Aviation Industry

NIDHI RAHUL SINGH PRATEEK MANASA RISHAV

Crowding the Skies

1948-1953

1991-1993

2003

2005-2006 2007

Introduction to Indian Aviation Sector

y The Airport Authority of India (AAI) manages a total of 127

airports in the country, which include 13 international airports, 7 custom airports, 80 domestic airports and 28 civil enclaves. y As of today, India has 1 government airline and 7 private airlines Paramount, Air Deccan, Jet (includes Jet Lite (formerly Sahara), Jet Airways and Jet Konnect), Spice Jet, Go Air, Indigo and Kingfisher (includes Kingfisher and Kingfisher Red (previously Air Deccan) y 1991, was the year when the Indian Government came up with the Open Skies Policy .

History of Aviation in India

y The first commercial flight

on February 18, 1911, by a French pilot Monseigneur Piguet. He flew airmails from Allahabad to Naini, covering a distance of about 10 km. y First domestic air-route between Karachi and Delhi in December 1912. Opened by Indian Air Services in collaboration with the UK based Imperial Airways as an extension of London-Karachi flight. y First domestic air-lines Tata Air Lines (initially Tata Air Services) in 1932 between Karachi & Madras via Ahemdabad & Bombay. Later, Delhi and Colombo were also serviced.

y Air India International

y y

Set up as a joint-venture company in 1948 with the Government of India acquiring 49 per cent stake in Tata Air Lines in return of license to operate international flights as Air India International. First International Flight June 8th, 1948 from Bombay to London via Cairo & Geneva Nationalization of Aviation Industry Air Corporations Act , passed on August 25th, 1953 nationalized the air transportation industry. Consequently, Indian Airlines (for domestic service) and Air India (for international service) were born. Open Sky Policy Private Carriers were granted licenses for domestic routes in 1994. Of the 6 licenses granted, only Jet Airways & Air Sahara were able to provide service. Entry of Low Cost Carriers Budget airlines entered the Indian aviation industry in 2003 led by Capt. G.R.Gopinaths Deccan Airways. This changed the very texture of the industry by taking air travel to the masses.

AVIATION-CURRENT SCENARIO
Sector structure/Market size y The Indian aviation industry is one of the fastest growing aviation industries in the world. The government's open sky policy has led to many overseas players entering the market and the industry has been growing both in terms of players and number of aircrafts. Today, private airlines account for around 75 per cent share of the domestic aviation market. y India is the 9th largest aviation market in the world. According to the Ministry of Civil Aviation, around 29.8 million passengers travelled to/from India during 2010, an increase of 30 per cent on previous year. It is predicted that international passengers will grow up to 50 million by 2015. Further, due to enhanced opportunities and international connectivity, 69 foreign airlines from 49 countries are flying into India.

Growth
y Domestic airlines flew 3.67 million passengers in 2010an increase of 25 per cent. y The Centre for Asia Pacific Aviation (CAPA) forecasted that domestic traffic will

increase by 25 per cent to 30 per cent till 2012 and international traffic growth by 15 per cent, taking the total market to more than 100 million passengers by 2012. 2012. The government is also planning to develop around 300 unused airstrips.

y The government plans to invest US$ 9 billion to modernise existing airports by

y India ranks fourth after US, China and Japan in terms of domestic passengers

volume. The number of domestic flights grew by 69 per cent from 2005 to 2010. The domestic aviation sector is expected to grow at a rate of 9-10 per cent to reach a level of 150-180 million passengers by 2020.

y The industry witnessed an annual growth of 12.8 per cent during the last 5 years in

the international cargo handled at all Indian airports y Further, there has been an increase in tourist charter flights to India in 2010 with around 686 flights bringing 180,000 tourists.

