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Topic: Indian Aviation: Current Infrastructure Bottlenecks

and Prospects

Current Infrastructure Bottlenecks

Tourism Essay
Published: 23, March 2015

Air travel is a large and growing industry in the world as it facilitates tourism,
international investment and economic growth and thus helps in globalization in
many countries. Travel for business and leisure has increased considerably in last
few years, except at the time of recession. Exhibit Business travel has increased
due to the open economy of many developing countries which results in smooth
entry and exit of the companies in terms of their trading policy, customers,
investments and supply and production chains. Developing countries also realized
the importance of tourism which brings-in more foreign currency in their economy
and which helps in developing resorts and infrastructure to attract international
tourists thereby increasing the number of air travellers (Standford University website,
The global aviation industry is expected to grow at a Compounded Annual Growth
Rate (CAGR) of 5.6% in the period of 2004-2024. It is forecasted that the major
conventional matured airline markets like US and Europe will have market share of
52% in 2025. Exhibit shows the air traffic distribution all over the world. At present it
is mainly shared by US, Europe and Asia Pacific countries. Exhibit shows the
projected growth rate of these Asia Pacific regions in the period of 2006 to 2025.
Thus, the future growth of airline industry lies in this Asia pacific region mainly China
and India. (LLC, 2007)

Aviation Industry in Asia Pacific

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In the upcoming years, this region is forecasted to be the highest growing region in
the world aviation industry. (Exhibit- sh ows the forecasted data till 2029). The
dynamic nature of economy is the key factor in this market.
The key indicators for the growth of this industry are:
Airplane fleet
Number of passengers
Airline traffic
Cargo traffic
The world aviation industry body International Air Transport Association (IATA) had
said that carriers in the Asia-Pacific region mainly India and China have posted

highest profits of $7.7 billion in 2010, overtaking airlines in North America and
Europe. Emerging markets like China and India have shown great opportunities for
civil aviation sector in the recent years. The volume of passengers and cargo has
increased by around 7% in 2010 compared to in the year 2006. Freight traffic in
Hong-Kong, one of the major cargo hubs in the world has grown by 34%. Shorter
haul flying, including domestic and international travel within the region will grow
7.1% per year. Air cargo growth is estimated to be 6.8% per year during the next 20
years. In order to meet the demand of growing passengers and cargo, the number of
airplanes will nearly triple from 4110 in 2009 to 12,200 in 2029 shown in exhibits ().
(Boeing website)

Indian Aviation industry

India is the 9th largest aviation market and one of the fastest growing industries in
the world. It has grown by about 400% in a short span of 6 years. Government's
open policies have allowed many overseas players to enter in the market resulting in
growth both in terms of players and number of aircrafts. By now, around 75% of the
domestic market is owned by private companies. (Aviation industry in India, 2009)
Earlier, air travel could only be afforded by few people and that too mainly for
business purposes. But now, with low fares due to increased demand and
competition, number of passengers has increased drastically. The growth rate of
number of passengers in India can be seen in exhibit number.
"India's civil aviation passenger growth, at around 20 per cent, is among the highest
in the world. The sector is slated to cruise far ahead of other Asian giants like China
or even strong economies like France and Australia. The number of passengers who
will be airborne by 2020 is a whopping 400 million" according to Kapil Kaul, CEO,
India and Middle East, Centre for Asia Pacific Aviation. (Overview, Indian aviation
Industry, 2009)
Notable reasons for massive growth of the industry areRise in Indian economy
Liberalization of aviation sector
Low Cost Carrier (LCC) flights
Government policy of 100% equity allowance in Greenfield airports

Low entry barriers

Exponential increase in tourist number due to open sky policy
Glamour of airlines
The liberalization has lead to the entry of private operators for business
opportunities in India. The airlines choose an aircraft which is fuel efficient in order to
provide low fares. More and more airlines are looking for fuel efficient aircraft
thereby, increasing the competition in the market leading to huge cut in air fares
resulting in massive growth of the industry. This growth has increased Indian GDP
above 8% level. Moreover, it has also resulted in the increase in air traffic at a rate of
25% in the travel segment which is four times above international average. (Role of
aviation in Indian GDP)

Services provided by Aviation Companies

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Different types of services are provided by these aviation companies:

Normal passenger scheduled flights
Cargo Sevices
Charter flights for pilgrimage in India
Corporate jets
Executive jets
Hence there are different types of customers in the different segments both regional
and international.

Indian aviation industry was introduced in 1911 with Karachi-New Delhi flight. In
1932, JRD Tata first introduced Tata airlines which in turn converted to Air India in
1946. In 1953, Government of India nationalized all airline assets and formed Indian
Airline Corporation for domestic air services along with Air India for international
services. Until 1991, these two companies played monopoly in India. In 1991,
Government of India allowed private companies to operate chartered and nonscheduled airlines to uplift Indian tourism, followed by permitting scheduled services
in 1994. After that, major changes have occurred in this segment only in last decade
i.e. after 2000. (Aviation Industry in India, 2009)
The decade started with just three home grown players in the market- Air Sahara,
Jet Airways and Air India. In 2003, Air Deccan came into the segment and
introduced low airfare carrier, making the common man's dream of flying, come true.
It created revolution in the industry and many more budget airlines like Spice Jet, Go
Air and Indigo followed to enter in the market in next three years. At this time,
Kingfisher airline was introduced and acquired Air Deccan. At the same time, Jet
Airways bought out Air Sahara.
This sudden emergence in the aviation sector forced government to privatize major
metro airports. Due to so much of privatization, Air India started making losses and

Government finally merged Air India with Indian Airlines. Soon after, global crisis
occurred and aviation industry took a hard hit. Fuel prices soared, air traffic dipped.
No company made a profit at this time and many were about to close their services.
By the end of November 2009, aviation sector has accumulated loss of around 1.7
billion USD. (A decade of booms and bust-ups for the aviation industry, 2010)
Current Infrastructure of Indian Aviation Industry
Civil aviation forms a very important infrastructure in boosting trade and commerce.
Nearly 30% of India's foreign trade is handled by airports.
Key findings of current Indian aviation infrastructure areCurrently, there are 454 airports and airstrips in India out of which, 16 are
international and 111 are domestic airports.
97 Airports are operated by AAI (Airport Authority of India).
A Greenfield airport is already operational at Bangalore and one at Hyderabad is
going to be operational soon.
Delhi's IGI Airport is business airport currently handling an average of 843 flights per
Hyderabad airport ranked among top five airports of India in annual Airport Sevice
Quality (ASQ) Survey. It is managed by public private joint venture of GMR group,
Malaysia Airport Holding Berhad and State Government of Andhra Pradesh.
India currently owns 335 aircrafts which is likely to increase to 1000 by 2020.
(Overview, Indian aviation Industry, 2009)

Air Traffic
In the recent years, the free flow of goods and services in these emerging
economies has contributed to increased air traffic and consequently demand for new
airplanes related services. Exhibit-2 shows the increasing demand for airplanes and
their carrying capacity in the next 20 years which indicates the future problem of air
traffic. The demand of the number of airplanes after 20 years is almost double as
compared to the present level. From the exhibit, it can be seen that the highest
increase in the demand of the size of airplanes is in the category of the single aisle
airplanes, which means that it will lead to a serious problem of air traffic and the

availability of airports. According to Air India, while the domestic market witnessed a
growth of 22 per cent in the January-April period this year compared to the same
period last year, its domestic traffic posted a growth of 26 per cent. (Air India clocks
16.7% growth in number of passengers, 2010)
Exhibit - 3 shows that there is a direct relationship of GDP of a country to the air
traffic in the last four decades. Hence, in the developing nations like India wherein
GDP is expected to grow at a faster pace, the growth of air traffic is correctly
forecasted to be tremendous.

