going through a watershed moment of
austerity. From the days of sporadic airmail service, the sector has grown
so much that there’s a dedicated India aviation event- organised by FICCI
in Hyderabad. It is held once in every two years. That is the biggest
international exhibition of its kind in India. It promotes the causes and
interests of civil aviation while showcasing all aspects of aviation from
aircraft to in-flight products. With airports, connectivity and new avenues
sprouting up across the country, responsible, healthy and well managed
airlines will be the key to the success of Indian aviation. India has great
potential to grow given its population, its growing economy and need for
connectivity across the country. It has been hundred years of Indian
aviation and with the future looking good in terms of airports and
connectivity, the story of flying in India is most certainly pointing towards
realizing the projections of being one of the top three players in the world
by the year 2020.
(short history on http://www.indianmirror.com/indian-
industries/aviation.html)

India’s airlines: a combined profit of USD122 million in

FY2016, returning to the black at an industry level after 10
years
Last year represented a turnaround in the fortunes of India’s aviation industry after several very
difficult years. Lower fuel prices combined with modest capacity growth and strengthening
economic fundamentals were largely responsible for surging traffic and an improvement in
airline financials in FY2016. Domestic traffic was up 21.2% while international grew by a more
modest 7.7%.
CAPA estimates that India’s airlines reported a combined profit of USD122 million in FY2016,
the first time in a decade. This included record profits at IndiGo, Jet
Airways, SpiceJet, GoAir and Air India Express.

AirAsia India and Vistara, still in their initial years of operations, were however loss-making, as
was the national carrier, Air India. Although Air India reported its first operating profit in a
decade.

CAPA estimates that India’s airlines reported a combined profit of USD122 million in
FY2016, the first black ink in a decade. But this era of industry profitability is likely to be
short-lived. Traffic growth is being stimulated above its underlying demand as a result of
excess capacity and competitive fares. The downward pressure on yields, combined
with cost creep, is expected to push the consolidated industry result back into the red
for the 12 months ending 31-Mar-2017.

IndiGo, Jet Airways, SpiceJet, GoAir and Air India Express are all expected to remain
profitable, but at levels lower than in FY2016. Jet Airways will be the only profitable full
service carrier in FY2017. While losses are projected to increase at Air India, AirAsia
India and Vistara. At a total industry level losses could reach USD250-300 million.

With expected cost creep of 10%, a 5-7% decline in yields, oil at USD55-60 per barrel
and an exchange rate of USD1=INR73-75, industry losses could widen further to
USD380-450 million in FY2018, although most LCCs are expected to remain profitable.
Yields could potentially decline further than assumed given the capacity induction
planned.

Profitless growth will increase viability risks starting from 2Q2018

As the industry faces the prospect of transitioning to a phase of profitless growth, the
risk for India’s carriers is that if they continue to expand without sufficient capitalisation
they could face significant challenges when the next external shock hits.

When the fuel price spike and global economic slowdown hit the industry in 2008/09,
what followed was a period of widespread red ink with billions of dollars of losses which
led to the failure of airlines such as Kingfisher Airlines and Paramount Airways and
almost brought SpiceJet to the verge of closure. Should history repeat itself, this time
the industry has much further to fall.