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Indian Avaition Industry Analysis

Indian Avaition Industry Analysis

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Published by: gauravibs11 on Aug 19, 2010
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12/18/2012

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REPORT ON INDIAN AVIATIONINDUSTRY
SUBMITTED BY:ALANKRIT GUPTAANJUM SUDHANSHU DANIELSGAURAV MATHUR PRIYASHA GUPTAUMA JALAN
 
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HISTORYThe origin of Indian civil aviation industry can be traced back to 1912, when the first air flight between Karachi and Delhi was started by the Indian State Air Services in collaboration with theUK based Imperial Airways. It was an extension of London-Karachi flight of the ImperialAirways. In 1932, JRD Tata founded Tata Airline, the first Indian airline. At the time of independence, nine air transport companies were carrying both air cargo and passengers. Thesewere Tata Airlines, Indian National Airways, Air service of India, Deccan Airways, AmbicaAirways, Bharat Airways, Orient Airways and Mistry Airways.The Government nationalized nine airline companies vide the Air Corporations Act, 1953.Accordingly it established the Indian Airlines Corporation (IAC) to cater to domestic air travel passengers and Air India International (AI) for international air travel passengers. The assets othe existing airline companies were transferred to these two corporations. This Act ensured thatIAC and AI had a monopoly
 
over the Indian skies. These government-owned airlines dominatedIndian aviation industry till the mid-1990s.FACTORS AFFECTING DEMAND FOR AIR TRAVEL1.
 
In April 1990, the Government adopted
open-sky policy
and allowed air taxi- operators tooperate flights from any airport, both on a charter and a non charter basis and to decidetheir own flight schedules, cargo and passenger fares. Changes in investment policies inaviation industry also helped in launching of new airlines. By 1995, several privateairlines had ventured into the aviation business. With the operations of these playerstaking off, the erstwhile monopoly Indian airlines¶ share begun to plummet.2.
 
Tourism promotion played an important part in increasing air traffic. With the incomingtourist traffic on the rise (as a result of Open Skies Policy), domestic and internationalairlines found new sources of revenues.3.
 
Lower airfares played a major role in increasing air traffic. With dropping fares, air travelhas become more and more affordable for the common people.4.
 
Growth in expendable income of Indians has led them to take to air travel rather thanspending 2 days in train for long distance travel.
 
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MARKET STRUCTURE
Post independence, Tata Air was the leader in Indian aviation industry. In 1953, 11 domesticairlines were merged together to form Indian Airlines and Tata Airlines was nationalized to formAir India. Thus the industry was suddenly shrunk to just two players, one domestic and the other catering to international flights. The government, in effect, created a monopoly. Being solesuppliers of air travel services, Indian Airlines and Air India were price setters.Things changed in early nineties when India thought of opening up its skies in an attempt to boost tourism in country. In 1989, private players were allowed to enter aviation sector as taxi-operators and for cargo delivery. With the implementation of Open Skies Policy, private participation took an upward swing. Many players like Airways, Air Sahara, East-West Airlinesand ModiLuft entered the fray. But the policies still protected the national airlines. Only JetAirways and Sahara could survive the initial competition and restrictions.The period between 1995 till 2003 was a period of inaction for aviation industry. No attentionwas paid towards developing infrastructure and expansion of fleet. Creation of new routes wasn¶tfollowed aggressively and players faced shortage of capital. There was a clear lack of intentamong the players and government. The decisions that were to be taken during Ninth Five Year Plan (1997-2002) were delayed for several reasons.The turning point in Indian Aviation came with the launch of Air Deccan. The new entrantchanged the rules of the game and introduced the concept of Low Cost Carriers and flying withno frills to India. With tickets being sold for Re.1, Air Deccan soon became the most talkedabout airline among the Indian masses. In tow came other such airlines, launched within 2-3years after Air Deccan¶s entry. These included IndiGo, SpiceJet, GoAir, Kingfisher Airlines andParamount Airways among others.The air traffic in terms of passenger and cargo movementhave increased by an impressive CAGR of 19.14% and 9.91% during the period from 2003-04 to2007-08. The market structure was changing from monopoly to oligopoly.An
Oligopoly
is a market form in which a market or industry is dominated by a small number osellers (oligopolists). Aviation industry in India has only 11 players and only 6 major players inthe market currently. These are broadly categorized into Budget Airlines (Jet Airways,Kingfisher Airlines and Indian) and Low Cost Carriers (Kingfisher Red, IndiGo, GoAir, SpiceJet

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