India’s aviation industry is flying high securing its spot as the world’s third-biggest aviation market. The Aviation sector shows huge promise, with passenger numbers set to reach 480 million by 2036. Yet steep running costs and gaps in infrastructure still pose challenges. Budget 2025 offers a prime chance to tackle these issues, with big announcements in the pipeline. This budget could reshape India’s aviation scene, from upgrading airports to cutting fuel costs and boosting regional links, bringing perks to both passengers and investors.
Overview of the Airline Sector in India
India is one of the fastest doing large Aviation markets in the world but it also happens to be the third largest Aviation Market. In FY 2023-24, about 376 million passengers traveled. In FY 2024-25, almost 200 million have already traveled by September, which we will cross. There is a projection of IBEF that by 2036, 480 million passengers will travel in India. The way airport growth is happening, India is poised for a massive tailwind in this sector.
If you look at the airfare trend, 16% has increased in international airfare, whereas 43% has increased in domestic airfare on average. The biggest revenue generator for all these airline companies is preferential seating, baggage fees, musical instrument carriage, sports equipment carriage, baggage carriage, lounge access, and meal and snack charges.
In domestic demand, we are already working at 87% capacity and in international demand, we are working at 83%. This means that there is a scope for us to work at 100% capacity.
The aviation industry usually bears high input costs like the cost of fuel, cost of training, manpower, cost of an airport, etc. If the sector doesn’t get the kind of support it requires from the government, it continues to be a high-cost mode of transportation. Hence, it remains out of reach of the common Indian. This vicious cycle has to be changed, and budget 2025 could be the best opportunity for the government of India to do that.
In the budget 2024, there was an allocation of about 2360 crores. Through the Udaan scheme, the government is trying to increase the number of airports in tier-2 and tier-3 cities where real India resides.
There were many complexities in GST, which the government has simplified to an extent. A simple 5% flat GST in other components of aircraft. Next-Gen Airports for Bharat aims to modernize and expand India’s airport infrastructure.
Key Announcements for the Airline Sector in Budget 2025
Finance Minister Nirmala on 1 February 2025 Budget to be presented by Nirmala Sitharaman from which every sector has high expectations, including the Aviation Sector. The aviation sector has grown rapidly during the past period, and aviation companies understand that they need a viable business model to keep flying. In the upcoming budget 2025-26 there are many important announcements for this area so that the sector can be given a new direction.
The announcements that might be presented in the union budget 2025 are as follows:
- Aviation Infrastructure – India currently operates 149 airports, which is insufficient for its 1.4 billion population. It is being said that the first announcement can be related to the investment in aviation infrastructure. The government has indicated earlier also that they are planning to invest heavily in airport and airline services. This investment is not only in the expansion of existing airports but also in the construction of new airports. This will increase the number of domestic and international flights.
- Licensing of new airlines – Second announcement on licensing of new airlines. Actually, the government is considering granting licenses to new airlines. Due to this, competition will increase, and passengers will get better facilities. Existing airlines will have to consider to improve and expand their services.
- Rationalising duty structure on ATF and inclusion under GST – The industry is also expecting the ATF to tax forward under GST. It is also in discussion that the government will propose to give tax exemption in the fuel of the aircraft i.e. Aircraft Turbine Fuel (ATF). This will lead to a reduction in the airline’s operating cost, hence competitive ticket prices.
- Security and technical improvements – The budget seeks to strengthen security measures and funding to adopt new technology.
- Digitalization and Smart Airport – The government may emphasize on development of smart airport thereby using digital technologies. This will make the journey convenient for the passengers.
- Revitalization of the UDAN Scheme: The Regional Air Connectivity Scheme (UDAN) has faced challenges, including a reduction in funding from ₹850 crores to ₹502 crores. There is an expectation for renewed focus and increased allocation to enhance regional connectivity.
- Incentivizing the maintenance repair overhaul sector – India’s aviation sector heavily relies on overseas MRO services, which adds significant operational costs for airlines. To mitigate this, there is an expectation for increased investment in domestic MRO facilities.
Impact on the Airline Sector
- Operational Efficiency: Better infrastructure and policy support could boost productivity for airlines cutting down on operating expenses.
- Financial Performance: Despite these possible improvements, the article mentions an ICRA report that predicts a net loss of ₹2,000-3,000 crore for India’s civil aviation industry in the current and next financial years because of ongoing supply chain problems and engine issues.
- Investor Confidence: Fixing infrastructure shortfalls and cutting back on imports may increase investor trust leading to more money flowing into the sector.
- Passenger Experience: Better regional connections and improved infrastructure could make flying more enjoyable for passengers increasing the demand for air travel.
Some Airline Sector Stocks
Indigo is a very efficient organization and their path to efficiency is very clear. Like they are going to NIO aircraft, so it has already replaced A320 current engine option to A320 NIO. NIO has 15% fuel efficiency, which obviously straight away shows its impact in their bottom line. Indigo is a market leader and that way it will continue to be the leader.
SpiceJet – Although it is in bad shape, Boeing had a very big role because of it. There are 64 aircrafts, but the average age of the aircraft is 14 years. They have very old aircrafts and only 28 aircrafts are operative in it. But SpiceJet generally operates under the Udaan flight, which is a very good market share of SpiceJet in non-metro to non-metro.
GMR airport – Its total market cap is 81,000 crores. The company has 2,520 acres of land bank, which can also be used in real estate development across the airport portfolio.
Conclusion
As Budget 2025 rolls out, India’s aviation sector is on the edge of big changes, ready to open up new ways to grow. The possible impact on the market is huge, from better infrastructure to improved passenger services. If you’re someone who flies often puts money into the sector, or just loves aviation, it’s time to keep your eyes on the skies. Stay in the loop and make smart investments to make the most of these shifts. For in-depth analysis and to pick stocks for long term from these budget highlighted sectors, Visit Jarvis Invest today!