India’s aviation industry has been in the news thanks to Air India and Indigo placing orders for over 500 aircraft.
While this is clearly cause for cheer, especially in the aftermath of the pandemic when airlines were gasping for breath, Sudeep Mehrotra, Managing Director, Alvarez & Marsal, prefers to term this as ‘natural’ instead of going over the top.
He told Mobility Outlook that passenger traffic is still not significantly higher than in 2019. Yet with more privatisation of airports, the UDAN scheme for greater regional connectivity, government subsidies and greater public spending, “growth is here to stay”.
Mehrotra said India's per capita air travel consumption in 2019 was 0.25 compared to the global average of 2.8. However, with the economy slowly getting back on track, air travel has also increased.
Varun Agrawal, Senior Director, Alvarez and Marsal, added that there was now more passenger traffic coming in from Tier 2/3 centres, even while top metros such as Delhi, Mumbai, Kolkata, Bengaluru, Chennai, etc still take up the lion’s share of 63%.
According to Mehrotra, this was a positive sign and even though the share of major cities is falling, absolute numbers continue to rise year after year. The regional decentralisation is spawning new economic and travel centres, which are beneficial for smaller towns and cities. In the case of Tier 1 metros, the inflow of business and international travellers will increase.
This exponential growth is borne out by the growing number of regional airlines such as Star Air, FlyBig, and India OneAir even while they have not been quite successful. Agrawal said they began operations between metro cities but struggled when they had to abide by the DGCA norms in connecting some non-metro routes too.
Here, every new airline must follow route dispersal guidelines, where it should operate 10% of capacity deployed on Category I routes on Category II routes too. Additionally, 1% of Category I capacity must extend to Category IIA routes. The airline must also operate 35% of its capacity of Category I routes on Category III.
Category I largely comprises metros, while Category II connects stations in the North-East, Jammu and Kashmir, Himachal Pradesh, Uttarakhand, Andaman & Nicobar and Lakshadweep. Category IIA routes operate within the North-East, Jammu and Kashmir, Himachal Pradesh, Uttarakhand, Andaman & Nicobar and Lakshadweep and Cochin-Agatti-Cochin. Category III routes comprise other than those in Category l, ll & llA.
Agrawal said regional airlines are now getting smarter and organising their routes on OD pairs (origin and destination) in such a way that Category II and III routes still make financial sense.
Regional airlines, he added, will continue to prioritise these OD pairs and once they have grown significantly, they will begin operating on metro to metro routes. It is his belief that some of these regional airlines will become national carriers in the next decade.
Most airports have also undergone corporatisation and are expected to generate money from non-aeronautical revenues such as shopping centres and the like. Mehrotra said an airport with good infrastructure may even generate 50% of its revenues from these streams and make operations more viable in the process. If one of the Indian airports emerges as a trans-shipment hub for the world, it will attract the attention of top global airlines.
Challenges Behind The Growth
Not everything is hunky-dory since some issues still need to be ironed out. As already indicated, the top six metros take up 63%, thus making them key hubs. Yet, for an airport like Mumbai, it operated at saturation points already during the pre-COVID days and now with traffic growing rapidly, capacity handling will become a challenge.
“Airports need to have capacity ahead of demand in at least these metro airports because they are critical hubs,” said Agrawal. And even while Tier 2/3 cities are seeing more airports being commissioned, they are lagging on infrastructural support. A case in point is Jhajharsuguda airport in Odisha, which does not have the required lighting system for landing at night and in foggy conditions.
“When I as an airline think of deploying an aircraft on the Jhajharsuguda-Mumbai route, I keep worrying about whether I will be able to turn around my aircraft four times in a day,” said Agrawal. Does the answer, therefore, lie in privatisation?
Mehrotra believes this is a good lever for better connectivity and has already demonstrated its expertise in better infrastructure at airports and enhancing passenger experience. The downside, however, is that privatisation makes air travel a little dearer as airports will charge higher fees from passengers.
He added, “The sector will see a lot of private sector investment coming in. Whatever conversations we have had with Indian and global investors, everybody is looking new opportunities here. Investors are bullish and people have seen 15 years of Mumbai and Delhi airports.” Essentially, the proof of the pudding lies in its eating!
North-East: A Special Case
While airport connectivity has doubtless improved in recent years, it is a moot point if this is true for the North-East. According to Mehrotra, the region is generally serviced (both for people and cargo) through one or two hubs like Guwahati, from where people move on for their last mile connectivity.
While this is true for any geography — Nagpur, for instance, is a hub for Amravati and Kawardha — the North-East is a combination of seven states.
Booming Cargo Segment
While passenger air travel fell sharply during the COVID period, which saw lockdowns worldwide, air cargo was up with IATA data of 2021 showing 18.7% YoY growth. Specifically for India, Delhi (the biggest air cargo hub) still does one million tonnes annually but is minuscule compared to some global airports, which do over 20 million tonnes.
According to Mehrotra, airlines in India are now finding it more viable to carry cargo and increasing their supply of dedicated freighter planes. Creating the right infrastructure to support this growth is an imperative and work has already begun in this direction.
Bengaluru airport recently awarded a completely new cargo terminal to WFS, while the upcoming Jewar airport has followed suit with a 100 acre cargo terminal to AISATS. Mehrotra reiterated that infrastructure and demand need to go hand-in-hand for cargo to grow.
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