Some Facts
y In the present scenario around 12 domestic airlines

and above 60 international airlines are operating in India y The growth of airlines traffic in Aviation Industry in India is almost four times above international average y Aviation Industry in India have placed the biggest order for aircrafts globally y Aviation Industry in India holds around 69% of the total share of the airlines traffic in the region of South Asia

Domestic Airlines
          

Air India GoAir Airlines IndiGo Airlines Jet Airways Jet Airways Konnect Kingfisher Airline Paramount Airways SpiceJet Airlines JetLite (Air Sahara) Kingfisher Red (Air Deccan) MDLR Airlines

Jet Airways

Jet Airways is widely regarded as India's biggest and best airline. It's a privately owned, full service airline that commenced operating in mid 1993. It now captures 23% of the market. It has bases in Delhi, Mumbai, Pune, Kolkata, Hyderabad, Chennai, and Bangalore.

Kingfisher Airlines Kingfisher Airlines is another highly regarded full service airline. Started operating in mid 2005. Has a 15% market share. Its headquarters are in Bangalore, with bases in Mumbai, Hyderabad, and Delhi. In total, the airline covers almost 40 destinations across India.

IndiGo Airlines Indigo Airlines is based in Delhi and flies to around 15 destinations all over India. This privately owned airline started operating in mid 2006, and has a market share of almost 11%. It's considered to be India's best low cost carrier. Despite keeping fares low, the airline hasn't compromised on punctuality, connectivity of flights, safety, or customer service.

SpiceJet Based in Delhi, started operating in mid 2005. It has just over 10% share of the market, and services most capital cities in India.

Kingfisher Red Kingfisher Red, originally called Air Deccan, is a privately owned low cost airline based in Bangalore. It started operating in mid 2003. Kingfisher Airlines took over the airline, which has captured just under 15% of the market, in early 2008.

JetLite JetLite used to be Air Sahara until Jet Airways successfully took the company over in mid 2007. The low cost airline focuses on providing flights that connect India's capital cities, It has a 7% share of the market. In addition to its headquarters in Delhi, it also has bases in Mumbai and Hyderabad.

Market Share

Known Factors Influencing Growth Rate

y Increased Inward and outward tourism y Increased competition has driven down prices and

margins y Additional purchasing power due to rapidly rising real incomes amongst the middle class y Increased business trade due to the rapidly growing economy and free trade agreements with neighboring countries y Favorable Government policies and tax reforms

Challenges
y Initializing privatization in the airport activities y Modernization of the airlines fleet to handle the pressure y y y y

of competition in the aviation industry Rapid expansion plans for the major airports for the increased flow of air traffic Development for the growing Regional Airports Waving of Tax Exemption on leasing from government Costs pressures (ATF Prices & Staff Cost)

Issues with Indian Aviation Industry

y Shortage of Pilots y Delayed Salaries y Increased prices of Air turbine fuel y Declining Yields and services y High Input costs y Increasing debts y Gaps in Infrastructure

Increasing Losses
y The three major airlines of the country have run into

losses with Air India reporting annual losses of 6994 crores and kingfisher and Jet Airways reporting quarterly losses of 468.66 crore and 101 crore respectively

AIRPORTS

Upgrading Airport Infrastructure

By 2020, Indian airports are estimated to handle: y 100 million passengers y Including 60 million domestic passengers y Cargo in the range of 3.4 million tonnes per annum

Public Private Partnership IN Airports

Background


Indian airports were managed by Civil Aviation Department, Government of India, till the creation of International Airports Authority of India (IAAI) in 1972 and National Airports Authority (NAA) in 1986. In 1995 Airports Authority of India (AAI) was established by merging both IAAI and NAA by an Act of Parliament The Airports Authority of India Act in 1994 for better and efficient management of all airports in India by a single Authority.

At Present AAI manages 128 airports which includes:

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

PPP IN INDIAN AIRPORTS

Need for Private Participation in Airport Infrastructure To bridge the resource gap for achieving the following objectives     

To build world-class airports with modern technology and efficient management practices. To make the airport user friendly and achieve higher level of customer satisfaction. To lay special emphasis on the development of infrastructure for remote and inaccessible areas. To provide airport capacity ahead of demand. To encourage greater efficiency in Airport Operations.

y Two new Green field airports were thereafter approved

Airport Development Process has taken off in the country -

for Bangalore and Hyderabad. y On 3rd May 2006 the Airports At Mumbai and Delhi were handed over to Joint Venture Companies. y Of 35 non metro airports being taken up for modernization PPP has been approved for the city side development of 10 airports. y Proposals for a number of green field airports have been received from various State Govts.

