Analysing India’s civil aviation sector and its growth prospects

As we look at the revival of the hospitality industry post the pandemic, it is paramount to understand the outlook for the aviation industry which is a critical enabler of the hospitality industry. Furthermore, in the aviation sector, we must look at two distinct buckets, the short-term and the long-term while analysing the perspective of the primary stakeholders, namely airlines and airports, among others.

Short-term outlook

In the short-term, let us initially look at the recovery post-pandemic. In the domestic sector, passenger numbers have reached 0.41 million per day in comparison with the 2019 number of roughly 0.41 million passengers per day, implying a considerable recovery. In addition, the resilience of the industry has improved, evident from the recoveries seen after each successive wave of the pandemic.

In the domestic sector, following the first wave, it took 10 months to return to 65 per cent of February 2020 levels of traffic. But after the second and third waves, it took six months and two months respectively. In the international market, traffic returned to 65 per cent after only three months after the third wave  whereas this level of recovery could not be achieved after the first and second waves as regular international scheduled services were not permitted until March 2022.

Considering the improved resilience and recovery of traffic, it is likely that the short-term horizon will see stable traffic patterns. As per CAPA Advisory’s forecasts, domestic traffic should return to pre-Covid levels in FY2023 ie 130-140 million passengers, however international traffic is expected to reach closed to 60 million or around 10 per cent less than in FY2020.

From the airlines’ lens

This post-Covid phase is characterised by a very hostile cost environment, increased competition and weakening economic conditions, a combination that will prove highly challenging. Having mentioned this, it is worthy to note that despite these challenges the airlines are nearing placing large orders for aircraft which communicates their positive outlook. The domestic sector is heading towards a duopoly with 75-80 per cent of the market held by IndiGo and Tata Group. Following Tata Group’s acquisition of Air India, four carriers effectively come under one umbrella.

From the airports’ lens

Regular expansion works in order to increase the capacity at airports with private operators like Delhi, Hyderabad and Bangalore airports continues, in line with the immediate requirement to mitigate the congestion patterns prevalent pre-Covid.

Long-term outlook

CAPA Advisory sees key drivers of the aviation industry as having robust growth prospects. These drivers include a growing economy with rising income levels; a higher share of the population residing in urban areas; an increase in the modal substitution towards air travel due to convenience; tourism growth; improved policy support; infrastructure growth and improving aircraft technologies. CAPA Advisory projects that airport traffic could increase by 2.5-3.0x over the next ten years, for which both airports and airlines will have to build capacity.

From the airlines’ lens

In terms of policy support, we have seen NCAP introducing the Regional Connectivity Scheme (RCS) to stimulate regional connectivity through affordable prices. As on Dec 15, 2022, there were 455 operational routes under this scheme. Other policies for support services like maintenance, repair and overhaul along with ground handling have also been announced. The airlines themselves see a large upside in traffic which is clear from the order book of more than 500 aircraft held by IndiGo, and reported plans by Air India to order a similar number.

From the airports’ lens

We have seen various initiatives taken by the Government, key ones being infrastructure improvement under the Bharat Nirman initiative which includes development of 100 new airports, and the national monetisation pipeline under which 25 AAI airports are to be monetised over FY2022-FY2025 and the divestment of AAl’s residual stakes in four metro airport JVs. The momentum is visible in terms of privatisation, with the Government expected to shortly announce the privatisation of six airports along with five bundled airports. After privatisation, we should see substantial capacity increase as privatised airports deliver increased capacity, improved customer experience and network expansion.

Conclusion

Finally, coming back to the hospitality industry, a strong and robust tourism sector will in turn also function as an enabler to help boost inbound air traffic. Also, large Indian diasporas in other countries have the potential to boost traffic in the visiting friends and relatives (VFR) category. Furthermore, by introducing the e-visa facility, the Government has improved India’s competitiveness as a tourist destination. All these above factors bode well for the aviation industry and indicate a strong outlook in the coming years with substantial growth.

AUTHOR BIO:  Udit Agarwal is Team Lead, CAPA India