INDIAN AIRLINE SECTOR ANALYSIS

Ever since the aviation sector opened up the skies to private carriers, air
passenger travel in India has been expanding at about 25% a year. The
Airline industry has experienced a drastic increase in number of passengers,
driven by privatization of aviation industry and introduction of low cost
carriers like Deccan Airlines, Go Air, and Spice Jet etc. It is said that Indian
Aviation Industry is one of the fastest growing Aviation Industry in the
entire globe. Due to economic growth and increasing link with global
businesses, it has resulted in an increase in passenger traffic. However, the
current global economic slowdown and dramatic rise in aviation fuel prices
continues to negatively impact the Aviation Industry across the whole globe.
According to the International Air Transport Association (IATA), by
its latest estimates, India will contribute significantly to global air travel,
which is set to grow from US$ 5.1 billion to US$ 5.6 billion this
year. Market research firm PhoCus says that domestic air traffic is likely to
more than double and touch 86.1 million passengers by 2010, up from 32.2
million passengers in 2007

Overview of Indian Airline Sector

According to government estimates, growth in this sector will outpace

the global average until 2025. The Indian aviation market is on a boom. The
estimated growth of domestic passenger segment is at 51% per annum and
growth for international passenger segment is 26%. The international cargo
is likely to grow at a rate of 13%.

From April-September 2006, domestic and international passengers recorded

a growth of 44.5 per cent and 15.6 per cent respectively, leading to an
overall growth of 35.5 per cent. Moreover, the international and domestic
cargo recorded growth of 13.8 per cent and 8.7 per cent respectively,
resulting in an overall growth of 12.0 per cent. The year 2007 was the best
ever in terms of growth for India's civil aviation sector. The domestic
airlines passenger load increased by 36.47 % (to 317.29 lakh passengers) in
the first three quarters of 2007
AIRLINES: CURRENT FLEET AND ACQUISITION &
INVESTMENT PLANS

Airlines Current Acquisition Investment in US

fleet plans $billion)
Jet Airways 62 30 by 2012 2
Air Deccan 43 79 by 2010 2.7
Kingfisher 11 100 by 2012 4.5
Spice Jet 6 38 by 2010 1.9
Go Air 4 33 by 2008 2.4

SWOT ANALYSIS ON AVIATION

• Strengths:

 Growing Tourism: Due to growth in tourism, there has been

an increase in number of the international and domestic

passengers. The estimated growth of domestic passenger
 segment is at 50% per annum and growth for international
passenger segment is 25%.

 Rising income levels: Due to the rise in income levels, the

disposable income is also higher which are expected to enhance

the number of flyers.
• Weaknesses:

 Under penetrated Market : The total passenger traffic was

only 50 million as on 31st Dec 2005 amounting to only 0.05

trips per annum as compared to developed nations like United
States have 2.02 trips per annum.

 Untapped Air Cargo Market: Air cargo market has not yet

been fully taped in the Indian markets and is expected that in

the coming year’s large number of players will have dedicated
fleets.

 Infrastructural constraints: The infrastructure development

has not kept pace with the growth in aviation services sector
leading to a bottleneck. Huge investment requirement for
physical infrastructure for airports.

• Opportunities:

Aviation essentially refers to all activities involving the

operation of aircrafts. While the common perception about the sector
is that it’s only about pilots and airhostesses, there are other equally
 significant job options that the industry cannot function without. Some
of the Operations jobs include: Pilots, airhostesses, air traffic
controller, cabin safety instructor, in-flight managers, In-flight base
managers, cabin services instructor, maintenance controllers, aircraft
maintenance engineers, quality control manager, cargo officers and
ground staff. There is also a wide range of positions on the ground and
these include the services of mechanics, baggage handlers, ticket
agents and reservations agents.

 Expecting investments: investment of about US $30 billion

will be made.

 Expected Market Size: Average growth of aviation sector is

about 25%-30% and the expected market size is projected to

grow upto100 million by 2010.

• Threats: Huge investments are expected to take place in aviation

sector in near future. It is estimated that by 2012.

 Shortage of trained Pilots: There is a shortage of trained

pilots, co-pilots and ground staff which is severely limiting

growth prospects.

 Shortage of Airports: There is a shortage of airport facilities,

parking bays, air traffic control facilities and takeoff and

landing slots.
  High prices: Though enough number of low cost carriers are

already existing in the industry, majority of the population is

still not able to fly to other destinations.

Reasons for Boom in Aviation Industry: There are various reasons for
aviation to boom in a country like India.

 Foreign equity allowed: Nowadays, Foreign equity up to 49 per

cent and NRI (Non-Resident Indian) investment up to 100 per cent

is permissible in domestic airlines without any government
approval.

 Low entry barriers: Nowadays, venture capital of $10 million or

less is enough to launch an airline. Private airlines are known to

hire foreign pilots, they hire from the Air-force or from PSU
airlines. Further, they outsource such functions as ground handling,
check-in, reservation, aircraft maintenance, catering, training,
revenue accounting, IT infrastructure, loyalty and programmed
management.

 Attraction of foreign shores: Jet and Sahara have gone

international by starting operations, first to SAARC countries, and

then to South-East Asia, the UK, and the US. After five years of
domestic operations, many domestic airlines too will be entitled to
fly overseas by using unutilized bilateral entitlements to Indian
carriers.
  Rising income levels and demographic profile: Though India's

GDP (per capita) at $3,100 is still very low as compared to the

developed country standards. Demographically, India has the
highest percentage of people in age group of 20-50 among its 50
million strong middle class, with high earning potential.

 Untapping India's tourism: Currently India attracts 3.2 million

tourists every year, while China gets 10 times the number. Tourist
arrivals in India are expected to grow exponentially, especially due
to the open sky policy between India and the SAARC countries
and the increase in bilateral entitlements with European countries,
and US.

 Glamour of the airlines: Airline tycoons from the last century,

like J. R. D. Tata and Howard Hughes, and Sir Richard Branson

and Dr. Vijay Mallya today, have been idolized. Airlines have an
aura of glamour around them, and high net worth individuals can
always toy with the idea of owning an airline.

Top Employers:
Some of the top employers of the industry are Air India, Indian Airlines, Jet
Airways, Air Sahara, Paramount Airways, Go Air Airlines, Kingfisher
Airlines, Spice Jet, and Air Deccan.

Challenges for Aviation Industry

The growths in the aviation sector and capacity expansion by carriers

have posed challenged to aviation industry. This includes shortage of
workers and professionals, safety concerns, declining returns and the lack of
accompanying capacity, infrastructure, competition and rising fuels costs has
made an adverse effect on the industry.

 Employee shortage: There is clearly a shortage of trained and skilled

manpower in the aviation sector as a consequence of which there is

cut-throat competition for employees which, in turn, is driving wages
to unsustainable levels.

 Regional connectivity: One of the biggest challenges facing the

aviation sector in India is to be able to provide regional connectivity.

What \is hampering the growth of regional connectivity is the lack of
airports.

 Rising fuel prices: As fuel prices have climbed, the inverse

relationship between fuel prices and airline stock prices has been
demonstrated. Moreover, the rising fuel prices have led to increase in
the air fares.
 Gaps in infrastructure: Airport and air traffic control (ATC)

infrastructure is inadequate to support growth. While a start has been

made to upgrade the infrastructure, the results will be visible only
after 2 - 3 years.