Civil Aviation Industry - Indian Overview

Indian Overview Of
Civil Aviation Industry (June 08)

ISIEmergingMarketsPDF in-iimbemis from 115.113.11.239 on 2011-02-09 12:07:01 EST. DownloadPDF.
4th & 5th Floors, Astral Heights, Road No. 1, Banjara Hills, Hyderabad-500034, India
Tel: +91-40-23430203-05, Fax: +91-40-23430201, E-mail: info@cygnusindia.com
Website: www.cygnusindia.com
Branches: Ahemdabad: 079 - 30027030 Bangalore: 080-41311229 Chennai: 044-42122168, 42122819
Hyderabad: 040-23430203-05 Kolkata: 033-24192540/41 Mumbai: 022-22870612/14
New Delhi: 011-41520651/52 Pune: 020-64013392
Downloaded by in-iimbemis from 115.113.11.239 at 2011-02-09 12:07:01 EST. ISI Emerging Markets.
Civil Aviation – Indian Overview
Indian aviation industry began with the birth of Tata Airlines, through the business relationship
between Mr. Nevill Vintcent, a Royal Air Force pilot and Mr. JRD Tata, the first Indian to get an
A-license. The Tata Airlines rechristened as Air India in August 1946. In 1953, the Air
Corporation Act nationalized all existing airline assets and established the Indian Airline
Corporation and Air India International for domestic and international air services respectively.
These two companies enjoyed monopoly power in the industry until 1991, when private airlines
were given permission to operate charter and non scheduled services under the ‘Air Taxi’
scheme to boost tourism. Under the ‘Air Taxi’ scheme they could not publish time schedules, or
issue tickets to passengers. The Air Taxi Scheme was introduced in 1986 to boost tourism and
augment domestic air services. As a result, a number of private players including Jet Airways,
Air Sahara, Modiluft, Damania Airways, NEPC airlines and East West Airlines commenced
domestic operations. Subsequently in 1994, following the repeal of the Air Corporation Act,
private players were permitted to operate scheduled services. However, the carriers with more
efficient operations and strategies were managed to survive and by 1997, only Jet Airways and
Air Sahara (Now, it is JetLite) made the cut from the original groups.
The entry of India’s first no-frill airlines, Air Deccan, in late 2003 truly revolutionized the Indian
airline industry. Since then, Spice Jet (restructured Royal Airways and Modiluft), Go Airways
and Kingfisher Air have also entered the industry. Another entry is the Paramount Airways as an
‘all business class’ airline. As far as international flight services are concerned, govt permitted
the Indian scheduled carriers in December 2004, with a minimum of 5 years of continuous
operations and a minimum fleet size of 20 aircraft to operate scheduled services to internationals
destinations. On January 11, 2005 the government designated four scheduled Indian carriers (Air
India, Indian Airlines, Jet Airways and then operational Air Sahara) to operate international
services to and form Singapore, Malaysia, Thailand, Hong Kong, the UK and the USA.
The civil aviation industry has made substantial contribution for development of trade and
tourism in India, providing easier access to the places having natural beauty. It is acting as a
driver for the growth and economic prosperity of nation.
2.1 Overview of Indian Civil Aviation Industry
2.1.1 Competitive Position of Airlines
Major players in Indian civil aviation industry have the following fleet size, as on June, 2008
(table 2.1). Table 2.1 gives a comparative study various Indian airliners on selected parameters.
Table 2.1: Comparative Study of Indian airliners

Company Revenu Fleet size (in Domestic Employee
e (Rs. numbers) as on June, Market strength
billion) 2008 share (%)
during as on June,
2007-08 2008
NACIL 92.51 Air India has 102 Indian 33,000 (June,
(2005- aircrafts (66 orders) Airlines 2008)
06) apart from 6 cargo (14.7)
carriers. Indian has 61
flights.
Jet 27.27 84 22.7 10,017 (March,
Airways in-iimbemis from +115.113.11.239
ISIEmergingMarketsPDF (44 orders) = on
1282011-02-09 12:07:01 EST.
2007)
DownloadPDF.
JetLite 15.05 25 +(10 orders)=35 7.1 2200 (July, 2007)

Kingfisher NA 44 14.5 NA
+(107orders)=151
Deccan 17.75 43 14.6 3384 (March,
2008)
SpiceJet 6.40 19 10.3 2400
IndiGo NA 19 10.3 NA
GoAir NA 5 4.4 NA
Paramount NA 5 1.3 Approximately
airways 1000 (as on June,
2008)
Source: Company website and Wikipedia
Note: NA- Not Available
2.1.2 Carrier-wise Passenger Traffic

The passengers carried by various Indian airliners during 2006, 2007 and Jan-Mar, 2008 are
detailed in Table 2.2. Except Jet Airways, all other airlines shown increase in the passenger
traffic from 2006 to 2008. Another notable trend is significant increase in passenger traffic in
LCCs like Deccan, SpiceJet, Paramount, GoAir and IndiGo during 2007 compared to 2007.
2.1.3 Factor Inputs for the Aviation Industry Table 2.2: Carrier-wise Passenger
Airfares in India are one of highest among the world. Traffic Data (2006-2008) in million
Jan-
Labour cost tops the list of airlines costs with 35% Mar,
share of total cost, followed by the other costs (32%), Carrier 2006 2007 2008
Indian 6.90 8.13 1.64
fuel cost (12%) and passenger traffic commissions Jet
Airways 10.03 9.68 2.54
(10%) during 2005. Jetlite 2.82 3.14 0.80
Deccan 5.88 7.34 1.64
Kingfisher 2.79 5.23 1.63
SpiceJet 2.22 3.76 1.16
Paramount 0.23 0.56 0.14
2.1.4 Business Models of LLC and FSC Carriers in GoAir 0.91 1.79 0.49
IndiGo 0.41 3.24 1.15
India
Indus Air - 0.01 -
The concept of LCC was accepted by the Indian Total 32.17 42.85 11.19
aviation players from 2003; however this concept was Source: DGCA
originated on early 1970s in US and by

