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Economy

India aims to spend $60 billion to spruce up airport infrastructure

Country gears up to handle a billion trips a year as travel demand surges

Indian airlines could post a combined loss of $1.9 billion this fiscal year, led by state-owned Air India and rival Jet Airways India.    © Reuters

MUMBAI (NewsRise) -- India plans to spend $60 billion over the next 15 years to expand its airport infrastructure as the south Asian nation gears up to handle a billion trips a year.

"The value proposition for air travel in India is extraordinary," said Jayant Sinha, minister of state for civil aviation. "What we have to think about is whether we have the infrastructure in place to cater to those billion trips. That really is our challenge."

Sinha's comments come as India's airlines await delivery of hundreds of Boeing and Airbus aircraft they have ordered to cater to the rising demand in the fastest-growing aviation market in the world. Air passenger traffic in India has been growing at an annual pace of more than 20% in the past few years.

Indian airlines, which operate around 500 aircraft, have ordered an additional 1,000 planes, according to an estimate by HSBC in December.

India's airports are already grappling with rising congestion. In a bid to reduce the pressure on airports and boost rural aviation, the government last year unveiled a program called Regional Connectivity Scheme. The program makes it cheaper for people to fly within the country by subsidizing part of the cost for airlines to fly to smaller towns.

But the plan has been slow to take off. According to a Reuters report in June, the government planned to open 31 new airports by the end of 2017 under the scheme, but only 16 are operational so far. The government is now aiming to set up 100 new airports across the country over the next 15 years through public-private partnerships.

According to analysts, the top six airports in India cater to 65% of the domestic air traffic.

Even as infrastructure remains a burning issue, the industry's focus is now shifting to the shrinking profits of carriers that grapple with rising fuel costs, falling value of the Indian rupee, and the stifling price competition. On Monday, aviation consulting firm CAPA India warned that Indian airlines could post a combined loss of $1.9 billion this fiscal year, led by state-owned Air India and rival Jet Airways India.

According to aviation ministry officials, Indian carriers saw a 2% fall in air fares in the past one and a half years, even as fuel costs surged 50%. Brent crude prices have risen to $78 a barrel, more than double the 11-year low of $35.98 a barrel touched at the end of 2015, when airlines posted profits after almost a decade of unprofitable operations.

Last week, Jet Airways India, backed by Etihad Airways, reported its second-consecutive quarterly loss. Market leader Indigo, backed by InterGlobe Aviation, reported a 97% plunge in first-quarter profit last month.

On Monday, credit rating agency ICRA, a unit of Moody's Investors Service, downgraded Jet's long-term rating, citing significant increase in jet fuel prices and no corresponding increase in air fares, which hurt the financial performance of the company.

Amid the challenges, the government is now considering a relief package for the sector that will help them curb the costs.

"It would essentially provide relief on the cost and financial side," R.N. Choubey, aviation secretary said Tuesday. He didn't elaborate on the plan.

--Asmita Dey and Dhanya Ann Thoppil

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