complimentary beverages at selectairports and Indigo informs passengers of their ﬂight status through texts messageson their mobiles.
International vs. DomesticPlayers:
The industry can also be segmentedas international carriers and domesticcarriers. The major players in theinternational segment along with theircapacity contribution are NACIL and Jet Airways. Kingﬁsher has recently enteredthis segment. All other players haveoperations in the domestic segment. Interms of passenger trafﬁc, 18.5% iscontributed by the international segmentat present and the rest is contributed bythe domestic segment.The parameters for judging airlineperformance are varied and may be asfollows:
: The most basicmetric for an airline is aircraftutilization. This measures the averagenumber of hours that each aircraft isﬂying in each 24 hour period.The basic idea is that planes that are inuse are probably making money.Utilization is a statistic that varies fromcarrier to carrier and is normallyconsidered a closely guarded corporatetrade secret and is not tracked bygovernment. Part of the "art" inrunning an airline is keeping utilizationhigh.
: This measures thepercentage of available seats that areﬁlled during a speciﬁc period. Thepassenger load factor for the aviationsector in India as a whole towards theend of 2009 was estimated at about75%.
Available Seat Kilometres(ASKM)
: ASKM is equal to thenumber of available seats times thenumber of kilometres ﬂown. The ASKM metric is used to track seatsupply among airlines.
: RPKM measures thenumber of seat kilometres ﬂown forwhich the company earned revenues.That is, RPKM equals the number of ﬁlled seats times the number of kilometres ﬂown.
: The amount of revenue earnedper RPKM is known as the airline's yield. This metric is generallyexpressed in cents and ranged from9.8-13.1 cents for the major airlines inthe ﬁrst half of 2007
: Most factors that affectthe proﬁtability of airlines are fairlystable, except for fuel costs. Fuel costsare facing extreme risk from the threatof Peak Oil.
It is the ratio of operating expenses to ASKM, an indicator of unit costs.
Daily Aircraft Utilization/hr:
Ratio of the number of aircraftsutilized to the number of operating hours- indicator of the effectiveness of ﬂeet utilization by the airline.
Break Even Seat Factor:
Ratio of Unit Cost to Yield. It signiﬁes theaverage number of seats an airlineneeds to sell to cover its operating costs,indicator of operating margins.
Financial Standing and FutureTrends
In the aftermath of the ﬁnancial crisis,Indians reported a sharp drop in airtravel. Fuel prices were on the rise and sowere costs. All together, Indian airlineslost an estimated $2 bn in the 2009ﬁnancial year. Kingﬁsher and Jetpostponed the delivery of new planes andleased out or sold off surplus planes.But things have changeD since.Indian carriers are now regaining altitude. This year, barring February,trafﬁc has grown at an average of 20% year-or-year in 2010 so far. In July 2010the year on year growth in domestic airpassenger trafﬁc growth slowedmarginally to 13.64%, following the endof the peak travel season.Passenger loads are at a healthy 78 percent, from 65 per cent during the crisis.Low-cost carriers are doing even better,with passenger load factors ranging between 85 to 90%. At industry level,both the ASKM and RPKM have beenon the rise. While most airlines were suffering lossesthrough 2009, things are now starting tolook up. While Kingﬁsher narrowed itsﬁrst quarter losses to Rs. 1.87bn from Rs.2.37bn last year, Jet Airways evenreported a small proﬁt of Rs.35.2m in theﬁrst quarter of the current ﬁnancial year,compared to a loss of Rs.2.25bn at thesame time last year. For Jet, domesticoperations accounted for 44% of totalrevenues (or USD 285.1 million) andgrew by 23.8% year-on-year in thequarter.
Both Jet airways and Jet connecthave now broken even on seat factor andpassenger load factor. Even SpiceJet’s ﬁrstquarter net proﬁt more than doubled toUS 11.8 million in the three monthsended Jun-2010.If the expected projection by Boeing of afuture average growth rate of 8.4% forSouth Asia’s Aviation Market for the nextdecade materialises, it would translateinto a $ 130bn market for around 1150planes for the next decade. With suchoptimistic projections, expansion plans of several airlines are in place. While Jet’sChairman, Naresh Goyal, recentlyannounced that Jet plans to expand itscapacity by 10-15% by adding another 5planes to its ﬂeet, SpiceJet announcedthat it has ordered 30 Boeing planes fordelivery from 2014 for $2.7bn.
The factors contributing to the air trafﬁcgrowth may be broadly classiﬁed intoeconomic and policy factors. Entry of low cost carriers, rise in disposableincome--expected to increase at anaverage of 8.5% p.a. till 2015, the 300mstrong middle class, increased FDIinﬂows, surging tourist inﬂow, increasedcargo movement, strong business growthand supporting government policies arethe major drivers for the growth of aviation sector in India.
At present, the domestic air transportpolicy debars foreign airlines from equityparticipation in the companies formed fordomestic air transportation. The policyallows participation of foreignindividual/companies up to 40 per centand the participation of Non-ResidentIndians (NRIs) / Overseas CorporateBodies (OCBs) up to 100 per cent in thedomestic air transport services. The issuerelating to permitting foreign airlinesequity investment in companies formedfor domestic operations is being reconsidered by the Government at thebehest of both international and Indianplayers interested in strategic alliances.Moreover, overall increase in the foreignequity limit in domestic airlinesoperations may also be considered with a view to attracting new technology andmanagement expertise.The foreign equity limit in theinternational services is 26 per cent. Inorder to attract investment in this sector,the possibility of increase in foreignequity participation may also beconsidered.The Government approved the FDIlimits in the civil aviation sector which areexpected to bring in more foreigninvestments to the sector. This includesupto 49% on automatic route and upto100% for NRI in air transport servicessubject to no direct or indirectparticipation by foreign airlines; upto74% on automatic route for non-scheduled airlines, chartered airlines andcargo airlines and up to 100% for NRIssubject to no direct or indirectparticipation by foreign airlines in non-scheduled and chartered airlines; upto74% for ground handling services and upto 100% for NRIs on
utomatic routesubject to sectoral regulations andsecurity clearance; and upto 100% onautomatic route for maintenance andrepair organisations,ﬂying training institutes, technical training institutionsand helicopter/seaplane services.Current regulations also requiredomestic airlines to operate for at least 5 years and operate a minimum ﬂeet size of 20 aircraft before being permitted tooperate on international routes.