India’s Booming Aviation Industry Needs to Change in Order to
Early this year, the Indian Government released its 2018-19 budget. An astronomical figure of six lakh crore (INR6000bn/US$89 bn/ FJ$ 185bn) was allocated to future infrastructure projects.
For the aviation industry, airport capacity is planned to be expanded by more than five times to handle over one billion trips per annum.
Having dubbed this expansion the ‘Nabh Nirman’ (Nabh is ‘NextGen Airports for Bharat’) project, India will aspire for the completion of 100 new airports in the next 10-15 years and ease regulations to entice global airport construction companies.
India’s population totalled 1.324 billion in 2016, according to World Bank, but only broadly 300 million can actually afford air travel.
Nonetheless, India’s GDP per capita has surged fourfold, from US$440 (FJ$915) in 2000 to US$1700 (FJ$3,535) in 2018, indicative of a growing middle class and – as a result – a ballooning of air travel demand. According to IATA’s most recent Air Passenger Market Analysis, the Indian domestic aviation market recorded double digit RPK growth for the 42nd month in a row in February 2018, evincing the severity of demand in Indian air transport.
With RPKs exhibiting 22.9 per cent growth, India was ranked the top globally, and that is supported by its equally impressive title as the fastest growing major economy in the world.
In comparison, the global RPK growth rate in February, 2018 was 7.2 per cent: IATA’s analysis also presents India as the only domestic market with a load factor over 90 per cent – and coincidentally this is the first time the domestic Indian aviation market has reached the milestone.
Indian aviation industry transformation
The Indian aviation industry needs to transform to support growth.
While it is easy to get wrapped up in the positives of India’s bustling aviation industry, infrastructure constraints mean the region may not be able to realise its potential fully.
In the 2018-19 budget the state-owned management company Airports Authority of India (AAI) was allocated close to US$640 million (FJ$1,331m) for airport infrastructure development projects, including air traffic control facilities, passenger terminals and improvement of hangars, as well as IT and security infrastructure.
While this seems like a reasonable amount of financing, it has to be taken into account that all Indian major cities are getting, or will need, second airports in the next few years.
Looking at just one project in particular – the infamous Navi Mumbai International Airport project has been deemed unlikely to open in line with its December 2019 schedule.
India’s Civil Aviation Secretary R N Choubey believes the “tough” timeline will remain unmet, despite the recent formation of a 23-member task force to oversee the project’s development.
According to the CAPA Construction database, the total investment at Navi Mumbai, which is designed to relieve congestion at the main Mumbai Chhatrapati Shivaji Maharaj Airport, is US$2.3bn (FJ$4.78bn). With other main cities such as Delhi, Pune, Chennai and Kolkata also requiring investment for new airports or airport development, the USD640 million in financing AAI was allocated is simply not sufficient. The budget also assigns USD140 million to the regional connectivity scheme (UDAN) project, which is India’s answer to improving accessibility to air travel in remote locations.
The financing will be used for the revival of 50 underserved or unserved regional airports and airstrips.
UDAN has had some early success, with 20 airports activated under the scheme so far. Reports vary, however the Government aims for between 50 and 70 airports to be connected under the scheme by the end of 2018.
While regional connectivity is a welcome initiative for any economy with a rising middle class, the fiscal benefit of operating these facilities is low, particularly in the short term.
The nature of heavily subsidising airlines to launch services to the airports renders the Indian Government in a difficult position.
As revealed by AAI chairman Guruprasad Mohapatra, only 15 of the 127 total airports being operated generate returns, while many of its airports are “more for strategic necessity, for connecting India within India”.
The Indian Government and AAI have a tremendous amount of work to do in order to realise, and enjoy, the monetary boost Indian aviation could eventually provide.