INDIAN AVIATION

SECTOR ANALYSIS

December- 2024
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SEBI REGISTERED
India's aviation industry is a collective sector encompassing all
aspects of civil aviation within the country. It includes various
components, such as airlines, airports, aircraft manufacturing,
aviation services, and regulatory authorities. India has emerged as
the third-largest domestic aviation market in the world, after the USA
and China. The industry has undergone a remarkable transformation,
shedding its previous limitations and evolving into a vibrant and
competitive sector. Proactive policies and strategic initiatives by the
government have catalysed the growth of the aviation sector,
fostering a conducive environment for expansion and innovation. The
aviation industry is experiencing a remarkable resurgence post-
Covid, with a surge in passenger demand.

The Ministry of Civil Aviation (MoCA) has taken initiatives to work

towards carbon neutrality and achieving net zero carbon emissions at
airports in the country. Airport operators have been advised to map
carbon emissions and work towards carbon neutrality and net zero
emissions in a phased manner. The government's ambitious
initiatives like Regional Connectivity Scheme - Ude Desh ka Aam
Nagrik (RCS-UDAN) have enhanced regional connectivity, ensuring
that even remote areas are integrated into the aviation network
creating a robust ecosystem for unprecedented development.

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Passenger traffic provides a view of how many people are traveling and
how efficiently airlines are operating. Domestic passenger traffic stood at
153.7 million during 2023-24, while international passenger traffic was at
66.7 million during the same period. In 2022-23, domestic passenger
traffic stood at 136 million. International passenger traffic stood at 54.6
million during 2022-23. Air Passenger Traffic in India, both domestic and
international, witnessed a positive growth in the year 2023-24 compared
to the previous year. The domestic passenger traffic registered a
compound annual growth rate (CAGR) of 9.7% during the period 2013-14
to 2023-24 while the international passenger traffic grew at 4.5 % (CAGR)
during the same period.

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During 2023-24, all scheduled airlines in India carried a total cargo volume
of 755 thousand metric tons on domestic front. This was an increase
comparing to the previous year. On the International front, 1616 thousand
metric tons of cargo volume were handled in 2023-24. The Indian
government’s air cargo policy seeks to make India among the top five air
freight markets by 2025. It plans to set up air transport shipment hubs at
all major airports over the next few years which will be key to advance
industry growth.

Domestic cargo, international freight and total cargo traffic are set to grow
at a CAGR of approximately 10-11% till the period 2031-32. Higher
domestic cargo traffic is also indicative of the general health of the
economy. Higher cargo volume indicates greater final consumption, better
performance of domestic manufacturing and services sector.

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Number of airports in India during 2024 stood at 157 as compared to 148 airports
in 2023 driven by surge in passenger traffic. India's aviation industry has
experienced significant growth in the past 10 years. The number of operational
airports in the country has doubled from 74 in 2014 to 157 in 2024 and the aim is
to increase this number to 350-400 by 2047.

Meanwhile, the domestic air passengers have more than doubled in the past
decade, with Indian airlines significantly expanding their fleets. The springboard
for this growth has been the government’s policies and initiatives. One such
initiative is the RCS-UDAN launched in 2016, which aims to provide connectivity to
unserved and underserved airports of the country through the revival of the
existing airstrips and airports.

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Air turbine fuel (ATF) prices in Delhi were reduced to Rs 87,597.22 KL in
October 2024 from Rs 93,480.22 KL in September 2024, a decline of Rs 5,883
providing much-needed relief to domestic airlines amid rising operational
costs. This price adjustment comes as a strategic move by Oil Marketing
Companies (OMCs) to support the aviation sector, which has faced increasing
pressure from fluctuating fuel costs.

The effect of the ATF pricing dynamics is particularly critical for Indian carriers,
as they remain highly attuned to any shifts in jet fuel costs. As much as 40% of
their operating expenses are attributed to jet fuel, thereby making them
significantly sensitive to such fluctuations. Based on the average rate of
international benchmark and foreign exchange rates, the ATF price is revised
on the first of every month.

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The Ministry of Civil Aviation launched the 5th version of Regional Connectivity
Scheme (RCS) - UDAN (Ude Desh ka Aam Nagrik) with numerous improvements
based on stakeholder feedback.

At the heart of this expansion lies the RCS-UDAN. The scheme has undergone
several successful iterations over the past seven years, focusing on connecting
underserved and unserved regions of India. By reviving existing airstrips and
airports, UDAN aims to bring essential air travel access to previously isolated
communities and boost regional economic development. With a ten-year
operational plan, UDAN intends to ensure equitable access to air travel for all
Indians.
RCS-UDAN is contributing to the growth of the civil aviation industry as four new &
successful airlines have come up in the last 7 years. The scheme has helped airline
operators to begin operations and develop a sustainable business model.
Additionally, it’s providing opportunities to small regional airlines to scale up their
businesses and their successful run is evidence of the fact that the scheme is
creating an amiable ecosystem conducive to airline business.

