Aviation Industry in India

Overview of Airlines industry in India

The aviation industry in India is one of those sectors that saw a constant pace of growth among the other industries in the world over the past many years. The open sky policy of the government has helped a lot of overseas players entering the aviation market in India. From then, it has only been growing in terms of players and the number of aircrafts. At present, private airlines account for around 75% portion of the domestic aviation market.
The 9th largest aviation market in the world is India. Taking the help of the statistics from the Ministry of Civil Aviation, approximately 29.8 million passengers traveled to/from India in 2008, showing a surge of 30% from 2007. The prediction stated that international passengers will touch 50 million by 2015. More opportunities in the aviation industry in India are likely to make way for about 69 foreign airlines from 49 countries.

Growth

of

Indian

Aviation

industry

The Indian Civil Aviation market grew at a CAGR of 18%, being valued round US$ 5.6 billion in 2008. Further statistics revealed that the air traffic in August 2009 was a double digit figure. The domestic airliners flew 3.67 million passengers i n August 2009, as against 2.92 million in the corresponding period of 2007, up by 26%. The Centre for Asia Pacific Aviation (CAPA) has estimated that the domestic traffic will go up by 25% to 30% till 2010 along with a surge in the international traffic by 15%. There would be more than 100 million passengers by 2010. Then again by 2020, Indian airports will in all probability handle over 100 million passengers every year. The investment plans to the tune of US$ 9 billion has been made by the Aviation Ministry for modernizing the existing airports by 2010. In terms of domestic passengers' volume, US have always been the leader with followers in the league like China, Japan and India. The number of domestic flights went up by 69% from 2005 to 2008, with the domestic aviation sector growing at 9-10%. Market share of key players in the Indian aviation sector
Name of the players Kingfisher Airlines and Kingfisher Red (previously Air Deccan) Jet Airways and Jet Lite (previously Air Sahara) Air India and Indian (previously Indian Airlines) IndiGo SpiceJet GoAir Paramount Airways MDLR Airlines Market Share 28% 25% 16% 14% 12% 3% 2% 0.004%

Future

of

Airlines

industry

in

India

The challenges of the Indian aviation industry are cited below:

Passenger traffic is estimated to grow at a CAGR of over 15% in the coming few years. The Ministry of Civil Aviation would handle around 280 million passengers by 2020.

US$ 110 billion investment is envisaged till 2020 with US$ 80 billion solely for new aircraft and US$ 30 billion for developing the airport infrastructure.

India is one of the flourishing global aviation markets. As per Airport Authority of India (AAI) statistics, there are 127 airports in India which incorporates 13 international, 80 domestic, 28 civil and 7 custom airports. Moreover India has around 1091 registered aircrafts. Over the years there has been steady growth in the number of private players establishing their business in India due to increasing liberalization and deregulation. Hence, at present aviation industry consist of three types of players namely, Full cost carriers, Low cost carriers (LCC) and other start-up airlines.

An

overview

of

Aviation

sector

in

India

The aviation sector in India has registered an estimated increase in domestic passenger sector by 50% per annum in the recent years, while the growth in international passenger section is estimated as 25%. Experts foresee future growth in international cargo by 12%. As per the prediction of the Ministry of Civil Aviation, India in the coming decade will require 1,500 to 2,000 passenger aircrafts out of which 135 planes have already been added. It is also predicted that India's aircraft capacity will stand at 500550. In the year 2010, as estimated by the ministry, the domestic market will exceed 60 million and the international traffic will achieve 20 million. And in 2020, Indian airports will be effective enough to support 100 million passengers, which would include 60 million domestic passengers. The quantity of cargo managed by the airport is estimated to decline in the range of 3.4 million tonnes per year.