Fig 2.1: Factor Inputs for the Aviation
1990s in Europe. The term originated Industry (2005)
within the airline
ISIEmergingMarketsPDF industry
in-iimbemis from referring to on 2011-02-09 12:07:01 EST. DownloadPDF.
115.113.11.239
Passenger Interest Landing Advertising
airlines with a lower operating cost foods 3%
fees &
4% 2% promotion
structure than their competitors. Passenger 2%
traffic
commissio Labour
n 35%
2.1.4.1 Business Model of LCCs 10%

Fuel
Others
12%
Indian LCCs have many characters that are 32%
common to global LCCs, as discussed in Source: www.foolonahill.com
Chapter 1. It is obvious that the major cost

of flying is attributed to fuel, maintenance and salaries. In addition there are parking and landing
charges as well, which are quite high. Therefore, Indian LCCs are focusing on these parameters
to achieve efficiency.
It was Capt. G R Gopinath of Deccan Aviation, who initiated the concept of LCCs in India.
Airlines like SpiceJet, Paramount Airways, IndiGo and GoAir followed the suit. Air Deccan was
also the pioneer in cost cutting measures. The business model of Deccan can be, unarguably, one
of best LCC business model, which is discussed below.
Cheaper ticket in price-sensitive Indian market
Air Deccan (now, Deccan) was the first airlines in the Indian Aviation Industry, who came up
with the concept of cheap tickets. Initially they came out with Rs. 500 tickets and after that they
came out with free tickets, only passenger has to pay the other taxes for the tickets. Deccan
issued around 1.1m tickets. Deccan are the first airline to offer fares from Re 1/- to Rs 500/-.
Deccan follows a dynamic pricing strategy, wherein pricing is a function of demand and supply
so the earlier one books the lesser one pays. The cheaper tickets gave the Deccan a big start in
the price- sensitive Indian market. Its attractive pricing has succeeded in broadening the air
travellers segment also.
Ticketing system
Deccan is also the pioneer in e-tickets in India. Deccan incurs 7-8% costs on ticket sales, while
competitors incur between 25 and 28%. The higher percentage of selling costs in the case of
legacy airlines are due to higher travel agent commissions, cost of credit, printing regular airline
tickets, etc. A typical large legacy airline can have outstanding payments from its global network
of travel agents of over Rs.10 billion at any given time. This leads to enormous costs of funds,
reconciliation issues with travel agents, need for a battery of accountants to do this
reconciliation, as well as need for physical reconciliation of airline ticket counterfoils. All this is
obviated in the case of Deccan, where the ticket is only a printout from the Internet, which the
passenger or travel agent is expected to download. All ticket sales ultimately converge on the
Internet. The airline has not issued a single paper ticket. All the revenues from these sales flow
instantly into the airline's coffers as cash, since the airline does not offer any credit to travel
agents.
Deccan also tied up with Citibank, ICICI Bank, etc. to handle payment through credit cards for
tickets that were purchased through the Internet using Deccan's website. Phone bookings were
done with the provision of a PNR number to customers. On the production of these numbers at
designated travel agencies, customers can get e-tickets in exchange for on-the-spot payments.
Passengers who do not have a credit card can make phone bookings and collect their e-tickets
within 24 hours from any of the several thousand e-ticket collection centers across the country.
These collection centers retain 2.5% commission for their services, and the rest accrues to
Deccan. The computer generates the e-ticket only after crediting the payment to the company. In
fact, travel agents maintain a cash deposit with Deccan to facilitate such transactions, and keep
topping up the account as it gets depleted in the process of generating tickets. Structurally, this is
an antithesis of the conventional model for air travel. Such transactions between the travel agents
and Deccan do not go through the payment gateway. Both share the resulting savings. The
company also has several hundred corporate accounts, which operate in a similar manner. The
cheapest tickets are obviously for those who go direct to the Internet.
The airlines has seven thousand ticket distribution channels include grocery stores, India Post,
HPCL petrol pumps, Reliance Web-worlds, mobile ticket vans, travel agents, and travel websites
apart from the traditional methods.
Under the Dynafares scheme, the airline opens bookings for any flight 90 days in advance with a
starting fare of Rs.500 (plus taxes). This has been extended to days before the date of flight
departure. The fares keep moving up closer to the date of departure.
Through its Internet

ISIEmergingMarketsPDF based system,
in-iimbemis Deccan can on
from 115.113.11.239 dynamically
2011-02-09 track loadEST.
12:07:01 factors and adjust
DownloadPDF. fares on
an on-line basis. It just takes one broadcast on the Internet for Deccan to announce its fare for a
particular flight on a particular day, and this is immediately picked up by passengers who are
constantly tracking the company's website for lower fares. As the departure time of a flight
comes closer, if the flight is relatively empty, the airline can offer a special fare to enthuse
potential customers to go for the special fare. All revenues and costs of every flight are
calculated on a real-time basis, giving concerned managers a flight-by-flight pulse of the airline's
top and bottom lines, facilitating dynamic decision-making.
No-Frills approach
Deccan follows a 'no frills' approach on all its flights. There are no in-flight services like other
FSC airlines but one can buy food or a drink on-board. All seats are economy class and there is
no prior allocation of seats. The airline offers its cabin crew a 10% commission on all beverages
and food that they sell to passengers on the flight. Usually a single stewardess manages the
aircraft cabin and sells snacks to the passengers for a price.
Revenue Optimization
The company has implemented a number of innovative measures to maximize its revenues. Its
Airbus 320 carries 180 passengers against 154 carried by Indian. It has no executive class and
uses space on the aircraft frugally, leading to a straight 20% advantage over its competitors in
terms of enhanced seating capacity. Turnaround time of Indian Airbus is 50 minutes while for
Deccan it is 30 minutes. This allows Deccan to keep its aircraft in the air for up to 12 hours a day
against Indian’s 9 hours. The turnaround time for Deccan's ATRs is 15 minutes and can be
reduced even further. Typically, they have quick turn around time, which means higher aircraft
utilization, online ticket reservation to save costs on commission to agents, reduction in flight
services - no free meals, no newspapers and no frequent flier programs either.
The aircraft are used as an advertising medium. It sells advertisement space on seats, cabin
interiors, as well as on the body of the airplane.
Outsource non-core activity

