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EVOLUTION OF INDIAN AVIATION INDUSTRY

The history of civil aviation in India began in December 1912. This was with the
opening of the first domestic air route between Karachi and Delhi by the Indian state
Air services in collaboration with the imperial Airways, UK, though it was a mere
extension of London-Karachi flight of the latter airline. Three years later, the first
Indian airline, Tata Sons Ltd., started a regular airmail service between Karachi and
Madras without any patronage from the government.

At the time of independence, the number of air transport companies, which were
operating within and beyond the frontiers of the company, carrying both air cargo
and passengers, was nine. It was reduced to eight, with Orient Airways shifting to
Pakistan. These airlines were: Tata Airlines, Indian National Airways, Air service of
India, Deccan Airways, Ambica Airways, Bharat Airways and Mistry Airways.

In early 1948, a joint sector company, Air India International Ltd., was established by
the Government of India and Air India (earlier Tata Airline) with a capital of Rs 2 crore
and a fleet of three Lockheed constellation aircraft. Its first flight took off on June 8,
1948 on the Mumbai (Bombay)-London air route. At the time of its nationalization in
1953, it was operating four weekly services between Mumbai-London and two weekly
services between Mumbai and Nairobi. The joint venture was headed by J.R.D. Tata, a
visionary who had founded the first India airline in 1932 and had himself piloted its
inaugural flight.

Significance of Air Transport

Air transport is the most modern, the quickest and the latest addition to the
modes of transport. Because of speed with which aeroplanes can fly, travel by air
is becoming increasingly popular. As far as the world trade is concerned it is still
dominated by sea transport because air transport is very expensive and is also
unsuitable for carrying heavy, bulky goods. However, transportation of high value
light goods and perishable goods is increasingly being done by air transport

Nationalization of Airlines

The soaring prices of aviation fuel, mounting salary bills and disproportionately
large fleets took a heavy toll of the then airlines. The financial health of companies
declined despite liberal Government patronage, particularly from 1949, and an
upward trend in air cargo and passenger traffic. The trend, however, was not in
keeping with the expectations of these airlines which had gone on an expansion
spree during the post-World War II period, acquiring aircraft ad spares.
The Government set up the Air Traffic Enquiry Committee in 1950 to look into the
problems of the airline. Though the Committee found no justification for
nationalization of airlines, it favored their voluntary merger. Such a merger,
however, was not welcomed by the airlines.
Foreign Airlines

Foreign airlines carrying international passenger traffic to and from India existed
long before Independence. Their operations are governed by bilateral agreements
signed from time to time between the Government of India and the governments
of respective countries. In 1980-81, the number of such airlines was 35. It rose to
49 in 1996-97.

The share of foreign airlines in India's scheduled international traffic has


increased. In 1971, their share was 55.58 per cent which went up to 65 per cent
and declined to 58 per cent during 1972-75. It fell to 55.72 per cent in 1976 and
further to 55.02 per cent in 1977. Between 1978 and 1990 it gradually increased
and rose to 75.93 per cent. In 1996, the share was nearly 72 per cent.
Table of Contents
1. Overview

2. History

3. Open skies policy

4. Civil Aviation Policy in India

5. Regulators And Operators

6. Airport Authority Of India

7. Airport infrastructure

8. Passenger airlines – The players

9. Indian air cargo market

10. Foreign equity participation

11. Factor Inputs

12. Market Structure and Implications

13. Trends in International and Domestic Civil Aviation and Projected Future Scenario

14. Study of Consumer Demand in the industry

15. Civil Aviation Sector

16. Airport Classification

17. Existing Position (Airports)

18. Case Study - The No frills model

19. Potential Market Entrants

20. SWOT of legacy carriers

21. Recommendations

22. Future Of Indian Aviation Industry


Overview
Air transportation in India is under the purview of the Department of Civil Aviation, a
part of the India's Ministry of Civil Aviation and Tourism. In 1995 the Indian government
owned two airlines and one helicopter service, and private companies owned six airlines.

The government-owned airlines dominated India's air transportation in the mid-1990s.


Air India is the international carrier; it carried more than 2.2 million passengers in FY
1992. Indian Airlines is the major domestic carrier and also runs international flights to
nearby countries. It carried 9.8 million passengers in FY 1989, when it had a load factor
of more than 80 percent in its fifty-nine airplanes. Analysts, however, attributed this high
load factor to a shortage of capacity rather than efficiency of operation. A major
expansion was planned for the 1990s, but an airplane crash in 1990 and a pilots' strike in
1991 damaged the airline, which carried only 7.8 million passengers in FY 1992. Two
other accidents in 1993, plus several hijackings, put constraints on the growth of both
airlines.

A third government-owned airline, Vayudoot, was also a domestic carrier in the early
1990s. It provided feeder service between smaller cities and the larger places served by
Air India and Indian Airlines. By 1994 Indian Airlines had taken over Vayudoot. Another
publicly owned company, Pawan Hans, runs helicopter service, mostly to offshore
locations and other areas that cannot be served by fixed-wing aircraft.

In 1995 India's six private airlines accounted for more than 10 percent of domestic air
traffic. Both the number of carriers and their market share are expected to rise in the mid-
1990s. The four major private airlines are East West Airlines, Jagsons Airlines,
Continental Aviation, and Damania Airways.

In addition to the Indian-owned airlines, many foreign airlines provide international


service. In 1995 forty-two airlines operated air services to, from, and through India.

In the mid-1990s, India had 288 usable airports. Of these, 208 had permanent-surface
runways and two had runways of more than 3,659 meters, fifty-nine had runways of
between 2,400 and 3,659 meters, and ninety-two had runways between 1,200 and 2,439
meters. There are major international airports at Bombay, Delhi, Calcutta, Madras, and
Thiruvananthapuram (Trivandrum), under the management of the International Airport
Authority of India. International service also operates from Marmagao, Bangalore, and
Hyderabad. A consortium of Indian and British companies signed a memorandum of
understanding with the state government of Maharashtra in June 1995 to build a new
international airport for Bombay, across the harbor from the main city and to be linked by
a cross-harbor roadway. Major regional airports are located at Ahmadabad, Allahabad,
Pune, Srinagar, Chandigarh, Kochi, and Nagpur.
Civil Aviation Sector

The civil aviation sector has played an important role in India's economy. It provides fast
and reliable mode of transport across the country and is particularly important for
many areas/places still not adequately connected by rail or road. In 2000-01, 42.03
million domestic and international passengers and 846.42 thousand tones of cargo
were handled at various airports in the country. With increasing globalisation, this
sector will play a more significant role in integrating the Indian economy with the
rest of the world.

1.1 Air Traffic: The Airport Authority of India (AAI) manages total 122 Airports in
the country, which include 11 International Airports, 94 domestic airports and
28 civil enclaves. Top 5 airports in the country handle 70% of the passenger
traffic of which Delhi and Mumbai together alone account for 50%.
Passenger and cargo traffic has growth at an average of about 9% over the
last 10 years.

Growth: Estimated domestic passenger segment growth is at 12% per


annum. Anticipated growth for International passenger segment is 7% while
the growth for International Cargo is likely to grow at a healthy rate of 12%.

Privatization: Privatization of International Airports is in offing through Joint


Venture route. Three Greenfield airports are getting developed at Kochi,
Hyderabad and Bangalore with major shareholding of private sector. The
work on Bangalore airport is likely to commence shortly. Few selected non-
metro airports are likely to be privatized.100% foreign equity has also been
allowed in construction and maintenance of airports with selective approval
from Foreign Investment Promotion Board.

Air movements: The total aircraft movements handled in October 2003 has
shown an increase of 15.4 percent as compared to the aircraft movement
handled in October 2002. The international and domestic aircraft movements
increased by 15.4 percent each during the period under review. The reason
for increase in aircraft movements is due to increase of operation of smaller
aircraft by airlines and the introduction of new airlines viz., Air Deccan in
southern region and international airlines (Air Canada, Polar Air Cargo, Qatar
Airways (Freighter), Turkish Airways, Air Slovakia at IGI Airport with effect
from October 2003.

Passenger Traffic: International and Domestic passenger traffic handled in


October 2003 has increased by 15.4 percent and 6.7 percent over the period
of October 2002 leading to an overall increase of 9.4 percent. The total
passenger increased by 9.2 percent, 7.6 percent, 8.9 percent and 17.0
percent respectively at five international airports six developing international
airports, eight custom airports and 26 Domestic airports.
Cargo Traffic: The total cargo traffic handled in October 2003 has shown an
increase of 3.5 percent as compared to the cargo handled in October 202.
The international and domestic cargo traffic increased by 4.3 percent and 2.1
percent respectively during the period.

During the month of October 2003, 5346 thousand aircraft movements (excludes
defence & other non-commercial movements), 40.33 lakh passengers and 88.59
thousand tones of cargo were handled at all the airports taken together.
History
The first commercial flight in India was made on February 18, 1911, when a
French pilot Monseigneur Piguet flew airmails from Allahabad to Naini, covering
a distance of about 10 km in as many minutes.

Tata Services became Tata Airlines and then Air-India and spread its wings as
Air-India International. The domestic aviation scene, however, was chaotic.
When the American Tenth Air Force in India disposed of its planes at throwaway
prices, 11 domestic airlines sprang up, scrambling for traffic that could sustain
only two or three. In 1953, the government nationalized the airlines, merged
them, and created Indian Airlines. For the next 25 years JRD Tata remained the
chairman of Air-India and a director on the board of Indian Airlines. After JRD left,
voracious unions mushroomed, spawned on the pork barrel jobs created by
politicians. In 1999, A-I had 700 employees per plane; today it has 474 whereas
other airlines have 350.

For many years in India air travel was perceived to be an elitist activity. This view
arose from the “Maharajah” syndrome where, due to the prohibitive cost of air
travel, the only people who could afford it were the rich and powerful.

In recent years, however, this 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. In the early fifties, all airlines operating in the country were merged
into either Indian Airlines or Air India and, by virtue of the Air Corporations Act,
1953; this monopoly was perpetuated for the next forty years. The Directorate
General of Civil Aviation controlled every aspect of flying including granting flying
licenses, pilots, certifying aircrafts for flight and issuing all rules and procedures
governing Indian airports and airspace. Finally, the Airports Authority of India was
entrusted with the responsibility of managing all national and international air
ports and administering every aspect of air transport operation through the Air
Traffic Control. With the opening up of the Indian economy in the early Nineties,
aviation saw some important changes. Most importantly, the Air Corporation Act
was repealed to end the monopoly of the public sector and private airlines were
reintroduced.
Open skies policy
Need for Open Skies Policy

A recurring demand often voiced by interested parties is that, in order to promote


Travel & Tourism, India should adopt an Open Skies policy. It is argued that the
current policy restricts the access of foreign airlines. As a result potential tourists
are not offered a choice of airlines or seats when travelling to India. This problem
is exacerbated during the holiday season when it is difficult, if not impossible, to
get a seat either into the country or out of it. It is argued, therefore, that India
should adopt an Open Skies approach to any foreign carrier wanting to fly into
India, which literally means allowing them unlimited service, capacity and points
of call.

Meaning of ‘Open Skies’

At the outset we must point out that the concept of 'Open Skies' is much
misunderstood in its meaning and implications. Strictly speaking Open Skies
means unrestricted access by any carrier into the sovereign territory of a country
without any written agreement specifying capacity, ports of call or schedule of
services. In other words an Open Skies policy would allow the foreign airline of
any country or ownership to land at any port on any number of occasions and
with unlimited seat capacity. There would be no restriction on the type of aircraft
used, no demand for certification, no regularity of service and no need to specify
at which airports they would land. Defined in this manner, it is not surprising that
Open Skies policies are adopted only by a handful of countries, most commonly
those that have no national carriers of their own and that have only one or two
airports. No sovereign country of any eminence practices Open Skies least of all
the European Union, UK, USA, Japan, Australia or countries in South East Asia.

Open-Sky Policy

The Open-sky policy came in April 1990. The policy allowed air taxi- operators to
operate flights from any airport, both on a charter and a non charter basis and to decide
their own flight schedules, cargo and passenger fares. The operators were, however,
required to use aircraft with a minimum of 15 seats and conform to the prescribed rules.
In 1990, the private air taxi-operators carried 15,000 passengers. This number increased
to 4.1 lakh in 1992, 29.2 lakh in 1993, 36 lakh in 1994 and 48.9 lakh in 1995.

The 1996, private air taxi operators carried 49.08 lakh passengers which amounted to a
41.14 per cent share in the domestic air passenger traffic. Seven operators viz NEPC
Airlines, Skyline NEPC, Jet Air, Archana Airways, Sahara India Airlines, Modiluft and
East West Airlines have since acquired the status of scheduled airlines. Besides this there
were 22 nonscheduled private operators and 34 private operators holding no-objection
certificate in 1996. The number of plus 120 category aircraft in the private sector was 34
and the total fleet strength was 75 in June, 1996. Two out of seven scheduled air taxi
operators suspended their operations in 1996 because of the non-availability of aircraft.

Bilateral Treaties

However, almost 99 per cent of Members of the International Civil Aviation


Organization (ICAO) follow the system of negotiated bilateral treaties determining
the aviation relations between two sovereign Contracting parties. In fact, the
bilateral aviation regime is considered the fundamental basis for a disciplined and
regulated aviation system between the nations of the world. It provides not only
regularity of operations through scheduled services but also stipulates the basis
of ownership, number of seats to be utilized, type and certification of aircraft and
visiting ports of call. The Bilateral Agreements also protect the different kinds of
aviation Freedoms granted to contracting parties by specifying the reciprocal
rights to be enjoyed by each.

Indian Bilateral Treaties

India has signed over 180 Bilateral Agreements with different countries. In 2002
the total number of seats available was 38.09 million. Of this, the capacity
operated was approximately 19.174 million seats. Since the average size of
traffic to and from the country is slightly in excess of approximately 14 million
passengers, normally the contracted rights should suffice the traffic demand.

Utilization of Bilateral Treaty Contracts

It is in the actual utilization of the contracted seats that the problem arises. Of the
contracted amount, 50 per cent are to be utilized by the national carrier and 50
per cent by the airline owned by the contracting country. However, whilst the
foreign carriers are in a position to use over 70 per cent of their entitlement, the
national carrier is only able to utilize 29.4 per cent of their share. It is this shortfall
that creates pressure on seats, particularly during peak tourism national carriers
do not have sufficient aircrafts to be able to utilize the bilateral rights available to
the country and enter into commercial and code sharing arrangements to
maximize revenue. Whilst this does improve their profitability in the short run, it
has a long-term adverse effect in that it deprives the country of much needed air
bridges to bring in tourists and carry trade.
Under the present bilateral system, the utilization of the traffic rights on
international routes to and from India, as negotiated by the Government of India,
is restricted to the two Government owned 'national' carriers - namely Air India
and Indian Airlines and either or both these carriers are the Indian designated
carriers under the various Air services Agreements. The Operating Permits
restrict the privately owned carriers, such as Jet Airways and Air Sahara, to
operate only domestic routes within India.
Civil Aviation Policy in India
MISSION: To maintain a competitive civil aviation environment, which ensures safety
and security in accordance with international standards, promotes efficient, cost-
effective and orderly growth of air transport and contributes to social and economic
development of the country.

In the context of a multiplicity of airlines, airport operators (including private


sector), and the possibility of oligopolistic practices, there is a need for an
autonomous regulatory authority which could work as a watchdog, as well as a
facilitator for the sector, prescribe and enforce minimum standards for all
agencies, settle disputes with regard to abuse of monopoly and ensure level
playing field for all agencies. The CAA was commissioned to maintain a
competitive civil aviation environment which ensures safety and security in
accordance with international standards, promotes efficient, cost-effective and
orderly growth of air transport and contributes to social and economic
development of the country.