Future Challenges:

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As India have placed the biggest order for aircrafts globally it's an indication to the
increase in the handling problems-

Pushing more private players in airport activities

Modernization of airlines fleet to handle the growing competition
Rapid expansion plans for the major airports
Development of regional airports
Airline foreign investment and liberalization stimulates competition, provides
passengers more choices and lowers ticket prices thus increases the demand for air
travel, contributing to GDP growth.
Recent advances and investments in this industry show hidden potential and its
growth story. This growth provides hassle free service to more customers and
destinations and creates more job opportunities and growth for several other
aviation related businesses.

Current Infrastructure Bottlenecks of Indian

Aviation Industry
As seen from the given data of this report, Indian aviation industry is one of the
fastest growing industries in the world. Number of passengers in 2009, travelling
through airline was 393.53 lacks. This number has increased by 18.93% to 468.09
lacks in 2010. This is estimated to be growing to two to three folds till 2020. While
the number of passengers and demand for other services are increasing with an
amazing growth rate, the number of airports, aircrafts and overall investment
forecast shows that there is going to be huge demand supply gap in upcoming
future. (Corporate News, india Infoline, 2010)
In the 11th Five year plan (2007-2012), the government noticed the increasing
growth rate of aviation industry and taken steps to improve overall infrastructure of
the industry. 11th plan showed a massive budget for investing in aviation industry
which is around 3 times more than previous one But even after these efforts, the
demand is increasing to such a level in last 2 years i.e. after fragile recovery from
crisis that infrastructure is again becoming the bottleneck of the aviation industry.
(Eleventh Five Year Plan (2007-2012), 2007)
Key points of current bottlenecks of aviation industry are-

Lack of aircrafts- "The growth in the first-half of 2010 has been 22 per cent.
However, it will not sustain and we think that about 12-15 per cent will be a
sustainable one. Indian air-carriers' total fleet-size currently stands at 335 and at a
passenger growth rate of 12-15 percent annually, they will need 35-40 planes per
year to meet this demand. India will have the highest growth in the next 20 years on
a sustainable basis." Said Dinesh Keskar, Boeing India president. The demand
forecast till 2020 shows that there will be around 100 million for aviation industry in
2020 (Aviation industry in India, 2009). That means India's aviation infrastructure
must be enough to handle 100 million customers in 2020, which is approximately 20
times the present one. The growth rate in aviation infrastructure is far less than
required and it doesn't seem to be fulfilling demand in 2020. And even at present,
there is less number of aircrafts and airports. So this issue, if not handled properly,
will have a snowball effect on the industry and going to be a major issue in
upcoming years.
Lack of skilled manpower- Skilled workforce helps proper control and back-up to
several schedule/ non-schedule operations. There is a shortage of skilled manpower
and Air Traffic Controllers (ATC) in aviation industry, which in turn, leads to a cutthroat competition for employees as a consequence of which, wages rises to an
unsustainable level. It again hampers the growth of the industry by increasing overall
costs of the airlines and thus reducing demand. Another issue of concern of
inadequate manpower is that unskilled or semi-skilled employees are not capable of
handling demand efficiently. This issue also creates a bottleneck in the industry.
Overall we can say that in upcoming years, this is going to be a big concern for
aviation industry and will hamper growth to a major extent. (Indian Aviation Industry:
Issues & Challenges)
Lack of Airports and other related facilities- Due to less number of airports and their
individual capacities, congestion costs are increasing. Many flights get delayed due
to inadequate infrastructure facilities. This in turn, increases the overall operating
costs of airlines resulting in fewer profits especially for low cost carriers (LCC)
airlines. This forces airlines to increase their fare which is detrimental to growth of
the industry as increment in fares leads to reduction in demand. Also, regional
connectivity is a big issue in hampering growth of the industry as more and more
cities are developing in terms of business and investments. For example, Bhopal,
capital of Madhya Pradesh, has a limited airport capacity and flights are available

only for Delhi and Mumbai. Other facilities at airports, like restaurants, also have
limited capacities as compared to demand.

Efficient management of this Airport infrastructure can be achieved by increasing
involvement of private sector
Proper coordination with other modes of transport for trade and travel should be
Proper world class infrastructure need to be done in order to maintain the growing
demand and ensuring maximum utilization of available capacities.
The development and implementation of the modernization of Air traffic
management will increase system capacity; lower operating costs for the aviation
companies, reduces fuel burn, and improves the passenger's experience as delays
and cancellations are reduced. Due to the lack of infrastructure improvements,
capacity constraints will hinder industry growth.
Giovanni Bisignani, Director General and CEO of the International Air Transport
Association (IATA), has called on India to give direction to the efforts in shaping
future aviation policies, including environment and commercial freedoms. "In a few
years, Asia Pacific will be the largest single aviation market. India is a key driver of
that growth. India's enormous size makes it an important market." (Overview, Indian
aviation Industry, 2009)

The Road Ahead

Government Actions:
A projected investment of $ 8.5 billion is planned in 11th plan for the development of
Indian airports.
Another Greenfield airport is planned at Navi Mumbai by public private partnership.
Over the next five years, Airport Authority of India has planned a massive investment
of US$ 3.07 billion - 43 per cent of which will be for the three metro airports in
Kolkata, Chennai and Trivandrum, and the rest will go into upgrading other nonmetro airports and modernising the existing aeronautical facilities.

