CAPA REPORT ON INDIA

AIBM

January - March 2018

Indira Gandhi International Airport in New Delhi

The Centre for Asia Pacific Aviation (CAPA) India report highlights the need to invest in infrastructural facilities in order to keep up with the demands and needs of a booming aviation sector; with 2030 being the target year, CAPA predicts that an investment of USD 45 billion is required to prevent airport saturation.

India’s air traffic is witnessing significant growth on both domestic and international fronts, with private airlines including the national carrier focused on increasing flight connectivity. Foreign players have also significantly invested in Indian aviation market, as the year witnessed more international airlines tying up with domestic private players for enhanced connectivity. Take the instance of Air FranceKLM signing an ‘Enhanced Cooperation Agreement’ with Jet Airways. The ‘Enhanced Cooperation Agreement’ that is aimed at connecting the Indo-European dots, will also aim to increase the number of flights to Europe, especially Paris and Amsterdam, and expand further connectivity to the United States of America (US).

Jean-Marc Janaillac, CEO of Air FranceKLM stated, “Air France-KLM and Jet Airways are launching the first cooperation agreement of its kind on the India-Europe market, one of the markets at the heart of the group’s strategy for the coming years. With over 1,200,000 customers carried between India and Europe by the group and our Indian partner, half of whom are travelling onward to North America, we are confirming our ambition to offer customers an enhanced network, and a unique, seamless product tailored to their needs with the best products and services.”

Similarly, CAPA reported that Greece’s Minister of Foreign Affairs Nikos Kotzias and India’s External Affairs Minister Sushma Swaraj signed an Air Services Agreement on November 27, 2017 to facilitate the launch of the first direct air service between the countries. The air services agreement will allow Indian airlines to operate to Athens, Thessaloniki and Heraklion, while Greek airlines will be able to launch services to major Indian cities. At present there is no direct air connectivity between India and Greece.

Several other international airlines have enhanced flight connectivity to India by means of increasing the number of direct flights. For example, Thai Smile, the regional airline and subsidiary of Thai Airways, expanded its Indian connectivity by introducing direct flights from Bangkok to Mumbai. Thai Smile, which has been operating in India since the last quarter of 2016, already has direct flights from Bangkok to Jaipur, Lucknow, Gaya and Varanasi. Similarly, Alitalia, the flag-carrier of Italy re-launched direct flights to India after an absence of nine years, thus connecting the capitals of the two countries.

On the domestic front, the Directorate General of Civil Aviation (DGCA) reported that the air travel volume reached the 10 million mark in October 2017, clipping at a healthy 20.52 percent over the same period a year ago.

Ajay Singh, chairman and managing director of SpiceJet in a conversation with AIBM, said, “This growth is a great sign but we need to further bring down the cost of aviation. The government is quite engaged in the aviation business and that is good. However, we have the most expensive aviation turbine fuel and airports. We need to bring this cost down to support this growth spurt and make it sustainable. We also need to create many more airports to support this growth.”

In sync with Singh’s statement on need for airports to support the sudden growth spurt, CAPA said India needs up to USD 45 billion investment in 55 airports to boost capacity by 2030. CAPA stated that most Indian airports are headed towards saturation in passenger-handling capacity.

“India will need to construct an additional 500 to 600 million of capacity by 2030. This will require USD 36-45 billion of investment, including USD 12-15 billion of equity capital,” CAPA said in a report. It said that with almost all Indian infrastructure companies significantly over-leveraged, India will be strained to raise the necessary capital for airport development. “Combined with the economic regulatory environment, availability of capital could be a very significant, structural problem,” the CAPA report said, adding that the 55 new airports would require about 150,000 to 200,000 acres of land for their development.

CAPA said Indian airlines would induct close to 350 to 400 aircraft over the next five years and that they had already been facing challenges securing overnight parking bays.

Calculating Constraints?

Despite a heavy demand, the civil aviation sector so far failed to look beyond major metros and continued to neglect serving several Tier-II and Tier-III cities. Most of these airports are located near high-business or potential tourism areas or are surrounded by industrial clusters.

Aviation analysis group, CAPA, pointed out in its new report that India’s airport network is at a “near-crisis situation”. Delhi, Mumbai, Chennai and Kolkata are getting new airports, but those in smaller cities like Agartala, Guwahati, Kozhikode, Srinagar and Pune are already operating beyond their capacity. The report stated that to solve a number of issues, 55 new airports are needed by 2030.

Currently, India’s airports have a capacity to handle 317 million passengers a year. But traffic could increase by close to 300 million in FY18 itself, CAPA said adding that based on its econometric forecasts for Indian passenger traffic; the airport system would exceed its maximum structural capacity by FY22.

“This will become increasingly difficult with so many aircraft scheduled for induction over the next five years. These aircraft will also have to fly somewhere. As metro airports become saturated, airlines will have to deploy more capacity [at] Tier-II cities over the next three years due to slot constraints,” the aviation centre further added.

After maximising capacity at the current sites, Delhi and Chennai would reach capacity within four to six years while Mumbai had very limited spare capacity and was close to saturation, it said.

For example Delhi with the current capacity of 64-72.5 million passengers and projected capacity of 90 to 100 million is expected to be saturated in FY23, while Mumbai with current peak capacity of 50-52 million will saturate in FY19.

Meanwhile, there is another noticeable setback to India’s booming aviation industry – customer complaints. A total of 656 passenger-related complaints were received by the scheduled domestic airlines in the month of October. There is a distinct surge in the number of complaints related to baggage and miscellaneous issues.