Deccan resorts to extensive outsourcing of non-core activities that helps in its cost-containment
strategies. Given that Deccan operates out of many small airports, the traffic levels are very low.
In many of these places the company may have just one flight a day, requiring ground crew to
work for a couple of hours a day. It does not make sense to have its own staff there and keep
them idle for most of the day. It is here that outsourcing is a very effective way of controlling
costs.
In some of the areas like aircraft overhaul or repair, the company has subscribed to schemes such
as 'fly by the hour' offered by specialist third party agencies that keep spares, etc. and take
responsibility for the overhaul and repair activities. Deccan only pays a pre-agreed charge, akin
to that of an insurance policy. The company however keeps its own staff for the routine day-to-
day maintenance.
2.1.4.2 The Business Model of FSC in India

Typically airlines like NACIL and Jet Airways qualifies for FSC category in India. The business
model of FSCs is detailed below.
Ticketing
FSCs offers e-tickets, which can be bought through booking agents, booking counters at airports
and internet booking.
Quality in-flight entertainment

The FSCs offer quality in-flight entertainment. For example, in Air India, seats in business class
include an 18" Personal Television (PTV) with Audio Video on Demand (AVOD). These
features are available only on the Boeing 777-200LR, Boeing 777-300ER and some Boeing 747-
400. All seats on Airbus A321, Boeing 777-200LR, Boeing 777-300ER, some Boeing 747-400
and all Airbus A319 aircraft feature PTVs with an AVOD in-flight entertainment system with a
widescreen LCD touch screen. Other aircraft such as the Airbus A310, Airbus A320 and Boeing
747-400 aircraft do not have individual seatback entertainment; they only have a central
projection screen.
In case of Jet Airways, its first class features a 23-inch Widescreen LCD monitor with audio
video on-demand (AVOD), in seat power supply, and USB ports etc. Jet Airways is the first
airline in India to have fully-enclosed first class suites on its aircraft; each suite has a closeable
door, making for a private compartment. It is the 3rd best First Class in the world as conducted
by Skytrax. The only airlines that surpass Jet in First Class are Singapore Airlines and Emirates
Airline.
Seating
Seats are allotted at time of buying of ticket. The airlines have First Class, Executive Class and
Economy Class like Air India. The business class seats are in a shell, which allows the seat to
turn into a bed. Economy class seats are red in colour and feature 32" seat pitch. Jet Airway’s
Boeing 777-300ER aircraft feature three classes of service: First, Première (Business), and
Economy. The Airbus A330-200 aircraft feature two classes: Première and Economy. All A330-
200 and 777-300ER aircraft have this feature. The 737-class aircraft are configured differently.
Jet Airways has a 5 star rated Business and First Class, and is in the top 5 business class
reviewed by Skytrax. Economy class has been reviewed as a 4 star product by Skytrax.
Frequent flyer programme
The FSC offers frequent flyer programmes to its members. Air India offers the frequent flyer
programme called ‘Flying Returns”. Aside from flight mileage, members receive seat discounts,
class upgrades, free hotel stays, and other benefits. Jet Airways has its freqnet flyer programmer
under the name ‘Jet Privilege”.
Airport lounges
FSC operates special lounges in different airports. For example, Air India operates lounges
called “Maharajah Lounge” to First
Fig 2.2: Trends in Air Passenger Traffic in India
and Executive class passengers. Jet
during FY04-FY08
Airways operates its lounges under 140 45 the
120 40
name of “Jet Lounge”. 35
100
Nos. in million
30
% growth
80 25
60 20
15
40
10
2.2 Growth of Air 20
0
5
0
Passenger Traffic 2003-04 2004-05 2005-06 2006-07 2007-08
International (Nos) Domestic (Nos)
Total (Nos) International (% grow th)
Indian civil aviation industry has Domestic (% grow th) Total (% grow th) been
consistently growing over the last Source: AAI and Cygnus Research five
years (Fig 2.2). Consequently,
passenger traffic during 2007-08 has crossed the level of 100 million and has made India the 9th
largest aviation market in the world. During the period from 2003-04 to 2007-08, the industry
has grown at a CAGR of 19.12%. During the same period, the domestic passenger traffic has
increased by a CAGR of 22.09% while that of international passenger traffic has been 12.38%.
During 2007-08, Indian aviation industry handled 116.87 million passengers including 29.81
million international passengers (25.5%) and 87.06 million domestic passengers (74.5%).
Regarding the surge in international passenger traffic during the year 2007-08, airports
experiencing major growth were Mangalore (381.4%), Coimbatore (255.0%), Tiruchirappalli
(89.3%), Ahmedabad (64.6%) and Lucknow (32.0%), as per AAI,. Air Arabia, Silk Air and Sri
Lankan Airlines started international flight operations in the phased manner since April 2007,
which led to the huge growth at Coimbatore airport. Besides this, Tiruchirappalli airport
experienced huge growth after starting the operations by Mihin Lanka from July 2007 and
increase in frequency of operation by Sri Lankan Airlines and Air India Express. This overall
growth was achieved due to competitive international fare between Indian and international
destinations and better international linkages of Indian and international destinations. The
airports which have shown highest growth in domestic passenger traffic during 2007-08 are
smaller airports like Bhubaneswar (99.9%), Jaipur (90.7%), Raipur (68.6%), Ranchi (67.6%) and
Tiruchirappalli (65.9%).
As far as the aircraft movements are

