How aviation is being transformed from an elite to a public service?

How aviation is being transformed from an elite to a public service?

Jayant Sinha and Akhilesh Tilotia

India’s aviation sector is being rapidly transformed and air travel is becoming indispensable for the general public. India is now the fastest growing major aviation market – the number of air passengers has been growing more than 20% year-on-year. In the past 12 months, more than 9 crore passengers flew domestically and another 5 crores or so flew internationally. In the next few years, India will likely become the third largest aviation market in the world after the US and China. The new National Civil Aviation Policy (NCAP), particularly the Regional Connectivity Scheme, will further accelerate this transformation.

Spurred by supportive government policies and the NCAP announced in June 2016, the aviation sector has taken off. Along with plunging oil prices and lower interest rates, air travel has become much more affordable and accessible. In fact, air travel is approaching “rail parity” in terms of AC fares and passengers.

Across most sectors, average airfares are now available at the price of 2AC or Tatkal-3AC fares or lower. While some last minute fares do raise eyebrows, analysis done by Directorate General of Civil Aviation (DGCA) highlights that typically less than 1% of the tickets are sold at the highest fare bucket netting the airlines only around 1-3% of their revenues. For connectivity between two distant cities, air travel can provide fast and frequent service. For example, Cochin–Chandigarh is a 50 hours plus train ride; there are at least four air travel options that connect the two cities in less than 6 hours.

Indian airlines now fly nearly as many passengers as Indian Railways carries in AC passenger coaches. Even as Indian Railways continues to be the lifeline of the nation with over 800 crore trips annually, the aviation sector is gaining importance. Family members fly to be with their loved ones during key occasions and festivals. Students use air travel to get back home during their holidays. Workers and professionals travel to take advantage of economic opportunities in other countries.

Foreign and domestic tourists flock to India’s heritage sites and exceptional natural beauty. Air travel enables patients from remote areas to be treated at our major medical centres. And, businesspersons and traders require air travel to keep their businesses humming.

Air travel is likely to continue to grow quickly for the next 10-12 years. To support this growth, investment in airports is expected to be upwards of Rs 2.5 lakh crore. Around 700 planes could be added to our current fleet of around 450 planes totalling an investment of around Rs 3 lakh crore. All told, the aviation sector will have to invest around Rs 5.8 lakh crore in the next decade to meet fast-growing demand.

This does not include any investments on account of manufacturing or maintenance, repair and overhaul (MRO) businesses that may take root. Note that this vast transformation is largely going to be financed through private sector investment in airlines and airports. Moreover, the multiplier effect of investment in the aviation sector is estimated to be anywhere between 6X and 12X.

Currently, the aviation sector in India is estimated to directly employ 2 lakh people and 12 lakh people across various parts of the value chain, a multiple of 5.8X. In the next decade, the sector could employ more than 5 lakh people directly and 30 lakh overall. Specialised skills are required for jobs in the aviation sector leading to high wages and strong employment prospects.

The Regional Connectivity Scheme (RCS) announced in the NCAP will be a game changer for air travel. Over the next few years between 125 and 150 new airports will likely get scheduled services through RCS. These services will be subsidised through joint efforts of the central and state governments.

Once considered an elite service, mobile telephony was transformed during the previous NDA government so that it now reaches everyone. Similarly, the transformation underway in India’s aviation sector will bring air services to everyone. RCS will open up the hinterland enabling fast and direct connectivity to large cities. Tier 2 and 3 cities will be spokes in the hub-and-spoke models currently being built by our airlines. And, our large metro airports will become global aviation hubs connecting India to the world with direct flights.