Indian Aviation Industry

1. BUS 250
Airline Industry
Presented by:-
Ravi Jaiswal
Julien Lingomo
Harsh Bansal
Shubham Singh
Presented to:-
Dr. Soumitra Mookherjee

2. HISTORY OF AIRLINE INDUSTRY
 1912 :- The first airline took off between Karachi and Delhi.
 Three years later Tata Sons Ltd started a privately owned airmail service which
operated between Karachi and Chennai.
 Orient airways shifted its base to Pakistan post-Independence.
 1953:- Government of India decided to establish an industry of itself for Aviation
and Airlines. { Air India (for international Travel) and Indian Airlines (for domestic
travel)}
 Two infamous incidents which
 resulted in bankruptcy of the airlines are – interference in purchase of A-310
aircraft by Air India in mid 1980s(these aircraft did not meet the basic operational
requirements of the airlines) and the extended grounding of the then newly
purchased A-320 aircraft for Indian Airlines by the ministry of civil aviation in
1990.

3. Demand Drivers
 Poor Road and Rail Infrastructure
 Domestic consumption story – cannot be imported
 Increasing Per Capita

4. Cont.
 Demographics

5. Cont.
 Exploding Middle Class

6. Healthy Growth of Passenger Traffic
 Witnessing a growth of 17.62 per cent over the previous year, total passenger
traffic stood at a 223.6 million in FY16, which was recorded at 190.1 million
in FY15 in India.
 Growth in passenger traffic has been strong since the new millennium,
especially with rising incomes and low-cost aviation; during FY06-16,
passenger traffic grew at a CAGR of 11.8 per cent in the country.

7. Market Size
 During January-August 2016, domestic air passenger traffic rose 23.14 per
cent to 64.47 million from 52.36 million during the same period in 2015
 Passenger traffic during FY 2015-16 increased at a rate of 21.3 per cent to
85.57 million from 70.54 million in the FY 2014-15.In July 2016, total aircraft
movements at all Indian airports stood at 168,400, which was 14.3 per cent
higher than July 2015
 International aircraft movements increased by 8.2 per cent to 32,830 in July
2016 from 30,330 in July 2015
 Domestic aircraft movements increased by 15.8 per cent to 135,570 in July
2016 from 117,050 in July 2015.

8. Cont.
 Indian domestic air traffic is expected to cross 100 million passengers by
FY2017, compared to 81 million passengers in 2015, as per Centre for Asia
Pacific Aviation (CAPA)
 India is among the five fastest-growing aviation markets globally with 275
million new passengers
 The airlines operating in India are projected to record a collective operating
profit of Rs 8,100 crore (US$ 1.29 billion) in fiscal year 2016, according to
Crisil Ltd.

9. Major Cost of Aviation Industry
 The major expenses that affect companies in the airline industry are labor
and fuel costs
 Labor costs are largely fixed in the short term, while fuel costs can swing
wildly based on the price of oil
 For this reason, analysts pay more attention to fuel costs in the near term.
 Two-thirds of the costs of flying an airplane are fixed, so changes in fuel costs
can swing a flight from profit to loss depending on how many people are on
the flight

10. Cont.
 This is a consequence of being in a competitive business where customers
have little brand loyalty; airlines have to compete on price rather than
quality
 Since growing profits is difficult, companies are forced to cut costs to be
more profitable
 Fuel costs account for 10% to 12% of operating expenses
 They buy futures contracts to lock in their costs for a set period of time,
turning it into a fixed expense
 When fuel prices rise, this behavior is rewarded. When fuel prices decline,
this is punished as the market price of fuel is less than what they are paying

11. Pricing and cost factors
 Price of Oil
This is the big one, because nothing adds to an airline's cost of doing business like
the price of jet fuel. In 2011, it became the No. 1 operating expense, zooming from
about 20 to 40 percent, and that was after oil prices eased from 2008's high of nearly
$150 per barrel. The price is currently hovering around $93, but it passed the $100
mark just after Christmas.
 Flight Distance
The farther you fly the more expensive your ticket will be. But not always! A flight
between Los Angeles and Portland, Oregon., booked last week for late January, cost
about $160 round-trip. But if you flew twice as far -- to Chicago, say -- you didn't
pay double. That airfare was only another $14 each way. Remember, several factors
contribute to ticket prices, distance being just one of them.
 Competition
The more airlines, the merrier -- for passengers. Fierce competition means lower
ticket prices. Recent examples of more airlines causing lower prices: flights to and
from Delhi and Mumbai.

