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Indian Civil Aviation Industry: Current Growth and Challenges

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 7
Indian Civil Aviation Industry:
Current Growthand Challenges
Sachin Kumar Behera

Abstract:India has the fastest growing domestic aviation market in the world as per IATA(International
Air Transport Association). IATA also predicted India to be the third largest aviation market in the world
by 2025, overtaking the UK a year earlier than expected. The new civil aviation policy of India also gives
a boost to the industry. According to CAPA(Centre for Asia Pacific Aviation), India’s civil aviation market
will generate close to 2.6 million direct, indirect and induced jobs in the next ten years. Although India is
witnessing growth in all aspects of the civil aviation, there are still many challenges faced by this industry.
The main aim of this chapter is to put a limelight on the growth and challenges faced by the industry.
Challenges such as saturated airports, privatization of airports, unsafe skies, regulatory norms, unruly
airline staff, rise in passenger complaints, no introduction of green field airports, lack of new runways to
add new flights in peak hour, development of no frills airport at tier II and tier III cities. Thechapteris a
theoretical review of the Indian civil aviation industry. The approach of investigation is secondary data-
based analysis.
Keywords: Civil aviation, DGCA, CAPA,no-frill airport, saturated airport

7.1 Introduction
The Indian civil aviation industry with its continued double digit growth in domestic passenger traffic
is set to be the third largest market in the world by 2025. The Indian aviation industry started in 1911
with the first flight flown between Allahabad and Naini for a distance of just 6 miles. This was the
first commercial civil aviation flight of India. The industry is governed by Aircraft act and Aircraft
rules. The Indian Parliament passed the Air Corporations Act in March 1953 which nationalized the
airline industry of India. Two new airlines were formed after the Act was passed; one Air India which
flew on international routes and the other being Indian Airlines Corporation which flew in domestic
and regional routes in India. This act was again repealed in 1994 to allow private players to operate in
India. A new phase in the Indian civil aviation industry could be seen after the private players came to
operate. The Bureau of Civil Aviation Security (BCAS) was formed in 1978 for civil aviation security.
The BCAS lays down standards and measures in respect to civil flights at international and domestic
airports in India. The International Airports Authority of India and National Airports of India were
merged to form Airports Authority of India in 1995; currently AAI handles 125 airports in India
which includes 11 international airports,8 customs airports, 81 domestic airports and 25 civil enclaves
at Defence Airfields. The Aircraft (Investigation of Accidents and Incidents)Rules 2017 was introduced
this year to lay down procedure for speedy and accurate investigation of accidents. The New Civil
Aviation Policy (NCAP) 2016 also came as a boost for the aviation industry in India. The NCAP laid
provisions for regional connectivity (UDAN –Ude Desh Ka Aam Nagrik), emphasized on open air policy,
changed the 5/20 rule for airlines for international operation, ground handling policy was also replaced
by a new framework, development of airports in public–private partnership (PPP) model, separate
regulations for helicopters and charter planes and aviation education and skill building. Government is
 Indian Civil Aviation Industry: Current Growthand Challenges 65

also planning to manufacture its own 20-seater civilian aircrafts which can be used within the country.
This move is also supported by the Make in India policy, which encourages domestic manufacturing
instead of importing.
As per the Directorate General of Civil Aviation (DGCA), passengers carried by domestic airlines
during Jan–Oct 2017 were 954.45 lakhs as against 813.70 lakhs during the corresponding period of
previous year thereby registering a growth of 17.30%. The domestic passenger traffic registered a
compound annual growth rate (CAGR) of 9.89% during the period 2007–08 to 2016–17, while the
international passenger traffic grew at 8.07% (CAGR) during the same period(DGCA,2017).

Figure 7.1 Passenger traffic carried by scheduled carriers over the past decade (Source: DGCA, Handbook 2016–17)

Table7.1 Traffic growth at Indian airports FY2016 to FY2018

Domestic International
FY2016 21.2% 7.7%
FY2017E 22–23% 9–10%
FY2018F 20–25% 10–12%

(Source: CAPA Research forecast FY2017/FY2018)

