AVIATION INDUSTRY IN INDIA

AS
SERVICE INDUSTRY

SUBMITTED TO: MR. RAJAN ARORA

SUBMITTED BY: MAHESH KUMAR YADAV
 TABLE OF CONTENT

1) INTRODUCTION
2) PRESENT STATUS
3) OVERVIEW
4) AVIATION MARKET FORECAST
5) MAJOR CHALLENGES AHEAD
6) ROAD AHEAD
7) COMPARISON WITH RAILWAYS
 INTRODUCTION

KNOWING AVIATION INDUSTRY

The Indian aviation industry is one of the fastest growing aviation industries in the
world with private airlines accounting for more than 75 per cent of the sector. With
a CAGR at 18 per cent and 454 airports and airstrips in place in India, of which 16
are designated as international airports, Union Civil Aviation Minister Praful Patel
has stated that aviation sector will witness revival by 2011. The last quarter of
2009 has also raised some hopes of revival in the country.

With an increase in traffic movement during December 2009 and increase in

revenues by almost US$ 21.4 million, the Airports Authority of India seems set to
accrue better margins this fiscal, as per the latest estimates released by the Ministry
of Civil Aviation. This is being primarily attributed to increase in the share of
revenue from Delhi International Airport Limited (DIAL) and Mumbai
International Airport Limited (MIAL) along with increase in airport charges. The
number of passengers carried by domestic airlines during the month of October
2009 was 4.02 million as compared to 3.56 million in September 2009, according
to the previous monthly report released by the Ministry of Civil Aviation.
 AVIATION INDUSTRY IN INDIA

India is one of the fastest growing

aviation markets in the world. With
the liberalization of the Indian
aviation sector, the industry had
witnessed a transformation with the
entry of the privately owned full
service airlines and low cost carriers.
As of May 2006, private carriers
accounted for around 75% share of
the domestic aviation market. The
sector has also seen a significant
increase in number of domestic air
travel passengers. Some of the factors
that have resulted in higher demand
for air transport in India include the
growing middle class and its
purchasing power, low airfares
offered by low cost carriers, the
growth of the tourism industry in
India, increasing outbound travel
from India, and the overall economic
growth of India.

In addition to these factors, the emphasis on modernization of non-metro airports,

fleet expansion by airlines, service expansion by state owned carriers, development
of the maintenance, repair and overhaul (MRO) industry in India, opening up of
new international routes by the Indian government, establishment of new airports
and renovation and restructuring of the existing airports have added to the growth
of the industry.
 OVERVIEW

CURRENT AVIATION INDUSTRY

Challenges that faced airlines and the aviation industry as a whole over the last
Few years, has forced the industry to rethink how they do business on both a
Financial and operational level. Most airlines have faced up to these challenges,
And as a result have been remarkably successful at turning around ailing
Companies, in many cases completely reinventing themselves. Although high
Fuel prices are affecting profitability; airlines are now in a much stronger position
Then 2000, due to unprecedented demand for air travel.

The notion of restructuring and cost cutting has been embraced wholeheartedly
By European and Asian airlines as the only viable way to secure their long-term
Security. North American airlines have been slower to face up these challenges,
And face major cost cutting exercises in order to reach necessary levels of
Efficiency. There is no doubt that the aviation industry has come through one of
the toughest periods in over 30 years. The industry is now in an excellent
position to face the challenges ahead
 AVIATION MARKET FORECAST

Economic recovery coupled with the steadying of world markets, has resulted in
The return of business confidence and corporate investment in the aviation
Industry. The political environment has also begun to slowly stabilize; this has
resulted in high level growth in the demand for worldwide leisure travel. This
resulted in much stronger levels of air traffic in 2004 than had been forecast.
Over the 2004 – 2023 period world passenger levels is forecast to increase by
5.3% year on year. Companies such as boeing and airbus will reap the benefits
Of this growth. Traffic growth coupled with fleet renewal, will require the delivery
Of approximately 16,600 new passenger aircraft. Freight traffic is also expected
to grow at 5.9% per year, throughout the 2004 – 2023 period. Traffic growth and
Fleet demand will result in the demand 3,100 freighter deliveries of which 23%
will
Be purpose built freighters.
MAJOR CHALLENGES FOR AVIATION INDUSTRY

The growth in the aviation sector and capacity expansion by carriers has posed
challenges to aviation industry on several fronts. These include shortage of
workers and professionals, safety concerns, declining returns and the lack of
accompanying capacity and infrastructure. Moreover, stiff competition and
rising fuel costs are also negatively impacting the industry.

