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INDIAN AVIATION INDUSTRY as service sector
Flow of presentation
Liberalization and history Industry characteristics Capacity PESTEL STP 7p Opportunity Challenges Summation/conclusi on/recommendatio n
Indian Aviation liberalization
1953: Nationalization of Aircraft Industry 1986: Private Sector Players permitted as Air Consequently, assets of 9 existing companies transferred to taxi operators two entities in the aviation sector controlled by the Players including Jet, Air Sahara, NEPC, Government in East West, Modiluft,etc started service Indian Airlines, primarily serving domestic sectors 1994: Private Carriers permitted to operate Air India, primarily serving the international sectors scheduled services Six operators granted license however only Jet and Air Sahara able to service 2003: Entry of low cost carriers Air Deccan, Spice Jet, Go Air, Indigo Implication Implication Aviation became a preferred mode of transport for elite Aviation has become affordable with check fares and class discount schemes Restricted Growth of Aviation Industry Various Operators with different business model High Cost structure Huge growth foreseen in the Aviation Industry Underdevelopment of infrastructure
Build up of capacity by existing players and entry of new players .02 trips per annum takeoff and landing slots .Total Passenger Traffic only 50 mn as on 31st Dec 2005 amounting Shortage of airport facilities.High Level of potential demand with growth in Indian economy .Continued growth might be hampered Untapped Air Cargo Market Relatively Limited Reach .air traffic control facilities and developed Nations like United States have 2.05 trips per annum as compared to bays.Air Cargo has not yet been fully taped in the Indian markets and is Only 454 airports with less than 100 expected that in the coming years airports having more than one daily large no of players would have dedicated fleets service What this means… . parking to only 0.Industry characteristics HUGE POTENTIAL CONSTRAINTS Under penetrated Market Infrastructure Constraints .
USD 50-55 bn approx Order Book – New Players Indigo 100 Air India 68 Air Deccan 60 Kingfisher 50 Indian Airlines 43 Jet airways 40 Go Air 36 Spice Jet 20 Expected to grow to 125 from 7 by 2025 Competitive Pressure Full Service Low cost Carriers changing the game Indigo Price .Capacity expansion and competitors Competitive landscape Huge Growth.Huge Plans Fleet Acquisition New Fleet Orders -More than 500 Fund Requirement.
Today. the Indian aviation industry is one of the fastest growing aviation industries in the world. India has jumped to 9th position in world's aviation market from 12th in 2006 . private airlines account for around 75 per cent share of the domestic aviation market.Sector structure/Market size With a growth rate of 18 per cent per annum.
Aviation policy .
Demand drivers DEMAND DRIVERS Government Liberal Policy to allow private GDP Growth has been more than 7% in the carriers and entry of Low Cost Carriers has last 4 years lead to a increase in demand in passenger The rising middle class of more than 300 mn traffic is fuelling the growth Domestic Tourism and International The Increase in Consumerism and Business Travel and Tourism has also Affordability of Air travel greatly fuelled the rise of Indian aviation sector .
PESTEL Political – Govt.is not stable Economy – Disposable income is increasing . Legal -Flexibility in entry . Environment – Stiff competition for hiring pilots (poaching) Easy FDI(49%) through secondary market .Awareness is increasing -.Increase in Entrepreneurship Technology – Indigenous technology is coming for aircrafts & airports. The five year stringent law towards flying abroad . Social -- Status conscious -. GDP grow is more than 9%.
& others TARGET -VPs.STP SEGMENTATION .HNI People .CEOs -Bollywood Stars -Politicians -Foreign Tourists -industrialists -regular -Oil exploring companies POSITIONING Chartered air service – Statement - .
Hiring Jet/Chopper film shooting .Advertising in all leading corporate/travelling magazines Tie-up with corporate/Travel Agencies .Rs 167. On shore service Price -.Air ambulance.000/ hr Promotion – Strategy .Rs 217.Rs 35.000/hr Robinson chopper(5seater) .Epic jet (7seater) .Rs 50.Services/product –Hell Skiing. Charter flight for pilgrimage.000/hr Honda Chopper(Medical) . Leisure channels flights.000/hr Cessaneluxury jet(7seater) .
Physical evidence .Pilots Engineers Productivity /process .Giving convenience in travelling Place – Metros & capitals .Aircrafts Helicopters People .
Challenges Declining yields Building on cost efficiencies High input costs Gaps in infrastructure .
