India aims to become the largest aviation market by 2030. The Civil Aviation Industry has built an ecological system for growth, driven by factors such as modern airports, FDI in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity. The demand for affordable travel possibilities and the associated low-cost carriers (LCCs) like IndiGo and SpiceJet have been instrumental in driving this growth. Foreign carriers are now showing interest for a share in India’s domestic aviation market.
The market share of LCCs increased from 25% to 65% in the past decade. Once the Goods and Service Tax (GST) will be implemented in July this year, the Indian Aviation Industry is expecting a big boost. Under the GST, economy class air tickets will get cheaper with service tax lowered to 5% from 6% before. Experts believe that it is a huge relief for the sector as this step will continue to support the affordable air fare regime in India. Low ticket prices have helped India to become the 3rd largest market in the world in 2016 in terms of domestic travel.
Last year in June, the Government announced an allowance of 100% FDI in airlines with the condition of maximum 49% share by foreign carrier and 51% share held by foreign non-airline investor. While the Government is working on an appropriate policy for FDI in airlines, Qatar airways has shown interested in starting a local airlines in India along with the Gulf nation’s sovereign wealth fund.
With the aim of boosting regional connectivity with low-cost flights, the first flight journeys under the Ude Desh ka Aam Nagrik-scheme (UDAN) were recently launched. The three opening flights took place in the routes of Shimla-Delhi, Kadapa-Hyderabad and Nanded-Hyderabad. The UDAN-scheme is a first-of-its-kind scheme globally to stimulate regional connectivity through a market-based mechanism and will make air travel accessible and more affordable to people in regionally important areas. Under the scheme, nearly half of the seats on every flight will cost around $40 per seat for flights where the distance is less than 500km and will not take longer than one hour. Under the UDAN Scheme, 31 new airports were added in one year and the Government plans to add 100 more airports in the next 2-3 years to the existing 75 airports. This expansion will offer an array of investment opportunities in the sector.
In the last year the Aviation Industry in India witnessed a growth in passenger traffic of 17.6%. Especially the low cost sector was of great importance as India’s rapidly growing middle class has started to travel more in India and abroad. The 300-million strong middle class was the major force underlying a recent boom in air travel in India. Foreign low-cost carriers like the Malaysia-based Airline AirAsia or the Dubai-based flydubai have recognized the potential on the Indian market and offer connections as far as Australia and Eastern Europe through their hubs in Dubai and Southeast Asia.
Many foreign companies are seeking opportunities of acquisition and investments in the sector. Singapore Airlines recently invests over $72 million in Vistara. American giants Boeing and JetBlue have invest in an Indian start-up Zunum Aero to develop electric hybrid aircrafts that would hold 10 to 50 passengers for flights up to 1,000 miles. The rise in Indian civil aviation market, especially in the low-cost segment, is growing in a fast pace. The increasing number of travellers and policies by the Government are giving further impetus to the Aviation Industry creating more opportunities and attracting foreign investors.
To read the latest news on the Aerospace & Defence Industry in India click Aerospace & Defence Newsletter.