Aviation Industry in India

• Deblina Dutta (46)• Deepika Rao (49)

• Eishita Bharadwaj (52)• Ekata Phal Desai (53)

• Esha Verma (54)

Timeline1912

Indian State Air service

and Imperial Airways, UK

collaborate to ply on first domestic

route, between Delhi and Karachi.

1915

Tata Sons start airmail

service between Delhi and Madras.

1932

Tata Aviations

established. It goes to

Colombo in 1938.

1948 Designated

as flag carrier under the name Air

India International

with 49% govt. control.

1953

Indian Airlines Corp.

formed through Air Corporation

Act, 1953, by nationalizing Air India and

Indian National Airways.

1994: Air Corporation Act. 1953

repealed and thus allowed

private players to

come.

2003

Entry of low cost carriers.

Air Deccan,

Spice Jet, Go Air, Indigo.

How it all began…

• At the time of independence, nine air transport companies were carrying both air cargo and passengers. (Tata Airlines, Indian National Airways, Air service of India, Deccan Airways, Ambica Airways, Bharat Airways, Orient Airways and Mistry Airways)

• After partition Orient Airways shifted to Pakistan.• The Govt nationalized these companies vide the Air Corporations

Act, 1953.• Consequently, it established the Indian Airlines to cater to domestic

air travel passengers and Air India International for international air travel passengers.

• A third government-owned airline, Vayudoot, which provided feeder services between smaller cities, was merged with IAC in 1994.

• In April 1990, the Govt adopted the open-sky policy.• In 1994, the Indian Govt, as part of its open sky policy, ended the

monopoly of IA and AI in the air transport services.• Private operators were allowed to provide air transport services.• Foreign direct investment (FDI) of up to 49 percent equity stake and

NRI (Non Resident Indian) investment of up to 100 percent equity stake were permitted through the automatic FDI route in the domestic air transport services sector.

• By 1995, several private airlines had ventured into the aviation business and accounted for more than 10% of the domestic air traffic.

• Today, Indian aviation industry is dominated by private airlines which include low cost carriers such as GoAir, SpiceJet etc, who have made air travel affordable.

Open Sky Policy

• Open Sky means unrestricted access by any carrier into the sovereign territory of a country without any written agreement specifying capacity, ports of call or schedule of services.

• In other words an Open Sky Policy would allow the foreign airline of any country or ownership to land at any port on any number of occasions and with unlimited seat capacity.

• There would be no restriction on the type of aircraft used, no demand for certification, no regularity of service and no need to specify at which airports they would land.

A Brief Overview

• India is poised to be among the top five aviation nations in the world in the next 10 years. Currently, India is the 9th largest civil aviation market.

• Recent estimates suggest that domestic air traffic will touch 160-180 million passengers a year, in the next 10 years and the international traffic will exceed 80 million passengers a year.

• The Indian Aviation Industry is exploring opportunities to improve connectivity and is also looking at enhancing the number of Indian carriers to various countries.

• One of the key achievements of India in the last decade has been to set-up an independent regulator for economic regulation of airports.

Current Scenario – Market Size

• In the last decade, domestic air traffic has quadrupled from 13 million to 52 million and international traffic more than tripled to 38 million. A similar trend is observed in the cargo sector.

• The rapidly expanding aviation sector handles 2.5 billion passengers across the world in a year; moves 45 million tonnes of cargo through 920 airlines, using 4,200 airports and deploys 27,000 aircraft.

• Today, 87 foreign airlines fly to and from India and five Indian carriers fly to and from 40 countries.

• Passengers carried by domestic airlines during Jan-Nov 2011 were 55.03 million as against 46.81 million during the corresponding period of previous year thereby registering a growth of 17.6 per cent, according to data released by Directorate General Civil Aviation .

Current Scenario – Market Size

• The air transport in India has attracted FDI worth US$ 423.31 million from April 2000 to September 2011, according to the data provided by Department of Industrial Policy and Promotion.

• Private carriers are anticipated to post a combined profit of US$ 350–US$ 400 million for the financial year ending March 31, 2012, as per a report titled '2011-12 Aviation Industry Outlook' by Centre for Asia Pacific Aviation, India.

• CAPA India expects domestic traffic growth of 17-18 per cent, possibly as high as 20 per cent. International passenger numbers, which grew by about 10 per cent last year, are expected to increase towards the upper end of a 10-12 per cent range over the next 12 months.

High Aviation Turbine Fuel

price

Aircrafts landing charges in India

Shortage of trained

employees

Regional connectivity Declining yields Gaps in

infrastructure

Huge debt burden High input costs

Issues and Challenges

Key Players

JetAirways• Jet Airways was incorporated as an air taxi operator on 1 April 1992.

It started commercial operations on 5 May 1993 with a fleet of four leased Boeing 737-300 aircraft.