The demand for corporate jets in India has gone up considerably in the past few
years and is likely to grow two-fold by the end of 2011. To further fuel the rapidly
growing private jet industry, the government has plans of developing over 300
redundant airstrips in the country. The work will be carried out in a phased manner
subsequent to the expansion and development of 35 non-metro airports by 2010.
The government plans to focus on airstrips near major cities in order to relieve major
airports from their burgeoning traffic.
Additionally, the government is also considering a new policy to permit private
airstrips in the country. The Indian civil aviation minister, Praful Patel has said that
India will require around 300 to 400 private jets in the next three to five years. The
demand for private jets can even see a growth rate of about 50 per cent on a yearto-year basis.
A sum total of $110 billion has been planned to be invested till 2020, out of which
$80 billion is for adding new aircraft. The aviation ministry is planning to invest the
remaining $30 billion for modernizing the existing airports in order to handle the
growing number of passengers every year. (Overview, Indian aviation Industry,
Exhibit 1: Growth of aviation industry region wise and its measures
Source :
Exhibit 2: Demand of Airplanes by type (Worldwide)
Exhibit 3: Forecasted growth and share of fleet
Source: http://www.boeing.com/commercial/cmo/asia-pacific.html
Exhibit 4: Direct relationship between GDP of a nation and the air traffic growth
Source: http://www.airbus.com/en/gmf2009/data/images/p32.jpg

Exhibit 4: Market share of different Indian aviation companies

Name of the company

Market Share
Jet Airways and Jet Lite (previously Air Sahara)
Kingfisher Airlines and Kingfisher Red (previously Air Deccan)
Exhibit 5: Market share of different economy
Source: http://www.airbus.com/en/gmf2009/data/images/p45.jpg
Exhibit 6: Forecasted Traffic volume in 2028 in terms of multiple of current volumes
Source: http://www.airbus.com/en/gmf2009/data/images/p53b.jpg
Exhibit 7: Forecasted traffic volume in terms of numbers
Source: http://www.airbus.com/en/gmf2009/data/images/p55b.jpg

Exhibit 8: Forecasted air traffic in India


Retrieved from (http://www.investopedia.com/features/industryhandbook/airline.asp)
on 14 Jan 2011
Retrieved from (http://www.boeing.com/commercial/cmo/asia-pacific.html)
Retrieved from (http://adg.stanford.edu/aa241/intro/airlineindustry.html)


Retrieved from (http://www.ibef.org/download/airport_upgradation.pdf)

Retrieved from (http://www.boeing.com/commercial/pdf/geopolitical_trends.pdf)
Retrieved from
Retrieved from
Retrieved from

Indias civil aviation industry is on a high-growth trajectory. India aims to become the
third-largest aviation market by 2020 and the largest by 2030.
The Civil Aviation industry has ushered in a new era of expansion, driven by factors
such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in
domestic airlines, advanced information technology (IT) interventions and growing
emphasis on regional connectivity. India is the ninth-largest civil aviation market in the
world, with a market size of around US$ 16 billion.India is expected to become the third
largest aviation market by 2020#.

The world is focused on Indian aviation from manufacturers, tourism boards, airlines
and global businesses to individual travellers, shippers and businessmen. If we can find
common purpose among all stakeholders in Indian aviation, a bright future is at hand
said Mr. Tony Tyler, Director General and CEO, International Air Transport Association
Market Size

In May 2016, domestic air passenger traffic rose 21.63 per cent to 8.67 million from 7.13
million during the same month of last year. Passenger traffic during FY 2015-16
increased at a rate of 21.3 per cent to 85.57 million from 70.54 million in the FY 201415.
In March 2016, total aircraft movements at all Indian airports stood at 160,830, which
was 14.9 per cent higher than March 2015. International and domestic aircraft
movements increased 10.5 per cent and 16.0 per cent, respectively, in March 2016.
Indian domestic air traffic is expected to cross 100 million passengers by FY2017,
compared to 81 million passengers in 2015, as per Centre for Asia Pacific Aviation
India is among the five fastest-growing aviation markets globally with 275 million new
passengers. The airlines operating in India are projected to record a collective operating
profit of Rs 8,100 crore (US$ 1.29 billion) in fiscal year 2016, according to Crisil Ltd.

According to data released by the Department of Industrial Policy and Promotion

(DIPP), FDI inflows in air transport (including air freight) between April 2000 and
December 2015 stood at US$ 612.53 million.
Key investments and developments in Indias aviation industry include:

Airbus SAS has signed an agreement with Karnataka-based Aequs Aerospace, an aircraft component maker, for
the supply of over 100,000 titanium machined parts for its A320 new engine option (NEO) aircraft.

Lockheed Martin Corporation plans to make India a manufacturing base for its F-16V fighter jets, C-130J Super
Hercules military transport planes and helicopters.

Auto components maker Bharat Forge Ltd (BFL), the flagship company of the US$ 3 billion Kalyani Group, has
formalised agreement with Rolls-Royce Plc, under which BFL will supply critical and high integrity forged and
machined components for a range of aero engines.

Boeing, has outlined the companys long term commitment to investing in India in terms of funds as well as skills,
capabilities, infrastructure and partnerships so as to help the aerospace sector build capacity and become one of
the drivers of the Indian economy.

The Ministry of Civil Aviation has signed Memorandum of Understanding (MoU) with Finland, Kazakhstan, Kenya,
Sweden, Norway, Denmark, Oman and Ethiopia for increased co-operation between the countries in terms of
additional seats, sharing of airlines codes, increased frequencies and additional points of call, during the
International Civil Aviation Negotiations (ICAN),2015 held in Antalya, Turkey.

Tata Advanced Systems (TASL) has signed a joint venture with American aircraft manufacturing major, Boeing, to
establish a centre of excellence for manufacturing aerostructures for Apache helicopter initially and collaborate on
integrated systems development opportunities in India in the long term.

US-based aircraft manufacturer Boeing plans to assemble one of its two helicopters namely, Chinook (heavy-lift) or
Apache (attack type) in India, thus becoming yet another global company to invest in India encouraged by the
Make in India campaign.

Airbus, leading European aircraft manufacturer, plans to invest US$ 40 million to set up a pilot and maintenance
training center in New Delhi, which will be operational by the end of 2017.

Airbus also expects Indias aviation industry to grow at over 10 per cent annually in the next decade, almost double
the average growth rate of the global aviation industry.

Government Initiatives

Government agencies project that around 500 brownfield and greenfield airports would
be required by 2020. The private sector is being encouraged to become actively
involved in the construction of airports through different Public Private Partnership
models, with substantial state support in terms of financing, concessional land
allotment, tax holidays and other incentives.
In the Union Budget 2016-17, the government introduced various proposals for
Maintenance, Repair and Overhaul (MRO) operations for airplanes. These include
customs and excise duty exemption for tools and tool-kits used in MRO works. The
government has also scrapped the one-year restriction for utilisation of duty free parts
apart from allowing import of unserviceable parts by MROs for providing exchange. As
per revised norms, the foreign aircraft brought in to India for MRO work would now be
permitted to stay up to six months or as extended by aviation regulator Directorate
General of Civil Aviation (DGCA). Such foreign aircraft would also be henceforth
permitted to carry passengers in the flights at the start and end of its period of stay in
Some major initiatives undertaken by the government are:

The Ministry of Civil Aviation has finalised and put forward for approval to the Union Cabinet, the new aviation
policy, which includes proposals such as allowing new airlines to fly abroad, introduction of more regional flights
and a new formula for granting bilateral flying rights.

The Indian Space Research Organisation (ISRO) has signed a memorandum of understanding (MoU) with the
Airports Authority of India (AAI), aimed at providing space technology for construction of airports.

