by Josh Lew
Last updated: 3:00 AM ET, Wed November 4, 2015
India's airline industry has grown in recent years, but a vast majority of the country's citizens have never flown. The reasons: high costs and a lack of infrastructure. India has 476 airports that could handle commercial aircraft. However, only 75 of these are used regularly. The others are too outdated and dilapidated to handle any traffic. This means that a majority of Indians simply do not live close enough to an airport to fly.
The other thing that is keeping people on the ground is the cost of flying. Most Indians opt for trains or buses because fares are affordable. With only one or two airlines flying on most domestic routes, there is no competition to bring prices down. Also, some states have high taxes on things like jet fuel, and these costs are passed on to passengers.
Bringing flying to the masses
The government in India has announced an ambitious plan to "bring flying to the masses." It involves renovating rural airports so they can handle regular commercial traffic. These rebuilding projects would be the first step towards a more inclusive air travel industry.
At the same time, authorities want to bring the cost of flying down to around 2,500 rupees ($40) per hour. This will be accomplished by capping fares. So airlines don't have to operate at a net loss, the government plans to offer a variety of tax breaks, subsidies and other benefits. However, the industry will have to fund many of these perks itself by levying an extra 2 percent tax on tickets. This has made some airlines wary.
It sounds good on paper, but airlines are concerned
Airlines have expressed concern about the new plan, which is set to take effect in April of 2016. They welcome the tax breaks because some Indian states levy heavy taxes on fuel and airplane replacement parts. These costs would be much lower under the new plan.
At the same time, the ambitious time frame for the project has some carriers worried. Except for budget airline IndiGo, most airlines that run domestic service in India are in debt and continue to operate at a net loss. Forcing them to abide by strict fare guidelines in exchange for loosely defined subsidies and tax breaks could push some into bankruptcy if the numbers don't add up right from the start.
Pushing ahead anyway
The government hopes to meet certain passenger number quotas in the coming years. This past year, 70 million Indians flew on commercial airlines. That might seem like a respectable number until you consider the country's population of 1.2 billion. According to Australia's Center for Pacific Aviation, these stats make India one of the world's most under-penetrated markets for air travel.
In 2022, India hopes to see 300 million domestic fliers. By 2027, when the entire plan will be in full effect, the benchmark is set at 500 million passengers per year.
Authorities seem intent on pushing ahead, so airlines are going to have to lobby for changes to the plan instead of trying to do away with it altogether.
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