The Indian civil aviation industry has managed to survive the tremendous battering it received during the COVID-19 pandemic, but losses continue to put the industry's survival at risk.
According to the Ministry of Civil Aviation (MoCA), the industry incurred a loss of about INR 28,907 crore in the last three years. INR 4770 crore in FY20, INR 12,479 crore in FY21 and INR 11,658 crore in FY22.
The only large commercial airline to remain profitable across this entire period was Air India Express. On the other hand, IndiGo which made profits of INR 1,626 crore in FY20, has seen losses mount to INR 5,193 crore and INR 3,581 crore in FY21 and FY22, respectively. Between FY20 and FY22, Air India’s losses totalled just over INR 13,000 crore.
The MoCA attributes the losses primarily due to the disruption during the COVID -19 pandemic across the globe, currency depreciation and the high operating cost environment. Indian carriers have been especially troubled by the increase in Aviation Turbine Fuel (ATF) prices due to the increase in crude oil prices in the international market and the Ukraine - Russia War. ATF prices constitute a major portion of an airline’s operational cost, and in the case of scheduled Indian operators, it is 40% of their total operating expenses.
The importance of recovering India’s civil aviation sector cannot be understated, as the aviation and aeronautical manufacturing sector provides direct employment to around 2.5 lakh people. This includes pilots, cabin crew, engineers, technicians, airport staff, ground handling, cargo, retail, security, administrative and sales staff etc.
In 2023, Indian carriers will mainly focus on bringing down their accumulated losses and ensuring they have sufficient capacity to cater to burgeoning air traffic demand. While air travel has rebounded, it will only be by 2024 that domestic air travel will recover to the 27.5 crore passengers carried in FY20. For FY22, Indian carriers carried 16.7 crore passengers.
Welcome steps have been taken to reduce the Value Added Tax (VAT) on ATF. Sixteen States have reduced VAT on ATF in the range of 1- 4%. Andaman & Nicobar Islands, Uttarakhand, Jammu & Kashmir, Ladakh, Himachal Pradesh, Tripura, Madhya Pradesh, Haryana, Uttar Pradesh, Dadra & Nagar Haveli and Daman & Diu, Arunachal Pradesh, Manipur, Jharkhand and Mizoram reduced VAT on ATF below 5%. In comparison, Gujarat and Karnataka have reduced VAT on ATF by 5% and 18%, respectively. In addition, the GST rate for domestic Maintenance, Repair and Overhaul (MRO) services has been slashed from 18% to 5%.
The Government also approved the Emergency Credit Line Guarantee Scheme (ECLGS) for the aviation sector. The ECLGS scope has been enhanced based on industry demand to provide credit support to companies upto 100% of their total credit outstanding (both fund-based and non-fund based outstanding) as on reference dates, subject to a cap of INR 1,500 crore per borrower (whichever is lower). These steps are expected to aid the recovery of Indian carriers back to profitability.
Infrastructure Development Key To Growth
While India’s privately owned airlines have largely accomplished their fleet expansion plans or are in the process of doing so, the expansion of India’s airport and airfield infrastructure will be key to the commercial aviation industry’s future growth. Currently, there are 146 operational airports across India (135 airports, two water aerodromes and nine heliports). Airports Authority of India (AAI) has projected the all-India passenger throughput growth to 37.1 crore passengers in FY24, 41.2 crore passengers in FY25) and 45.3 crore passengers in FY26).
AAI and other airport developers have targeted a capital outlay of approximately INR 98,000 crore in the airport sector in the next five years for expansion and modification of existing terminals, new terminals and strengthening of runways, among other activities. For the period 2019-25, the Delhi, Bangalore, Hyderabad, Lucknow, Mangaluru, Guwahati and Ahmedabad airports had earmarked a capital expenditure of INR 10,550 crore, INR 13,552 crore, INR 6,288 crore, INR 1,383 crore, INR 567 crore, INR 1,232 crore and INR 376 crore, respectively.