Major Airports

Problem & Solution

y Increased traffic and cargo growth has led to congestion/

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

y Hence, country requires  New Airports  Expansion of capacity at existing airports  Induction of Technology for efficient handling of Passenger and cargo.  Better Management Practices y For all this additional funds to the tune of Rs. 40,000 crores +

Rs. 454 crores for airports in North East are required



The annual requirement of funds in the future is expected to be much more than the AAI can generate.

Greenfield airports

Hyderabad Airport

Bangalore Airport

Greenfield airport - Bangalore - AOD April 2008

 Greenfield airport at Devanahalli is on a Build Own Operate and Transfer (BOOT) basis for 30 years at a revised cost of Rs. 1930 crores (earlier Rs. 1280 crores).

Equity and Stakes : Karnataka State Industrial Investment Development Corporation (KSIIDC) - 26%. Siemens Germany, Unique Zurich Switzerland and - L&T India Limited -74%.
Equity Rs. 315 crores , State Support Rs. 350 crores, Debt Rs.1265 crores

Should govt liberalise foreign investment in aviation sector?

y Indian aviation is in crisis. y Modernising policies on foreign investment in Indian

carriers could bring some relief to India's airline industry. y Relying solely on domestic capital to fund the massive potential of India's carriers carries two risks, underfunding and isolation from global expertise.

y Indian aviation has deep-rooted problems that need

comprehensive solutions. y Jet fuel pricing is probably the most urgent. y For India's airlines, carrying the cost burden of an extra 25% on an average on fuel is simply not sustainable in a ferociously competitive global industry.

Three actions are urgently needed:

y Reduce or eliminate state fuel taxes which, at 20-

30% strangle the lifeblood from airlines y Replace the posted-pricing system used by public sector oil companies with transparent pricing indexed to the price of crude oil y Break the monopoly pricing power of the incumbent fuel suppliers and fuel infrastructure owners by ensuring "true" open access to new entrants.

y How the government regulates and taxes aviation

needs a major refocus. y Governments should not be micromanagers setting prices and service standards. y They should not be over-burdening the industry with excessive or unnecessary taxes. y The government's role is clear. Regulation must focus on safety, security and giving airlines the commercial freedom to operate as true businesses.

FDI in Aviation Sector

y The airline industry has remained an exception

globally, to the process of economic liberalization. Globally, the airline industry remains subject to several restrictions in terms of both operations and of ownership & control. All countries impose restrictions in this one sector; restrictions that benefit national entities; and debar foreign.

International practice
y Developed and the developing countries - have imposed a 49%

ownership limit in the airline industry. This is true for Singapore, China and a host of other nations across Asia and Europe. y . US limits the amount of foreign ownership in its domestic airlines to a maximum of 25%. y Canada too has stayed with a 25% foreign ownership limit in Canadian airlines. The Canadian Transport Ministry has rejected calls for any increase, saying that an increase would not benefit Canadian carriers. Most other countries have similar protective provisions limiting ownership of their airlines. India is planning to impose a 49% ownership limit in the airline industry.

IATA stand
y The International Air Transport Association

(IATA), which is the apex body globally for the airline industry, too recognizes that most countries have traditionally imposed limits on foreign ownership and control of airlines. While continuing to work towards increased liberalization in the airline industry, IATA believes that foreign ownership limits in the airlines is a choice of each sovereign nation; and needs to be decided by the individual state.

Restrictions even beyond FDI

y Going beyond foreign ownership limits, even

bilateral air service agreements contain restrictions on the number of airlines and frequency of services on many international routes. Open-skies bilateral agreements also do not remove nationality rules. Sovereignty and national-interest are usually the reasons that most countries do not allow fair free open-market competition in their respective airline industries.