Objectives of Civil Aviation Ministry


a) To ensure aviation safety, security
b) Effective regulation of air transport in the country in the liberalized
environment
c) Safe, efficient, reliable and widespread quality air transport services are
provided at reasonable prices
d) Flexibility to adapt to changing needs and circumstances
e) To provide all players a level-playing field
f) Encourage Private participation
g) Encourage Trade, tourism and overall economic activity and growth
h) Security of civil aviation operations is ensured through appropriate
systems, policies, and practices

Private Sector Participation and the Civil Aviation Policy


• Private sector participation will be a major thrust area in the civil aviation
sector for promoting investment, improving quality and efficiency and
increasing competition.
• Competitive regulatory framework with minimal controls encourages entry
and operation of private airlines/ airports.
• Encouragement of private sector investment in the construction,
upgradation and operation of new and existing airports including cargo
related infrastructure.
• Rationalization of various charges and price of ATF/AVGas will be
undertaken to render operation of smaller aircraft viable so as to
encourage major investment in feeder and regional air services by the
private sector.
• Training Institutes for pilots, flight engineers, maintenance personnel, air-
traffic controller, and security will be encouraged in private sector.
• Private sector investment in non-aeronautical activities like shopping
complex, golf course, Entertainment Park, aero-sports etc. near airports
will be encouraged to increase revenue, improve viability of airports and to
promote tourism. CAA will ensure that this is not at the cost of primary
aeronautical functions, and is consistent with the security requirements.
• Government will gradually reduce its equity in PSUs in the sector.
• Government will encourage employee participation through issue of
shares and ESOP

Security

Strict national civil aviation security programme to safeguard civil aviation


operations against acts of unlawful interference have to be established through
regulations, practices and procedures, which take account of the safety,
regularity and efficiency of flights. A good safety record is a judgment of past
performance but does not guarantee the future, although it is a useful indicator.
While pilot error is said to be on the decline, factors of fatigue, weather,
congestion and automated systems have complicated safety. Airline operators,
pilots, mechanics, flight attendants, government regulators and makers all have a
stake in making aviation as safe as possible. The International Air Transport
Association (IATA), the International Civil Aviation Organization (ICAO),
manufacturers and others bodies cooperate in this aim. As world air traffic is
expected to double or more by 2020, the accident rate must be reduced in order
to avoid major accidents occurring more frequently around the globe.

Maintenance

Private sector participation is encouraged in existing maintenance infrastructure


of Indian Airlines and Air India like Jet Engine Overhaul Complex (JEOC) and
new maintenance facilities including engine overhaul and repairs with up to 100
% foreign equity.

Indian Airlines has major maintenance facilities for all the types of aircraft in IAL
fleet i.e. Airbus-300, Airbus-320, Boeing-737 and Dornier-228. The Engineering
Department is responsible for maintenance of aircraft and is answerable to
Director General of Civil Aviation (DGCA) in maintaining the Quality Control. The
Maintenance of the aircraft is carried out at four major bases located at Delhi,
Mumbai, Calcutta and Hyderabad.
Sahara also has its own NDT Shops, wheels and brake assembly shop, battery
charging shop, avionics shop and seat repair shop. It is the only private domestic
airline to have its own hangar for aircraft maintenance. It is also the only private
domestic airline to have self maintenance capability.

Air Deccan, Bangalore-based airline, has decided to set up its engineering and
maintenance facility for Airbus-320 operations, basing two of a fleet of 11 Airbus
jets here. They have also sought land from the Airports Authority of India to build
an exclusive hangar to carry out 300 and 500-hour checks, apart from C-Checks
and line maintenance.
Regulators and Operators
The regulatory functions are the responsibility of the Directorate General of Civil Aviation
(DGCA) and Bureau of Civil Aviation Security (BCAS). Operational functions are performed by
Air India Ltd., Indian Airlines Ltd., Pawan Hans Helicopters Ltd. together with other private
sector airline operators.

Air India provides international air services while Indian Airlines and its wholly owned
subsidiary, Alliance Air, and private sector operators like Jet Airways and Sahara Airlines
provide domestic air services in the country. Indian Airlines also provides international air
services to some of the neighboring countries.

Pawan Hans Helicopters provides helicopter support services primarily in the petroleum sector.

Infrastructural facilities are provided by the Airports Authority of India (AAI). It manages 94
civil airports including 11 international airports at Delhi, Mumbai, Kolkata, Chennai,
Thiruvananthapuram, Bangalore, Hyderabad, Ahmedabad, Goa, Amritsar and Guwahati and 28
civil enclaves at defence airfields.
AIRPORTS AUTHORITY OF INDIA
MISSION Progress through excellence and customer satisfaction with world class
airports and air traffic services fostering economic development.

Airports Authority of India (AAI) was constituted by an Act of Parliament and came into
being on 1st April, 1995 by merging erstwhile National Airports Authority and
International Airports Authority of India. The merger brought into existence a single
Organization entrusted with the responsibility of creating, upgrading, maintaining and
managing Civil Aviation infrastructure both on the ground and air space in the country.
Despite many tragic occurrences like 9/11, Afghan war, Iraq war and SARS that struck
the Civil Aviation sector the world over during the last few years and left it bleeding,
AAI has persistently come up with good results, showing all around growth including
increased revenue and higher level of profitability while building up the infrastructure.

AAI has set for itself ambitious targets for upgrading the infrastructure during the 10th
Five - Year Plan and is working steadily to achieve these targets. AAI manages 126
airports, which include 11 international airports, 89 domestic airports and 26 civil
enclaves at Defence airfields. AAI provides air navigation services over 2.8 million
square nautical miles of airspace. During the year 2002-03, AAI at various airports
handled about 5 lakhs aircraft movements (4 lakhs domestic and 1 lakh international);40
million passengers (26 million domestic and 14 million international) and 9 lakh tones of
cargo (3 lakh domestic and 6 lakh international).

1. PASSENGER FACILITIES :

Improvement of passenger facilities is a continuous process. AAI has to cater to very


demanding customers who in the wake of globalization have the exposure to the best of
facilities are available at other international airports in the world over and the airlines
operators who by virtue of their nature of operation are exposed to the best of facilities
and services available at other international airports.

AAI has been continuously striving to meet these challenges. Customer satisfaction
surveys conducted periodically by outside agencies has been a vital source of feedback
on the deficiencies of the system as also the expectations of the traveling public. It has
been our endeavour in AAI to address these issues on priority.

2. AIR NAVIGATION SERVICES :

In tune with global approach to modernization of Air Navigation infrastructure for


seamless navigation across state and regional boundaries, AAI has been going ahead with
its plans for transition to satellite based Communication, Navigation, Surveillance and
Air Traffic Management. A number of co-operation agreements and Memoranda of Co-
operation have been signed with US Federal Aviation Administration, US Trade and
Development Agency, European Union, Air Services Australia and the French
Government, co-operative projects and studies initiated to gain from their experience.
Through these activities more and more executives of AAI are being exposed to the latest
technology, modern practices and procedures being adopted to improve the overall
performance of Airports and Air Navigation Services.

Induction of latest state-of-the-art equipment, both as replacement of old equipments and


also as new facilities to improve standards of safety at airports and in the air is a
continuous process. Adoption of new and improved procedure go hand in hand with
induction of new equipment. Some of the major initiatives in this direction are
introduction of Reduced Vertical Separation Minima (RVSM) in Indian airspace to
increase airspace capacity and reduce congestion in the air and implementation of GPS
and Geo Augmented Navigation GAGAN jointly with ISRO which when operationalised
would be one of the four such systems in the world.

3. SECURITY :

The continuing security environment has brought into focus the need for strengthening
security of vital installations. There was thus an urgent need to revamp the security at
airports not only to thwart any misadventure but also to restore confidence of the
traveling public in the security of air travel as a whole, which was shaken after the 9/11
tragedy. With this in view, a number of steps were taken including induction of CISF for
airport security, CCTV surveillance system at sensitive airports, latest and state-of-the-art
X-Ray baggage inspection systems. Perimeter security and surveillance systems, smart
cards for access control to vital installations at airports are also being considered for
introduction to supplement efforts of security personnel at sensitive airports.

4. AERODROME FACILITIES :

In Airports Authority of India, the basic approach to planning of airport facilities has
been to create capacity ahead of demand. In our efforts towards implementation of this
strategy, a number of projects for extension and strengthening of runway, taxi track and
aprons at different airports has been taken up. Extension of runway to 7500 feet to
support operation of Airbus-320 / Boeing 737-800 category of aircrafts at all airports
where jet aircrafts currently operate has been taken up. Among the major projects
currently in progress/completed during the last year include new terminal buildings at
Bhuj, Kangra and Pathankot, Ahmedabad, Porbandar constructions of canopies,
extension of terminal buildings at Bangalore, Calicut, Ahmedabad extension and
strengthening of runway at Agartala, Varanasi and Jaipur.

5. HRD-TRAINING :

A large pool of trained and highly skilled manpower is one of the major assets of Airports
Authority of India. Development and technological advancements and consequent
refinement of operating standards and procedures, new standards of safety and security
and improvements in management techniques call for continuing training to update the
knowledge and skill of officers and staff. AAI has a number of training establishments,
viz. NIAMAR in Delhi, CATC in Allahabad, Fire Training Centres at Delhi and Kolkata
for in-house training of its engineers, Air Traffic Controllers, Rescue & Fire fighting
personnel, etc. NIAMAR & CATC are members of International Civil Aviation
Organization (ICAO) TRAINAIR programme under which they share Standard Training
Packages (STP) from a central pool for imparting training on various subjects. Both
CATC & NIAMAR have also contributed a number of STPs to the Central pool under
ICAO TRAINAIR programme. Foreign students have also been participating in the
training programmes being conducted by these institutions.

6. IT IMPLEMENTATION :

Information Technology holds the key to operational and managerial efficiency


transparency and employee productivity. AAI initiated a programme to inculcate IT
culture among its employees and this most powerful tool to enhance efficiency in the
Organization. AAI website with domain name www.airportsindia.org.in or www.aai.aero
is a popular website giving a host of information about the organization besides domestic
and international flight schedules and such other information of interest to the public in
general and the passengers in particular.

ORGANIZATIONAL STRUCTURE

Organisational Structure
AIRPORT AUTHORITY OF INDIA TODAY

AAI manages 126 airports, which include 11 international airports, 89


domestic airports and 26 civil enclaves at Defence airfields. AAI also
provides Air Traffic Management Services over entire Indian Air Space
and adjoining oceanic areas with ground installations at all airports
and 25 other locations to ensure safety of aircraft operations.

The airports at Ahmedabad, Amritsar, Bangalore, Goa, Guwahati,


Hyderabad and CIAL (Pvt.), in addition to those at Mumbai, Delhi,
Calcutta, Chennai and Thiruvananthapuram, are today International
Airports open to operations even by Foreign International Airlines.
Besides the International flights by National Flag Carriers operate from
Calicut, Coimbatore, Tiruchirappalli, Varanasi, Jaipur and Gaya airports
too. Tourist Charters now touch Agra, Coimbatore, Jaipur, Lucknow,
Patna airports etc.

AAI's proposal to lease out, on global tender basis, the four most
profitable jewels in its crown viz. Delhi, Mumbai, Kolkata and Chennai
airports primarily aims to upgrade these to emulate the world
standards.

All major air-routes over Indian landmass are Radar covered (24 Radar
installations at 11 locations) alongwith VOR/DVOR coverage (72
installations) co-located with Distance Measuring Equipment (71
installations), 39 runways provided with ILS installations with Night
Landing Facilities at 36 airprots and Automatic Message Switching
System at 15 airports.

AAI's successful implementation of Automatic Dependence Surveillance


system, using indigenous technology, at Calcutta and Chennai Air
Traffic Control Centres, gave India the distinction of being the first
country to use this advanced technology in the South East Asian
region enabling effective Air Traffic Control over oceanic areas using
satellite mode of communication. Use of remote controlled VHF
coverage, alongwith satellite communication links, has given added
strength to our Air Traffic Management System. Linking of 80 locations
by V-Sat installations during 2005 shall vastly enhance Air Traffic
Management and in turn safety of aircraft operations besides enabling
administrative and operational control over our extensive airport
network.
AAI's endeavour in enhanced focus on 'customer's expectations' has
evinced enthusiastic response to independent agency organised
customer satisfaction surveys at 30 busy airports. These surveys have
enabled us to undertake improvements on aspects recommended by
the airport users. The receptacles for our 'Business reply letters' at
airports have gained popularity, these responses enable us to
understand the changing aspirations of airport users. During the first
year of the millennium, AAI endeavours to make its operations more
transparent and the availability of instantaneous information to
customers by deploying state-of-art Information Technology.

The specific training focus on improving employee response and


professional skill upgradation has been manifested. AAI's four training
establishments viz. Civil Aviation Training College - Allahabad, National
Institute of Aviation Management and Research - Delhi and Fire
Training Centres at Delhi and Kolkata are expected to be busier than
ever before during 2001.

Main Functions

The main functions of AAI are:-

o To control and manage the entire Indian airspace (excluding the


special user airspace) extending beyond the territorial limits of the
country, as accepted by ICAO.

o Provisioning of Communication and Navigational aids viz. ILS,


DVOR, DME, Radar, etc.

o To Design, Construct, Operate and Maintain International Airports,


Domestic Airports, Civil Enclaves at Defence Airports.

o Development and Management of International Cargo Terminals.

o Provisioning of Passenger Facilitation and Information System.

o Expansion and Strengthening of Operational areas viz. Runways,


Apron, Taxiways, etc.

o Provisioning of Visual Aids.

HUMAN RESOURCE IN DIVERSE AREAS OF EXPERTISE


AAI has a vast resource of trained manpower. The 22000 strong workforce
includes expert manpower in particularly in the areas of:-

• Civil and Structural Engineers


• Electrical Engineers
• Architects
• Automobile and E&M Engineers

• Safety Service Managers

• Air Traffic Controllers


• Electronic Engineers
• Finance, Audit & Accounts Managers

• HRD / HRM Managers


• Legal

• Cartography

TRAINING FACILITIES

The inhouse training requirements of the AAI are catered fully by 4 training
institutes. The training institutes have also been catering to the training needs of
manpower from neighboring countries. The two of these training institutes are
approved `Course Development Centres’ under the `Trainair’ programme of
ICAO.

FOREIGN PROJECTS EXECUTED BY AAI

AAI undertakes assignments like airport feasibility studies, airport design project
implementation & project supervision, manpower training, Airport Management &
operation on turnkey basis, providing manpower for airport operation including air
traffic services, Ground Nav./Surveillance facilities etc. The AAI has undertaken
consultancy projects in Libya, Algeria, Yemen, Maldives, Nauru, Afghanistan
listed hereunder :

Project Name Country Cost (Million US $)

Ghat Airport Libya 70.20


Brak Apt. Project Stage I Libya 25.17
Brak Apt. Project Stage II Libya 41.60
Hulule Apt. Project Maldives 11.00

Riyan Apt. Project Yemen 25.69


Al-Ghaidha Apt. Project Yemen 23.64
Al-Ghaidha Apt. Project Yemen 23.64

Batna Apt. Project Algeria 10.00

Extn. Of Runway Nauru 0.096

Moders’n-Plaissance Airport Mauritius 0.04

Upgradation – HAL Airport India 0.8


I.G. National Flying Academy India 10.33

The Airports Authority of India has not only undertaken projects abroad but have
also provided trained experts for manning air traffic control, operation and
maintenance of Radar and Nav. Aids to Afganistan, Iraq, Libya, Male, Nauru,
Nepal, Nigeria, Zambia etc.

