By 2037, India will be the third largest aviation market in the world, behind only China and the United States. More than 572 million passengers will travel to, from, or within India at that time, a tripling of 2017 traffic.
That figure is a middling estimate. Infrastructure constraints and restrictive regulations could reduce the number of travelers to 450 million while the right stimuli could do the opposite and push passenger numbers over 926 million. Current trends suggests the latter is more likely. India celebrated 50 consecutive months of double-digit growth in October 2018, and domestic load factors are high, hitting a record 90% in February 2018.
This incredible traffic boom is largely due to an increase in connectivity—there are now 700 domestic airport pairs, a 50% increase on 2015 levels—and a decrease in fares. After adjusting for inflation, average domestic fares have decreased more than 70% since 2005. International destinations have also risen to 304, up from 230 a decade ago, and the outbound cargo market has topped one million tonnes, growing almost 17% year-on-year last year.
“Domestic travel will grow because of rising income and international travel will grow because of the increasing business links,” says Suresh Prabhu, India’s Minister for Civil Aviation, speaking at IATA’s International Aviation Summit—India, jointly organized with the Ministry of Civil Aviation (MoCA) and the Airports Authority of India (AAI). “We would like to work with all the airlines to understand their issues and put in place a policy to facilitate the growth of the industry. We would like to make sure there is a level playing field and transparent processes.”
Akbar Al Baker, CEO, Qatar Airways
“India’s middle class is 100 million more than the entire population of the United States. So, you can see the potential”
Ajay Singh, Chairman and Managing Director, Spicejet
“India needs its own global hubs. We need to carry our passengers directly to the destination [and] have the ability to bypass other hubs”
Some important fundamentals underpin India’s growth. By 2036, India’s population is expected to reach 1.6 billion and average incomes should rise to almost $5,000 per capita, a five-fold increase on 2006. That means the number of middle-class households will make up 20% of the population by 2036, up from 2% in 2006.
“India’s middle class is 100 million more than the entire population of the United States,” notes Akbar Al Baker, CEO of Qatar Airways. “So, you can see the potential. India will be important not just for Indian and Gulf carriers, but for all international carriers because of this growing middle class.”
Other positives include a wide-ranging aviation policy, still a rarity in global terms. “India launched its aviation strategy in early 2016,” says Alexandre de Juniac, IATA’s Director General and CEO. “This recognized the importance of aviation and established a policy framework intended to maximize its benefits. It enters India into an elite club. Few states have understood that aviation is an economic catalyst and taken such a comprehensive approach. And because there is an established policy, we can be objective when looking for ways to improve.”
One enhancement already in the bag is more flexible airspace, achieved through cooperation between civil and military authorities. A conditional airway has been opened through restricted airspace over Bhuj, for example, shaving 10 minutes off journeys between East Asia and the Middle East. Such upgrades will be key to hub aspirations and accommodating future growth.
Then there is DigiYatra, an industry-led initiative coordinated by MoCA. DigiYatra uses biometrics to provide passengers with a seamless journey through the airport.
India already has the largest biometric program in the world. Its Aadhaar card—a unique 12-digit number issued to every Indian resident based on their demographic and biometric data—is used by some 1.2 billion people.
DigiYatra will give passengers a unique ID at the time of booking tickets, and Indian residents will be able to use Aadhaar as proof of identity.
“We have high hopes for the DigiYatra initiative,” says de Juniac. “It could transform processes and leap-frog India to top of the league. The initiative’s pillars of connected airports, passengers, systems, and flying align with innovations in IATA’s future vision. Imagine the benefits to terminal capacity if technology shortens passenger processing at an airport from 30 minutes to 10 minutes. You can see why we are very excited about this program.”
Biometric trials have taken place at Bangalore airport and IATA is continuing to work with the government, other airports, and stakeholders to make India an example for others to follow.
It’s not just about squeezing more passengers through the same footprint either. More fundamentally, there has been some significant infrastructure development that has given India the space to grow. Delhi is perhaps the best example, although there have been notable upgrades throughout the country in the past decade.
Ajay Singh, Chairman and Managing Director at Spicejet, says the correct infrastructure is essential to Indian airlines properly benefiting from the increasing propensity to travel.
“India needs to create its own global hubs,” he believes. “We need people to be able to fly into and out of India. We need to carry our passengers directly to the destination. We must capitalize on this massive market and have the ability to bypass other hubs.”
Alexandre de Juniac, Director General and CEO, IATA
“Creating a better environment for aviation will progress India’s day-to-day development”
Discussion on… Climbing the rankings
Over the last five years, India has risen from 132 to 100 on the World Bank’s Ease of Doing Business survey. Continued improvement in this area will be critical to the sustainable growth of aviation in India.
