Indian Aviation Industry

SaveSavedRemoved 0

The Indian aviation industry has emerged as one of the fastest growing aviation markets in the world. The number of air travelers in India has more than doubled in the past seven years.

Indian Aviation Industry: Overview

According to DGCA (Directorate General of Civil Aviation), India had 139 million domestic airline passengers in 2018 which is up from 117 million passengers in 2017 with a growth of 18.6 percent.

It is the highest domestic air passenger growth rate for a major economy, which is followed by China at 11.7 percent.

IATA projects that India will become the third largest air passenger market in the world by 2024 after it surpasses UK.

At present, United States is the single largest domestic airline market in the world. However, China is expected to surpass the US to become the world’s largest domestic airline market by mid-2020s.

Also read: Global Airline Industry Outlook 2019

Market Drivers

Strengthening Economy

Strong economic growth has helped the robust expansion of the Indian aviation industry. IMF has projected a real GDP growth of 7.3 percent for India in 2019 which is up from 7.1 percent in 2018.

IMF expects the growth momentum in India to continue and attain a growth of 7.5 percent in 2020.

This growth in the economy reflects into its population. The middle class population is India is already growing and along with the growth in economy comes the increase in purchasing power of its population as they have more disposable income to spend.

With increased income, more Indians are now considering air travel as a viable alternative to buses and railways.

New Airports and Infrastructure Development

To further aid the Indian aviation sector, the government has also been spending towards the infrastructure and airport development projects.

For this purpose, the Indian government has launched the Regional Air Connectivity initiative also known as UDAN scheme with an aim to build more airports and make air travel more affordable and widespread.

There are 410 regional airports in India, out of which 394 airports are unserved and 16 are underserved.

As of March 2019, Airports Authority of India (AAI) operates only 125 airports in India. Under the UDAN scheme, the Indian government plans to revive and further develop those unserved and underserved airports throughout India.

Indian Aviation Industry Challenges

Although this rapid growth and expansion of the Indian aviation industry is a good news to the airlines, there are several limiting factors in the Indian civil aviation sector at present.

One of the challenges for the airlines is the extremely low profit margin. To enter and capture new flight routes as well as to attract new customers, the airlines are offering extremely low air fares.

Thus, the same quest for rapid expansion and market share dominance has led the airlines in India to operate at an extremely low margin which might not be sustainable for a long run and the recent collapse of Jet Airways or the previous collapse of Kingfisher Airlines is a testimony to this argument.

Another issue is that the Indian airlines are witnessing fluctuation in jet fuel prices and Rupees (Indian currency) in recent years. Such scenarios put the airlines in tough financial situation.

Jet Airways Crisis

The airline which was once the largest and also considered one of the best airlines in India suddenly ceased operations in April 2019. It proves that it is extremely difficult to survive in the airline industry which constantly operates under various volatile external factors and extremely low profit margin.

When such an operational environment gets mingled with unplanned rapid expansion, unsustainable air fare, and questionable business acquisition (in this case Air Sahara), the chances of failure increases by multiple fold.

After the rapid growth of low cost airline such as IndiGo, Jet Airways which was a full-service carrier tried to compete with them head-on solely by reducing their air fare without improving their operational efficiency or restructuring their cost. This in turn resulted to be one of the fatal mistakes for Jet Airways.

The Indian aviation industry had earlier witnessed the same fate of its another airline ‘Kingfisher’ which ceased operations on October 2012. The recent crisis should be taken as a learning lesson by the Indian aviation industry so that no another ‘Jet Airways Crisis’ is repeated in the future.

Largest Airlines in India

Here are the list of five largest airlines in India:

IndiGo: IndiGo is a low cost airline and also currently one of the fastest growing airlines in the country. IndiGo accounted for nearly 39 percent of the Indian aviation market share in 2018.

SpiceJet: SpiceJet is also a low cost airline which started operations in May 1993 and accounted for nearly 13.2 percent of the market share in 2018.

Air India: Air India is a full service carrier and also one of the oldest airlines in India. Air India accounted for nearly 13 percent of the Indian aviation market share.

GoAir: GoAir is another popular low cost airline which started operations in November 2005. GoAir accounted for nearly 8.5 percent of the market share in 2018.

AirAsia India: AirAsia India is a subsidiary of the AirAsia group. It’s also a popular low cost airline in India and is a relative new entry to the market which started operations in June 2014. The airline accounted for a market share of 3.7 percent in 2018.