A number of Indian Aviation experts are engaged by ICAO Technical Assistance


Programmes and other consultancy assignments to various ICAO participating
nations.

FLIGHT CALIBRATION BY AAI IN INDIA & ABROAD

AAI has its own Flight Calibration Unit (4 aircraft) for calibration of ground aids as
per the ICAO stipulations. Over the years the Flight Calibration Unit of the
Airports Authority have undertaken flight calibration jobs in Afganistan, Bangla
Desh, Bhutan, Combodia, Laos, Maldives, Nepal, Sri Lanka.

AAI OFFERS EXPERTISE IN THE FIELD OF AIRPORT & AVIATION


RELATED SERVICES AS GIVEN BELOW

I. Airport Feasibility Studies:

o Topography Surveys, Cartography and soil investigation


o Airport Obstruction Clearance Surveys
o Air Traffic Forecasts & Normative Surveys.

Il. Airport Commercial Viability audit Services


III. Airport Master Planning.

IV. Design & CONSTRUCTION PROJECTS of:-

i. Air Passenger Terminals / Air Cargo Terminals


ii. Airport Pavements

iii) Provision of Aircraft Hangers and Supporting Infrastructure

iii. Airport Electrical Installations/Approach and Night Landing Facilities


iv. Remodeling , Modernisation of Airports

V. Planning, Installation, Operation & Maintenance of:

Radars, Nav. Aids, Visual & Non-Visual Landing Aids and Com.
Facilities.

VI. AirSpace & Air Traffic Management, Air Route


Re-structuring:

o Development of SIDS, STARS, IAL Procedures, Obstruction Charts

o Planning & Design for Airport Fire Safety Services

VII. Airport Management on turnkey basis.

VIII. Computerisation:

o Cargo Handling
o Airport Terminal Information System
o Integrated Passenger Information System
o Air Traffic Management and Airlines Billing
o Automatic Self Briefing systems

IX. Training:

o Air Traffic Controllers


o Radar & Nav. Aids & Communication Equipment Engineers
o Airport Terminal Management
o Airport Air Side Management (Ground Flight Safety)
o Airport Fire Services

X. FLIGHT CALIBERATION OF AIRPORT GROUND FACILITIES:

o Commissioning & routine flight check of


RADAR System, VOR, DME, NDB, ILS, VASI, PAPI etc.

Airport infrastructure
In India, airports were totally owned and managed by central government or the
armed forces. The Airport Authority of India (AAI), a body functioning under the
Ministry of Civil Aviation was responsible for managing the airports in India. It
owns 122 airports, 61 of which are operational. The breakdown is as follows:

• 11 international
• 94 civil and
• 27 civil enclaves at defence airfields.

The AAI operate most aspects of the airport (including air traffic control) and
procure most of their equipment directly (via global/local tenders). India’s airports
handle 42 million passengers, of which the four Metro gateway airports (Delhi,
Mumbai, Kolkata and Chennai) account for 47% of revenue and 66% of the
passengers.

Until 2000, there were five major international airports, - Mumbai, Kolkata, Delhi,
Chennai and Trivandrum. But the Government of India announced a further six
airports including Amritsar, Bangalore, Hyderabad, Cochin during the course of
2002.

According to projections, Indian air passenger traffic was estimated to grow to


100 million passengers by 2012 from 36.98 million in 1998-99. Growth
projections in the cargo front were also promising. Airport infrastructure is linked
to development of India's international competitiveness and her ability to attract
foreign investments. The policy opened the doors of private investment in this
sector, including investments from foreign airport authorities.

GOVERNMENT EFFORTS

The Government will aim at ensuring adequate world class airport infrastructure
capacity in accordance with demand, ensuring maximum utilization of available
capacities and efficiently managing the airport infrastructure by increasing
involvement of private sector.
Greenfield airport will be permitted by the Government where
the existing airport is unable to meet the projected requirement of traffic or
a new focal point of traffic emerges with sufficient viability and
the new location is normally not within an aerial distance of 150 kilometers
of an existing airport
Encouragement will be given to development/ construction in private sector of
small airstrips/ helipads /heliports, which are smaller and cheaper to construct.
These will be particularly suitable in remote hilly or island areas, large business,
city centers, factory locations and at other important nodal points. This will also
facilitate increase in small aircraft operations
Private sector participation
Private sector will be free to undertake (a) construction and operation of
new airports/airstrips/ helipads/heliports including cargo complexes, express
cargo terminals, cargo satellite cities and cargo handling facilities (b)
upgradation and operation of existing airports/airstrips/helipads/heliports in
consultation with the existing operator including cargo complexes, Express
cargo terminals, cargo satellite cities and cargo handling facilities
Foreign equity participation will be permitted up to 74 % with automatic
approval and 100 % with special permission of government
Private sector participation will include participation of state government,
urban local bodies, private companies, individuals and joint ventures on
Build-Own-Operate (BOO) basis or any other pattern of ownership and
management depending on the circumstances.
Restructuring of major airports of Airports Authority of India will be
undertaken through long-term lease to private investors for efficient
management, improvement of standards of services/ facilities and attracting
private investment
At privately managed airports, air traffic control (ATC) and aviation security
will continue to be provided by the Airports Authority of India (AAI) and
customs and immigration facilities by respective Government departments.
The equipment needed for any service would normally be provided by the
agency responsible for the service and an equitable system would be
established for sharing of revenue between different agencies. Keeping in
view their respective investments and responsibilities.
All airports /airstrips /helipads /heliports used for scheduled air-transport services
will be licensed by Civil Aviation Authority.
Airport/ airstrip/ heliport/ helipad operators will follow ICAO guidelines for
levying airport/ airstrip/ heliport/ helipad charges based on cost recovery principle.
The CAA would put in a place a regulatory mechanism to prevent abuse of
monopolistic nature of such infrastructure.
An objective and well-defined transparent mechanism for allocation of slots at
airports will be ensued at all times.
CAA will ensure fair play between different airport/ airstrip/ heliport/ helipad
operators and user agencies so that no airport/ airstrip/ heliport/ helipad operator is
accused of discriminating against any particular airline or any other user. Similarly,
Government will ensure that no airport-operator is discriminated against with
regard to allotment as point of call, if there is demand for air services from such
airport.
More international gateways shall be provided. It would be ensured that there is at
least one international airport in every region of the country in order to give a boost
to trade and tourism and adequate capacity in all the routes.
Major thrust will be given for increasing the share of commercial revenue from
non-aeronautical sources by giving total freedom to airport/ airstrip/ heliport/
helipad operators in the matter of raising non-aeronautical
revenue
New Ground Handling regulations with following broad
particulars envisage
At airports managed by AAI, new private investors have been allowed by
AAI to undertake ground handling besides national carriers and self-
handling by carriers which will increase competition resulting in
improvement in services and reduction in costs.
At private airports, at least limited competition will be mandatory.
A rationalized dynamic system for airport charges for AAI airports will be
introduced for
optimum utilization of airport by using peak and off-peak time charges,
increasing revenue of airport operators
promoting airports in far-flung regions by having varying airport charges
from airport to airport depending upon the facilities available at the airport.
promoting use of small aircraft
A new Directorate of Lands shall be established in AAI and land use guidelines will
be formulated for utilizing vacant land.
Vacant land at airports will be evaluated for construction of aviation related
activities (e.g. cargo complexes, aircraft maintenance Facilities, etc)
For optimal exploitation of airport land for civil aviation purposes, private-
sector/ State Government participation would be welcome.
Land at such airports where there is no likelihood of future use for civil
aviation purposes will be utilized for other commercial purposes like gold
courses, tennis, etc. either by AAI itself or in joint venture.
Effective steps will be taken for removing encroachments from AAI land
and if necessary, comprehensive rehabilitation package will be formulated.
Cargo handling
Infrastructure like satellite freight cities with multi-modal transport, cargo
terminals, cold storage centers, automatic storage and retrieval systems,
mechanized transport of cargo, dedicated express cargo terminals with
airside and city side openings, computerization and automation etc. will be
set up on priority basis.
Private sector participation in cargo handling will be encouraged.
Efficient Electronic Data Interchange systems will be developed and linked
amongst all stakeholders in the trade.
Air cargo complexes and dedicated express cargo terminals (with airside and
city-side openings) will be integral part of all major airports.
Operation of airports would be in accordance with the provisions relating to
prevention of air, water and noise pollution.
Guidelines for naming of airports will be formulated to ensure that the airports are
named after the cities they are situated in as per international norms.
Air Traffic services
Air Traffic controllers will be licensed by CAA.
AAI will continue to provide Air Traffic Services over the Indian air Space
as per standards set by CAA in accordance with ICAO norms.
Approach and aerodrome control services may be provided by licensed
ATCs engaged by the airport operators
New satellite based CNS/ATM systems will be introduced as per ICAO's
Regional Plan
India to have a significant say in the provision of new satellite based
CNS/ATM services in Asia- pacific/ SAARC regional airspace
Fresh Air traffic Services and Controlling (Departure, holding and approach)
procedures will be evolved for helicopters and small aircraft to exploit their
inherent advantages and to reduce the cost of their operations and efficient
use of airspace without compromising safety. This will also give boost to
Flying Clubs.
Efforts will be made for Civil-Military co-ordination for
Greater sharing of civil and military airspace for unidirectional air-
corridors and straightening of air-routes to save fuel and time,
Uniform air-traffic procedures ,
Additional slots for civilian flights at military airports,
Sharing of revenues at civil enclaves
Passenger airlines – The players
Indian Airlines

Indian Airlines was founded in 1953. Today, together with its fully owned
subsidiary Alliance Air, it is one of the largest regional airline systems in Asia with
a fleet of 62 aircraft(4 wide bodied Airbus A300s, 41 fly-by-wire Airbus A320s, 11
Boeing 737s, 2 Dornier D-228 aircraft and 4 ATR-42).

It has many firsts to its credit, including introduction of the wide-bodied A300
aircraft on the domestic network, the fly-by-wire A320, Domestic Shuttle Service,
Walk-in Flights and Flexi-fares.

The airlines network spans from Kuwait in the west to Singapore in the East and
covers 75 destinations - 57 within India and 20 abroad. The Indian Airlines
international network covers Kuwait, Oman, UAE, Qatar and Bahrain in West
Asia, Thailand, Singapore, Yangon and Malaysia in South East Asia and
Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and Maldives in the South
Asian sub-continent.

Indian Airlines is presently fully owned by the Government of India and has total
staff strength of around 18562 employees. Its annual turnover, together with that
of its subsidiary Alliance Air, is well over Rs.4000 crores (around US$ 1 billion).

Indian Airlines flight operations centre around its four main hubs- the main metro
cities of Delhi, Mumbai, Calcutta and Chennai. Together with its subsidiary
Alliance Air, Indian Airlines carries a total of over 7.5 million passengers annually.

Air Sahara

Air Sahara has established itself as one of the leading players in the Indian
Aviation industry. Air Sahara is part of the multi-crore Sahara India Pariwar.
Sahara India Pariwar has interests in Public Deposit Mobilization, Media &
Entertainment, Housing & Infrastructure, Tourism, Consumer Products and
Information Technology. Starting on a modest scale and a capital of only
Rs.2000 in 1978, Sahara India Pariwar has traversed a long way to become an
icon in Indian entrepreneurship.

Air Sahara began operations on December 3, 1993 following the Indian


government's decision to open the skies to the private sector. It operated with a
fleet of only two Boeing 737-200s. Today, its fleet includes advanced aviation
technology New Generation Boeings 737-700s and 737-800s and Classics 737-
400s and a fleet of 7 Canadair Regional Jets. The fleet also includes four highly
advanced Helicopters (Dauphin and Ecureuil), which provide efficient charter
services. Offering 119 flights with 11800 seats on a daily basis, Air Sahara flies
to various destinations in India, which include important cities like Delhi,
Bangalore, Mumbai, Kolkata, Lucknow, Hyderabad, Pune, Chennai and others.
The airline has recently added Colombo, Srinagar, Coimbatore, Ahmedabad,
Jaipur, Gorakhpur, Allahabad, Bhubaneshwar, Ranchi and Kochi to its route
network. Air Sahara also operates flights to Dibrugarh, Guwahati, Varanasi,
Patna and Goa.

The airline is currently undergoing a complete overhaul and restructuring


exercise. Air Sahara has redefined itself in terms of an efficient and punctual
airline with a high record of on-time-performance and dispatch reliability. Efforts
are being made to increase connectivity and offer convenient timings.

A major investment programme has been launched for the modernization and
enhancement of its fleet. Fleet review and route rationalization have become the
focus points of Air Sahara's strategy. Five new Boeings have been added to the
fleet in the last one year. These were used to add new destinations and increase
frequency on existing routes. In the second phase of its expansion four Canadair
Regional Jets have been added to the fleet this year serve on regional routes.

Air Sahara has introduced initiatives such as Steal-a-seat flexi fare options,
Sixer/Super Sixer and Square Drive/Super Four. The Sixer initiative recently won
the 'The Pacific Asia Travel Association' (PATA) award for the year 2003, at Bali,
Indonesia.

Air Sahara's frequent flyer programme called Cosmos offers faster accruals,
lower redemption bars and requires no minimum balance for redemption.

Jet Airways

In May 1974, Naresh Goyal founded Jetair (Private) Limited with the objective of
providing Sales and Marketing representation to foreign airlines in India.

In 1991, as part of the ongoing diversification programme of his business


activities, Naresh Goyal took advantage of the opening of the Indian economy
and the enunciation of the Open Skies Policy by the Government of India, to set
up Jet Airways (India) Private Limited, for the operation of scheduled air services
on domestic sectors in India.

Jet Airways has emerged as India's largest private domestic airline and has been
acclaimed by frequent travellers as the most preferred carrier offering the highest
quality of comfort, courtesy and standards of in flight and ground service and
reliability of operations. It currently has a market share of 46.7% per cent and
operates a fleet of Boeing and ATR72-500 turbo-prop aircraft.
Jet Airways has been voted India's 'Best Domestic Airline' consecutively and won
several national and international awards, including the 'Market Development
Award' for 2001 awarded by Air Transport World.

Air Deccan

Air Deccan is a unit of Deccan Aviation Private Limited, India's largest private
heli-charter company. Formed in 1995, Deccan Aviation Private Limited has
carved a niche for itself in the Indian aviation scene with its reputation for
providing speedy and reliable heli-services for company charters, tourism,
medical evacuation, off-shore logistics and a host of other services.

The company has a modern fleet of ATR-42-320 aircraft, one of the finest and
most efficient Turbo-Prop aircraft flying. ATR is a European joint venture between
Alenia Aeronautica and EADS. The ATR 42 has become a reference aircraft
amongst airlines around the world, by offering a safe, easy to maintain and
comfortable aircraft operating on the regional market with the best economics on
short haul sectors. To date, ATR has sold over 650 aircraft to more than 100
operators in 73 countries all around the world.

The company has adopted a 'lean-and-mean' approach to staffing and aims at


maintaining a low aircraft-to-employee ratio. A good work culture coupled with a
skilled workforce is the backbone of the company.

KINGFISHER AIRLINE

The UB Group made its formal entry into the aviation sector on 7 May with the
launch of Kingfisher Airlines. The airline will take its first flight on 9 May. Kingfisher
will be the first private Indian airline to commence operations with brand new
aircraft.

