Indian Economy Aviation Report

8/2/2019 Indian Economy Aviation Report

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2012

BS Bangalore

ubmitted to :

Dr. Ashish Dash

Economics project report

Submitted by :

Arindam Tiwari

Ashish Bhandari

Barsha Ray

Neena Aneja

Saurabh Singh

[ Economy Industry Analysis of Aviation Industry ]Today India is among the most attractive destinations globally, for investments and business and FDI

had increased over the last few years," said Ms Patil.


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Indian Economy Overview

The Economy of India is the ninth largest in the world by nominal GDP and the third largest by

purchasing power parity (PPP).[1] The country is one of the G-20 major economies and a member of

BRICS. In 2011, the country's GDP per capita (PPP) was $3,703 IMF, 127th in the world, thus making

a lower-middle income economy

India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing

economies in the world. The growth was led primarily due to a huge increase in the size of the

middle class consumer, a large labor force and considerable foreign investments. India is the

fourteenth largest exporter and eleventh largest importer in the world. Economic growth rates are

projected at around 7.0% for the 2011-12 fiscal year.

India's large service industry accounts for 57.2% of the country's GDP while the industrial and

agricultural sectors contribute 28.6% and 14.6% respectively.[17] Agriculture is the predominant

occupation in Rural India, accounting for about 52% of employment. The service sector makes up afurther 34%, and industrial sector around 14%.[18] However, statistics from a 200910 government

survey, which used a smaller sample size than earlier surveys, suggested that the share of agriculture

in employment had dropped to 45.5%.

Major industries include telecommunications, textiles, chemicals, food processing, steel,

transportation equipment, cement, mining, petroleum, machinery, software and

pharmaceuticals.[19] The labour force totals 500 million workers. Major agricultural products

include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep,

goats, poultry and fish.[19] In 20092010, India's top five trading partners are United Arab Emirates,

China, United States, Saudi Arabia and Germany

India's trade and business sector has grown fast.[14] India currently accounts for 1.5% of

world trade as of 2007 according to the World Trade Statistics of the WTO in 2006, which valued

India's total merchandise trade (counting exports and imports) at $294 billion and India's services

trade at $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise

and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in

2004. India's total trade in goods and services has reached a share of 43% of GDP in 200506, up

from 16% in 199091.[20] India's total merchandisee trade (counting exports and imports) stands at

$ 606.7 billion[21] and is currently the 9th largest in the world.

Economy of The Republic of India


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Modern Indian currency notes

Rank 9th(nominal) /3rd(PPP)

Currency 1Indian Rupee(INR) ( ) = 100Paise

Fiscal year 1 April 31 March

Trade

organizations

WTO,SAFTA,G-20and others

Statistics

GDP $1.846 trillion (nominal:9th; 2011)[1]

$4.469 trillion (PPP:3rd; 2011)[1]

GDP growth 8.5% (201011)

GDP per capita$1,527 (nominal:135th; 2011)[1]

$3,703 (PPP:127th; 2011)[1]

GDP by sector agriculture: 18.1%, industry: 26.3%, services: 55.6%

(2011 est.)

Inflation(CPI) 6.55% (January 2012)[2]

Population

belowpoverty line

37% (2010)[3]

Gini coefficient 36.8 (List of countries)

Labour force 487.6 million (2011 est.)
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Indian_Rupeehttp://en.wikipedia.org/wiki/Indian_Rupeehttp://en.wikipedia.org/wiki/Indian_Rupeehttp://en.wikipedia.org/wiki/Paisahttp://en.wikipedia.org/wiki/Paisahttp://en.wikipedia.org/wiki/Paisahttp://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/South_Asian_Free_Trade_Areahttp://en.wikipedia.org/wiki/South_Asian_Free_Trade_Areahttp://en.wikipedia.org/wiki/South_Asian_Free_Trade_Areahttp://en.wikipedia.org/wiki/G20_major_economieshttp://en.wikipedia.org/wiki/G20_major_economieshttp://en.wikipedia.org/wiki/G20_major_economieshttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capitahttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capitahttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Consumer_price_indexhttp://en.wikipedia.org/wiki/Consumer_price_indexhttp://en.wikipedia.org/wiki/Consumer_price_indexhttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-WPI-1http://en.wikipedia.org/wiki/Economy_of_India#cite_note-WPI-1http://en.wikipedia.org/wiki/Economy_of_India#cite_note-WPI-1http://en.wikipedia.org/wiki/Poverty_linehttp://en.wikipedia.org/wiki/Poverty_linehttp://en.wikipedia.org/wiki/Poverty_linehttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-NewPoverty-2http://en.wikipedia.org/wiki/Economy_of_India#cite_note-NewPoverty-2http://en.wikipedia.org/wiki/Economy_of_India#cite_note-NewPoverty-2http://en.wikipedia.org/wiki/Gini_coefficienthttp://en.wikipedia.org/wiki/Gini_coefficienthttp://en.wikipedia.org/wiki/List_of_countries_by_income_equalityhttp://en.wikipedia.org/wiki/List_of_countries_by_income_equalityhttp://en.wikipedia.org/wiki/List_of_countries_by_income_equalityhttp://en.wikipedia.org/wiki/File:Indian_rupees.pnghttp://en.wikipedia.org/wiki/File:Indian_rupees.pnghttp://en.wikipedia.org/wiki/List_of_countries_by_income_equalityhttp://en.wikipedia.org/wiki/Gini_coefficienthttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-NewPoverty-2http://en.wikipedia.org/wiki/Poverty_linehttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-WPI-1http://en.wikipedia.org/wiki/Consumer_price_indexhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capitahttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capitahttp://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/Economy_of_India#cite_note-IMF_GDP-0http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)http://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/G20_major_economieshttp://en.wikipedia.org/wiki/South_Asian_Free_Trade_Areahttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/Paisahttp://en.wikipedia.org/wiki/Indian_Rupeehttp://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)


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Labour force

by occupation

agriculture: 52%, industry: 14%, services: 34% (2009 est.)

