Presented by: Presented by: Ashish Asthana Ankit Gupta Ankit Abhimanyu chandel Abhimanyu chandel

INDIAN AVIATION INDUSTRY as service sector

Flow of presentation
Liberalization and history Industry characteristics Capacity PESTEL STP 7p Opportunity Challenges Summation/conclusi on/recommendatio n

Indian Aviation liberalization

1953: Nationalization of Aircraft Industry 1986: Private Sector Players permitted as Air Consequently, assets of 9 existing companies transferred to taxi operators two entities in the aviation sector controlled by the Players including Jet, Air Sahara, NEPC, Government in East West, Modiluft,etc started service Indian Airlines, primarily serving domestic sectors 1994: Private Carriers permitted to operate Air India, primarily serving the international sectors 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

Industry characteristics
HUGE POTENTIAL CONSTRAINTS Under penetrated Market Infrastructure Constraints - Total Passenger Traffic only 50 mn as on 31st Dec 2005 amounting Shortage of airport facilities, parking to only 0.05 trips per annum as compared to bays,air traffic control facilities and developed Nations like United States have 2.02 trips per annum takeoff and landing slots - High Level of potential demand with growth in Indian economy - Continued growth might be hampered Untapped Air Cargo Market Relatively Limited Reach - Air Cargo has not yet been fully taped in the Indian markets and is Only 454 airports with less than 100 expected that in the coming years airports having more than one daily large no of players would have dedicated fleets service What this means
- Build up of capacity by existing players and entry of new players

Capacity expansion and competitors

Competitive landscape

Huge Growth- Huge Plans Fleet Acquisition New Fleet Orders -More than 500 Fund Requirement- USD 50-55 bn approx Order Book New Players Indigo 100 Air India 68 Air Deccan 60 Kingfisher 50 Indian Airlines 43 Jet airways 40 Go Air 36 Spice Jet 20 Expected to grow to 125 from 7 by 2025

Competitive Pressure Full Service

Low cost Carriers changing the game

Indigo

Price

Sector structure/Market size

With a growth rate of 18 per cent per annum, the Indian aviation industry is one of the fastest growing aviation industries in the world.

Today, private airlines account for around 75 per cent share of the domestic aviation market.

India has jumped to 9th position in world's aviation market from 12th in 2006

Aviation policy

Demand drivers
DEMAND DRIVERS Government Liberal Policy to allow private GDP Growth has been more than 7% in the carriers and entry of Low Cost Carriers has last 4 years lead to a increase in demand in passenger The rising middle class of more than 300 mn traffic is fuelling the growth Domestic Tourism and International The Increase in Consumerism and Business Travel and Tourism has also Affordability of Air travel greatly fuelled the rise of Indian aviation sector

PESTEL

Political

Govt.is not stable

Economy Disposable income is increasing . GDP grow is more than 9%.

Social

--

Status conscious

-- Awareness is increasing -- Increase in Entrepreneurship

Technology Indigenous technology is coming for aircrafts & airports. Legal -Flexibility in entry . The five year stringent law towards flying abroad .

Environment Stiff competition for hiring pilots (poaching) Easy FDI(49%) through secondary market

STP
SEGMENTATION

- HNI People .& others

TARGET

-VPs,CEOs -Bollywood Stars -Politicians -Foreign Tourists -industrialists -regular -Oil exploring companies

POSITIONING

Chartered air service Statement -

Services/product Hell Skiing, Leisure channels flights, Charter flight for pilgrimage, Hiring Jet/Chopper film shooting ,Air ambulance. On shore service

Price -- Epic jet (7seater) - Rs 167,000/hr Cessaneluxury jet(7seater) - Rs 217,000/hr Robinson chopper(5seater) - Rs 35,000/hr Honda Chopper(Medical) - Rs 50.000/ hr

Promotion Strategy - Advertising in all leading corporate/travelling magazines Tie-up with corporate/Travel Agencies

Physical evidence - Aircrafts Helicopters People - Pilots Engineers

Productivity /process - Giving convenience in travelling Place Metros & capitals

Challenges

Declining yields Building on cost efficiencies High input costs Gaps in infrastructure

Declining yields

LCCs and other new entrants together now command a market share of around 46% Legacy carriers forced to match low LCC fares, during a time of escalating costs Increasing growth prospects have attracted & likely to attract more players More players more competition lower fares a continuous cycle The bottom-line lower yields for all operators

Building on cost efficiencies

Low yield regime to continue Airlines have to build on their cost efficiencies & drive down costs below the yield that their product will fetch, to return to profits For an industry that is estimating losses of US$ 500-550 million by end of current fiscal, this is a daunting challenge

Yet, airlines have no control on external input costs

Contd..

