Led by strong domestic demand, favourable government policy and a benign fuel outlook, the Indian aviation industry has emerged as one of the fastest growing aviation market in the world. According to IATA, India’s civil aviation market is set to become the world’s third largest by 2020 and expected to be the largest by 2030. IATA’s estimate is based on the consistent growth being witnessed by the industry. The data from Directorate General of Civil Aviation (DGCA) states that India’s air passenger traffic has registered a growth of at least 16 per cent annually in the last decade. The number of passengers rose from 1.40 crore in 2000-01 to 13.5 crore in 2016. In 2015-16, the number of domestic passengers grew almost 22 per cent, recording a traffic of 13.1 crore passengers. However, IATA feels that the very strong upward trend in traffic has slowed since the country’s unexpected ‘demonetisation’ in November 2016. India’s streak of year-on-year double-digit traffic growth may have ended with June, IATA opined.
Various market reports suggest that India is one of the world’s largest and fastest-growing air travel markets. In CY2014, India’s air travel market was the sixth largest in the world as measured by total domestic seats (97.3 million) and ninth largest in the world by total domestic and international seats (155.9 million), according to CAPA data published in June 2015. According to an Airbus Report titled ‘Flying on Demand’ (2014), the domestic aviation market is forecast to be the world’s fastest growing with revenue passenger kilometers growing at a CAGR of 9.5 per cent between 2013 and 2033.
P Ashok Gajapathy Raju, Union Minister for Civil Aviation, said in a release that scheduled domestic flight movements rose from 7 lakh in 2014 to 8.2 lakh in 2016, an 8.2 percent CAGR growth. As against 395 aircraft in the fleet of Indian carriers, there are 496 aircrafts in operation today, and another 654 are under purchase.
Dotting the Indian sky
Jayant Sinha, Minister of State, Civil Aviation said that the civil aviation sector in India has undergone a complete transformation in the last three years with India emerging as the world’s third largest aviation market. “As against 70-75 airports in the country in all these years, we now have more than 100 airports with the implementation of UDAN. We hope to have 200 plus airports in the next 10-15 years,” he said. UDAN aims to fly new 300 million domestic passengers annually by 2022 and 500 million by 2027.
According to the latest report by Boeing, airlines in India will need 2,100 new airplanes worth US$ 290 billion over the next 20 years.
The increasing number of passengers along with a strengthening of currency, low fuel prices and high load factors has increased the profitability for India’s aviation market. “India is growing by 20 per cent, which is the highest in the world. Indian LCCs provides more than 60 per cent of all flights, in 2006 only 20 per cent of the total flights were LCCs. We have seen 10 million passengers in domestic traffic for the first time in May this year. Domestic passenger has grown by 23 per cent in 2016,” Dinesh Keskar, Senior Vice President-Sales, Asia Pacific & India, Boeing Commercial Airplanes said.
Players in the market are quite bullish on this growth. IndiGo, which dominates a market share of 40 per cent, has the largest order book of 430 A320Neo fleets, of which 22 has been delivered and rest will be done till 2026. SpiceJet, which is the fourth largest airline carrier in India, is expected to maintain its passenger load factor above 90 per cent mark for the coming two years. It has a fleet order book of 275 , the second largest among domestic airlines. After bankruptcy in 2015, company has successfully re-build its brand with highest on-time performance of more than 80 percent in FY17.
Jet Airways, which focuses more on international routes compared to domestic wit h a domestic market share of 18 per cent, has an order book of 75 Boeing 737-Max aircraft.
It is reported that the domestic scheduled carriers are likely to induct as many as 384 aircraft in their fleet by March 2020, according to information available with the government. Out of the total, budget carriers, IndiGo is expected to add 136 aircraft while SpiceJet and GoAir – plans to add 72 and 52 planes, respectively. Air India is likely to add 28 aircraft between April this year and March 2020 while full service airline Jet Airways is expected to have another 37 aircraft in its fleet. Vistara is likely to induct at least five planes during the period. AirAsia India is expected to take deliveries of 19 planes. Turbo Megha, which runs a regional airlines under TrueJet brand, is likely to add 14 aircraft in its fleet during the period. Zoom Air is also likely to take deliveries of 21 planes between April this year and March 2020. Currently, the combined fleet of these carriers stands at 490.
2017 so far has been a great year for IndiGo from the growth and expansion standpoint. From a fleet size of 124 aircraft in December 2016, 41 destinations and 883 daily flights, IndiGo today has 138 Airbus A320 aircraft, 940 daily flights, 46 destinations across India and abroad, and have carried over 200 million passengers till date. “We have added 14 aircraft in 2017 till date and saw a total of five new destinations: Sharjah, Amritsar, Madurai, Doha and Mangalore. We are also focusing on strengthening our regional network with more focus on Tier ll and Tier III cities. In the quarter ended 30 June 2017, IndiGo signed a term sheet with ATR for the purchase of 50 ATR 72-600 aircraft with the flexibility to reduce the number of aircraft deliveries based on certain conditions. This term sheet is subject to reaching a mutually satisfactory final purchase agreement with ATR and the engine manufacturer,” Sanjay Kumar, Chief Commercial Officer, IndiGo said.
As of July 2017, IndiGo has an average load factor of 86.6 per cent with 899 daily flights, including 58 international daily flights. “We have reported our largest ever quarterly profit this quarter with a profit after tax of 8.1 billion rupees, an increase of 37.1 per cent compared to the same period last year. On the operational front, for the quarter, we were ranked No.1 for our on-time performance and our technical dispatch reliability was 99.85 per cent and flight cancellation rate was 0.78 per cent. We are confident that providing customers with affordable fares, on-time flights and a hassle-free experience will be received well by our customers in the coming months as well,” Kumar added.