Unemployment 9.8% (2011 est.)[4]

Average gross

salary

$1,330 yearly (2010)

Main industries telecommunications, textiles, chemicals, food processing,

steel, transportation equipment, cement, mining,

petroleum, machinery, software, pharmaceuticals

Ease of Doing

Business Rank

132nd[5](2011)

External

Exports $343 billion (2010 est.)[6]

Export goods petroleum products, precious stones, machinery, iron and

steel, chemicals, vehicles, apparel

Main export

partners

US 12.6%, UAE 12.2%, China 8.1%, Hong Kong 4.1%

(2010)

Imports $443.4 billion (2010 est.)[6]

Import goods crude oil, precious stones, machinery, fertilizer, iron and

steel, chemicals

Main import

partners

China 12.4%, UAE 6.5%, Saudi Arabia 5.8%, US 5.7%,

Australia 4.5% (2010)

FDIstock $35.6 billion (200910)

Gross external

debt

$267.1 billion (31 December 2011 est.)

Public finances

Public debt 71.42% of GDP (2011 est.)[7]

Revenues $218.7 billion (2011 est.)

Expenses $311.2 billion (2011 est.)

Economic aid $2.107 billion (2008)[8]

Credit rating BBB- (Domestic)

BBB- (Foreign)

BBB+ (T&C Assessment)

Outlook: Stable

(Standard & Poor's)[9]
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Foreign reserves $296 billion (Dec 2011)[10]

The Indian economy has continuously recorded high growth rates and has become an attractive

destination for investments, according to Ms Pratibha Patil, the Indian President. "India's growthoffers many opportunities for mutually beneficial cooperation," added Ms Patil. "Today India is

among the most attractive destinations globally, for investments and business and FDI had increased

over the last few years," said Ms Patil.

The Indian economy is expected to grow at around 7.5 per cent, according to Dr Manmohan Singh,

the Indian Prime Minister. The PM acknowledged Asia's emerging economies were "growing well"

and were, "in fact, contributing to the recovery of the world economy".

The overall growth of gross domestic product (GDP) at factor cost at constant prices, as per Revised

Estimates, was 8.5 per cent in 2010-11 representing an increase from the revised growth of 8 per

cent during 2009-10, according to the monthly economic report released for the month of

September 2011 by the Ministry of Finance. Overall growth in the Index of Industrial Production (IIP)

was 4.1 per cent during August 2011.

The eight core Infrastructure industries grew by 3.5 per cent in August 2011 and during April-August

2011-12, these sectors increased by 5.3 per cent. In addition, exports and imports in terms of US

dollar increased by 44.3 per cent 41.8 per cent respectively, during August 2011.

Over the next two years India could attract foreign direct investment (FDI) worth US$ 80 billion,

according to a research report by Morgan Stanley. India has received US$ 48 billion FDI in the last

two years. Considering the pace of FDI growth in India, KPMG officials believe that FDI in 2011-12

might cross US$ 35 billion mark.

In addition, India has entered the club of top 20 exporters of goods and reclaimed its position among

top 10 services exporters in 2010. India's goods exports rose by 31 per cent in 2010, helping it to

improve its world ranking moving up two places to 20 from 22 in 2009.

The Economic Scenario

A report titled, 'World Investment Prospects Survey 2009-2012' by the United NationsConference on Trade and Development (UNCTAD) has ranked India at the second place in global

foreign direct investments (FDI) in 2010 and expects India to remain among the top five attractive

destinations for international investors during 2010-12

India Inc announced 177 mergers and acquisitions (M&A) deals worth US$ 26.8 billion in the

first nine months of 2011. For the quarter July-September 2011, inbound deals worth US$ 7.32

billion were registered as against the deals worth US$ 2.65 billion in the previous quarter. Foreign

institutional investors (FIIs) have invested more than Rs 41,000 crore (US$ 7.81 billion) in

government papers and Rs 68,000 crore (US$ 12.95 billion) in corporate bonds as on October 31,

2011
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The latest available data from the Reserve Bank of India show a 77 per cent jump in the FDI

in the first half of the current financial year (April-September), compared to what was US$ 19.5

billion during the same period a year ago

The total amount of FDI equity inflows during financial year 2011-12 from April 2011 to

September 2011 stood at US$ 19.14 billion aggregating to 74 per cent growth over last year

India's foreign exchange (Forex) reserves have increased by US$ 2 billion to US$ 320 billion

for the week ended October 28, 2011, on account of revaluation of foreign currency assets,

according to the weekly statistical bulletin released by the Reserve Bank of India (RBI)

The Government has approved fund raising worth Rs 60,950 crore (US$ 11.61billion) by

companies through external commercial borrowings (ECB) or foreign currency convertible bonds

(FCCB) for infrastructure projects in the financial years 2009-2011

India's merchandise exports have registered an increase of nearly 82 per cent during July

2011 from a year ago to touch US$ 29.3 billion, according to a release by the Ministry of Commerce

and Industry. Exports during April-July 2011 reached US$ 108.3 billion, up 54 per cent over the same

period a year ago, according to Mr Rahul Khullar, Commerce Secretary. Exports in the referred

period increased on back of demand for engineering and petroleum products, gems and jewellery

and readymade garments

Private equity (PE) investments in India stood at US$ 6.14 billion in value terms, while the

number of deals increased by 33 per cent to 195, during January-June 2011, according to data

compiled by Chennai-based Venture Intelligence. The rise in the value of the deals so far (June 2011)

recorded a growth of 52 per cent, as compared to US$ 4.04 billion raised last year

The Indian metals and minerals sector has received PE investments worth US$ 650 million in

the first half of 2011, according to estimates by VC Edge. The metal making industry has attracted PE

players; in addition the mining assets are also a major draw due to the sharp demand for ownership

of raw materials

India currently holds the 12th position in Asia and 68th position in the overall list world's

most attractive tourist destinations, as per the Travel and Tourism Competitiveness Report 2011 by

the World Economic Forum (WEF). A study conducted by global hospitality services firm, HVS, to

measure marketing effectiveness on Internet puts Karnataka Tourism's Web site in the sixth position

in India

The wind energy sector has attracted foreign direct investment (FDI) worth Rs 1,510 crore

(US$ 287.62 million) over the past three years. In the renewable energy sector, wind energy has

emerged as the fastest growing category, according to Dr Farooq Abdullah, Union Minister for New

and Renewable Energy

Furthermore, the Indian Railways has generated Rs 37,392.88 crore (US$ 7.12 billion) of revenue

earnings from commodity-wise freight traffic during April-October 2011 as compared to Rs

34,337.11 crore (US$ 6.54 billion) during the corresponding period last year, registering an increase

of 8.90 per cent. Railways carried 536.92 million tonnes (MT) of commodity-wise freight traffic


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during April-October 2011 as compared to 516.89 MT carried during the corresponding period last

year, registering an increase of 3.88 per cent.

