Aviation in India

Jan 28, 2013 The aviation sector in India is highly promising. The liberalisation of the sector in the midnineties has resulted in a remarkable growth, as a large number of private service airlines entered the sector. A massive boom in the tourism industry and increasing levels of disposable incomes have given an intense impetus to the Indian Aviation industry; the major contributor being civil aviation. The country is expected to become the fourth biggest market in terms of value for all new aircraft deliveries during the next 20 years, according to aircraft maker Airbus. Strong government support and private participation, coupled with the availability of skilled manpower, and favourable business environment have positioned India as an attractive investment destination on the world map. The rapidly expanding aviation sector handles 2.5 billion passengers across the world in a year; moves 45 million tonnes (MT) of cargo through 920 airlines, using 4,200 airports and deploys 27,000 aircraft. Today, 87 foreign airlines fly to and from India and five Indian carriers fly to and from 40 countries.

Growth in the Sector

Recording the strongest growth in the world, India's domestic aviation market has tripled in the past five years, according to a latest report of the International Air Transport Association (IATA). India posted a strong domestic growth at 25.6 per cent in the aviation sector, and continuing its trend of high-speed growth for a robust market. India is the 9th largest aviation market in the world as per a report, Indian Aerospace Industry Analysis, published by research firm RNCOS. Further, the government's open sky policy has attracted many overseas players to enter the market and the industry is growing in terms of both players and the number of aircrafts. On the basis of strong market fundamentals, it is also anticipated that the civil aviation market will register more than 16 per cent compounded annual growth rate (CAGR) during 2010-2013. International passenger numbers, which grew by about 10 per cent last year, are expected to increase towards the upper end of a 10-12 per cent range over the next 12 months. In the last one year, there has been an increase of US$ 20 billion in the number of aircraft India will require over the next 20 years. This is primarily because of growth in GDP, development of infrastructure and increase in the number of people willing to fly - be it for vacation or rest and recreation, according to Dr Dinesh Keskar, President, Boeing India. Further, aircraft maintenance, repair and overhaul (MRO) sector is also on a growth path in the country. The sector holds a lot of opportunities for companies within the technical services outsourcing business domain.

SECTOR FACTS

The total number of airports or airfields recognisable from the air is 352 The foreign direct investment (FDI) inflow into air transport (including air freight) has been US$ 446.37 million from April 2000 to October 2012, according to the Department of Industrial Policy and Promotion (DIPP) Passengers carried by domestic airlines during the year 2012 (January-December) were 588.19 lakhs, according to the latest data released by the Directorate General of Civil Aviation (DGCA)

Recent Initiatives and Developments

Delhi International Airport Limited has initiated GMR-IGI Airport Awards with the aim of recognizing the key performers in the aviation industry who work relentlessly to keep the airport operations running. Buoyed by the success of implementation of public private partnership (PPP) model in airport development, the Government plans to invest US$ 30 billion in next 10 years with more existing airports being opened up for modernisation. Bengaluru International Airport, along with Chatrapati Shivaji International Airport, Mumbai, have been presented with certificates in recognition of their achievements under the various levels of Airport Carbon Accreditation by Airports Council International (ACI). Bengaluru airport, which is the busiest in South India, has been given a certificate for carbon reduction. Mumbai airport on the other hand has been awarded the certificate for mapping carbon emissions. Meanwhile, India has released its first ever detailed Aviation Carbon Footprint Report for 2011, on October 9, 2012, which states that CO2 emissions from Indian scheduled airline operations as well as from foreign airlines to international destinations represent less than 1 per cent of the country's total CO2 emissions. The number is significantly lower than the global average contribution of airlines.

Government Initiatives

The 12th Five Year Plan (2012-17) estimates the domestic and international cargo to grow at the rate of 12 per cent and 10 per cent, respectively. The international cargo is projected to reach around 2.7 Million Metric Tonnes Per Annum (MMTPA) and domestic cargo to around 1.7 MMTPA by FY17

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 PPP mode The Government has also developed a model concession agreement to develop greenfield airports under the PPP mode. The Government has also allowed 100 per cent FDI, under the automatic route, for greenfield airports. FDI up to 49 per cent is allowed in the domestic airlines sector under the automatic route. Recently, the Government has relaxed rules to allow foreign carriers to buy up to 49 per cent stake in Indian airlines Prime Minister Manmohan Singh has approved a detailed roadmap for 7 major infrastructure projects to revive demand for goods and services as well as to boost economic growth. In aviation, new airports being built at Navi Mumbai, Mopa in Goa and Kannur in Kerala are being directly monitored by the Prime Minister The Union Ministry of Finance has paved the way for the implementation of relaxed External Commercial Borrowing (ECB) norms announced in the Union Budget 2012-13 for the aviation sector. ECBs under this provision would have a ceiling of US$ 1 billion for the sector Further, the adoption of open sky policy has resulted in the entry of several new privately owned airlines and increased frequency/ flights for international airlines ---------------------

