Other sectors of the Indian economy may be up against weak demand and excess capacity, but aviation has so far proved to be a striking exception. Latest data from the DGCA show that the number of passengers boarding domestic flights hit the 10 million-mark in May, with traffic in January-May 2017 growing 17.6 per cent year-on-year. This was achieved on a high base, as traffic expanded 23 per cent in 2016. These scorching growth rates have helped India edge past Japan to emerge as the world’s third largest aviation market. This take-off in air travel in a modestly growing economy can be traced to several factors — generous travel budgets of the young demographic, affordable air fares due to low fuel prices, the disintermediation of bookings and, importantly, chronic under-investment in the Indian Railways for the past many decades. But the favourable circumstances that have propelled the sector will not last in perpetuity. Active strategic and policy intervention are necessary to sustain it.

It is worrying that India’s rapidly expanding aviation market is being catered to by an increasingly narrow set of players. In May 2017, just five players handled 93 per cent of all traffic, with the top three (InterGlobe Aviation, Jet Airways and Air India) controlling 72 per cent. Only two of these players are profitable, with one (Jet Airways) turning around just last year. Despite improving load factors, profit margins of most airlines remain thin, weighed down by debt. Profitability for Indian airlines has displayed an almost one-to-one correlation to Aviation Turbine Fuel prices, which have been unusually benign lately. Globally, low-cost carriers use aggressive hedging policies to lock into low fuel costs, a strategy which is yet to take off here. High tax rates on fuel are another irritant. If airlines’ fleet expansion plans are up against financial constraints, there are severe physical constraints on airport infrastructure too, given the inadequate number of runways, landing and parking slots. Industry body CAPA recently estimated that India’s top six aviation hubs would reach saturation within 10 years; easing this would need 50 new airports with a ₹2.7 lakh crore capital outlay. Worse, existing traffic control and safety infrastructure are inadequate even for current traffic and need an urgent upgrade.

Addressing these problems boils down to the availability of capital, which makes foreign participation critical. On this score, despite the Centre liberalising FDI limits to 100 per cent both for airlines and airports, there’s a lack of material interest in both segments. For airlines, the caveat that only foreign ‘entities’ (not airlines) can own 100 per cent, and the condition that substantial ownership and control of the airline must rest with an Indian partner, are big stumbling blocks. On airport infrastructure, the over-reliance on the Airports Authority of India and the grounded PPP model present constraints. Addressing these through policy changes is essential to ensure that the current boom doesn’t hit an air pocket.