Infrastructure constraints, tough rules hit Indian aviation on its flight path

Infrastructure constraints and restrictive regulations may prove to be a hurdle for the Indian aviation sector’s targeted double-digit growth, although the Asian country is projected to be the third largest aviation market in the world, behind only China and the United States by 2037.

An estimated 570mn passengers will travel to, from, or within India at that time, a tripling of 2017 traffic, according to the International Air Transport Association.

The 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.

India’s Civil Aviation Ministry had recently unveiled its ‘Vision 2040’ projecting growth in the country’s aviation industry over the next two decades.

By 2036, India’s population is expected to reach 1.6bn 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 100mn more than the entire population of the United States, noted Qatar Airways Group chief executive HE Akbar al-Baker.

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, al-Baker said at an industry event in Mumbai recently.

But India is still not an easy place for airlines to do business, says IATA.

Firstly, demand growth continues to outpace airport development. India needs to develop and implement a comprehensive airport plan to support growth. Secondly, India’s airlines need to generate sustainable profits to fund growth and invest in new services.

The problem is confounded by rupee depreciation that has hit the Indian carriers hard, as it did a few years ago.

India is one of the toughest markets in which to survive with Kingfisher airlines founded by now-fugitive businessman Vijay Mallya collapsing and national carrier Air India needing repeated state bailouts as ultra-low fares fail to cover the costs.

Some Indian carriers are occasionally forced to sell tickets at base prices of as low as Rs1 to attract the fastest growing middle class in the world.

The recent troubles at Jet Airways, which was once at the forefront of India’s rapidly growing market for air travel, show how tough the conditions are in the otherwise world’s fastest growing major aviation market.

With debts of about $1.14bn, Jet Airways has been hit by fierce competition from other low-cost carriers, rupee depreciation and high oil prices. It owes money to banks, pilots, vendors and lessors, some of whom are considering taking back aircraft, a Reuters’ dispatch said.

With the prevailing heavy levy on aviation turbine fuel (ATF), India’s tax regime certainly adds pressure on the airline’s bottom line.

Aviation turbine fuel costs remain as big a pain in Indian carriers’ necks now, as they were when the financial crisis hit the industry a few years ago.

Many experts including India’s Minister of Civil Aviation Suresh Prabhu have therefore pitched for a lower Goods and Services Tax (GST) on jet fuel.

Despite growing demand and amazing potential, profitability (in India) is still a challenge, points out IATA director-general and CEO Alexandre de Juniac.

The government needs to work with industry to find out what is holding the industry back and find solutions if the blockers fall within the domain of public policy.

Speaking about India’s vision document, de Juniac said, The Vision 2040 is a good way to align all the stakeholders and investors who want to build the infrastructure, it provides a broad horizon. Indian airline sector needs to be strengthened soon and the infrastructure needs to be built sooner, else the congestion could pose to be a big issue in the growth.

Market analysts say another cause of major concern now is India’s push towards privatisation of State-owned airports.

Last year, India decided to invite bids to operate six airports including the Thiruvananthapuram International Airport in South India on the basis of ‘per-passenger fee’ (PPF).

Privatisation of airports is a concern as it could lead to monopoly and higher costs for airlines and passengers, de Juniac said and noted, If privatisation of airports is the only way out, there need to be proper guidelines, rules and regulations to have a smooth flight.

Globally, airline business is subject to many risks because of its high capex and low profit margins. But many say India is a special case.

Source: Civil Aviation Authority