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SAP ID: 500024382













The report analyses the possible cartelization in the Indian

aviation industry in the light of similar experiences in other
parts of the world and cases dealing with cartels.



Sap ID: 500024382

Title: Indian Aviation Industry

Institution: University of Petroleum and Energy Studies

Degree: Bachelor of Business Administration

Year: 2012-2015

India is one of the fastest growing aviation markets in the world. A

total of 127 airports in the country, which include 13 international
airports, 7 custom airports, 80 domestic airports and 28 civil
enclaves are managed by The Airport Authority of India (AAI).
There are about 450 airports and 1091 registered aircrafts in India
today. Aviation sector not only brings immense benefits to
communities and economies around the globe, but also is a key
catalyst of economic growth, social development and tourism. It
facilitates connectivity and access to international markets. Air
transport currently supports 56.6 million jobs and accounts for
over US$ 2.2 trillion of the global gross domestic product
(GDP).Air passenger traffic in India is increasing on a tremendous
pace. The sub-continent’s airport infrastructure is undergoing
modernisation with the induction of most advanced facilities. It
includes setting up of new Greenfield airports and installation of
security, surveillance and air traffic navigation systems.India is
currently the 9th largest aviation market handling 121 million
domestic and 41 million international passengers. Today, more
than 85 international airlines operate to India and 5 Indian carriers
connect over 40 countries.

India is one of the fastest growing economies of the world with an
average GDP growth of over 8.9 percent in last five years.
Aviation is an important part of national infrastructure and one of
the prime movers for economic growth and an important strategic
element of employment generation.Aviation sector in India has
been transformed from an over regulated and under managed
sector to a more open, liberal and investment friendly sector since
2004. The Indian Aviation Industry has been going through a
turbulent phase over the past several years facing multiple
headwinds – high oil prices and limited pricing power contributed
by industry wide over capacity and periods of subdued demand


Indian Aviation Industry is one of the fastest growing airline

industries in the world. The history of Indian Aviation Industry
started in December 1912 with its first domestic air route between
Karachi and Delhi. It was opened by the Indian Air Services in
collaboration with the UK based Imperial Airways as an extension
of London-Karachi flight of the Imperial Airways. Tata Sons Ltd.,
the first Indian airline, started a regular airmail service between
Karachi and Madras three years later without any backing from
the Indian government.During the period of independence, 9 air
transport companies were carrying both air cargo and passengers
in the Indian Territory. In 1948, the Indian Government and Air
India set up a joint sector company, Air India International to
further strengthen the Aviation Industry of India. As part of
nationalization in 1953 of Indian Airlines (IA) brought the domestic
civil aviation sector under the purview of Indian Government.
Later till the mid 1990's government-owned airlines dominated
Indian aviation industry. When the government adopted the Open-
sky policy in 1990 and other liberalization policies the Indian
Aviation Indian made underwent a rapid and dramatic

In recent years, however, the image of Civil Aviation has

undergone a change and aviation is now viewed in a different light
- as an essential link not only for international travel and trade but
also for providing connectivity to different parts of the country.
Aviation is, by its very nature, a critical part of the infrastructure of
the country and has important ramifications for the development
of tourism and trade, the opening up of inaccessible areas of the
country and for providing stimulus to business activity and
economic growth. Until less than a decade ago, all aspects of
aviation were firmly controlled by the Government.