A total of 33 new Airbus aircraft are on order - 10 A 320 and A 319s - with options
open to buying a further 20 aircraft. Kingfisher will also have a single class of travel
-Kingfisher Class with a total of 174 seats in the A320-200 and 144 seats in the
A319s.

Civil aviation has been the latest area of interest for the UB Group. Speaking at the
launch, UB Group chairman Dr Vijay Mallya said, "After the entry of Kingfisher in the
civil aviation sector, this too will be a sector that will attract a lot of FDI (foreign
direct investment)."

Stressing on the new emerging India, and more importantly the new consumer class
of Indians, Mallya stated that that Kingfisher Airlines would satiate in every way the
desires of this new emerging class. "We believe we understand consumer needs and
aspirations as well as what one calls value for money and Kingfisher will address all
the three stated aspects."
Mallya also said that with the coming of Kingfisher Airlines, the civil aviation sector
for the first time will witness a double digit growth. Another interesting point was
that this was first time that a true synergy between the public and the private sector
company has taken place as Kingfisher airlines has outsourced all their ground
activities to Indian Airlines.

Investors

While most information about the Indian Carriers, other than the Government
owned, is not in public domain, the available information does not tell us much.
The Promoters and Key Management persons are not listed nor is their equity
ownership pattern provided. Jet Airways' ownership is apparently fully foreign
giving rise to the phrase: India based airlines in place of home country airlines.
There is a large variation in the financial base of these airlines. While Jet Airways
has an equity base of 141.92 crores, Deccan Airways has an equity base of a
mere 30 crores.

Fleet Size

Fleet-wise also Indian carriers are quite small. Air India has a total fleet size of 33
aircraft; Indian Airlines is somewhat larger, being the size of Singapore Airlines
with 62 aircraft. Alliance Air, a wholly owned subsidiary of Indian Airlines has 14
aircraft. Among the private airlines Jet Airways has 41 aircraft, Sahara 19 and
Deccan Air 5.

This is minimal when compared with American Airlines, one of the world's largest
airlines with almost 1000 aircraft
and carrying over 80,000,000
passengers and 650,000 Tonnes
of freight a year. Even Singapore
Airlines, a small Nation airline
that operates only internationally,
has almost twice the number of
aircraft than its parallel Air India.
This when India is lulled with the
images of being a part of the
bricks economy, the so-called
economies of the future. This
makes Indian carriers a small
player in the passenger aviation
world in general and International
travels in particular.
The Indian Air cargo Market
The growth of air cargo in India has also been manifold though it might not have kept
pace with the progress made all over the world. Table 1 shows how both international
and domestic air cargo traffic has increased, reflecting an overall year on year growth.

Table 1: Trends in cargo traffic at five international airports in India.


(Figures in '000 tonnes)

Period International Cargo Domestic Cargo Total Percentage Increase


1972-73 47.4 33.6 81 -
1982-83 165.4 84.6 250 209%
1992-93 300.5 90.9 391.4 56.56%
1999-2000 494.2 183.0 677.2 73%

(Source - Transport India 2000)

Future Outlook Of The Industry

Future projections reflect that the air cargo industry both in the domestic sector and
the international sector will continue in its upward trend of growth. Fig.1 reflects that
the domestic air cargo will continue at a somewhat steady rate of growth whereas the
international air cargo movement as illustrated in Fig.2 shows a steeper rate of growth
indicating that international air cargo trade will flourish at a higher rate of growth.

Fig.

Fig.
(Source - Transport India 2000)

Both Domestic cargo and International cargo are poised to grow according to the
projections. The major reasons, which can be attributed to this increase, are Increase
in overseas trade Indian economic policies Customer service orientation Inventory
concerns E-commerce development
Foreign equity participation
The three-member enquiry committee, led by former petroleum secretary T S
Vijayaraghavan, has suggested that 100 per cent foreign investment, including
by foreign airlines, should be allowed in non-scheduled services such as
chartered aircraft and helicopter operations.

As of now, foreign airlines are not permitted to pick up equity directly or indirectly
in domestic air companies. Foreign equity upto 40% and NRI/OCB investment
upto 100% is permissible in the domestic air transport services.

Under the current policy, if a foreign airline operates in India the responsibility to
ensure safety of the aircraft vests with the country in which it is registered and is
outside the purview of the Director General of Civil Aviation (DGCA). "Such an
operation is termed `cabotage' and is not permitted anywhere," the report said.

Indian operators can, however, lease aircraft from foreign companies, but the
government only permits "dry-lease," which requires the aircraft to be registered
in India and certified by the DGCA as airworthy. Wet lease with foreign
registration and crew is only allowed in exceptional circumstances.

The US National Commission to Ensure a Strong and Competitive Airline


Industry (1993) envisaged the long-term development of more liberal cross
border airlines investment. However, as a short-term measure it advocated
‘expanded access to international capital markets by allowing larger investments
from foreign investors under the current bilateral system’. It also proposed that
foreign investors be able to hold up to 49 per cent of the voting equity in US
airlines, up from the then (and still current) limit of 25 per cent.

Any increase in the cost of equity capital flows through to the choice of debt
versus equity and thereby distorts capital structures. Airlines should have
flexibility in financing their operations and developing their corporate structures.
The existence of a cap on foreign ownership limits this flexibility.
Factor Inputs

Source - Business World, July 2004

Airfares in India are among the highest in the world. For instance, a typical Delhi-
Bangalore round trip costs Rs 18,000 - the same as it would from Delhi to
Singapore.

1 Labour

If regulations or industry policy provide protection to an industry, the value of


protection may be dissipated in poor productivity and higher-than-normal returns
to labour and capital. Entry limitations and capacity constraints have the potential
to allow airlines to earn above normal returns, which may be appropriated by
shareholders or paid out in higher than normal costs (including wages, salaries
and working conditions).
Given the valuable contribution that
aviation and tourism make to
national welfare, it is essential that
the aviation market is globally
competitive and functions in the
most efficient way. This means that
the inputs that the industry depends
on, such as labour and capital,
must also be available on an
internationally competitive basis.

2 Fuel Prices

ATF is the major cost for domestic carriers accounting for 30% of the total
operating costs in India, which is much higher than around 10-15% for airlines
worldwide. The exorbitant
sales tax on the ATF, which
increases the price of ATF, is
the major reason for this
higher share in operating cost.
The Jet fuel price has
increased by 13.1 % to USD
424.64/ KL in New Delhi
during the period May-Aug
’04. The rise in the first seven
months of 2004 stands at
21.5%.

3 Capital

The relatively capital-intensive nature of the airline industry, combined with the
fact that airlines are generally regarded as being inherently risky investments,
means that access to large, well-functioning capital markets is an important issue
for all airlines. The effects of these restrictions may vary from country to country,
but are likely to be greater for countries with small domestic capital markets.

4 Operating Costs

The regulatory system affects where, how and when airlines can fly. Thus it
affects airlines’ ability to operate efficient networks and their revenue. To the
extent that airlines cannot use the least cost combinations of aircraft types to
carry passengers and freight, the costs of operating existing networks are higher
than they otherwise might be (technical inefficiency). Further, they may be
prevented from flying the optimum sized and configured network (allocative
inefficiency). Thus, costs may be reduced as airlines are able to operate the right
aircraft at the right frequencies on an existing route.

Airlines, by changing the design of a network and increasing its size, may also be
able to decrease costs through economies of scale and scope.

5 Ownership and control

As airlines strive for greater efficiencies, they consider the benefits of


consolidation. However, the normal commercial process of acquisition and/or
merger is not available due to restrictions contained in bilateral agreements that
are designed to ensure that ownership and control of airlines remain with
nationals of the countries where they are based.

Growth through merger or acquisition enables airlines to achieve economies


scale and scope by consolidating airline functions. The merger of two airlines, for
example, may allow them to consolidate their ground handling, maintenance,
information technology and various managerial functions.

6 Airline Acquisition/Leasing Cost

Taking aircraft on lease is one of the preferred modes among the Indian carriers.
However, this has suddenly become costlier affair due to changes proposed in
Union Budget 2004-05. The budget proposes withdrawal of tax exemption
granted to acquire aircraft or an aircraft engine on lease prospectively from
September 1, 2004. This has resulted in imposition of withholding tax of 42% on
leasing of aircraft. Impediment of this kind at a juncture when almost all, Indian
carriers are firming up their expansion plans especially through leasing of aircraft
is a setback. But after hard lobbying by the industry the deadline was deferred
until April 1, 2005, and would now be withdrawn for lease agreements entered
into after April 1, 2004.
All carriers barring Jet Airways will feel the heat of the sudden withdrawal of
exemption for taking aircraft for lease as they have significant plan to expand the
fleet capacity by leasing route. This includes both state carriers like Air India (AI),
Indian Airlines (IA), Alliance Air and private carriers like Air Sahara, Air Deccan.
As Jet Airways that has predominantly prefers owning aircraft rather than going
for leasing.

As tax exemption will not be available for lease agreements entered on or after
April 1, 2005 the Indian carriers who have plans to take aircraft on lease have to
sign agreement either on or before the expiry date or they will have to bear
additional cost burden. Alternatively, taking aircraft on lease from a country with
which India has double taxation treaty or getting lease agreement signed in a
third country could help avoid the tax on lease rental. This may not be much
helpful to state carriers and to some extent the private players also due to
auditing/ accounting procedures.

As leasing route is the most preferred one for a new entrant, the Budget
initiatives will prove be a heavy deterrent as they will escalate the effective lease
rental cost by almost 42%.
Market Structure and Implications
The aviation industry in India, especially with regard to passenger airlines,
follows a strictly oligopoly-type structure with the characteristics. (1) an industry
dominated by a small number of large firms (see market shares, below) (2) firms
sell either identical or differentiated products (the only differentiation here being
in service quality and frills offered) , and (3) the industry has significant barriers to
entry (which holds true both with respect to regulations and huge capital
investment required).

One sees the following characteristics with respect to the Indian passenger
airlines market –

1. Few number of firms contributing to majority of the market share

2. Products are differentiated in terms of service quality and offerings

3. MR=MC

4. p>MC

5. Entry Barriers

6. Firm is a price-setter

7. Long run profit >= 0

8. Strategy dependent on individual rival firm’s behaviour

Market share concentration


According to the figures on market share of various scheduled airlines in the
same year, Jet Airways topped the list with 46.7 % in 2003-04, followed by
Indian Airlines (IA) and its subsidiary Alliance Air together at 39.3%, Air
Sahara at 13% and Air Deccan 1 %.
9.2 Indian Aviation Market – A differentiated Oligopoly

Each seller in an imperfectly competitive market faces a negatively sloped


demand curve for his product, permitting him some control of the price of his
product. In an oligopoly, a few firms produce the same product, while in
monopolistic competition, many firms produce differentiated but similar
products. In a differentiated oligopoly, a few firms produce products different
enough for each firm to have its own downward sloping demand curve. As
with a perfectly competitive firm or a monopoly, the differentiated oligopoly
firm produces at a profit maximizing level of output where marginal cost
equals marginal revenue. The firm finds the price it will charge customers at
the profit maximizing level of output (Qm) from the demand curve, and sets
price to Pm. As we can see, the firm is earning economic profits since price
exceeds average total cost at the profit maximizing level of output.
Pricing Mechanisms

Price and quantity are


determined by the
interaction of demand and
supply in the market.
However, given the large
number of buyers, firms can
decide prices at which they
will sell tickets. In fact, in the
airlines sector, firms go in
for third degree price discrimination and segment the market, charging a
higher price to the market with a relatively inelastic demand (such as fares
between business and economy class travellers, or between emergency
travel and leisure travel by providing apex fares). The low cost airlines follow
this different pricing strategy. Customers booking early with carriers such as
Air Deccan will normally find much lower prices if they are prepared to commit
themselves to a flight by booking early, on the justification that consumer’s
demand for a particular flight becomes more inelastic the nearer to the time of
the service.

The term ‘‘revenue management’’ is commonly used to describe most


aspects of airlines’ pricing and seat-inventory control decisions; but in
reality, revenue managers primarily practice seat-inventory control.
Formally, revenue management describes a process of setting fares for each
route (origin and destination pair) and each set of restrictions (nonstop, time-
of-day, day-of-week, refundable, advance purchase, first class or coach, and
Saturday-night stayover) and limiting the number of seats available at each
fare. In the language of economics, revenue management increases airlines’
profits in three ways –

• Implements peak-load pricing.

• Implements third-degree price discrimination. That is, fare restrictions


screen customers and segment them by their sensitivity to price and
potentially by their demand uncertainty. For instance, Indian Airlines
apex fares (for booking one week or three weeks in advance).

• Implements an inventory control system for coping with uncertain


demand.

Limited Entry
Virgin Group founder
Richard Branson once
famously said: "The
safest way to become
a millionaire is to start
as a billionaire and
invest in the airline
industry."

The mortality rate in


the airline business is
very high. That's
equally true for any
low-cost airline model.
It requires adequate
staying power to buy
aircraft and take losses in the initial years. Experts say it takes nearly $60
million-70 million (Rs 270 crore-315 crore) to float a full-service airline.

Entry costs are not recoverable and incumbents have the ability to respond
quickly to entry of a new competitor. Capacity constraints, absence of
freedoms to compete on a route, investment constraints, and restrictions on
codesharing can all be important barriers to entry.

9.5 Market Equilibrium through the Cournot Model

The Cournot model assumes that each firm takes the output of the other firm
as given. If Indian Airlines output is assumed to stay the same, Jet will
maximize profits by setting MR=MC. The result is shown. In the Cournot
framework the equilibrium is at the intersection of the two reaction functions.
These are just the profit-maximizing conditions rearranged.

The revenue of both a competitive firm and of a monopolist depends only on


the firm's own output: for a competitive firm we assume that the firm's output
does not affect the price, and for a monopolist there are no other firms in the
market. For a duopolist, however, revenue depends on both its own output
and the other firm's output.

We conclude that the firms' outputs and the price are different in Cournot-
Nash equilibrium than they are in a competitive equilibrium. As the demand
curve slopes down, price exceeds marginal cost, so that, as for a monopoly,
the total output produced by the firms is less than the competitive output. An
implication is that, as for a monopoly, the Nash equilibrium outcome in a
Cournot duopoly is not Pareto efficient.
Trends in International and Domestic Civil Aviation and Projected
Future Scenario

Trends & Alternatives

In 1998, approximately 500 alliances existed between airline companies. Some


of these alliances were to the point of a merger (Market Share of World Airlines
Traffic, 2003). The scene today is dominated by a few multilateral alliances. Top
three, Star, Skyteam and Oneworld together account for over 60% of the total
international traffic.

Oneworld
American Airlines, British Airways, Aer Lingus, Cathay Pacific, Finnair, Iberia, Lanchile,
Quantas
Star
United Airlines, Lufthansa, Air Canada, Air New Zeland, ANA, Asiana, Austrian, bmi British,
midland, LOT Polish Airlines, Mexicana, SAS, Singapore, Spanair, Thai Airways, Varig, US
Airways, TAM
SkyTeam
Air France, Delta Airlines, Aeromexico, Alitalia, CSA Czech Airlines, Korean Air, Northwest,
Continental, KLM

While so far India has stayed out of these alliances, relying primarily on
bilateral agreements, it is merely a matter of time before Indian airlines are
drawn in this web and the three blank spots, Russia, China and India are filled in
by the International Alliances ((in all three cases, the leading carrier is a
government owned/aligned entity which makes decision making a complex
politico-economic process). As it is, Nippon, Asiana, Thai and Singapore Airlines
are all working to develop an extensive network in China.

