The year 2016-17 has been a positive one for the Indian aviation sector, with the growth in passenger and freight traffic being maintained, and new routes being opened up under the Regional Connectivity Scheme (RCS). The budget allocation to the sector has increased, and several airlines have reported operating profits. Further, buoyant air traffic growth is expected to be maintained, and to grow at a compound annual growth rate of 10 per cent between 2015-16 and 2025-26.
Policy
On the policy front, the biggest development has been the successful launch of the RCS, under the purview of the National Civil Aviation Policy (NCAP). In the first round of the RCS, the Ministry of Civil Aviation (MoCA) awarded 128 regional routes to five airlines – Alliance Air, SpiceJet, Turbo Megha, Air Odisha and Air Deccan. Air Alliance has been awarded 15 routes, giving it access to five unserved and two underserved airports; Air Deccan has got 34 routes to 10 unserved and five underserved airports; and Air Odisha has won 50 routes. The government has received more than Rs 11.5 million towards the Regional Connectivity Fund. The MoCA started collecting the levy from scheduled airlines operating on major routes to raise money for the fund from December 1, 2016.
Going forward, the MOCA is planning to expand the RCS to unserved routes under Phase II of the programme, which is currently under bidding. Further, the routes to be connected are likely to be decided by the airlines and not the government and may include unserved routes between well-connected airports as well. Besides, other changes proposed for Phase II include a reduction in the minimum distance for an RCS flight to below 150 km, and the number of years of exclusivity from three years under Phase I to one year under Phase II.
In a separate development, the Airports Economic Regulatory Authority (AERA) has set a tentative ceiling cost of Rs 65,000 per square metre for terminal buildings and Rs 4,700 per square metre for runways/taxiways/ aprons (excluding earthwork up to sub-grade level). The cost will be used to determine tariffs on a tentative basis. The ceiling rates will be applicable in the case of new projects only where the works are yet to be awarded. In the case of awarded projects, capital costs will need to be examined by the committee approved for the purpose.
However, airport charges have increased, with the Airports Authority of India (AAI) increasing charges by 5 per cent at non-major metro airports from April 1, 2017. Accordingly, the passenger service fee, which is charged as a part of the airfare, has been increased from Rs 85 per passenger earlier to Rs 89 in 2017-18 to Rs 93 in 2018-19 and Rs 98 in 2019-20.
Financials
Budget 2017-18 allocated Rs 51.68 billion to the MoCA, marking a 22 per cent increase in the budget expenditure from Rs 42.3 billion in 2016-17. However, from the revised estimate of 2016-17, it is a decline of about 1 per cent.
Of the ministry’s total allocation, budgetary support of Rs 18 billion (34 per cent) has been provided for equity infusion in Air India Limited. This will be extended as a part of the bailout package announced by the government in 2012.
An allocation of Rs 1 billion has been made towards AAI. Further, Rs 25.43 billion has been provided for investment in public enterprises, of which Rs 23.08 billion is for the national carrier Besides, budgetary support of Rs 2.15 billion has been provided to the Directorate General of Civil Aviation, Rs 451 million has been earmarked for the National Aviation University and a provision of Rs 860 million has been made for the Bureau of Civil Aviation Security for meeting expenditures.
Traffic growth
The year 2016-17 saw India emerge as the fastest growing major aviation market, aided by economic growth and low fuel prices. After increasing by 18.3 per cent in 2016-17 vis-a-vis 2015-16, passenger traffic growth is being sustained during 2017-18. During the first four months of 2017-18 (April-July), passenger traffic at Indian airports increased by 14.5 per cent over the same period in 2016-17, recording around 96.8 million footfalls. Meanwhile, during the first four months of 2017-18 (April-July), cargo traffic increased by 14.8 per cent over the same period in 2016-17.
Airports
Rising passenger traffic without a proportionate increase in capacity has led to severe congestion at airports. Metro airports such as Hyderabad, Bengaluru and Mumbai have utilisation rates of over 100 per cent, while Delhi airport is nearing saturation. Nevertheless, steps are being taken to augment capacity. AAI has drawn a capital expenditure plan of Rs 175 billion for the five-year period from 2015 to 2020, covering the upgradation and expansion of existing airports.
During 2016-17, new terminal buildings were inaugurated at the Vadodara, Vijayawada and Cochin airports. Besides, a new cargo terminal was inaugurated at Mumbai airport, while the new Bathinda airport in Punjab was inaugurated in December 2016.
Bids were invited for construction/expansion/upgradation works at the Nagpur (upgradation as a passenger and cargo hub), Jaipur, Vijayawada, Mangaluru, New Pune (consultant), Rajkot and Agartala airports.
Among metro airports, Phase II expansion works at Bengaluru’s Kempegowda International Airport have commenced at an estimated cost of Rs 40 billion. The expansion includes the construction of the second terminal (T2) and a parallel runway.
Delhi International Airport Limited sought environmental clearance for the Delhi airport expansion project, which is expected to entail an investment of Rs 160 billion. Further, environmental clearance has been granted for the Mumbai airport T2 terminal upgradation project, and recommended for the Hyderabad airport expansion project.
The long-awaited Mopa International Airport (Goa) and the Navi Mumbai International Airport have been bid out to GMR Airports Limited and GVK Power & Infrastructure Limited respectively. Once Phase I of these airports is commissioned, it will add a total capacity of around 15 million passengers per annum.
Further, following the launch of the RCS, the Cabinet Committee on Economic Affairs approved a proposal for the revival of 50 unserved/underserved airports/airstrips in the country at an estimated cost of Rs 45 billion. As per the approval, these airports will be revived over three financial years starting 2017-18. A total of 15 airstrips/airports each will be revived during 2017-18 and 2018-19 while 20 airports/ airstrips will be revived during 2019-20.
Airlines
The Indian airline industry has grown significantly over the years. The combined fleet size of Indian carriers has increased from 355 in 2012 to 464 in 2017 (as of March). Jet Airways, Air India and IndiGo are the major fleet holders, accounting for over 75 per cent of the industry’s total fleet count.
The financial performance of airlines improved during 2015-16, with five major carriers, including Air India, reporting operating profits. The trend is expected to be maintained in 2016-17. Moreover, the Union cabinet has accorded in-principle approval for the divestment of stakes in Air India. The cabinet has formed a group under the Ministry of Finance to work out the modalities of the strategic sale of the airline. The group will also decide the quantum of divestment.
Three domestic airlines – Air Costa, Air Carnival and Air Pegasus – ceased operations during 2016-17, while regional airline Zoom Air began operating from February 2017. In addition, the MoCA has reportedly received proposals from four entities for setting up new airlines in the country.
There are significant fleet orders in the pipeline. As per CAPA estimates, over the next 18-24 months, Indian airlines are expected to add about 100-120 aircraft, thereby changing the supply dynamics of the sector.
Outlook
India’s air traffic has certainly entered a high- growth trajectory and traffic projections for the airport sector continue to remain high. According to industry experts, the country is expected to become the third largest aviation market before 2025. However, to maintain these levels of growth, additional capacity needs to be added at existing airports as well as new airports need to be established. The award of the long-delayed Navi Mumbai and Mopa airport projects signifies movement in the greenfield segment. However, it needs to be ensured that the revised timelines for these projects are not missed.
The introduction of the NCAP, 2016, has brought optimism to the sector. Although the real impact of the NCAP will require two-three years to show, the introduction of the RCS shows swift action on the part of the government. Going forward, policy execution will remain key.
