Indian aviation industry: Issues and challenges in post-reform era

Aviation industry plays a vital role in the economic development of any nation. It is a very well known fact that aviation sector not only brings immense benefits to communities and economies around the globe, but also is a key catalyst of economic growth, social development and tourism .It facilitates connectivity and access to international markets. Air transport currently offers 56.6 million jobs and accounts for over US$ 2.2trillion of the gross domestic product (GDP). India is one of the fastest growing aviation markets and currently the ninth largest civil aviation market with a market size of around US$ 16 billion handling 190 million domestic and 60 million international passengers. Today, more than 85 international airlines operate to India and 5 Indian carriers connect over 40 countries. India is one of the least penetrated air markets in the world with 0.04 trips per capita per annum as compared to 0.3 in China and more than 2 in the USA. India's civil aviation industry is on a highgrowth trajectory. India aims to become the third-largest aviation market by 2020 and the largest by 2030. The Civil Aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity. The world is focused on Indian aviation - from manufacturers, tourism boards, airlines and global businesses to individual travelers, shippers and businessmen On September 14, 2012, Indian government opened its skies for Foreign Direct Investment (FDI) in the Aviation sector. Among other policy initiatives, the measure was announced by the government as it went into overdrive mode as far as reforms are considered. While FDI was already allowed in the sector, the current regulation was directed at the foreign airlines who are interested in buying stakes in the Indian Airlines, a measure which was previously prohibited. The Indian market is severely underserved with less than 3% of its population utilizing the air route. The growing passenger numbers and a burgeoning middle class indicate the possibility of healthy passenger load factors (PLFs) for all airlines in the future. Experts believe that the strong market growth rate coupled with the expansion of infrastructure will help the Indian civil aviation space in rebounding as the Indian economy recovers. The Indian Aviation Industry has been going through a turbulent phase over the past several years facing multiple headwinds - high oil prices and limited pricing power contributed by industry wide over capacity and periods of subdued demand growth. Over the near term the challenges facing the airline operators are related to high debt burden and liquidity constraints - most operators need significant equity infusion to effect a meaningful improvement in balance sheet. In this back drop the paper seeks to examine the performance in contrast to opportunities and challenges of the industry in general and FDI in Indian aviation industry in particular. The author conclude that improve financial profile and brand building would give a robust boost to the industry.