High input costs ATF prices in India continue to be far higher than global rates, making ATF account for 35-40% of operating cost, as against global average of 20-25% High basic rates aggravated by high taxes imposed by State Govt.s ATF cost / kilolitre : US$ 755 in Delhi US$ 780 in Mumbai US$ 455 in Singapore US$ 497 in Dubai High input costs Witholding tax on interest repayments on foreign currency loans for aircraft acquisition Witholding tax proposed on aircraft lease rentals for leases concluded after 1st April07. Increasing manpower costs due to shortage of technical personnel

Gaps in Infrastructure

Airport and ATC infrastructure inadequate to support growth Airlines paying for these strategic gaps in many ways
Higher fuel consumption - long holding times, on ground and in the air Lower utilisation of aircraft - slot constraints and air traffic congestion Sub-optimal route network strategies, due to lack of night parking stands at major airports and navigational aids at many of the smaller airports Increased passenger facilitation costs

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

Opportunities

A large & growing potential market Developing alternative revenue streams

Air cargo operations Airframe, engine & component overhaul Ground handling Training Leveraging the internet

Access to new markets

Air Cargo

Freight carriage in India currently around 4200 tons per day CAGR of 15% over the past 2 years Fuelled by a fast growing economy, supported by a strong industrial base Forecast to grow at 11.4% p.a. till 2011-12

Ground Handling

Ground handling business in India estimated at Rs. 1074 crores Expected to grow at 15% CAGR till 2011-12 Opportunity lies in 3rd party handling as well as entering into service contracts with private airports / AAI to offer comprehensive ground handling solutions, e.g. AI CIAL at Cochin

Training
Airlines in India will need training for pilots, engineers, cabin crew, load & trim, etc.
Projected requirement for 3600 additional pilots in the short to medium term Cabin crew, engineers, technicians will also be required to support aircraft being inducted

Opportunity for simulator training establishments IA already has a Central Training Establishment at Hyderabad, with facilities for most categories / types of trainings on A320

Leveraging the internet

Increasing numbers are booking directly from the airlines websites
Traditional sales channels with paper tickets cost airlines ~10% of ticket price Comparatively, e-ticket sales from own website cost an airline only ~3% of ticket price For every direct booking from their website, airlines save an estimated US$ 4 plus 5% agency commission

Airlines can also turn their websites into one stop shops for all travel related services, generating additional revenue

Access to new markets

As airlines complete 5 years of domestic operations, those with 20+ aircraft will get international access
Access to new revenue streams Help even out the seasonality factor of domestic operations Spread the risk of downturn in a single market

The opportunity for some will be a challenge for the existing international players The risk cycle of increased competition, low yields, and growth transferred to the international arena

Current scenario of Indian aviation industry

The Indian aviation industry Is one of the fastest growing aviation industries in the % share of the world.

India has 454 airports and airstrips; of these,16 are designated international airports. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transforamtion.priavate airline account for around 75% share of the domestic aviation market

Being primarily a govt-ownwed industry ,the Indian aviation industry is now dominanated by privately owned full service airlines and low cost carriers.

Market size

Domestic and international traffic is up 45% and 15.1 %,respectively. Over 135 aircraft have been added in the past two year alone. Center for Asia pacific aviation (CAPA) estimates domestic traffic to grow 25-30 % annually and international traffic 15%untill 2010.

Summation

Indian Aviation has seen high growth on account of sustained Indian socio economic growth and liberalized Government initiatives

Airport Infrastructure needs to improve significantly to meet the current and future demand of the Indian Aviation Sector

Authorities have initiated various steps

to implement modernization, reconstruction and

development of airport infrastructure to implement infrastructure development plan

Provides a huge opportunity for private players operating in Aerospace and allied industries Significant opportunity for foreign companies as Indian companies not technologically equipped to cater to requirements

In sum

Despite a growing market, airlines in India are fighting for survival in a highly competitive environment A host of initiatives are required to be taken by all concerned, to tide over the current situation
Control Costs Improve quality of service Develop a large pool of skilled / technical manpower Attract more professionals to manage the aviation industry Develop infrastructure to match growth plans Liberalise rules & regulations governing civil aviation, without compromising on safety & security Reduction in ATF prices and taxation on ATF and lease rentals

THANK YOU