Top aviation companies in India

Air Charter Services Pvt Ltd: Air Charter Services Pvt. Ltd. performs its business operations with private business aircrafts, executive and corporate air charters, helicopter tours, VIP charter flights, and photo and video flights. Its client list incorporates VIPs, corporate firms, tour co-ordinators, travel agents and air medical evacuation professionals. It provides services such as relief, VIP, air ambulance and privacy services. Air Charters India: Air Charter India is owned by the STIC Travel Group and has around 100 airplanes in India. It covers several international destinations with an unmatchable logistics support. The aviation company has 40 offices with a highly skilled manpower of above 1000 people. It offers services like heli-skiing, charter flights for pilgrimage in India, heli-sightseeing, corporate jets, executive jets, etc. Air Charter India provides airplanes such as helicopters, business aircrafts, aircrafts for corporates, individuals and group travelers. Air India: National Aviation Company of India Limited (NACIL) was the first Indian aviation company which led the way for other companies in the aviation sector. It was initiated before the India gained its independence. Later it collaborated with Indian Airlines and gained the reputation of being the largest airline in South Asian airline. Air India Cargo, Air India Express and Air India Regional are its subordinates in aviation market. It offers First class, Executive class and Economy class services and has codesharing pacts with companies like Air France, Austrian Airlines, Aeroflot, Air Astana, Emirates Airline, Air Mauritius, Kuwait Airways, etc. Aviation India: Aviation India provides services like cargo services, flight operation, air charter services, passenger services, freight control, advisory and consultancy, aircraft preservation and renovation, international

flight operation, air supervision and helipad engineering, etc. The airlines has skilled workforce and offers total control and functional back-up to several international schedule / non-schedule operations.

Indian Airlines: Indian Airlines was inaugurated on 1st August, 1953 and in collaboration with its fully governed subordinate in aviation market Alliance Air, it takes pride in being recognized as one of the biggest regional airline systems in Asia. It has a fleet of 70 airplanes and covers 76 destinations, 58 Indian destinations and 18 foreign destinations. Globally it covers Oman, UAE, Kuwait, Qatar, Singapore, Yangon, Pakistan, Maldives, Bangladesh, Sri Lanka, etc. Deccan Aviation Ltd.: The aviation company has its presence in 8 places namely, Mumbai, Ranchi, Surat, Hyderabad, Bangalore, Katra, Colombo (Sri Lanka) and Delhi. It has 350 daily departures and covers 65 destinations in India. It offers the benefit of no-cost travel to infants, ticketing counters, lavish aircraft interiors and ticketing flexibility. Indigo: Indigo is a utilitarian low-price domestic airline which offers feasible flying alternatives for millions. The airline was facilitated by the Air Passengers Association of India (APAI) as the Best Low-Fare Carrier in India for the year 2007. Indigo has 120 daily departures and a fleet of 19 Airbus A320. The airline covers 17 destinations namely, Agartala, Bangalore, Bhubaneshwar, Ahmedabad, Delhi, Chennai, Guwahati, Hyderabad, Goa, Imphal, Kolkata, Mumbai, Vadodara, etc. Paramount airways: Paramount Airways is a business class airline which has its base in India and headquarters at Chennai. Endorsed by Madurai-based Paramount Group and Paramount Railways was inaugurated in 19th October 2005. Its fleet comprises 5 aircrafts and it operates in 8 destinations. Go Air Airlines: Like SpiceJet, a Go Air airline is also a low price airline endorsed by the Wadia group. It was inaugurated in Mumbai in June 2004. It operates in 11 cities with 61 daily departures. It has started its functions in Ahmedabad, Chennai, Bangalore, Coimbatore, Goa, Cochin, Jaipur, Mumbai, Pune, Delhi, Srinagar, etc. Kingfisher Airlines: It is the one and only 5-star airline in India which offers excellent first class service on domestic itineraries also. A part of UB group, Kingfisher Airlines has received 30 awards for its novelty and customer satisfaction. After its tie-up with Deccan, the airline covers 64 cities and has 484 daily departures. Spice Jet: Spice Jet is basically a low cost airline which incorporates many Boeing 737-800 airplanes in its fleet. It covers 14 destinations in India. Air Sahara: Air Sahara was inaugurated on December 3, 1993 with a fleet of only two Boeing 737-200s. Now it comprise of 27 aircrafts, 135 daily departures and availability of 16500 seats on regular basis. It reaches various Indian destinations like Bangalore, Kolkata, Delhi, Lucknow, Mumbai, Chennai, etc. Jet Airways: Jet Airways was established on May 5, 1993. It earns yearly revenue of Rs 2502.89 and total income of approx Rs. 117868.8 Million. At present it id India's biggest private domestic airline with 62 aircrafts and a market share of 25%. It covers 50 destinations with 340 regular departures. Jet Airways has pacts with foreign airlines, such as Lufthansa, Swiss, Gulf Air, Austrian Airlines, Qantas and Thai.

Role of Aviation Industry in India GDP

The Role of Aviation Industry in India GDP in the past few years has been phenomenal in all respects. The Aviation Industry in India is the most rapidly growing aviation sector of the world. With the rise in the economy of the country and followed by the liberalization in the aviation sector, the Aviation Industry in India went through a complete transformation in the recent period.

