Indian Aviation Industry

Indian Aviation Development Policy

Public Private Partnership (PPP) Policy: This has been undertaken in major Metro airports viz. Delhi, Mumbai, Bangalore and Hyderabad. FDI Policy:

100% FDI is permissible for existing airports but beyond 74%, Foreign Investment Promotion Board (FIPB) approval is required.
100% FDI under automatic route is permissible for Greenfield airports. 49% FDI is permissible in domestic airlines under the automatic route but this can not come from foreign airline companies.

Indian Aviation Development Policy

Taxation Policy: This provision of 100% tax exemption for airport projects for a period of 10 years. Open Sky Policy: Open Sky policy of the Government and rapid air traffic growth have resulted in the entry of several new private airlines in the industry in recent years and also increased frequency of flights of international carriers.

Market Structure Market Share of Scheduled Domestic Airlines (October 2009)

Airlines Company Kingfisher Jet Airways NACIL IndiGo Spicejet JetLite Market Share 20.7% 19.8% 18.6% 13.6% 12.4% 7.9%

Go Air
Paramount
Data Source: The Directorate General of Civil Aviation (DGCA), Ministry of Civil Aviation

5.4%
1.5%

Competition Issues in Civil Aviation Possibilities of Anti competitive Conducts

Sector

From the market share presented, it is evident that no single airline company enjoys a dominant position currently. However, there are possibilities of (i) anti competitive agreements (especially cartels) between large players and
(ii) mergers and acquisitions of airlines. The first can lead to price fixing whereas the second can lead to occupation of significant market share and consequently abuse of dominance. Anti competitive Agreements: Significant market shares of Kingfisher and Jet Airways (the two largest players in the scheduled domestic airlines market) may indicate a tendency for price collusion. This can lead to the charging of excessive prices.

Competition Issues in Indian Aviation Sector

Recently, these two largest private carriers (Kingfisher and Jet Airways) have hiked fares, spurred by a 9% hike in aviation turbine fuel (ATF) prices from November 1, 2009. If all airlines increase fuel surcharge in the same way, it might lead to cartelization and consumers will be left with less choices.

Mergers & Acquisitions: Recent examples of mergers and acquisitions in the Indian airlines market are the formation of NACIL (merger of Air India and Indian Airlines), acquisition of Air Sahara by Jet Airways and merger of Kingfisher Airlines and Air Deccan. All these three events took place in 2007.

Market Analysis
The Airlines industry is cyclical in nature due to uncertainties which are beyond its control. Due to this the brands have to be built in such a manner that they survive the lean periods on their strength of being able to differentiate themselves with others. This must be done by being clear as to what ones brand represents and sticking to its core values and not by raging a price war all the time. Through the study we have found out that the Low cost Airlines have positioned themselves in competition to railways by making travel affordable. They are compared to railways and road transports on the pricing front. But the reality is that it's not possible for them to compete with railways on price front. Rather they should try to highlight features such as lesser travel time and better in-flight facilities. Price discounts need to be carefully done to attract customers and simultaneously ensure that it does not affect the brand image or result in considerable reduction in revenue.

Market Analysis
In-flight advertising is an effective promotion medium as the audience is hundred percent captive. They can help airlines promote the brand image, promote new schemes, improve the brand recall and generate extra revenue if done without the passengers perceiving it as a forceful. Pricing is the most sensitive issue in airline industry and is done depending on the demand of the market. Switching is more frequent in case of low fare airlines whereas business segments are more brands loyal. From the market research we could infer that while deciding among low cost airlines fare acts as the deciding factor while in case of choosing among full service providers the determine factors are flight schedule, reliability, quality and connections with not much emphasis on fare.

How can GOVERNMENT help?

Implement code sharing i.e. selling seats on a flight operated by another carrier. This saves direct costs and increase market presence. Allow foreign carriers cabotage rights( carriage for passengers and freight simultaneously) to increase competition Eliminate regulatory structure completely to boost new entrants and allow more profit for existing. Eliminate category III restrictions i.e. operator needs to deploy on less popular routes as well. Improve quality of and access to airports and hangars. Reduce labor costs. Get smart on fuel Stop chasing market share