Professional Documents
Culture Documents
TOPICS.
キ INTRODUCTION
o About Aviation Industry
o History of aviation industry
o Market Forecast
キ COMPANY PROFILE
o Company background
o Subsidiary Companies
o Aircraft of Air India
o Organizational structure
o Corporate Vision
o Business Strategy
o Product Upgradation
o Operational Improvement
o Network & Capacity Expansion
o Strategic Relationship
キ Merger of Air India and Indian Airlines
キ Major Expenditure
6
キ Staff Cost
キ Ratio Analysis
キ SWOT Analysis of AIR INDIA
キ SWOT Analysis of AVIATION INDUSTRY
キ Discussion and Conclusion
キ BIBLOGRPHY
7
INDIAN AIRLINES INDUSTRY- AN OVERVIEW
CAGR of 39.3% for the five-year period 2006-2011 expected to drive the
industry to a value of $31.5 billion by the end of 2011.
8
History of Aviation Industry in India
The first commercial flight in India was made on February 18, 1911, when a
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.
9
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.
10
11
Market Volume
12
Market value of the aviation sector
MARKET FORECASTS
13
14
2. Market Volume Forecasts
In 2011, the Indian airlines industry is forecast to have a volume of 205.2
million passengers, an increase of 411.8% since 2006. The compound
annual growth rate of the industr y volume in the period 2006-2011 is
predicted to be 38.6%. 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
15
16
AIR INDIA
Air India is India’s national Airline. Air India’s history can be traced to
October 15, 1932. On this day J.R.D. Tata, the father of Civil Aviation in
India and founder of Air India, took off from Drigh Road Airport, Karachi, in
a tiny, light single-engine de Havilland Puss Moth on his flight to
Mumbai via Ahmedabad.
Air India was earlier known as Tata Airlines. At the time of its
commencement, Tata Airlines consisted of one Puss Moth, one Leopard
Moth, one palm-thatched shed, one whole time pilot, one part-time engineer,
and two apprentice-mechanics. Tata Airlines was converted into a Public
Company under the name of Air India in August 1946.
On March 8, 1948, Air India International Limited was formed to start Air
17
merger of eight domestic airlines to operate domestic services, while Air
India International was established to operate the overseas services. The
word 'International' was dropped in 1962. With effect from March 1, 1994,
the airline has been functioning as Air India Limited.
18
Incorporation
Subsidiary Companies
Air India has the following Subsidiary Companies with an Authorized /
Paid-up Capital (in Rs. Crores) as under
Authorised
Paid-up
(a) Hotel Corporation of India 41.00
40.00
(b) Air India Charters Ltd. 30.00
30.00
(c) Air India Air Transport Services Ltd. 100.00
0.05
(d) Air India Engineering Services Ltd.
10.00
0.05
19
Subsidiary Companies
HCI
Hotel Corporation of India Ltd
Centaur Hotels at Juhu, Mumbai Airport and Rajgir Sold
Centaur Hotel at Delhi, Chefair-New Delhi and Chefair-Mumbai
Under Disinvestment
AICL
Air India Charters Ltd
New Airline Air India Express set-up under AICL
All AI Express operations carried out on B-737-800 with a current
fleet strength of 12.
AIATSL
Air India Air Transport Services Ltd
Incorporated in June 2003
Set up to undertake ground handling & other allied activities
Being operationalized at all domestic airports
20
AIESL
Air India Engineering Services Ltd
Incorporated to undertake engineering and other allied activities
To be operationalized
Cabinet approval required
21
AIRCRAFT OF AIR INDIA
The total aircraft on order are 111 (68 from Boeing and 43 from Airbus).
Aircraft Total
Airbus A 310 8
Airbus A 319 15
Airbus A 320 43
Airbus A 321 12
Airbus A 330 2
Boeing 737-800 22
Boeing 747 6
Boeing 737 5
Boeing 777 14
Airbus A 310 Freighters 4
Boeing 737 Freighters 6
ATR* 7
CRJ 700 3
Total 147
22
ORGANIZATION STRUCTURE
Organization
Structure
Chairman & Managing
Chief Director
DirectorDirector
Director Director
Vigilan -Engineerin -
Finance -Personne -
Com ercial*
ce g l
Officer
ED ED ED –
-Engineering -Finance InflightServices
ED -Engine ED –Materials ED – HRD
Overhaul
ED- Mgmt.