Growth Potential Story

India's exports grew by 36.3 per cent in September 2011, demonstrating impressive growth.Exports stood at US$ 24.8 billion compared to US$ 18.2 billion in the same period last year, while

imports grew by 17.2 per cent to record US$ 34.5 billion

Exports from special economic zones (SEZs) during April-September 2011 increased by 26.2

per cent to Rs 176,479.69 crore (US$ 33.62 billion), as per a statement by the Export Promotion

Council for EOUs and SEZs (EPCES)

Andhra Pradesh (AP) with 75 notified special economic zones (SEZs), which is the highest

number of SEZs in any State in India, has attracted investment of approximately Rs 15,000 crore (US$

2.86 billion)

The July-September 2011 quarter observed an increase in foreign institutional investor (FII)

stakes in major automakers as compared to the previous quarter of 2011

Information technology (IT) spending in India by enterprises will rise by 9.1 per cent in 2012,

according to a report by research firm Gartner. IT spending in India is projected to touch US$ 79.8

billion in 2012 as compared to US$ 73.1 billion in 2011. The telecommunications market is the

largest IT segment in India with IT spending forecast to reach US$ 54.7 billion in 2012, followed by

the IT services market with spending of US$ 11.1 billion. The computing hardware market in India is

projected to reach US$ 10.7 billion in 2012, while software spending will total to US$ 3.2 billion,

reported Gartner

The Government plans to set up a Rs 2,500 crore (US$ 476.19 million) development fund for

the auto component sector. The industry, which aims to almost triple its size to US$ 115 billion by

2020, envisages annual capital investment of up to US$ 3 billion

India is the 9th or 10th largest car maker in the world, but given its very ambitious

production plans, in the next five to ten years it will jump to the third or fourth spot, according to

Diane H Gulyas, President, DuPont Performance Polymers. The firm's Innovation Centre will focus on

automobile trends working towards making vehicles faster, lighter, safer and fuel efficient

The Rs 15,000 crore (US$ 2.86 billion) Indian forging industry is poised to grow over 20 per

cent per year and see investments of about US$ 3 billion by 2015 for capacity expansion, according

to the Association of Indian Forging Industry

A public-private partnership (PPP) fund worth Rs 5,000 crore (US$ 952.38 million) is being

set up to support research and development efforts-especially in the field of vaccines, drugs and

pharmaceuticals, super computing, solar energy and electronic hardware-as well as

commercialisation of products and services, according to Mr Ashwani Kumar, Minister of State for

Science & Technology

In addition, the Indian banking sector is poised to become the world's third-largest in termsof assets over the next 14 yearswith its assets poised to touch US$ 28,500 billion by 2025


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according to a report titled Being five-star in productivity Roadmap for excellence in Indian

banking', prepared for the Indian Banks' Association (IBA) by The Boston Consultancy Group (BCG),

IBA and an industry body

Investment in logistics sector in India is projected to grow annually at 10 per cent. India's

logistics market achieved revenues of US$ 82.1 billion in 2010 and is expected to reach revenueworth US$ 90 billion in 2011. The logistics industry forecasts to generate revenues worth US$ 200

billion by 2020, as per Eredene Capital PLC's 2010-11 annual report

India's engineering research and development (ER&D) providers is estimated to capture

about 40 per cent share of global offshore revenues in 11 key verticals by 2020, according to a new

report titled 'The Futures Report 2011', by Global Futures and Foresight (GFF)

India's power sector will generate revenue of Rs 1,300,000 crore (US$ 247.62 billion) during

the Twelfth Five Year Plan (2012-17), as per Mr P Uma Shankar, Secretary, Ministry of Power. The

plan is to generate 17,000 MW power during the referred period

The food processing industry is set to triple to reach US$ 900 billion by 2020, provided the

key issues are addressed, as per a study by Boston Consulting Group (BCG) and an industry body

The National Agricultural Innovation Programme (NAIP) will spend Rs 500 crore (US$ 95.24

million) more in the next two years on different projects to add value to agriculture and allied

sectors. This programme aims at developing technology-based innovations to improve the income of

farmers and those living on allied sectors

Gaining momentum from fashion trends, many Indian consumers now spend an equivalent

amount on footwear as on their apparels, as they associate variety of shoes to different occasions.The footwear industry in India has almost doubled in the past five years to an estimated Rs 20,000

crore (US$ 3.81 billion)

Road Ahead

"I really think that India is a land of billion opportunities and not a billion problems," as per Mukesh

Ambani, Chairman and Managing Director, Reliance Industries Ltd. In the last 20 years, the country

has added a trillion dollars of output.

The Twelfth Five Year Plan is going to maintain its target growth rate at 9 per cent. The planning

commission is due to firm up its approach to the Twelfth Five Year Plan (2012-2017) on August 20,

2011, in a meeting chaired by Prime Minister Dr Manmohan Singh. The priority for resource

allocation will continue to be the social sector and infrastructure.

The Government of India has set ambitious targets for more than US$ 1 trillion to be invested in

infrastructure over the Twelfth Five Year Planmore than double the amount invested in the

previous five-year period, according to Eredene Capital PLC's 2010-11 annual report. Significantly,

the Government has set an export target of US$ 292 billion for 2011-12, up 19 per cent from US$

246 billion in 2010-11.


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Moreover, the Government of India has been ranked fifth in wielding economic clout globally after

the US, China, Japan and Germany, and ahead of European powers France and the UK, according to

a study authored by Kaushik Basu, Chief Economist Advisor.

India's fast-moving consumer goods (FMCG) industry's major players continue to pursue acquisitions

over the medium term, given the scope for expansion in under-penetrated product segments andgeographies, as per a report by credit rating agency Crisil. India remains an attractive market for the

global FMCG majors.

