Aviation industry on cusp of unprecedented growth but efficiency, viability need improvement

India’s aviation industry is on the cusp of unprecedented growth, and there should be a focus on improving the efficiency and viability of airlines while ensuring environmental sustainability, the Economic Survey 2023-24 says.

While emphasising the importance of collaborative efforts between the government, industry stakeholders and international partners, the survey said there is a need to provide adequate long-haul connectivity from India by strengthening Indian airlines, as a large proportion of Indian international traffic goes through connectivity hubs in the Middle East and Southeast Asia.

The civil aviation sector is boosted by growing demand, increased economic activity, tourism, higher disposable incomes, favourable demographics and greater penetration of aviation infrastructure.

India is the third largest domestic aviation market that recorded a 15 per cent year-on-year growth in total air passengers handled at airports to 37.6 crore in FY24.

The survey highlighted that economic growth necessitates the growth of the aviation industry and the need for expanded airport capacity, which, in turn, brings up sustainability concerns and the need for more skilled workers.

“The aviation industry in India is on the cusp of unprecedented growth, with a strong order book of more than 1500 aircraft placed by Indian airlines and a projected demand for over 2,200 aircraft by 2042,” it said.

For India to take a leadership position in aviation, focus is required on improving the efficiency and viability of airlines while ensuring environmental sustainability, the survey said.

According to the survey, the sector holds significant potential, requiring collaborative efforts between the government, industry stakeholders, and international partners. Investments in infrastructure, skill development, and sustainability initiatives will fuel the future expansion of the aviation sector in India.

“The airline industry is a highly competitive segment, susceptible to external shocks, such as oil prices, exchange rates, epidemics, wars, and equipment issues. These shocks can affect the operations of an airline and impact its viability, hence the development of capabilities in segments, such as MRO, leasing and skilling are needed to further support the airlines,” it noted.

Further, the survey said the future of aviation services in India is anchored in the growth of the maintenance, repair, and operations (MRO) sector and the burgeoning drone industry.

As per the survey, an emerging challenge for the aviation sector would be compliance with a mandatory phase of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) from 2027.

For the FY2020 to FY2025 period, the government's capital expenditure plan is over Rs 26,000 crore to develop, upgrade and modernise airports to meet international standards.

The Airport Authority of India (AAI) has spent around Rs 23,000 crore from FY2020 to FY2024 while public-private partnerships and other airport operators have shelled out around Rs 49,000 crore during the same period.

“The number of airports in India has more than doubled since 2014. However, there is a need to augment this capacity by adding more airports as well as expansion/upgradation of existing airports in the next five years,” the survey said.

Among the services sectors, the survey said the aviation space saw the most significant credit inflow with a year-on-year growth of 56 per cent, attributed to increased aircraft leasing, hiring and a positive medium to long-term growth outlook.