Why Is India An Important Market For Commercial Aircraft Manufacturers?

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The Indian airlines market has changed dramatically over the years. A booming economy and growing middle class, coupled with many new entrants to the low cost airline space, has made air travel more affordable over the last decade or so. In this report, we hope to highlight the possible reasons for why the Indian aircraft market is a potential goldmine for big airplane manufacturers such as  Boeing (NYSE:BA) in the next two decades.

  • India has a current population of about 1.3 billion people, and is also the sixth largest country in terms of area. This makes the country one of the largest domestic markets in the world. It therefore, comes as no surprise that Boeing has estimated the demand for about 2,100 jets, roughly 5.2% of all global deliveries in the next 20 years or so, to come from the region.
  • The country’s GDP has grown from roughly $520 billion in 2002 to $2,112 billion in 2015. This represents a mammoth 11.3% growth rate, compounded annually. In the same period, GDP per capita has been growing at an impressive compounded growth rate of 6.2% since 2002, which has, consequently, led to a sharp rise in the country’s middle class.
  • India’s middle class has jumped from 300 million people in 2004 to 600 million in 2012. This, coupled with increased average savings, has led to a higher percentage of the population that can afford air travel. It is estimated that, by 2020, this middle class will expand by an additional 20% from the current levels. Essentially, this means that in the coming years, more people will be able to spend more money on air travel, thereby creating a need for more planes.
  • Another by-product of the booming economic growth is the potential rise in business travel. As mentioned previously, India’s economy has been growing at an unparalleled rate since the early 2000s. With increased economic potential, India is expected to open its doors to many more international businesses, thereby creating jobs, and in turn, demand for business travel.
  • Until, as recently as 2016, Indian carriers were forced to fly a minimum of 5 years and have a domestic fleet of at least 20 aircraft, before they could enter the international market. For a large proportion of the newer airlines, the 5 year requirement made it difficult to compete with the already well established airlines. However, this 5 year requirement has now been removed by the Indian aviation body, thereby allowing new entrants to start international routes from the get go. This amendment is expected to bring in many more competitors, thereby driving the average ticket price down, and increasing overall air travel demand.

In conclusion, experts estimate the Indian market to grow to about $290 billion in the next two decades. 85% of the aircraft that will be delivered in the next 20 years are expected to be single aisle jets in order to support the huge domestic market, which will be propagated by a growing middle class. Additionally, easier entry rules will allow new airlines to enter the space, ensuring that the demand is met, while maintaining a healthy growth balance.

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