1. Employee shortage: There is clearly a shortage of trained and skilled

manpower in the aviation sector as a consequence of which there is cut-throat
competition for employees which, in turn, is driving wages to unsustainable
levels. Moreover, the industry is unable to retain talented employees.
2. Regional connectivity: One of the biggest challenges facing the aviation
sector in India is to be able to provide regional connectivity. What is hampering
the growth of regional connectivity is the lack of airports.

3. Rising fuel prices: As fuel prices have climbed, the inverse relationship
between fuel prices and airline stock prices has been demonstrated. Moreover, the
rising fuel prices have led to increase in the air fares.

4. Declining yields: LCCs and other entrants together now command a market
share of around 46%. Legacy carriers are being forced to match LCC fares,
during a time of escalating costs. Increasing growth prospects have attracted &
are likely to attract more players, which will lead to more competition. All this
has resulted in lower returns for all operators.

5. Gaps in infrastructure: Airport and air traffic control (ATC) infrastructure is

inadequate to support growth. While a start has been made to upgrade the
infrastructure, the results will be visible only after 2 - 3 years.

6. Trunk routes: It is also a matter of concern that the trunk routes, at present,
are not fully exploited. One of the reasons for inability to realize the full potential
of the trunk routes is the lack of genuine competition.

7. High input costs: Apart from the above-mentioned factors, the input costs are
also high. Some of the reasons for high input costs are:-
Withholding tax on interest repayments on foreign currency loans for aircraft
acquisition. Increasing manpower costs due to shortage of technical personnel.
THE ROAD AHEAD

Investment opportunities of US$ 110 billion are being envisaged up to 2020 with
US$ 80 billion in new aircraft and US$ 30 billion in development of airport
infrastructure, according to the Investment Commission of India.

 Indian aerospace companies are growing too. Hindustan Aeronautics

Limited (HAL) was ranked 40th in Flight International's list of the top 100
aerospace companies last year.
 Aircraft manufacturing major, Boeing is in the process of setting up the US$
100 million proposed Maintenance Repair Overhaul (MRO) facilities in
Delhi. Air India is also in the process of launching Cargo Hub in Nagpur
while Deccan Aviation has already started one from the city.
 North India's first private sector Greenfield international airport,
Aerotropolis, will soon come up near the industrial hub of Ludhiana in
Punjab. Aerotropolis will be built with an allocation of almost US$ 3.77
billion covering an area of 3000 acres by Messrs Bengal Aerotropolis which
has partnered Change International Airport of Singapore.
 Punjab will also become the first state in the country to set up a
Maintenance, Repair and Overhaul (MRO) hub at Ropar, 45 km from
Chandigarh, for the civil aviation sector at a cost of US$ 6.4 million
 The country's first SEZ dedicated to the Aerospace Hattaragi, 37 km from
Belgaum, in Karnataka was also inaugurated. The SEZ is spread over 300
acres of land and will come up with an investment of US$ 32.06 million in
November 2009.
 An Aerospace and Precision Engineering Special Economic Zone with a
proposed investment of US$ 641.2 million has also come up at Adibatla,
Ranga Reddy district, Andhra Pradesh.
 LOW COST AIRLINES VS RAILWAYS

The continuing fare tussle between the Railways and the

Low-cost airlines has changed the contemporary scenario for
the Indian traveller. A ticket on India's low-cost carrier (LLC)
has made flying, once confined to the rich and elite, an
affordable reality for the hordes of Indians travelling across
the country.
It has taken some time for the low-cost airline industry to
carve a niche for themselves, but the wallet-friendly LLCs are
here to stay.
When Air Deccan introduced airfares almost equalling the
AC II-tier train fares, the response from the leading domestic
airlines like Indian Airlines, Jet Airways and Sahara Airlines
was immediate. Slashed rates and Advanced Purchase
schemes (Apex) swiftly began to take shape, resulting up to
30 to 40 per cent slashed fares for apex fares compared with
the original prices.