12. Contd…
 Timing of Purchase
When you buy your tickets matters. If you buy at the last minute – typically
within seven days of departure, as business travelers do –you’ll pay a hefty
premium (which is why airlines love their road warriors). The best time to buy
domestic tickets is between three-and-a-half months and two or three weeks
before departure. The best day to buy is Tuesday, starting at about 3 p.m. E.T.
(which is when all airfare sales have been released and competing airlines have
matched the new, lower prices).
 Timing of Flight
When you fly also matters. The cheapest days to fly, because of low demand, are
Tuesdays, Wednesdays and often Saturdays. Expensive periods include holidays
like Diwali and Christmas, and other must-fly periods like summer vacations

13. Contd…
 Passenger Appetite
If airlines price their tickets too high, people won't fly. It works, too; last year, individual
airlines tried to raise ticket prices on 12 separate occasions, but competing carriers said
"no" and the hikes didn't happen. Those naysaying airlines knew the higher prices wouldn't
fly with their customers, and if people don't fly, airlines don't make money. Note: Three of
those 12 hikes were considered “successful,” but they were very narrow in scope.
 Empty Middle Seats
If the airlines can't fill it, prices drop, which is the last thing they want. So, over the years,
airlines have cut capacity and even routes, all with an eye toward filling every seat on
every plane.
 Fees
Although fees aren't strictly part of an airline ticket, they might as well be on some
airlines -- unless you’re the rare nudist traveler who never gets thirsty. Case in point is
Spicejet Airlines, which charges for checked bags -- as most airlines do now -- but also for
carry-ons. And soda. And coffee. And even water

14. Impact on Indian economy
 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

15. Contd…
 The Indian aviation industry contributes around INR 330 billion to the country’s
gross domestic product.
 The contribution the industry has made to the country’s economy in the last
couple of years can best be described as phenomenal.
 Globally, it is one of the fastest growing industries.
 The entry of private operators in the industry and cut in air travel and prices,
the industry became popularized in the country.

16. Contd…
 The GDP of the country has risen above 8 percent and it is expected the growth rate
will continue for the coming years
 In South Asia, the aviation industry in the country holds 69 percent of the overall
airline traffic.
 the growth of airline traffic in the sector is 4 times what is recorded at international
levels.
 The aviation industry has also contributed to employment as it supports over 1.7
billion jobs in the country.
 276,000 of these jobs are supported directly by the industry, 841,000 are supported
indirectly by the sector supply chain while 605,000 jobs are supported through
spending by employees in the sector and the supply chain.
 there are more than 7.1 million people who are employed through catalytic effects of
the industry.

17. SpiceJet
 Earlier known as Royal Airways, SpiceJet is a reincarnation of ModiLuft, one of
India's first post-deregulation airlines, launched in 1994 and shut down in
1996
 SpiceJet was launched in May, 2005, and is being promoted by Ajay Singh and
the Kansagra family
 The goal of the airline is to compete with the Indian Railways air conditioned
coaches and, obviously, offer a better deal to its passengers
 SpiceJet aircraft are named after spices
 In 2009, SpiceJet won World Travel Market Award
 By 2008, SpiceJet became India’s second-largest low-cost airline in terms of
market share

18. Indigo
 IndiGo is an Indian low-cost airline set up by Rahul Bhatia of InterGlobe
Enterprises and Rakesh Gangwal, a United States-based NRI. InterGlobe holds
51.12% stake in IndiGo, and Caelum Investments, Gangwal’s Virginia-based
company, Caelum Investments, 48%
 By the end of 2010, IndiGo already had 17.3% of the market share, replacing
the state-run flag carrier Air India as the third airline in India, behind
Kingfisher Airlines and Jet Airways
 In 2011, IndiGo placed an order for 180 Airbus A320 aircraft, 30 regular A320
and 150 A320neo, a new generation version of the A320 scheduled for delivery
from 2016
 In 2013, IndiGo was the second fastest growing LLC in Asia, behind Indonesian
airline Lion Air. In August 2013, the Center for Asia Pacific Aviation ranked the
airline among the 10 biggest low-cost carriers in the world

