About this Report Centre for Asia Pacific Aviation India (“CAPA India”) was exclusively commissioned by Vistara to prepare this report on the need for urgent reforms in the Indian aviation industry. While CAPA agrees with the overall approach and content of the report, some of the recommendations have been structured to align with Vistara’s objectives. Disclaimer The information and analyses contained in this document have been prepared by Centre for Asia Pacific Aviation India (“CAPA India”). Use of any data, information, or portions of this document without prior written consent of CAPA India is strictly prohibited. While every effort has been made to ensure high quality and accuracy of content in the preparation of this document, CAPA India assumes no responsibility for errors and omissions related to the data, calculations, or analysis contained herein and in no event will CAPA India, its associates, subsidiaries, directors, or employees be liable for direct, special, incidental, or consequential damages (including, but not limited to, damages for loss of business profits, business interruption, and loss of business information) arising directly or indirectly from the use of (or failure to use) this document. All efforts have been made to ensure that data on different markets are fair representations, based on interaction with various stakeholders, regulatory filings, primary research and proprietary CAPA data. Some of the data presented, specifically with regards to fees and charges may vary from actual, as these are subject to change and do not account for the incentives and discounts that may be offered via confidential agreements. This document contains “forward-looking statements’’. Forward-looking statements may include the words “may”, “will’’, “plans’’, “estimates’’, “anticipates’’, “believes’’, “expects’’, “intends’’ and similar expressions. These statements are made on the basis of current information available and simplistic assumptions. These forward-looking statements are subject to numerous factors, risks, and uncertainties that could cause actual outcomes and results to be materially different from those projected or assumed in the statements. 1 Table of contents Executive Summary .......................................................................................................... 4 Chapter 1: Contribution of aviation to the global economy ............................................. 25 Aviation and economic development ............................................................................................... 26 Background ................................................................................................................................... 26 Contribution of aviation to GDP and employment ....................................................................... 26 Aviation an enabler for tourism .................................................................................................... 29 Aviation an enabler for trade ........................................................................................................ 31 Policy and regulatory framework...................................................................................................... 32 Background ................................................................................................................................... 32 Government investment in aviation ................................................................................................. 33 US Government investment in transportation and aviation ........................................................ 33 UK Government investment in transportation and aviation ........................................................ 34 Australian Government investment in transportation and aviation ............................................ 35 Chapter 2: Projected Growth of Indian Aviation to 2050 ................................................. 36 Chapter 3: Realising Indian aviation’s potential ............................................................... 38 India’s Civil Aviation Policy (still in draft format after 20 years) ....................................................... 39 Policy design and enforcement ......................................................................................................... 40 Policy benchmarking ......................................................................................................................... 42 Regulatory distortions ....................................................................................................................... 44 Strategic role of aviation in the country’s economic policy settings ................................................ 46 Background ................................................................................................................................... 46 Time has come to emphasise aviation while drafting national policy .......................................... 46 Way forward for India ................................................................................................................... 46 Chapter 4: Benchmarking of Indian aviation .................................................................... 49 Airport infrastructure ........................................................................................................................ 50 Overview ....................................................................................................................................... 50 Comparison of peak hour movements ......................................................................................... 50 Air connectivity from airports ....................................................................................................... 51 Leveraging an aviation hub ........................................................................................................... 52 The aviation fiscal regime ................................................................................................................. 52 Airport landing charges ..................................................................................................................... 53 Passenger fees .................................................................................................................................. 55 2 ATF pricing continues to be prohibitive and the differential on domestic pricing is even greater .. 58 India has relatively high withholding taxes on aircraft leases .......................................................... 59 Comparison of airfares ...................................................................................................................... 60 Fleet comparisons ............................................................................................................................. 61 Aviation Security Practices and Regulations ..................................................................................... 62 Efficiency through optimum use of Airspace ................................................................................ 64 Efficiency through better procedures of approach ...................................................................... 65 Efficiency through better Air Traffic Flow Management .............................................................. 66 Regional connectivity policy ............................................................................................................. 67 Bilateral policy ................................................................................................................................... 68 Logistics and Transport ..................................................................................................................... 68 Chapter 5: Recommendations ......................................................................................... 70 3 Chapter 1: Executive Summary Indian aviation has experienced transformational change since FY2004 when the last NDA government commenced the process of liberalising the sector. Reforms continued under the next administration and the result was one of the fastest metamorphoses of a national aviation industry in history. The table below highlights how far the industry has come in the last few years. Between FY2004 and FY2015 the volume of passenger traffic has more than tripled, while freight has more than doubled. Figure 1: Growth in aviation activity in India between FY2004 and FY2015 FY2004 FY2015 Growth Multiple Domestic passengers 16.1 mn 70.1 mn 4.4x International passengers 16.6 mn 50.8 mn 3.1x Domestic freight 188,000 tonnes 493,000 tonnes 2.6x International freight 693,000 tonnes 1,543,000 tonnes 2.2x Commercial airline fleet 158 394 2.5x Source: CAPA Research, DGCA, Airports Authority of India To place this in context, the incremental domestic traffic handled between the start and the end of the ten year period from FY2004 to FY2014 was almost three times greater than in the previous 50 years combined. Figure 2: Annual domestic air passengers added every 10 years in India 50,000,000 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 - FY54-64 FY64-74 FY74-84 FY84-94 FY94-04 FY04-14 Source: CAPA Research, DGCA 4 However, it should be noted that this growth has been accompanied by significant red ink. Although aviation has made a significant positive contribution to the economy, the sector’s