Air India, Indian aviation market & tailwinds of growth

New Delhi/ Mumbai: From increased direct international air connectivity to being a showpiece of divestment programme to job creation in faraway US, Air India's mega 470 aircraft order has ignited myriad expectations in and about the world's fastest growing aviation market -- India.

A raft of factors -- surging air traffic demand, rising middle class population and disposable incomes, demographic dividend, over 1,200 planes on order by various Indian carriers and improving aviation infrastructure -- are all fuelling the growth of the market.

Out of the 470 firm aircraft order, 250 will be supplied by Airbus and 220 by Boeing, while there is also the option to buy another 370 planes from the two plane makers. The firm order includes 70 wide-body aircraft.

Aircraft & Air Traffic Indian airlines have placed orders for more than 1,100 aircraft that are to be delivered in the coming years. The country's largest airline IndiGo is to take deliveries of around 500 planes, Go First is to receive 72 aircraft, Akasa Air is to get 56 planes and Vistara is to take 17 aircraft. Besides, SpiceJet has aircraft on order. All of them are narrow-body planes.

Together with Air India, the domestic carriers have at least 1,115 planes on order.

Around 700 commercial aircraft are flying in India and majority of them are narrow-body planes. About 470 aircraft of Airbus and around 159 Boeing planes are in commercial service.

GE Aerospace's Country Head, South Asia & Indonesia, Vikram Rai said India has the potential to grow both on the wide-body and narrow-body side.

Providing a perspective, he said that in India, pre-COVID traffic was around 75 million international passengers and out of them, 60-65 per cent used foreign carriers.

"With the economy growing and disposable income growing, there is a huge opportunity for Indians to travel abroad... This 75 million passengers is likely to go to 120-125 million over the next 7-10 years," he said.

India is the world's third largest and the fastest growing aviation market in the world.

The country's civil aviation sector is poised for a phenomenal and healthy growth in terms of passengers, aircraft and airports, with the number of air travellers projected to touch 40 crore by 2027, Union minister Jyotiraditya Scindia told PTI on August 7 last year, the day when Akasa Air started commercial operations.

"We are going to add 15 per cent capacity or 100 to 110 aircraft per year. India is looking at close to 1,200 aircraft by 2027," he had said.

Airports At present, India has at least 147 operational airports and the number of airports have jumped from 74 nearly nine years ago, especially on the back of the government's ambitious regional air connectivity scheme UDAN.

While talking about Air India's plane order, V Thulasidas, who was Air India's chief from December 2003 to March 2008, said that now the country has world class airports which can act as hubs.

"In terms of size, India should have not just one hub but several hubs like the EU. The hubs can be Delhi, Mumbai, Bangalore, Hyderabad, Chennai, Kolkata, Kochi and others," he said.

Aviation Experts A key takeaway once Air India starts operating the new aircraft is that the international travel of Indians will be catered to mostly by the Indian carrier.

"Some 125 planes out of the 470 will be for replacement... they have secured their growth plans for at least next 10 years," an aviation industry expert, who has been associated for long with the airlines sector, said.

According to him, the induction of wide-body planes will help in expansion of fleet as well as operations on both the East and the West coast." "They (Air India) can provide more direct connectivity up to 8-10 hours and 16 hours non-stop flights as long as they are able to meet customer expectations, other parameters in operations. It will be a game changer for them.

"It will also aid in getting back India's international traffic from overseas carriers. They (Air India) can also create international traffic hubs across the country, which was not possible in the absence of a strong player," the expert said on the condition of anonymity.

Ajay Sawhney, Partner at law firm Cyril Amarchand Mangaldas, said the Air India order will bolster the presence of Star Alliance partners from India to Europe and the US.

"From a connectivity perspective, Indians have been relying a lot on Emirates, Etihad and Qatar since last few years, and Air India's latest order means strengthening the star alliance community, which in turn would offer more options to Indian as well as South East Asian passengers into Europe and US, and probably on better pricing points," he said.

Another aviation industry expert said the sale of Air India to Tata Group and now the aircraft order shows the success of the government's disinvestment programme and that large, politically sensitive transactions can be done.

Currently, around 60 per cent of the Indians travelling on international routes are carried by foreign airlines. It means that out of 100 such passengers, only about 40 are carried by Indian carriers.

This situation will change once Air India starts inducting the new aircraft that will also provide more air connectivity from state capitals as well as important business and tourist centres to the global markets, he said.

According to him, aviation has a multiplier economic effect and operation of one aircraft can create around 150 to 200 jobs depending on the size of the aircraft.

"Over the next few years, the improving economic growth in India along with encouraging demographic factors such as higher middle class disposable income are expected to result in higher spending on travel as well as increased trade," Sawhney said.

Air India Renaissance "Hundreds of initiatives across 22 broad work streams are underway to transform the airline over three phases: Taxi, Take Off and Climb," Air India chief Campbell Wilson said on January 27, the day when Tata Group completed the first anniversary of the takeover of the airline.

The Tata Group is also merging Air India Express with Air Asia and Vistara with Air India.

With induction of new aircraft, Air India should also look at targeting the routes between India and Gulf countries where there is always a huge demand. The Gulf sector is also profitable, former Civil Aviation Minister Suresh Prabhu said.

As Boeing Commercial Airplanes President and CEO Stan Deal put it on February 14, "with the industry-leading fuel efficiency of the 737 MAX, 787 Dreamliner and 777X, Air India is well positioned to achieve its expansion plans and become a world-class global airline with an Indian heart".