Despite a slowdown in air travel demand due to the pandemic, especially in East Asia, India’s aviation industry has become one of the fastest-growing sectors domestically. The growth trajectory suggests that India could surpass the UK to become the third largest air passenger market by 2024. 

The sector is highly competitive, with numerous airlines striving to capture a larger share of the market ahead of a predicted surge in regional air travel. There are also opportunities for international expansion. Indian airlines have the advantage of accessing valuable Russian airspace, a privilege that Western and US-aligned airlines lost after condemning Moscow’s actions in Ukraine. 

The India Brand Equity Foundation (IBEF) projects that the aviation industry will contribute nearly $500 billion to the Indian economy through travel and tourism by 2028. The growing demand for air travel presents opportunities not only for airlines but also for maintenance, repair, and overhaul (MRO) services and other related sectors. 

Market Size and Growth 

The aviation industry is more expansive than it appears. The Air Transport Action Group (ATAG) reported in 2018 that the global air transport sector supports 65.5 million jobs and $2.7 trillion in economic activity. More than 10 million people work directly in the industry. 

ATAG also notes that aviation jobs are, on average, 4.4 times more productive than other jobs. The industry supports businesses and contributes to the development of sectors like tourism. 

The sector creates millions of jobs in various interconnected fields, including air traffic control, airport management, and MRO. However, passenger air travel and trade are the main drivers of the industry. 

Passenger Travel in India 

Air travel demand in India is rising, driven by its growing population, expanding workforce, and middle class. Recent years have seen demand growth consistently surpass supply, leading to high utilization rates. India’s domestic traffic accounts for 69 percent of South Asia’s total airline traffic, according to PRS Legislative Research. 

Delhi’s Indira Gandhi International Airport is currently the ninth busiest in the world based on scheduled airline capacity. Other major airports include those in Mumbai, Chennai, Bengaluru, Kolkata, and Hyderabad. 

Passenger numbers at India’s major airports grew significantly before the pandemic. Delhi airport saw an increase from 48 million passengers in 2016 to 69 million in 2019, while Kolkata’s traffic rose from 12 million in 2016 to 22 million in 2020. 

Air Freight in India 

ATAG reported that in 2017, air travel carried 35 percent of global trade by value ($6.0 trillion) but less than one percent by volume (62 million tons). As India’s economy grows, so does its demand for international trade and air freight. 

From FY 2016 to FY 2022, the volume of India’s freight traffic grew at a CAGR of 2.52 percent. However, the growth rate was much higher in the years leading up to the pandemic. Domestic air freight volumes have yet to recover to pre-pandemic levels. 

Both freight and passenger traffic have not yet returned to pre-pandemic levels due to ongoing impacts from Covid-19 on demand, trade, income, and supply chains. 

Investment and Supply Growth 

Airports: 

airports are vital components of the air transport value chain. India aims to increase its number of operational airports to 190-200 by 2040 in response to rising aviation demand. The Airports Authority of India (AAI) currently manages 137 airports, while the government reports that only 68 airports are operational under the Regional Connectivity Scheme. New Delhi aims to operationalize 100 airports by 2024 to enhance land and sea infrastructure. 

India’s airport capacity is projected to handle one billion trips annually by 2023, according to PRS Legislative Research. 

Before 2013, AAI was the primary entity responsible for airport development and upgrades. Now, there is greater involvement from both government and private sectors. The Government of India is supporting the development of 19 airports, including seven through Public-Private Partnerships (PPP). The Regional Connectivity Scheme aims to boost regional air connectivity by making it more affordable. 

The table below highlights some top private sector players involved in recent airport development. 

The IBEF predicts an investment of INR 420-450 billion (US$5.99-6.41 billion) in India’s airport infrastructure from FY 2018-23, although this estimate may have been revised downward due to the pandemic. 

Foreign investment in new aviation ventures, including airlines, can be up to 49 percent through the automatic route. However, 100 percent foreign investment is allowed in scheduled air transport services, regional air transport services, and domestic scheduled passenger airlines, but this requires government approval. 

Airlines 

In 2021, India’s domestic airlines operated just over 700 aircraft, with projections indicating a rise to 1,100 by 2027. This growth is driven by the entry of new players into the market. For instance, Akasa Air, founded by Indian billionaire Rakesh Jhunjhunwala, commenced its first flight from Mumbai to Ahmedabad on August 7, 2022. Akasa Air, among other new entrants, is adopting a low-cost model to attract budget-conscious travelers and will compete with existing budget carriers like IndiGo, SpiceJet, and GoFirst. Akasa Air’s strategy focuses on connecting metro cities with smaller towns across India. 

MRO (Maintenance, Repair, and Overhaul) 

The MRO sector in India is anticipated to grow alongside the passenger and freight industries, with projections estimating its value to exceed US$2.4 billion by 2028, up from US$800 million in 2018. The government has introduced a new policy to attract MRO investments, aiming to position India as a global MRO hub. This includes extending land leases for MRO facilities to 30 years, compared to the previous three-to-five-year terms. 

Currently, India holds only 2.5 percent of the US$80 billion global MRO market. 

Challenges 

India’s civil aviation sector has undergone significant changes in recent years, and the pandemic has further reduced the market size. Despite the promising future, the sector faces challenges such as debt and safety issues. High-debt airlines struggle to meet safety standards, exacerbated by the pandemic, which led to nearly three years of reduced flying activity. 

In late 2021, the Indian government resolved to clear Air India’s debts to banks, oil companies, airports, and aircraft lessors by the end of the fiscal year. This allowed the Tata Group to acquire Air India, Air India Express, and Air India SATS Airport Services Pvt Ltd for INR 180 billion through its subsidiary Talace Private Limited. Tata Sons is also working on integrating Air Asia with Air India, having increased its stake in Air Asia to 83.67 percent in December 2020, and also owns Vistara Airlines. 

Other Indian airlines have not been as fortunate, and their debt situations remain unresolved. A Times of India article from late July 2022 highlighted that IndiGo was the only financially stable regional turboprop operator in India. 

Before the COVID-19 pandemic, many airlines were already facing financial difficulties, with the pandemic causing losses exceeding US$2 billion for airlines and about US$500 million for airports, according to PRS Legislative Research. Air Odisha Aviation Pvt Ltd and Deccan Charters Pvt Ltd exited the market in 2020. Air India had reported losses for four consecutive years, while other major private airlines, including IndiGo and SpiceJet, also faced losses in 2018-19. 

Reputational issues have also plagued some airlines. For example, SpiceJet faced controversy recently due to several air safety incidents, which eroded customer trust and drew criticism from the aviation regulator. In early July, it was reported that the airline experienced eight malfunction incidents within 18 days. 

Despite these issues, India’s air safety record is favorable compared to the global average. In 2019, India had 0.82 accidents per million flights, compared to the global average of 3.02. This represents a significant improvement from 2014, when India had 2.8 accidents per million flights. 

Overall, as Indian airlines expand their services to international markets, they must balance competitive pricing with maintaining high safety standards.