AVIATION INDUSTRY

Unit 1

What are the factors that contributed towards the growth of aviation?

The factors that contributed towards the growth of aviation can be broadly classified as:

1. Economic factors

2. Political factors.

Economic factors

1. Advent of Low-Cost Airlines:

 Low-cost airlines can stimulate air travel demand by offering affordable fares,
attracting a larger customer base. This may lead to increased passenger traffic
and competition in the industry.

2. Average Growth in Gross Domestic Product (GDP):

 A growing GDP is generally associated with increased economic activity, which

can positively impact air travel demand. Higher GDP often correlates with
increased business and leisure travel.

3. Corporate Preference for Private Jets and Air Charter Services:

 Corporate preferences for private jets and air charter services can influence the
demand for business aviation. This trend may be indicative of a growing business
sector and increased corporate travel needs.

4. Emergence of Service Sector:

 The growth of the service sector is often associated with increased business
travel. Industries such as IT, consulting, and finance may contribute to a higher
demand for air travel services.

5. Expectation of Disposable Income Increase:

 Anticipated growth in disposable income suggests that individuals may have

more funds available for discretionary spending, including travel. This can
contribute to increased demand for both leisure and business travel.

6. Increase in Inbound and Outbound Tourists and Medical Tourism:

  Tourism growth, both inbound and outbound, can boost the demand for air travel.
Additionally, the rise in medical tourism suggests an increase in international
patient travel, benefiting the aviation and healthcare industries.

7. Liberalization and Economic Reforms:

 Economic liberalization and reforms can enhance the overall business

environment, potentially leading to increased trade, investments, and economic
activities, all of which may contribute to higher air travel demand.

8. Middle Class Growth:

 A growing middle class is a key driver of consumer spending, including travel.

The expanding middle class may contribute significantly to increased air travel
demand.

9. Rapid Expansion of Industries:

 The expansion of industries, especially in line with economic reforms, can lead to
increased business-related travel, potentially boosting demand for air
transportation services.

10. Organized Retail Boom and Air Cargo Segment Growth:

 The growth of organized retail may increase the demand for timely product
delivery, contributing to the expansion of the air cargo segment.

Political factors

1. Approval to Acquire New Aircraft:

 Government approval for acquiring new aircraft is crucial for airlines to expand
their fleets. This policy can influence the growth and competitiveness of the
aviation sector.

2. Approval to Private Operators for International Operations:

 Allowing private operators to operate on international routes can foster

competition and provide passengers with more choices. It may stimulate growth
in the international aviation market.

3. City-Side Development of Non-Metro Airports:

 Government initiatives to develop non-metro airports can enhance regional

connectivity and promote economic development in non-metropolitan areas.

4. Emphasis on Public-Private Partnership (PPP) Development:

  Encouraging PPP in airport development can lead to efficient infrastructure
projects. This approach may attract private investments and expertise in
managing and upgrading airport facilities.

5. Encouraging Private Investments in Airport and Airlines Infrastructure:

 Government support for private investments in airport and airline infrastructure

can lead to modernization, expansion, and improved services in the aviation
sector.

6. Helpful Foreign Direct Investment (FDI) Norms:

 Favorable FDI norms can attract foreign investments in the aviation industry,
facilitating capital infusion and technological advancements.

7. Liberal Bilateral Service Agreements:

 Liberal bilateral service agreements can promote international cooperation in

aviation, leading to increased air connectivity and greater flexibility in airline
operations.

8. Modernization and Establishment of New Airports:

 Government initiatives for modernizing existing airports and establishing new

ones contribute to the overall development of air transportation infrastructure.

9. Open Sky Policy:

 An open sky policy allows unrestricted air services between countries, fostering
international air travel and trade. It promotes competition and efficiency in the
aviation market.

10. Policy of License to New Scheduled Operators:

 Granting licenses to new scheduled operators can encourage competition,

potentially leading to improved services, route options, and efficiency in the
aviation sector.

11. Providing International Airport Status to Tier I and Tier II Cities:

 Designating major tier I and tier II cities as international airports enhances air
connectivity and promotes economic development in these regions.
What are the government initiatives aimed at advancing the aviation industry in India?

1. Regulatory Reforms and Policy Measures:

 Objective: The government has initiated regulatory reforms and policy measures to
promote the participation of the private sector through investments.

 Impact: These reforms aim to create a favorable environment for private sector
involvement, leading to increased investment and growth in the aviation industry.

2. Foreign Direct Investment (FDI) Allowance:

 Objective: The government has allowed 49% foreign direct investment by foreign
airlines in the Indian aviation sector.

 Impact: This policy facilitates foreign investment, providing financial support and
expertise from international partners, thereby contributing to the growth and
development of the aviation industry.