Over the near term the challenges facing the airline operators are
related to high debt burden and liquidity constraints - most
operators need significant equity infusion to effect a meaningful
improvement in balance sheet.Some of the issues faced by the
sector include mounting losses of the airlines, rising aviation fuel
prices, congestion at airports, shortage of qualified pilots and
technical manpower, upgradation of security, land acquisition,
high taxation, high airport charges etc. With the rise in the number
of airlines, growing passenger segment and route expansion,
there is however a need for Indian airports to have their
infrastructure in place, which unfortunately at present is the
weakest link in the chain.Over the long term the operators need to
focus on improving cost structure, through rationalization at all
levels including mix of fleet and routes, aimed at cost efficiency.
The government has also tried to ensure an environment
conducive for growth of all stakeholders associated with Indian
aviation segment.
To monitor the quality of services rendered by various airports
and their tariff, an independent regulator, Airport Economic
Regulatory Authority (AERA), is proposed to be
appointed.Improved financial profile would allow players to focus
on steps to improve long term viability and brand building through
differentiated customer service. At the industry level, long term
viability also requires return of pricing power through better
alignment of capacity to the underlying demand growth. To
ensure competitive practices in ground handling services, the
government has proposed adoption of a new ground handling
policy from January 2009.Entry of low cost carriers, higher house
hold incomes, strong economic growth, increased FDI inflows,
surging tourist inflow, increased cargo movement, sustained
business growth and supporting government policies are the
major drivers for the growth of aviation sector in India. Domestic
airlines have been allowed to fly overseas, forge partnerships with
foreign carriers while foreign carriers in turn have been interlining
with domestic airlines to access secondary destinations.While
there are a lot of new avenues in aerospace services in the
coming decades, the constraints associated need to be
addressed to enable the smooth growth of the sector.
India has so far entered into Air Services Agreements with around
101 countries. A bilateral Air Transport Agreement (also
sometimes called a bilateral Air Service Agreement) is an
agreement which two nations sign to allow civil aviation between
their territories. Air Services Agreement provides the basic legal
framework for operation of air services between India and the
country concerned. India's aviation industry presents some
considerable opportunity, but has been dragged down by red tape
and, more recently, excessive airline capacities amid the
downturn in the global economy. Steps are being taken to
address the shortcomings, but the industry does face a
considerable test over the next 12-18 months. India’s aviation
sector is enjoying a steady growth. Passenger output rose to 144
million in 2011 from 73 million in 2006.This positive growth path
can be attributed to the 11th Five-Year Plan (2007–2012). This
period witnessed the completion of four international airport
projects through the public–private partnership (PPP) mode; it
was also during this period that five Indian carriers began to
function on international routes.The Centre had set aside an
investment of US$ 12.1 billion in the airports sector during the
12th Five-Year Plan period, of which US$ 9.3 billion is projected
to come from India’s private sector for construction of new and
low-cost airports and development of existing ones.Air transport in
India today supports 56.6 million jobs and produces over US$ 2.2
trillion of the global gross domestic product (GDP). Air passenger
traffic is also increasing at a healthy rate, a development driven
by modern facilities and infrastructure.
Present Indian Scenario

India has recently witnessed a rapid growth in the industry due to

huge build-up of capacity in the LCC space, with capacity growing
at approximately 45% annually. This has induced a phase of
intense price competition with the incumbent full service carriers
(Jet, Indian, Air Sahara) disk-counting up to 60-70% for certain
routes to match the new entrants ticket prices. This, coupled with
costs pressures, is exerting bottom-line pressure.The growth in
supply is overshadowed by the extremely strong demand growth,
led primarily by the conversion of train/bus passengers to air
travel, as well as by the fact that low fares have allowed
passengers to fly more frequently. There has, therefore, been an
increase in both the width and depth of consumption. However,
the regulatory environment, infrastructure and tax policy have not
kept pace with the industry‘s growth.

Enactment of the open sky policy between India and SAARC

countries, increase in bilateral entitlements with the EU and the
US, and aggressive promotion of India as an attractive tourism
spot helped India attract 3.2 million tourists in 2004-05. This
market is growing at 15% per annum and India is expected to
attract 6 million tourists by 2010.Also, increasing per capita
income has led to an increase in disposable incomes, leading to
greater spend on leisure and holidays and business travel has
risen sharply with increasing MNC presence. Smaller cities are
also well connected now. Passenger traffic has increased and
over 21 million seats have been sold, resulting in a growth of over

The Indian aviation industry is forecasted to grow phenomenally
in the coming years. The Vision 2020 announced by the Civil
Aviation Ministry conceives of building infrastructure to support
280 million customers.Investments to the extent of US$ 110 billion
are envisaged by 2020. About US$ 30 billion for development and
sprucing up of existing airports and US$ 80 billion for building new
fleets is being estimated. The aerospace giant Boeing projects
that the Indian aviation industry will require about 1,000
commercial jets in the coming 20 years. With the growth and
development, comes challenges and the aviation sector is no
exception. The severe challenges posed against aviation industry
are that the industry has to deal with safety concerns, decline in
returns, stiff competition, rise in fuel cost, regional connectivity,
improper exploitation of trunk routes, soaring input costs and
many more.
Market Size

As per Minister for Civil Aviation, Government of India.Passenger

throughout increased to 159 million and cargo to 2.19 million
metric tonnes (MMT) in FY 2013, a compound annual growth rate
(CAGR) of 13 per cent and 10 per cent respectively over the
period FY 2003–2013, as per data from the Airports Authority of
India (AAI).The Indian civil aviation industry is among the top 10
globally with a size of around US$ 16 billion, as per a KPMG

Key Developments And Investments

The foreign direct investment (FDI) inflows in air transport
(including air freight) during April 2000 to March 2014 stood at
US$ 495.24 million, as per data released by Department of
Industrial Policy and Promotion (DIPP).The following are some of
the major investments and developments in the Indian aviation

 Tata-Singapore Airlines plans to launch its services in India

from September 2014, with 87 weekly flights in its first year
of operations, as stated in the airline’s application for an air
operator’s permit to the Directorate General of Civil Aviation
(DGCA). These flights will link Delhi with Ahmedabad,
Bangalore, Chandigarh, Goa, Hyderabad, Jammu, Mumbai,
Patna, and Srinagar.