Exchange Rate Used: 1 USD = INR 52.50 (as on November 22, 2011)

Industry analysis:


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SWOT

Strengths

Liberal Environment: India's airlines operate in a liberal environment in both the domestic and

international spheres. With three major airline groups and four smaller carriers all operatingdomestic routes, there is no shortage of competition, although this factor combined with excess

capacity has tended to depress yields. Nevertheless, carriers are free to operate any domestic routes

without seeking permission from the government, and without restriction on pricing. One condition

that airlines find onerous however, is the requirement to operate a proportion of ASKs to remote

and underdeveloped regions of the country.

On the international front, the Indian government has pursued an increasingly liberal approach to

bilateral air services agreements with key overseas markets, resulting in greater access for foreign

carriers. Emirates for example, the largest foreign carrier by capacity into India, will operate 185

weekly frequencies to ten cities across the country by the end of 2009. India's carriers have acombined international capacity share of just over 36% but face strong competition from foreign

carriers, both full service and low cost.

Modern Fleet: In light of the fact that much of the growth in Indian aviation has occurred in the last

five years, the country's airlines operate a relatively young and modern fleet, ensuring a high quality

passenger experience, improved safety and good operational reliability.

High Quality: India's airlines offer a good quality product in each of the operating models in

existence. Jet Airways and Kingfisher Airlines are competitive in terms of their inflight service against

the leading carriers in the world. Kingfisher for example is one just half a dozen global carriers such

as Singapore Airlines and Cathay Pacific, with a Skytrax 5 star rating. In fact it could be argued that

the full service product on domestic routes is excessive for the sector lengths involved and results in

a higher cost structure, which the passenger does not necessarily see value in paying for. The LCCs

too, by and large, offer a comfortable, efficient and reliable service. Until a couple of years ago, Air

Deccan was one carrier that had developed a reputation for poor on-time performance, flight

cancellations and overbooking, however since being acquired by Kingfisher, most of these

operational issues appear to have been resolved.

Economic Growth: Economic growth has historically been the primary driver of air traffic, and the

relationship has generally been even stronger in developing countries. Between 2004 and 2007,

India enjoyed four years averaging 9% per annum GDP growth. This slowed to 6.5% in 2008,

however against the background of a global economic recession, this was a creditable performance.

\The increased business confidence following the general election result in May 2009 has eased

concerns that growth may slow further. The stock market has soared 25% in the last month and the

outlook for growth and consumption has improved, which is a positive for the aviation industry.

Political Stability: The re-election of the Congress Party, with a stronger majority is expected to

allow the new administration to push ahead with further economic reforms, which had to date been

blocked by coalition partners. The prospect of a government which has the ability to last its full term

and pursue its agenda is extremely encouraging. In addition, Minister Praful Patel, who was the


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architect of the dramatic transformation of the aviation sector, has retained the portfolio, which

brings experience and stability to the aviation industry.

Weaknesses

Airport Infrastructure: The rapid growth in air traffic over the last few years exposed the deficienciesof airport infrastructure across the country. After decades of neglect, many of India's airports were

forced to operate well above design capacity. The resulting congestion in the terminals and on the

runways delivered a poor experience for the passenger and a costly, inefficient operating

environment for the airlines. However, although a weakness today, it is also fair to say that it is

becoming less so, as the airport modernisation program starts to deliver results, with new airports in

Bangalore and Hyderabad, and improving facilities at Delhi and Mumbai. The upgrade of non-metro

airports remains behind schedule so it may be another 3-4 years before we see good quality facilities

across the country, but there are tangible signs of improvement.

Airways Infrastructure: Although congestion on the ground is relatively visible, another current areaof weakness is the limited investment that has taken place in improving infrastructure for air traffic

management. This too results in expensive aircraft holding patterns, indirect flight paths and sub-

optimal use of runways.

National Carrier: The state-owned carrier, Air India, is in a dire situation. The carrier is estimated to

have posted losses of close to USD1 billion in 2008/09, and morale within the bloated workforce is at

a low. With no clear direction, management instability at the top and continuing issues with the

integration of Air India and Indian Airlines, the carrier is in need of radical restructuring. It is

imperative that the government develops a turnaround strategy for Air India as an urgent priority.

Deep Pockets: Over the last three years, India's carriers have accumulated billions of dollars in losses

and debt. Ironically, a characteristic that would normally be considered a strength - namely deep

pockets - has resulted in carriers remaining afloat that would perhaps in other circumstances have

failed. With the backing of either the government or large corporations, several carriers have been

able to access funding that they might have been denied on a strictly commercial basis as standalone

airlines. As a result of the intense competition which has been perpetuated, airlines have struggled

to raise fares to break even levels.

High Cost Structure: India's airlines operate in a relatively high cost environment, primarily due to

the punitive taxation structure. The greatest impact is felt in the area of sales taxation on fuel, which

can increase the cost to 60% above the international benchmark. The limitations of airport

infrastructure also increase costs due to the fact that carriers are unable to schedule fast

turnarounds, resulting in reduced aircraft utilisation. In addition, the fact that high quality ancillary

services such as MRO and training are not currently available in India, means that aircraft and

personnel have to be sent overseas.

Skilled Resources: Domestic air traffic in India tripled in the five years to 2008, while international

passengers doubled. This rate of growth far outstripped the capacity to develop skilled technical and

management personnel. The gap was partly addressed by employing expatriates, particularly as

pilots, and by learning on the fly. This means there is a lack of in-depth experience and knowledge at

all levels. Furthermore, there is an absence of high quality training infrastructure in-country to


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deliver the resources to support future growth. This lack of personnel affects the government as well

and the FAA has expressed its concern at the shortage of qualified safety inspectors within the

Directorate General of Civil Aviation (DGCA). India has been put on notice that unless this issue is

addressed, it may be relegated to a Category II nation, which would mean that Indian carriers would

not be permitted to increase services to the US.

Opportunities

Market Growth: Despite the rapid expansion of recent years, India has only just scratched the

surface of the potential for the aviation sector. Trips per capita remain low even by the standards of

other developing countries. China's domestic market is more than four times the size of India's 40

million passengers. Even, Australia, a country with a population of just 21 million, compared with

India's 1.1 billion, has a market 25% larger. Similarly on the international front, less than 1% of

Indians travel overseas each year. Inbound visitor nunbers at 5.4 million in 2008 for the entire

country, were less than for Dubai or Singapore. It is not difficult to see the expansion potential from

such a low base as economic growth continues apace.