The Government has also provided 'In-Principle' approval for the setting up of 21 Greenfield Airports, namely, Mopa in Goa, Navi Mumbai, Shirdi and Sindhudurg in Maharashtra, Kalaburagi, Vijayapura, Hassan and Shivamogga in Karnataka, Dabra (Gwalior) in Madhya Pradesh, Kushinagar and Noida (Jewar) in Uttar Pradesh, Dholera and Hirasar in Gujarat, Karaikal in Puducherry, Dagadarthi, Bhogapuram and Oravakal (Kurnool) in Andhra Pradesh, Durgapur in West Bengal, Pakyong in Sikkim, Kannur in Kerala and Donyi Polo, Itanagar in Arunachal Pradesh.
Nine airports (Durgapur, Shirdi, Kannur, Pakyong, Kalaburagi, Orvakal (Kurnool), Sindhudurg, Kushinagar and Donyi Polo, Itanagar) have been operationalised, and the tenth airport - Manohar International Airport - Mopa, Goa was inaugurated in December 2022 and will be operationalised soon. The project costs of the nine operationalised Greenfield airports are INR 670 crore (Durgapur), INR 320 crore (Shirdi), INR 553.53 crore (Pakyong), INR 2,342 crore (Kannur), INR 175.57 crore (Kalaburagi), INR 187 crore (Orvakal), INR 520 crore (Sindhudurg), INR 448 crore (Kushinagar) and INR 646 crore (Donyi Polo, Itanagar).
Also, as per National Monetisation Pipeline (NMP), 25 AAI airports, namely Bhubaneshwar, Varanasi, Amritsar, Trichy, Indore, Raipur, Calicut, Coimbatore, Nagpur, Patna, Madurai, Surat, Ranchi, Jodhpur, Chennai, Vijayawada, Vadodara, Bhopal, Tirupati, Hubli, Imphal, Agartala, Udaipur, Dehradun and Rajahmundry have been earmarked for leasing over the years 2022 to 2025. The lease of these airports to private operators is expected to bring in proceeds of INR 10,782 crore.
UDAN Grows Regional Travel
The Regional Connectivity Scheme (RCS) - UDAN (Ude Desh ka Aam Nagrik) was targeted at boosting regional connectivity and launched in October 2016. The RCS scheme received financial support from the Government through VGF (Viable Gap Funding), concession on fuel rates and landing/parking charges, etc. As on November 2022, following four rounds of bidding under UDAN, 453 routes have commenced, operationalising 70 airports, including two water aerodromes and nine heliports. The Government had set a target to operationalise 1,000 UDAN routes during the current scheme and to revive/develop 100 unserved & underserved airports/heliports/water aerodromes by 2024.
UDAN is a market-driven scheme, and based on their assessment of demand on particular routes, interested airlines submit their proposals at the time of bidding. It has also led to the emergence of new regional carriers, such as Star Air and IndiaOne Air and Flybig.
Upgrading existing airfields and airports for RCS flights have also resulted in a budget of INR 4,500 crore allocated for the revival of existing unserved/underserved airports/airstrips of the State Governments, AAI, Public Sector Undertakings and Civil Enclaves. More than INR 3,000 crore has been utilised so far under the scheme.
Under UDAN, previously unused airfields such as Rupsi, Tezu, Jorhat, Lilabari, Shillong and Pakyong have been operationalised in the North Eastern Region for connecting remote and inaccessible areas. Two Advanced landing Grounds, namely Pasighat and Ziro, have also been operationalised in Arunachal Pradesh under the scheme 'Providing Air Connectivity and Aviation Infrastructure in NER (North Eastern Region)'. In Assam, airports/heliports/water aerodromes such as the Guwahati River Front (WA), Nagaon (H), Rupsi and Umrangso Reservoir (WA) have been identified for revival/upgradation.
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