India’s airline industry is at an inflection point, underlined in a recent report by Jefferies. Although it is confronted with short-term problems such as security fears, supply-side constraints and infrastructure deficiencies, the aviation industry in the country is poised to grow at an impressive pace. India’s success as become an aviation powerhouse would be underpinned by the country’s low air travel penetration, sharp rise in middle class population and large investments in aviation infrastructure, Jefferies said.

As of now, India remains the third biggest aviation market (in terms of passengers), behind only the US and China. Bu India’s share of global air traffic is only 4%, an inconsistency that is all the more profound given that the country’s population is nearly 20% of the global population. Such a disconnect provides a vast potential for growth, even as forecasted numbers by the International Air Transport Association (IATA) and Airbus indicate India’s air traffic could triple over the next 20 years. The expected spike in demand will be boosted by the new air routes, expansion of domestic carriers’ fleets and ongoing airport improvement initiatives.

India’s Aviation Market: A Comparative Analysis with China

India continues to be nascent in realizing its air potential as against China, which operates 250 airports and services 700 million passengers a year. India has 150 airports that handle an estimated 200 million passengers a year. The woefully small size of the aviation industry in the country, and the absence of high speed rail competition (unlike China) reveal that there is plenty of room for expansion in the sector. To exploit this potential, India must emphasize the creation of strong infrastructure, particularly in those regional markets which are less developed3 for air transportation.

Over the next few years, India’s aviation market is set to grow by leaps and bounds, on the back of new air routes and continued rise of domestic carriers such as IndiGo. Government led redevelopments and new build airport infrastructure projects, under a public-private partnership (PPP) model, such as those undertaken by GMR Airports will be key to unlocking this growth and the leading the surge in passenger numbers.

IndiGo’s Leadership and International Expansion

The largest airline in the country, IndiGo, is set to be at the centre of the country’s aviation expansion. As Jefferies points out, IndiGo has already established itself as a major player in the domestic market, and its international presence will be a significant factor in the development of India’s aviation market in the years ahead. IndiGo has already increased its international footprint to 30% of its total operations and by 2030, this is likely to grow to 40%. This change underlines a strengthening commitment to international routes, also identified as a revenue engine, enabling the airline to continue to diversify its revenue base, and expand its global footprint.

The airlines competitive fares, well placed domestic route network and the ability to expand global helped there success. IndiGo management has already chalked out further fleet expansion plan to cater to the growing demand for air travel, in both India and overseas. The carrier’s relentless emphasis of its productivity gains and expansion in foreign markets will lead to a solid position in the airline industry.

GMR Airports: A Strategic Player in India’s Aviation Growth

ndia’s aviation boom is also attracting interest from GMR Airports, one of the country’s leading private airport operators. The company runs crucial airports like the Indira Gandhi International Airport in New Delhi and the Rajiv Gandhi International Airport in Hyderabad, and would benefit materially from both domestic and international travel. Diversified revenue streams for Giant Mall Rats such as retail, cargo and hospitality keep it on firm footing in spite of the cyclicality in the aviation industry.

Furthermore, with the ongoing regulatory changes and the government focus on the country’s aviation infrastructure (the government wants India to have 100 new airports over the next 10-15 years), GMR Airports also benefits. These will ramp up the airline’s capacity to cater to the growing demand for air travel, while also further focusing on growing India’s aviation sector.

Short-Term Challenges for India’s Aviation Industry

As promising as the industry may appear, Jefferies recognises several short-term headwinds which may get in the way of progress. The aviation industry has been struggling with supply chain bottlenecks, with aircraft deliveries held up. Aviation fuel and taxes remain a an issue for Indian carriers as the price of ATF (aviation turbien fuel), which is used for domestic travel, is very high due to taxes, he added. Looking further ahead, the country’s maintenance, repair and overhaul (MRO) facilities are poorly under developped and are liable to hinder airlines as their fleets grow.

There have also been fears over air safety raised in recent times. Still, Jefferies thinks these challenges will prove short-term in nature and will remain worthwhile given the larger growth near-term outlook. Yet, despite these uphill battles, Jefferies is optimistic that India’s aviation sector is poised for consumption and in two decades could become the world’s third-largest aviation market.

Conclusion: India’s Aviation Future Looks Promising

India aviation industry is on the the cusp of the great change and has an all round growth opportunities both in terms of domestic and international air travel. As India has already emerged as the third-largest aviation market globally, the country is in a good position to convert its untapped potential into profitable market. In this regard, the biggest beneficiaries are likely to be IndiGo and GMR Airports who will be pivotal in driving the future of aviation infrastructure development in India.

Though there are immediate impediments that the sector has to confront, fundamental growth drivers of aviation an expanding middle class, growing air travel penetration and substantial infrastructure investments are intact. The confluence of these factors implies that India’s aviation sector will take off in the global arena, and there are huge opportunities for local and global players.

(Sources: Jefferies Report on India’s Aviation Industry, International Air Transport Association (IATA) Government of India Ministry of Civil Aviation)