19. Cont.
 As of September 2015, with a market share of 36.5%, IndiGo is the largest
airline in India in terms of passengers flown. IndiGo operates more than 647
daily flights to 39 destinations, 34 in India and 5 international. Its primary
hubs are at Indira Gandhi
 No fatal accidents involving IndiGo aircraft were registered so far

20. Jet airways
 On the 1st of April 1992, Jet Airways was incorporated as an air taxi operator,
starting commercial operations one year later, with a fleet of four Boeing 737-
300 aircraft
 In early January 1995, Jet Airways was granted its scheduled airline status,
after the Air Corporations Act was abolished. This came as a renewal of the
Indian flight market, given the fact that, since 1953, Indian Airlines held the
monopoly in the domestic segment
 In March 2004, Sri Lanka became the first international destination served by
Jet Airways, once the Chennai – Colombo route was established
 In August 2008, Jet Airways announced its intentions to fully integrate JetLite
into its services

21. Technology
 Unlike ground vehicles, which don’t need to be optimized for efficiency to
the same extent as aircraft because they can refuel often, long-distance
aircraft must carry all their fuel with them
 Fuel is expensive, heavy and takes up a great deal of storage room. Its weight
can limit the range of an aircraft and it needs to be stored in tanks which
affect the wing size and the payload able to be carried. At the same time, the
aviation industry is doing all it can to limit its environmental impact
 New technologies on the horizon have the potential to significantly decrease
greenhouse gas emissions from aviation, and solutions that are being
implemented today also promise other savings. Even small savings here-and-
there offer significant benefits in total

23. Cont.
 Today, engineers and researchers are making incremental and frequent
improvements that offer large savings overall. For instance, the wingtip
devices airlines and manufacturers install on new aircraft increase
aerodynamic efficiency and reduce fuel usage
 Technology on new aircraft can either be to improve fuel burn through
aerodynamic efficiency (mainly airframe), or to reduce actual combustion use
(mainly engine-related). Combined, these elements create a new aircraft
with a reduced environmental impact

24. Regulations
 Government agencies project that around 500 brownfield and greenfield
airports would be required by 2020. The private sector is being encouraged to
become actively involved in the construction of airports through different
Public Private Partnership models, with substantial state support in terms of
financing, concessional land allotment, tax holidays and other incentives
 In the Union Budget 2016-17, the government introduced various proposals for
Maintenance, Repair and Overhaul (MRO) operations for airplanes
 These include customs and excise duty exemption for tools and tool-kits used
in MRO works

25. Some major initiatives undertaken by
the government are
 The Ministry of Civil Aviation has finalized and put forward for approval to the
Union Cabinet, the new aviation policy, which includes proposals such as
allowing new airlines to fly abroad, introduction of more regional flights and a
new formula for granting bilateral flying rights.
 The Indian Space Research Organization (ISRO) has signed a memorandum of
understanding (MoU) with the Airports Authority of India (AAI), aimed at
providing space technology for construction of airports

26. Competition
 Competitive rivalry among sellers
 New entrants
 High substitutes’ availability
 High power of the suppliers
 Buyers’ bargaining power

27. How industry is growing

28. Conclusion
 India’s aviation industry is largely untapped with huge growth opportunities,
considering that air transport is still expensive for majority of the country’s
population, of which nearly 40 per cent is the upwardly mobile middle class
 The industry stakeholders should engage and collaborate with policy makers
to implement efficient and rational decisions that would boost India’s civil
aviation industry. With the right policies and relentless focus on quality, cost
and passenger interest, India would be well placed to achieve its vision of
becoming the third-largest aviation market by 2020 and the largest by 2030
 The increase in the tourism sector of India which is booming the aviation
sector plays a major role in impacting the economy of India and making the
GDP growth rate rising subsequently.