Is India still on track to become the world’s 3rd largest aviation market?
The aviation industry has marked one year since the world’s economy has started to feel the impact of the COVID-19 pandemic, which has resulted in a sharp decrease in the demand for passenger air transport. The analysts forecast that despite the COVID-19 vaccines and testing procedures rolling out worldwide, the recovery of demand for air travel would take several years and would not reach the pre-crisis levels before 2024. While all the regions worldwide are impacted by the crisis, some of them are expected to perform better than others.
The most recent estimates made by the state-owned India Brand Equity Foundation (IBEF), suggest that despite being affected by the pandemic crisis, India is set to become the third-largest aviation market by 2024.
For a few years before the pandemic, the aviation sector of India had seen a significant growth driven by the high demand for air travel, private investments in the country’s airports as well as new regional airport openings. But when the pandemic started spreading across India in 2019, scheduled international flights and domestic passenger flights were suspended from March 23 and March 25, 2020. The move significantly affected the whole aviation business.
However, the Ministry of Civil Aviation of India resumed domestic operations in May 2020, initially giving a chance for the country’s airlines to operate only 33% of their previous capacities while gradually increasing it up to 80% by the end of 2020. According to Indian ratings agency ICRA, due to air travel restrictions, the domestic passenger traffic between May and September 2020 reached only 11 million in comparison to 70 million for the same period in 2019.
The India Brand Equity Foundation estimated (IBEF) that the COVID-19 pandemic would have a longer-lasting impact on international air travel than to domestic operations across India. The estimation comes despite the fact that India has signed multiple travel bubble agreements with a number of foreign countries. These agreements allow the participating parties to restart commercial passenger services when regular international flights are suspended as a result of the pandemic. The list of these countries includes Afghanistan, Bahrein, Bangladesh, Bhutan, Canada, Ethiopia, France, Germany, Iraq, Japan, Kenya, Kuwait, Maldives, Nepal, Netherlands, Nigeria, Oman, Qatar, Russia, Rwanda, Seychelles, Tanzania, Ukraine, United Arab Emirates, the United Kingdom, the US, and Uzbekistan.
The IBEF forecasts that while Indian aviation is expected to report losses of $4 billion in 2021, the rising working group and widening middle-class demography should significantly boost the post-pandemic demand for air travel.
Currently, India is the seventh-largest civil aviation market in the world and the third-largest aviation market in terms of domestic operations. The authority projects that India can even overtake the United Kingdom and become the third-largest world’s aviation market in terms of air passengers by 2024.
Meanwhile, the freight traffic grew by more than 5% from 2.70 million tonnes to 3.33 million tonnes in 2016-2020*. Based on this tendency,analysts estimate that cargo traffic in Indian airports has the potential to reach even 17 million tonnes of freight by 2040. It is expected that by 2023, the total freight traffic will reach 4.1 million tonnes while sharply increasing the compound annual growth rate (CARG) to 7.27% between 2016 and 2023. In comparison, the freight traffic reached 3.32 million tonnes in 2020.
In the National Air Cargo Policy Outline the government of India predicts that the Indian air cargo and logistics have a significant potential to become the most efficient, and the cost and time-effective globally by the end of 2030. It is expected that the growth of freight traffic will be encouraged by the forecasted boost in import and export in India since 30% of Indian trade total is transported by aircraft.
To encourage the development of the aviation industry in the country, the government of India also plans to invest up to $ 1.83 billion in the development of airport infrastructure along with aviation navigation services by 2026. The country aims to open 100 new airports by 2024, of which 30 airport projects are already in progress across various regions of India. According to the Ministry of Commerce and Industry data, India has envisaged increasing the number of its airports to a total of 190-200 by 2040.
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