Fig 2.3: Trends in Aircrafts Movements in India during
concerned, it has grown at a FY04-FY08
1.4 35
CAGR of 15.47% during the
1.2 30
period from 2003-04 to 2007-08 1 25
and
Nos. in million
% growth
shown consistent increase during 0.8 20 the
period (Fig 2.3). The movements 0.6 15 of
0.4 10
the international aircrafts have
0.2 5
grown by CAGR of 13.37% 0
ISIEmergingMarketsPDF in-iimbemis from 115.113.11.239 on 2011-02-09 12:07:01 EST. DownloadPDF. 0 while
2003-04 2004-05 2005-06 2006-07 2007-08
the movements of domestic
International (Nos) Domestic (Nos)
aircraft have increased at a Total (Nos) International (% grow th)
Domestic (% grow th) Total (% grow th)
CAGR of 16% during the same
Source: AAI and Cygnus Research
period.
Overall, the sector has been growing at an appreciable rate and the following major factors can
be attributed to this growth,
• A steady growth trend experienced by the Indian economy since last few years.
• The liberalised air transport policies brought by the aviation ministry to make the sector
more competitive and deregulate the sector.
• Emergence of LCCs in a big way
• Entry of players rich with surplus cash like UB group, Interglobe Enterprises, Wadia
group, GVK and GMR.
2.3 Air Cargo Market – Opportunities & Performance
The growth in the economic
Fig 2.3: Trends in Air Cargo Traffic in India during
activity of the country, rise in FY04-FY08 trade
and commerce between nations, 1.8 25
1.6
flourishing food processing 1.4 20
1.2
Nos. in m.t
sector and entry of new players in the
% growth
15
1
sector are some of the factors 0.8
10
0.6
behind the growth of air cargo
0.4 5
business in India. It is expected 0.2 that
0 0
the Indian air cargo market to 2003-04 2004-05 2005-06 2006-07 2007-08 reach
12.5 million tonnes by the year International (Nos) Domestic (Nos) 2025.
Total (Nos) International (% grow th)
The commodities exported from Domestic (% grow th) Total (% grow th) India
through air mainly include Source: AAI and Cygnus Research
garments, machinery,
components, pharmaceuticals,
ISIEmergingMarketsPDF dyes, chemicals
in-iimbemis from 115.113.11.239 and perishables
on 2011-02-09 suchDownloadPDF.
12:07:01 EST. as fruits, flowers,
vegetables, fish and meat.
Indian air cargo business has recorded a CAGR of 9.91% during the period from 2003-04 to
2007-08. The international air cargo traffic has gone up by a CAGR of 10.58% while the
domestic air cargo has increased by a CAGR of 8.63% during the same period. During 2007-08,
the total air cargo (or freight) handled in by Indian aviation industry was 1.71 million tonnes
which was up by 10.5% over 2006-07. It include 1.15 million tonnes (66.9%) of international
cargo and 0.57 million tonnes (33.1%) of domestic cargo. The airports experiencing major
growth in international air cargo were Ahmedabad (58.2%), Tiruchirappalli (32.8%), Cochin
(22.0%), Chennai (16.7%) and Mumbai (13.9%). Similarly, airports witnessing major growth in
domestic freight traffic included Imphal (71.9%), Raipur (50.9%), Mangalore (37.5%), Indore
(34.1%) and Agartala (32.7%) during 2007-08 compared to 2006-07.
India is ranked among the top 30 global freight markets in terms of total as well as international
operations after a strong growth experienced since 2003. But India’s total market size is still
small when compared to other global markets. It is 2% of the US market and 5% of Chinese
market. Realising the need for improving facilities in air cargo business, government has planned
to set up an airport dedicated to cargo operations at Nagpur, at a cost of Rs.26 billion. Based on
the study of the Inter Ministerial Group to streamline and promote the cargo operations, the free
time available for the cargo has been reduced to three days from the current level of five days.
Besides this, action has been taken to promote cargo operations through Public-Private
Partnership (PPP) at non-metro airports like Ahmedabad and Amritsar, which is likely to boost
the air cargo operations.
Capacity expansion/new players to come up in cargo

The scope of monetary returns involved due to huge growth potential in air cargo business has
attracted large passenger airlines. Almost all the full-service as well as budget airlines operating
on large networks have plans to launch their dedicated cargo carriers.
• State-owned Air India, already having its dedicated cargo flights and market leader with
more than 40% share in air cargo has expanded its alliances with other players and will
launch more dedicated cargo airlines in the next couple of years. Air India has entered
into an agreement with Gati according to which it will supply five aircrafts to Gati.
• Safexpress has decided to procure three aircrafts on lease basis during the year 2008-09.
• The First Flight Couriers has planned to enter air cargo market by procuring two Boeing
737-300 aircrafts on lease to increase capacity in air cargo.
• Logistics start-up company Avicore Aviation has planned to make an investment of about
Rs.4 billion to start a new cargo airline before mid 2008 and also considering buying or
procuring five B737s aircrafts on lease.
• Quickjet is planning to launch its air cargo operations starting services with two B757s.
• Jet Airways, one of the major players in aviation providing full services also plans to start
a cargo airline in 2009.
During January 2008, Government has announced its policy decision to allow the foreign carriers
to acquire stake up to 74% in cargo airlines. Till then, Foreign Direct Investment (FDI) up to
49% was allowed in cargo airlines but international carriers were not allowed to invest in cargo
operations. This decision is likely to boost the air cargo sector. Currently, there are only 12-13
aircrafts dedicated to freighter services in India. Once FDI from foreign carriers is allowed, many
major carriers will buy stakes in Indian cargo carriers.
As per International Air Transport Association (IATA) Study, India is not able to keep pace with
expected airfreight demand and a capacity crunch may come up by 2011. IATA is forecasting a
tumultuous year for the Indian airfreight market because its infrastructure will not be able to
cope with the massive growth expected. Hence, providing infrastructure for air cargo by the
government will have to be a priority.
2.4 Airport Infrastructure Status

