Opinion by Gediminas Ziemelis, founder and chairman of Avia Solutions Group
India’s aviation sector has undergone rapid transformation since the liberalisation drive that began in 2003. It has emerged as one of the fastest growing sectors in the country making it one of the ten largest markets globally.
During Financial Year 2016-20, Indian passenger traffic grew at a compound annual growth rate (CAGR) of 11.13 per cent leaving it standing at 341.05 million in 2020, with domestic standing at 247.5 million and international at 66.54 million. The foreign direct investment inflow in the air transport sector in India reached US$2.75 billion between April 2000 and March 2020.
In order to meet the rising demand, the Indian Government has been working towards the improvement and further development of the local aviation market. The number of airports was expected to increase from the 103 that existed in 2019 to 190-200 by 2040; the number of aircraft operated by Indian carriers was expected to reach 1,100 by 2027 and passengers catered was forecast to grow to 520 million by 2037.
The already large and continually increasing Indian aviation sector experienced a major jolt as the Covid-19 outbreak grew into a global pandemic. As of July, out of the 789 aircraft fleet, 449 aircraft were grounded leaving only 349 aircraft in service and 1100 on order, which were supposed to cover the shortfall seen prior Covid-19.
However, in this particular situation, the aircraft ordered are contributing to the excess number of aircraft that have proved to be a burden rather than an indispensable tool. A single narrow-body aircraft on average is projected to generate approximately US$800 thousand per month. Deducting the maintenance and service costs as well as payments to leasing companies and crewing costs, the profit of one aircraft is around US$300 thousand per month.
In comparison, a single grounded aircraft causes losses of around US$300 thousand per month as the same costs are applicable even when it is not in service with the only reduction of US$30 thousand per month.
Taking into account the difference of operating aircraft profit and grounded aircraft losses, the total loss amount reaches US$600 thousand per aircraft, per month.
The most popular destinations from India’s airports are United Arab Emirates with 30,000 seats, Oman with 27,000 seats and Bangladesh with 7,000 seats as of July 2020. Previously, the same destinations were reaching much higher numbers — UAE had over 2,00,000 seats and the second most popular destination Singapore had over 50,000, while Oman had more than 40,000 seats. Returning to or close to such numbers would be an important contribution to shaping the industry’s recovery.
Should the restrictions and limitations continue to be implemented, the Indian aviation sector will face extreme difficulties in its recovery process and will take no less than a few years to return to the levels of 2019.
Taking into consideration that the aviation sector currently contributes US$72 billion to India’s GDP, in the face of events unrolling in the predicted way, it may affect the whole country’s economy with a possibility to cause financial crisis.
However, if the pandemic is controlled effectively, and the Indian Government’s plan to invest US$4.99 billion into the aviation industry in the next four years proceeds, the market of such size has a high potential to recover faster.
