INDIAN AVIATION INDUSTRY

AVITION SECTOR IN INDIA

Sector structure/Market size The Indian aviation industry is one of the fastest growing aviation industries in the world. The government's open sky policy has led to many overseas players entering the market and the industry has been growing both in terms of players and number of aircrafts. Today, private airlines account for around 75 per cent share of the domestic aviation market. India is the 9th largest aviation market in the world. According to the Ministry of Civil Aviation, around 29.8 million passengers traveled to/from India during 2010, an increase of 30 per cent on previous year. It is predicted that international passengers will grow upto 50 million by 2015. Further, due to enhanced opportunities and international connectivity, 69 foreign airlines from 49 countries are flying into India.

Indian Aviation liberalization

1953: Nationalization of Aircraft Industry Consequently, assets of 9 existing companies transferred to two entities in the aviation sector controlled by the Government in a) Indian Airlines, primarily serving domestic sectors b) Air India, primarily serving the sectors international 1986: Private Sector Players permitted as Air taxi operators Players including Jet, Air Sahara, NEPC, East West, Modiluft,etc started service 1994: Private Carriers permitted to operate scheduled services Six operators granted license however only Jet and Air Sahara able to service 2003: Entry of low cost carriers Air Deccan, Spice Jet, Go Air, Indigo Implication Implication Aviation became a preferred mode of transport for elite Aviation has become affordable with check fares and class discount schemes Restricted Growth of Aviation Industry Various Operators with different business model High Cost structure Huge growth foreseen in the Aviation Industry Underdevelopment of infrastructure

Many policies supporting the infrastructure are now in place.

74 per cent FDI is permissible in cargo and non-scheduled airlines. 100 per cent FDI under automatic route is permissible for greenfield airports.

49 per cent FDI is permissible in domestic airlines under the automatic route, but not by foreign airline companies. 100 per cent equity ownership by Non-Resident Indians (NRIs) is permitted.

For existing airports, FDI up to 74 per cent is permitted through automatic approvals and up to 100 per cent through special permission (from FIPB). Private developers allowed setting up of captive airstrips and general airports 150 km away from an existing airport.

100 per cent tax exemption for airport projects for a period of 10 years.

Growth Rate

24% annual growth

Low cost services

Major full-service carriers have converted around half their capacity into low-cost services, which has resulted in bringing down the average fares of airlines as a whole by about 30 per cent and thereby increasing demand from the domestic passenger market. Kingfisher Airlines and Jet Airways have converted around half their capacity into low-cost services. While, government carrier Air India plans to launch a low-cost model in the domestic skies. It already has a low-cost airline called Air India Express which operates on international routes. Jet Airways has also increased the number of low-cost seats in the system by around 50 per cent. Low cost carriers (LCCs) such as Indigo and SpiceJet have increased the total number of seats by 40 per cent and 53 per cent, respectively, in the past year. SpiceJet is also working on a plan to start international operations next year, making it the third private Indian carrier after Jet Airways and Kingfisher to fly overseas.

Some Facts
In the present scenario around 12 domestic airlines and above 60 international airlines are operating in India The growth of airlines traffic in Aviation Industry in India is almost four times above international average Aviation Industry in India have placed the biggest order for aircrafts globally Aviation Industry in India holds around 69% of the total share of the airlines traffic in the region of South Asia

Domestic Airlines
            Air India GoAir Airlines IndiGo Airlines Jagson Airline Jet Airways Jet Airways Konnect Kingfisher Airline Paramount Airways SpiceJet Airlines JetLite (Air Sahara) Kingfisher Red (Air Deccan) MDLR Airlines

Players
Taking Indians To Places
   State owned domestic airlines ((earlier Tata Airline) ) Formerly known as Indian Airlines GoI s plan to merge Air India and Indian into one giant airline consisting of 130-140 aircraft

  

Regular airline offering normal economy and business class seats. 300 flights, 43 Indian destinations Does not own its brand. Brand owned by Jetair Enterprises Ltd. a separate company substantially owned by Naresh Goyal

Its hub is Chennai International Airport. Mainly targeting business travellers The airline started operations in October 2005

 

Began on 3 Dec 1993with two Boeing 737-200 aircrafts as Sahara Airlines Initially services concentrated in northern India Rebranded as Air Sahara on 2 October 2000.

