Factors propelling the growth of the Airport Lounge Industry

The aviation sector is one of the fastest-growing sectors in India. The need for high-speed mobility across the subcontinent facilitates the growth of the aviation sector in India. Passengers carried by domestic airlines during January 2022 to April 2022 period were 356.80 lakhs as against 291.08 lakhs during the corresponding period of the previous year, registering an annual growth of 22.58% and monthly growth of 90.05%. The upward trend in passenger traffic indicates that consumer demand is also demonstrating an upward trend. The Global aviation sector had taken a hit due to the COVID-induced lockdowns, however, as of today, the revival phase has been smooth, with the accelerated pace and coverage of the vaccine roll-out as well as an easing of travel restrictions domestically and globally. Over the years, the government has taken crucial steps to tide over the pandemic-induced crisis and further the growth of the Indian aviation sector.

In April 2022, all Indian airports together handled 198.22 thousand aircraft movements and 24.34 million passengers. As of 2022, there were roughly 130 operational airports in India. To speed up the momentum, the Indian Government plans to spend around INR 1 trillion to set up new airports by 2024. The Indian Government has planned on investing roughly USD 1.83 billion by 2026 for the development of airport infrastructure. It is expected to increase to 295 operational airports by 2040, which are a combination of the second airport within the same city and new Greenfield projects. The initial regulations that hindered the development of a second airport within the same city have been removed. With such development underway, India is expected to be the third-largest air travel market by 2030 according to IATA (International Air Transport Association). The Indian aircraft fleet is also expected to grow 3X and reach around 2200 aircraft by 2040. India’s GDP growth to domestic air traffic growth is 1.8x and on total air traffic growth is 1.4x from FY 2010 to FY 2020. The aviation sector’s direct impact on GDP is recorded to be USD 3.5 Trillion, i.e., 4.1% of Global GDP in 2019. By the year 2038, the aviation sector is expected to account for USD 6.3 Trillion of the Global Economy (Source: Frost & Sullivan Industry Report).

A major asset monetizing exercise has also been undertaken by the Indian government, i.e. the privatization of 13 airports. The government has been aiming for the private investment of Rs 3,660 crore in airports by FY24. Presently, the AAI has approved the privatization of 6 major airports which include, Bhubaneshwar, Varanasi, Amritsar, Trichy, Indore, and Raipur. Therefore, the privatization of airports can be viewed as a key opportunity for lounge operators, as the upgradations for these airports are expected to enhance the overall customer travel experience. Airport authorities and airport service providers are now focusing on adapting to the new normal and the ideas of how to best cope with challenges as well as enhance the overall travel. They are overhauling their business models to survive in a newly competitive and dynamic market.

Passengers also have now evolved and are expecting superior services, earlier restricted to only business or first-class travelers, to be made accessible to a large chunk of economy travelers. The focus has shifted towards passenger experience, with the number of Indian passengers traveling by air increasing from approximately 99 million in CY 2015 to 167 million in CY 2019. The number of passengers availing of lounge facilities has also increased from 5.1 million in FY2018 to 7.5 million in FY2020. The number of lounges is expected to grow at an average of 10% YoY between 2021 and 2040. Over the next two decades, the number of lounges is expected to increase to 193 from the 50 lounges operating at present. The airport lounge access market in India is expected to grow at a CAGR of 43.11% by FY2030 to Rs 5,861.9 crore from Rs 358.9 crore in FY22. 

Government initiatives like UDAN, roll out of ePassports in 2022-23, airport infrastructure development in Tier 2 and Tier 3 cities, increase in the demographic dividend, increase in per capita income and GDP growth are expected to increase the percentage of air traffic from even smaller airports, which will augur well for airport lounge service providers, due to the improved connectivity and convenience for commuters.

Thus, an increase in passenger traffic and growth in demand within the air travel industry is expected to boost the market growth of airport service providers. The opportunity is driven by technology, social and demographic trends and growth opportunities in Asia and other emerging market economies. By understanding the new landscape, airport lounge service providers can identify the most promising opportunities, manage risks, and mitigate the odds of gaining the best returns. The onus lies on them to create sustainable bespoke solutions that provide a truly differentiated superior global experience, through the use of robust technology, thereby enhancing the overall traveler experience.

Source: 

• Monthly Summary of May 2022.pdf (civilaviation.gov.in)

• Frost & Sullivan Industry Report (Dec 2021)