Business Aviation in India: Unable to Cross the Chasm
20% of the Private Aviation in Asia Pacific includes destinations in India, which is more than China, Japan and Hong Kong put together (Reference to Aviapages Report 2022). The Global Pvt Air Charter Business valued at $ 28B is expected to grow at about 5% CAGR with the maximum growth coming from the APAC region estimated at over 7%. The APAC market is likely to cross $ 7B by 2023.?
The Number of Business Jets in India grew by 500% between 2006-2012. With more than 100 airplanes delivered to India within a short period, most business aircraft manufacturers were bullish on the Indian market and opened offices in India at that time. Most reports predicted growth between 10-12% for the next 20 years. By that assessment, India should have more than 330 business airplanes in India. Contrary to the expectations today there are less than 190 business jets in India with an average airplane age of more than 15 years.?
This essentially implies that either the demand was hugely overestimated while making the projections or Business Aviation has not been able to organize itself into a growth-oriented and competitive industry as part of the global ecosystem.?
Demand
The growth of UHNWI in India is growing steadily above 12%. As a region, Asia is looking at a 33% increase in UHNWI between 2021-2026. As an estimate, nearly 18% of existing on-demand charter requests remain unfulfilled and another 15% are a compromise in terms of class of aircraft or service. Among Asians, Indians, in particular, are spending more on experiences than ever before but private air travel has not been able to find a place in their lifestyle bucket list yet. Putting a number to the untapped domestic market would only be hypothetical but a comparison of markets with equivalent income as compared to the USA and Europe suggests that India has an untapped demand of around 15000-20000 people who could afford private aviation at least partially. At a very conservative figure of 25 hours per year of flying and only 50% penetration in the potential market, this is nearly 2,25,000 hours of flying in a year. This is purely the business aviation market excluding Medical Evacuation. But this market is different from the traditional private air travel market in India. For this segment, it's not only about status but about real convenience of time, experience and price.
Supply
With the present fleet in India and its utilization rate, the best that can be produced is less than 50% of the potential market demand. What is actually on offer is even less. The present average fleet age of business jets offered for Private Charters in India is above 15 years. Compare this with an average age of under 6 years for globally established players such as NetJets and Vista jet and others in Europe. This is also one of the reasons for the poor utilization rate in that the maintenance requirements and downtime rise exponentially with age above 12-13 years. Particularly, in the light and mid-jet segment obsolescence management is another challenge. While in the bigger jets depreciation is high, in the smaller ones it is the obsolescence that has to be managed. A high fleet age suggests that business has not been lucrative enough for the businesses to invest in newer airplanes and operators have been too occupied managing the plane and cash flow rather than managing the lifecycle cost of the machine. This is also partly due to an inadequate understanding of Life Cycle Management. Clearly, the demand-supply gap is nearly 30% in the existing market and over 100% in the potential market with supply being way short of what it should be. The current ownership pattern in India is also not conducive for operators to make commitments in advance. This further kills steady supply. Since long-term order books are not certain, operators tend to focus on cash flow rather than any long-term strategy. Ultimately, the whole system revolves around uncertain supply thereby not allowing a growth-oriented business plan.?
Distribution
While the supply has its own challenges, the distribution of the service has remained one of the most unregulated and inaccessible aspects of private air travel in India. While the operators are heavily regulated, the air charter brokers have no requirements at all. In India to be a train ticket booking agent requires more regulatory approvals than an air charter broker. Globally, air charter brokers fulfill an important role in the distribution chain which involves legal, contractual and experience fulfillment. There are commercial rating agencies that make sure that the industry runs as per laid down standards. In India, the distribution chain of private air travel is completely inaccessible to the potential market. In the country that boasts off as the largest supplier of IT services globally, private air travel bookings are done over Whatsapp in over 140 Whatsapp groups. Multiple levels of brokerage with little transparency coupled with supply gaps drive the prices exponentially. With this kind of distribution ecosystem, it is not possible to tap the potential private air travel market which is price sensitive and demands a high quality of service and transparency. Unless this changes nothing else can work.
What can be done?
Step 1
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“Make it Accessible and Affordable”
Every problem requires some short-term and some long-term measures. Even in the existing market, there is a supply deficit of over 20%. Fulfilling this deficit should be the first step in the short term. The average flying per airplane of global heavyweights is over 1000 hrs. Flying over 1000 hours covers the depreciation partially and allows timely addition and replacement of the machine so as to keep the business growing. In India, the average flying is under 600 hrs in the Jet Category. An increase of 20-25% over the existing flying hours can partially fulfill the existing demand-supply gap. This is achievable by small measures such as a more organized and transparent distribution mechanism and collaboration between operators with the same fleet. A tech-enabled distribution can easily increase airplane utilization. Due to airplane ownership structure in India, owners' requirements would always limit the utilization rate of most planes but a 20-25% increase is always achievable with the same serviceability levels but with collaboration between operators of the same type and tech enablement of distribution. An organized distribution that allows the sale of Empty Legs or minimizes/avoids two-way pricing not only makes the service more accessible but also affordable in the on-demand market.
Step 2
“Increase Capacity and Market Penetration”
In the long term, drastically improving the average age and addition of airplanes would allow penetration into the untapped market. In this context, a fractional ownership model that offers a very low fraction with assured flying would increase the market size substantially. The residual hours can then be sold as jet cards or on demand. The fractional ownership model is heavily dependent on scale and sale of residual hours via Jet Cards or in the on-demand market. Although prior attempts for fractional ownership in different forms have been made, they didn’t get much success and the planes acquired then are still in service after 15 years. A small size of the minimum fraction with a small commitment period would allow a larger portion of the market to adopt private travel due to low-risk exposure. The low fraction would allow a substantial supply to be released to the on-demand market thereby facilitating long-term sales.?
For a Fleet of 5-6 Light jets, per aircraft flying of 1000 hrs a year, the effective travel price for a Regular Fractional Owner with 200 hrs of commitment every year can be as low as just 4 times the Business Class travel (with at least 30% seat occupancy - not on seat sharing) which at present is more than 16 times. That is almost a 75% reduction in price point. When an Indian Business Model can execute this - India would have arrived on the scene. Achieving this is not easy. Flying more than 1000 hrs per plane per year requires an organized business and an organized ecosystem that is transparent and competitive.?
Essentially, the future of Business Aviation Growth in India is critically dependent on a single factor -?
‘The ability of the Industry to Organize itself’.?
About Author
Abhishek Sinha, Founder of Insta Charter is a Veteran Experimental Test Pilot. He has flown over 25 types of planes and managed procurements for the Indian Air Force. He flies for a charter company and is a keen technologist. He is also a software developer and does most of the coding at Insta Charter himself.?