3. Jet-Etihad FDI Deal:

 Objective: The government has granted permission for a significant deal involving a US$
900 million investment by Etihad in Jet Airways.

 Impact: The approval of this deal demonstrates the government's support for major
foreign investments in Indian aviation, potentially enhancing the financial stability and
global reach of Indian airlines.

4. Code-Sharing Approval for Jet Airways:

 Objective: The aviation ministry has allowed Jet Airways to engage in code-sharing with
five international airlines.

 Impact: Code-sharing enables Jet Airways to expand its global network by partnering
with other carriers, offering passengers increased connectivity and facilitating the
airline's growth on an international scale.

5. New Airport Construction:

 Objective: The government has proposed the construction of 17 new airports during the
12th Five Year Plan.

 Impact: The construction of new airports aims to improve regional and national
connectivity, enhance infrastructure, and support the overall growth of the aviation
sector.

6. Proposal for Aviation University:

  Objective: The government has proposed the establishment of an aviation university to
address the talent requirements of the aviation industry.

 Impact: The university is expected to provide education, training, and research in

various aspects of aviation, addressing the need for a skilled and effective workforce in
the industry.

7. Budget Allocation for Aviation University:

 Objective: The government has estimated a total outlay of approximately `202 crore
(US$ 31.92 million) for the aviation university project until 2019.

 Impact: This budget allocation reflects the government's commitment to investing in

education and skill development in the aviation sector, ensuring a pipeline of trained
professionals for the industry's future growth.

What are the issues and challenges faced by the aviation sector ?

The key issues and challenges faced by the aviation sector, highlighting areas of concern that
impact the industry's profitability and operational efficiency:

1. Reduction in Profitability of Airlines:

 Challenge: Despite significant year-on-year growth in passenger and cargo

volumes (20-25%), airlines have reported losses over the past three years.

 Impact: The reduction in profitability may lead to financial instability for airlines,
affecting their ability to invest in fleet expansion, infrastructure, and quality of
services.

2. New Policy of Ground Handling:

 Challenge: The new Ground Handling policy, implemented from January 2009,
restricts ground handling services at major metro airports to only three agencies.

 Impact: This policy may limit competition, potentially leading to concerns

regarding service quality and pricing. Opposition from airline operators and cargo
carriers suggests industry dissatisfaction with the new regulations.
3. High Prices of Aviation Turbine Fuel (ATF):

 Challenge: High prices of ATF contribute significantly to the operational costs of

airlines.

 Impact: Increased fuel costs can negatively impact the profitability of airlines
and, in turn, affect the affordability of air travel for passengers. It may also impact
other supporting services within the aviation industry.

4. High Airport Charges:

 Challenge: Airport (aeronautical) charges in Indian airports are noted as the

second highest among Asian and Gulf countries, following Hong Kong.

 Components of Charges:

 Landing, Housing, and Parking Charges

 Route Navigation Facility Charges (RNFC)

 Terminal Navigation Landing Charges

 User Development Fees (in case of private airports)

 X-ray Baggage Charges

 Impact: High airport charges can increase the overall operating costs for airlines,
potentially leading to higher ticket prices for passengers. It may also affect the
attractiveness of Indian airports for international carriers.

5. Lack of Technical Manpower:

 Challenge: The civil aviation sector, particularly in the technical domain, faces a
shortage of manpower.

 Impact: With an increasing number of flights and new airports, there is a growing
demand for Aircraft Maintenance Engineers and Air Traffic Controllers. The
shortage of technical manpower poses a challenge to the sector's efficient
functioning and growth.

6. Safety and Security:

 Challenge: The need for revising and improving safety and security measures in
Indian aviation is emphasized, especially in the context of past incidents such as
the 1999 Kandahar hijacking and recent high-power serial bombings in various
parts of the country.
  Security Framework: The Central Industrial Security Force (CISF) is
responsible for airport security, and there is an ongoing effort to enhance security
measures to protect against unlawful interference with civil aviation.

7. Land Acquisition:

 Challenge: The development of greenfield airports, cargo airports, and the

modernization of existing airports require substantial land areas.

 Impact: Acquiring large land areas poses challenges in terms of logistics, legal
processes, and potential conflicts with local communities. Efficient land
acquisition is crucial for timely and successful airport projects.

8. Shutting Down Old Airports:

 Challenge: The government is finalizing a model concession agreement for

public-private partnership concessionaires, raising concerns about the smooth
land acquisition process and potential impacts on stakeholders.

 Impact: Shutting down old airports and transitioning to new models of airport
management require careful planning to minimize disruptions and ensure the fair
treatment of stakeholders, including those affected by land acquisition.

How air transport stimulates tourism?