The quality of airport infrastructure makes direct contribution to the international
competitiveness and economic growth of a country by facilitating the smooth traffic flow of
people and cargo which ultimately leads to the growth of trade and tourism. India's biggest
airports have long been among the worst operated airports in the world. In the past, airport
infrastructure has not been developed at the pace as the growth of the Indian economy, especially
the quantum jump in passenger and cargo air traffic experienced since 2002. This growth is
having a major in-iimbemis
ISIEmergingMarketsPDF impact on India’s airport infrastructure
from 115.113.11.239 which12:07:01
on 2011-02-09 has not EST.
beenDownloadPDF.
properly equipped to
meet these demands. Limited terminal capacity has led to major congestion and most airports
lack modern ground-handling facilities, night-landing systems or cargo handling facilities. This
is due to lack of space, lack of facilities, lack of cleanliness, lack of runway space, lack of
aircraft parking space, poor service, inordinate delays etc. and all these form an important part of
airport infrastructure. Airport infrastructure is one of the most important challenges to be
addressed to exploit the true potential of Indian aviation sector.
Around 40% of India's trade in terms of value and 95% of international travel to and from India
is carried out through the airport mode. The Indian airports are not in the position to
accommodate new aircrafts and the huge traffic flow of passengers and air traffic is causing
congestion leading to continuous delays resulting in losses. The traffic is concentrated in certain
areas e.g. 45% of total traffic is concentrated at Delhi and Mumbai airports while 70% of total
traffic is at top five airports. Operations cannot be started to new destinations because of lack of
new parking slots in Delhi, Mumbai and Bangalore airports. The poor infrastructure is also likely
to have an adverse impact on the growth of aviation sector itself. India is also likely to acquire
400 aircrafts in the next 4 years and there will be many fold increase in air passenger traffic.
These investments and traffic expansion will not be successful unless infrastructure at airports is
improved according to the requirements. Besides this, poor infrastructure at airports is also not
allowing India to raise tourism to its full potential in spite of its rich culture and heritage.
The current infrastructure of airports is not at par with the standards required to handle the
projected growth and can only support 20% growth in passenger traffic and 10% growth in cargo
traffic. Ministry of Civil Aviation has estimated that the sector requires an investment ranging
Rs.260-360 billion to enhance infrastructure. Government of India has estimated that the
development of airport infrastructure, including metro, non-metro, greenfield airports and cargo
hubs that are presently under construction or have been sanctioned is likely to require an amount
of Rs.400 billion. Government has formed a three-member committee in 2007 headed by Prime
Minister which will prepare a new set of guidelines to allow easy development of airport
infrastructure by private players.
2.5 Recent Industry Trends

Some of trends in the industry in the recent past are discussed below.
• The Indian aviation industry is gradually changing its structure with the passage of time.
The Indian aviation industry, have shown continued growth in recent years with the
booming economy, rising personal income, rising business purpose travels as well as
leisure travels, availability of wide choices, emergence of LCCs, etc
• The industry witnessed a series of mergers and acquisitions in the year 2007. The merger
of Jet-Sahara and Indian Airlines and Air India was announced in the year 2006, but it
was actually implemented in the year 2007. Besides this, merger of Kingfisher and
Deccan also came up in the year 2007. These players after consolidation have captured
more than 80% of the market share. The consolidation of players in the aviation industry
has increased the chances of forming cartels among the players in the Indian aviation
sector post consolidation, as there will be lesser number of players in the market.
• The number of passengers in India travelling by air is on rise. The number of passenger
boarding is expected to double by 2025 and aircraft operations expected to triple by the
same time.
• Due to spread of Internet and round-the-clock fare search features, airfares are fully
known to the public and travellers are choosing the option with lowest price. Air travel
has now become a commodity business and legacy carriers will have to adapt further to a
low-cost/low-fare strategy in order to survive. Even business travellers, who are usually
less price sensitive are not willing to pay higher fares. The only premiums that travellers
are willing to pay for are time-of-day and direct flights, not the brand.
• Rise in prices of Aviation Turbine Fuel (ATF) has been made by public sector oil
marketing companies in line with the rise in international oil prices, which will have dent
in the profitability of the airlines. It is also likely to cause an increase in airfares.
• Indian carriers are placing orders for new aircrafts in the coming period without clear
plans to retire older planes. They are also adding significant numbers of regional jets.
Besides this, the fleet size of air taxi is also expanding rapidly. Kingfisher Airlines has
already ordered five Airbus A380 aircrafts that will operate on international routes.
• Low cost carriers are posing great threats to the survival of legacy carriers and due to
which, they are restructuring their pricing policies. Besides this, they are also facing
competition from overseas players.
• Private airlines are known to hire foreign pilots, get expatriates or retired personnel from
the Air Force or PSU airlines, in senior management positions. Further, they outsource
such functions as ground handling, check-in, reservation, aircraft maintenance, catering,
training, revenue accounting, IT infrastructure, loyalty and programme management.
Airlines are known to take on contract employees such as cabin crew and ticketing.
2.6 Consolidation Phase in Indian Aviation Industry

