Commentary: India market shines amid cloudy outlook for global aviation
NEW DELHI: India was a fitting host of the International Air Transport Association's (IATA) annual general meeting in New Delhi last week.
The country has emerged in recent years as a leader in the aviation sector, as Indian Prime Minister Narendra Modi remarked in a keynote address.
While IATA now includes more than 350 airlines, with 31 joining over the last year, its Indian members have captured the most attention with rapid growth and massive aircraft orders.
IndiGo, which has become one of the world's largest and fastest growing airlines, announced another 10 new international destinations and four domestic destinations for a total of 50 and 95 respectively. IndiGo also used the IATA meeting, which it hosted with unusual fanfare for a low-cost carrier, to announce another 30 orders for A350-900 widebody aircraft.
IndiGo now has nearly 1,000 aircraft on order while the Air India group has nearly 600 on order with reported plans for another 200. Air India adopted a much lower profile at the IATA meeting despite its new branding and service improvements.
MASSIVE GROWTH POTENTIAL IN INDIA
India has become the world's third largest air transport market after the United States and China, reaching 174 million passengers in 2024. IATA forecasts passenger traffic in India will triple over the next 20 years.
The country has massive growth potential as it is still relatively underserved. China now has a smaller population than India, but has more than four times the number of passengers and more than five times the number of commercial aircraft. IATA pointed out that India accounts for slightly over 4 per cent of the world's passenger traffic but almost 18 per cent of the global population.
India's middle class is growing rapidly along with discretionary income, fuelling soaring demand for both domestic and international travel. Its air transport market has emerged in the post-pandemic era as the next China, which boomed in the decade before COVID-19, particularly for outbound international travel.
However, India faces a few geopolitical challenges. The IATA meeting took place just three weeks after the ceasefire to a military conflict between India and Pakistan – a conflict that could have derailed India's first time hosting the meeting since 1983.
Pakistan airspace remains closed to Indian carriers, which are now bracing for at least several more months of no access, putting them at a competitive disadvantage to foreign airlines.
CHALLENGING MARKET CONDITIONS ACROSS ASIA
Geopolitical issues, trade tensions and economic uncertainty are clouding the overall outlook for the global aviation industry. Airline profitability remains low, making the industry vulnerable to shocks.
IATA expects airlines will generate US$36 billion in profits on US$979 billion in revenues in 2025, which equates to only a 3.7 per cent net margin or a profit of just US$7.20 per passenger. In 2024, the net profit margin was 3.4 per cent despite relatively buoyant demand and significantly higher air fares compared to pre-COVID levels.
In Asia, market conditions remain challenging, despite the growth expectations. Asia Pacific carriers are expected to only account for US$4.9 billion or 13.6 per cent of the global profits this year. This equates to a net margin of less than 2 per cent.
When excluding a handful of highly profitable airlines, the industry in this region is collectively only breaking even. Competition is intense and yields or air fares on many regional routes are not sufficient to cover higher costs.
Some markets have still not yet fully recovered from the pandemic. Several airlines in Asia are now in a precarious financial position and will likely need to restructure to survive.
India's market is exceptional in that it is significantly larger than pre-COVID levels and continues to grow rapidly, but only IndiGo is profitable. Other airlines are unprofitable from several longstanding issues including high taxation and excessive regulation.
AIRLINES ARE NOTORIOUSLY RESILIENT
The airline industry has never been easy. However, airline executives have never had to navigate such a challenging and complicated environment.
In addition to the difficult geopolitical and economic environment, supply chain issues are expected to persist until at least the end of this decade. IATA director general Willie Walsh put pressure on aircraft and engine manufacturers 'to sort this mess out'.
Sustainability also comes with an increasingly hefty price tag. The industry is starting to raise concerns about meeting net zero goals with Walsh acknowledging that it does not see new technology playing a significant part in the abatement of carbon emissions before 2050.
Nevertheless, the mood last week in New Delhi was still upbeat. Airlines are notoriously resilient and steadfast about long-term growth prospects. India is an undeniable driver for global growth and its leaders are rightly proud of recent aviation achievements.
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