As on August 31, 2024, 583 RCS routes have commenced operations connecting 86
airports including 13 heliports & 2 water aerodromes, more than 1.43 crore
passengers have availed of the benefits of the scheme, more than 2.8 lakh flights
have operated under the UDAN scheme and Rs 4500 crore have been allocated for
the development of airports in the country under the Scheme, out of which Rs 3751
crore have been utilized since its inception.

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Indian airlines and airports faced an unprecedented number of hoax bomb threats in
recent time, causing delays and diversions with flights affected on hundreds of domestic
and international routes. In the last two weeks of October, over 510 domestic and
international flights have got the bomb threats that later turned out to be hoaxes. On an
average, there were 20 threats made to flights and airports every month from January to
September 2024.
The growing number of bomb hoaxes not only poses a security risk but also significantly
increases financial pressures on airlines, which have to bear the costs of diversions while
managing the ripple effects on operations and passenger relations. These hoaxes impose
enormous indirect costs on society, disrupting operations, inciting fear and diverting
crucial resources. They have created mayhem in the aviation sector, with estimates
indicating that the economic cost of a single hoax ranges from lakhs of rupees in the
domestic sector to as much as Rs 15-20 crore on international routes.
These threats create a ripple effect of consequences, including stress and anxiety for
passengers, unexpected delays and disruptions in tourism and business activities.
Additionally, Indian carriers face a competitive disadvantage. Security and intelligence
resources are strained and diverted from genuine terrorist threats, which can have
disastrous consequences.

Air India Group has completed the operational integration and legal merger between Air
India and Vistara, creating a full-service carrier of scale and marking a significant
milestone in the post-privatisation transformation journey. This follows the merger of the
Group’s low-cost airlines Air India Express and AIX Connect (formerly Air Asia India) on
October 01, 2024.
The consolidation of the four Tata-owned airlines into one Group operating one full-
service and one low-cost airline is part of the ongoing, five-year transformation program,
Vihaan.AI, which is focussed on establishing Air India Group as a world-class global
aviation company with an Indian heart. Consequent to the merger of Vistara and Air India,
Singapore Airlines, which held a 49% share in Vistara, becomes a 25.1% shareholder in
the resultant Air India group.
Preparation for the full-service merger commenced in earnest more than two years ago
and has seen the induction of more than 6,000 staff from Vistara into a new organisation
structure, harmonisation of operating procedures across the four airlines, and alignment
of over 140 IT systems. Amongst many other aspects, more than 4,000 vendor contracts
have been consolidated, 270,000 customer bookings migrated and 4.5 million Club Vistara
frequent flyer accounts inducted to Air India’s recently-redesigned frequent flyer
program, Maharaja Club.

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 Government implemented uniform IGST rate of 5% on all aircraft and aircraft engine
parts, effective from July 15, 2024. This decision marks a significant milestone for the
domestic Maintenance, Repair, and Overhaul (MRO) industry, aimed at making India a
global aviation hub.

The government has unveiled the Aviation Park within the Ministry of Civil Aviation
premises. Situated amidst a serene waterbody, the park showcases a stunning display
of aircraft models, depicting the evolution of planes and the growth of India's Civil
Aviation sector. The displays symbolize the ministry’s journey towards progress and
innovation in the aviation field.

Directorate General of Civil Aviation (DGCA) has made significant changes in the
regulations pertaining to Flight Duty Time Limitations (FDTL) for flight crew, in line
with the international best practices. These regulations have been instrumental in
managing fatigue related aviation safety risks for more than a decade now. With the
implementation of the revised FDTL regulations, the aviation sector aspires for safer
skies.

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The Ministry of Civil Aviation (MoCA) has taken initiatives to work towards Carbon
neutrality and achieving net zero carbon emissions at airports in the country by way of
standardizing the Carbon Accounting and Reporting framework of Indian Airports.
With the above efforts of Government of India, Airports like Delhi, Mumbai, Hyderabad
and Bengaluru have achieved Level 4+ and higher Airports International Council (ACI)
Accreditation and have become Carbon neutral. Additionally, 66 Indian Airports are
operating on 100% Green Energy.

The aviation sector is growing fast and will continue to grow in long term with rising
passenger traffic and cargo traffic. The government has been instrumental in
developing policies to give a boost to the aviation sector. For this, the UDAN-RCS
scheme has been launched by the government which aims to increase air connectivity
by providing affordable, economically viable, and profitable travel on regional routes.
However, despite these growth trends, the sector is expected to incur losses as India
has been grappling with a surge in hoax bomb threats targeting airlines, causing
significant disruptions and financial losses in recent time. The growing number of bomb
hoaxes not only poses a security risk but also significantly increases financial pressures
on airlines, which have to bear the costs of diversions while managing the ripple effects
on operations and passenger relations. Further, higher fuel prices and foreign currency
expenses continue to challenge the industry, though improved pricing strategies have
mitigated some losses.

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Why We Started?
After speaking with hundreds of investors, we discovered that while most investors recognise
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Who We Are?
We are the first equity research and investment advisory firm based in North Karnataka and
have 12 + years of experience in equity research and advising High Net worth Individuals (HNI’s),
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What We Do?
We help individual investors in generating inflation-adjusted, risk-adjusted, and tax-efficient
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Why Sukhanidhi?
At Sukhanidhi, You Are Assured Of
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