Analyzing Demand for Air Travel in India
“India’s civil aviation sector is likely to log 400 million passengers in the next 7-10 years”, said Civil Aviation Minister, Government of India, Jyotiraditya Scindia.
The civil aviation industry in India has emerged as one of the fastest-growing industries in the nation. It is anticipated that by 2024, India’s domestic aviation market will rank third internationally, contributing $30 billion yearly to Gross Domestic Product (GDP).
The demand for the aviation industry has been booming due to an increasing share of middle-class households having accessibility and affordability to air travel, strong competition among low-cost, efficient carriers, infrastructure development and a supportive governmental environment for its growth. To point out the growth and demand in commercial air travel through numbers, it is observed that passengers who travelled either to or from or within India increased from 79 million in 2010 to 158 million in 2017.
By 2037, it is projected to reach 520 million. Passenger traffic growth has thus increased by 11%. To satisfy the growing demand, by 2038, the country’s aircraft fleet is anticipated to grow fourfold to about 2500 aircrafts. The government has also pledged to build 100 additional airports by 2024 of the Ude Desh ka Aam Nagrik (UDAN) scheme. The air fleet number is also expected to increase from 600 to 1200.
The major growth for aviation has been in the Tier II and III cities, compared to larger cities. This shows that civil aviation is reaching the common masses. The Government is making consistent efforts to strengthen air infrastructure in small cities and has provided connectivity through RCS–UDAN Scheme to unserved and under-served places. In the last six years, 70 new airports have been brought under UDAN. About 2.1 lakh flights took off under the scheme and approximately 1.1 crore passengers have benefitted from UDAN.
On this backdrop, in this Analytics, we analyse the aviation industry in India in terms of its growth, its capacity and we forecast the demand for flights for the year 2023-24 from the publicly available data provided by the Directorate General of Civil Aviation.
Annual Growth of Industry
In this section, we analyse the annual growth in the Indian aviation industry in terms of number of departures and number of passengers carried, domestically and internationally. Number of departures represents the cumulative number of scheduled flights that took off and the number of passengers carried indicates the cumulative number of passengers that travelled in these flights in a year.
The figure below shows the domestic annual growth between 2015-16 to 2020-21.
It can be observed from the above figure that between 2015-16 and 2019-20, there is an upward growth trend in both, the number of departures and the number of passengers carried. The number of departures was approximately 700,000 in 2015-16, which has increased to 1.05 million in 2019-20, recording a 50.7% increase. The number of passengers carried in 2015-16 was 85.19 million and it increased to 141.20 million in 2019-20, recording a 65.7% increase. However, in the year 2020-21, a sharp drop is observed in these variables. The number of departures was 490,546, a 53.5% decline from 2019-20. Similarly, the number of passengers carried was 53.33 million, a 62.2% decline. This sharp fall can be attributed to the COVID-19 pandemic.
The figure below shows the international annual growth between 2015-16 to 2020-21.
It can be observed from the above figure that between 2015-16 and 2018-19, there is an upward growth trend in both, the number of departures and the number of passengers carried. The number of international departures from India was 124,199 in 2015-16, which increased to 163,287 in 2018-19, recording a 31.47% increase. The number of passengers carried in 2015-16 was 18.62 million, which increased to 25.89 million in 2018-19, recording a 39.05% increase. However, in the year 2019-20, it can be noticed that there is a decline in these variables. The number of departures fell to 147,399, a 10.77% fall from 2018-19. Similarly, the number of passengers carried was 22.72 million, a 14% decline from 2018-19.
Similar to the trends observed in domestic flights, due to the COVID-19 pandemic, both the variables sharply fell from their 2019-20 levels. The number of departures fell to 47,207, a 68% decline, while the number of passengers carried fell to 5.42 million, recording a 76.11% decline.
From the above graphs, it is observed that the Indian aviation industry was on a trajectory of growth, however, due to world-wide lockdowns caused by the COVID-19 pandemic, the borders of several states and countries were closed, thereby severely impacting the industry’s growth.