Although the Indian civil aviation industry is witnessing growth in all aspects, there are several
serious challenges being faced by this industry. There is a surge in passenger traffic but infrastructure
constraints are also becoming critical. As per CAPA, Mumbai airport is going to be saturated by 2018
and Delhi airport will be saturated by 2023. At present when there is an urgent need for new airports
to come up, there are 406 unserved airports/airstrips in India (AAI, 2016). IATA has also warned
government for privatizing airports as they could never deliver as expected. In India four major airports
viz. Delhi, Mumbai, Hyderabad and Bangalore are under PPP mode.
Now talking about safety, in 2016 there were 32 cases of ‘near miss’ incidents which is the highest in
the history of civil aviation. One of the main causes for these incidents as reported is a lack of upgraded
technology and skillful workforce.
This chapter is an effort to identify the challenges faced by the industry,to showcase how these
challenges can be a threat for the industry in near future andto suggest some constructive measures so
that these challenges can be overcome.
66 Emerging Dynamics of Indian Tourism and Hospitality

7.1.1 Research methodology

This chapter is based onanexploratory study. In this regards, an extensive and in-depth review of books
and journals, annual reports of Ministry of Civil Aviation, DGCA, CAPA, IATA, New Civil Aviation
Policy 2016, aviation-related magazines, newsletters, has been done. Besides, personal visits and focus
interviews with aviation professionals, airport staff and travellers have also been conducted for this
study.

7.1.2 Objective of the study

• To showcase the growth aspects of the Indian civil aviation industry
• To identify the challenges which are currently being faced by the civil aviation industry
• To suggest some constructive measures to face the challenges

7.2 Review of Literature

According to Choudhury, Dixit and Tiwari (2015), the main challenges faced by the civil aviation
industry in India is high MRO (Maintenance Repair and Overhaul) charges in India, complex tax
structure for air turbine fuel, rupee depreciation, etc.
Singh (2016) has interpreted in his paper some major challenges faced by this industry. Some major
challenges faced are congestion in major airports as the traffic is increasing at a high rate and airports
are getting saturated, rising private participation in airports, rising air turbine fuel charges, high airport
charges and rising competition among low-cost and premium airlines. This competition has forced
premium airlines to reduce prices to sustain in the market.
Indian aviation industry has a reason to boom. Arora, Bishnoi and Atray (2010) stated that the
main reasons for the boom in this industry are rising income levels and demographic profiles, untapped
potential of India’s tourism, low barrier entry, ease of doing business through FDI, etc. They also
highlighted the main challenges faced by this industry which are lack of skilled workforce in the
industry, lack of regional connectivity, lack of airports and air traffic control infrastructure, rising fuel
prices, etc.
Sharma (2017) has stated that that 2016 was the most unsafe year in the history of Indian civil
aviation. There were nearly 32 near-miss accidents in 2016. He stated that the main reason behind this
was shortage of manpower, training and airspace for civilian traffic. This year also saw the highest
number of pilots being suspended for breaching safety rules. The number of pilots suspended was
151.
CAPA in their report have stated that Indian carriers have reported a combined profit of USD122
million in FY2016, the first time in a decade. They have also predicted the traffic to be 100 million in
FY2017 and 130 million by 2018. They have also reported that full service airline market share may fall
by 25–30% by 2019. The fall is because of most travellers preferring to fly with LCC (low-cost carriers).
Jet Airways and Air India which together had a combined domestic market share of close to 90% in
2003 could fall to 10% each or less within 2 years. They have also indicated of higher risk of safety and
security for surge in traffic which cannot be handled due to poor infrastructure.
Satav (2016) in his blog stated that although the civil aviation industry is blooming but vulnerabilities
have also increased. He quoted that the aviation industry of India has around 69% of the total share
of the airlines traffic in the South Asian region.In his blog he has also cited a report which said that 27
functional airports in the country are protected by forces other than the Central Industrial Security
 Indian Civil Aviation Industry: Current Growthand Challenges 67

Force (CISF). It is quite scary to know that the security of 8 of hyper-sensitive and 19 of sensitive
airports are not covered by the CISF that has now become the only specialized force for aviation
security

