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Limitations of Aviation Industry in India There are various limitations of Aviation

industry in India which are as follows

Political Environment

There are several limitations in aviation infrastructure in India for instance parking bays,
gates to board passengers, landing slots etc are in short supply. This often leads to
massive delays, cancellation and major losses in revenue for many LCCs. The
government aims to set up joint venture to operate these airports and offered 74 per cent
stakes. Foreign direct investment (FDI) can hold up to 49 per cent in this transaction,
while 25 per cent must be held by private Indian companies. Remaining 26 per cent to be
held by Airport Authority of India (AAI) and other government PSUs.

In an attempt to capture market share, many airlines in India are flying below their cost,
thus incurs heavy losses. Earlier, companies even before signing a lease for aircraft, used
to procure licences. But now to regulate competition from September 2006 onwards a
temporary moratorium is put on the new airline licences. But pending as well as new
applications will go through high scrutiny. A plan for quarterly review of financial and
operational statement of airline was introduced by ministry. It will be mandated by the
federal Aviation Authority in US.

At present government is providing sops to planes which are less than an 80 seater. Under
this new policy airline dont have to pay landing charges, even route navigational charges
are much lower than other aircraft.

Economic Environment

The growth in aviation has been possible because of liberal policies in civil aviation,
robust growth in tourism and exports. There are 14 players which includes Kingfisher,
Air Deccan, Spice Jet, Go Air, Magic Air etc.

On 1 September 2004 new tax came into force. Indian companies which acquires an
aircraft or aircraft engine on lease from foreign enterprise or a foreign country has to pay
tax, which could vary from 10 per cent onwards.

Aviation turbine fuel (ATF) which ranged from 8 per cent to 24 per cent across states.
ATF accounts for 45 per cent of operational costs in India, while internationally it is 20
per cent. Indian airline companies pay one of the highest ATF rates in the world.
There is an acute shortage of manpower in aviation industry in India- which includes
engineers, cabin crew and pilots. Earlier there was a stipulation of domestic airlines to
have at least one Indian pilot in a cockpit. But still India is facing the shortage of pilots
and foreign pilots are paid much more than Indian counterparts. Government has opened
an aviation academy in Gondia to train pilots. It is a joint venture in which private parties
holds a majority stake i.e. 60 per cent along with management control. Central and
Maharashtra government hold remaining 40 per cent, they will play facilitating role.

Social Environment

In India, before 1990s, traveling by air was considered expensive and luxury mode of
transportation. After deregulation in aviation industry several new airlines come up and
there was a drastic reduction in fares which was a spur for Indians to opt for air travel.
Indias first low cost carrier Air Deccan began with Rs 500 per ticket offer. It was neck to
neck competition with Indian railways. Soon Spicejet gave a counter offer of Rs 99 per
ticket. Since then prices for airline ticket kept on reducing as a promotion strategy. People
traveling on trains by first or second class AC, till now, shifted their attention to airlines.
It improved their lifestyle. Even first time fliers were lured by the cheaper fares.

2006 Conde Nast Readers Travel Awards, ranked India in the fourth most attractive,
satisfying and best holiday destination in the world. It stands ahead of some of the
developed countries like US, France, Singapore, Thailand and South Africa. Accounts on
which India was scored were mainly growing air connectivity, hospitality facilities which
included hotels and quality spa. Growing air link has contributed to a large extend to
make India more accessible than what it was few years ago.

Financier lenders considers it is a safe zone because lease of aircraft stands as collateral.
In case of defaults, laws concerning recovery are tight.

Technological Environment

Airports Authority of India in collaboration with Indian Space Research Organization


(ISRO) has developed a new satellite-based navigation called Gagan. Only three
countries including the United States has similar Satellite-based system. It is one of the
latest technology in the world. It enhances the safety of flights. By direct routing between
destinations and allowing precision approaches to all airports it increases efficiency.
Thick fog in winter regularly disrupted flights to or from New Delhi. By improving
communication between traffic control and pilots this project makes it possible to land
planes in such tough weather conditions.

All airlines need maintenance for their aircrafts, engine, and airframe components. In
India only Air India and Indian Airlines have in-house maintenance facility, but at time
even they, like other carriers have to send their aircraft abroad for maintenance. To
emerge as MRO new entrants have to address limitation like aviation regulatory
practices, heavy tax structure and lack of real estate at many airports. But low manpower
cost is the major advantage for any MRO new entrants i.e. about 60 per cent cheaper than
in US or Western Europe.

OLIGOPOLY STRUCTURE IN AVIATION INDUSTRY

- The aviation industry in India , especially with regard to passengers airlines, follows a
strictly oligopoly type structure with the characteristics.

- An industry dominated by a small numbers of large firms.

- Firms sell either identical or differentiated products (the only differentiation here being in
service quality and frills offered).

- The industry has significant barriers to entry (which holds true both with respect to
regulation and huge capital investment required).

- Few numbers of firms contributing to majority of the market share.

- Products are differentiated in terms of service quality and offering.

- MR=MC

- P > MC

- Entry Barriers.

- Firm is price setter.

- Long run profit >= 0

- Strategy dependent on individual rivals firms behavior.

When one airline company decides to cut fares, the other industries will usually cut theirs
as well .Price wars happen because some company is trying to grab a larger percentage of
the market, and the other companies lower their prices to not lose market share.