ED –IT ED - Medical
Operations Services
ED -Com
ercial
ED -Public
Relations**
ED
-Security
ED -Ground
Services
ED -Northern
Region
ED –Internal
Audit
ED -Planning &
Intl’Relations
ED –Air
Safety
ED -Corporate
Affairs
ED -Properties &
Facilities
ED -Training**
*ED –Co-
9
* Yet to be ordination
Company
** Presently in charge in the
appointed Secretary
grade of GM.
23
Corporate Vision
Vision
¢ To be among top five Asian airlines in terms of Yield,
Profitability, Productivity, Size and Quality
Mission
¢ Focus on customer satisfaction
¢ Grow with emphasis on sustained profitability
¢ Provide exciting and satisfying work environment to retain and
24
Business Strategy
A Multi-pronged approach
Product Upgradation:
¢ Deploy modern aircraft with state-of-art passenger amenities
¢ Operate customer friendly schedules with increased network
connectivity
25
Product Upgradation
Other Benefits
¢ Better Aircraft utilization
¢ Lower Fuel Consumption
¢ Lower Maintenance Expenditure
26
Operations Improvement
27
– Ground Handling
– Information Technology
– Security
– Cargo
Technology Upgradation – IT Projects
¢ Revenue Management – PROS implemented
¢ Ticketing Time-Limit software implemented
¢ Direct connect with GDS’s
¢ Integrated computerization system for MMD
¢ Disposal of surplus/redundant inventory
¢ Implementation of Unit Load Device management system
¢ Disaster recovery site at remote location
¢ Air India Express IT Infrastructure
¢ Data Mart for CRS sales data
¢ Ramp Assistance Billing System for GSD/Finance
¢ Online Financial Information System (FINESS)
28
Network & Capacity Expansion
29
Strategic Relationships
30
Awards and Recognitions
‧ Air India was conferred the ‘Best West Bound Airline from India’
31
Amalgamation of Air India Limited and Indian Airlines
Limited with National Aviation Company of India Limited
Civil Aviation
キ Shri R K Singh, Jt Secretary, Ministry of Civil Aviation
キ Shri Rajiv Bansal, Director, Ministry of Civil Aviation
The Scheme of Amalgamation of Air India Limited and Indian Airlines
Limited with National Aviation Company of India Limited was approved by the
Board of Directors of all the three Companies.
32
Ministry of Corporate Affairs is
awaited.
The Authorized and Paid-Up Share Capital of the merged entity will be
Rs.1500,05,00,000/- and Rs.145,00,00,000/-,
respectively.
It has been decided that post merger, the new entity will be known as “Air
India” while “Maharaja” will be retained as its mascot. The logo of the new
airline will be a red coloured flying swan with the “Konark Chakra” in
orange placed inside it. The flying swan has been morphed from Air India’s
characteristic logo “The Centaur” whereas the “Konark Chakra” was
reminiscent of Indian’s logo. The Corporate Office of NACIL will be at
Mumbai.
33
MAJOR EXPENDITURE
Aviation fuel
is a specialized type of petroleum-based fuel used to power
aircraft. It is generally of a higher quality than fuels used in less critical
applications such as heating or road transport, and often contains additives to
reduce the risk of icing or explosion due to high temperatures, amongst other
properties.
Most aviation fuels available for aircraft are kinds of petroleum spirit used in
engines with spark plugs i.e. piston engines and Wankel rotaries or fuel for
jet turbine engines which is also used in diesel aircraft engines. Alcohol,
alcohol mixtures and other alternative fuels may be used experimentally but
are not generally available.
