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General-automatics

Civil Aviation Growth Potential and Business opportunities in India

New Delhi. The term “Global Village” may have become a bit hackneyed but the concept it describes is more and more a fact of life to be reckoned with; technological improvements are allowing people and countries to be linked in ways that would have been inconceivable in earlier times. Just to name a few endeavors – trade, banking, news reporting –all these would have been unable to reach their full potential without worldwide connections.

Civil Aviation is just another area of human endeavor crucial to world development.

Apart from the social benefits of safely transporting over two billion people a year through out the world, air transport is a global business which has been one of the driving forces of economic growth since World War II. It has an integral role in the world economy as a tool for conducting much of the world’s business, a foundation for the tourism industry and a cost effective means of distributing goods and services.

It is therefore crucial for decision makers to recognize it as a vital player in India’s domestic and international trade. The benefits that follow from investments in civil aviation are tremendous.

Indian Scene

The rapidly changing face of the aviation sector in India, with booming economy, heavy dependence on market- oriented approach, and globalization and deregulations are important economic developments in the air transport growth in India.

Equally significant is the fact that the Asia and Pacific Region is going to have the highest growth rate in the aviation sector and in turn the tourism potential, both of which put together emerge as the largest single industry in the world, with an output of US 4.2 trillion dollars, and 160 million jobs under its wings.

The industry carries with it 10% of world’s domestic gross product (GDP), 10.3% of the global wages, 11.7% of the indirect taxes, and 9.8% of the global profits thus making the travel and tourism industry a creator of maximum wealth and employment in the world.

In India, the aviation sector has undergone a sea change during the last five years.

Like most parts of the World, India too had its own share of woes after the 9/11 terror attacks. Fortunately, after some hiccups, the civil aviation industry the world over recouped.

In India particularly, it is showing a great promise but needs to be managed efficiently, and cost effectively.

The air traffic growth is closely related to the GDP of a country. The GDP in India has touched a high of 9.5% and currently due to inflation is hovering close to 7.2%. For years though, it was stagnant at 4.5 to 5% in India.

Thanks to the deregulation of the economy, India is finding its due place globally. The World Bank has estimated that for every one percent of the GDP growth, there is 1.5 to two times the growth of air traffic.

The international trade and Foreign Direct Investments (FDI) has changed the geo-economic face of India. Added to this is a liberalization of trade sector. The World today is moving towards mega projects to cater to the commercial and trade interests, thus triggering the growth of many economies all over. These trends have led to the sustained growth of international air traffic.

Developments in many parts of the world, including in India, and the emergence of low frill and low cost airlines is a factor to reckon with. These airlines have captured about 25% of the domestic traffic, with occupancy of around 80% on an average. Naturally, these airlines also require parking and handling facilities at very low costs, to include at the Metro airports.

Infrastructure – a Poor record in India

India has built no new airport after its Independence in 1947. Old structures have been modified or upgraded periodically to meet the growing demands of traffic, but generally, at least till now, they have been inadequate.

The Government, having realized the seriousness of the problem, has now handed over the Delhi and Bombay (Mumbai) airports to private parties to build, operate and manage them.

The airport at Delhi has about 5000 acres of land, but by 2025 or so, it would again need to expand further. How? It is difficult to say now.

The situation at Mumbai, Chennai and Kolkata is much worse because of limited land availability. The time has now come accordingly to look for satellite airports in close proximity to the Metros.

The basic philosophy will be to cater to low priority sector like General aviation, and other aviation needs such as charters, helicopter operations and some cargo activity.

Poor Planning

Despite the rapidly growing needs of a very vibrant sector like civil aviation, issues are still tackled in knee jerk reactions to meet the essentials of the industry. This sector is cost intensive and thus calls for joint planning by all stake holders like the Service Providers, Airlines, Cargo operations and other business partners. This is still a dream in India, but it is better to appreciate and do the needful now than later.

Challenges and new Systems

Virtually all the regions of the world eventually plan to transition from terrestrial based air traffic control to satellite based air traffic management systems. India too is currently busy examining the potential and possibility of Satellite aided CNS/ ATM systems. The prospects for transition phase challenges involve international sovereignty issues, global coordination, user acceptance, step by step transition plans. This complex task has been under the scanner for some time.

A constant review and guidance by experts will be a mandatory requirement to create affordable CNS/ATM options for India.

Implementing Best Practices

During the last two decades, the regulatory environment governing the airline industry has been liberalized.

As a result, the competition has increased markedly. Price wars, coupled with general economic development, have generated strong additional demand. In the long run upward pressure on capacity and downward pressure on ticket prices is expected to continue.

Consequently airline yields, already reduced significantly, are likely to continue to fall. To survive, the airlines need to adapt their business models to the new environment. There is a need to have a strong focus on costs, controls, and performance improvements.

Conclusion

In the final analysis, if one analyzes the unprecedented growth rate of air traffic which was 24% annually during 2004-2005, one is able to deduce that with 8 to 9 percent of the GDP, an average growth of 16% was achievable by the year 2010.

Notwithstanding the high crude oil prices, any increase in the expenditure due to the high costs of services like airport and security charges etc. casts a shadow on the sustained growth of this sector.

The Government must take all possible steps to encourage growth of Civil Aviation, particularly as India has a 300- million strong middle class which is not only a market to boost travel but also an engine for the country’s economic growth.

The author was the first Chairman of combined Airports Authority of India (AAI).

 

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