2022: Boom for India's Aviation Sector

The original version of the article was published on 8th March 2023 in “The Daily Guardian”

The aviation industry has been growing rapidly since the election of the Narendra Modi-led government in India, reaching a peak in 2019, when the domestic air passenger traffic was 14.41 crores.

However, shortly afterwards the airline industry and aviation sector suffered a huge setback amid the global shutdown due to the COVID-19 pandemic.

Due to changing COVID-19 restrictions between 2020 and 2021, both international and domestic air travel suffered.

However, as restrictions eased globally in 2022, the sector has gradually been able to revive itself, with air traffic almost back to pre-pandemic levels in the 2022-23 financial year.

India is currently the third-largest domestic aviation market in the world and is expected to overtake the United Kingdom to become the third-largest air passenger market by 2024. Indian aviation contributes to a whopping five per cent of the country's GDP and is responsible for creating around four million jobs. The industry has a US$ 72 billion gross value-added contribution to GDP and the domestic air traffic is growing continuously and is expected to reach 520 million passengers by 2037.

While private players are adding new routes and placing orders for new aircraft every day to keep up with the increasing demand, the government is also taking the initiative to improve domestic connectivity, including the construction of new airports, improving already existing airports, and attempting to make air travel more accessible and affordable for all.

How has the aviation industry changed in India?

Since the election of the Modi government in 2014, the aviation industry in India has expanded rapidly, with the number of operational airports increasing from 74 to 140 in the last eight years.

Following a cabinet reshuffle in 2021, Jyotiraditya Scindia was appointed as the Union minister for civil aviation and he announced that the government aimed to build 220 airports in the country by 2025. Scindia also shared that the market share of Indian companies in international freight traffic has increased by 17 per cent and cargo revenue has also increased to Rs. 2,300 crores.

Currently, India is the third-largest civil aviation market globally. In 2010, around 79 million people travelled to/from or within India. By 2017, the number doubled to 158 million and it is expected to reach 520 million by 2037. In order to meet growing demands, more airports and routes need to be created and the current government is taking active steps to ensure the civil aviation infrastructure in the country is improving. It is estimated that Indian carriers will place orders for around 1,500-1,700 aircraft in the next two years.

Growth of the domestic and international aviation sector since 2014

During 2014-15 and 2019-20, India witnessed a double-digit Compound Annual Growth Rate (CAGR) of 14.5 per cent in terms of domestic passenger traffic. Connectivity across states and regions in India has increased substantially due to the commencement of the Ude Desh ka Aam Naagrik (UDAN) scheme, under which around 469 new routes have been initiated and 74 new airports have been built.

Regional routes are the new growth area for domestic carriers, which is evident in the launch of new flight routes to airports in Tier II and Tier III cities such as Pantnagar and Gorakhpur by leading market players. Airlines such as IndiGo and SpiceJet are already among the country's largest regional players with 72 flights each under the UDAN scheme. Industry insiders have shared that the expansion of domestic flight routes has played a key role in the recovery of the industry after the impact of the COVID-19 pandemic.

As per data in April 2015, 99,600 passengers travelled exclusively between Tier 1 cities, while traffic involving at least one leg with Tier II or Tier III cities was 1,18,300 per day. These numbers have already increased to 1.09 lakh and 2.51 lakh, respectively, as of December 2021. Similarly, the demand for international air travel has also increased following the easing of travel restrictions imposed due to the COVID-19 pandemic.

During the period January to December 2022, a total of 43.4 million passengers were carried on international routes by scheduled Indian and foreign carriers as against 17.2 million in the corresponding period in 2021, which is a growth of roughly 152.7 per cent. Out of the total 43.4 million passengers around 20.9 were carried by scheduled Indian carriers, while around 22.5 million passengers were carried by scheduled foreign carriers from January to December 2022.

What is the UDAN scheme?

The government of India also launched the Ude Desh ka Aam Naagrik or UDAN programme in 2016, which is a regional airport development program. The UDAN programme aims to make air travel accessible and affordable to all, while also upgrading under-serviced air routes and improving regional connectivity in the country, thereby, leading to economic development. The Union Budget 2023-24 allocated Rs. 1,244.07 crores for the UDAN scheme. After four rounds of bidding under the scheme, around 469 new routes have commenced operations and around 74 airports have been made operational. The Airports Authority of India (AAI) and other airport developers have taken up the development of new and existing airports with a projected capital expenditure of approximately Rs. 98,000 crore in the next five years. Since the launch of the scheme, it is estimated that 0.3 million passengers have benefited from the scheme in 2017-18. The number increased to 1.2 million in 2018-19 and 1.5 million in 2020-21, and eventually to 3.3 million in 2021-22. It is estimated that overall around 11.3 million passengers have flown under the RCS/UDAN scheme so far.

Similarly, another scheme which has been institutionalised by the Government of India (GoI) to improve the civil aviation sector is the NABH (NextGen Airports for BHarat) Nirman Scheme. The initiative aims at improving passenger amenities, promoting cargo handling facilities, and early operationalisation of 56 new airports under the UDAN key initiative. The government has also introduced the Small Aircraft Scheme (SAS) whereby 184 routes have been awarded to the Selected Airline Operators for the operation of RCS flights. As per a report by the International Civil Aviation Organization, a better air service provides a three per cent growth in the economy and increases employment by six per cent. Due to the UDAN scheme, there has been a massive boost to employment in sectors such as airport operations, aircraft maintenance, and air traffic control. The focus on regional connectivity and air travel boosts tourism in the area, leading to a multiplier effect on economic growth. Businesses in smaller Tier II and Tier III cities have also seen an increase in the past few years due to improved air connectivity in those areas.

Shreya Maskara/New Delhi
Contributing reports by Ratika Khanna, Anushka Verma and Aryaman Pathak, Researchers at Polstrat.
From Polstrat, a non-partisan political consultancy which aims to shift the narrative of political discourse in the country from a problem-centric to a solutions-oriented approach.