Airports Authority of India (AAI) plans to develop city-side infrastructure at 13 regional airports across India, with
help from private players for building of hotels, carparks and other facilities, and thereby boost its non-aeronautical

Directorate General of Civil Aviation (DGCA), India's aviation regulator, has signed an agreement with United
States Technical Development Agency (USTDA) for India Aviation Safety Technical Assistance Phase II, aimed at
bringing in systemic improvements in the area of operation, airworthiness and licensing.

The Government of India has given site clearance to Delhi Mumbai Industrial Corridor and Development
Corporation (DMICDC) for setting up of a Greenfield Airport for public use near Bhiwadi in Alwar district of
Rajasthan and has granted 'in-principle' approval to 13 other greenfield airport projects.

The Airports Authority of India (AAI) plans to revive and operationalise around 50 airports in India over the next 10
years to improve regional and remote air connectivity.

Gujarat is expected to get a second international airport at Dholera. The state government has formed Dholera
International Airport Co. Ltd. and is obtaining approvals from the union government.

The Directorate General of Civil Aviation (DGCA) has given its approval to Air Indias maintenance, repair and
overhaul (MRO) unit.

The Government of India has decided to award airports in Kolkata, Chennai, Jaipur and Ahmedabad on
management contract. AAI has issued the Request for Qualification document for these four airports.

Road Ahead

Indias aviation industry is largely untapped with huge growth opportunities, considering
that air transport is still expensive for majority of the countrys population, of which
nearly 40 per cent is the upwardly mobile middle class.
The industry stakeholders should engage and collaborate with policy makers to
implement efficient and rational decisions that would boost Indias civil aviation industry.
With the right policies and relentless focus on quality, cost and passenger interest, India
would be well placed to achieve its vision of becoming the third-largest aviation market
by 2020 and the largest by 2030.
Exchange Rate Used: INR 1 = US$ 0.0149 as on May 16, 2016
References: Media Reports, Press Releases, Press Information Bureau, Directorate
General of Civil Aviation (DGCA), Airports Authority of India (AAI), Union Budget 201617
Notes: # - According to the FICCI-KPMG India Aviation Report 2016

Indian Airports Analysis

Latest update: January, 2016

Healthy Growth of Passenger Traffic

Total passenger traffic stood at a 106.45 million in FY 2016*.
Passenger traffic increased by 12.47 per cent in FY 2015.
Growth in passenger traffic has been strong since the new

millennium, especially with rising incomes and low-cost

aviation passenger traffic expanded at a CAGR of 3.8 per cent over FY 200616*.

opportunities in Indian aviation
India is poised to attract large investments in aviationtraining and in maintenance, repair
and overhaul (MRO) facilities, as aircraft manufacturers tap growth opportunities. Strong
passenger growth on both domestic and international routes, combined with the
government's push for regional connectivity and the Make in Indiacampaign, are attracting
original equipment manufacturers and foreign airlines. India is the ninth-largest civil
aviationmarket in the world, with a market size of $16 billion and estimated to become the










The fifth edition of the Hyderabad air show, which concluded on Sunday, became a
showcase of emerging opportunities in Indian aviation. Experts, however, are skeptical of
the air show's outcome, pointing to the gaps in the government's reform intent and delivery.

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Pawan Hans announces two maintenance,

repair and overhaul (MRO) pacts for
defence and Airbus choppers

Airbus announces investment worth Rs 260

crore for pilots and maintenance training
centre near Delhi

Telangana government signs an agreement

with Aero Campus Aquitaine of France for
setting up an MRO training centre

While there were no big-ticket aircraft orders this time (SpiceJet had signed the order for
42 Boeing 737 Max in the last edition in 2014), there were announcements related to MRO
units, aviation training and helicopter assembly plant during the show.
Pawan Hans announced plans to set up MRO facilities for military and Airbus helicopters.
While the government has not accepted the aviation sector's demand for abolition of service
tax on MRO activities, Civil Aviation Secretary R N Choubey tried to assuage delegates at
the air show stating the airlines can claim a set-off or a credit equivalent to the tax payable
High taxes, coupled with a lack of adequate capabilities, have been the bane of the MRO
sector in India, which results in 90 per cent of airline maintenance contracts going outside
There is enough demand for MROs in India from local and foreign airlines but it is critical for
service providers to acquire international certification, said Rajeev Gupta, chief executive
officer of Indamer, which plans to invest Rs 400 crore to develop an MRO facility for narrowbody
Airbus announced Rs 260 crore investment in a pilot training school near Delhi and
Telangana government a tie-up with French institute Aero Campus Aquitaine to set up a
Airbus and Boeing are increasing their investment footprint and sourcing components for

civil and military aircraft and helicopters from vendors in India. The plane makers
outsourced $500 million worth of components and engineering services each from India last
year. They look to increase collaboration further. Both Airbus and Boeing have no plans to
set up final assembly lines for civilian aircraft in India as the country still remains a small
Textron, however, announced in Hyderabad that it was seeking partners to manufacture Bell
In 2015, domestic airlines flew 81 million passengers, with 20 per cent year-on-year growth,
making India the fastest growing market. International air traffic, too, is growing at eight per
cent and Gulf airlines including Emirates and Qatar Airways are pitching for higher traffic
For long, India has been a laggard in the world of aviation. The combined fleet size of all
airlines in the country at around 430 planes is smaller than South West Airlines of the US,
But, things are changing now. Indian carriers IndiGo, GoAir, Jet Airways, SpiceJet and Air
Costa collectively have 650 aircraft on order. The growing middle class and the absence of
a high-speed road and rail network have boosted air travel's potential in the country.
"As operators, we feel bullish about India's prospects in aviation. With the increase in
disposable income, customers now spend more in the airports, which is boosting the
revenue. If one is looking at India's prospects, low fares and increased capacity will make
our airports vibrant," said K Narayana Rao, director of Delhi International Airport.
Airbus and Boeing estimate India will need 1,610 and 1,740 jets, respectively, over the next
20 years, in their latest market forecast. Turboprop aircraft makers such as ATR and
Bombardier, too, are optimistic about the demand for their planes, with the government's
While metros account for the bulk of domestic air traffic at present, civil aviation secretary R
N Choubey is hopeful that the next wave of growth will come from regional and remote area
routes. The government plans to propel services on these routes through sops and viability
gap funding (VGF). VGF means a grant to support infrastructure projects that are
Currently, only 75 airports in the country have a scheduled airline service. There are 350
unused airstrips, many built during the World War II. Reviving them and linking the small
towns are high on the government's agenda. Reviving an existing air strip would be easier
as it would save the time taken in land acquisition, Choubey said at the air show.
"The government is planning to invest around $120 billion in development of airport
infrastructure and aviation navigation services over the next decade. The deeper air

penetration to smaller cities, better connectivity to north-eastern part of India, and higher
disposable incomes of the middle class are expected to further propel the growth of Indian
civil aviation sector," President Pranab Mukherjee said inaugurating the air show.





