Defining Moments of the Indian Aviation Industry
The privatisation of Air India, with its transfer of ownership from the government to Tata Sons in 2022, has indeed marked a significant shift in India's airline sector. This move is seen as the boldest reform since the second wave of liberalisation that began in 2004. At the time of the acquisition, CAPA India predicted it would be a crucial turning point, stabilising the airline system and positively impacting the entire value chain, potentially even beyond India's borders.
Since the acquisition, Air India has undergone substantial changes. The Tata Group has focused on fleet expansion, customer service improvements, and organisational restructuring. They placed a massive order for 470 aircraft from Boeing and Airbus, with an option to add another 370. The order for 250 Airbus aircraft, including 140 A320neo, 70 A321neo, 34 A350-1000, and six A350-900 jets. The airline has already added 40 aircraft to its fleet and is expecting to take delivery of five aircraft per month in the near to medium term. This ambitious expansion plan is part of Air India's strategy to modernize its fleet and enhance its global presence. This massive order includes a mix of short-haul and long-haul planes, aimed at revamping their fleet and expanding their operations. They introduced new routes, partnerships, and enhanced onboard offerings. Despite these efforts, challenges remain, such as operational issues and staff unrest, particularly with the merger of Vistara and Air India.
Meanwhile, India’s largest airline IndiGo, which has a fleet of about 370 aircraft with more than 980 on order, continues to grow rapidly, despite supply-chain challenges that have fettered growth plans of airlines globally.
This means the country’s airline fleet of almost 700 aircraft could double by the financial year 2030. It took the Indian industry about 90 years from the time of the first commercial flight to reach a fleet size of 700 aircraft. But the rate of growth is so strong that carriers could add a further 600-700 aircraft in just the next 5-7 years.
But, do we have the ecosystem to support this rapid expansion?
Growth and Ambition
India's airline industry is showing remarkable growth and ambition. With significant investments like Air India's $6.5 billion business plan and IndiGo's record profitability of around $1 billion in FY2024, the sector is poised to become a world-class operator. Despite having about 150 aircraft grounded last year, domestic traffic still grew by 13% and international traffic by 22% in FY2024. Another year of unprecedented results is expected in FY2025, highlighting the industry's resilience and potential.
Focus on Infrastructure
India is making significant strides in enhancing its airport infrastructure to support the growing demand for travel and airline fleet expansion. With an investment pipeline of $11 billion, the country is focusing on creating a robust airport network.
In the National Capital Region, a dual airport system is being developed. Delhi International Airport Limited will expand its capacity from 100 million to 130-140 million passengers per annum (PPA). This will be complemented by the greenfield Noida International Airport, expected to open by April 2025, with a capacity of 70 million PPA.
Similarly, the Mumbai Metropolitan Region will have a dual airport system within the next 12 months, capable of handling about 145 million annual passengers.
The Adani Group is also expanding capacity at its six PPP non-metro airports in Lucknow, Jaipur, Ahmedabad, Guwahati, Thiruvananthapuram, and Mangaluru. Additionally, the Airports Authority of India is investing $4 billion to enhance non-metro capacity, with greenfield airports planned in Chennai and Pune.
Overall, the privatisation of Air India is a transformative step for the airline and the broader aviation sector in India, with the potential for long-term positive impacts.
Addressing the Skill Gap
The rapid growth of the aviation industry in the country could lead to skill shortages across the ecosystem, particularly among technical staff such as pilots, maintenance engineers, and technicians. The shortage of pilots is a significant concern and is expected to worsen, especially with the new duty and rest norms established by the DGCA, which could increase the demand for pilots by about 15%.
The shortage of air traffic controllers and security and safety personnel highlights the need for increased investment in skilling, training, and education. To address this, the Budget should include fiscal incentives that encourage such investments. These incentives can help bridge the gap by promoting workforce development and ensuring that the necessary skills are acquired to meet industry demands.
Government & Policy Support
Considering the Budget could involve streamlining both direct and indirect taxes, which currently make up nearly 20% of an airline's quarterly income, such as state-imposed charges on aviation turbine fuel. The advantages of airport privatization have been clearly shown in the nation, providing access to contemporary and effective infrastructure and triggering economic growth in the broader area. Therefore, the government should expedite the privatization of the 25 airports outlined in the national monetization plan.
To address challenges stemming from technological disruption, digitization, and environmental issues, it will be essential to reorganize the Directorate General of Civil Aviation and the Bureau of Civil Aviation Security. Moreover, the separation of air navigation services from the AAI will support the corporatization of air traffic control, enabling better access to funding for the development of systems to handle the growing demands of air traffic.
Employment Opportunities
It is estimated that every addition of aircraft in an airline fleet will need between 60 to 140 personnel from pilot to ground staff to keep it operational. So, if the Indian aviation industry adds about 700 aircraft in the next 5~7 years, it means about 1,00,000 direct employment and millions of indirect employment opportunities for young Indians in the next few years. This augers well for India's youth in schools and colleges.
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