34
TYPE OF AVIATION TURBINE FUEL
35
Last few years have once again clearly highlighted the highly cyclical nature
of the Aviation industry worldwide. ATF consumption has roughly doubled
from 2002 to 2007
given freedom to price ATF based on input costs and world market prices.
Thereafter ATF prices in India have fluctuated widely depending on
movements in world prices.
36
Monopoly of PSU Oil companies
:
A major reason for high price even after deregulation of ATF price, is the
monopoly of the 3 state owned Oil companies. Because of limited number of
suppliers there has hardly been any effective choice for the airline industry,
with the 3 state owned oil companies fixing the ATF price on a mutually
agreed common formula between
them.
The government has granted marketing rights to some companies in the oil
sector like Reliance, Essar , ONGC etc. None of these companies however,
could start supply of ATF as they were not allotted space by the Airport
Authority. Recently Reliance has been allotted land at 25 airports in India;
and is moving towards setting up Aviation Fuelling stations at some of these
airports.
It is hoped that the resultant competition will bring about a reduction in the
unreasonable ATF price levels prevalent in India.
37
contingencies on the Refinery Transfer Price after the addition of the
import parity add-on.
The add-on varies between the various cities.
On this, the Central Government levies an Excise Duty of 8%.
On the resultant price, the various State Government levy local Sales
Taxes ranging from 4% to 39%: which on an average works out to
25% countrywide.
The Government levies thus works out to an add-on of 35%.
A
T Refined
ATF
F
ATF Price to
airlines
38
Thus, Domestic carriers in India pay nearly double the prices vis-à-
vis elsewhere in the world.
ATF Expenses: Constitute around 40% of the total operating costs for
domestic Indian carriers.
14000
12000
10000
Delhi
8000 Mumbai
Kolkata
Chennai
6000 Bangalor
) L K( yti t na u Q
e
Hyderab
ad
4000
2000
0
April June
2007-2008 Aug
Oct
Dec
Feb
Months
39
The three Governments owned oil companies viz. Indian Oil
40
Policy makers and aviation specialists have recognized the distortions
41
60000
50000
40000
Duty Paid
30000
Bonded
20000
10000
0
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
02 03 04 05 06 07 08 09
42
Movement of ATF in last 2 years
43
ATF RATES D UR IN G 2007-08 & 2008-09
8000 0
7000 0
6000 0
5000 0
4000 0
l K/ s R
3000 0
2000 0
1000 0
0
MONTHS
2 0 0 8 - 2 0 0 9 D u t y P a id 20 0 8 - 2 0 0 9 B o n d e d
2 0 0 8 - 2 0 0 9 F o r e ig n 2 0 0 7 - 2 0 0 8 D ut y P a id
2 0 0 7 -2 0 0 8 Bo nd e d 20 0 7 - 2 0 0 8 F o r e i g n
44
high then the last year price of Rs 26700 per KL. But as the year move
further the ATF price of year 2008 start decreasing and in the month of the
December 2008 the ATF price is much lowers then the last year ATF prices.
In December 2008 the domestic ATF prices is 35300 which is almost 41%
lower then the last year price of Rs 49750 per KL and the bonded ATF price
is 30750 which is almost 28% lower then the last year price of Rs 39350 per
KL and the international fuel price is Rs 24800 per KL in December 2008
which is almost 34% lower then the last year fuel price i.e. Rs 33250 per KL.
Indian carriers bought ATF at Rs 37,800 / kl in April 07, while
international carriers paid only Rs 21,800 / kl in Singapore, which is about
73% higher
29%
- Kerala
- 45
29.0375%
- Madhya Pradesh - 28.75%
- Lowest
- Port Blair - Nil
The ATF prices in India are substantially higher than its price in
international markets.
46
Average ATF prices in India (As on 1st May’ 2009)
(Rs./Kl)
Domestic flights
34400
International flights (Ex-India)
24500
ATF prices in international market 20500
As would be seen from above, the ATF price in India is Rs. 34400 per
Kilolitre i.e. about 68% higher compared to international price of
Rs.20500 per kilolitre. Even the bonded ATF price in India is Rs. 24500
per Kilolitre i.e. about 20% higher compared to international ATF price.