7.2.1 Present growth and future prospects of the Indian civil aviation
industry
1. Traffic growth has increased in FY2017, India is likely to overtake Japan this year to become the
third largest domestic market after the USA and China.
2. As per the New Civil Aviation Policy 2016, helicopters are free to fly from one destination to
the other without the clearance of ATC (Air Traffic Control) below 5000 ft.
3. The civil aviation ministry has got a budgetary allocation at Rs 5167.60 crore (US$ 775.14
million), in the union budget of 2017–18.
4. As per the Department of Industrial Policy and Promotion (DIPP), FDI inflows in air transport
(including air freight) between April 2000 and March 2017 stood at US$ 1.01 billion.
5. The 5/20 requirement is now replaced with a new scheme. All airlines can now commence
international operations provided that they deploy 20 aircrafts or 20% of the total capacity (in
term of average number of seats on all departures put together); whichever is higher for domestic
operations.
6. Government has also focused on bilateral traffic rights. The Government of India plans to enter
into Open Sky ASA with SAARC countries and countries located beyond 5000 km.
7. New ground handling policy is also introduced with relevant changes.
8. MRO of domestic airlines, which costs around Rs 5000 crore, mostly is spent outside India. The
new policy incentivizes the MRO business to be done in India.
9. As the additional direct employment requirement of the civil aviation sector by 2025 is about 3.3
lakh, the Ministry of Civil Aviation plans to provide extensive support to Aviation Sector Skill
Council and other similar organizations/agencies for imparting skills for the aviation industry.
10. By the initiative of the Ministry of Civil Aviation, Air Sewa was launched to provide flyers
hassle-free and convenient travel experience. It is an interactive web portal and available in
mobile app as well. The portal has a mechanism for grievance handling, flight status/schedule
information, airport information and FAQs.
11. Government of India has recently raised the FDI limit from 49% to 100% in scheduled and non-
scheduled air transport services, FDI in scheduled airlines upto 49% permitted under automatic
route and FDI beyond 49% through government approval.
12. To reduce hassle in airports, CISF has ended stamping of hand baggage. This move was started
in December 2016. The 19 earlier airports where this has been implemented in four phases
are Delhi, Jaipur, Vadodara, Mumbai, Guwahati, Coimbatore, Hyderabad, Patna, Calicut,
Bengaluru, Lucknow, Indore, Ahmedabad, Trivandrum, Bhubaneswar, Kolkata, Chennai,
Bagdogra and Cochin. Now they have added Pune, Nagpur, Trichy and Goa in the list.
13. For grant of permission to operate scheduled international air transport services by the Indian
Air Transport Undertakings, a new Aeronautical Information Circular (AIC) was issued on
24th August 2016. (DGCA,2017)
14. The country’s first aviation university at Fursatganj in Uttar Pradesh’s Rae Bareli district was
inaugurated on August 18, 2017. The Rajiv Gandhi National Aviation University (RGNAU),
a central university, is planned as an autonomous body under the administrative control of the
68 Emerging Dynamics of Indian Tourism and Hospitality

Ministry of Civil Aviation with an aim to facilitate and promote aviation studies, teaching,
training and research. Indian Aviation Academy launched a new campus in Vasant Kunj in
Delhi. It imparts training on airport operations, safety, engineering, cargo management, material
management and human resource management.
15. 887 inclusive tour package charter flights were operated during the calendar year 2016 bringing
(10.6 million) tourists to India. (MOCA,2017)

7.2.2 Major challenges faced by the Indian civil aviation industry in

current scenario
1. Capacity constraints: Many major Indian airports will get saturated within next 5 years. As per
CAPA, Mumbai airport has currently reached 94% of its passenger handling capacity and it will
get saturated by 2018. IGI airport of Delhi which handles the most passenger traffic in India
may get saturated by 2023. Government is trying to build airports at a faster pace to meet the
demands but it will take another 5 more years to fully complete the ongoing projects.
2. Safety and security risk: ICAO had raised serious concerns on the safety measures taken by Indian
airlines. As reported, 2016 was the most unsafe year with 40% spike in near-miss incidents in
the history of Indian civil aviation. The main reason behind this was lack of adequate workforce
and training. This needs to be addressed very quickly as flyers life cannot be risked.
3. Delay in project implementation: All the ongoing projects for expansion/modernization of airports
will take nearly a few more years to complete. In order to successfully cater the demand instead
of choking, all the ongoing projects need to be completed on time.
3. Hike in air turbine fuel: The air turbine fuel was hiked by 6% in October 2017. This move will
definitely make travel costlier for flyers. Although government has reduced VAT on ATF to
1%, hike in price of ATF will definitely discourage flyers to take alternate mode of transport.
4. Lack of CISF cover in airports:A report by a department related to the Parliamentary Standing
Committee on Transport, Tourism and Culture stated that 27 of functional airports are not
protected by CISF; the reason given for non-deployment of CISF was lack of funds. CISF should
be deployed at every airport as India is vulnerable to terrorist attacks and government should
not compromise with the security of citizens.
5. High number of unserved and underserved airports:As per AAI, there are 406 unserved airports/airstrips
and 18 underserved airports/airstrips in India. When there is an urgent need of new airports,
the number of unserved and underserved airports needs to be brought down by the government
very soon.
5. Rise in cases of misbehaviour/manhandling/molestation:In recent days there were many cases of airline
staff manhandling passengers, passengers misbehaving with airline staff, male co-passengers
molesting female co-passengers. These cases only give a negative impression of this industry to
both domestic and international flyers. These cases also have a negative impact on international
tourists who may not feel safe flying within or into India.

