Meanwhile, although there is an unprecedented increase in traffic and demand, almost all Indian carriers are in the red. Operating costs are daunting, propelled by high fuel costs and taxes, and debts are soaring.
The government, for its part, opened up foreign direct investment (FDI) in Indian carriers to airlines abroad and is allowing direct importation of aviation fuel.
“Permitting FDI by foreign airlines was a right step for Indian aviation, as it requires resources for expansion to connect Tier 2 and 3 cities with metros and foreign destinations,” says R. Neelakantan, chief financial officer of no-frills airline SpiceJet.
Clearly, the air travel market in India has room for expansion. India is estimated to have one aircraft for every 2.89 million people, which is minuscule in comparison to one for every 1.14 million in China, 0.96 million in Indonesia, 0.89 million in the Philippines and 0.63 million in Brazil.
Boeing estimates that Indian carriers will require 1,450 new aircraft worth $175 billion to cope with increasing passenger traffic over the next 20 years.
Despite such forecasts and India’s attempts to foster its aviation sector, some policies threaten to nip growth in the bud.
Fuel constitutes 40-50% of Indian airlines’ operating expenses. A major contributor to the high fuel prices is the 4-30% value-added tax levied by various state governments. Efforts are under way to persuade Indian state governments to reduce their taxes. Carriers also complain about India’s service taxes on air tickets and landing and navigation fees.
IATA’s Tyler says the fundamental problem is that India has a fragmentary approach to aviation policy that does not connect the dots in the value chain. “A coordinated ‘India Inc.’ approach that addresses the central challenges of infrastructure, costs, and taxes is urgently required,” Tyler says.
If India can establish a coherent aviation policy, the sector’s advocates point out, the economic and social benefits that derive from improved competitiveness and air connectivity would be enormous. The aviation industry accounts for close to 0.5% of Indian gross domestic product and 1.7 million high-productivity jobs. IATA estimates that the value added by each employee in air transport services in India is approximately 10 times higher than the Indian average.