Indian Aviation Sector Will Continue To Thrive In Price Conscious Market
Since Indian air travellers would continue looking for more value for their money, the market will remain cost centric and therefore the country will develop its own unique model
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The air transport sector in India has its own set of unique problems. First, thanks to grossly inadequate infrastructure and lack of affordability, the local market has not been fully tapped. This, in spite of its huge potential for growth with its wide geographical expanse, large population and higher mobility. Moreover, high operational cost and slow pace of policy reforms had made the business environment highly unviable for service providers. And, more importantly, monopoly of the state and the policy discrimination kept the private sector at bay for several years in the past even as the bureaucracy at Air India restrained its own growth.
However, if the vibrant growth that the sector has seen in the last decade — both in terms of the number of service players as well as passengers — is any indication, the recent economic progress and gradual change in the policy framework have started transforming the market, say industry analysts and experts.
International Air Transport Association (IATA) predicts that India will have 6 million aircraft movements and 300 million passenger departures by 2030, based on a Goldman Sachs economic projection for the country. However, India as a strongly price conscious market and a high-cost operational region for aviation, needs to develop a unique model to achieve the expected growth.
While the Indian skies are getting crowded with new entrants currently, the failures of Paramount Airways, Skyline NEPC, Damania Airways, Modiluft, East West Airlines, Gujarat Airways and Span Air in the 1990s and the recent case of Kingfisher Airlines failure in 2012, all had their key triggers attributed to the high operational cost and lagged policy reforms.
The lower fuel cost and liberalised FDI norms no doubt helped the sector revive in the later part of this decade and the new policy reforms too are expected to help the sector to get away from the past perils. The government released the National Civil Aviation Policy in June 2016 and it covers the broader areas including rural connectivity, safety, and bilateral traffic rights and aeronautical ‘Make in India’.
The new reforms have also replaced the requirement of five years and 20 aircraft for international operation with zero years and 20 aircraft or 20 per cent of the total capacity (in terms of average number of seats on all departure put together) whichever is higher for domestic operations.
Although the Mumbai-Delhi air corridor is currently considered one of the busiest aviation routes in the world, India is yet to connect a vast number of rural regions within its network. Hopefully, the new rural connectivity plan under Ude Desh ka Aam Naagrik (UDAN) scheme will add another 31 currently unserved airports in the air transport network connecting additional 128 routes across the country shortly. The ministry has selected some 27 new proposals from five airlines, including Alliance Air, SpiceJet, TrueJet, Air Deccan and Air Odisha, to fly these 128 routes.
According to civil aviation transport data from Directorate General of Civil Aviation (DGCA), India’s air passenger traffic has shown 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 (both domestic and international) in 2016. In 2015-16, the number of domestic passengers grew almost 22 per cent, recording a traffic of 131 million passengers.
India is currently considered the third largest domestic civil aviation market in the world and it is projected that the country is expected to be the overall third largest aviation market by 2018. The market is also estimated to have 800 aircraft by 2020.
Since Indian air travellers would continue looking for more value for their money, the market will remain cost centric and therefore the country will develop its own unique model, say industry experts. Cost efficient investment in infrastructure, sensible capacity management and timing of investment, reasonable taxation, freedom to do business and effective use of technology will therefore be the salient features of Indian civil aviation when India reaches its 100 years of Independence.