“The sector is growing, but not profitably. Airline losses approached $2 billion in the year ended March 2012, after losing $3.5 billion over the previous three years,” Tyler says. “With some relief in oil prices and capacity rationalization, the red ink may recede slightly. But the crisis continues. All the network carriers are struggling financially.” State-run Air India is on life support and private carrier Kingfisher Airlines is on the brink of death.
A lot has changed in the past decade, mainly with the rise of low-cost carriers (LCC). From almost nothing in 2003-04, the domestic market share of LCCs, including the low-cost arms of full-service carriers, today exceeds 70%. And the LCCs believe they have just begun to develop a huge potential market.
But first, there is need for airports that will complement the no-frills model. As one airline official says, “There is great scope for a new dimension for India civil aviation in connecting to Tier 2 and Tier 3 cities [because of] rapid urbanization of the country and the emergence of several smaller towns as industry and business centers.”
The government agrees that the future of Indian aviation is in smaller cities. Ajit Singh, the minister of civil aviation, says the development of low-cost airports is the most important component of ministry's effort to provide air connectivity to different parts of India.
The government has engaged Deloitte as a consultant to identify the factors inhibiting the growth of domestic connectivity and suggest steps to change that. That will likely also include enhancement of helicopter operations and construction of heliports to serve less populated areas, including religious and tourist sites.
The Civil Aviation Ministry's Vision 2020 plan emphasizes development of the country's infrastructure and aims for user-friendly airports to handle as many as 280 million passengers per year by 2020.
“One of the key challenges will be to ensure that Indian airports function with the same efficiency as international hubs,” says one airline official.
Buoyed by the success of the public-private partnership (PPP) model in airport development, the government plans to invest $30 billion in the next 10 years with more existing airports being opened up for modernization.
Airports in New Delhi, Mumbai, Bengaluru (formerly Bangalore), Hyderabad and Cochin are being placed in PPPs now. A new terminal is under construction at Mumbai airport, with international operations set to begin by August and a second phase, for domestic operations, to be ready by August 2014. The existing greenfield airport at Bengaluru is undergoing expansion to meet the growing capacity demand.