• Headquarters Mumbai, India• Key people Naresh Goyal, Founder & Chairman• Nikos Kardassis, CEO• Ali Ghandour, Director• In January 2006 Jet Airways announced that it would buy Air Sahara

for US$500 million in an all-cash deal, making it the biggest takeover in Indian aviation history. It would have resulted in the country's largest airline but the deal fell through in June 2006.

• On 12 April 2007 Jet Airways agreed to buy out Air Sahara for INR14.5 billion (US$340 million). Air Sahara was renamed JetLite, and was marketed between a low-cost carrier and a full service airline. In August 2008 Jet Airways announced its plans to completely integrate JetLite into Jet Airways.

• In October 2008 Jet Airways laid off 1,900 of its employees, resulting in the largest lay-off in the history of Indian aviation

• Subsidiaries• JetLite• Boeing 737 Next Generation aircraft• Bombardier CRJ-200ER

• Jet Konnect• Boeing 737-800s.• ATR 72-500s• Jet Airways serves 52 domestic destinations and 24 international destinations,

a total of 76 in 19 countries across southern Africa, Asia, Europe and North America

Indigo Airlines

• Managing Director-Rahul Bhatia• CEO- Aditya Ghosh• Grand entry in 2005 at the biennial air-show at the Le Bourget

airfield, the biggest event in the aviation industry.• Placed an order of 100 Airbus A320 planes.• First flight to Imphal from New Delhi on August 4th, 2006.• Unlisted Airline – not mandatory to make its revenue and profit

public.• Affordable fares• On-time performance• Hassel-free travel

• Single minded operational focus – no frills• Ensuring consistency in service across the A320 fleet• Ensuring the experience at the airport matches that on-board

the plane.• “Check-in counters” - passengers with only cabin baggage can

check-in with an Indigo official with a handheld device• Seat load factor stood at 93.3 per cent, compared to Kingfisher's

85.9 per cent.• Follows the financial leasing model• Attention to customer needs – increased customer impact

• Central training programme – unique to IndiGo– Merging of three segments

• Functional skills training• Customer service and soft skills training• Leadership training at all levels

• Advertising campaign – marketing meets HR– Consequences of being on time– Behind the scenes effort to ensure timeliness

• Recognition of employees’ efforts• Instill pride in working for a low-cost airline

Go Airways• GoAir is an Indian low-fare airline based in Mumbai, India.It operates domestic

passenger services to 21 cities with 156 daily flights and approximately 1092 weekly flights. Its main base is Chhatrapati Shivaji International Airport, Mumbai.

• Founded 2005, commenced nov 2005• Parent company –wadia group• Key people- Jehangir Wadia, MD

Giorgio De Roni, CEO• GoAir operates to 21 destinations in India, with 156 daily flights and

approximately 1092 weekly flights.• GoAir's fleet consists of Airbus A320-200s, a medium range airliner with

capacity of 180 passengers.• Being a no-frills airline, GoAir does not offer a complimentary meal

service to its passengers. However, it does offer a buy-on-board in-flight meal programme. Café Coffee Day Snacks,sandwiches, parathas, cookies, nuts, soft drinks, Mineral water and other beverages are available on board. Passengers can buy these products by cash, credit card, or cheque.. Other duty free products are also available on-board.

Air India

• Founded by J.R.D. Tata in 1932 as Tata Airlines.• In 1948 , 49% of the Airline was taken by Government of India.• Airline was granted the status of flag carrier under the name Air

India International.• On 25 August, 1953 the government of India purchased a majority

stake in the carrier and Air India International Limited was born.• First Airline in the world to have all jet planes.

Performance of Air India• Falling domestic market share.• Air India has accumulated a debt of Rs. 42,570 crore•  An operating loss of Rs. 22,000 crore.

Overstaffing:• 41000 people work for Air India – Largest number of people

employed by any airline .• The number is double the number of people needed to run the

business.• Paying salaries to near 41000 people is a big burden on Air

India.• It is increasing the debt of the airline which is already facing a

huge financial loss.

• Merging Indian Airlines with Air India was a big mistake.• The strike by the pilots was an outcome of the hasty merger and

unkept promises of the management.• Post merger, the combined loss of both the Airlines rose from

2000 crores to 5000 crores.

Spicejet• SpiceJet is a low-cost airline headquartered in Gurgaon, India. It

began service in May 2005 and by 2008, it was India's second-largest low-cost airline in terms of market share.

• SpiceJet operates over 243 flights daily to 31 Indian cities. Spicejet's fleet consists of 26 Boeing 737-800, 6 Boeing 737-900ER and 7 Bombardier Dash 8 Q400 aircraft. SpiceJet provides a wide range of customer services on board such as catering. 