03-May-2013 16:07 IST

Government Envisages Investment of US $ 12.1 Billion in the Airport Sector

Civil Aviation Minister, Shri Ajit Singh, while launching the India Aviation
2014 today in New Delhi, said that rapidly expanding air transport network
and opening up of the infrastructure to private sector participation have
fuelled the growth of air traffic in India. He further said that the Government
has envisaged an investment of US $ 12.1 billion in the airport sector during
the 12thPlan period. The text of his address is as follows:
Civil Aviation is a key infrastructure sector that facilitates the growth of business,
seamless flow of investment, trade and tourism, with significant multiplier effects
across the economy. The aviation sector is one of the prime movers for economic
growth and a strategic element of employment generation, besides providing air
transport for passengers and goods. Over a third of world trade by value is
delivered by air and about half of international tourism is facilitated by air links.
Aviation has created a global community based on the connectivity it provides. In a
world of decreasing barriers to trade, the civil aviation industry remains a unique
engine for innovation and technological progress, one that provides infrastructure
that keeps the nation competitive.
Rapidly expanding air transport network and opening up of the airport
infrastructure to private sector participation have fuelled the growth of the air
traffic in India. The Indian airport system is poised to handle 336 million domestic
and 85 million international passengers by 2020, making India the third largest
aviation market.
In order to stimulate air connectivity, airlines are expected to add around 370
aircrafts, worth US$ 27.5 billion, to their fleet by the year 2017. Moreover, it is
estimated that commercial fleet size is expected to reach 1000 from 400 today by
2020, and one thousand General aviation aircrafts by 2020 including fleet renewal.

Estimated investment requirement for the General aviation aircrafts alone is of the
order of US$ 4 Billion.
Indian government has envisaged investment of US $12.1 billion in the airports
sector during the 12th Plan period, of which US $ 9.3 billion is expected to come
from the private sector for construction of new airports, expansion, modernization
of existing airports and development of low cost airports to keep the tariff at its
minimal at smaller airports, improvement in connecting infrastructure,
development of world class Air Navigation Services infrastructure. At the same
time, in order to develop world class ground handling, cargo, logistic facilities
including high-output distribution centers at major airports, huge investment is also
Indian Government is committed for the development of the sector and has
introduced several policies and regulatory reforms to encourage private
participation and investments in the sector. There have also been several initiatives
in the regulatory framework for propelling the aviation sector to new heights
despite the challenges faced due to rising fuel costs, fierce competition and
infrastructure bottlenecks. Recently, we have allowed 49% FDI by the foreign
carriers in domestic airlines which are going to provide much-needed relief to the
domestic aviation industry, reeling under the pressure of mounting losses and
rising debt burden. Some carriers like Tata Air Asia and Jet Airways
Etihad have already announced their collaboration which is expected to boost
civil aviation both domestically and internationally. Further, Indian carriers have
been allowed to import ATF directly.
Recently, the Aircraft Acquisition Committee has been abolished to liberalise the
acquisition of aircraft by the scheduled, non-scheduled airlines, flying institutes
and for private use, which will give impetus to the growth and expansion of
airlines in India. Henceforth, no permission for acquisition of aircraft will be
required from the Ministry of Civil Aviation and they will be free to acquire
aircrafts as per their business plan and requirements. This decision will minimize
delays in seeking approvals and avoid the cumbersome procedures which airlines
were supposed to follow before acquiring an aircraft. The decision will help
airlines to plan better for future induction of aircraft and also maintain timeliness
of acquisition.
The Government has also allowed Flexi Use of Airspace by civil and military
users, which permits them to efficiently and effectively utilize the available
airspace on sharing basis. It would result in optimum usage of airspace,

enhancement of airspace capacity, minimizing delays, conservation of fuel,

reduction in emissions and ultimate benefits to travelling public. It is expected that
there will be a reduction of carbon emissions by about 7 million kg per annum by
direct routing between 7 major city pairs only because of flexible usage of
In an endeavor to make the growth of the sector equitable and inclusive,
Government has taken significant measures for providing affordable air
connectivity to remote and interior areas of the country - the North Eastern Region
and Tier-II & III cities of India. Government is in the process of formulation of a
policy for the promotion of regional connectivity, incentivizing Indian airlines to
operate on these routes, by code-sharing and seat-credit mechanism. The bigger
airlines will be able to use such credits to meet their requirement of having to
connect such remote areas without having to lose money on such operations. This
is expected to generate greater financial viability for regional operators. An
Essential Air Services Fund is also being proposed by the Government for
providing subsidy for development of low-cost airports throughout the country.
This is to encourage domestic airlines to fly on remote interior routes with tourism
To facilitate the growth of MRO Business and to make it competitive, the
Government has announced several concessions in the Union Budget for 2013-14
including extension of time period allowed forutilisation of aircraft parts and
equipments from three months to one year, exemption of custom duty on parts,
equipments, accessories, spares required for MRO purposes to private category
aircrafts also and inclusion of foreign airlines for the purpose of duty-free imports
of parts, etc as applicable for scheduled air transport services. These concessions
have been widely welcomed by the industry.
To spur the growth of international air travel, the Government has taken
substantial steps to liberalize and grant traffic rights to Indian carriers to fly to
several new destinations across the globe. The new traffic rights have increased the
overall traffic entitlements of the airlines by approximately 60% over the existing
traffic rights.
Another important move that has accelerated the modernization and development
process is the privatization of five major airports under PPP mode and the policy of
development of Greenfield airports which envisages synergy between the public
and private sector.

Moreover, to develop civil aviation in India and further facilitate the functioning
of the sector, series of policy reform decisions are under consideration. These
include getting ATF declared as notified product & bringing transparency in its
pricing; rationalisation of bilateral air service agreements with different countries,
traffic entitlements on international routes to Indian carriers, creation of a
separate Air Navigation Services Corporation from AAI to make it more effective,
efficient & professional body, creation of a Civil Aviation Authority in place of
DGCA and creation of a separate Civil Aviation Security Force which is
professionally trained for the work of civil aviation.
Considering the growth prospects of air traffic, potential for large scale
acquisition of aircrafts by the carriers, and substantial investment projections,
Indian aerospace market offers tremendous long term opportunities for providing
maintenance repair & overhaul services, ground handling services, manpower
training, building an efficient airspace & air traffic management system, air cargo
services, establishing aircraft designing & manufacturing centres, etc. Furthermore,
currently, the air travel penetration in India is 0.04 air trips per capita per annum
which is far behind developed countries like US & Australia (more than 2 air trips
per capita per annum), and China & Brazil (0.3 air trips per capita per
annum). The gap between potential and current air travel penetration highlights
the huge potential for the air traffic growth in India, considering a relatively higher
trajectory of economic growth coupled with necessary Government support.
Let me conclude by saying that our aviation scenario is fast changing and poised
for breaking boundaries and scaling new heights. With ever-increasing scope for
participation by private sector, we expect significant developments in the years
ahead. I invite you all to participate in India Aviation 2014 at Hyderabad and
contribute in the enhancement of air connectivity in the region.