Geographic Location: India is ideally positioned as a major aviation hub at the crossroads between

Europe, the Middle East and Asia Pacific. The fact that aviation was a neglected sector for so long

has allowed airports such as Dubai and Singapore to effectively establish themselves as offshore

hubs for Indian passengers, and they now have a significant head start. However, as India's airports

improve, and its airlines receive international awards for their service, there may be an opportunity

to leverage its huge home market to compete with these longer established hubs.

Lower Costs, Higher Quality: India has already managed to develop a dynamic aviation sector

despite, and not because of, its environment. The improvements in airport and airspaceinfrastructure, the development of indigenous training and maintenance facilities and the potential

for fiscal reform, all point to the potential for Indian aviation to increasingly operate in a lower cost,

higher quality and more efficient manner. This could in due course lead to an opportunity for India

to develop as a global outsourcing hub in areas such as aerospace manufacturing, MRO and training.

Threats

Middle East Aviation: The carriers of the Gulf are aggressively expanding in India, with high

frequencies from multiple destinations to their hubs, from where passengers can access extensive

global networks. The ability for a passenger for example to travel one-stop from Ahmedabad to

Hamburg, or multiple daily frequencies from Mumbai to London, connecting at an attractive hub, is

a strength which Indian carriers simply cannot match at present. It will take time and the question is

how far ahead will the Middle East carriers be by that stage.

Terrorism: India has seen frequent terrorist activity in recent years. The country has shown great

resilience in bouncing back after each attack, however inbound international traffic in particular is

sensitive to such events. Similarly the potential for India to develop as a global traffic and services

hub is contingent upon it being seen as a safe and attractive destination.


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PEST Analysis: The Indian Airline Industry

A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an

acronym for the Political, Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firm's control and sometimes present

themselves as threats. For this reason, some say that "pest" is an appropriate term for these factors.

Let us look at the PEST analysis of the Indian aviation sector:

Political Factors

In India, one can never over-look the political factors which influence each and every industry

existing in the country. Like it or not, the political interference has to be present everywhere. Given

below are a few of the political factors with respect to the airline industry:

o The airline industry is very susceptible to changes in the political environment as it has a great

bearing on the travel habits of its customers. An unstable political environment causes uncertainty in

the minds of the air travellers, regarding travelling to a particular country.

o Overall Indias recent political environment has been largely unstable due to international events

& continued tension with Pakistan.

o The recent Gujarat riots & the governments inability to control the situation have also led to anincrease in the instability of the political arena.

o The most significant political event however has been September 11. The events occurring on

September had special significance for the airline industry since airplanes were involved. The

immediate results were a huge drop in air traffic due to safety & security concerns of the people.

o International airlines are greatly affected by trade relations that their country has with others.

Unless governments of the two countries trade with each other, there could be restrictions of flying

into particular area leading to a loss of potential air traffic (e.g. Pakistan & India)

o Another aspect is that in countries with high corruption levels like India, bribes have to be paid for

every permit & license required. Therefore constant liasoning with the minister & other government

official is necessary.

The state owned airlines suffer the maximum from this problem. These airlines have to make several

special considerations with respect to selection of routes, free seats to ministers, etc which a

privately owned airline need not do. The state owned airlines also suffers from archaic laws applying

only to them such as the retirement age of the pursers & hostesses, the labour regulations which

make the management less flexible in taking decision due to the presence of a strong union, & theheavy control &interference of the government. This affects the quality of the service delivery &


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therefore these airlines shave to think of innovative service marketing ideas to circumvent their

problems & compete with the private operators.

Economic Factors

Business cycles have a wide reaching impact on the airline industry. During recession, airline is

considered a luxury & therefore spending on air travel is cut which leads to reduce prices. During

prosperity phase people indulge themselves in travel & prices increase.

After the September 11 incidents, the world economy plunged into global recession due to the

depressed sentiment of consumers. In India, even a company like Citibank was forced to cut costs toincrease profits for which even the top level managers were given first class railway tickets instead

of plane tickets.

The loss of income for airlines led to higher operational costs not only due to low demand but also

due to higher insurance costs, which increased after the WTC bombing. This prompted the industry

to lay off employees, which further fuelled the recession as spending decreased due to the rise in

unemployment.

Even the SARS outbreak in the Far East was a major cause for slump in the airline industry. Even theIndian carriers like Air India was deeply affected as many flights were cancelled due to internal

(employee relations) as well as external problems, which has been discussed later.

Social Factors

The changing travel habits of people have very wide implications for the airline industry. In a country

like India, there are people from varied income groups. The airlines have to recognize these

individuals and should serve them accordingly. Air India needs to focus on their clientele which are

mostly low income clients & their habits in order to keep them satisfied. The destination, kind of

food etc all has to be chosen carefully in accordance with the tastes of their major clientele.

Especially, since India is a land of extremes there are people from various religions and castes and

every individual travelling by the airline would expect customization to the greatest possible extent.

For e.g. A Jain would be satisfied with the service only if he is served jain food and it should be kept

in mind that the customers next to him are also jain or at least vegetarian.

Another good example would be the case of South West Airlines which occupies a solid position in

the minds of the US air travelers as a reliable and convenient, fun, low fare, and no frills airline. The

major element of its success was the augmented marketing mix which it used very effectively. WhatSouth West did was it made the environment inside the plane very consumer friendly. The crew


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neither has any uniform nor does it serve any lavish foods, which indirectly reduces the costs and

makes the consumers feel comfortable.

Technological Factors

The increasing use of the Internet has provided many opportunities to airlines. For e.g. Air Sahara

has introduced a service through the internet, wherein the unoccupied seats are auctioned one

week prior to the departure.

Air India also provides many internet based services to its customer such as online ticket booking,

updated flight information & handling of customer complaints.

USTDA (US trade & development association) is funding a feasibility study and workshops for the

Airports Authority of India as part of a long-term effort to promote Indian aviation infrastructure.