Consolidation is one of the strategies applied by the business fraternity, when they are looking
for expansion, to catch the market, to become the industry leader or when the company itself is
running in red line either of any. In business, it often refers to the mergers or acquisitions of
many smaller companies into much larger ones.
As passenger traffic is growing a rapid rate in the country, each airlines trying to gain as much
market share in a fiercely competitive market that’s characterized by high capital expenditure
and increasing pressure on the revenue per seat. It has led to the current run of mergers &
acquisitions (M&As), making India the fastest consolidating market in the world. Moreover,
India's aviation industry has expanded dramatically in recent years with the entry of a host of
new budget carriers. But losses sustained by many of these airlines are prompting consolidation
in the industry. The most common reason for M&As between airlines is the unviable operations
of one of the entities.
Other reasons behind the consolidations are rise in the ATF, unorganized fleet management,
excessive congestion at the airport. ATF constitutes 40-45% of airlines operating cost which has
increased from 36000 per kilo litre in January, 2006 to Rs. 70,000 per kilo litre in June, 2008.
Airlines tried to stick themselves in the competition adding additional capacity into their fleet, so
that can fly to different routes. But this strategy didn’t work as the newer routes were not that
profitable according to their expectations and added capacity incurred heavy expenditure. So
rather than exiting from the industry, some of the big players went for the consolidation.
The Indian Aviation Industry saw three complete consolidations in past two to three years. State
owned Indian Airlines with another state owned Air India, Jet Airways with Sahara Airlines, Air
Deccan- Kingfisher. However the latter have not completely merged up, that is why both the
players are operating as separate entities.
Jet Airways- Sahara Airlines Acquisition: It was the biggest consolidation move in Indian
aviation industry. January 2006, it announced to acquire its largest private competitor, Air Sahara
for approximately US$500 million in an-all cash deal, but the deal was dragged till April 2007
when Jet Airways paid US$340million for Air Sahara. Subsequently, in 17th April, 2007 Jet
Airways renaming of Air Sahara as JetLite and was marketed between low-cost carriers and full
service airlines.
Kingfisher- Deccan Acquisition: The United Breweries (UB) Group, parent company of
Kingfisher Airlines, acquired 26% of Air Deccan’s parent Deccan Aviation, in May 2007, at a
cost of Rs.5.46 billion. Later in Dec, 2006 UB Group bought another 20% stake in to increase its
holding to 46% in Deccan Aviation through an open offer. After merger, they are run as two
separate brands.
Air India- Indian Merger: In order to prevent the sliding market share and losses, it is decided
to merge both state-run carriers, Air India and Indian. The merger took official status during
August, 2007 when formation of National Aviation Company India Ltd announced merged entity
of Air India and Indian. The merged airline has a combined fleet size of over 112 aircraft and
rank among the top 30 airlines in the world.
Impact on the Industry: The competitive landscape of the industry changed with the recent
consolidation witnessed in the industry. From a fragmented sector with 10 players competing
with each other, now the industry have 3 large players competing with each other in their
respective segments, with a couple of other smaller players in the LCC space. These three
together have a combined market share of 80-85%. Following understated table summarize the
percentage as well as the fleet size of consolidated companies.
Some of benefits expected from these consolidation moves include,

• The merged entity achieves economies of scale in a number of areas like maintenance,
ground operations, the use of landing slots and parking rights, etc.
• The merger would enable the airlines to leverage their assets and capital better, and build
a stronger and sustainable business.
• A merged company can effectively deliver the classic hub and spoke system that the
largest airlines have been operating: Emirates in Dubai; Lufthansa in Frankfurt and
Munich; British Airways in London; Delta in Atlanta; etc. Similarly, the domestic airlines
will bring passengers to the one of the main gateways of like; also, Air India's domestic
flights can be scheduled to complement the Indian Airlines schedule.
Also, consolidation will help the industry, which was mired by low yields and excess capacity.
With the consolidation set in, these large groups have started on a route– rationalization exercise,
which will help in pulling out excess capacity from sectors, which are susceptible to heavy
discounting to over capacity and heavy competition. The consolidation has also triggered
rationalization of fleet expansion plans by players and will reduce the excess capacity in the
industry.
Therefore, industry experts are of the opinion that consolidation is inevitable and necessary for
airline industry in India. These consolidation moves are also expected to result in resource
rationalization, route optimization, fare rationalization, etc, which ultimately results in a more
viable and profitable civil aviation industry
2.7 Branding in Aviation Industry

Branding is a new concept that captures attention of major players of Indian civil aviation now.
It is obvious that all the airlines around the world are revamping themselves to attract the
customer. Some players are changing their logo or using new colour or presenting themselves in
front of the customer
ISIEmergingMarketsPDF in a from
in-iimbemis new 115.113.11.239
style. A striking
on commonality amongEST.
2011-02-09 12:07:01 airlines is the use
DownloadPDF. of Red
Colour, which signifies the vibrancy. The Singapore Airplanes is the one who are still applying
the traditional concept of dressing.
Branding is what gets passenger to come back to the airline and definitely the cost of retaining a
passenger is less than that of cost of acquiring one. According to officials of Spice Jet, nearly
45% of the customers are repeat customers, which they attribute mainly branding. US stationed
Southwest Airlines are having a different approach. The entire cabin crew members of the flight
shares and crack jokes with the passengers, so that they can diffuse any tension situations. Mr.
Mallya of Kingfisher Airlines takes a personal round of interview with the candidates before he
recruits them, to ensure the maintenance of quality. This is because cabin crew members come
directly in contact with the passengers, so they are considered to be the brand ambassadors of the
airline.
Dr. Mallya of Kingfisher or Mr. Branson of Virgin Atlantic are flamboyant CEOs. They are the
faces of their respective airlines, their airlines makes the news when they makes the news.
2.8 Major Players in Industry Value Chain
The Indian aviation sector was also characterised by a high degree of government control prior to
1990. The liberalisation of the Indian aviation sector commenced in 1990 with private sector
players being allowed to operate as air taxi operators. The major players in Indian aviation sector
are National Aviation Company India Ltd (NACIL), Jet Airways-Air Sahara, Kingfisher-Deccan,
GoAir, Indigo, Paramount and Spicejet. Besides this, there are other stakeholders in the industry
like GMR and GVK.
2.8.1 GMR
GMR Infrastructure Limited (GIL) is an infrastructure holding company which funds its whole
investments in special purpose companies engaged in specific infrastructure projects through its
various subsidiaries. GIL has operations in four segments: airports, energy, roads and others.
Airport segment is engaged in the development and operation of airports. Energy segment is
engaged in the generation of power. Roads segment is engaged in the development and operation
of roadways. Others are involved in residual activities. During 2007, the company acquired
99.99% of GVL Investments Private Limited (GVL). Consequently, GVL, Delhi International
Airport Private Limited and Gateways for India Airports Private Limited became subsidiaries of
the company.
2.8.2 GVK
GVK Power & Infrastructure Limited (GVKPIL) is a diversified company focusing on
infrastructure and urban infrastructure projects. It also has interests in the hospitality, services
and manufacturing sector. In June 2007, the company acquired equity interest in GVK Aviation
Pvt Ltd. In July 2007, GVKPIL acquired GVK Infratech Pvt Ltd.
2.10 Employment Opportunities