Breaking the shackles of India's

aviation sector

or the longest time, the Indian aviation sector was considered a rich mans
industry. While the industry continues to be highly taxed, the efforts of the
government through the new National Civil Aviation Policy to make flying
more affordable are laudable. Besides, tweaking the 5/20 rule to a 0/20 rule,
which now does not restrict Indian airlines to wait for five years before flying
overseas, would bring in much-needed competition into the space.
More so, by allowing up to 100 percent FDI in the aviation sector, which has
caveats attached, the government has given Indian airlines a chance to
improve their balance sheets. Of course, by capping the amount of FDI being
invested by foreign airlines to 49 percent, it is to be seen what other kind of
foreign investors would be interested in risking their monies in an industry
which has been accumulating losses in excess of $1 billion, consistently, for
the last decade. A concern that Peeyush Naidu, partner at Deloitte India, also
shares: While the increase in FDI for aviation is welcome, as it will allow
flexibility, we are unlikely to see investors suddenly rushing to invest in
airlines just because the cap of 49 percent has been removed. He goes on to
add, It remains to be seen whether other investors such as private equity
players and the like would have the risk appetite to make such investments.
That said, on paper, all these recent developments in the aviation industry
augur well for the airlines and passengers. Air Pegasus MD Shyson Thomas
believes that the new FDI norms along with recent policy changes would act
as a catalyst for funds to pour into the Indian aviation sector that is on cusp of
take off. He has indicated that he is in the market to raise around Rs 100
crore to grow his regional airline. And he quite excitedly says, As part of our
plans, Air Pegasus will operate to airports with no connectivity like
Puducherry, Bellary, Salem and Vellore in the next six months and we will be
working with the government in providing virgin connectivity to unconnected
sectors. Hope that this excitement lingers on in the months and years to come
and that the common man gets a chance to fly.
Keywords: National Civil Aviation Policy, Indian carrier, Aviation, FDI, FDI in aviation

Read more: http://forbesindia.com/article/special/breaking-the-shackles-ofindias-aviation-sector/43589/1#ixzz4EpgGpPMi

Why India is likely to emerge one of the

largest aviation markets
While industrial growth triggered by the first leg of economic
liberalisation in early nineties led to a sea change in India's social
fabric over the last couple of decades, aviation stands apart as a sector
that is capable of fuelling drastic changes in terms of economic growth.
In fact, for more than 40 years since independence, Indian aviation
was a public sector monopoly, with Air India and Indian Airlines as the two
only operators serving the domestic and international market
respectively. Liberalisation changed this for better as air taxi operators
were allowed to serve the domestic market. While many private
airlines entered and exited, a few players including Jet Airways
The government's decision to deregulate international air traffic in
2004 allowed private Indian carriers to extend their services to
international routes. Leveraging positive policy ambience, airlines
such as IndiGo and SpiceJet carved a niche for themselves by adopting
A few factors such as foreign direct investment (FDI) in domestic
airlines, low-cost carriers (LCC), information technology (IT)
interventions and a rising need for regional connectivity have pushed
These have catapulted the size of Indian aviation to $16 billion,
making it one among the top 10 aviation markets in the world and
leading to bullish outlook among industry watchers. "The new
entrants have now better business models to keep the business
sustainable," says Charles Dhanaraj, professor of Strategy and Global

In terms of additional passengers per year, India is expected to be

among the top five air domestic travel markets globally by 2034,
according to the International Air Transport Association (IATA).
Aircraft movements, passengers and freight at Indian airports are
expected to grow at 4.2 %, 5.3% and 5%, respectively, for the next five
years, according to estimates by Airports Authority of India (AAI). "A major
underexploited opportunity is the domestic freight transport.
There is increasing potential for moving high value goods domestically
through air freight where there will be more movement in the coming
Significant growth in FDI inflows and a slew of government initiatives
provided fodder for the sector's transformation. FDI inflows in air
transport during April 2000 to November 2014 stood at $543 million,
as per data released by Department of Industrial Policy and Promotion
(DIPP). Recent investments from private players include IndiGo's
order for 250 A320neo airplanes from Airbus for $25.5 billion;
AirAsia's plans to add 10 more aircraft to its fleet by end of 2015,
taking its total fleet to 15 aircraft; Star Alliance plans to turn New Delhi's
T3 and Mumbai's T2 Terminals into hubs; and the pact signed by
Vistara, the airline by the Tata Group-Singapore Airlines (SIA)
alliance, with SITA for aircraft communications, airline operations and
network connectivity. According to Charles, the entry of Vistara and
the growing interest of the foreign investors to be part of the growth of
The government, which has been bullish about pushing the sector's
growth, has projected that around 500 airports would be required by
2020. It has already approved the construction of five budget airports
to improve regional connectivity and work on them will start from
FY15 and launched tourist visa on arrival (TVoA) enabled by electronic

travel authorisation (ETA) to 43 countries besides plans to privatise

national airline Air India. Also, the Ministry of Civil Aviation also
plans to list Airports Authority of India and Pawan Hans on the stock
The private sector is sought to be involved in a big way through the
PPP model, with significant state support in terms of financing,
Air Costa is one of the carriers that aim to leverage the expected
growth in air transport between tier 2 and 3 cities. "We aim to tap the
burgeoning tier II market by stimulating growth through better air
connectivity to the tier I cities. Our choice of Embraer aircraft (E170
with 67 seats and E190 with 112 seats) complements this vision. From
operating two Embraer aircraft to 4 destinations with 300 employees,
we have grown to 4 aircraft serving 9 destinations with close to 750
employees within a year," says Air Costa CEO Capt. KN Babu.
The aviation sector meets growing transportation needs of consumers
airlines registered in India carry 50 million passengers and 1.1
million tonnes of freight a year to, from and within India; more than
130,000 international flights depart India annually destined for 70
airports in 50 countries; domestically, more than 664,000 flights
make 89 million seats available to passengers annually, destined to 73
airports. It also offers better connectivityfor instance, daily, there are
8 flights between Delhi and Dubai and more than 59 flights from Delhi
The sector makes significant contribution to Indian GDP and provides
Among customers of airlines serving Indian airports, 76 per cent are
local residents who get an economic benefit estimated to be worth INR

