India's aviation sector is on the runway, but needs more to fully take off

India's aviation industry is taking off in a big way, and is set to play a larger role in the country's economy over the coming years, analysts and industry insiders say.

But many steps, including a new robust policy framework, are required for the sector to realise its full potential, they add.

“The industry is at an inflection point,” says Kapil Kaul, chief executive and director at Centre for Asia Pacific Aviation (Capa) India.

“It is critical to make sure that we have the requisite infrastructure to grow to the scale. It's important that this growth potential gets converted. It requires a transformative policy — and that policy must happen now.”

India's aviation industry handled about 200 million passengers in the financial year to the end of March 2023, according to Capa's data.

That figure could grow to more than 1.3 billion passengers in the next 20 years, but would require enormous efforts in scaling up the country's aviation ecosystem.

By 2043, aviation could contribute up to $1 trillion annually to the Indian economy, according to Capa.

Sudeep Mehrotra, managing director at professional services firm Alvarez & Marsal, and a specialist in transport and infrastructure matters, says that “the government is taking steps to further support growth” in the aviation sector with efforts to encourage more private investment and by expanding the number of airports.

The civil aviation ministry has said that the number of airports in the country will increase to more than 200 in the next six years, from 147 now.

Mr Kaul also highlights positive steps by the government including the privatisation of Air India, increasing the role of private airports and pushing states to reduces taxes on fuel.

The Indian government in March said it planned to invest billions of dollars in areas including airports and flying schools as demand for air travel soars.

“We need to put in place the civil aviation infrastructure and capabilities that by 2047 [we] would be able to support a $20 trillion economy within India,” civil aviation minister Jyotiraditya Scindia said at a conference in New Delhi.

Several factors are providing strong tailwinds to the sector.

India has overtaken China to become the world's most populous country with more than 1.425 billion people, according to UN's population figure.

Only a single digit percentage of the population in India travels by air, but the number of travellers is increasing as the economy expands and incomes rise.

A record 13 million passengers flew on domestic airlines in March, which was up 21 per cent on the same month a year earlier, and up 11 per cent on March 2019, indicating that air travel is surpassing pre-Covid levels, according to data from India's Directorate General of Civil Aviation.

“Travel is witnessing a significant resurgence post [Covid] restrictions — Indians are maximising every opportunity, including long, extended weekends, special occasions and festivals and we are seeing a brisk demand this summer season — over three times versus last year,” says Indiver Rastogi, president and group head, global business travel, Thomas Cook India and SOTC Travel.

“What is noteworthy is the trend of Indians taking multiple short duration holidays or minications to short haul destinations and this is resulting in a strong uptick in air travel.”

Business travel has also exceeded pre-Covid levels, he adds.

The Indian government's regional connectivity scheme, which is improving the connections between towns and smaller cities in India with the country's major cities, is also boosting travel.

“This hub and spoke model will ease accessibility and affordability and hence positively impact the aviation sector in India,” Mr Rastogi says.

Meanwhile, the country's economy is also expanding, which in turn is propelling the sector.

India is expected to be the world's fastest-growing major economy this year, with the International Monetary Fund estimating growth of 5.9 per cent.

“India's aviation market is witnessing rapid growth, fuelled by a large population, rising disposable income, and a thriving economy,” says Maneck Eddie Behramkamdin, associate vice president and business head at Godrej Aerospace.

The company “aims to capitalise on the increasing demand for aircraft components and technology expansion by targeting 35 per cent growth in its commercial aviation business by the financial year to March 2025”, he says.

The expansion of budget carriers, foreign investment into airlines and urbanisation are also aiding the sector, Shrenik Ghodawat, director at Star Air, a Bengaluru-headquartered airline.

"Limited airport infrastructure" at some of the destinations that are experiencing fast growth and high taxes on aviation in India are hurdles for the sector as passenger numbers climb.

“With the right policies and infrastructure in place”, India could become a much larger aviation market, says Mr Ghodawat.

The growth in the sector is also attracting interest from international industry majors such as Boeing.

The US plane maker, which signed a deal for up to 290 planes with Air India this year and announced plans in February to invest $24 billion to set up a logistics centre for aircraft parts in the country, says that it is “confident about the potential for growth in India”.

“India is an important market for Boeing, and the company has made strategic investments in the country,” says Salil Gupte, president of Boeing India.

“The aviation industry in India has undergone significant policy reforms in recent years, such as the launch of the Regional Connectivity Scheme and the National Civil Aviation Policy, which have helped to improve air connectivity and make it easier to do business in the sector.”

But a new policy should focus on areas including consumer protection and reducing the cost of regulation, according to Capa.

A bilateral policy aimed at maximising growth is also needed, it adds.

India's aviation sector also has to “deal with a range of challenges, including infrastructure limitations, regulatory compliance, a lack of skilled workers, high operational costs and environmental impact”, says Godrej Aerospace's Mr Behramkamdin.

“To overcome these issues, stakeholders from the industry need to come together to develop a qualified workforce and create sustainable solutions,” he says.

“Despite challenges such as regulatory compliance, cost pressures, environmental concerns and a lack of skilled labour, the growth of India's aviation sector offers opportunities,” says Anand Yedery, regional head of customer travel and lifestyle, South Asia, Middle East and Africa at Cathay Pacific, Hong Kong's flag carrier.

But opportunity in the industry can be further leveraged if “airlines can expand into regional airports, employ emerging technologies like AI [artificial intelligence], IoT [Internet of things], and big data analytics to enhance operations and customer experiences”, he explains.

The role that technology can play in the rise of India's aviation sector cannot be underestimated, adds Sri Srinivasan, chief revenue officer at Zvolv, an AI-powered hyper-automation service provider for enterprises.

“Smart technology, automation, and digitalisation are key for the aviation industry to thread the needle between safety, profitability, and sustainability,” he says.

“An aspirational population willing to spend on air travel, and demanding consumers used to sophisticated mobile technologies and implicitly expecting higher levels of personalisation are driving the aviation industry as a whole.”