Aviation sector: Resilience amid uncertainty

Aviation sector: Resilience amid uncertainty brought about by Covid-19

Before the Covid-19 pandemic, India's aviation sector was one of the fastest growing aviation markets in the world

Representative image. Credit: AFP Photo

The Covid-19-induced lockdown grounded scheduled commercial airline operations in March this year. From May 2020 onwards, the sector is being progressively opened. From merely 58,000 domestic scheduled passengers on May 25, 2020, Indian airports handled over 5 lakh passengers on November 30, 2020. Thus, signifying the return of confidence among the people and resilience of the Indian aviation sector.

Before the pandemic, India was one of the fastest growing aviation markets in the world. The domestic aviation sector witnessed double digit y-o-y growth for five consecutive years from 2014-15 to 2018-19. In terms of domestic passengers handled, India is currently the third largest country in the world. Between 2009 and 2019, India contributed 5.9% to the global growth in passenger traffic making it a third largest contributor in the world. 

The Aviation sector directly and indirectly contributes immensely to the economy. As per Oxford Economic analysis, the air transport sector in India directly contributes 3,90,000 jobs and indirectly supports over 5,70,000 jobs across different supply chains. Additionally, air transport facilitates tourism and investment into India. Foreign tourists arriving by air in India are estimated to support an additional 6.2 million jobs. Overall, the aviation industry contributes $35 billion annually to India’s GDP. 

The past 25-year trend analysis shows that the domestic aviation sector is highly correlated with the country’s GDP growth. The periods of global economic crisis seem to have a direct effect on India’s GDP and domestic passenger growth. The periods associated with Asian Crisis (1997), Dot-Com Bubble (2001-02), Global Financial Crisis (2008-09) and Eurozone crisis (2012-13) were associated with negative growth rates in domestic passengers handled. The periods of steady GDP growth rate such as 2003-04 to 2007-08, 2009-10 to 2011-12 and 2013-14 to 2018-19 have been associated with double digit growth rate in domestic passenger traffic.

More significantly, the international passenger traffic witnessed positive growth throughout 1995-96 to 2018-19 except for the year 2001-02. The international passenger traffic has grown at a rate of more than 5% annually since 2002-03.

The positive growth in India’s aviation sector has been the result of both policy factors and economic factors. On the policy front, swift government policy in the form of National Civil Aviation Policy, 2016, relaxing FDI norms and focus on regional connectivity through RCS UDAN Scheme have played an important role in creating a favourable environment for the aviation sector by making air travel accessible and affordable.

As of November 2020, a total of 299 RCS routes have been commenced.Out of 53 RCS airports, 22 airports have been operationalised in the underserved and unserved areas, thus, reflecting an impetus on connectivity. According to IATA Report, the average domestic fares in India have fell by 70% from their 2005 levels (after adjusting for inflation). India’s ranking in Travel and Tourism Competitiveness Index has improved from 52nd in 2015 to 34th in 2019 reflecting a conducive policy environment. On the economic front, increasing size of India’s middle class, growth in cross-border trade, development of world class airports, declining fuel prices and capacity expansion of low-cost carriers (LCCs) have been the driving factors.

From merely 5 million LCC seats in 2004, airlines in India presently offer more than 135 million LCC seats. With the outbreak of Covid-19 pandemic, the outlook for the aviation sector has changed. According to Airports Council International (ACI), the global air passenger traffic is expected to decline by 60% during 2020 as compared to 2019. Even for the year 2021, the passenger traffic is expected to be down by 30% and global airline industry revenue down by 46% from their respective 2019 levels.

The air passenger traffic in India is expected to shrink by 49% in 2020 as compared to 2019 (IATA). Various international agencies expect that the sector will take at least three to four years to achieve pre-Covid levels. However, fundamental factors supporting the growth in the Indian aviation sector remain strong. Domestic Passenger demand realisation as compared to corresponding month last year has improved from merely 16.7% in June 2020 to 49.5% in November 2020. Given the conducive policy environment and likely persistence of the aforementioned economic factors, Indian aviation sector is likely to emerge stronger and resilient from the crisis.

(Aruna Arora is Assistant Director, Ministry of Finance & Raj Anmol Singh Garg is Junior Executive, Airports Authority of India)