This is in addition to the long-term benefits to the economy. Through

investments and use of advanced technology, the aviation sector
generates more gross value added (GVA) per employee than the
economy as a whole, raising the overall productivity of the economy.
Benefits are also accrued to the economy through the growth of
ground-based infrastructure including airport facilities and the
Air transport lies at the heart of Indian tourism. Through its speed,
convenience and affordability, air transport has expanded the
possibilities of travel for tourists and business travelers alike, allowing
an ever greater number of people to experience diversity of culture.
Tourism, both for business and leisure purposes, makes a large
contribution to the Indian economy, with foreign visitors spending
over Rs 548 billion in the Indian economy each year. Around 89% of
these visitors arrive by air, which means foreign visitors who travel by
Considering air freight makes up 34.6% of the value of global trade,
aviation also provide a huge fillip to trade in the country.
However, the growth of aviation happens at the cost significant
damage to the environment, including contribution to global warming.
Aviation contributes to climate change by altering the composition of
atmospheric gases. In addition to CO2, emissions from aviation
combustion processes comprise NOx, SOx and VOC which pollute the
According to Intergovernmental Panel on Climate Change (IPCC),
CO2 emissions will grow 2.8% annually between 2000 and 2050 and
are projected to make up 16% of total transportation carbon
emissions, pointing to the need for a shift towards solar powered
aircrafts in the long run. IPCC also calculates the climate impact of

aviation to be 1.96 times that of CO2 impact. In addition to its

contribution to climate change, aviation hampers ambient air quality,
affecting public health. This is besides the negative environmental
impact of noise pollution contributed by the growing number of
Against the background of Modi government's Land Acquisition Bill,
which aims to ease the process of acquisition of land for industrial
purposes, land acquisition for the proposed airports too will prove to
be a tough nut to crack both politically and economically.
While the government's decision to allow airlines to import jet fuel will
help airlines cut fuel costs by up to 20 per cent, lack of infrastructure
at the hands of local airlines to import fuel directly would mean
domestic carriers continuing to pay heavy federal and state taxes for
buying fuel from domestic oil firms, adding to the debt pile-up of
There are also concerns about supporting infrastructure and taxation.
"There is a huge need for up gradation of the airports at tier 2 cities
where the major growth should happen, " says Charles. "There is still
scope for improvement in the airport infrastructure. Another concern
is over-taxation - central and state taxes on fuel and maintenance as
well as service taxes on air tickets are likely to hamper growth," says
However, the clear silver lining is the expected growth in the number
of aircraft as well as domestic and international passengers from
India. This projected growth, along with India's low air traffic density
72 compared with 282 in China and 2,896 in the USsignals a huge
untapped potential, considering rising disposable income levels and
As IATA CEO Tony Tyler put it, the world is focused on Indian
aviation - from manufacturers, tourism boards, airlines, global

businesses to individual travellers, shippers and businessmen.

Consensus among these stakeholders, right policies and focus on
quality, cost and passenger interest will transform India to one of the
largest aviation markets within a couple of decades.

India becomes fastest growing aviation

market in the world; beats US
India became the fastest growing aviation market in the world in
March clocking a growth of 27.4%, the International Air Transport
Association (IATA) said.
The magnitude of India's growth rate can be imagined from the fact
that it was over six times more than of the USA, which with 4.1% was
the second fastest growing market in the world.
"The domestic India market remains the fastest expanding market,
with growth edging up to 27.4% year-on-year in March. Growth in the
India domestic market is being propelled by the comparatively strong
economic backdrop as well as sizeable increases in services," IATA
"Although India has been growing constantly the difference between
the two markets is significantly vast for the month of March 2016," it
READ ALSO: Finally! Air India is now profitable
The average flight frequencies within India, IATA said, are scheduled
to increase by 11.5% year-on-year in 2016.
Indian domestic airlines carried 23 million passengers in the first
three months of 2016 as compared to 18.5 million during the

corresponding period last year thereby registering a growth of 24.03%,

according to data released by the Indian aviation regulator.
IATA said the global domestic demand rose 3.7% in March compared
to March 2015, a dramatic slowdown from the leap year-aided 7.8%
growth recorded in February.
"This was driven primarily by performance in the two largest markets,
the US--which accounts for two of every five domestic passengers--and
China. Domestic capacity climbed 4.3%, and load factor retreated 0.4
percentage points to 81.6%," it said.
"India's annual domestic Revenue Passenger Kilometer growth rate
has now been in double digits for nineteen consecutive months. The
combination of such rapid growth in India and slower (even negative)
growth in other similarly-sized domestic markets has seen India
overtake the others in terms of seasonally adjusted domestic RPKs
over the past year or so, most recently Brazil, which it surpassed in
March," IATA said.
(Anupama Airy is the Founder and Editor of EnergyInfraPost.com and
atanupama.airy@gmail.com, Twitter handle: @anupamaairy)

Aviation sector flies high but

infrastructure hurdles remain
Updated: Thu, Dec 20 2007. 11 30 AM IST
New Delhi: Indias crowded skies saw the first wave of consolidation as some airlines merged
and others gobbled up a rival to gain market share and cut losses during the year 2007 that was

also marked by a rapid increase in air travellers, infrastructure hurdles and addition of new
Domestic passenger traffic soared by almost 40% this year. This prompted nearly all the airlines
to place orders for buying new aircraft, undeterred by the fact that they posted combined losses
of about Rs2,000 crore largely on account of rising fuel costs and payments of aircraft.
Indian carriers have inducted about 150 aircraft in the past two years, taking the total number of
planes with them to more than 310. They will be adding close to 500 aircraft over the next few
years to expand operations. The increase in the number of planes, coupled with more foreign
flights, put immense pressure on the hard-pressed aviation infrastructure.
This forced the Civil Aviation Ministry to start working on a policy to encourage private or
merchant airports, besides expediting airport modernisation works in Delhi, Mumbai and other
major cities. The Airports Authority of India also started work on 35 non-metro airports, and
called for bids for developing the city-side of these airports. Government will also set up an
Airport Economic Regulatory Authority to deal with the emerging scenario of private airport
A major achievement this year was that no accident occurred, the best record in the past seven
years. However, a number of air-miss incidents were registered, including one involving a
special aircraft carrying UPA Chairperson Sonia Gandhi. But aviation authorities maintained that
these were procedural failures and would never have caused an accident.
The year witnessed a smooth merger of two state-owned carriers Air India and Indian, despite
strong protests from their employees. Private carrier Jet Airways completed its takeover of rival
Air Sahara earlier in the year and made it a wholly-owned unit JetLite. Besides, liquor baron
Vijay Mallyas UB Group bought 46% stake in low-cost carrier Air Deccan that will be merged
with Kingfisher Airlines.
A demand for relaxation of the existing norms to allow domestic carriers to undertake
international flights was made by some airlines, notably Kingfisher. However, the government
stuck to its position and did not change the norms that allow only those airlines which have
flown on domestic routes for at least five years and have a 20-aircraft fleet.