Indian hospitality sector contributes 8-9 percent of the countrys GDP. The sector encompasses travel and tourism and major segments that fall under this category include accommodation and catering (hotels, restaurants), transportation (cruise, railway, rentals, airline companies), travel agencies and tour operators. The tourism and hospitality sector together contributed US $32.7bn in 2011, and registered a CAGR of 13 percent. Currently, India has 114,000 hotel rooms, which stands 150,000 rooms short in meeting the current requirement. Thus, the growth opportunity for this sector is immense, but is tangled with challenges across parallel sectors and the overall economy. According to estimates provided by World Travel & Tourism Council (WTTC), contribution of travel and tourism to nations GDP will grow consistently in the next decade though this growth opportunity will be closely linked to the growth of Indias hotel and restaurant business. Indian aviation sector has witnessed a phenomenal growth chart in the last decade. Today, India is the 9th largest civil aviation market in the world and ranks fourth in domestic passenger volumes with a market worth of US $12bn. As per AAI, passenger handling capacity has risen two-fold from 72 million (FY 06) to 143 million (FY 11), and freight traffic has risen from 1.5 million MT (FY 06) to 2.3 million MT (FY 11). The Airport Authority of India (AAI) was the only major player involved in developing and upgrading airports in India for a long time, but private sector participation has increased post liberalisation. Major private sector players in aviation are GMR Infrastructure, GVK, Siemens, Larsen & Toubro Ltd., Maytas Infra Ltd., and Unique Aviation Services Pvt. Ltd.

Challenges

Hotel industry is prone to hurdles like poor infrastructure, high cost of land procurement and multiple licences as well as levies. High inflation, high interest rates and absence of policies being issued by the government is hampering growth prospects. Slow economic growth in developed countries like US and Euro zone will greatly impact the travel and tourism sector, and consequently, also the hospitality sector. Talent management is a major challenge for this sector. Inadequate supply of talent coupled to increased competition within the sector for available resources has made attrition a cause of concern.

Government initiatives driving this sectors growth

Governments collective investment on tourism and hospitality sector has risen at a CAGR of 15.4 percent during 2005-11. Ministry of Tourism set up a Hospitality Development and Promotion Board to monitor and facilitate hotel project clearances/approvals. Government of India (GOI) continues its focus on airport infrastructure development as part of the 11th Five Year Plan (2007-12). Liberalisation and Open Sky Policy has led to increased traffic rights under bilateral agreements with foreign countries. Encouragement towards 100 percent FDI in aviation. Tax exemption for airport projects for a period of ten years. Policy support and demand growth is increasing investment potential.

Emerging trends in the sector

High disposable incomes and growth of low-cost airlines in India will lead to a rise in domestic travel. This growth will be closely linked to the growth of Indias hotel and restaurant business. Niche offerings like medical tourism and eco tourism are expected to create more demand. Increase in the number of people travelling by air, both for business and travel, along with new trade opportunities has led the Governments focus on infrastructure, which has resulted in various development projects. Indian aviation sector is likely to see investments of up to US $150bn. Increasing liberalisation in aviation policies is leading to greater private sector participation. Private operators are expected to contribute more than three-fourth of total investments in the next five years, says a FICCI-KPMG report.

By Nimrata Grewal

AirAsia Tata airline: Decision on JV next month

Read more at: http://news.oneindia.in/2013/02/23/airasia-tata-airline-decision-on-jv-next-month1157189.html New Delhi, Feb 23: Amid a debate whether its entry will impact airfares, the Finance Ministry is likely to take up next month the investment proposal of Malaysian budget carrier AirAsia which seeks to enter India through a joint venture with the Tata Group. The Foreign Investment Promotion Board (FIPB) is holding a meeting on March 6 and the proposal of AirAsia Investment Ltd, Malaysia, has been listed on the agenda. AirAsia has applied to FIPB to take 49 percent in a venture with Tata Sons Ltd and Arun Bhatia's Telestra Tradeplace Pvt Ltd, the Malaysian company had announced this week. This will mark the return of Tata to aviation. State-owned Air India had grown out of Tata Airlines, which began flights in 1932. This will be the first entry of an foreign carrier in the domestic airlines after the government liberalised the aviation FDI policy in September. The new policy allows foreign carriers to invest in Indian airlines. Meanwhile, a JP Morgan research report says that AirAsia's joint venture airline would impact the pricing and yields of domestic carriers. "We think it (the alliance) is negative for Indian carriers, especially SpiceJet, given its major presence in Tier II/III cities. With traffic under pressure, it would be a challenge to sustain higher yields. The entry of new players could put pressure on pricing," JP Morgan analyst Corrine Ping said. The proposed joint venture will operate from Chennai and will focus on providing domestic connectivity to Tier-II and Tier-III cities. AirAsia currently flies to Chennai, Bangalore, Kochi, Tiruchirappalli and Kolkata in addition to 20 countries around the world. India's rising middle class offers much promise in terms of aviation traffic growth but according to the figures provided by Directorate General of Civil Aviation, the number of passengers carried by domestic airlines fell by 3 percent from the previous year to 53 million between January and November 2012. On the policy front the some officials say that the principal objective behind the open skies was to attract large international airlines to invest in Indian carriers so that these could fly to distant destinations rather than short haul sector.