While FDI benefits industry sectors...

y FDI brings in competition, lowers prices and accords choice to

consumers. All round liberalization in foreign investment rules also allows domestic companies to diversify and explore investment opportunities in other markets.

The airline industry in India is passing through its most competitive phase to date, where both the legacy and the newly entered low-cost carriers alike are engaged in fierce competition; and are adding capacity, adding routes, adding features & products and dropping prices. The aggressive route expansion plans of the Indian carriers have already resulted in excess supply over a deficient infrastructure leading to congestion on the ground; and congestion in the skies. A further FDI allowance in airlines in India would only impact adversely, the financial health and future of Indias own home grown carriers; and also the civil aviation sector.

...Airline industry is an exception to free FDI, globally

y Foreign investment in airlines should however not be a one-way street

where a country offers access and makes foreign ownership allowance, without reciprocity from others. While Open skies is a desirable long-term outcome, it cannot be achieved by a single nation alone.

Airlines are an important part of the national economy and it is important that in making allowances and concessions to international players, the health of the Indian carriers be also kept firmly in sight. It is important that India should seek reciprocal opening of Airline industry in other countries, before allowing open access of its market to foreign carriers. India also currently does not allow direct or indirect equity participation by foreign airlines in Indian carriers. In an environment where restrictive foreign ownership in the Airline industry is the norm, this protects the foreign carriers from both targeting Indian carriers for acquisition; and also using bilateral air service rights to their advantage.

Aviation is more than just Airlines

y The key challenge for India's civil aviation sector is not 'more airlines', but more

infrastructure. y Foreign participation in India's civil aviation sector could be leveraged in areas where both the need and the opportunity, is greater. The government could consider opening up foreign investment in non-scheduled operations, charter flights, ground handling, Maintenance Repair & Overhaul (MROs) and other non core-airline functions of the aviation sector. y There is a need for building the avionics and aviation equipment capabilities of Indian industry. The government could provide special incentives allowing global majors and Indian industry to invest in avionics and equipment. y Given the acknowledged competence and expertise of skilled Indian manpower, aviation provides India an opportunity to build capacities and capabilities in Aviation; and to invest not only in pilot & ATC training but also growing the pool of technical & maintenance expertise in Aviation. There could be special incentives and FDI allowances for education and training in the Aviation sector. This would help not only in manning critical functions within the country, but also for creating employment opportunities for Indian personnel in global aviation markets.

JOURNEY TO THE FUTURE !!!

y Less than 2% of Indias 1.2 billion population travels by

air, which points to massive potential for growth. y CAGR growth rate of more than 15% in the forth coming years. y The Ministry of Civil Aviation in India will alone handle about 280 million passengers by the year 2020. y About US$ 110 billion new investments in the Indian aviation sector with not less than US$ 80 billion exclusively targeted for the purchase of new aircraft and US$ 30 billion for developing the infrastructure at the airports.

THREATS IN THE WAY !!!

WHAT ACTUALLY IS NEEDED ?

y Step 1 : Hold firm , take market share. y Step 2 : Curb capacity growth and raise yield. y Step 3 : Restructure costs and rationalize. y Step 4 : Survive, merge or capitulate.

Employment Opportunities
y y y y y y y y y y y y y y y y y

Commercial pilot Air cargo pilot Co-pilot Cabin crew Cabin safety instructor Air traffic controller In-flight base managers In-flight managers Cabin services instructor Training instructor Cabin crew Maintenance controllers Aircraft maintenance engineering Cargo officers Quality control manager Guest service agent Ground staff

INITIATIVES TO BE TAKEN
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  Liberalize rules & regulations governing civil aviation, without compromising on safety & security  Reduction in ATF prices and taxation on ATF and lease rentals


CONCLUSION
y Aviation industry is a strategic and essential

element for any economy to flourish. With the favorable economic environment and the massive infrastructure projects in the region, the outlook of aviation industry is bright and we believe more investments will be channeled to this industry in the region benefiting all related sectors of the economy.