TRADIENT

Aviation Sector in India

Aviation Sector in India: Growth, Challenges, and Key Industry Statistics

The Indian aviation sector has undergone significant transformations in the past decade, fueled by increased demand, infrastructure development, and strategic policy interventions.

The Indian aviation sector is witnessing an era of unprecedented growth, backed by robust demand, infrastructure investments, and supportive government policies.

The expansion of airports, increasing fleet size, and MRO growth highlight a bright future for the sector.

India’s aim to become a global leader in the aviation market is supported by ambitious projects, private sector participation, and a favorable business environment, setting the stage for further expansion and development in the coming years.

Tailwinds

Passenger Traffic

  • By FY24, India recorded a total passenger traffic of 376.43 million, with 306.79 million domestic and 69.64 million international passengers.
  • As of June 2024, 99.54 million passengers had already flown, with a forecasted annual growth rate driven by rising disposable incomes and greater access to aviation services.
  • The IBEF report projects a demand for over 2,200 aircraft by 2042, highlighting the massive expansion needed to meet rising air travel demand.
  • India’s aviation market has become the third-largest globally, with passenger traffic hitting 376.43 million by FY24.
  • This represents a compound annual growth rate (CAGR) of 7-9% over the past few years, driven by both domestic and international segments.
  • Domestic traffic recovered to 98% of pre-pandemic levels, while international traffic lagged slightly at 86%.

Projected Growth

  • The sector is expected to maintain this growth trajectory, with traffic expected to surpass 425 million passengers by FY25.
  • Major airlines have placed orders for 1,100-1,200 aircraft, indicating ongoing fleet expansion.

New Entrants

  • The approval of Shankh Air in 2024 highlights the industry’s attractiveness to new players, with the carrier positioning itself in the budget segment.

Airline Demand and Utilization

  • Domestic demand (Revenue Passenger Kilometer, RPK) increased to 148,251 million kms in FY24, while capacity (Available Seat Kilometer, ASK) reached 162,289 million kms, leading to an improved passenger load factor of 83.7%.
  • International traffic also shows robust growth with domestic and international aircraft movements reaching 2.143 million and 0.365 million, respectively.

Infrastructure Expansion

  • India is focused on increasing the number of operational airports from 153 to 220 by 2025, underlining substantial investments in the sector. Notable projects like the Navi Mumbai Airport and Jewar Airport are expected to significantly enhance capacity.
  • The UDAN (Ude Desh Ka Aam Naagrik) scheme, aimed at improving regional connectivity, has helped operationalize 73 airports across underserved regions, with more expansion planned.

Maintenance, Repair, and Overhaul (MRO)

  • The MRO segment, accounting for 12-15% of airline operational costs, is growing rapidly. Indian MRO services are expected to triple by FY28, driven by government support and increasing fleet size.
  • The Maintenance, Repair, and Overhaul (MRO) sector is poised to touch $3 billion by 2027, boosted by government policies like Krishi Udan 2.0 and investments in dedicated MRO facilities.
  • The government’s ambition is to make India a global MRO hub by 2030, handling most domestic and foreign aircraft maintenance needs.

Private Sector Investment

  • Private sector participation through Public-Private Partnerships (PPP) has seen significant growth, with 14 major airports operated under this model, including key hubs like Delhi, Mumbai, Bengaluru, and Hyderabad.
  • The sector is poised to attract $25 billion in investments by 2027, supporting infrastructure modernization and expansion projects.

Capital Expenditure

  • The National Infrastructure Pipeline (NIP) has earmarked ₹69,000-72,000 crore in investments between FY24 and FY28 for airport infrastructure.
  • Private sector participation is expected to fund 70-80% of this capex, highlighting the importance of Public-Private Partnerships.

Freight and Cargo Traffic

  • Freight traffic grew at a CAGR of 2.75%, with total freight handled in FY24 reaching 3.36 million metric tonnes (MMT).
  • The air cargo segment in India has seen consistent growth, with volumes expected to rise by 7% annually over the next four years, driven by increased e-commerce activity and pharma supply chains.
  • The focus on increasing cargo handling capabilities is expected to be a key growth driver, with projections for the sector to handle 17 MMT by FY40.

Opportunities

  • Rising middle class and income levels.
  • Policy support like 100% FDI in airline services and enhanced regional connectivity under UDAN.
  • Increased trade and global connectivity through strategic bilateral agreements.
  • Technological advancements like Digi Yatra, which uses biometric boarding systems, and infrastructure development in greenfield airports across India.

Policy Initiatives

  • The National Civil Aviation Policy and the Greenfield Airports Policy are critical in promoting expansion and modernization in the sector.
  • The Production Linked Incentive (PLI) Scheme for drones and MRO exemptions are expected to attract foreign investments and foster innovation.

Airline Profitability

  • The CRISIL Feb 2024 report highlights that the Indian aviation sector is experiencing strong financial recovery post-pandemic.
  • Airline operating profits nearly tripled in FY23, driven by a recovery in passenger demand and the ability to pass on increased fuel costs to consumers.
  • Despite debt levels doubling, strong operating profits (projected to grow by 20% in FY24) and equity infusions have improved credit metrics.

The Gist

  • The aviation industry was severely impacted by the pandemic, with traffic volumes dropping significantly in FY21.
  • However, a strong V-shaped recovery began in FY22, and by FY23, traffic levels were 95-96% of pre-pandemic figures.
  • Business travel and international traffic have been key drivers of recovery, with international routes resuming faster than expected.