The country has also risen from 52 (2015) to 40 in the 2017 World Economic Forum’s Travel and Tourism Competitiveness Index. Improvements in visa policies, infrastructure, and the preservation of monuments have assisted this rise. Continuous improvements in these areas as well as in human resources development, airport infrastructure density, and tourism infrastructure are among the areas that could further enhance India’s competitiveness.
“The broader business and policy environment should not place hurdles, which inhibit growth and reduce the level of benefits that aviation can deliver to the nation,” says Brian Pearce, IATA’s Chief Economist. “The industry, its supply chain partners and the government and policy makers have a clear mandate to work in collaboration towards the common goal of ensuring that aviation’
Aside from issues surrounding infrastructure (see panel on p35), fuel is probably the biggest headache for the industry in India. Whereas fuel is about 24% of costs globally, it soars to 34% for Indian carriers. There are several reasons for this.
A lack of competition for fuel suppliers at airports is one, meaning there is little commercial incentive to keep fuel prices low. The airport then takes a fuel throughput fee, something that is prohibited in Europe because no work is involved on the airport’s part. To add insult to injury, a goods and service tax (GST) is applied to the throughput fee, the infrastructure fee, and the into-plane service fee.
Finally, on domestic flights, fuel is subject to excise duties and state taxes of up to 30%. MoCA is moving in the right direction. It made a strong case for excise duty cuts on jet fuel that resulted in the government reducing it from 14% to 11%, a move that was instantly reflected in the rising value of shares in Indian airlines.
The aviation industry has welcomed the development, but it also continues to fight for the fuel throughput fee to be removed and competition created through open-access infrastructure.
“There are many priorities in fostering the economic and social development of India,” says de Juniac. “Fundamental issues of eradicating poverty, ensuring quality education, providing healthcare and safe drinking water are massively important agenda items. Creating a better environment for aviation to do business can and will progress the nuts and bolts of India’s development day-to-day.
“Safe, secure and sustainable air links make our world a better place. That is why I call aviation the business of freedom. And the government and industry share a privileged responsibility to work together for its success.”
The exhilarating prospects for Indian aviation must also be seen in a broader industry context.
“Aviation is not just about flights,” says Singh. “India has great potential to be an engineering hub too, serving aircraft from around the world. We have some great young engineers in India so why should we send our aircraft to other parts of the world to be serviced?”
Furthermore, a possible global shortage of trained aviation professionals could be averted if India’s potential is fully leveraged.
“And India has a great ability to produce other trained manpower, such as pilots, cabin crew, and airport staff,” he adds. “We can train them and send them throughout the world.”
Discussion on… Airport development
India holds great potential for aviation, but enthusiasm must be tempered. The fact is India’s airlines have long struggled despite strong demand. High growth has been accompanied by low profitability.
Although some infrastructure development has been timely, one of the country’s principal hubs, Mumbai, continues to be heavily congested. Navi Mumbai, a new airport, will operate alongside the existing facility but has suffered delays and isn’t expected to open in 2019 as planned.
As the existing Mumbai airport cannot accommodate further growth, the regional Maharashtra economy—the largest state economy in India—cannot perform to its full potential.
“The authorities must do all in their power to eliminate further delays,” says IATA Director General and CEO Alexandre de Juniac. “India’s financial capital urgently needs expanded connectivity to drive India’s economy forward.”
There is also a more general question of infrastructure funding. India has used private capital to good effect with much-needed airports and upgrades built under a public-private partnership.
But this too has timing issues. “People who get concessions from civil aviation must have a timeline in which to deliver that project,” says Qatar Airways CEO Akbar Al Baker. “You cannot keep a project in your pocket and take your time. It is in the national interest to grow infrastructure. When you apply for slots at an Indian airport they are not always available. We need rapid investment in infrastructure to make it easier for aviation to do business in the country.”
And that investment must be overseen by an independent regulator to stabilize and monitor costs. To date, no privatization project is fully living up to airline expectations for sufficient capacity, service quality, and affordable costs. An IATA resolution at the last AGM backed up this sentiment, calling on governments to be cautious when considering privatization. MoCA has released a preliminary transaction structure for greenfield airports and IATA will provide detailed comments. Two concerns with MoCA’s initial proposal are immediately apparent:
It is wrong to establish a fixed per passenger yield at the outset of a concession contract that is set to run for four decades. Selecting the company that proposes the highest concession fee is also misguided if positive long-term results are to be achieved.
“Airports are important to passengers, airlines and the community,” notes de Juniac. “Dialogue is at the foundation of IATA’s position on privatization. Decisions must balance the interests of all three stakeholders. That can only happen with robust dialogue. And we are eager to work with the government on the concession structure to define the next steps in India’s airport development.”