Future of Indian Aviation Industry
February 1911, marked the first commercial aviation flight that India ever took. A short 15 minute journey across the Yamuna river was the beginning of a completely new industry in the Indian market.
This marked the beginning of today’s third largest aviation industry. From freight cargo to a leader in passenger operations, the Indian air industry has made its mark.
The Indian aviation market has had a rich history. From starting off with the private player - Tata Air Services-to becoming a government-owned enterprise - Air India, to again opening the industry to private players and welcoming competition, the industry has seen it all.
Today, with over 5 major players and multiple cost-effective domestic players, the industry is operating a huge fleet carrier. Over 130 operational airports, both domestic and international, have become a key player in increasing connectivity and leading to a higher passenger charter.
The biggest boom was seen from 2010-2019, when higher competition forced prices to come down, breaking the myth of flying being only for the rich and giving the working class an opportunity as well.
But, then struck the Covid pandemic in 2020, with a devastating impact the world over. While all the industries caught the blow of the pandemic, the travel and tourism industry was the worst hit. Global travel bans and lockdowns brought the civil aviation industry to a complete standstill. The industry suffered losses of about billions, raising questions on the going concern of many aviation leaders.
However, with government support and the zeal to make up for the lost years, travel did kick off again, giving a ray of hope to the aviation industry. But the industry was still hanging on a thin thread with continued losses challenging its future.
So what does the future of the aviation industry hold? It’s no doubt that the recovery era for the aviation industry has been a rocky path, illuminating the many challenges faced by airlines.
Let us understand a bit more about the challenges that the aviation industry's future holds -
Interest rate hike - Like every other industry, aviation is also impacted by interest rate hikes. Higher rates burden the already debt heavy industry. Instead of repurposing the funds for operations, higher repayment and interest costs become the immediate concern of the flight operating companies. The lease payments have a detrimental impact as well.
Higher fuel costs - The looming global energy crisis due to rising crude prices has a domino effect on Aviation Turbine Fuel(ATF) as well. ATF linked to crude prices fluctuates with it making it expensive. Coupled with the depreciating rupee against the USD, the cost of ATF for Indian industries is relatively higher.
Geo-political issues - The ongoing Russia-Ukraine war and the sanctions due to the conflict have impacted the flying zones, carrier support and have led to many new aircraft deals being renegotiated or cancelled.
Supply chain issues - The aviation industry is currently facing the challenge of sourcing raw materials and components in a timely manner. With the shortage of key metals and alloys, the maintenance and upkeep is becoming a challenge.
Grounded Fleet - The 2 year break, coupled with supply chain issues has left many carriers grounded. With either issues with the engine or the overall upkeep not being to the standard has kept many carriers sitting in the shed. This increases the overhead borne by the aviation industry as well as reduces carriers available for operations, forcing the industry to scale down or go for heavy purchases.
While we agree that the next 2 years are going to be a challenge for the aviation industry, there are definite opportunities that make the future of the airline industry a bright one. Let’s understand the top positives of the fly-high gang -
Quadruple passenger traffic - The biggest opportunity that Indian aviation has is in terms of passenger market share. While competitive domestic pricing has encouraged a new segment of air travellers, there is still an untapped potential market that is expected to increase the customer base. It is said that only 2/3rd of the Indian population have experienced flying. This makes a huge population still unexplored. Additionally, increasing purchasing power amongst the working class has converted occasional travellers also into regular air miles users. By 2037 Indian fleets will experience quadruple travellers. This is a definite boon to the future of the aviation industry.
Foreign Investment - With 100% FDI in civil aviation, the government has given a green signal to foreign investors connecting India to the overseas aviation market. This gives a huge boost to the industry, providing global synergy and cheaper options for funds.
Revamping of airports and better connectivity - the government's effort to increase connectivity with lower serviced airports and to draw new routes gives the hope of increased frequency and a chance of increased air traffic. Additionally, licensing private players to run the airports has increased efficiency and transparency. Infrastructural efforts to increase runways, adding hi-tech facilities and involving foreign players in its upkeep are definitely elevating the attractiveness of air travel.
GIFT City - The one of its kind Fintech city aims to provide benefits to the aviation industry in terms of better lease payments, lucrative interests and concession on duty on imports. Thereby reducing the operational expenses of the industry, leaving room to focus on growth.
Possible consolidation - What industry analysts are hinting at is the possible consolidation of the multiple airlines into a select few to gain operating efficiency. Currently, there are small-scale airlines that take away a portion of the market. A possible consolidation will improve costs and give the chance to sustainability.
While it seems that the world is recovering faster than the aviation industry post Covid, that’s not the case. With its own set of challenges, it will be worthwhile to see how the aviation industry navigates through them and capitalises on its opportunity.