Declining yields LCCs and other new entrants together now command a market share of around 46% Legacy carriers forced to match low LCC fares. during a time of escalating costs Increasing growth prospects have attracted & likely to attract more players More players – more competition – lower fares – a continuous cycle The bottom-line – lower yields for all operators .
airlines have no control on external input costs . to return to profits For an industry that is estimating losses of US$ 500-550 million by end of current fiscal.Building on cost efficiencies Low yield regime to continue Airlines have to build on their cost efficiencies & drive down costs below the yield that their product will fetch. this is a daunting challenge Yet.
making ATF account for 35-40% of operating cost.’s ATF cost / kilolitre : ◦ US$ 755 in Delhi ◦ US$ 780 in Mumbai ◦ US$ 455 in Singapore ◦ US$ 497 in Dubai High input costs Witholding tax on interest repayments on foreign currency loans for aircraft acquisition Witholding tax proposed on aircraft lease rentals for leases concluded after 1st April’07. as against global average of 20-25% High basic rates aggravated by high taxes imposed by State Govt. Increasing manpower costs due to shortage of technical personnel .Contd. High input costs ATF prices in India continue to be far higher than global rates..
Gaps in Infrastructure Airport and ATC infrastructure inadequate to support growth Airlines paying for these strategic gaps in many ways ◦ Higher fuel consumption . the results will be visible only after 2 – 3 years .long holding times.slot constraints and air traffic congestion ◦ Sub-optimal route network strategies. due to lack of night parking stands at major airports and navigational aids at many of the smaller airports ◦ Increased passenger facilitation costs While a start has been made to upgrade infrastructure. on ground and in the air ◦ Lower utilisation of aircraft .
Opportunities A large & growing potential market Developing alternative revenue streams ◦ Air cargo operations ◦ Airframe. engine & component overhaul ◦ Ground handling ◦ Training ◦ Leveraging the internet Access to new markets .
supported by a strong industrial base Forecast to grow at 11.a.Air Cargo Freight carriage in India currently around 4200 tons per day CAGR of 15% over the past 2 years Fuelled by a fast growing economy. till 2011-12 .4% p.
1074 crores Expected to grow at 15% CAGR till 2011-12 Opportunity lies in 3rd party handling as well as entering into service contracts with private airports / AAI to offer comprehensive ground handling solutions. AI – CIAL at Cochin .g.Ground Handling Ground handling business in India estimated at Rs. e.
Training ◦ Airlines in India will need training for pilots. Projected requirement for 3600 additional pilots in the short to medium term Cabin crew. load & trim. etc. engineers. with facilities for most categories / types of trainings on A320 . cabin crew. technicians will also be required to support aircraft being inducted ◦ Opportunity for simulator training establishments ◦ IA already has a Central Training Establishment at Hyderabad. engineers.
Leveraging the internet ◦ Increasing numbers are booking directly from the airlines’ websites Traditional sales channels with paper tickets cost airlines ~10% of ticket price Comparatively. airlines save an estimated US$ 4 plus 5% agency commission ◦ Airlines can also turn their websites into one stop shops for all travel related services. generating additional revenue . e-ticket sales from own website cost an airline only ~3% of ticket price For every direct booking from their website.
Access to new markets As airlines complete 5 years of domestic operations. low yields. and growth transferred to the international arena . those with 20+ aircraft will get international access ◦ Access to new revenue streams ◦ Help even out the seasonality factor of domestic operations ◦ Spread the risk of downturn in a single market The opportunity for some will be a challenge for the existing international players The risk – cycle of increased competition.
of these.Current scenario of Indian aviation industry The Indian aviation industry Is one of the fastest growing aviation industries in the % share of the world.the Indian aviation industry is now dominanated by privately owned full service airlines and low cost carriers.priavate airline account for around 75% share of the domestic aviation market Being primarily a govt-ownwed industry . . India has 454 airports and airstrips.16 are designated international airports. With the liberalization of the Indian aviation sector. aviation industry in India has undergone a rapid transforamtion.
Center for Asia pacific aviation (CAPA) estimates domestic traffic to grow 25-30 % annually and international traffic 15%untill 2010. .Market size Domestic and international traffic is up 45% and 15.1 %.respectively. Over 135 aircraft have been added in the past two year alone.
reconstruction and development of airport infrastructure to implement infrastructure development plan Provides a huge opportunity for private players operating in Aerospace and allied industries Significant opportunity for foreign companies as Indian companies not technologically equipped to cater to requirements .Summation Indian Aviation has seen high growth on account of sustained Indian socio economic growth and liberalized Government initiatives Airport Infrastructure needs to improve significantly to meet the current and future demand of the Indian Aviation Sector Authorities have initiated various steps to implement modernization.
to tide over the current situation ◦ ◦ ◦ ◦ ◦ ◦ Control Costs Improve quality of service Develop a large pool of skilled / technical manpower Attract more professionals to manage the aviation industry Develop infrastructure to match growth plans Liberalise rules & regulations governing civil aviation. airlines in India are fighting for survival in a highly competitive environment A host of initiatives are required to be taken by all concerned. without compromising on safety & security ◦ Reduction in ATF prices and taxation on ATF and lease rentals .In sum…… Despite a growing market.
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