7.3 Recommendations
Thegovernment should come up with a new comprehensive policy addressing all the concerns. The
government should make provisions for adequate funds for expansion, security, regional connectivity
scheme, technology up-gradation, capacity building programs, etc. India should have MRO facilities
 Indian Civil Aviation Industry: Current Growthand Challenges 69

domestically so that airlines do not have to spend on MRO outside India. The government should also
rationalize the tax structure for air turbine fuel. It should also allow foreign players to enter into the
industry so that healthy competition is practiced and airlines should strive to provide the best service.
There should also be a strict punishment for airline staff who misbehave and manhandle passengers
and vice versa. There should also be a check on privatization of airports as IATA has already warned
governments not to privatize airports.

7.4 Conclusion
The Indian aviation sector plays a significant role in the economy. The chapter examined the current
growth and challenges faced by this industry. There is enormous potential of growth but only if the
challenges are taken seriously. India will become the third largest aviation market in the world very
soon. Airlines must take the benefit of VGF (Viability Gap Funding) in regional connectivity scheme
so that our major airports are connected with smaller ones. Civil aviation is a key sector that promotes
tourism and trade, facilitates growth of business and has multiplier effects across the economy. People
now want to travel faster and conveniently which is why they prefer flying. The government must
understand the potential of this industry and should make the policies and regulations accordingly.
Heliports and helipads will also be coming up in the next few years as non-scheduled operators are now
given liberty to operate. There should also be close cooperation with international agencies like IATA,
CAPA, ICAO, etc. for policy formulation. As India has relaxed its FDI norms, we can expect reputed
foreign companies to show interest in modernizing Greenfield and Brownfield airports. India currently
has one of the least penetrated aviation markets in the world with approximately 1% of Indians having
travelled by air and rest have never flown by air due to weak connectivity between major tier I cities
and smaller tier II and III cities. The Indian civil aviation industry also contributes for the GDP of the
country. If all the above-listed challenges are addressed properly and the potentials are tapped, then
India can very soon become the largest civil aviation market in the world.

References
AAI- list of unserved airports as on 22.11.2016. Retrieved from https://www.aai.aero/sites/default/
files/LIST-UNSERVED-AS-ON22NOV16.pdf
Arora, N., Bishnoi, K. K., and Atray, S. (2010). Indian Aviation Industry: Issues and Challenges.
Retrieved from http://www.indianmba.com/Faculty_Column/FC1149/fc1149.html
CAPA India Aviation Outlook 2017/18: Surging traffic but infrastructure constraints become critical.
Retrieved from
https://centreforaviation.com/insights/analysis/capa-india-aviation-outlook-201718-surging-traffic-
but-infrastructure-constraints-become-critical-314982
Choudhury, S., Dixit, R., and Tiwari, R. (2015). Issues and challenges of Indian aviation industry: A
case study, International Journal of Logistics & Supply Chain Management Perspectives, 4(1):1557–1562.
DGCA Handbook on Civil Aviation Statistics 2016-17. Retrieved from http://www.dgca.nic.in/pub/
Handbook_2016-17.pdf
India Brand Equity Foundation, Indian Civil Aviation Industry, November 2017. Retrieved from
https://www.ibef.org/industry/indian-aviation.aspx
 70 Emerging Dynamics of Indian Tourism and Hospitality

Ministry of Civil Aviation, Annual Report 2016-17. Retrieved from http://www.civilaviation.gov.in/

sites/default/files/AnnualReport%28Eng%2916_17Part_1_0.pdf
Satav, R. (2016).The challenges facing India’s civil aviation sector. Retrieved from http://indianexpress.
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Sharma, J.P. (2017). Flight risk: 2016 most unsafe year for civil aviation, 40% spike in near miss accidents.
Retrieved from http://www.hindustantimes.com/india-news/flight-risk-2016-most-unsafe-year-
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