Funds squeeze, low traffic volumes ‘double whammy’ for India aviation industry
July 21 2021 10:45 PM
Jet Airways and SpiceJet aircraft at Chhatrapati Shivaji Maharaj International Airport in Mumbai. Th
Jet Airways and SpiceJet aircraft at Chhatrapati Shivaji Maharaj International Airport in Mumbai. The recent surge in the Covid-19 pandemic has dealt a severe blow to India’s economy, and its airline industry has particularly been one of the sectors most affected.

Indian aviation emerged as one of the fastest growing industries in the country until Covid-19 dealt a severe blow to the Asia’s third largest economy more than a year ago.
Pre-pandemic analyses showed that India became the third largest domestic aviation market in the world and was expected to overtake UK to become the third largest air passenger market by 2024.
But the recent surge in the Covid-19 pandemic has dealt a severe blow to the country’s economy, and its airline industry has particularly been one of the sectors most affected. This has driven some Indian airlines to seek new investments, while others are looking to ownership changes to increase their long term viability.
According to the India Brand Equity Foundation, the country’s aviation industry is still largely untapped with huge growth opportunities, considering that air transport is still expensive for a majority of the country’s population, of which nearly 40% is the upwardly mobile middle class.
An Indian aviation industry report showed the country’s passenger traffic stood at 115.37mn in financial year (FY) 2021. Domestic passenger and international passenger traffic declined at a CAGR of -9.02% and -28.64%, respectively, from FY16 to FY21, owing to Covid-19-related restrictions on flights in FY21.
In FY21, airports in India pegged the domestic passenger traffic to be nearly105.2mn, a 61.7% year-on-year decline, and international passenger traffic to be nearly 10.1mn, an 84.8% year-on-year decline, over the fiscal year that ended on March 31, 2020.
In March 2021, the average daily passenger traffic stood at 546,702.90, data reveal.
Between FY16 and FY21, freight traffic declined at a CAGR of -1.77% from 2.7mn tonnes (MT) to 2.47 MT. Freight traffic on airports in India has the potential to reach 17 MT by FY40.
Aircraft movement declined at a CAGR of -7.79% from 1.6mn in FY16 to 1.2mn in FY21. From FY16 to FY21, domestic aircraft movement decreased at a CAGR of -6.44% and international aircraft movement declined at a CAGR of -18.52%. India’s domestic and international aircraft movements reached 1,062,000 and 135,000 respectively, in FY21. The expenditure of Indian travellers is expected to grow to $136bn by 2021.
To cater to the rising air traffic, the Government of India has been working towards increasing the number of airports. As of 2020, India had some 153 operational airports. India has envisaged increasing the number of operational airports to 190-200 by FY40. With the objective of “letting the common citizen of the country fly”, the Government of India launched a regional airport development and regional connectivity scheme (RCS) called ‘UDAN’ in 2016.
The idea is to connect unserved and underserved airports. And the first flight under the scheme took off in April 2017.
But only 47% of the awarded routes have been operationalised under the government’s regional air connectivity scheme. And the second wave of Covid-19 pandemic may impact the scheme further, ICRA, an Indian independent and professional investment information and credit rating agency noted recently.
The number of new RCS routes, which started operations increased at a healthy pace and stood at 102 and 120 routes in FY19 and FY20, respectively, but have since declined to 77 in FY21 due to the Coronavirus (Covid-19) pandemic, ICRA said.
Only 39% of unserved and underserved airports have been operationalised, it said. The scheme is funded through a Rs50 ($0.67) levy on flight tickets on major routes.
The levy contributes to 80% of viability gap funding provided to the airlines and the balance 20% is provided by state governments.
India’s civil aviation ministry has set a target of operationalising as many as 100 unserved and underserved airports and starting at least 1,000 RCS routes by 2024 (of this, 52 unserved and underserved airports and 357 routes are operationalised as on May 31, 2021).
To improvise the RCS network and achieve its target of developing 100 RCS airports by 2024, the Airport Authority of India decided to bid out 392 routes under UDAN.
“The award and implementation of UDAN 4.1 may get delayed significantly due to the second wave of the pandemic in India and its effect on the Indian aviation industry,” says Shubham Jain, SVP & group head, Corporate Ratings, ICRA.
Obviously, the pandemic proved to be a double whammy for Indian aviation, since traffic volumes are down significantly and funds squeeze becoming extremely critical.
Therefore, India’s goal of becoming the third-largest aviation market in three years depends heavily on its ability to effectively contain the pandemic, kick start the economy and instil confidence among air travellers.

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