NCAP 2015 Regional Aviation India

This section determines what the annual growth rate must be to achieve 300 million domestic tickets / passengers, and whether this is attainable or not. We first list the ministry’s Vision, Mission and Objectives.

Vision: “To create an eco-system to enable 30 crore domestic ticketing by 2022 and 50 crore by 2027.”

Mission: “Provide safe, secure, affordable and sustainable air travel with access to various parts of India and the world.”

Objectives

i) Ensure safe, secure and sustainable aviation industry through use of technology and effective monitoring

ii) Enhance regional connectivity through fiscal support and infrastructure development.

iii) Enhance ease of doing business through deregulation, simplified procedures and e-governance

iv) Promote the entire aviation sector chain: cargo, MRO, general aviation, aerospace manufacturing and skill development.

Ministry Target 300 million domestic CAGR 24.7 percent Fleet Addition rate

30 crore domestic tickets by 2022 implies 300 million tickets by the end of calendar year 2021. At the end of the calendar year 2015, India is expected to fly 80 million passengers.

To get from 80 million passengers in 2015 to 300 million passengers in CY 2021 requires passenger numbers to grow at a compound annual growth rate (CAGR) of 24.7%, starting 2016. Please refer the graph above.

To analyse if 24.7% CAGR is achievable, we observe that:

1. Reason for 2015’s high performance: The year 2015 has witnessed a 20% YoY growth in domestic passenger numbers due to two reasons: Increase in domestic capacity by 8.4%, and increase in load factors by 7.5%.

2. Load Factors: The domestic airline industry has been flying fuller airplanes on average thanks to pricing stimulation, increased competition, and lowered fuel prices which has enabled more aggressive pricing. Such a growth rate may not be observed in 2016, as 2015 had very high average domestic load factors. Getting higher load factors may be a challenge.

3. Capacity due to aircraft: India today (as of 1st November 2015), and as per the DGCA has a total of 350 narrowbody mainline jets, regional jets and turboprops registered. (We exclude Air India Express’ aircraft as these hardly contribute to domestic capacity. Wet lease aircraft excluded.). These together contribute to 53,952 airplane seats, and an average of 154 seats per airplane. If 95% of these airplanes are assumed to be flying at any given time, then the active fleet is 332 aircraft. Assuming that capacity will have to grow at similar rates of 24.7% annually will require the net addition of more than 82 airplanes in 2016 – or 6 a month, and more than 250 in 2021 – or 20 a month. Please refer the graph on top. India has not inducted large airplanes (On average greater than 100 seats per aircraft) at such a rate, and will unlikely be able to induct even at the rate of 82 a year. By end 2021, India will need to have a fleet of at least around 1250 active aircraft for domestic flights.

India Aircraft Fleet type Statistics

Part of the capacity increase may come from increased aircraft utilization, such as red-eye flights, but such capacity addition is expected to be small.

From 2 & 3, it seems like higher load factors will be challenge, and addition of 82 airplanes a year may be unattainable.

Between now and 2018 March, or 2 years 6 months from today, IndiGo plans to increase the fleet size to 154 airplanes, or a net addition of 56 aircraft. Over 30 months, this is a net addition of around 2 airplanes a month. To have other airlines expand as aggressively – to sustain 102 airplanes net addition in 2017 alone – or 8.5 airplanes a month – seems challenging, for now.

Airbus predicts India’s domestic demand (RPK) to increase to 580% in 2034 : 19 years from now. That is a forecast with a 9.2% annual growth in passenger traffic, compared to the 24.7% annual growth in demand that the ministry needs, to achieve its 300 million target.

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