Review of Passengers Per Flight
In this section, we analyze the changes in the ratio of number of passengers per flight of all scheduled domestic and international flights in India between 2014-15 and 2020-21.
The increasing preference for air travel can be witnessed from the above graph. As it shows the growth of passengers per flight, demonstrating the ratio of the number of passengers and the number of departures for each year from 2014-15 to 2020-21. For both domestic as well as international travel, passengers per flight have consistently increased till 2019-20. Post of which the pandemic hit the world. Therefore, we can see a drop in the year 2020-21. Despite the Covid-19 pandemic, the Indian aviation sector has been back on track.
Airlines were preparing to deploy full capacity to cater to high demand in a post-covid world, but faced several challenges such as capacity deployment issues due to a shortage of parts. Rising travel demand led to airfares soaring during the peak December travel season. For example, spot fares for a Delhi-Mumbai flight had jumped to ₹15,000-20,000 from ₹5,500. This is set to impact airlines’ growth, especially in an emerging market such as India.
Additionally, the cost of Aviation Turbine Fuel (ATF) remains a challenge as it constitutes 45-50% cost in airline operations. There are 28 States, which have brought down VAT on ATF to 1-4%. The government is also urging the remaining 8 States to bring down the VAT so that cheaper raw material would give impetus to better connectivity.
In this section, we use the mathematical concept of logistic function to forecast the demand for flights for the year 2023-24.
Logistic function is a function that models population growth while accounting for the limitations that accrue to that population, like limited resources, carrying capacity of land and so on. In a utopian world, a population would grow without bounds i.e., it would grow exponentially. However, in reality the growth of a population is limited by the resources it needs to grow, like land, food, water, and so on. Therefore, the logistic function takes into account these limiting factors to model population growth realistically.
The Logistic function typically finds its place in the natural sciences, but more recently, its application has been observed in the social sciences, like Economics, as well. With respect to the aviation industry, the passengers become the population that travel in aeroplanes. These passengers represent the demand for air travel in the industry.
Using publicly available data, we forecast the demand for flights for the year 2023-24, using the number of passengers carried as a proxy for demand.
Future Prospects of Civil Aviation Industry in India
The International Air Connectivity Scheme (IACS), announced by the Ministry of Civil Aviation, aims to improve air connectivity between some states in India and a few international locations to spur socio-economic development. For example state governments of Assam and Manipur have identified routes to connect Guwahati and Imphal with international locations like Bangkok, Dhaka, Yangon and others.
Seven airports have collaborative ventures with the Airports Authority of India (AAI), where the ones in Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram, and Mangaluru received awards for operations, management, and development under Public Private Partnership (PPP) for 50 years. 25 AAI airports have been designated for asset monetisation between 2022 and 2025 following the National Monetisation Pipeline (NMP).
Several foreign aviation corporations have invested in the subcontinent’s aviation market due to the rapid economic transformation in India’s aviation industry. AAI is collaborating with companies like Airbus (France), Boeing (United States of America), Etihad Airways (United Arab Emirates), and Fairfax (United Kingdom), to mention a few.
On the issue of airports, the Minister of Civil Aviation Shri Jyotiraditya M. Scindia said that in the next four years, about Rs 95,000 crore are likely to be invested by the Government and the private sector, which includes greenfield as well as brownfield airports. The Airports Authority of India is working on expansion of about 40 airports and setting up 3-4 new greenfield airports. Similarly, the private sector is also working on 60 brownfield and 3 greenfield airports. In the last 8 years, the number of airports has gone up from 74 to 141 (including helipads and waterdromes) and the number is likely to cross 200 in the next 4-5 years.
As the demand for maintenance, repair and operations (MRO) facilities in India increases, airports and aircraft will also increase. Indian carriers are projected to increase their fleet size to 1,100 aircraft by 2027. This expands the scope of investment and growth in the sector.
The government supporting this industry is prepared to take necessary steps to establish India as a global leader in aviation-related needs. India is laying the groundwork for a future in which the average Indian citizen has accessibility and ease to flying, thanks to the restoration of airports, the doubling of the national aircraft fleet, and a shift toward a public-private partnership model.