Players
Taking Indians Across India
      Low-cost airline (LCC) Began in May 2005 Entered with Rs. 99 fares for first 99 days Offering low everyday spicy fares Aim: Compete with Indian Railways AC sgment fleet of 6 Boeing 737-800 with 189 seats.       GoAir The People s Airline established in June 2004 LCC promoted by The Wadia Group GoAir FreeFares Relatively small player as compared to other LCCs Initial flights in southern & western India with the first nine A320s

    

India's first low-cost carrier It was started by Captain G. R. Gopinath Started air operations in 2003 It was known popularly as the common man's airline Connects 55 cities within India

  

Services started in May 05 Initially operates only on domestic routes but now in overseas also. Owned by United Beverages Group under the leadership of Vijay Mallya

Market Share
Jet Airways and Jet Lite (previously 27.7% Air Sahara) Kingfisher Airlines and Kingfisher Red (previously Air Deccan) Air India (previously Indian Airlines) IndiGo SpiceJet GoAir Paramount Airways 20.7% 18.6% 13.6% 12.4% 5.4% 1.5%

Jet Airways IndiGo Paramount Airways

Kingfisher Airlines SpiceJet

Air India GoAir

Known Factors Influencing Growth Rate

Increased Inward and outward tourism Increased competition has driven down prices and margins Additional purchasing power due to rapidly rising real incomes amongst the middle class Increased business trade due to the rapidly growing economy and free trade agreements with neighbouring countries Favourable Government policies and tax reforms

Global v/s Indian Scenario

At the macro-economic level Asia Pacific growth is impressive. India and China are growing between 8 and 10% each year. International passenger traffic grew 7.6% where as Asian airlines were slower at 6.3% Asian freight traffic grew by 4.2% in comparison to global growth of 3.2% Globally airlines lost US$6 billion in 2005 and in Asia it is a mixed picture. Some carriers are among the most profitable. Others however are struggling but still the best performance in the world India has moved from 2 state-run airlines to a vibrant industry with more than 10 players. Indian carriers stole the show in Paris with US$12 billion of orders Huge potential still to be tapped in Indian markets. Only 40 million people travel by air 4% of the population

Many policies supporting the infrastructure are now in place.

74 per cent FDI is permissible in cargo and non-scheduled airlines. 100 per cent FDI under automatic route is permissible for greenfield airports.

49 per cent FDI is permissible in domestic airlines under the automatic route, but not by foreign airline companies. 100 per cent equity ownership by Non-Resident Indians (NRIs) is permitted.

For existing airports, FDI up to 74 per cent is permitted through automatic approvals and up to 100 per cent through special permission (from FIPB). Private developers allowed setting up of captive airstrips and general airports 150 km away from an existing airport.

100 per cent tax exemption for airport projects for a period of 10 years.

FDI Policy
The Reserve Bank of India (RBI) announced that foreign institutional investors might have shareholdings more than the limited 49% in the domestic sector. Airports Foreign equity up to 100% is allowed by the means of automatic approvals pertaining to establishment of Greenfield airports Foreign equity up to 74% is allowed by the means of automatic approvals pertaining to the existing airports Foreign equity up to 100% is allowed by the means of special permission from Foreign Investment Promotion Board, Ministry of Finance, pertaining to the existing airports 100 per cent tax exemption for airport projects for a period of 10 years. Air Transport Services Up to 49% of foreign equity is allowed by the means of automatic approvals pertaining to the domestic air transport services Up to 100% of NRI investment is allowed by the means of automatic approvals pertaining to the domestic air transport services 74 per cent FDI is permissible in cargo and non-scheduled airlines.

Foreign companies can explore various modes of entry into the Indian market

At Present AAI manages 128 airports which includes:

- 15 International airports - 8 Custom airports - 25 Civil Enclaves - 80 Domestic airports

Major Airports

Air Services
India has bilateral Air Services Agreements with 103 countries. Recently, new Air Services, Agreements have been signed with Mexico and Chile. During the period, 1st July, 2007 to 30th June, 2008 bilateral talks were held with 21 countries. Additional capacity entitlements and new points of call were agreed with Uzbekistan, Malaysia, IBSA, Maldives, Hong Kong, Saudi Arabia, Oman, Bangladesh, Pakistan, Ethiopia, China, Thailand, Belgium and Germany with a view to optimally utilizing our bilateral entitlements. Indian scheduled carriers with at least five years continuous operations in the domestic sector and fleet size of 20 aircraft have also been permitted to operate to many overseas destinations.

Road Ahead
The Indian aviation sector is likely to see clear skies ahead in the years to come. Passenger traffic is projected to grow at a CAGR of over 15 per cent in the next 5 years. The Vision 2020 statement announced by the Ministry of Civil Aviation, envisages creating infrastructure to handle 280 million passengers by 2020. Investment opportunities of US$ 110 billion envisaged up to 2020 with US$ 80 billion in new aircraft and US$ 30 billion in development of airport infrastructure. Associated areas such as maintenance, repair and overhaul (MRO) and training offer high investment potential. A report by Ernst & Young says the MRO category in the aviation sector can absorb up to US$ 120 billion worth of investments by 2020. Aerospace major Boeing forecasts that the Indian market will require 1,000 commercial jets in the next 20 years, which will represent over 3 per cent of Boeing Commercial Airplanes forecasted market worldwide. This makes India a US$ 100 billion market in 20 years.