In any case India will sooner or later have to review even its bilateral
agreements, as currently they are more advantageous to the partners than to
India. While bilateral are supposed to be on equal basis, partners are utilizing
almost 75% of seat share while India uses, prima facie for lack of capacity, only
25% of seats. Obviously, this cannot be a permanent solution to the capacity
issue, dependent though India is on other nations and their manufacturers for an
increase in capacity.

Considering the fragmented nature of Indian Aviation Market, at the national level
India will require a mixed fleet of wide-bodied, narrow-bodied and small aircraft to
be able to service various market segments. Individual airlines, however, may
choose a homogeneous fleet to limit their maintenance costs.

Study of Consumer Demand in the


industry
1 The Potential Market

While formulating the national strategy one must remember a few aspects of
Indian Passenger Aviation Market -

a. Potentially, India is a very large corporate and luxury travel market.

b. Potentially, it is also a very large low-fare market.

c. India also has largely blocked but significant markets in the north in China.

d. India, unlike other major travel hubs in the region, is an original market both for
originating and turnaround traffic.

e. India is also a potential transit hub in more than one direction.

In Aviation circles India has become Asia's hot growth market and in the words of
SIA CEO it is, along with China, one of the two "locomotives" for growth in the
continent. Thus to enter in to an open skies agreement when India has nothing
more to offer than land for airports and the so called cheap blue and white collar
labour will tantamount to accepting a second class economic citizenship in the
comity of nations.

2 Growing the Market

Airbus Industries Research shows that there is a cut-off point beyond which the
preferred mode of travel changes. Thus small distance journeys are convenient
by road while longer journeys are preferred by rail and air. The data should
actually be viewed in terms of time involved rather than the distance since
technological development in any field can impact the time taken for same travel.
As has already happened in Europe, high speed trains have reduced the need
for short haul services while the multi-lane smooth highways have similarly
increased the distance up to which one can comfortably travel by road.

While data for similar preference change in the mode of travel is not available for
India, some assumptions are possible. It can, for example, be safely assumed
that in the current Indian context bus journeys of say up to 4-5 hours duration are
quite easeful even though often stretched up to 10 hours and sometimes even
overnight due to non-availability and/or inadequacy of train services.

To a business traveller, overnight journeys by train are quite comfortable


although given the economic situation even 24 hour journeys are quite
acceptable. Beyond that, given the distances within the country any one would
prefer to hop on a flight provided it is offered as an alternate travel service and
not something only for the corporate world. For this to succeed, the low cost
travel will have to be both with predictable pricing and longevity of offer beyond
the gimmickry of attention getting news. This is the only way to enlarge the pie
and aim at strata beneath the upper crust.

3 Other substitutes

The issue of affordability of domestic air travel has been well addressed in the
Naresh Chandra Committee Report on Aviation. While the goal of affordability is
absolutely well placed, the assumption that the lowering of tariffs, taxes and
charges alone; for fuel, landing or travel, is the answer that needs careful
examination. Even if these charges constitute a significant part of the fare, they
need to be evaluated in the context of competition and monopoly. At home,
considering road and rail as the competition, the charges for fuel should be
viewed as a similar cost composition for all modes of travel. To reduce fuel
charges for any one sector while enhancing or retaining them at the same level
for the others will distort the field. This, particularly when airlines have, and can
have, the freedom of picking up fuel from other competing nations. Fuel charges
at home, therefore, should be viewed as a part of the overall petroleum pricing
policy. This is important since petroleum, as fuel is common to many industry
groups apart from being a raw material for some. Incidentally, how much of what
product is extracted from the available crude is as much a matter of choice as is
it a matter of the quality of crude.

4 Low-fare Airlines

Despite reports of low budget airlines loosing their momentum due largely to the
incumbent firms’ crushing the competition with even lower fares whenever a low
cost upstart invaded its market, low-fare will always remain the basic market.
This is amply proven by the success of Southwest in the US and Ryanair and
Easyjet in Europe.

To any buyer of service or goods, price and quality are always two key
considerations. No doubt there is a class of air passengers who will only look at
the bonuses, be that in the form of Frequent Flyer Miles during peak season or
extra cushioning of the seat. These are generally the corporate travellers where
someone else is footing the bill. There is also an occasional traveller who, being
in distress will not look at the price during emergency. While the corporate
travellers are a distinct segment and will be serviced fully, obviously civil aviation
will have to look beyond them if it hopes to expand the market. In the US, the low
fare airlines have almost a 30% share of the entire passenger aviation and in the
recent past Southwest, the leading Low-fare US airlines has outperformed even
the largest US airlines in passenger kilometres.

Latest news reports indicate that the low cost airlines are the price leaders now.
Recently, Southwest Airlines initiated a round of fare cuts and the bigger airlines
had to respond.

5 Consumer Perception

We conducted a survey in order to find the consumer perception about airlines.


The following results have been culled out from the survey of 116 individuals.
The sampling method was a mix of purposive and stratified random sampling and
attempted to duplicate the general consumer profiles of the population (as based
on preliminary secondary data). The age group of the sample was between 18
and 58, across gender, location, and socio-economic class (mapped on
education and occupation, with a majority of the sample in SEC A and B+).

The region-wise spilt up of the sample is as follows:

The areas covered in the survey are -

1. Brand Awareness
2. Airlines usage –
a. Frequency
b. Brands
c. Purpose
d. Circuits
e. Class
3. Factors affecting consumer perception
4. Promotional Scheme Preferences
5. Brand parameter preferences
6. Circuits flown

Brand Awareness Study

Indian Airlines ranks number one in brand awareness. This could be attributed to
its long stay in the market and continued support from the government. Today,
Indian Airlines has become synonymous with reliability and efficiency. Jet
Airways is offering stiff competition and ranks second in the list. Sahara is
providing value-add services and is following closely. The concept of a low-cost,
no-frills airline is being merged into having high quality, low-cost carriers. Air
Deccan, following the low-cost airlines model, being a relatively new entrant in
the market, comes in lowest currently on brand awareness.

Usage of Airlines

Indian Airlines, mostly used by government employees, recorded the highest


usage followed by Jet Airways. Although most consumers rated Jet Airways high
on price, it still ranks second in usage and this could be attributed to its excellent
service and promotion schemes. Similar data for the entire population reflects a
higher usage of Jet Airways than IA, and a lower usage of Sahara, which is a
possible implication of the sample location being concentrated in almost equal
proportion in Lucknow (which has a higher price sensitive population) as other
major metros.
Frequency of Usage

As indicated in the graph


below, a majority the
population flies
relatively infrequently
(as compared to the
developed markets).
Passengers travelling
on business were found
to be more frequent users, while those
flying on holidays and emergencies were
those that tended to make up the segment
that flew less than once a year.

Note – As purposive sampling was


undertaken at Lucknow Airport, the
sample population of ‘never’ is not
representative of the population, even in
the given SECs).

Flight Class and Occasion of use

Although the occasion of use indicates that maximum usage is for business, the
flight class graph indicates that the proportion travelled by business class is very
small in comparison to that travelled by economy class. This indicates that most
business travellers are flying Economy class as well. Further, the second
important occasion of usage is for emergencies and time-critical travels.

Circuits Flown: The most frequently flown circuit is that between major metros,
followed by other state capitals and Delhi-Mumbai. Delhi and Mumbai airports
accounts for roughly half of passengers flown, and metro airports account for
66% of the passengers flown (and 47% of revenues, as per secondary data).

Scheme Preference: With the entry of new players in the market, airlines are
competing for passengers on non-price parameters. This increases the product
differentiation in order to decrease elasticity of demand in the market. Given the
key differentiators that substitute for price, consumers have rated Apex fares as
their most preferred scheme. Indian Airlines, Jet and Air Sahara offer apex fares.
Next most preferred to Apex fares is the frequent flyer program, a trend noticed
predictably in the high frequency repeat users and those travelling on business.
Factors affecting consumer perception

We identified the following factors that make the demand function of consumers.
Based on our hypothesis, a choice parameter weight was arrived at by asking the
sample to rank the following parameters on a Likert scale -

a) Price

b) Service

c) Promotional Schemes

d) Loyalty programmes

e) Flight Schedules

f) Comfort with the brand

g) Corporate tie-ups
Consumer Choice Parameters

Price appears to be most important factor for the consumer followed by service
provided and flight schedules.

Indian Airlines has been rated high on most parameters while Jet Airways,
although rated low on price, is rated highest in most other factors. Air Deccan,
which has been ranked best on prices, has succeeded in its mission to provide
reliable low-cost air-travel to common man by constantly driving down air-fares.

Air Sahara’s many services such as In-flight entertainment and Wings n' Wheels
coach service, exclusive business lounges being operated at departure halls at
airports in a number of cities, providing for business and refreshment services
has made it second most popular under services. It has taken the lead in
introducing novel initiatives such as Steal-a-seat flexi fare options, Sixer/Super
Sixer and Square Drive/Super Four.

Air Sahara's frequent flyer program called Cosmos has also become a great hit
with the passengers, though it still ranks almost on par or lower on customer
perception than the schemes offered by Jet and IA (see promo schemes and
loyalty programs), essentially due to lower customer awareness levels.

Corporate tie-ups were a trend significant by their absence on the brand


preference parameters. While the only major tie-ups were by Indian Airlines with
government agencies, these were not perceived as strictly ‘corporate’ tie-ups.
This segment is hence a possible opportunity which can be explored as a non-
price differentiator, given the large frequency of use by business travellers.
Civil Aviation Sector
The civil aviation sector has played an important role in India's economy. It provides fast and
reliable mode of transport across the country and is particularly important for many
areas/places still not adequately connected by rail or road. In 2000-01, 42.03 million domestic
and international passengers and 846.42 thousand tones of cargo were handled at various
airports in the country. With increasing globalisation, this sector will play a more significant
role in integrating the Indian economy with the rest of the world.

Major Policy Initiatives

The civil aviation sector in India has undergone some significant developments/ transformation
during the Ninth Plan period. The more important developments are :

The Government considerably disengaged itself from commercial operations of airlines.

The Government encouraged an increase in the role of the private sector in order to bridge the
resource gap as well as to bring greater efficiency.

A decision has been taken to disinvest up to 60 percent of Government equity in Air India of
which 40 percent would be offered to the private sector and the balance 20 percent to
employees, financial institutions and public. However, not more than 26 percent of the total
equity would be held by a foreign airline. In the case of Indian Airlines, out of 51 percent
equity to be disinvested, 26 percent would be given to a strategic partner and balance 25
percent to the employees, financial institutions and public. The process of disinvestment has,
however, been delayed.

The decision to restructure existing airports at Delhi, Mumbai, Chennai and Kolkata through
long-term lease in order to make them world class is another important milestone. The
process of leasing of four metro airports, however, has also been delayed. The new airport at
Neduembassery near Kochi has been constructed by Kochi International Airport Limited, a
company promoted by the Kerala government with equity participation form a large number of
non-resident Indians and financial institutions. Green-field international airports at Hyderabad
and Bangalore are also on the anvil with equity being shared by the AAI (13 percent), State
Government (13 percent) and joint venture partner (74 percent)

Emphasis was laid on improvement/upgradation in airport infrastructure/upgradation in airport


infrastructure. Domestic passenger and cargo transport services.

Keeping in view the current security scenario in the country and elsewhere, the Government
has taken a number of special steps to tighten security at the Indian airports for the safety of
passen-gers. Subsequent to the hijacking incident involving Indian Airlines flight IC-814 in
December 1999, the contingency plan to deal with hijacking and other unlawful activities
operations is being revises.

Issues and Strategies

The demand for air transport traffic had hovered around 10 million passengers for quite some
time. After registering a negative growth in 1997-98, the growth rate picked up. In 2000-01,
the passenger growth rate was 7.9 percent and the rate of growth is likely to dip in
2001.2002.
The increase in demand for air transport depends on a number of factors, which include rate of
growth of the economy and fall in real prices of air services. The airlines operate at very thin
margins. The airlines operate at very thin margins. The utilisation of capacity becomes another
important factor for determining the viability of air operators. In order that air transport plays
its role in accordance with its comparative advantage, it is necessary to remove the
bottlenecks effecting the sector. To enhance the operational efficiency in the civil aviation
sector, the infrastructure facilities may be augmented, specifically to ensure full utilisation of
runways leading to improved payload. Other steps required include extension of runways
where payload penalty is experienced, strength ending of Air Traffic Services (ATS) routes and
use of satellite based navigation system to reduce flying time and allocation of optimal flight
levels through a modern air traffic management system.

Fuel is the largest component of airline cost. Even though the pricing of Aviation Turbine Fuel
(ATF) is now on import parity basis, the rated applicable for domestic operations continue to
be significantly higher than that of international operations. Further, the ATF is subject to high
rate of sales tax varying from 20 to 36 percent. The high ATF cost for domestic air transport
increases the cost of operation and makes it unlivable even in areas where it has comparative
advantage over other modes of transport. The removal of this constraint would help in
stepping up the rate of growth of the sector.

Route Dispersal Guidelines

The Ministry of Civil aviation has formulated route dispersal guidelines which, inter alia,
provide for the air operators to operate at least 10 percent of their deployment of capacity on
trunk routs, in Category II routes which are meant to connect the northeastern region, Jammu
and Kashmir, Andaman and Nicobar Islands and Lakshadweep. The guidelines are aimed at
ensuring the availability of a minimum level of air operations in Category II routes. However,
the airline operations in Category II routes, being short-haul in nature, are loss-making. The
operation of route dispersal guidelines is meant to cross subsidise operations in Category II
routes form the profits generated on trunk routes. All the airlines are, therefore, forced to
operate part of operations, on Category II routes. The more appropriate way to ensure reliable
air services in these areas would be to provide direct subsidies though minimum subsidy
bidding. The amount of subsidy required to support the air operations may be funded by
setting up a fund through contributions made by operations on trunk routs and supplemented
through other means.

Foreign Equity Participation

At present, the domestic air transport policy debars foreign airlines form equity participation in
the companies formed for domestic air transportation. The policy allows participation of
foreign individuals/companies up to 40 percent and the participation of non-resident Indians
(NRIs)/ overseas corporate bodies (OCB) up to 100 percent in the domestic air transport
services. The issue relating to permitting foreign airlines equity investment in companies
formed for domestic operations may be reconsidered. Moreover, overall increase in the foreign
equity limit in domestic airlines operations may also be considered with a view to attracting
new technology and management expertise.

International Air Transport

In the past, capacity constraint on some of the international routes has been experienced and
this has had an adverse impact on tourism and trade. There is a proposal to review the policy
of regulating international services through bilateral air services agreements. While reviewing
this policy, the interest of national carriers, on the one hand, and the need for promoting
tourism and trade and the convenience of the travelling public on the other, will be
considered. Domestic private carriers may also be permitted to utilise international air
transport bilateral traffic rights subject to the first right of refusal by Air India and Indian
Airlines. For future rights acquired through bilateral negotiations, the possibility of competitive
bidding should be considered.

Foreign Eqiuty

At present, the foreign equity limit in the international services is 26 percent. In order to
attract investment in the sector, the possibility of increase in foreign equity may also be
considered.

International Air Transport Tourist Charter

Currently, international air cargo services are governed by the open sky policy. It is applicable
to all airports having custom and immigration facilities. There is no restriction on these flights
within the country except carriage of domestic cargo. The operators of cargo flights are also
free to charge rate as per market conditions.

In order to promote international tourism, the liberal policy of foreign charter flights could also
be considered. Charter flights may be permitted to all airports having customs/immigration
facilities.