Key people - Kalanithi Maran, ChairmanNeil Mills, CEO

Headquaters - Gurgaon

On January 12, 2012, SpiceJet's fleet went up to 40 as Boeing delivered a brand new 737-800 aircraft. SpiceJet announced on its website that they would be launching flights on Surat - Delhi and Surat - Mumbai routes following several requests from the carrier's fans on the social media network Facebook.

• The price policy of SpiceJet is usually very dynamic, with discounts and tickets in promotion. Like other carriers, even if the advertised price may be very low, it often does not include charges & taxes. As many as ten percent of the seats on any flight are offered at the lowest price, and are the first to sell.

• Major problems is SpiceJet services has been riddled by delays. On occasions of delays, some passengers have been left stranded after repeated delay announcements followed by abrupt cancellations.

Kingfisher • Owned by India's biggest liquor baron, Mr. Vijay Mallya Kingfisher

Airlines (KFA) is one of the finest luxury airlines of India. It is a subsidiary of UB Group.

• Kingfisher operates more than 375 daily flights to 71 destinations, with regional and long-haul international services.

• The airline started commercial operations on 9 May 2005 with a fleet of four new Airbus A320-200s operating a flight from Mumbai to Delhi. It started its international operations on 3 September 2008 by connecting Bengaluru with London.

• In the domestic services there are two full service airlines(Kingfisher First and Kingfisher Class) and one low cost airline (Kingfisher Red).

• Due to rising losses and cut-throat competition  Kingfisher Airlines have decided to dump the low-fare business model and focus instead on catering to the premium, business-class passengers across the country.

# From To Months Total

Income Cost

Net Profit

EPS

01 Apr-05 Jun-06 15 1,352 1,692 -341 -68

02 Jul-06 Jun-07 12 2,142 2,562 -420 -42

03 Jul-07 Mar-08 09 1,546 1,734 -188 -11

04 Apr-08 Mar-09 12 5,577 7,186 -1,609 -55

05 Apr-09 Mar-10 12 5,271 6,918 -1,647 -54

06 Apr-10 Mar-11 12 6,496 7,523 -1,027 -16

07 Apr-11 Jun-11 03 1,991 2,255 -264 n/a

Total 75 24,375 29,870 -5,496

YEARWISE PERFORMANCE

Since inception, Kingfisher Airlines is yet to post profit on annual & total cost basis.

Competition:• Cut-throat competition from the other low cost operators

like indigo and jet airways have prompted kingfisher airlines to phase out their low cost airline segment.

Financial crisis:• Delayed salary • Fuel (ATF) Dues• Aircraft lease rental default• Airports Authority of India (AAI) default

• Indian Aviation Industry Market Share• Indigo and Kingfisher remained the top performers in the Industry

on back of good and timely services. Kingfisher currently holds 19.5% percent Indian market share closely followed by Indigo Airlines which has 19.2% market share. Although, the Jet Airways and Jet Lite combinedmarket share is higher at 24.8 percent .

• Passenger Complaints• Now this one is a surprise – Air India performed better than all other

carriers registering least passenger complaints with only 1.2 in 10,000  passengers complaining about various services . Go Air was the worst performer with just over 5 passengers in 10k complaining about their services.

Je-tAir-

ways

SpicejetKingfisher

GoAirIndigo

Air India

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Revenue comaprison

2009-102010-11

Airlines

Re

ve

nu

e e

arn

ed

Government Initiatives

Government Initiatives on Promotion of Aviation Industry

(i) The Foreign Direct Investment limit in Air TransportServices (Domestic Airlines) has been increased from 40% to 49% and is soon expected to be increased further. However, the NRI’s and Persons of Indian Origin (PIO) have been allowed 100% FDI;

(ii) Private scheduled carriers with five years experience indomestic sector and having fleet size of twenty aircraft permitted to operate on international routes;

Government Initiatives on Promotion of Aviation Industry(Contd)

(iii) Private investors are allowed to set up general airports and captive airstrips while maintaining a distance of 150 kms from the existing ones. Complete tax exemption is also granted for 10 years

(iv)Amendment of the various outdated provisions of Aircraft Rules to keep the provisions abreast with the international standards and developments in the civilaviation sector;

(v) Government of India allows 100 per cent foreign direct investment (FDI) for green field airports, via the automatic route. Moreover, foreign investment up to 74 per cent is permissible through direct approvals while special permissions are required for 100 per cent investment

Government Initiatives on Promotion of Aviation

Industry(Contd)(vi) Fleet expansion plans of Air India/Indian Airlines approved;

(vii) Restructuring of Delhi and Mumbai airport andwork on development of Greenfield airports at Bangalore and Hyderabad undertaken; Chennai and Pune also on the way to establish a greenfield airport.

(viii) Up gradation/ expansion/ development of airports undertaken depending upon traffic potential, requirement of airline operators and need of air passengers.