Role of Aviation Industry in India GDP-Facts

With the entry of the private operators in this sector and the huge cut in air prices, air travel in India were popularized On February 18, 1911, the first commercial flight was made from Allahabad to Naini by a French pilot named Monseigneur Piguet

Role of Aviation Industry in India GDP-Growth Factors

The growth in the Indian economy has increased the Gross Domestic Product above 8% and this high growth rate will be sustained for a good number of years Air traffic has grown enormously and expected to have a growth which would be above 25% in the travel segment In the present scenario around 12 domestic airlines and above 60 international airlines are operating in India With the growth in the economy and stability of the country India has become one of the preferred locations for the trade and commerce activities The growth of airlines traffic in Aviation Industry in India is almost four times above international average Aviation Industry in India have placed the biggest order for aircrafts globally Aviation Industry in India holds around 69% of the total share of the airlines traffic in the region of South Asia

Role of Aviation Industry in India GDP-Future Challenges

Initializing privatization in the airport activities Modernization of the airlines fleet to handle the pressure of competition in the aviation industry Rapid expansion plans for the major airports for the increased flow of air traffic Immense development for the growing Regional Airports

Role of Aviation Industry in India GDP-FDI Policy

Airports

Foreign equity up to 100% is allowed by the means of automatic approvals pertaining to establishment of Greenfield airports Foreign equity up to 74% is allowed by the means of automatic approvals pertaining to the existing airports Foreign equity up to 100% is allowed by the means of special permission from Foreign Investment Promotion Board, Ministry of Finance, pertaining to the existing airports

Air Transport Services

Up to 49% of foreign equity is allowed by the means of automatic approvals pertaining to the domestic air transport services Up to 100% of NRI investment is allowed by the means of automatic approvals pertaining to the domestic air transport services

INDIAN AVIATION INDUSTRY : INDIAN AVIATION INDUSTRY as service sector Presented by: Ranish shah Vineet kumar Santosh kumar

Flow of presentation : Liberalization and history Industry characteristics Capacity PESTEL STP 7p Opportunity Challenges Summation/conclusion/recommendation Flow of presentation

Indian Aviation liberalization : Indian Aviation liberalization

Industry characteristics : Industry characteristics

Capacity expansion and competitors : Capacity expansion and competitors

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 Sector structure/Market size

Aviation policy : Aviation policy

Demand drivers : Demand drivers

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 PESTEL

STP : SEGMENTATION - HNI People .& others TARGET -VPs,CEOs -Bollywood Stars -Politicians -Foreign Tourists -industrialists -regular -Oil exploring companies POSITIONING Chartered air service Statement - STP

Slide 12: 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 Cessane luxury 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

Slide 13: 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 Challenges

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 Declining yields

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 Building on cost efficiencies

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 Contd..

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 Gaps in Infrastructure

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 Opportunities

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 Air Cargo

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 Ground Handling

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 Training

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 Leveraging the internet

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 Access to new markets

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. Current scenario of Indian aviation industry