Air transport acts as a catalyst for tourism by connecting people to diverse destinations
efficiently. The resulting economic, cultural, and social benefits contribute to the growth and
sustainability of the tourism industry worldwide.

1. Global Connectivity:

 Air transport provides global connectivity, allowing tourists to reach destinations

worldwide quickly. Direct flights and well-connected airline networks make distant
and diverse locations easily accessible.

2. Time Efficiency:

 Air travel is time-efficient, reducing travel time compared to other modes of

transportation. This efficiency encourages people to explore destinations that
might be impractical or time-consuming to reach by other means.

3. Increased Tourism Flows:

  The convenience and speed of air travel lead to increased tourist flows. Tourists
can explore multiple destinations within a short period, contributing to the growth
of the tourism industry.

4. Exploration of New Destinations:

 Improved air connectivity opens up new and remote destinations to tourists. This
not only benefits these areas economically but also offers travelers unique and
diverse experiences.

5. Economic Impact:

 Air transport stimulates the local economies of tourist destinations. The influx of
tourists leads to increased spending on accommodations, attractions, dining, and
other services, creating jobs and boosting economic development.

6. Cultural Exchange:

 Air transport facilitates cultural exchange by bringing people from different parts
of the world together. Tourists can experience diverse cultures, traditions, and
lifestyles, contributing to mutual understanding and appreciation.

7. Tourism Industry Growth:

 The growth of air travel directly correlates with the growth of the tourism industry.
Airlines, airports, and related services benefit from increased demand for air
transport, creating a positive feedback loop that supports the overall tourism
ecosystem.

8. Accessibility to Remote Areas:

 Air transport enables access to remote and less-developed areas, promoting

sustainable tourism. This accessibility can lead to the conservation of natural and
cultural heritage while providing economic opportunities for local communities.

9. Business and Leisure Travel:

 Air travel caters to both business and leisure travelers. Business events,
conferences, and meetings are often hosted in destinations with good air
connectivity, contributing to the overall tourism landscape.

10. Marketing and Promotion:

 Efficient air transport allows destinations to market themselves to a global

audience. Airlines and tourism boards collaborate to promote destinations,
attracting visitors and creating awareness about unique attractions and
experiences.
 What is the role of passenger air services in international trade?

Passenger air services serve as a linchpin for international trade by providing the necessary
infrastructure, connectivity, and efficiency for individuals engaged in business and trade-related
activities across borders. The seamless movement of people enhances global economic
integration and supports the growth of international trade networks. Passenger air services play
a crucial role in facilitating and supporting international trade in several ways:

1. Global Connectivity:

 Passenger air services provide essential global connectivity, linking countries

and regions. This connectivity is vital for the movement of people engaged in
international trade, including business professionals, investors, and negotiators.

2. Business Travel:

 Air travel is a key enabler of business activities. Business professionals

frequently use passenger air services to attend meetings, conferences, and
negotiations in different parts of the world. This facilitates international business
transactions and collaborations.

3. Market Access:

 Air travel allows individuals to explore and assess potential markets firsthand.
Business travelers can visit new markets, establish contacts, and gain insights
into local cultures and business practices, which is crucial for successful
international trade.

4. Efficient and Time-Sensitive Transport:

 Air transport is known for its speed and efficiency. For time-sensitive shipments
or urgent business needs, passenger air services provide a quick and reliable
means of transportation, contributing to the efficiency of international trade
operations.

5. Supply Chain Management:

 Passenger air services are integrated into the broader logistics and supply chain
networks. Companies engaged in international trade rely on air transport for the
timely movement of goods, documents, and personnel, ensuring the smooth
functioning of supply chains.

6. Cargo Capacity Utilization:

  Many passenger aircraft have dedicated cargo holds, allowing them to carry
goods in addition to passengers. This dual use of passenger planes enhances
the overall capacity available for transporting goods, supporting the export and
import of products.

7. Networking and Relationship Building:

 International trade often involves relationship building and networking. Business

professionals use passenger air services not only for direct business transactions
but also for fostering long-term relationships with international partners, clients,
and stakeholders.

8. Tourism Impact:

 Passenger air services contribute to the tourism industry, which, in turn, has an
impact on international trade. Tourism generates foreign exchange, creates jobs,
and stimulates economic growth, all of which can have positive effects on trade
balances.

9. Economic Growth:

 The availability of reliable passenger air services contributes to economic growth.

A well-connected aviation network attracts foreign investment, encourages
business expansion, and supports a conducive environment for international
trade.

10. Technology Transfer:

 International business travel facilitates the transfer of technology and knowledge.

Professionals attending conferences, trade shows, and collaborative projects
have opportunities to share innovations and best practices, contributing to
advancements in various industries.