The Authority is developing modern communication, navigation, surveillance, and air trafficmanagement systems for India's aviation sector that will help the country meet the expected growth

and demand for air passenger and cargo service over the next decade.

A proposal for restructuring the existing airports at Delhi, Mumbai, Chennai and Kolkata through

long-term lease to make them world class is under consideration. This will help in attracting

investments in improving the infrastructure and services at these airports. Setting up of new

international airports at Bangalore, Hyderabad and Goa with private sector participation is also

envisaged.

A good example of the impact of technology would be that of AAI, wherein with the help oftechnology it has converted its obsolete and unused hangars into profit centers. AAI is now leasing

these hangars to international airlines and is earning huge profits out of it. AAI has also tried to

utilize space that was previously wasted installing a lamination machine to laminate the luggage of

travelers. This activity earns AAI a lot of revenue.

These technological changes in the environment have an impact on Air India as well. Better airport

infrastructure, means better handling of airplanes, which can help reduce maintenance cost. It also

facilitates more flights to such destinations.


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Open skies policy

1.1 Need for Open Skies Policy

A recurring demand often voiced by interested parties is that, in order to promote Travel & Tourism,

India should adopt an Open Skies policy. It is argued that the current policy restricts the access of

foreign airlines. As a result potential tourists are not offered a choice of airlines or seats when

travelling to India. This problem is exacerbated during the holiday season when it is difficult, if not

impossible, to get a seat either into the country or out of it. It is argued, therefore, that India should

adopt an Open Skies approach to any foreign carrier wanting to fly into India, which literally means

allowing them unlimited service, capacity and points of call.

1.2 Meaning of Open Skies

At the outset we must point out that the concept of 'Open Skies' is much misunderstood in its

meaning and implications. Strictly speaking Open Skies 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 Skies 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. Defined in this

manner, it is not surprising that Open Skies policies are adopted only by a handful of countries, most

commonly those that have no national carriers of their own and that have only one or two airports.

No sovereign country of any eminence practices Open Skies least of all the European Union, UK,

USA, Japan, Australia or countries in South East Asia.

1.3 Bilateral Treaties

However, almost 99 per cent of Members of the International Civil Aviation Organization (ICAO)

follow the system of negotiated bilateral treaties determining the aviation relations between two

sovereign Contracting parties. In fact, the bilateral aviation regime is considered the fundamental

basis for a disciplined and regulated aviation system between the nations of the world. It provides

not only regularity of operations through scheduled services but also stipulates the basis of

ownership, number of seats to be utilized, type and certification of aircraft and visiting ports of call.

The Bilateral Agreements also protect the different kinds of aviation Freedoms granted to

contracting parties by specifying the reciprocal rights to be enjoyed by each.


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1.4 Indian Bilateral Treaties

India has signed over 180 Bilateral Agreements with different countries. In 2002 the total number of

seats available was 38.09 million. Of this, the capacity operated was approximately 19.174 million

seats. Since the average size of traffic to and from the country is slightly in excess of approximately

14 million passengers, normally the contracted rights should suffice the traffic demand.

1.5 Utilization of Bilateral Treaty Contracts

It is in the actual utilization of the contracted seats that the problem arises. Of the contracted

amount, 50 per cent are to be utilized by the national carrier and 50 per cent by the airline owned by

the contracting country. However, whilst the foreign carriers are in a position to use over 70 per cent

of their entitlement, the national carrier is only able to utilize 29.4 per cent of their share. It is this

shortfall that creates pressure on seats, particularly during peak tourism national carriers do not

have sufficient aircrafts to be able to utilize the bilateral rights available to the country and enter

into commercial and code sharing arrangements to maximize revenue. Whilst this does improve

their profitability in the short run, it has a long-term adverse effect in that it deprives the country of

much needed air bridges to bring in tourists and carry trade.

Under the present bilateral system, the utilization of the traffic rights on international routes to and

from India, as negotiated by the Government of India, is restricted to the two Government owned

'national' carriers - namely Air India and Indian Airlines and either or both these carriers are the

Indian designated carriers under the various Air services Agreements. The Operating Permits restrict

the privately owned carriers, such as Jet Airways and Air Sahara, to operate only domestic routes

within India.

2. Civil Aviation Policy in India

In the context of a multiplicity of airlines, airport operators (including private sector), and the

possibility of oligopolistic practices, there is a need for an autonomous regulatory authority which

could work as a watchdog, as well as a facilitator for the sector, prescribe and enforce minimum

standards for all agencies, settle disputes with regard to abuse of monopoly and ensure level playing

field for all agencies. The CAA was commissioned to maintain a competitive civil aviation

environment which ensures safety and security in accordance with international standards,


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promotes efficient, cost-effective and orderly growth of air transport and contributes to social and

economic development of the country.

2.1 Objectives of Civil Aviation Ministry

a) To ensure aviation safety, security

b) Effective regulation of air transport in the country in the liberalized environment

c) Safe, efficient, reliable and widespread quality air transport services are provided at

reasonable prices

d) Flexibility to adapt to changing needs and circumstances

e) To provide all players a level-playing field

f) Encourage Private participation

g) Encourage Trade, tourism and overall economic activity and growth

h) Security of civil aviation operations is ensured through appropriate systems, policies,

and practices

2.2 Private Sector Participation and the Civil Aviation Policy

Private sector participation will be a major thrust area in the civil aviation sector for promoting

investment, improving quality and efficiency and increasing competition.

Competitive regulatory framework with minimal controls encourages entry and operation of

private airlines/ airports.

Encouragement of private sector investment in the construction, upgradation and operation of

new and existing airports including cargo related infrastructure.

Rationalization of various charges and price of ATF/AVGas will be undertaken to render

operation of smaller aircraft viable so as to encourage major investment in feeder and regional air

services by the private sector.

Training Institutes for pilots, flight engineers, maintenance personnel, air-traffic controller, and

security will be encouraged in private sector.

Private sector investment in non-aeronautical activities like shopping complex, golf course,

Entertainment Park, aero-sports etc. near airports will be encouraged to increase revenue, improve


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viability of airports and to promote tourism. CAA will ensure that this is not at the cost of primary

aeronautical functions, and is consistent with the security requirements.

Government will gradually reduce its equity in PSUs in the sector.

