Indian aviation industry suffers from low penetration despite rise in seats

India's total airline seats have doubled in a decade. So, why is the country not seen as realising its aviation potential?

India’s airline capacity of 230 million departing seats this year will be nearly double of that a decade ago. The aviation ministry says the number of flyers should nearly double again in seven to 10 years — to 400 million.

However, the country’s airline seat capacity is a fourth of China and a fifth of the United States, as of 2023. Though India has the geographical potential to become a global hub, its airline market is underpenetrated, especially in comparison to China and the US.

That is why aviation research agency OAG, in a recent report, says India has “unquestionably yet to fully realise its aviation potential”.

Low penetration

There is no doubt more Indians are travelling by air than ever before. But they still represent a miniscule percentage of the total population. The consensus estimate is that only 3 per cent of the country’s population of 1.4 billion – or 40 million people -- fly regularly.

Airline honchos have made the point that the Indian Railways carries as many passengers in a single day as the airlines carry in a whole year. The message is clear: India needs many more aircraft.

The low penetration is also reflected in India’s domestic per capita seat capacity of 0.13. In comparison, it is 0.49 in China and 3.09 in the US. Even Thailand has 0.51 domestic per capita seat capacity.

For international flights, the per capita seat capacity is pegged at only 0.06 in India, compared to 0.13 in China and 0.88 in the US. These numbers show a big opportunity, as well as the catching up India’s airlines need to do.

Planes, planes, planes

The good news is that airlines are witnessing growing demand after Covid-19. They have not only recovered to pre-pandemic passenger peaks but are in fact doing better. Airlines such as IndiGo and Air India are pressing the throttle by announcing mega orders for new aircraft.

India ended 2023 with a total fleet size of 771 aircraft, having added 112 planes during the year. Another 150 are expected to join airline fleets this year.

If that happens, India will account for 3.2 per cent of the total global fleet of commercial airlines this year, based on estimates by Global Fleet & MRO Market Forecast by Oliver Wyman. The combined global fleet size of all airlines would be 28,400 planes.  

However, if all the new orders for planes placed by Indian carriers – totalling more than 2,100, or three times India’s current fleet size – are delivered, the country will achieve a fleet size of about 3,000 aircraft by 2034 (some planes may need to be replaced, so the net addition could be less). 

That would mean India’s share in the global fleet will increase sharply to cross 8 per cent by 2034, when the global fleet size is expected to be 36,400 planes.

This could change if Jet Airways, which has announced orders for 130 planes, but is grappling with a host of troubles and is currently grounded, does not take deliveries of the planes.

International game

China already has a fleet of more than 4,100 planes, which is more than four times the fleet size India is likely to have by the end of this year. However, Wyman says India will lead fleet expansions in the next 10 years, not China. 

India overtook China last month to become the most populous country. Its gross domestic product is growing the fastest among the major economies, considerably faster than China’s.  

Despite the slowdown, though, China will still grow its fleet, and is expected to add more than 4,000 planes in the next 10 years. However, the fleet gap between India and China will come down.   

The Indian government has been pushing Indian carriers to play a more proactive role in the international skies, so they can make India a global aviation hub for the world, like Dubai and Singapore are.

For their part, Indian carriers are making moves to expand internationally. But, for that, a key element is a sizeable fleet of wide-bodied aircraft for long-haul flights that would keep the fliers in comfort. Single-aisle aircraft, which some Indian carriers use even on international flights, cannot fly the lucrative, really-long-haul routes.

Out of the total new aircraft orders placed by Indian carriers, only 5 per cent is for wide-bodied aircraft, most of them by Air India and IndiGo.

Based on OAG projections, 19 per cent of the total seat capacity of outbound carriers in 2024 would be for international routes, which is a marginal increase from 18.2 per cent last year.

Soaring ambition

Some airlines are pushing the pedal. Last month, IndiGo said it had ordered 30 A350-500 planes, whose deliveries would start in 2027. The company has the option of buying 70 more, which will be used for long-haul flights.

It has already ordered the longer-range A321 XLRs, which come on board in 2025, to reach destinations such as southern Europe. Its ambition is to increase its international operation capacity to 30 per cent.

Air India has ordered a range of aircraft to play in the global market, including 40 Airbus A350, 20 Boeing 787, and 10 Boeing 777XS.           

The reality however is that international carriers continue to dominate the international flights connecting India, and have held on their own in the last two years. According to OAG data for the month of April this year, international carriers had 56 per cent share of the capacity of outbound international flights from India, which is just a shade below April 2023, when foreign carriers had a 57 per cent share. 

In terms of seats, international airlines had 4.1 million in April, which is higher than the 4.01 million in April 2019 (pre-Covid).