India and the Middle East countries will account for 11% of the world’s aircraft deliveries in the next decade, says a recent report by OAG.
However, both markets face immense challenges in meeting the expected future growth in passengers and aircraft operations, which require massive expansion of infrastructure and high-performing aviation systems, the report says.
Mario Hardy, VP Asia-Pacific for OAG parent UBM Aviation, says in India, the government’s open-sky policy has attracted many foreign aviation leaders to enter the market, spurring rapid industry expansion boosted by the growing population and an increased demand for international travel and trade, as well as an increasing Visiting Friends and Relatives market.
“However, airlines must contend with insufficient infrastructure and challenging political bureaucracy,” Hardy says.
It is estimated that in the next decade the Indian market will absorb about 316 commercial jets and need three times the number of airports that it has today.
However, Hardy points out that the country doesn’t have enough skilled labor to maintain or to fly the aircraft.
Also, intense foreign competition prevents domestic carriers from international expansion, deeply affecting balance sheets, Hardy adds.
The OAG market analysis of India and the Middle East concludes that in order to cut costs, boost efficiencies and spur competition, mergers of the more than 30 competing airlines in the Middle East and India will be necessary.
However, mergers of the Middle East carriers are unlikely in the short term because most are government-owned, and therefore are more likely to form alliances based on geographical proximity, including Saudi Arabia Airlines,, Gulf Air, Fly Dubai, Emirates Airlines and , which are all based within 500 miles of one another.
In India, the first step toward carrier consolidation is complete. On June 1, the merger control provisions of the Competition Act 2002 went into effect, allowing “acquisitions of one or more enterprises by one or more persons or merger or amalgamation of enterprises.”
Hardy says that while this is a significant milestone, companies undertaking mergers or acquisitions must prepare for the challenges. With more competition in the aviation market, fares will soon be slashed, and the resulting low margins will not cover all expenses and costs, which will create a situation when many of domestic airlines simply will stop operating.