The aviation sector in India is growing at a growth rate of around 20% per annum, creating a lot
of job opportunities. The job opportunities available in the aviation sector at various levels
include Commercial pilot, Co-pilot, Air cargo pilot, Expatriate cabin crew, Air traffic controller,
Cabin safety instructor, In-flight managers, In-flight base managers, Cabin services instructor,
Cabin crew, Training instructor, Maintenance controllers, Licensed aircraft maintenance
engineering, Quality control manager, Cargo officers, Guest service agent and Ground staff. The
sector is particularly facing with a crunch of pilots.
Currently, Indian aviation provides direct employment to more than 100,000 people including
33,000 by Air India, 14,000 by Jet Airways-Jet Lite and 21,000 by airport operators in 2007.
This figure will double by 2012, according to estimates made from the 11th Five Year Plan
(2007-12). One direct job created in aviation generates seven indirect jobs. Jobs will be created
due to various factors including steady growth in air cargo, general aviation, helicopter services
and maintenance, repair and overhaul segments and training.
As per Civil Aviation authorities, public sector and private airlines in the country will need to
acquire more than 800 new aircrafts over the next 5 to 10 years besides their existing fleets. It is
estimated that India will need 40,000 cabin crews during the same period for fresh employment
and replacement.
The industry has 399 aircrafts during April, 2008 and this number is likely to cross the figure of
1,000 aircrafts by the end of 2012. Aviation sector has the potential to create 3 million jobs by
2017. These jobs are likely to come up in the field of flight dispatchers, cabin crew, airline
managers, airport managers and ground handling personnel. Besides this, aviation industry is
currently requiring an estimated 6,000 more certified captains in the next five years to cover the
gap arising due to shortage of pilots. With the present growth of the aviation industry, it is likely
to require 5,000 additional pilots for scheduled operations and 1,000 pilots for non-scheduled
and private operations. The airline industry of India is currently facing shortage of around 1,000
qualified pilots, particularly for wide-bodied passenger jetliners. To fulfil the shortage of pilots,
government has increased the retirement age of pilots, in both public and private sectors, to 65
years.
2.11 Institutions/Vocational Training Institutes in Industry
Currently, there are 25 national flying training institutes in the country resulting in around 150
pilots every year. Following are some of institutes offering training in various aviation services.
• The capacity of Indira Gandhi Rashtriya Uran Akademi (IGRUA) has been increased to
100 trainees from the existing level of 40 trainees.
• The Bureau of Civil Aviation Security (BCAS) has implemented a National Civil
Aviation Security Training Programme (NCASTP) with revised changes. BCAS is also
training people of Central Industrial Security Force (CISF) to assist their induction into
Airports Security Duty.
• Another institute known as Aviation Security Training Centre located at New Delhi is
used to train aviation security staff, employees of airlines and air operators or executive
level staff of AAI.
• The IATA has started its new training courses in India through the Speedwings Academy
for Aviation Services, Cochin, which is the leading training centre authorised by IATA
based inin-iimbemis
ISIEmergingMarketsPDF Kochi. These
fromcourses are mainly
115.113.11.239 focused on12:07:01
on 2011-02-09 the commercial aspects
EST. DownloadPDF. of airline
and airport operations and are different from the other courses of IATA which are
currently being conducted for passenger and cargo agency training. IATA has authorised
Speedwings to conduct seven new IATA aviation courses, including airline and airport
customer service, cargo marketing and perishable cargo handling and airline call center
training. Customised short-term courses are also planned according to convenience of
airline and airport personnel. Successful trainees of the courses are awarded international
diplomas.
• Canada-based CAE has recently signed an agreement with Government of India to
provide pilot training in the two national flight academies—Indira Gandhi Rashtriya Uran
Akademi (IGRUA) in Rae Bareli (UP) and Rajiv Gandhi National Flying Training
Institute (RGNFTI) in Gondia (Maharashtra). The initial batch strength will be of 200
students at each of the institutes in the first year and is likely to go up to 1,000 students in
the coming years.
• Ministry of Civil Aviation is planning to establish a national flying training institute at
Gondia in Maharashtra to increase the number of qualified and well trained pilots and to
deal with the huge demand for pilots in the industry.
• Chandigarh-based airhostess training institute Flying Cats, already offering one-year
university diploma course in aviation, travel and tourism in technical collaboration with
the Annamalai University, has recently started a three-year Bachelor in Business
Administration (BBA) degree course in aviation.
• Star Aviation Academy located at Gurgaon in Haryana conducts class rooms and
workshops for theory and practical classes for future Aircraft Maintenance Engineers. It
has been approved by the DGCA under Government of India to provide training in light
aircraft, piston engine & jet engine.
• The Delhi-based Air Hostess Academy Pvt. Ltd. (AHA) provides Diploma programmes
in Global Aviation & Hospitality Management through its 35 centres through out India.
• Frankfinn Institute of Air Hostess Training (FIAT) is one of leading company in training
and development of air hostesses. Frankfinn claims that it has produced more air
hostesses and flight stewards than all other Air Hostess Academies in India put together.
It offers one year course called BTEC (HNC) in Aviation, Hospitality and Travel
Management course.
2.12 SWOT Analysis of Aviation Industry

Strengths
Booming economy: Indian economy, which has been growing at a rate of around 8% in past
three years, has a direct cause-effect relationship with the logistics industry. The industrial
growth and burgeoning service sector are also fuelling the logistics demand, which drives the
demand for aviation services. Strong economy translates to strong logistics demand.
Rising income levels: Due to the rise in income levels, the disposable income is higher. This is
expected to enhance the number of travellers, flying for various purposes like business, tourism
and leisure.
Growing tourism: Due to growth in tourism, there has been an increase in number of the
international and domestic passengers. India, with its numerous tourist destinations, is attractive
to both domestic and international tourists. The World Travel and Trade Council estimated that
Indian tourism demand will continue to grow at an average of 8.8% between 2004 and 2013,
making India the world's third fastest growing tourist market. This complements the growth of
the aviation industry.
Weaknesses
Underpenetrated market: The total passenger traffic was only 116 million as on March 31,
2008, amounting to only 0.11 trips per annum, per capita, when compared with developed
nations such as the US (2.02 trips per annum, per capita).
It is also a matter of concern that the trunk routes (major routes) are not fully exploited. One of
the reasons for inability to realise the full potential of the trunk routes is the prevalence of unfair
competition among players.

