BUSINESS ENVIRONMENT

The Aviation Industry of India

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Topic
Introduction Through the Years The Present Situation Indian Aviation SWOT Analysis Challenges and Opportunities Future of the Aviation Industry Conclusion Bibliography

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Introduction
Airline is a very relevant part of the service sector. It provides air transport services for travelling passengers and/or freight. India was one of the first few countries to embrace civil aviation. On 18th February, 1911 the first commercial civil aviation flight took place in India between Allahabad and Naini. This is considered to be the worlds first airmail service and the beginning of civil aviation in India. Since then the ride hasnt been very smooth. It hit rock bottom but also reached its peak. The mistakes of the past are now being rectified to improve its present but the future is still full of surprises. Let us now have a look at how it all began and what opportunities and speed bumps came in its way to make it the 9th largest aviation market in the world and what will it take to become the best.

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Through The Years

The first domestic air route between Karachi and Delhi was in December 1912. It was opened by the Indian Air Services in collaboration with the UK based Imperial Airways as an extension of London-Karachi flight of the Imperial Airways. Without any backing from the Indian government, Tata Sons Ltd., the first Indian airline, started a regular airmail service between Karachi and Madras three years later. During the time of independence, nine air transport companies were carrying both air cargo and passengers in the Indian Territory. To further strengthen the aviation sector of India, the Indian Government and Air India (earlier Tata Airline) set up a joint sector company, Air India International in early 1948. And the nationalization of Indian Airlines (IA) in 1953 brought the domestic civil aviation sector under the purview of Indian Government. Later the government-owned airlines dominated Indian aviation industry till the mid-1990s. The adaptation of Open-sky policy in 1990 and other liberalization policies of Indian Government on aviation sector made the industry undergo a rapid and dramatic transformation. Several private airlines have ventured into the aviation business in succession and many more are about to enter the arena. Today the Indian aviation industry is dominated by private airlines and low-cost carriers like Deccan Airlines, GoAir, SpiceJet etc. And Indian Airlines, the giant of Indian air travel industry, gradually lost its market share to these private airlines.
KINGFISHER JET LITE GO AIR INDIGO AIR INDIA JET AIRWAYS SPICEJET

14% 13%

7%

20%

8% 18%

20%

Major Market Players

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The Present Situation

India's domestic aviation market expansion has been the strongest in the world - tripling in the past five years, according to the International Air Transport Associations (IATA) report. India is currently the ninth largest aviation market in the world, according to the Indian Aerospace Industry Analysis report. The Government's open sky policy has attracted many foreign players to enter the market and the industry is growing in terms of both players and the number of aircrafts. Given the strong market fundamentals, it is expected that the civil aviation market will register a compound annual growth rate (CAGR) of more than 16 percent during 2010-2013. India's domestic air traffic grew at a rate, which is the second highest after Brazil, according to global figures for June 2011, compiled by IATA. The country's domestic traffic grew by 14 per cent in the same period as against Brazil's 15.1 per cent. Indian airlines reported a continuous growth trend and a strong domestic passenger growth rate of 22.3 per cent in July 2011. Passenger traffic has grown at 18 per cent year on year (y-o-y) basis and the year 2010 closed at 90 million passengers both domestic and international. India is the fastest growing aviation market and expected to be within 4-5 big aviation markets by 2020 and 3rd in terms of domestic market after US and China. India is expected to cross the 450 million mark of domestic passengers by 2020. During the last two decades from a fleet of only about 100, the scheduled operators now have reached 435 aircrafts connecting the nation and the world. We also have over 449 airports and airstrips located in India. Private carriers are anticipated to post a combined profit of US$ 350US$ 400 million for the fiscal years 2011-12, as reported by Centre for Asia Pacific Aviation (CAPA) India, in its 2011-12 - Aviation Industry outlook. Private airlines account for almost 75% share of the domestic aviation market. Low Cost Carriers (LCC) have given an opportunity to a lot of people to travel by flight. They are flights that provide fewer comforts at lower costs. They have proven to be a boon in our industry as it is now possible for a lot more people to use air transportation.

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Indian Aviation SWOT Analysis

A strong GDP growth, a young population and the expansion of Indias vibrant middle class is expected to see India achieve some of the fastest growth of any aviation market in the world over the next 20 years. And if costs can be continually brought down and competition remains strong, low fares should serve to stimulate new demand and draw millions of passengers away from the extensive rail network to faster and more comfortable air services. Let us now briefly analyse the Strengths, Weaknesses, Opportunities and Threats of the Indian Aviation Market.

STRENGTH
Liberal Environment: Liberalisation in both domestic and international spheres. No shortage of competition. Carriers are free to operate any domestic routes without seeking permission from the government, and without restriction on pricing. Indian government has pursued an increasingly liberal approach to bilateral air services agreements with key overseas markets, resulting in greater access for foreign carriers. Modern Fleet: Maximum growth has occurred in the past 5 years. The countrys airline operates a relatively young and modern fleet. High quality passenger experience. Improved safety and good operational reliability. High Quality: India's airlines offer a good quality product in each of the operating models in existence. Economic Growth: Continuous increase in GDP has had a direct impact on the growth of the airline industry. Ever growing population with an ever growing business environment.