Kingfisher now plans to operate on Air Deccans rights from early next year when the low-cost
carrier completes five years of domestic operations. However, the government decided to open
up the Gulf route to eligible private carriers from January and Jet Airways was allowed to fly on
this sector.
With the Indian aviation industry maturing, government proposed to liberalize the policy of
foreign direct investment in the sector, particularly in areas such as creation of maintenance,
repair and overhaul (MRO) facilities, sea-planes, charters, helicopters and other non-scheduled
In light of significant planned expansion of Indias fleet, several global players such as Airbus,
Boeing, SIA Engineering, ST Aerospace and Lufthansa Technik are in the process of tying up to
establish Maintenance, Repair and Overhaul (MRO) facilities in the country.
In a bid to beef up regional connectivity, the government announced a policy to promote
scheduled regional airlines that would operate in the designated regions in the country.
A major initiative that would take the countrys aviation sector to new heights and make India
one among the four in the world was the successful testing of various aspects of the prestigious
GAGAN project, a satellite-based navigation system that would manage air traffic even over
oceans around India.
Government also focused on liberalising bilateral air traffic rights with several countries, taking
the total seat entitlements up by 123% between 2003 and 2006.
While traffic between India and Europe increased from 70 flights a week to 204 in the same
period, Indo-US traffic rose from about 450,000 in 2003-04 to almost 900,000 in four years.
Government has also liberalized tourist charter norms by removing all restrictions on frequency,
size of aircraft and points of call, subject to availability of immigration and customs facilities for
inbound tour charters.
To meet the shortage of pilots, several steps were taken in recent months. These include raising
the retirement age to 65 years and allowing expatriate pilots to operate in India, subject to
approval by Directorate General of Civil Aviation.

The state-owned Indira Gandhi Rashtriya Udaan Academy tied up with a renowned pilot training
firm CAE of Canada. A world-class flying school is being set up by the AAI at Gondia in
Maharashtra and five foreign operators, including Airbus and Boeing, are evaluating investment
Government has also enhanced DGCAs powers after amending the Aircraft Act, which would
empower the regulatory body to license air traffic controllers.
The year 2007 can be called a mixed bag for the Indian aviation with a number of good
initiatives that propelled the sector although airlines struggled to maintain profitability. Fierce
competition, high jet fuel costs and infrastructure bottlenecks could, however, play spoilsport in
the new year.
Where is Indian aviation headed?

Getting some crucial steps right would greatly contribute to Indias successful future in domestic
The air traffic system in India is not immune to severe shockssuch as the one in 2010during
which traffic figures plummet and wreak havoc on the industry. The wave of airline mergers,
which had occurred only a few years before and was actively encouraged by the ministry of civil
aviation, did not prove conducive to making Indias airlines more resilient or competitive.
Kingfisher Airlines had to ground all operations by 2012, the new Air India (as in NACIL)
remained true to its unflattering legacy, and Jet Airwaysallegedly strengthened after
integrating Air Saharahad to seek out Etihad Airways for a de facto bailout, which they termed
an alliance.
Wrong, proponents of Indias aviation policy (then led by the Congress and the Nationalist
Congress Party) may say: several new airlines had been granted licences and had started to
operate as early as 2006 and 07. Moreover, these carriers were positioned as low-cost airlines.
Wouldnt Indias growing middle class inevitably benefit from such policy moves? Wouldnt
private investors in these new airlines benefit from the creation of shareholder value? Werent
these prime examples for effective market competition and apt implementation of market

By 2014, Indias air traffic (in terms of domestic flight movements) by and large had recuperated
to pre-crisis levels with many airports even showing higher numbers. However, a structural shift
had become visible, affecting traffic distribution across the entire domestic traffic system: only
the top 55 airports or so had rebounded to growth, while the smaller 25 to 30 were left with
smaller operations as compared to 2006.
Some observers from the investment community might regard this as a natural phenomenon,
possibly perceiving growth in inequality as a natural corollary of having deregulated markets.
However, these expert opinions might be questioned: apart from rising inequality, the
infrastructural cohesion of the Indian nation state also suffers. Differences with China could not
be starker: there, airline networks continued to expand spatially and grow traffic with an airport
base that continued to be about triple that of Indias.
Even though one might attribute shocks and distortions in Indias air traffic system partly to the
disappearance of Kingfisher after 2012, rapid growth from privately financed and managed lowcost carriers would have had time to more than compensate for this loss. More importantly,
point-to-point route operations of low-cost airlines would tend to establish new traffic outside of
the main (and often congested) airports and thus render the overall air traffic system both more
robust (i.e. more resilient to shocks) and more equally distributed (across the Indian geography).
Unfortunately, this is not what happened: all airlines (including Kingfisher) showed clear and
time-sustained patterns of spatial focus around the same few airports, most notably New Delhi
and Mumbai. Such allocation behaviour might not be surprising for legacy carriers (i.e. Air India
and Jet Airways); the managements would even coyly describe it as hub-and-spokes, a term
that would automatically stop any further critical inquiry into the strategy. Kingfisher, in
particular, had ramped up tremendous capacity both at New Delhi and Mumbai airports, in effect
relegating its declared Bengaluru hub to third rank by 2010.
Unfortunately, such questionable patterns of spatial concentration could also be observed for
low-cost entrants: from day one of their operations, IndiGo, SpiceJet and GoAir had their
largest shares in traffic at New Delhi and Mumbai (with SpiceJet giving up slots at Mumbai only
by 2014). Thus, not only had the dominant role of both airports within Indias air traffic system
remained unaffected by low-cost entry, in fact, it became even more consolidated.

How service through extravagant and high-cost world-class terminals would help to render, say,
IndiGos operations more efficient, or provide for cheaper tickets due to lower airport costs,
remains a mystery. Surely, emphasis has not been laid on developing point-to-point traffic across
Indias 50-plus other cities with populations in excess of 1 million each. Rather than competition,
we observe clear patterns of mutual accommodation as well as extensive overlap of service for
denser routes. It is a fallacy to believe that such patterns would stimulate competition.
Competition would have forced airlines to carve out new markets and grow their networks into
new geographies.
Such unbalanced traffic allocations at the top may have been expected to naturally trickle down
to the remainder of the network; however, a hub-and-spoke structure per se does not guarantee
such development.
It is striking that over a 10-year period, each Indian carrier focused on the same two airports. It is
difficult to comprehend why frequencies between New Delhi and Mumbai alone would remain
well above those for other intra-metro flightsnot just from a cumulative perspective, but for
each single airline! No real spatial segmentation of airlines networks has emerged in this critical
stage of industry transformation through market entry by allegedly competitive operators.
Future traffic can be expected to grow further on already well-served routes, while smaller
airports will benefit at best from limited trickle-down effects. One can expect the longer-term
effects of such poorly differentiated structures to weigh on Indias overall competitiveness: it is
another fallacy to believe that by steadily overspending at the topwhile keeping the lower end
of Indias air traffic system underservedone could achieve greater welfare and sustained
development for the nation.
Again, one may look to China for comparison: over the past 10 years or so, the country permitted
entry to many airlines, with most of them being differentiated and showing distinct patterns of
growth, rather than sheer mimicry. This translated, for example, into numerous new and spatially
better segmented route networks. Getting these crucial steps right would greatly contribute to
Indias successful future in domestic aviation.
Hans Huber is associate professor (public systems group) at Indian Institute of ManagementAhmedabad. His interests relate to network strategy and industry structure in the context of