Infrastructure Facilities

Barring a few airports, the available infrastructure facilities are under-utilised a most airports.
About 50 percent of the airports under AAI are not being utilised by various airlines. Besides,
there area a large number of airports where full infrastructure is available but only one or two
flights a day operate, leading to heavy under-utilisation of infrastructure as well as wastage of
manpower. Only nine airports of AAI manage to make profits. In view of this, no new airport
should be opened without government approval. Private sector participation may be
encouraged wherever it is considered necessary to construct a new airport.

There is a continuing effort forwards upgradation and modernization of air traffic services. The
navigation and surveillance facilities are to be upgraded as a matter of priority to be in line
with world standards. New approaches in airport designs would be considered to accommodate
technological innovations like the new large aircraft. Technological upgradation should be
extended to cover the ground facilities through introduction of automation and
computerisation, mechanisation of baggage handling facilities and provision of aero-bridges
etc.

Leasing Of Major Airports

The organisational structure of airports could be corporatised to enable the entry of the private
sector, both for existing and Greenfield airports. The process of long-term leasing of airports
at Delhi, Mumbai, Chennai and Kolkata in order to make them world class has already been
initiated. This would help in attracting investment to improve infrastructure facilities and
services at these airports. The AAI could also develop other airports with the lease rental of
these airports. There are a number of issues relating to the leasing of the four metro airports.
This include terms of lease, transfer of employees, lease payment, aeronautical tariff setting,
financing of capital expenditure etc. which need to be resolved at the earliest so that
development of these airports could be initiated. It would also be necessary to specify the
appropriate standards to develop all these airports keeping in view the facilities available in
the newly developed airports in Asian countries.
Regulatory Framework

Considering that the major airports would be developed through long-term lease and there is
move towards privatisation of airlines, it is considered essential to have a regulatory
framework in place. Airport are considered as 'natural monopoly' and, therefore, there is need
to regulate them. The regulatory authority needs to monitor the airport charges and
performance of airport infrastructure against specific standards. Airline services is a field for
competitive development. Yet considering the present size of te market and the presence of
economies of scale, the need for monitoring quality of services and the provisions of air
services for meeting social obligations, it may be necessary to consider providing a suitable
regulatory framework for the air services as
AIRPORT CLASSIFICATION

Airports are presently classified in the following manner:

1. International Airports: - These are declared as international airports and


are available for scheduled international operations by Indian and foreign
carriers. Presently, Mumbai, Delhi, Chennai, Calcutta and
Thiruvananthapuram are in this category.
2. Domestic Airports:

a. Customs Airports with limited international operations: - These have


customs and immigration facilities for limited international
operations by national carriers and for foreign tourist and cargo
charter flights. These include Bangalore (CE), Hyderabad,
Ahmedabad, Calicut, Goa (CE), Varanasi, Patna, Agra (CE),
Jaipur, Amritsar, Tiruchirapally, Coimbatore, Lucknow.

(CE - Civil Enclave)

b. Model Airports:- These domestic airports have minimum runway


length of 7500 feet and adequate terminal capacity (400
passengers or more) to handle Airbus 320 type of aircraft. These
can cater to limited international traffic also, if required. These
include Bhubaneswar, Guwahati, Nagpur, Vadodara, Imphal and
Indore. Rest 6 Nos. of airports, developed under Model Airports
concept have graduated to the classification of Customs Airports,
given above.
c. Other Domestic Airports:- All other 71 domestic airports are
covered in this category.
d. Civil Enclaves in Defence Airport:- There are 28 civil enclaves in
Defence airfields. Twenty civil enclaves are in operation.

List of Airports equipped with Navigational aids and Radars

A. Airports equipped with Very High Frequency Omni Range (VOR) and
Distance Measuring Equipment (DME).

1. Agra 24. Mandvi* 46. Dibrugarh


2. Bagdogra 25. Port Blair 47. Imphal
3. Belgaon 26. Pratapgarh* 48. Indore
4. Bellary* 27. Pune 49. Jaipur
5. Bhavnagar 28. Raipur 50. Jammu
6. Bhuj 29. Sakras* 51. Khazuraho
7. Chandigarh 30. Shabaz* 52. Lucknow
8. Dimapur 31. Sikandrabad* 53. Mangalore
9. Gaya 32. Sinner* 54. Patna
10. Goa 33. Srinagar 55. Rajkot
11. Gulbarga* 34. Tejpur 56. Ranchi
12. Gwalior 35. Tirupati 57. Trichy
13. Jalalabad* 36. Vizag 58. Udaipur
14. Jamshedpur 37. Agartala 59. Varanasi
15. Jodhpur 38. Amritsar 60. Ahmedabad
16. Jorhat 39. Aurangabad 61. Calcutta
17. Kalamb* 40. Bangalore 62. Chennai
18. Kanchipuram 41. Baroda 63. Delhi
19. Leh 42. Bhopal 64. Guwahati
20. Lengpui 43. Bhubaneswar 65. Hyderabad
21. Lunka-I* 44. Calicut 66. Mumbai
22. Lunka-II*
45. Coimbatore 67. Thiruvananthapuram
23. Madurai

* En-route VOR Station (not airport)

(B) Airports equipped with Instrument Landing System (ILS)

1. Agartala 17. Mangalore


2. Amritsar 18. Patna
3. Aurangabad 19. Rajkot
4. Bangalore 20. Ranchi
5. Baroda 21. Trichy
6. Bhopal 22. Udaipur
7. Bhubaneswar 23. Varanasi
8. Calicut 24. Ahmedabad
9. Coimbatore 25. Calcutta
10. Dibrugarh 26. Chennai
11. Imphal 27. Delhi
12. Indore 28. Guwahati
13. Jaipur 29. Hyderabad
14. Jammu 30. Mumbai
15. Khazuraho
31. Thiruvananthapuram
16. Lucknow

(C) Airports equipped with Primary & Secondary Radars.

1. Ahmedabad 5. Guwahati
2. Calcutta 6. Hyderabad
3. Chennai 7. Mumbai

4. Delhi 8. Thiruvananthapuram

In addition to the above, the following are proposed to be provided at various


airports in the near future:-

1. Secondary Radar at Nagpur, Varanasi, Mangalore and Berhampur


( last one not an airport).
2. ILS at Madurai, Bhavnagar, Dimapur, Silchar and Lilabari.
3. DVOR & DME at Barapani, Agatti, Katihar and Moga.

INDIAN AIRPORTS

EXISTING POSITION
1. There are 449 airports/airstrips in the country. Among these, the AAI owns
and manages 5 international airports, 87 domestic airports and 28 civil
enclaves at Defence airfields and provides air traffic services over the
entire Indian airspace and adjoining oceanic areas.
2. In 1998-99, these 120 airports/civil enclaves handled 4.20 lakh aircraft
movements involving 24.17 million domestic and 12.83 million
international passengers and 221 thousand metric tones of domestic
cargo and 468 thousand metric tones of international cargo. 51 percent of
traffic was handled at the international airports at Mumbai and Delhi.
Presently various airlines are operating only through 61 airports. The
remaining are lying unutilised at best handling occasional aircraft
operations.
3. The turnover of the Authority was Rs.1591.27 crores for the year ended
March, 1999 and under audit figure of the Post Tax Profits for the year
ended is Rs.208.41 crores as against Rs.196.14 crores for the year ended
March, 1998.
4. Historically, air traffic at Indian airports has broadly followed a particular
distribution pattern, except that some airports have changed their inter-se
position vis-a-vis volume of traffic. The airport-wise percentage share of
total passenger and cargo traffic in the descending order of magnitude is
as under:-

SHARES OF AIRCRAFT MOVEMENT TRAFFIC DURING


1998-99 AT TOP 45 AIRPORTS

S. AIRPORTS AIRCRAFT MOVEMENTS ( IN NUMBERS )


NO.
INT'L % SHARE DOM % SHARE TOTAL % SHARE
1 Mumbai 33095 33.24 66088 20.33 99183 23.35
2 Delhi 30007 30.14 44662 13.74 74669 17.58
3 Chennai 11170 11.22 20653 6.35 31823 7.49
4 Calcutta 6735 6.76 17646 5.43 24381 5.74
5 Bangalore 2818 2.83 25066 7.71 27884 6.57
Total of 05 Airports 83825 84.19 174115 53.55 257940 60.73
6 Hyderabad 2049 2.06 12700 3.91 14749 3.47
7 Thiruvananthapuram 6438 6.47 2628 0.81 9066 2.13
8 Ahmedabad 874 0.88 9956 3.06 10830 2.55
9 Goa 1083 1.09 5689 1.75 6772 1.59
10 Calicut 3066 3.08 3404 1.05 6470 1.52
Total of 10 Airports 97335 97.76 208492 64.12 305827 72.01
11 Cochin 0.00 5651 1.74 5651 1.33
12 Guwahati 0.00 6188 1.90 6188 1.46
13 Pune 0.00 5924 1.82 5924 1.39
14 Jammu 0.00 3542 1.09 3542 0.83
15 Jaipur 0.00 5878 1.81 5878 1.38
Total of 15 Airports 97335 97.76 235675 72.49 333010 78.41
16 Coimbatore 282 0.28 4055 1.25 4337 1.02
17 Vadodara 0.00 4571 1.41 4571 1.08
18 Varanasi 552 0.55 2196 0.68 2748 0.65
19 Nagpur 2 0.00 3991 1.23 3993 0.94
20 Mangalore 0.00 3009 0.93 3009 0.71
Total of 20 Airports 98171 98.60 253497 77.97 351668 82.80
21 Lucknow 18 0.02 4012 1.23 4030 0.95
22 Srinagar 0.00 2362 0.73 2362 0.56
23 Agartala 0.00 1476 0.45 1476 0.35
24 Indore 0.00 2593 0.80 2593 0.61
25 Bhubaneswar 0.00 2380 0.73 2380 0.56
Total of 25 Airports 98189 98.62 266320 81.91 364509 85.83

26 Patna 220 0.22 2205 0.68 2425 0.57


27 Udaipur 4 0.00 2003 0.62 2007 0.47
28 Juhu 0.00 14762 4.54 14762 3.48
29 Visakhapatnam 0.00 2048 0.63 2048 0.48
30 Bagdogra 38 0.04 1915 0.59 1953 0.46
Total of 30 Airports 98451 98.88 289253 88.96 387704 91.29
31 Rajkot 0.00 1954 0.60 1954 0.46
32 Imphal 0.00 1030 0.32 1030 0.24
33 Aurangabad 0.00 2314 0.71 2314 0.54
34 Leh 0.00 1070 0.33 1070 0.25
35 Madurai 0.00 1486 0.46 1486 0.35
Total of 35 Airports 98451 98.88 297107 91.38 395558 93.14
36 Trichy 618 0.62 688 0.21 1306 0.31
37 Silchar 0.00 936 0.29 936 0.22
38 Port Blair 0.00 938 0.29 938 0.22
39 Bhopal 0.00 1532 0.47 1532 0.36
40 Jamnagar 0.00 2328 0.72 2328 0.55
Total of 40 Airports 99069 99.50 303529 93.35 402598 94.80
41 Khajuraho 0.00 1580 0.49 1580 0.37
42 Dibrugarh 0.00 1666 0.51 1666 0.39
43 Bhavnagar 0.00 1742 0.54 1742 0.41
44 Bhuj 0.00 1209 0.37 1209 0.28
45 Agra 24 0.02 1193 0.37 1217 0.29
Total of 45 Airports 99093 99.53 310919 95.55 410012 96.48
46 Amritsar 465 0.47 801 0.25 1266 0.30
Others(Dom Apts.)* 5 0.01 13672 4.21 13677 3.22
TOTAL 99563 100.00 325392 100.00 424955 100.00

SHARES OF PASSENGER TRAFFIC DURING


1998-99 AT TOP 45 AIRPORTS

S. NO. AIRPORTS PASSENGERS ( IN NUMBERS )


INT'L % SHARE DOM % SHARE TOTAL % SHARE
1 Mumbai 4837415 37.45 6181142 25.68 11018557 29.79
2 Delhi 3791973 29.36 4090775 16.99 7882748 21.31
3 Chennai 1736021 13.44 1788005 7.43 3524026 9.53
4 Calcutta 610913 4.73 1910584 7.94 2521497 6.82
5 Bangalore 141854 1.10 1854744 7.70 1996598 5.40
Total of 05 Airports 11118176 86.08 15825250 65.74 26943426 72.84

6 Hyderabad 182298 1.41 1169832 4.86 1352130 3.66


7 Thiruvananthapuram 828179 6.41 310006 1.29 1138185 3.08
8 Ahmedabad 141383 1.09 630273 2.62 771656 2.09
9 Goa 193923 1.50 514636 2.14 708559 1.92
10 Calicut 281871 2.18 224396 0.93 506267 1.37
Total of 10 Airports 12745830 98.68 18674393 77.58 31420223 84.94
11 Cochin 0.00 395370 1.64 395370 1.07
12 Guwahati 0.00 370571 1.54 370571 1.00
13 Pune 0.00 314045 1.30 314045 0.85
14 Jammu 0.00 243079 1.01 243079 0.66
15 Jaipur 0.00 232322 0.97 232322 0.63
Total of 15 Airports 12745830 98.68 20229780 84.04 32975610 89.15
16 Coimbatore 12359 0.10 211273 0.88 223632 0.60
17 Vadodara 0.00 223581 0.93 223581 0.60
18 Varanasi 61925 0.48 160034 0.66 221959 0.60
19 Nagpur 0 0.00 220997 0.92 220997 0.60
20 Mangalore 0.00 217614 0.90 217614 0.59
Total of 20 Airports 12820114 99.25 21263279 88.33 34083393 92.14
21 Lucknow 820 0.01 209964 0.87 210784 0.57
22 Srinagar 0.00 195427 0.81 195427 0.53
23 Agartala 0.00 185781 0.77 185781 0.50
24 Indore 0.00 145664 0.61 145664 0.39
25 Bhubaneswar 0.00 136908 0.57 136908 0.37
Total of 25 Airports 12820934 99.26 22137023 91.96 34957957 94.51
26 Patna 6278 0.05 121440 0.50 127718 0.35
27 Udaipur 0 0.00 125751 0.52 125751 0.34
28 Juhu 0.00 121951 0.51 121951 0.33
29 Visakhapatnam 0.00 109286 0.45 109286 0.30
30 Bagdogra 310 0.00 106071 0.44 106381 0.29
Total of 30 Airports 12827522 99.31 22721522 94.39 35549044 96.11
31 Rajkot 0.00 100267 0.42 100267 0.27
32 Imphal 0.00 92859 0.39 92859 0.25
33 Aurangabad 0.00 92593 0.38 92593 0.25
34 Leh 0.00 90415 0.38 90415 0.24
35 Madurai 0.00 83611 0.35 83611 0.23
Total of 35 Airports 12827522 99.31 23181267 96.30 36008789 97.35
36 Trichy 65455 0.51 15798 0.07 81253 0.22
37 Silchar 0.00 73584 0.31 73584 0.20
38 Port Blair 0.00 73085 0.30 73085 0.20
39 Bhopal 0.00 70959 0.29 70959 0.19
40 Jamnagar 0.00 69317 0.29 69317 0.19
Total of 40 Airports 12892977 99.82 23484010 97.55 36376987 98.34

41 Khajuraho 0.00 65563 0.27 65563 0.18


42 Dibrugarh 0.00 63618 0.26 63618 0.17
43 Bhavnagar 0.00 56982 0.24 56982 0.15
44 Bhuj 0.00 56489 0.23 56489 0.15
45 Agra 3222 0.02 42237 0.18 45459 0.12
Total of 45 Airports 12896199 99.84 23768899 98.74 36665098 99.12
46 Amritsar 19979 0.15 14845 0.06 34824 0.09
Others (Dom Apts.)* 610 0.00 288887 1.20 289497 0.78
TOTAL 12916788 100.00 24072631 100.00 36989419 100.00