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. Market size

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 Summation

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 In sum

Last Updated: December 2010 The Indian aviation industry has witnessed an impressive growth during the past few years, with major contribution from the civil aviation segment. The market has been strongly supported by the government and the private sector. Availability of skilled manpower along with favourable business environment will position India as one of the most attractive investment destinations in the coming years. It is currently the 9th largest aviation market in the world. On the basis of strong market fundamentals, it is anticipated that the civil aviation market will register more than 16 per cent CAGR during 2010-2013. Mr Praful Patel, Union Civil Aviation Minister has stated that the airline industry in India has grown by 400 per cent in a short span of about six-and-a-half years. He said in 10 years Indian market will be the third largest aviation market after the US and China Passengers carried by domestic airlines from January June 2010 were 46.8 million as against 39.4 million in the corresponding period of year 2009 thereby registering a growth of 18.9 per cent - according to data released by the Directorate General of Civil Aviation (DGCA). In terms of market share, private carrier Jet Airways was the market leader with 19.2 per cent share, closely followed by Kingfisher Airlines with 19.1 per cent, Indigo with 17.3 per cent, National Aviation Company Limited (NACIL) with 17.1 per cent, Indigo with 16.4 per cent, SpiceJet with 13.3 per cent, JetLite with 7.0 per cent and GoAir with 6.9 per cent during the month of November 2010. Significantly, Delhi's IGI airport is the busiest airport in the country at present, handling an average of about 843 flights per day. On November 29, 2010, it handled its highest ever traffic with 865 operations. Some US$ 100 billion in aircraft orders will be up for grabs over the next 20 years. Boeing's current market outlook (20092028) predicts that the country will require 1,000 aircraft worth US$ 100 billion over the next two decades, according to Dinesh Keskar, President of Boeing and FICCI Aviation Committee chairman. Leading aircraft manufacturers Airbus and Boeing have expressed optimism over the growth of the civil aviation industry in India. As per Airbus, the country would need 1,032 new aircrafts worth around US$ 138 billion by 2028. On a similar note, Boeing has also predicted that the sector would require 1,150 commercial jets worth US$ 135 billion in the next 20 years. The Hyderabad International Airport has been ranked amongst the world's top five in the annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul, Singapore, Hong Kong and Beijing. The Hyderabad International Airport is being managed by a public-private joint venture of the GMR Group, Malaysia Airports Holdings Berhad and the State Government of Andhra Pradesh along with the Airports Authority of India (AAI). Timothy J Roemer, the US Ambassador to India has said that the US will work with the Indian government and the domestic private sector to make the country an aviation hub. Speaking at India Aviation 2010, Roemer said that the public-private initiative, US-India Aviation Programme, would work together with the DGCA on helicopter aviation security. The AAI is set to spend over US$ 1.02 billion in 2010, towards modernisation of non-metro airports. AAI is planning the cityside development of 24 airports, including those at Ahmedabad and Amritsar. Additionally, 11 new greenfield airports have been identified to reduce passenger load on existing airports, according to Praveen Seth, member-operations, AAI. AAI also plans to spend around US$ 3.07 billion in the next five years for developing, upgrading and modernising metro and nonmetro airports. With the growth in the industry, airport retailing has also gained pace in the recent times. Development of new terminals and airports such as the recently inaugurated T3 in New Delhi has provided added impetus to this segment. The highest margin earners in this segment are food and beverages, beauty product, electronic items, apparel etc. It has been predicted that airports would provide around 300,000-400,000 square feet retail space by 2015. Many companies are also planning to leverage on this growing segment by launching specific products for air travellers. For instance, French premium skincare

brand L'Occitane is planning to develop a special range to cater to the airport retailing segment. Investment Policy The consolidated document on FDI policy was released on March 31, 2010. Currently, for the civil aviation sector (Airports):

FDI up to 100 per cent is allowed under the automatic route for greenfield projects. For existing projects, FDI up to 100 per cent is allowed; while investment up to 74 per cent under the automatic route and beyond 74 per cent under the government route.

Government initiatives

To create world class airports, the government has recognised the need for the involvement of private players in the development of airport infrastructure. Development of airports at Delhi and Mumbai has been taken up under Public Private Partnership (PPP) mode. The capital expenditure is funded through private equity, borrowings, and internal resources of joint venture companies. The development work of Mumbai airport is likely to be completed by 2012 whereas the work of a new terminal (Terminal 3) at Indira Gandhi International Airport at Delhi got completed in July 2010. The development work of Kolkata and Chennai International airport has been taken up by Airport Authority of India whereas Bangaluru and Hydrabad international airports have been developed on PPP mode as greenfield airports. The AAI has taken up the development of 35 non metro airports. As per the Economic Survey of 2009-10, out of 35 airports, 9 have been completed and put in operation. The other projects are in progress and likely to be completed by 2010-11 The adoption of Open Sky Policy has resulted in the entry of several new privately owned airlines and increased frequency / flights for international airlines.

Road Ahead Investment opportunities of US$ 110 billion are being envisaged up to 2020 with US$ 80 billion towards new aircraft and US$ 30 billion towards the development of airport infrastructure, according to the Investment Commission of India. In the largest deal in civil aviation history, Delhi-based low-cost domestic carrier IndiGo has placed an order for 180 aircraft with European-aircraft maker, Airbus. The deal is valued at US$ 15.6 billion. Lufthansa Cargo and GMR group have signed an agreement to develop Rajiv Gandhi International Airport as a South Asian cargo hub, with focus on pharmaceutical exports. Kingfisher Airlines and American Airlines, both members of the Oneworld alliance, will begin their codeshare and frequent flyer arrangement in 2011, the two airlines have announced.