Untapped Air Cargo Market: Air cargo has not yet been fully tapped in the Indian markets.
Although ranked among top 30 major air cargo transporters, India’s volume of 1.71 million
tonnes in 2007-08 is insignificant compared with the US and China. However, it is expected that
large number of players will have dedicated fleets for cargo operations in the future.
Infrastructural constraints: The infrastructure development has not kept pace with the growth
in aviation services sector leading to a bottleneck. Airport and air traffic control (ATC)
infrastructure is inadequate to support growth. Almost all airports have limited terminal capacity
which results in congestion. Most of airports lack modern ground-handling facilities, night-
landing systems or cargo handling facilities which stems from the lack of space, lack of facilities,
lack of cleanliness, lack of runway space, lack of aircraft parking space, poor service, inordinate
delays etc. and all these form a part of airport infrastructure.
Opportunities
Expecting investments: Aviation industry is a capital-intensive industry. Government of India’s
efforts to bring in private players in aviation infrastructure development, air transportation
services, allowing FDI in areas like Greenfield airport development and MRO establishment will
bring in more capital. Indian aviation industry has received an FDI worth Rs. 8.86 billion from
April 2000 to March 2008, which forms 0.36% of total FDI received by India during the period.
Huge investments are expected to take place in aviation sector in the near future. It is estimated
that by 2012, investments of about US$30 billion will be made.
Phenomenal growth of the industry: Aviation industry has witnessed a CAGR of around
19.14% in terms of RPK from 2003-04 to 2007-08; the cargo traffic also recorded a CAGR of
9.83% during the period. The industry is expected to maintain its growth pace, amounting to
passenger traffic of 289.92 million and cargo traffic of 2.77 million in 2012-13. The ongoing
expansion plan of airliners to meet this demand is indeed a big opportunity.
Mergers and acquisitions: Recent mergers and acquisitions in Indian civil aviation industry are
expected to bring in the benefits of consolidation. The recent mergers and acquisitions are Jet
Airways-Air Sahara, King Fisher-Air Deccan and Air India-Indian Airlines. These moves are
aimed at resources optimisation and attaining the economies of scale. These developments would
contain the losses and revive the prospects of profitability.
Preferred location for MRO facility: Emergence of low-cost airlines, increasing passenger
traffic and fleet expansion make India a lucrative destination for setting up MRO facility.
Availability of skill at low cost in India is also a comparative advantage for setting up such a
facility. Although only Boeing and Airbus have announced their plans for setting up MRO
facility in India as of date, more players are expected to establish their facilities in India in the
future.
Threats
Shortage of trained pilots and other skilled personnel: There is a shortage of trained pilots,
co-pilots and ground staff, which is severely limiting the growth prospects. Indian civil aviation
industry is estimated to require 5,000 additional pilots for scheduled operations and 1,000 pilots
for non-scheduled and private operations. The industry falls short of around 1,000 qualified
pilots, particularly for wide-bodied passenger jetliners. Indian flying schools are currently
producing 150 pilots annually, which is far behind the requirement. The shortage of trained and
skilled human resources leads to cut-throat competition for employees, which in turn, is driving
the wages to unsustainable levels. Moreover, the industry is unable to retain talented employees.
Shortage of airport facilities: The shortage of airport facilities like parking bays, air traffic
control facilities and takeoff and landing slots are severe growth limiting factors, considering the
present growth of the industry.
Spiraling fuel prices: Due to heavy taxation on ATF, its price is around 80% higher compared
with ATF in countries like Malaysia and Singapore. The price of ATF is Rs. 70,000 per kilo litre
as of June 2008 compared with Rs. 36,000 per kilo litre in January 2006. As ATF forms major
cost component of the airlines, the continually increasing prices further constrain the industry.
Declining yields: LCCs commanded a market share of around 39% in 2007. The legacy carriers
are being forced to match LCC fares during a time of escalating costs, in order to survive in
price-sensitive Indian market. Increasing growth prospects have attracted and are likely to attract
more players, which will lead to more competition. All this has resulted in lower returns for all
operators.

Civil Aviation Industry - Indian Overview

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Civil Aviation Industry - Indian Overview

Uploaded by

Copyright:

Available Formats

Indian Overview Of

Civil Aviation Industry (June 08)

Table 2.1: Comparative Study of Indian airliners

JetLite 15.05 25 +(10 orders)=35 7.1 2200 (July, 2007)

2.1.2 Carrier-wise Passenger Traffic

originated on early 1970s in US and by

2.1.4.1 Business Model of LCCs 10%

common to global LCCs, as discussed in Source: www.foolonahill.com

Chapter 1. It is obvious that the major cost

Through its Internet

Outsource non-core activity

2.1.4.2 The Business Model of FSC in India

Quality in-flight entertainment

Frequent flyer programme

As far as the aircraft movements are

Capacity expansion/new players to come up in cargo

2.4 Airport Infrastructure Status

ISIEmergingMarketsPDF in-iimbemis from 115.113.11.239 on 2011-02-09 12:07:01 EST. DownloadPDF.

2.5 Recent Industry Trends

2.6 Consolidation Phase in Indian Aviation Industry

Some of benefits expected from these consolidation moves include,

2.7 Branding in Aviation Industry

2.10 Employment Opportunities

2.12 SWOT Analysis of Aviation Industry

ISIEmergingMarketsPDF in-iimbemis from 115.113.11.239 on 2011-02-09 12:07:01 EST. DownloadPDF.

ISIEmergingMarketsPDF in-iimbemis from 115.113.11.239 on 2011-02-09 12:07:01 EST. DownloadPDF.

You might also like