As we head to Hyderabad for the fourth edition of India Aviation to be held from March 12-16, 2014, there is some uncertainty in the air. The industry per se is waiting for the imminent elections to be over and a stable government in place at the Centre. As for the aviation sector, it is going through a ‘mixed phase’ of airlines folding up or in deep financial trouble and of new airlines surfacing.

Adding to the uneasiness will be the T-effect. India Aviation is happening within weeks of the formation of a new Telangana. The organisers—the Ministry of Civil Aviation and the Federation of Indian Chambers of Commerce and Industry (FICCI)— are hoping to pull off a spectacular event despite the odds and also the disappointment of not having Ratan Tata, an iconic industry leader, to deliver the keynote address.

The Indian aviation industry is at its most critical phase. There is despair and yet there is hope. The brave ones, the ones with vision and the ones with a proper business model are going to remain in the business or else they will fold up. We have seen that happen to some of the best airlines here. Airlines in India have lost nearly Rs. 53,648 crore between 2007 and 2013 due to various factors and the woes are not over as yet with aviation turbine fuel and rupee depreciation continuing to play truant. Jet Airways is strapped with a debt of $1.9 billion, Air India is burdened with Rs. 40,000 crore, SpiceJet is reeling under Rs. 1,800 crore debt and Kingfisher failed to survive.

Presently, there are a plethora of negatives impacting the aviation sector, but the way forward certainly is to seize the positives and exploit the fleeting opportunities.

Kapil Kaul, CEO of CAPA (India and the Middle East), has said that there is a ray of hope and the industry will be better off in the next 12 to 18 months. He believes that post-2014, the industry will see a better operating environment and will return to sustainable growth.

The Positives

There is a growing realisation within the government that the industry needs policies that genuinely address their concerns. On the infrastructure front, there seems to be accelerated development with not just swanky airports coming up, but also functional ones in Tier-II and Tier-III cities which, experts believe, will lead to pan-India development. The government has come forward with a policy to boost regional aviation and the lead taken by the Vijayawada-based Air Costa is indeed commendable. It is reported that the government has approved nearly 15 applications for starting regional airlines and these should surface in the near future. One other factor that would propel the sector is foreign direct investment (FDI) in airlines now authorised up to 49 per cent by foreign carriers. In the pipeline are the Jet-Etihad deal, Tata-Singapore Airlines and Tata-AirAsia proposals. Airlines are expected to add around 370 aircraft (worth $ 27.5 billion) to their fleet by 2017.

What is it that some foreign airlines and also some daring Indian entrepreneurship see in the Indian aviation sector?

Growth of the Indian Economy

The obvious reason is that the Indian economy is expected to grow at a healthy pace, though at present it has come down to less than five per cent. With the metros bursting at their seams, there is a growing realisation of developing non-metros and as and when that happens the aviation sector is going to be benefited. The Airports Authority of India has already embarked on modernisation of 35 non-metro airports which is going to enhance regional connectivity like never before. The Twelfth Five Year Plan (2012-17) envisages investment of $12.1 billion in airports, of which $9.3 billion is expected to come from the private sector.

Growing Passenger Numbers

According to the Ministry of Civil Aviation, domestic air traffic that would be carried by the Indian scheduled airlines in 2020-21 is set to cross 159 million passengers. India’s air passenger traffic grew 4.43 per cent in 2013, reversing the decline of the previous year. Airlines carried 61.42 million passengers in 2013 against 58.81 million in 2012 and 60.66 million in 2011, according to the Directorate General of Civil Aviation (DGCA).

As regards the general aviation segment, India witnessed a significant growth in the number of non-scheduled airline operators with total number of operators now at 124 from 36 in 2000. Industry sources indicate that revenues of the General Aviation industry in India is expected to grow to more than Rs. 1,100 crore by end of 2016-17 growing at an impressive annual rate of 15 per cent. The fleet of non-scheduled air-craft both rotary- and fixed-wing, is 365 as of December 2013, according to the DGCA.

The Rotary Wing Society of India has identified growth areas for domestic helicopter industry to include emergency medical services, airborne law enforcement, energy restoration (repair of damaged electricity towers), aerial photography, relief and rescue operations, electronic news gathering, agricultural activities like spraying, etc and commercial services within and between cities.

The air cargo segment is trailing passenger growth and in the last 20 years has witnessed annual average growth rate of 8.6 per cent which is about one per cent lower than the rate of passenger growth. The long-term growth rates for international and domestic cargo are more or less the same and recent trends suggest that domestic air cargo is growing at a faster rate than international cargo to and from India.

Driving Factors

Expanding middle-income group, young demographic profile, rising urban population, growth of low-cost carriers, airport connectivity, etc. are all expected to boost the aviation industry.

Expanding Middle Income Group

These income groups drive the consumption pattern in India and are primarily concentrated in urban areas. The National Council of Applied Economic Research analysis reveals that the middle income group population in 2010 stood at 160 million, i.e. 13.3 per cent of the total population, which is expected to rise to 547 million in 2025, i.e. 37.2 per cent of the total population.

Demographic Dividend

Nearly 62 per cent of the population is in the working age group of 15 to 60 years and this proportion is set to increase in future indicating a larger employee base, greater business travel and greater economic activity. Rising Urban Population McKinsey Global Institute’s projections state that India’s urban population will be 590 million by 2030, i.e. about 40 per cent of the total population of India. The number of million plus cities will increase to 68 by 2030 of which 13 cities will have more than four million and six cities will have more than 10 million persons.

Significant Market Developments

The low-cost carrier (LCC) model which made air travel affordable for the common man got established firmly in the domestic market since 2004. This stimulated demand for air travel. LCCs along with the LCC brand of Full Service Carriers (FSCs) constituted 63.3 per cent of the market share. The domestic traffic is rapidly shifting towards the LCC model.

CAPA has forecast that 180 million domestic and 90 million International passengers will be there for India by 2020, as against 61 million in 2012-13 suggesting a growth of approximately three times the present traffic in 10 years. International passengers by 2020-21 will be 92 million implying a growth of about 2.4 times the traffic of 38 million in 2010-11.

Overall passenger traffic is set to grow at an annual average rate of 10.1 per cent in the next two decades. Over the period from 2010-11 to 2020-21 the rate of growth will be 10.7 per cent, according to the Ministry of Civil Aviation. Domestic traffic growth will be higher at 11.4 per cent than international traffic at 9.5 per cent for the next 20 years.

The numbers are there, it is just that the industry, the government and other stakeholders have to get their act right.