Civil Aviation in India
This is a guest blog by Manish.
What is Civil Aviation?
The civil aviation sector consists of several segments including air plane, helicopter/seaplane services, ground handling services, maintenance and repair organizations, flying training institutes, and technical training institutions.
In India, a beginning in the air transport was made in the year 1920, when the government first decided to prepare air routes between Mumbai and Kolkata. The civil aviation work actually started in 1924-25, but the progress was slow until the outbreak of the second World War.
Entry 29, List I, VII Schedule read with Art. 246 of the Indian Constitution vests the Parliament of India with the exclusive jurisdiction to legislate in relation to Airports; aircraft and air navigation; provision of aerodromes; regulation and organisation of air traffic and of aerodromes.
India is the 3rd largest and the fastest growing domestic aviation market in the world in terms of number of domestic tickets sold. Further, International Air Transport Association (IATA), has projected that India would overtake the UK to become the third largest air passenger market (both domestic and international) by 2025.
.In 2016-17, annual growth in domestic traffic was 23.5 per cent as compared to 3.3 per cent in the US and 10.7 per cent in China.
.Indias passenger (includes both domestic and international) traffic grew at 16.52 per cent year on year to reach 308.75 million. It grew at a CAGR of 12.72 per cent during FY06-FY18.
In FY18, domestic freight traffic stood at 1,213.06 million tonnes, while international freight traffic was at 2,143.97 million tonnes.
What is Holding back Aviation Sector?
The lack of adequate airport infrastructure is one of the major barriers to the airline industry. A major issue is that aviation infrastructure growth
Has not kept pace with the growth in air traffic.
Congestion at the terminals, on the runways and in the air, has been leading to a deteriorating passenger experience and an increasingly inefficient and costly operating environment for the airlines.
2.Rising fuel prices and the depreciating rupee:
Oil for the airline industry is an important variable cost. As the price for oil has shot up, it had led to difficulties for airlines as they have not been able to absorb it in the short term due to their business model.
3.Airlines’ inability to balance volume and value:
Over time, checks and balances should have been built in the system to absorb price shocks. The sector is confused as a whole on whether they want more volume or should they concentrate on a feasible plan that will help them keep their house in order.
The recent rupee depreciation has had a negative impact on the airline industry. About 25-30% of airline costs (excluding fuel) are dollar denominated.
5.Aviation Turbine Fuel (ATF):
International prices of ATF, is one of most important factors that affects the cost of air operations. Further, the high state tax levied on the ATF in India makes it one of the most expensive in the world. As compared to the world average of 20-25%, ATF accounts for over 40% of the total cost for the airline companies.
The arrivals of LCCs (Low cost carriers) lead to wearing down the market share of the premium airlines. To moderate the decline in market share, the premium airlines were forced to reduce their fares and this in the long run led to a pricing war amongst the airlines, potentially affecting the financial viability of the carriers.
The aviation sector is generally believed to be over-regulated. There is excessive concentration of power in the DGCA through which the Central government exercises its authority. This will negatively affect the competitiveness and viability of the aviation industry.
Policies to boost Aviation sector:
1.UDAN (Ude Desh ka Aam Nagrik) Scheme:
The scheme seeks to boost air connectivity by linking up un-served and under-served airports in Tier 2 and Tier 3 cities with the big cities and also with each other.
2.Project DISHA (Driving Improvements in Service and Hospitality at Airports):
It aims to enhance operational efficiency and the overall travel experience of the travelers. The Airports Authority of India has planned to invest Rs. 17,500 crore to upgrade the existing airport infrastructure as a part of Project DISHA.
3.Air SEWA mobile app:
It enables passengers check flight status and connecting flights in real time, and get information on the facilities available at all the airports in the country. It also helps users address their grievances through the application.
It seeks to connect India’s smaller cities directly to some key foreign destinations in the neighbourhood. Only the State government that will provide the financial support for flights under international UDAN. Financial support and flying exclusivity on the route will be for three years.
As Indian aviation market continues to surge, focus should be on ensuring adequate infrastructure.Excessive concentration of power in the DGCA should be checked to ensure proper competition and economic viability of the sector.