Government will encourage employee participation through issue of shares and ESOP

2.3 Security

Strict national civil aviation security programme to safeguard civil aviation operations against acts of

unlawful interference have to be established through regulations, practices and procedures, which

take account of the safety, regularity and efficiency of flights. A good safety record is a judgment of

past performance but does not guarantee the future, although it is a useful indicator. While pilot

error is said to be on the decline, factors of fatigue, weather, congestion and automated systems

have complicated safety. Airline operators, pilots, mechanics, flight attendants, government

regulators and makers all have a stake in making aviation as safe as possible. The International Air

Transport Association (IATA), the International Civil Aviation Organization (ICAO), manufacturers and

others bodies cooperate in this aim. As world air traffic is expected to double or more by 2020, the

accident rate must be reduced in order to avoid major accidents occurring more frequently around

the globe.

1.4 Maintenance

Private sector participation is encouraged in existing maintenance infrastructure of Indian Airlines

and Air India like Jet Engine Overhaul Complex (JEOC) and new maintenance facilities including

engine overhaul and repairs with up to 100 % foreign equity.

Indian Airlines has major maintenance facilities for all the types of aircraft in IAL fleet i.e. Airbus-300,

Airbus-320, Boeing-737 and Dornier-228. The Engineering Department is responsible for

maintenance of aircraft and is answerable to Director General of Civil Aviation (DGCA) in maintaining

the Quality Control. The Maintenance of the aircraft is carried out at four major bases located at

Delhi, Mumbai, Calcutta and Hyderabad.

Sahara also has its own NDT Shops, wheels and brake assembly shop, battery charging shop, avionics

shop and seat repair shop. It is the only private domestic airline to have its own hangar for aircraft

maintenance. It is also the only private domestic airline to have self-maintenance capability.

Air Deccan, Bangalore-based airline, has decided to set up its engineering and maintenance facility

for Airbus-320 operations, basing two of a fleet of 11 Airbus jets here. They have also sought land


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from the Airports Authority of India to build an exclusive hangar to carry out 300 and 500-hour

checks, apart from C-Checks and line maintenance.

3. Recommendations

3.1 Government Recommendations

Codesharing

Codesharing is an important tool for airlines to minimise the costs of operating services. By selling

seats on a flight operated by another carrier, codesharing enables an airline to make direct cost

savings by rationalising services or establishing market presence on a route without actually

operating on it. Thus, both airlines may be able to save on fuel, labour and other variable costs, as

well as making more effective use of aircraft and other overheads.

Cabotage

Restricting access by foreign carriers to the Indian domestic market gives the Indian carriers a solid

base from which to extend into international aviation. The same applies to most other countries,

with the exception of city economies such as Singapore and Hong Kong. Restricting cabotage rights

for the carriage of passengers and freight to domestic airlines reduces competition on domestic

routes. These restrictions help keep fares and freight rates higher than they otherwise might be,

boosting domestic airline revenue at the expense of domestic consumers. Allowing foreign carriers

some cabotage rights could improve competition in the domestic market. Integrating domestic and

international services allows airlines to achieve:

operational synergies and efficiencies by being able to switch capacity and aircraft between

the domestic and international sectors; and

network advantages such as economies of scope and traffic density as well as the marketing

advantages of operating a combined domestic and international network.

The opposition to this recommendation is the view that It is most likely that foreign carriers would

engage in cherry picking i.e. carry domestic traffic on the most profitable routes. Incumbent airlines

would need to counter any loss of profitability on routes affected by cabotage and this could mean a

reduction in the number of services provided on these routes, or the reduction or withdrawal ofservices from less profitable routes, with consequential loss of amenity to passengers, including

those making connections to other parts of the domestic network.

Eliminate Regulatory Structure

The regulatory structure inhibits competition in many ways. It can prevent or deter entry, constrain

capacity, and limit the potential for airlines to win market share. A problem in assessing regulatory

impacts is the structure of aviation markets. Economies of scope and traffic density favour large

airlines operating many services. On the demand side, a single carrier operating a long thin route

with multiple frequencies will attract better business than multiple carriers who each operate one


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service per week. Thus markets tend to be concentrated with a small numbers of carriers operating

on most routes.

It cannot be presumed that these airlines respond to normal commercial incentives. Instead of

shareholder value, they may be managed for national prestige, employment enhancement,

technology transfer, or defence, which might require government subsidies. Continued use ofsubstantial government subsidies is an obstacle to efficient air services, and has important

implications for competition in a less regulated international environment.

Eliminate the fuel tax

A most regressive tax whose burden becomes larger as fuel costs increase (and airlines ability to pay

diminishes). As an interim step cap tax revenue and determine a better way of obtaining (e.g., a

per passenger levy).

Eliminate category III restrictions

Eliminate category III restrictions and provide essential air services subsidies where required (with

costs shared by national/state/local authorities). Category III mandates that an operator deploy on

routes in Category-II (North-Eastern region, Jammu & Kashmir, Andaman & Nicobar and

Lakshadweep) at least 10% of the capacity deployed on routes in Category-I and of the capacity thus

required to be deployed on Category-II routes, at least 10% would be deployed on service or

segments operated exclusively within the North-Eastern region, Jammu & Kashmir, Andaman &

Nicobar and Lakshadweep. In the interim, allow airlines to transfer category III obligations to a

competitor or third party operator who could use a standard, appropriate fleet and be paid by the

majors to meet their category III requirements.

Improve quality of and access to airports and hangars

Privatize or municipalize. Develop a robust traffic management system that addresses relevant

technical issues and meets strategic objectives through rigorous systems engineering and large-scale

integration efforts such that rising air traffic demand is supported in a safe, secure and efficient

manner.

Today, Indian airlines have difficulty accessing hangars for maintenance. As a result, private

operators have to do some maintenance abroad. Airline maintenance and overhaul should be an

area where India could develop a major international business, leveraging its low labour costs andworld-class engineering to service aircraft for other countries as well as its own.

Tourism

An efficient aviation sector is essential to support the tourism industry, which has immense

employment opportunities and the tourism and airline industries with a joint proactive approach can

foster tourism development and promotion in a big way. One of the prerequisites for developing

tourism is 'easy access' to the tourist destinations, in terms of international and domestic

connectivity and easy movement within the destination. An efficient aviation sector is essential to

support tourism. Air connectivity is integral to the growth of tourism. Airlines and tourism are self


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dependent. The tourism market grows by itself with new connections and a popular destination

attracts more flight operations. It is a win-win situation.