SHARES OF CARGO TRAFFIC DURING


1998-99 AT TOP 45 AIRPORTS

S. AIRPORTS CARGO ( IN TONNES )


NO.
INT'L % DOM % TOTAL % SHARE
SHARE SHARE
1 Mumbai 184662 38.90 58922 26.25 243584 34.84
2 Delhi 150578 31.72 47852 21.32 198430 28.38
3 Chennai 58708 12.37 15433 6.87 74141 10.60
4 Calcutta 22501 4.74 26562 11.83 49063 7.02
5 Bangalore 22617 4.76 21955 9.78 44572 6.38
Total of 05 Airports 439066 92.50 170724 76.05 609790 87.22
6 Hyderabad 4632 0.98 8576 3.82 13208 1.89
7 Thiruvananthapuram 24870 5.24 5802 2.58 30672 4.39
8 Ahmedabad 1481 0.31 6415 2.86 7896 1.13
9 Goa 525 0.11 2826 1.26 3351 0.48
10 Calicut 1048 0.22 2049 0.91 3097 0.44
Total of 10 Airports 471622 99.36 196392 87.48 668014 95.55
11 Cochin 0.00 1769 0.79 1769 0.25
12 Guwahati 0.00 4981 2.22 4981 0.71
13 Pune 0.00 948 0.42 948 0.14
14 Jammu 0.00 650 0.29 650 0.09
15 Jaipur 0.00 803 0.36 803 0.11
Total of 15 Airports 471622 99.36 205543 91.56 677165 96.86
16 Coimbatore 56 0.01 2428 1.08 2484 0.36
17 Vadodara 0.00 1159 0.52 1159 0.17
18 Varanasi 0 0.00 731 0.33 731 0.10
19 Nagpur 0.00 596 0.27 596 0.09
20 Mangalore 0.00 258 0.11 258 0.04
Total of 20 Airports 471678 99.37 210715 93.86 682393 97.60
21 Lucknow 0 0.00 1041 0.46 1041 0.15
22 Srinagar 0.00 745 0.33 745 0.11
23 Agartala 0.00 1712 0.76 1712 0.24
24 Indore 0.00 725 0.32 725 0.10
25 Bhubaneswar 0.00 1106 0.49 1106 0.16
Total of 25 Airports 471678 99.37 216044 96.24 687722 98.37
26 Patna 2 0.00 1134 0.51 1136 0.16
27 Udaipur 0.00 40 0.02 40 0.01
28 Juhu 0.00 316 0.14 316 0.05
29 Visakhapatnam 0.00 453 0.20 453 0.06
30 Bagdogra 0.00 913 0.41 913 0.13
Total of 30 Airports 471680 99.37 218900 97.51 690580 98.77
31 Rajkot 0.00 118 0.05 118 0.02
32 Imphal 0.00 973 0.43 973 0.14
33 Aurangabad 0.00 162 0.07 162 0.02
34 Leh 0.00 367 0.16 367 0.05
35 Madurai 0.00 137 0.06 137 0.02
Total of 35 Airports 471680 99.37 220657 98.29 692337 99.03
36 Trichy 83 0.02 70 0.03 153 0.02
37 Silchar 0.00 541 0.24 541 0.08
38 Port Blair 0.00 497 0.22 497 0.07
39 Bhopal 0.00 41 0.02 41 0.01
40 Jamnagar 0.00 86 0.04 86 0.01
Total of 40 Airports 471763 99.39 221892 98.84 693655 99.21
41 Khajuraho 0.00 128 0.06 128 0.02
42 Dibrugarh 0.00 537 0.24 537 0.08
43 Bhavnagar 0.00 26 0.01 26 0.00
44 Bhuj 0.00 46 0.02 46 0.01
45 Agra 0.00 64 0.03 64 0.01
Total of 45 Airports 471763 99.39 222693 99.20 694456 99.33
46 Amritsar 2897 0.61 31 0.01 2928 0.42
Others(Dom Apts.)* 0 0.00 1766 0.79 1766 0.25
TOTAL 474660 100.00 224490 100.00 699150 100.00
Case Study - The No frills model
12.1 Analyzing Southwest Airlines and how, in India, Air Deccan is coping
with the competition

Southwest Airlines Co., incorporated in 1967, is a US domestic airline that


provides predominantly short haul, high-frequency, point-to-point, low-fare
service in the United States. The Company focuses principally on point-to-point,
rather than hub-and-spoke, service in markets with frequent, conveniently timed
flights and low fares.

As of December 31, 2003, Southwest served 337 non-stop city pairs. Examples
of markets offering frequent daily flights are Dallas to Houston, 35 weekday
roundtrips; Phoenix to Las Vegas, 19 weekday roundtrips, and Los Angeles
International to Oakland, 22 weekday roundtrips. Southwest complements these
high-frequency short haul routes with long haul non-stop service between
markets such as Baltimore and Los Angeles; Phoenix and Tampa Bay; Seattle
and Nashville, and Houston and Oakland.

Presently, Southwest is the third largest US airline in number of national


passenger flights. Its principal competitors are the so called legacy carriers –
Delta, American Airlines, US Airways, United, Continental and Northwest. The
company itself has been profitable for 24 consecutive years and is the only major
airline in the US to realize a profit in 2001. It has had a perfect safety record and
lowest lost-baggage claims.

So what differentiates Southwest from the ‘legacies’?

• Southwest's average aircraft trip stage length in 2003 was 558 miles, with an
average duration of approximately 1.5 hours.

• The Company's point-to-point route system, as compared to hub-and-spoke,


provides for more direct non-stop routings for customers and, therefore,
minimizes connections, delays and total trip time.

• Southwest focuses on non-stop (not-connecting) traffic. As a result,


approximately 79% of the Company's customers fly non-stop

• In addition, Southwest serves many conveniently located satellite or


downtown airports such as Dallas Love Field, Houston Hobby, Chicago
Midway, Baltimore-Washington International, Burbank, Manchester, Oakland,
San Jose, Providence, Ft. Lauderdale/Hollywood and Long Island Islip
airports, which are typically less congested than other airlines' hub airports.
This enhances the Company's ability to -

1. sustain high employee productivity

2. ensure reliable on time performance

3. lower landing and parking fees

4. achieve high asset utilization

• Aircraft are scheduled to minimize the amount of time the aircraft are at the
gate (approximately 25 minutes), thereby reducing the number of aircraft and
gate facilities that would otherwise be required.

• The Company operates only one aircraft type, the Boeing 737, which
simplifies scheduling, maintenance, flight operations and training activities.

• Southwest does not interline or offer joint fares with other airlines, nor does it
have any commuter feeder relationships.

• Southwest offers a ticketless travel option, eliminating the need to print and
process a paper ticket altogether. In 2003, more than 85% of Southwest's
customers chose the ticketless travel option and approximately 54% of
passenger revenues came through the Internet.

For the past five years, low-cost airlines have been growing at more than 40 per
cent a year, while the full-service airlines are yet to recover from the crisis that hit
them post 9/11. Taking a cue, Capt. G R Gopinath launched Air Deccan in
September 2003, India’s first no-frills airline.

• Airbus 320 can accommodate 180 seats while IA has 145 seats including
executive class. The extra 35 seats are in Rs 500-Rs 2,500 bracket

• In contrast to the hub-and-spoke model, Air Deccan follows the point-to-point


concept, which removes hindrances like waiting for connecting flights and
through baggage check-in

• Result: greater flexibility. Each Airbus 320 flies for 10-11 hours compared to
the 7-8 hours clocked by other airlines

• Air Deccan has just two air hostesses compared to six in other airlines. All
this reduces the cost on overheads

• The model is akin to any other low-cost carrier. Even the most expensive
ticket on offer is 35 per cent lower than usual fares on any sector. In the
Delhi-Bangalore sector for instance, the first 40 seats are available between
Rs 500 - Rs 2,500, the next 110 seats up to Rs 5,000 and the remaining don’t
cross Rs 7,000.

• Unlike IA, Jet and Sahara who go in for acquisition of new aircraft, Air Deccan
has recently taken three Airbus 320 planes on lease from Singapore Aircraft
Leasing Enterprise (SALE) to complement its fleet of seven French-made
ATR 48-seater aircraft. This has enabled Air Deccan to minimize its debt-to-
investment ratio.

But unlike low cost airlines in the US and Europe, Air Deccan and its followers
face serious hurdles in the form of abysmal infrastructure and government
regulation on private airlines.

• Air Deccan cannot shave off costs by using secondary airports. The Naresh
Chandra Committee, however, has suggested a compromise – lower landing
and parking charges for low-cost airlines. Towards this, the new Hyderabad
airport plans to keep aside some space for low cost airlines to get them to fly
more often to the airport.

• Plans to launch services on trunk routes have been delayed as it has not
been allotted parking bays and ticket counters in Mumbai and Delhi airports.

• The operations of Air Deccan to Guwahati and Dibrugarh are not by choice
but are part of the Category 2 and Category 2A routes which are compulsory
for a private airline operating on metro routes. This need for compliance
though has bled full-service airlines what with their larger capacity fleets.
Potential Market Entrants
Others are just as keen to get India's millions airborne. Liquor king Vijay Mallya in
January 2005 plans to launch a low-cost carrier, named after his Kingfisher beer,
with $20 million in financing from GE Capital Aviation Services. Following closely
will be Go, promoted by textile scion Jehangir Wadia. And charter carrier Jagson
Airlines plans to expand as a regional discounter next year. Richard Branson's
Virgin Atlantic and Britain's bmi are hungry for more direct routes from London to
major Indian cities, which are restricted under existing agreements. Including
these, the potential players in the market could be a double-digit figure, most of
them looking at setting-up a low-cost airline, namely - Air-India Express (which
will ply between India and the Middle East), AirOne and Visa (both floated by ex-
Indian Airlines people), Alliance Air, Go (from the Wadias), Kingfisher (Mallya),
Royal (ModiLuft's relaunched avatar), Skylark, Yamuna Air (Gill Brothers, UK-
based NRIs), hotelier Lalit Suri, and the Interglobe group (which runs the travel
bookings firm, Galileo).

All this activity has spurred India's state-sector airlines to jump into the discount
fray. Air-India plans to launch Air-India Express, which will take over routes to the
Middle East, where some 4 million Indians hold service jobs. Indian Airlines,
meanwhile, is planning to turn money-losing affiliate Alliance Air into a cut-rate
carrier.

The new players face some serious hurdles. The biggest is infrastructure. Indian
airports are dismal -- when cities are lucky enough to have one. Even cities with
millions of inhabitants -- such as Dehra Dun, the capital of the new northern state
of Uttaranchal -- have no commercial airport.

High fuel costs and other operating fees such as landing and parking charges,
which account for up to 15 percent on an airline's expenditure, have kept air fares
high and grounded most carriers which have entered the domestic aviation
sector when it opened up nearly a decade ago.

Defining Low Cost Carriers

Simple Product

• No meals; drinks and snacks for free


• Narrow seating (greater capacity)
• No seat reservation; free-seating
• No frequent-flyer programs
Positioning

• Non-business passengers, leisure traffic, price-conscious business


passengers
• Short-haul point-to-point traffic with high frequencies
• Aggressive marketing
• Secondary airports
• Competition with all transportation carriers

Low Operating Costs

• Low wages, low airport fees


• Low costs for maintenance, cockpit training and standby crews due to
homogeneous fleet
• High resource productivity: short ground waits due to simple boarding
processes, no air freight, no hub services, short cleaning times
• Lean sales (high percentage of online sales)

Attributes of Low-cost Carriers

• Narrower seating (higher capacity: 148 vs. 126)

• Higher plane utilization (10.7h vs. 8.4h) due to shorter turnaround times

• Lower staff costs due to greater productivity, generally lower wages and
smaller staff (no service)

• Lower airport fees at secondary airports and smaller cities

• No sales commissions due to web sales

• Low station costs due to simpler handling and more efficient processes

• High number of passengers per employee - 7250 for RyanAir vs 1290 for
Lufthansa (2002 data)
SWOT of legacy carriers
Strengths

• Passengers will continue to need connecting/network services

• Ensure a leisure travel, especially to the business traveller, like airport


lounges

• Enhanced in-flight service and more comfortable seating

• In long-haul markets, where premium service is essential, through higher


capacity and long range Boeing 747s and Airbus 340s.

Weakness

• Excess capacity

• Complicated flight operations. Hub-and-spoke networks of legacy carriers


were profitable as long as LCCs had low service along heavily travelled
routes.

• Mounting debt – Enormous debt to investment ratio (above 90% for most US
legacy carriers like US, DL, AA, UL, CO) compared to LCCs (25% for
Southwest)

• Cost-to-revenues ratio per seat mile is very high (>13) compared to


Southwest’s 7.67

Opportunities

• Maintain short-haul flights only to extent needed to feed the network

Threats

• Labour problems as “legacies” try to streamline in order to compete with LCCs

• Flood of new capacity into the region from LCCs may trigger a competitive
bloodbath among the legacies.

No-Frill Airlines Prices

This cut throat competition is at its peak in sector like Delhi-Mumbai where Jet
Airways has cut its Apex air fare to Rs 2500 for passengers booking ticket 30
days in advance. This was in response to Indian Airlines concessional fare of Rs
3500 if ticket is booked 21 days in advance and Air Sahara’s special package
offer of Rs 4444 for a return ticket basis. The no-frills airline Air Deccan has
announced fares as low as Rs 700 if booking is done 90 days ahead. Jet airways
has lowered its apex fares by 20% under ‘Monsoon Super Apex Fares’ scheme if
the booking is done 30 days in advance in six busy sector including 4 metros.
Recommendations
1 Government Recommendations

Codesharing

Codesharing is an important tool for airlines to minimise the costs of operating


services. By selling seats on a flight operated by another carrier, codesharing
enables an airline to make direct cost savings by rationalising services or
establishing market presence on a route without actually operating on it. Thus,
both airlines may be able to save on fuel, labour and other variable costs, as well
as making more effective use of aircraft and other overheads.

Cabotage

Restricting access by foreign carriers to the Indian domestic market gives the
Indian carriers a solid base from which to extend into international aviation. The
same applies to most other countries, with the exception of city economies such
as Singapore and Hong Kong. Restricting cabotage rights for the carriage of
passengers and freight to domestic airlines reduces competition on domestic
routes. These restrictions help keep fares and freight rates higher than they
otherwise might be, boosting domestic airline revenue at the expense of
domestic consumers. Allowing foreign carriers some cabotage rights could
improve competition in the domestic market. Integrating domestic and
international services allows airlines to achieve:

• operational synergies and efficiencies by being able to switch capacity and


aircraft between the domestic and international sectors; and

• network advantages such as economies of scope and traffic density as well


as the marketing advantages of operating a combined domestic and
international network.

The opposition to this recommendation is the view that It is most likely that
foreign carriers would engage in ‘cherry picking’ i.e. carry domestic traffic on the
most profitable routes. Incumbent airlines would need to counter any loss of
profitability on routes affected by cabotage and this could mean a reduction in the
number of services provided on these routes, or the reduction or withdrawal of
services from less profitable routes, with consequential loss of amenity to
passengers, including those making connections to other parts of the domestic
network.

Eliminate Regulatory Structure


The regulatory structure inhibits competition in many ways. It can prevent or
deter entry, constrain capacity, and limit the potential for airlines to win market
share. A problem in assessing regulatory impacts is the structure of aviation
markets. Economies of scope and traffic density favour large airlines operating
many services. On the demand side, a single carrier operating a long thin route
with multiple frequencies will attract better business than multiple carriers who
each operate one service per week. Thus markets tend to be concentrated with a
small numbers of carriers operating on most routes.

