Analysis of India’s Aviation Sector
Kartavya Desk Staff
#### GS Paper 3
Syllabus: Indian Economy: Transportation Sector
Source: IE
Context: IndiGo’s recent order for 30 wide-body Airbus A350-900 aircraft has sparked interest in its plans for long-haul, low-cost air travel, and highlighted India’s booming aviation sector
What is a Long-haul, low-cost air travel model?
It extends low-cost carriers’ operations to non-stop, long-duration flights at reduced fares. Some examples include Scoot, Jetstar, and French Bee, which offer hybrid products and target underserved routes.
However, it faces challenges like higher fuel costs, increased operating expenses for wide-body aircraft, and maintaining efficient operations.
Status of India’s Aviation Sector:
Aspect | Details
Aviation Boom | India is the world’s third-largest domestic aviation market after the USA and China.
Infrastructure Development | The airport network has doubled from 74 in 2014 to 148 in April 2023, enhancing accessibility.
Regional Connectivity Scheme-UDAN | 517 RCS routes connecting 76 airports have facilitated air travel for over 1.30 crore people, promoting accessibility.
Passenger Growth | Post-Covid resurgence: Domestic airlines saw over 29% increase, and international airlines over 39% increase in passengers from Jan to Sep 2023 compared to 2022.
Carbon Neutrality | MoCA initiatives aim for carbon neutrality and net zero emissions at airports, with several airports already achieving carbon neutrality and operating on green energy.
Future Projections | India expects to handle over 140 million passengers in FY2024 and over 1.3 billion annually in the next 20 years.
Currently, there are 148 airports in India.
Factors propelling India’s aviation market:
• Rising incomes & middle-class expansion: Rapid urbanization and a burgeoning middle class led by economic growth have made air travel affordable and essential for more Indians. g. Number of middle-class households doubled to 29.5 million between 2001-2011.
• g. Number of middle-class households doubled to 29.5 million between 2001-2011.
• Increasing business travel demand: A growing economy and the rise of major industrial hubs have resulted in a greater number of people travelling to tier 1 cities and metros for work. g. Bangalore saw a 12% rise in businessman travellers in 2022 along with an IT sector boom.
• g. Bangalore saw a 12% rise in businessman travellers in 2022 along with an IT sector boom.
• Tourism sector prioritization and incentives: The government’s UDAN scheme offers viability gap funding for operationalizing underserved air routes, supporting regional tourism growth. g. The number of operational airports rose from 74 in 2014 to 140 in 2021.
• g. The number of operational airports rose from 74 in 2014 to 140 in 2021.
• Emergence of low-cost carriers: Airlines like Indigo, and SpiceJet have helped drive down carrier costs by up to 50%, enabling even lower and middle-income groups to access air transport. g. Indigo accounted for 57% domestic market share as of 2022.
• g. Indigo accounted for 57% domestic market share as of 2022.
• Policy reforms and foreign investments: 100% FDI allowance, lower jet fuel taxes, and digitization of processes have made the sector more attractive for foreign players to offer services. g. Air India was acquired by Tatas, a Vistara joint venture Reduction of GST rate to 5% from 18% for domestic Maintenance, Repair and Overhaul (MRO) services
• g. Air India was acquired by Tatas, a Vistara joint venture
• Reduction of GST rate to 5% from 18% for domestic Maintenance, Repair and Overhaul (MRO) services
Challenges faced by the aviation sector in India:
• High Fuel Costs: Aviation Turbine fuel constitutes around 40% of airlines’ operating costs. With one of the highest fuel taxation regimes, costs remain disproportionately high. g. ATF prices rose by 120% between June 2021-22 alone.
• g. ATF prices rose by 120% between June 2021-22 alone.
• High operating costs: High taxes on aviation turbine fuel (ATF) and airport charges contribute to increased operating costs. Some Indian states charge up to 30% taxes on jet fuel, which makes shorter flight routes unprofitable for smaller airlines.
• Some Indian states charge up to 30% taxes on jet fuel, which makes shorter flight routes unprofitable for smaller airlines.
• Infrastructure Constraints: Severe shortage of airport slots and hangars at key airports like Mumbai and Delhi causes bottlenecks. Also results in heavy delays and congestion. g. Mumbai allows only 32 flights at peak time against demand for 48 flights.
• g. Mumbai allows only 32 flights at peak time against demand for 48 flights.
• Financial Stress: Multiple carriers like SpiceJet, GoAir and Air India struggled with heavy losses in recent years. High ATF Prices, and cut-throat competition has had a detrimental impact. E.g. – Jet Airways.
• Regional Imbalance: In spite of UDAN scheme efforts, air connectivity remains constrained across remote regions in North East, and Central India with several operational challenges. g. Just 16% of all routes operational under the UDAN scheme are reportedly profitable so far
• g. Just 16% of all routes operational under the UDAN scheme are reportedly profitable so far
• Safety & Regulatory Issues: The rapid rise in passenger volume has made it difficult for the DGCA regulatory body to ramp up effective safety monitoring with limited staff strength. g.: DGCA currently has just 132 flight operation inspectors against sanctioned strength of 172 technical officers.
• g.: DGCA currently has just 132 flight operation inspectors against sanctioned strength of 172 technical officers.
Government Initiatives:
• UDAN Scheme (Ude Desh ka Aam Nagrik)
• National Civil Aviation Policy, 2016
• Open Sky Agreement
• Digi Yatra for Seamless Travel
Way forward:
• Rationalize ATF pricing and taxes: Bring ATF under the GST ambit to ensure input tax credit benefits, rationalize excise duties to 8-10% against 11% currently as the jet fuel burden is disproportionately high.
• Augment airport infrastructure: Fast-track investments via PPP models in new airports and existing airport modernization. Initiatives of state governments like Haryana, Telangana, UP.
• Initiatives of state governments like Haryana, Telangana, UP.
• Aviation Tourism Packages: To make India a hub of Aviation tourism, our aviation industry can collaborate with the tourism industry to create innovative aviation-based tourism packages, offering scenic flights, adventure experiences, and aerial photography tours.
• Strategic policy support for fiscal consolidation: Facilitate long-term capital investments for fleet expansion, and MRO infrastructure. Fiscal incentives for regional connectivity provided viability gap funding.
• Fiscal incentives for regional connectivity provided viability gap funding.
• Robust safety oversight: Boost investments for automated, real-time digital surveillance systems across airports. Use AI-based tools for predictive risk assessment. The Independent Airport Authority concept can raise monitoring capabilities.
• Customized regional connectivity support: Continue viability gap funding for regional flights but also incentivize leasing smaller capacity planes (less than 80 seater) at concessional rates for tier 2/3 city operations through dedicated financing schemes.
Conclusion
Aviation is integral to equitable economic growth, so India needs to focus on the growth of this sector to achieve equitable growth.
Insta Links:
• Civil Aviation in India
Mains Link:
Examine the development of Airports in India through joint ventures under Public–Private Partnership (PPP) model. What are the challenges faced by the authorities in this regard? (UPSC 2017)