Competition to soar in 2022 as new players enter aviation sector

Passengers will gain from increased competition, Centre from divesting airport assets and the workforce from more professional opportunities
Last Updated : 01 January 2022, 08:46 IST
Last Updated : 01 January 2022, 08:46 IST

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Competition is expected to soar in India's aviation sector during 2022, as new players enter the industry along with deeper penetration of air transport in the hinterland.

Accordingly, a new airline as well as more privately operated airports are expected to increase competition in the sector that has faced the brunt of the ongoing pandemic. Besides, expanding regional and intra-regional presence will continue to widen the scope of the industry.

Moreover, passengers will gain from increased competition, Centre from divesting airport assets and the workforce from more professional opportunities in the aviation sector.

In terms of airlines, in 2021, Jet Airways and Air India found new owners. "The cherry on the cake was the launch of Akasa Air underpinning the future prospects of this sector in India," said Jagannarayan Padmanabhan, Director and Practice Leader, Transport & Logistics, CRISIL Infrastructure Advisory.

"Competition will continue to be strong across the airlines, it's important that the sector learns from the previous misadventures of undercutting prices to gain or maintain volumes."

In the medium term, the sector's growth is expected to come from the tier 2 and tier 3 cities, for which it is necessary to augment capacity as well as open up new regional airports.

"While Covid-19 has led to uncertainties in the airport sector, the established regulatory framework, as well as the growth potential in the Indian market over a long term, would continue to attract private developers," said Vishal Kotecha, Director, India Ratings and Research.

Notably, there have not been any bids in the airport space over the past two years. However, 2019 saw a significant number of bids in the airport sector with the Adani Group winning six airports, GMR and Zurich airports being awarded one airport each. "There was a significant interest seen from both domestic as well as international players in these bids," said Kotecha.

Under the National Monetisation Pipeline, the Centre plans to divest brownfield assets such as airports, thereby increasing competition in this sector. At least 25 additional airports have been identified for monetisation in the next three years.

Furthermore, there has been an increased focus on increasing regional connectivity. In terms of the RCS-UDAN scheme, 948 valid routes have been awarded. Of these, 395 routes connecting 63 unserved and underserved airports, including six heliports and two water aerodromes, have been operationalised.

As per data, under UDAN 4.1, 168 routes were awarded during the year.

The Ministry of Civil Aviation has set a target of operationalising as many as 100 unserved and underserved airports and starting at least 1,000 RCS routes by 2024. "Expect the target of operationalising 100 airports under UDAN by 2026, with a delay of two years from revised schedule (of 2024 from earlier 2019)," said Rajeshwar Burla, Vice President and Group Head, Corporate Ratings, ICRA.

"The weak credit profile of some of the domestic airlines is expected to have an impact on the existing routes under UDAN scheme, particularly for smaller airlines given the stretched liquidity position, low utilisation in some of the routes and this will also impact future bidding of routes under the scheme," Burla said.

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Burla attributed the slow progress of UDAN implementation to delayed upgrade of infrastructure and readiness of airports, lack of adequate right of way, including insufficient runway lengths at some of the RCS airports and delays in securing necessary regulatory approvals.

Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research, said, "As of 2020, there were 153 operational airports in India which are poised to grow to by another 20-30 by 2030. AAI has a capital expenditure programme of Rs 25,000 crore over the next 4-5 years for the development of new domestic airports as well as the expansion and upgrade the existing ones."

In addition, Chowdhury said the private sector is increasingly participating in the development and expansion of international airports in the country to cater to the potential incoming business and leisure traffic.

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Published 01 January 2022, 08:46 IST

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