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WEAKNESSES
Airport Infrastructure: Congestion in the terminals and on the runways delivered a poor experience for the passenger. Forced to operate beyond design capacity. Inefficient operating environment for the airlines. Airport modernisation program is way behind and is delivering late results. Airways Infrastructure: Limited investment that has taken place in improving infrastructure for air traffic management. Leading to expensive aircraft holding patterns, indirect flight paths and suboptimal use of runways. Deep Pockets: India's carriers have accumulated billions of dollars in losses and debt. As a result of the intense competition which has been perpetuated, airlines have struggled to raise fares to breakeven levels. High Cost Structure: India's airlines operate in a relatively high cost environment, primarily due to the punitive taxation structure. The limitations of airport infrastructure also increase costs due to the fact that carriers are unable to schedule fast turnarounds, resulting in reduced aircraft utilisation. Sales taxation on fuels has increased costs by almost 60% of the international benchmark. Skilled Resources: This rate of growth far outstripped the capacity to develop skilled technical and management personnel. There is a lack of in-depth experience and knowledge at all levels. There is an absence of high quality training infrastructure in-country to deliver the resources to support future growth.

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OPPORTUNITIES
Well be looking at opportunities later in greater detail.

THREATS
Terrorism: India has seen frequent terrorist activity in recent years. The country has shown great resilience in bouncing back after each attack; however inbound international traffic in particular is sensitive to such events. Similarly the potential for India to develop as a global traffic and services hub is contingent upon it being seen as a safe and attractive destination. Higher Input Costs: Increasing man power costs due to shortage of technical personnel. High taxes and interest on repayments on foreign currency loans for aircraft acquisition. High taxes on aircraft lease rentals. Gaps In Infrastructure: Airport infrastructure inadequate to support growth. Development plans have not gone according to the way it was expected to. Slow growth in development of infrastructure has created a problem in the development of the aviation industry as a whole.

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Challenges and Opportunities

Last decade has seen the industry grow, Indias at a rapid pace. The industry has seen a dramatic increase in passenger numbers due to the privatization of the airline industry and the introduction of low cost carriers such as airlines Deccan, GoAir, SpiceJet, etc. Economic growth and the increasingly close ties with global companies have led to a dramatic increase in passenger numbers. But still the current global economic downturn and the dramatic rise in fuel prices to reduce our impact on the aviation industry worldwide.

Challenges Faced By the Airline Industry

High aviation fuel (ATF) price: ATF prices are now around 80% of the total cost of ownership of the airline industry. The industrial world continues to fighting with the high price of ATF, the inverse relationship between stock prices and airline fuel prices showed. ATF prices almost doubled last year. Almost all Indian companies are also feeling the heat and are desperate measures such as cutting sections place increased fuel surcharges on the use of electronic tickets and prices of food products to promote in order to reduce their losses. ATF price rise, rupee depreciation is associated with the global recession, has a direct impact on the airline industry in India. The increase in ticket prices have worked against the logic of increasing profits, this may lead to a decline in air travel. Also on the design of efficient motors, aircraft manufacturers like Boeing and Airbus have helped tackle this problem. Overcapacity: Driven by the increase in passenger traffic over the last 3 years all Indian carriers have acquired new aircrafts in order to accommodate the growing demand which will continue in the coming years. While the industry grew by over 40%, almost half of the growth was driven primarily by low prices. Maintaining these low rates is difficult because of excess capacity, especially during the continuation of the global downturn. Huge Debt: In order to raise healthy profits and increase passenger in the face of the airlines large amounts of capital is required from financial institutions and banks in order to finance its aggressive expansion plans. The banks are liberal when it comes to airline loans.The first three airlines Air India, Jet Airways and Kingfisher Airlines now carry a burden of accumulated debt of around 8 billion dollars. Restructuring of this huge leverage is a challenge for the companies in these times of economic downturn.

Poor infrastructure:
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Infrastructure remains a major obstacle for the airline industry in India today, which was aggravated further due to the excess capacity created in good times. Maintenance and air traffic control (ATC) infrastructure is completely inadequate, if the industry is expected to grow further. While steps are taken on this front in order to upgrade the major airports of Mumbai, Delhi and Hyderabad there still remains security concerns. Attracting private sector investment will go a long way in the development and maintenance of the infrastructure. Regional connectivity: Although the industry is burdened with excess capacity, regional connectivity continues to be poor, mainly because of lack of infrastructure. Industry experts speculate that the increase in regional networking, concentrating instead in the subways and the reallocation of the current fleet of routes where the demand to help airlines manage their excess capacity. High labour costs, shortage of skilled labour, rapid fleet expansion and intense price competition are some more reasons that this industry faces.