Direct connections would also give further impetus to tourists arrival. Over 40 per cent of the

passenger traffic is concentrated in two main international airports namely New Delhi and Mumbai.

The increase in connectivity has contributed to domestic and international tourist arrivals. Thetourism and airline industries with a joint proactive approach can foster tourism development and

promotion in a big way.

3.2 Industry Recommendations

Reduce labour costs

All major carriers need to win significant concessions from their workers. Low labour outlays would

consist of a mix of reduced wages, more flexible work rules and trimmed benefits including pension.

Simplify flight operations

Low-cost carriers use just a few types of aircraft, a strategy that cuts training and maintenance

expenses. Larger airlines who fly internationally, to more remote destinations require varied fleets of

large and small planes. However, they can and should work toward streamlining the types of planes

they fly.

Another way to simplify operations is modifying the hub-and-spoke model, which uses designated

headquarter airports for transfers. Traditionally, the big airlines have sent many of their flights

through hub airports at peak business-travel hours. That way, since carriers typically charge heaps

more for business fares, they can get more revenues per flight. But many experts argue that it's time

to give up on that model - especially as low-cost carriers increase service along heavily travelled

routes.

Experts like the idea of so-called rolling hub operations, where flights are scheduled throughout the

day so that an airline's assets - from employees to planes to hangars - can be used more efficiently.

In a traditional hub system, planes and workers spend more time waiting for connecting flights to

come in at peak operating times. With rolling hubs, travellers may end up waiting a little longer to

get a connecting flight, but planes end up in the air for more hours of the day.

Offer more transparent pricing

The legacy carriers have long had an exotic, almost incomprehensible pricing system. However,these days, with the Internet allowing travellers to shop for the cheapest tickets easily, and low-cost


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airlines offering uncomplicated set prices, traditional carriers have to follow suit or risk losing more

and more passengers.

Get smart on fuel

With oil near $50 a barrel, airlines must be smarter about how they incorporate its price into theircosts. Discount carriers such as Southwest hedge as much as 80% of their jet-fuel costs. Essentially,

that means that they lock in prices on future fuel when the price drops. Small wonder Southwest is

one of the few success stories in the airline business.

Stop chasing market share

Airlines need to be savvier about capacity. At the start of 2004, many planned to add more flights

amid signs of an improved economy. When it became clear that demand wasn't as strong as

originally forecast, most carriers still wouldn't retrench from their plans for fear of losing out if the

market snapped back. Rather than scrambling to add seats in fear of missing out on the party,

airlines would do well to take a more cautious approach and focus on efficiency and margins.

From bailouts to government partnership

Although the Indian airline industry was largely deregulated in 1990, plenty of lingering rules and

regulations have made it nearly impossible for carriers to be efficient. Many believe that restrictions

on foreign ownership and labour laws have kept the industry from innovating. So instead of lobbying

for protective measures like bailouts, airlines need to work with government to tackle longer-term

projects like building more runways, running airports more efficiently, and reining in labour costs.

A new model for premium pricing

Most of the industry's improvement efforts have focused on whittling down costs. However,

boosting revenues also needs to be a priority. After all, people are willing to pay more if they believe

they're getting more value. Legacy carriers still offer certain advantages, especially to the business

traveller including airport lounges and more comfortable seating.


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Major Players in India

27.6

20.417.4

16.8

12.1

5.7 %Share JetAirways

%27.6IndiGo

%20.4

Air India%17.4

SpiceJet

%16.8


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Passenger Traffic

Passenger traffic growth moved back to double digits in FY11, clocking 15.9 per cent

Over FY05-11, passenger traffic increased at a CAGR of 15.9 per cent

59.373.3

96.4

116.9108.9

123.7

143.4

0

20

40

60

80

100

120

140

160

FY05 FY06 FY07 FY08 FY09 FY10 FY11

Passenger

Passenger


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Domestic/International

Domestic passenger traffic expanded at 17.6 per cent CAGR over FY05-11.

International passenger traffic rose 11.8 per cent over the same period.

Passenger traffic spikes up as demand for air travel soars.


39.9 5170.6 87.1 77.3

89.4105.519.4

22.3

25.8

29.831.6

34.4

37.9

0

2040

60

80

100

120

140

160

FY05 FY06 FY07 FY08 FY09 FY10 FY11

International

Domestic


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Travel and Tourism spending(USD)

0

10000

20000

30000

40000

50000

6000070000

Per Capita GNP at Factor Cost (Rupees)

Per Capita GNP at

Factor Cost

(Rupees)

0

10

20

30

40

50

2006 2007 2008 2009 2010

leisure

travel and

tourism

spending

Business

travel and

tourismspending


28/29

More passengers and rising trade aiding higher aircraft movement:

138

175211

286284

235

0

50

100

150

200

250300

350

FY06 FY07 FY08 FY09 FY10 FY11

Export

Import


29/29

References:

http://www.bseindia.com/

http://www.rbi.org.in

http://www.aai.aero

http://www.wikipedia.org/

http://mospi.nic.in

http://india.gov.in/sectors/commerce/ministry_commerce.php
http://www.bseindia.com/http://www.rbi.org.in/http://www.rbi.org.in/http://www.aai.aero/http://www.aai.aero/http://www.wikipedia.org/http://www.wikipedia.org/http://mospi.nic.in/http://mospi.nic.in/http://india.gov.in/sectors/commerce/ministry_commerce.phphttp://india.gov.in/sectors/commerce/ministry_commerce.phphttp://india.gov.in/sectors/commerce/ministry_commerce.phphttp://india.gov.in/sectors/commerce/ministry_commerce.phphttp://mospi.nic.in/http://mospi.nic.in/http://www.wikipedia.org/http://www.wikipedia.org/http://www.aai.aero/http://www.aai.aero/http://www.rbi.org.in/http://www.rbi.org.in/http://www.rbi.org.in/http://www.bseindia.com/

Date post:	05-Apr-2018
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Indian Economy Aviation Report

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