According to Ajay Singh, CMD, SpiceJet, “Ten successive profitable quarters, a record aircraft order and exploring new growth avenues through the UDAN programme —SpiceJet remains firmly on track for its long-term growth strategy,” said. The airline has placed its biggest order for up to 205 Boeing planes valued at US$22 billion earlier this year and also placed an additional order for 20 737 MAX-10 planes worth US$4.7 billion and 20 conversions from the previous order at the Paris Air Show in June 2017. SpiceJet has also placed an order for 50 Q400 turboprop planes with Bombardier to consolidate its footprint in the regional markets.
Vistara at present serves 19 destinations with around 600 weekly flights with a fleet of 15 Airbus 320 family planes.
Foreign carriers reaping the benefit
The aviation sector in India has been growing consistently and we feel this trend will only continue in the years to come, Paurus Nekoo, General Manager Sales India, Lufthansa Group, said. “The Lufthansa Group is committed to the Indian market and reacts with a constant increase in seat capacity and by introducing new products and services in the market. In India, we provide our customers with three strong and distinctive airline brands: Lufthansa German Airlines, SWISS and Brussels Airlines. The Group collectively offers a wide choice of 67 weekly flights from 5 cities in India namely New Delhi, Mumbai, Pune, Bengaluru and Chennai and serves 308 destinations in 103 countries across four continents,” Nekoo said adding that Lufthansa has introduced the latest A350 aircraft on the Munich-Delhi and Munich-Mumbai route earlier this year to offer a more enriching experience. “In March’17, we also introduced non-stop flights from Brussels to Mumbai on Brussels Airlines,” he added. Going forward, India being a priority market, we will continue to invest in innovative products and services and increase our offerings by providing unrivalled connectivity, he said.
Cathay Pacific announced the introduction of a larger aircraft – Boeing B777-300 – on the Mumbai-Hong Kong route. The airline, which commands over 45 per cent market share in air traffic between India and Hong Kong at present, flies A330 on this route.
Speaking about the commitment to India market, Duncan Bureau, Vice President, Global Sales, Air Canada said, “India is a very important and strategic market for us. We have launched our new services between Mumbai and Toronto. Operations are going extremely well and we are very happy with the demand and certainly will like to see this grow and compliment our services from Toronto-Delhi and Vancouver- Delhi. We have deployed our best equipments into India; it’s the B787-900 series which are the newest in the fleet. We are very committed to this market. We are constantly looking at new markets. There are many cities in India that is looking attractive; once we are ready we will introduce new routes,” Bureau said in an interview to T3 earlier.
Another carrier, British Airways also deployed the B 787-9 Dreamliner between London and Mumbai route 2-3 months ago. Earlier, the carrier used to fly a Boeing 777. “India is a very important market for us, we are investing a lot in this market. Earlier we had introduced a Boeing 787-9 Dreamliner between New Delhi- London which has been successful. We have been hearing a lot of positive feedback from our Delhi travellers who have flown the 787-9,” Robert Williams, Head of Sales – Asia Pacific and the Middle East, British Airways, had said this magazine.
SriLankan Airlines also increased its footprint in India by introducing Hyderabad, Visakhapatnam, and Coimbatore in July. “We are doing really well on the Indian routes. Only from Mumbai we have 80-85 per cent load factor. In May 2017, we witnessed load factors going as high as 90-95 per cent from Mumbai. Most of the flights which we are operating from India are witnessing healthy load factors. That’s the reason we are going to increase our frequencies in some cities and also we want to expand in new cities. The total number of arrivals from India to Sri Lanka is very high. India is the number one market for us,” Udeni Perera, Manager- Western India, Sri Lankan Airlines said.
Challenges & opportunities:
Jet Airways, in the airline’s annual report for 2016-17 sent to the shareholders ahead of the company’s AGM next month, said that the current airport infrastructure is unable to keep pace with the breakneck growth in capacity and traffic. “For aviation to truly realise its potential, several areas must be addressed. Escalating airport levies, surcharges and high taxation continue to shackle the industry,” the report said.
“The key growth driver for the Indian aviation has been and will be in future – the need for high quality low fare travel. The economy and aviation industry both have a symbiotic relationship, so if India has to grow by 8-10 per cent then the aviation market has to grow at just double that rate. The key challenges are to keep the cost low and continue to offer lower and affordable fares. Our ATF is one of the costliest, thereby putting an additional burden to the overall cost. Not to mention the, INR which has depreciated against the USD during the last few quarters combined with high airport charges. So one key focus area will be to monitor our cost carefully and offer affordable fares regularly,” said Kumar.
Meanwhile, the Civil Aviation Ministry is working on a four-pronged strategy to enhance capacity of airports across India. “We have been spending a lot of time thinking and planning about what we should do about airport capacity, we are working on four different aspects,” Sinha said at a recent ASSOCHAM event. He also said that second edition of UDAN (Ude Desh Ka Aam Nagrik) scheme will help India’s civil aviation sector sustain the current 15-20 per cent growth along with various supportive policy measures. Terming the first round of UDAN as a game-changer, he said that 31 new airports have been added to the aviation network under this scheme, while in contrast, post-independence only 70 airports had been added to aviation network.