It cannot be presumed that these airlines respond to normal commercial


incentives. Instead of shareholder value, they may be managed for national
prestige, employment enhancement, technology transfer, or defence, which
might require government subsidies. Continued use of substantial government
subsidies is an obstacle to efficient air services, and has important implications
for competition in a less regulated international environment.

Eliminate the fuel tax

A most regressive tax whose burden becomes larger as fuel costs increase (and
airlines’ ability to pay diminishes). As an interim step – cap tax revenue and
determine a better way of obtaining (e.g., a per passenger levy).

Eliminate category III restrictions

Eliminate category III restrictions and provide essential air services subsidies
where required (with costs shared by national/state/local authorities). Category III
mandates that an operator deploy on routes in Category-II (North-Eastern region,
Jammu & Kashmir, Andaman & Nicobar and Lakshadweep) at least 10% of the
capacity deployed on routes in Category-I and of the capacity thus required to be
deployed on Category-II routes, at least 10% would be deployed on service or
segments operated exclusively within the North-Eastern region, Jammu &
Kashmir, Andaman & Nicobar and Lakshadweep. In the interim, allow airlines to
transfer category III obligations to a competitor or third party operator – who
could use a standard, appropriate fleet and be paid by the majors to meet their
category III requirements.

Improve quality of and access to airports and hangars

Privatize or municipalize. Develop a robust traffic management system that


addresses relevant technical issues and meets strategic objectives through
rigorous systems engineering and large-scale integration efforts such that rising
air traffic demand is supported in a safe, secure and efficient manner.

Today, Indian airlines have difficulty accessing hangars for maintenance. As a


result, private operators have to do some maintenance abroad. Airline
maintenance and overhaul should be an area where India could develop a major
international business, leveraging its low labour costs and world-class
engineering to service aircraft for other countries as well as its own.

Tourism

An efficient aviation sector is essential to support the tourism industry, which has
immense employment opportunities and the tourism and airline industries with a
joint proactive approach can foster tourism development and promotion in a big
way. One of the prerequisites for developing tourism is 'easy access' to the
tourist destinations, in terms of international and domestic connectivity and easy
movement within the destination. An efficient aviation sector is essential to
support tourism. Air connectivity is integral to the growth of tourism. Airlines and
tourism are self dependent. The tourism market grows by itself with new
connections and a popular destination attracts more flight operations. It is a win-
win situation.

Direct connections would also give further impetus to tourists’ arrival. Over 40 per
cent of the passenger traffic is concentrated in two main international airports
namely New Delhi and Mumbai. The increase in connectivity has contributed to
domestic and international tourist arrivals. The tourism and airline industries with
a joint proactive approach can foster tourism development and promotion in a big
way.

2 Industry Recommendations

Reduce labour costs

All major carriers need to win significant concessions from their workers. Low
labour outlays would consist of a mix of reduced wages, more flexible work rules
and trimmed benefits including pension.

Simplify flight operations

Low-cost carriers use just a few types of aircraft, a strategy that cuts training and
maintenance expenses. Larger airlines who fly internationally, to more remote
destinations require varied fleets of large and small planes. However, they can
and should work toward streamlining the types of planes they fly.

Another way to simplify operations is modifying the hub-and-spoke model, which


uses designated headquarter airports for transfers. Traditionally, the big airlines
have sent many of their flights through hub airports at peak business-travel
hours. That way, since carriers typically charge heaps more for business fares,
they can get more revenues per flight. But many experts argue that it's time to
give up on that model - especially as low-cost carriers increase service along
heavily travelled routes.
Experts like the idea of so-called rolling hub operations, where flights are
scheduled throughout the day so that an airline's assets - from employees to
planes to hangars - can be used more efficiently. In a traditional hub system,
planes and workers spend more time waiting for connecting flights to come in at
peak operating times. With rolling hubs, travellers may end up waiting a little
longer to get a connecting flight, but planes end up in the air for more hours of
the day.

Offer more transparent pricing

The legacy carriers have long had an exotic, almost incomprehensible pricing
system. However, these days, with the Internet allowing travellers to shop for the
cheapest tickets easily, and low-cost airlines offering uncomplicated set prices,
traditional carriers have to follow suit or risk losing more and more passengers.

Get smart on fuel

With oil near $50 a barrel, airlines must be smarter about how they incorporate
its price into their costs. Discount carriers such as Southwest hedge as much as
80% of their jet-fuel costs. Essentially, that means that they lock in prices on
future fuel when the price drops. Small wonder Southwest is one of the few
success stories in the airline business.

Stop chasing market share

Airlines need to be savvier about capacity. At the start of 2004, many planned to
add more flights amid signs of an improved economy. When it became clear that
demand wasn't as strong as originally forecast, most carriers still wouldn't
retrench from their plans for fear of losing out if the market snapped back. Rather
than scrambling to add seats in fear of missing out on the party, airlines would do
well to take a more cautious approach and focus on efficiency and margins.

From bailouts to government partnership

Although the Indian airline industry was largely deregulated in 1990, plenty of
lingering rules and regulations have made it nearly impossible for carriers to be
efficient. Many believe that restrictions on foreign ownership and labour laws
have kept the industry from innovating. So instead of lobbying for protective
measures like bailouts, airlines need to work with government to tackle longer-
term projects like building more runways, running airports more efficiently, and
reining in labour costs.

A new model for premium pricing


Most of the industry's improvement efforts have focused on whittling down costs.
However, boosting revenues also needs to be a priority. After all, people are
willing to pay more if they believe they're getting more value. Legacy carriers still
offer certain advantages, especially to the business traveller including airport
lounges and more comfortable seating.
FUTURE PLANS: TRANSITION INTO 21st CENTURY
The AAI has drawn ambitious long term plans to meet challenges posed by ever
increasing air traffic and advancement in aircraft technology. Some of the major
plans for implementation of ICAO CNS/ATM programme are:-

• Replacement of ground based Communication, Navigation and


Surveillance (CNS) with Satellite based CNS system.

• Establishment of Differential Global Positioning System (DGPS).

• Automation in the Air Traffic Control Services.

• Establishment of Automatic Dependent Surveillance (ADS).

• Coverage of the Indian land mass through Satellite Communication, VHF


Data Links and Monopulse Secondary Surveillance Radar with Mode 'S'
Capability.
Indian aviation boom — The myth and reality
For the aviation sector to work, needed is a support system of airports and their
infrastructure, trained manpower, passenger amenities, networks of travel
agents and Internet penetration for the travellers. More important, there has to
be a rise in the per capita income to make air travel affordable.

AT THE recent Paris Air Show, airlines from India wowed the aviation industry
with orders for 250 aircraft.

In the last six months, private and public sector airlines from India have placed
orders representing more than a 170 per cent increase from present fleet
strength of 158 aircraft.

Though the Indian aviation market has long-term potential, can it justify such
sudden increase in capacity?

Can you spot a serious player?: Amidst the many new entrants to the airline
sector, how can we differentiate between serious players and the casual
entrants?

Whenever any new sector — such as telecom or aviation — hitherto under


regulation is liberalised, there is a tendency to overestimate the short-term
returns, and underestimate the long-term potential.

As always, among the new entrants, a few may be motivated only by money and
the glamour of the airline sector, and others have visions of changing that world.
The founders of successful Low Cost Carriers (LCC) like Ryan Air, Southwest and
Air Asia, had a bit of the `change the world' passion in them.

For the aviation sector to work, needed is a support system of airports and their
infrastructure, trained manpower such as pilots, cabin crew and maintenance
engineers, passenger amenities such as hotels,, ATF (aviation turbine fuel)
availability on a par with international prices, networks of travel agents and
Internet penetration for the travellers.

More important, there has to be a rise in the per capita income to make air
travel affordable.

Why the rush for domestic skies?

Foreign equity allowed: Foreign equity up to 49 per cent and NRI (non-
resident Indian) investment up to 100 per cent is now permissible in domestic
airlines without any government approval.

However, the government policy bars foreign airlines from taking a stake in a
domestic airline company.

Low entry barrier: Today, venture capital of $10 million or less is enough to
launch an airline. Private airlines are known to hire foreign pilots, get expatriates
or retired personnel from the Air Force or PSU airlines, in senior management
positions to run the show. Further, they outsource such functions as ground
handling, check-in, reservation, aircraft maintenance, catering, training, revenue
accounting, IT infrastructure, loyalty and programme management.

Airlines are known to take on contract employees such as cabin crew, ticketing
and check-in agents.

Attraction of foreign shores: Domestic airlines in India, such as Air Sahara


and Jet Airways, that were set up more than five years ago, have now been
allowed to use India's unutilised bilaterals for mounting flights to all parts of the
world, except the Gulf region. Jet and Sahara have gone international by starting
operations, first to SAARC countries, and then to South-East Asia, the UK, and
the US. After five years of domestic operations, many domestic airlines too will
be entitled to fly overseas by using unutilised bilateral entitlements to Indian
carriers.

Rising income levels and demographic profile: Though India's GDP (per
capita) at $3,100 (on Purchase Power Parity terms) is nowhere near the Europe's
levels of $7,000, and which corresponds to 0.05 trips per person, "India is
shining", at least in metro cities and urban centres, where It and BPO industries
have made the young generation prosperous.

Demographically, India has highest percentage of people in age group of 20-50,


among its 50 million strong middle class, with high earning potential.

All this contributes for the boost in domestic air travel, particularly from a low
base of 18 million passengers.

Untapped potential of India's tourism: Currently India attracts 3.2 million


tourists every year, while China gets 10 times the number.
Tourist arrivals in India are expected to grow exponentially, especially due to the
open sky policy between India and the SAARC countries and the increase in
bilateral entitlements with European countries, and the US.

The increase in number of international tourists will percolate down to increase in


domestic passengers.

Domestic market

According to the Directorate-General of Civil Aviation statistics, the total size of


the domestic market was 18 million in 2003.

All scheduled domestic airlines in India carried 42,590 passengers a day in 2003-
04, which was 11 per cent more than the previous year's carriage of 38,222 per
day.

The average load factor, an indicator of passenger demand and efficiency of the
airlines' sales and marketing efforts, was 58 per cent, a slight improvement over
the previous year's average of 56 per cent.

The new entrants on the domestic scene need to probe reasons for the low load
factor ; is it high fares or the limitation in number of air travellers?

As per DGCA statistics, for the first time in 2003-04 (see Chart 1), domestic
airlines were able to record revenue per kilometre (RPKM) higher than costs,
with a positive operating margin of 3 per cent, against a negative margin of 3
per cent in previous years.

Pre-requisites for survival

Low debt-equity ratio: Airline is a cyclical industry with alternating short


periods of growth and longer periods of recession. It is the staying power of
equity that gives an airline the capital to stay afloat during periods of recession.
Ideally the debt-equity ratio for new airlines should be less than or equal to 1.
Appropriate aircraft type: An airline's most expensive assets are aircraft and
having an average aircraft utilisation higher than 11-12 hours per day is crucial
for its survival.

Thus selecting an aircraft that is economically suited for the sectors identified,
having adequate number of pilots, as well as maintenance facilities and spare
parts is vital.

Aviation value chain: Chart 2 shows low operating margins of airlines against
high margins of their monopoly suppliers such as IT providers, airports, aircraft
manufacturers. "Airlines do the flying and others make money out of them", says
Mr Giovanni Bisignani, Director-General of IATA (International Air Transport
Authority).

Indian aviation is witnessing a mushrooming of new airlines, however, this time


they seem to be on safer grounds, with better funding of equity, and more
optimism thanks to the success of Air Deccan.

It is likely that aircraft manufacturers, airports, aviation training institutes (for


pilots, cabin crew, and ground staff), airline IT providers, oil companies
supplying ATF, aircraft maintenance centres, and air travellers will benefit from
the rush of new airlines in Indian skies.

While the party is on, for the air traveller looking for bargains, airline promoters
are advised to tighten their seat belts to avoid the shock from hard landing.
India takes world aviation sector by storm

With liberalisation in aviation sector and boom in air travel, India has emerged as the leader in
Asian aviation market. India along with China has taken the world air travel by storm.

Because of the high pace of growth in Asia, the number of people traveling by air is reaching
new heights. Intra-Asian travel is increasing at a faster rate than the world-wide average. The
world-wide average is growing at 5% while Asia is growing at a rate of more than 7 per cent.
Fuelling this growth in Asia is the liberalisation in the aviation sector and growing air traffic
demand from India and China, and from these countries to Europe and the US.

This was revealed by Koh Boon Hwee, Chairman of Singapore Airlines and co-chair of the Asia
Roundtable in an interview to the World Economic Forum.

According to the International Air Transport Association (IATA), international airline passenger
numbers are set to grow by 6 per cent year-on-year to the end of 2008, driven by economic
expansion in India and China. Cargo volume is also likely to be up by 6 per cent annually over
the 2004-08 period.

India and China will be the main engines of growth for passenger traffic. The number of air
travelers in India rose nearly by 26 per cent over the past six months, to touch more than 18
million. Experts forecast the number will shoot up to 50 million over the next five years,
thanks to the booming economy and surging affluence among India's middle class segment.

Moreover, after China, India has become the hottest business destination in Asia. This again is
a promising opportunity for the aviation companies to augment their profit charts.

To enable greater air connectivity to and from India, the government has approved additional
capacity of more than 5,54,000 seats for international airlines.

The Asia Roundtable, scheduled to be held from April 28 to April 29, 2005 in Singapore, will
bring together leaders from business, government and civil society to identify the critical
economic issues in Asia and generate insights necessary to develop the right strategic
response.

Commenting specifically on the airline industry Koh Boon Hwee said, " A lot of Asian airlines
have performed well because intra-Asian traffic is growing rapidly. The pace of liberalisation is
behind that of Europe and the US, but it is nevertheless increasing.

"But as the industry liberalises, there will be more competition - for example more low-cost
airlines are being set up now. Alongside this are rising income levels and living standards in
countries like India and China. The growing middle class creates more demand for travel and
tourism, benefiting the airline industry."

Hwee further said, the Asian aviation industry won't develop on the same model as that of US
and Europe. For one, even full service carriers have lower cost base because they are
younger. So, the difference between full service and a low cost airline is much narrower.
Indian Aviation Will Be A Driver For Growth
Indian aviation will be a driver for the global aviation industry, according to Giovani
Bisignani, director general of International Air Transport Association (IATA). With a
majority of US airlines having filed for bankruptcy and European airlines also facing
market saturation, it is Asia that will drive future industry growth, he added.

Speaking at a CII session, he said that the expansion rate of the Indian aviation sector is
the fastest in the world. But, he said, for India to compete with countries like China, it
will need to upgrade its infrastructure and make necessary policy changes. Stressing on
the importance of this sector, Bisignani said that globally, airlines are a US$ 400 billion
industry, generating US$ 1.3 trillion in economic output, and not to be taken lightly. He
outlined five priorities for the sector - operational safety, cost effectiveness, freedom to
do business, implementation of technology and upgraded infrastructure.

Taxation, he said, was another area of IATA concern, not only in India but on a global
scale. He said that though the Indian government had abolished the fuel uplift levy in
2002, the US$ 36 million collected at the same time had not been returned to the airlines.

Complete e-ticketing by December 2007, and introduction of paperless freight were the
other IATA priorities. The director general said that US$ 3 billion could be saved once e-
ticketing is introduced. However, India is way behind with just five per cent e-ticketing
as compared to 33 per cent on a global average.