 The DGCA granted an air operator’s permit (AOP) to Air

Asia on May 7, 2014, opening the path for the airline
company to launch low-cost services in India. Air Asia India
will launch services with three Airbus A320 aircraft, from its
Chennai hub.

 Bengaluru-based GMR Infrastructure has won a contract to

upgrade Mactan-Cebu international airport in the Philippines.
GMR Infra and its partner, Philippine firm Mega wide
Construction will make an upfront concession payment of
US$ 325 million and invest US$ 375 million over the next
five years to build a new terminal and upgrade the current

 Low-cost airline SpiceJet is changing its network strategy in

order to be more cost effective and have better yields. The
airline signed a US$ 4.4-billion deal in March 2014, for 42
fuel-efficient Boeing 737 Max planes which would be
delivered from 2018 onwards.
 Trichy in Tamil Nadu has, over the past few years, become
the fastest growing international airport in India. International
passenger traffic in the town increased 382 per cent to
773,423 between 2006–07 and 2012–13. This year, it is
expected to become the 10th biggest international airport in
the country.

Government Initiatives

India’s Ministry of Civil Aviation revised the bilateral air traffic

entitlements with Dubai in February 2014, permitting them a 20
per cent increase in seats to India. “We have allocated Dubai
11,000 seats in three phases till the summer schedule of 2015.
Dubai has agreed to grant change-of-gauge facility for Indian
carriers at the existing airport,” as per a senior official of the
Ministry.The Ministry has also signed a Memorandum of
Understanding (MoU) with AAI for 2014–15, which lists targets to
be achieved by AAI on some key performance areas during the
fiscal. The main features of the MoU include parameters such as
risk management, implementation of Enterprise Resource
Planning (ERP) tools and development of disaster management
plan.Delhi Airport will soon become a zero-diversionary airport.
The Committee set up by the DGCA to look into the matter, has
presented its report with 27 recommendations. There were 57, 89
and 143 diversions in 2011, 2012 and 2013, respectively.
Chances of diversions of flights at Delhi Airport are expected to
come down drastically after the recommendations have been
implemented. The Indian Government has also been visionary in
terms of the talent requirement for the flourishing aviation industry
in future. In order to address the shortage of skilled, managerial
and operational personnel in aviation, the bill to establish the
aviation university (which has been already discussed above),
has been forwarded to the Lok Sabha Secretariat. The university
will offer and endorse aviation studies, teaching, training,
research and extension work with focus on emerging areas of
studies such as aviation management, aviation regulation and
policy, aviation science and engineering, transportation of
dangerous goods and other related fields, according to the
proposal. The Indian Government has calculated the project
outlay of Rs 202 crore (US$ 31.92 million) for the institution until

The aviation industry’s potential in India is massive. The market

already caters to about 150 million passengers passing through
its many airports, with the potential to grow further. By 2020,
traffic at airports in India is anticipated to reach 450 million. The
aviation industry presently supports about 0.5 per cent of the
India’s GDP.The industry will continue to grow in India on the
back of the performance of regional airports. Currently, there are
about 450 used/un-used/abandoned airports and airstrips spread
across India. Many Indian states, particularly in Eastern India,
have begun taking steps to promote air connectivity. Still, more
needs to be done. Today, many Tier II and Tier III cities are
unconnected. The proposed Essential Air Services Fund (EASF)
by the Ministry of Civil Aviation needs to be established as quickly
as possible. All this will have a multiplier effect with regards to
higher growth of tourism, employment and local economic
activities in the country.By 2020, passenger traffic at Indian
airports is expected to touch US$ 450 million from 159.3 million in
2012–13. The travel & tourism industry is predicted to grow 7.9
per cent to US$ 270.5 billion in 2023 from US$ 119.4 billion in

India is the ninth largest civil aviation market in the world and
fourth in terms of domestic passenger volumes (116.3). The
country’s civil aviation market is also set to become the world’s
third largest by 2020. Total freight traffic registered a compound
annual growth rate (CAGR) of 6.6 per cent over 2006-13; it stood
at 2.19 million tonnes in 2013. Domestic freight traffic also
increased at a CAGR of 7.1 per cent over 06-13 while
international freight traffic rose 6.2 per cent over the same period.
In FY13, domestic freight traffic was 0.78 million tonnes, while
international freight traffic was at 1.41 million tonnes.The
government has done its bit to support the airport sector in the
country. It has focused on infrastructure as well as liberalised
policies. One such policy is, the Open Sky Policy – a concept that
calls for the liberalisation of the rules and regulations of the
international aviation industry (especially commercial aviation) so
as to foster a free-market environment for the airline industry.
Furthermore, it has constantly provided policy sops and
encouraged foreign direct investment.The Indian aviation sector is
likely to see investments totalling US$ 12.1 billion during the
Twelfth Five Year Plan. It aims to boost MRO business in India,
which is currently worth US$ 500 million and is estimated to grow
over US$ 1.5 billion by 2020.