AIRPORTS IN INDIA

At Present -

AAI manages 128 airports which includes:

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

Upgrading Airport Infrastructure

By 2020, Indian airports are estimated to handle:

• 100 million passengers

• Including 60 million domestic passengers

• Cargo in the range of 3.4 million tonnes per

annum

Background Indian airports were managed by Civil Aviation Department,

Government of India, till the creation of International Airports Authority of India (IAAI) in 1972 and National Airports Authority (NAA) in 1986.

In 1995 Airports Authority of India (AAI) was established by merging both IAAI and NAA by an Act of Parliament – The Airports Authority of India Act in 1994 – for better and efficient management of all airports in India by a single Authority.

Public Private Partnership in Airports

Need for Private Participation in Airport Infrastructure

To bridge the resource gap for achieving the following objectives -

To build world-class airports with modern technology and

efficient management practices.

To make the airport user friendly and achieve higher level of

customer satisfaction.

To lay special emphasis on the development of infrastructure for

remote and inaccessible areas.

To provide airport capacity ahead of demand.

To encourage greater efficiency in Airport Operations.

PPP IN INDIAN AIRPORTS

Airport Development Process has taken off in the country -

• Two new Green field airports were thereafter approved for

Bangalore and Hyderabad.

• On 3rd May 2006 the Airports At Mumbai and Delhi were handed

over to Joint Venture Companies.

• Of 35 non metro airports being taken up for modernization PPP

has been approved for the city side development of 10 airports.

• Proposals for a number of green field airports have been received

from various State Govts.

Major Airports

Problem & Solution• Increased traffic and cargo growth has led to congestion/

saturation at different airports in India , e.g. Mumbai, Delhi, Bangalore, Hyderabad, Kolkata, Chennai etc.

• Hence, country requires– New Airports– Expansion of capacity at existing airports– Induction of Technology for efficient handling of Passenger

and cargo.– Better Management Practices

• For all this additional funds to the tune of Rs. 40,000 crores + Rs. 454 crores for airports in North East are requiredThe annual requirement of funds in the future is expected to

be much more than the AAI can generate.

Recent trends in aviation

Fuel policy

• India's cash-starved airlines will be allowed to import jet fuel

directly under a plan approved by a government panel.

• Due of the federal and state taxes, jet fuel prices in India are

among the highest in the world.

• The move to allow direct imports could reduce costs by 15 to 20

percent

• Kingfisher shares surged by their maximum daily limit of 20 percent on the news, while SpiceJet and Jet Airwaysrose 19.5 percent and 18.2 percent respectively. 

• There are still various problems which have to be dealt with before this plan materializes.

• Insufficient funds• Storage capacity

FDI

• A proposal of liberalizing the FDI policy to allow foreign

airlines to invest up to 49 per cent in cash-starved domestic air-

carriers

• More FDI has now become a requirement the capital intensive

aviation industry to pool in more equity.

• The aviation sector is riddled with a host of problems and not

everything will be resolved by just injecting more cash, local or

foreign.

• Currently Kingfisher Airlines is desperately in need of FDI. Even though Jet Airways has the highest debt among the private airlines, it has sufficient revenues to keep it going

• There is a view that rich foreign carriers could play havoc with the domestic market. They could artificially lower the price of air travel to kill domestic competition.

Recent Developments

• Indian PPP airports drive 340% growth in retail and other non-aero revenues over 5 years

• India domestic passenger growth slows to 8% in Dec-2011; 2012 growth to slow from 16.6% in 2011

ANALYSIS OF SOME ISSUES

• Rising fuel prices

• Issue of personnel

• Multiple taxation

SWOT ANALYSIS

STRENGTHS:

• Growing tourism

• Rising income levels

Weakness:

• Under penetrated Market

• Untapped Air Cargo Market

• Infrastructural constraints

OPPORTUNITIES

• Expecting investments• Expected Market Size

THREATS:• Shortage of trained Pilots• Shortage of Airports• High prices

SUGGESTIONSIt is high time to come up with a solution of the crisis of the aviation

industry, the largest employer of the world in the unorganized sector,

as the airlines like Kingfisher and Air India are drowning in losses.

There is no need of government bailout private airlines as some of the

airlines are partially or fully responsible for their losses. Yet, as the

airlines are the backbone of the tourism industry and the thread

which links the country, the government has to intervene in the crisis.

But government bailout is not the solution as it is the taxpayer’s

money that will be flowing to the private players. Hence it is an unfair

step towards the general public.

CONCLUSION

Aviation industry is the backbone of tourism, investment and

employment in our country. Therefore, the government should take

every step possible in order to make it transparent and clear so that

the aviation industry can take advantage of the growing

opportunity in this sector. As aviation industry grows, it will lead to

more employment opportunities which will indirectly help our

country to grow economically.