Opportunities Available
Role of Indian Aviation Industry in GDP Aviation industry has played a phenomenal role in the Gross Domestic Product (GDP) of India. The GDP of India has increased over 8% following the growth of the Indian economy. With large number of domestic and international airlines operating in India, the country has become one of the most sought after location for commercial and trade activities. It also has a good scope for employment opportunities. Weve already looked at a few of the opportunities available. Let us look into a few more now. Market Growth: Continuous increase in population and businesses has lead to an increase in demand for air transportation. Freight carriage in India has grown at the rate of 15% in the past 2 years. India has only just scratched the surface of the potential for the aviation sector. It is not difficult to see the expansion potential from such a low base as economic growth continues apace. Geographical Location: India is ideally positioned as a major aviation hub at the crossroads between Europe, the Middle East and Asia Pacific.

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New Markets: Increase in airports and increase in the number of airlines has helped connect to various parts of the world. This leads to increased competition, low prices and growth in demand. Lower Costs, Higher Qualities: The improvements in airport and airspace infrastructure, the development of indigenous training and maintenance facilities and the potential for fiscal reform, all point to the potential for Indian aviation to increasingly operate in a lower cost, higher quality and more efficient manner. Expanding Tourism Industry: This ever growing tourism industry has had a direct impact on the aviation industry. A continuous demand in domestic and international tours has helped increase the demand for air transportation. Foreign Investment: Due to liberalisation of the aviation sector in India private companies are investing in this industry at an unimaginable rate. Government Initiatives: Air traffic control (ATC) operations will start functioning as a new entity from April 2012. At present, the air navigation service comes under the Airports Authority of India (AAI), the state-owned airport operator. India has also signed the Bilateral Aviation Safety Agreement (BASA) with the USA. The Government has taken various steps towards structural policy reforms and is coming out with new policies which are liberal and will encourage public-private partnerships (PPP):

Government allows 100 per cent foreign direct investment (FDI) via the automatic route for the green field airports. Also, foreign investment up to 74 per cent is permissible through direct approvals while special permissions are required for 100 per cent investment Private investors are allowed to set up general airports and captive airstrips while maintaining a distance of 150 km from the existing ones. Complete tax exemption is also granted for 10 years About 49 per cent FDI is allowed for investment in domestic scheduled passenger airlines and investment up to 100 per cent by non-resident Indians (NRI) via the automatic route. FDI up to 74 per cent is allowed for nonscheduled and cargo airlines.

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Future of the Aviation Industry

Passenger traffic growth in the Indian domestic market is expected to continue through October 2011, with domestic airlines being expected to operate almost 30 per cent more flights as compared with October 2010 levels, marking the largest year-on-year increase in flights. The winter schedule will reportedly see 14,750 weekly domestic services as airlines expand their domestic networks and schedules, especially in the southern part of the country. The low-cost carrier recently announced its regional service with Hyderabad as hub. Government incentives could motivate more airlines to enter into regional routes. The AAI (Airports Authority of India) has already agreed upon various proposals to increase connectivity across the smaller towns. The AAI (Airports Authority of India) has recently been on a modernisation drive to set up around 35 non-metro airports and two major airports in Kolkata and Chennai. The company manages a string of 125 airports in the country. The Indian aviation sector is a major economic driver for prosperity, development and employment. Massive investments in airport infrastructure have led to world class airports which have become the symbol of Indias growth story. India is poised to emerge as the third largest aviation market in the world by the end of this decade, according to Civil Aviation Secretary Dr. Nasim Zaidi. The sector with a growth of 18 per cent in domestic market is expected to generate approximately 2.6 million jobs in the next one decade, added Zaidi. The Vision 2020 announced by the Ministry of Civil Aviation conceives of building infrastructure to support 280 million customers.

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Conclusion
The Indian Aviation Industry is among the worlds fastest growing industries. It has undergone huge transformation following the liberalization of the aviation industry in India. Once owned by the Government, the aviation sector of India is now privately owned with full service airways and affordable carriers. Earlier viewed as a costly means of transportation, afforded by few, air travel is now cheap and can be availed by many. This industry is going to help take India to the world literally and figuratively.

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Bibliography
http://blog.mapsofindia.com/2010/11/19/indian-aviation-industry-how-high-is-india-flying/ http://www.luggageguides.com/articles/2525/indian-aviation-industry.html http://www.ibef.org/industry/aviation.aspx http://www.google.co.in/search?q=opportunities+aviation+industry+in+india&btnG=Search+Books &tbm=bks&tbo=1 http://technazar.com/?p=527 http://www.entrepreneurswebsite.com/2011/03/09/aviation-industry-of-india/ http://business.mapsofindia.com/aviation/ http://www.centreforaviation.com/analysis/capa-india-expects-private-indian-carriers-to-reportusd350-400-million-profit-49480 http://www.centreforaviation.com/profiles/countries/india http://indiaaviation.aero/news/index.php?option=com_content&task=view&id=3431&Itemid=59 http://www.cedarmesa.org/challenges-faced-by-indian-airline-industry http://www.ibef.org/artdispview.aspx?in=5&art_id=29909&cat_id=503&page=2

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