Despite, deregulation of ATF price since, 1st April, 2002, there has been
no major reduction in ATF price as PSU oil companies continue to enjoy
47
virtual monopoly for ATF supply in India. There is almost cartelization
amongst PSU oil companies whereby they fix common ATF price as per
The fuel cost of NACIL including Alliance Air has gone up
manifold over the years as indicated below:
Year
(Rs.Crores) 1999-00
48
From above, it would be seen that ATF cost for the combined
network of NACIL has already gone up for the current year i.e. 2009-10
by Rs. 572 cr. over and above the budgeted cost.
‘Declared Goods’ under Central Sales Tax Act since 2001 and the same
was extended to cover all small aircrafts with maximum take off
mass of less than 40000 Kgs in 2007.
- Some State Governments have reservations about loss of
49
- ATF for domestic flights be made available at the same rate
(i.e. bonded price) as applicable for international flights.
- There is a need to fix ATF price by PSU Oil companies in a
transparent competitive manner
50
Fuel Prices and Lack of Efficiencies Causing Airlines’ Losses
The sharp increase in crude oil prices in the first half of 2008 has led to a
corresponding rise in the price of aviation turbine fuel (ATF) for all airline
companies, due to which they are expected to post heavy losses. Fuel cost as
a percentage of total operating costs has increased by 300-600 basis points.
51
STAFF COST:
A staff cost constitutes nearly 20% of Air India's total cost. Currently, the
carrier runs an annual wage bill of over Rs.3,000 crore. AI is also looking at
improving productivity of employees, elimination of restrictive work
practices and reducing wasteful expenditure. The national carrier has around
31,000 employees. The airline was now targeting a reduction in employee
cost to the tune of Rs 500 crore per annum.
The following efforts were made to reduce the staff cost:
- Freezing of external recruitment in non-operational categories;
- Freezing of vacancies and abolition 781 vacant posts;
52
RATIO ANALYSIS
(As balance sheet available of year 2005-06)
Short Term Solvency Ratio
INDIA to issue the ticket only on cash basis has helped AIR INDIA in
maintaining this ratio.
mainly because of the cash transactions which AIR INDIA does. The quick
ratio is more conservative than the current ratio, a more well-known
liquidity measure, because it excludes inventory from current assets.
53
Working Capital Ratio=0.08
Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the
value of fixed assets (on the balance sheet). It indicates how well the business
is using its fixed assets to generate sales. Generally speaking, the higher the
ratio, the better, because a high ratio indicates the business has less money
tied up in fixed assets for each rupees of sales revenue. A declining
ratio may indicate that the business is over-invested in fixed assets. However,
financial analysts claim that such a ratio is inconclusive: companies do
not generally cite or reference these figures. The fixed assed turnover ratio of
AIR INDIA has been on the lower side. That means it shows that the
company has been not effective in using the investment in fixed assets to
generate revenue. There is no exact number that determines whether a
company is doing a good job of generating revenue from its investment in
fixed assets. This makes it important to compare the most recent ratio to both
the historical levels of the company along with peer
54
company and/or industry averages. But due to lack of availability of data this
could not be done.
Operating Ratio=104.52%
55
Operating profit & expenditure analysis
(in
crores)
Operating Operating Operating
Years revenue expenses profit
2006 8439 9870 -1431
2005 8833 9233 -400
2004 7588 7538 50
2003 6146 6113 33
2002 5275 5465 -190
2001 4751 4805 -54
2000 4927 4924 3
1999 4448 4372 76
1998 4135 4139 -4
1997 3837 4029 -192
1996 3533 3945 -412
56
1200
100
800
600 Opeating
revenue
400 Operating
expenses
200 Operating
profit
0
206205204203202 201200199198197196
-200
The Gross Profit Ratio of AIR INDIA has been just 1.06, mainly because of
the fewer profit margins. The only way it can improve its GP Ratio is by
increasing its trading margin, or by decreasing its cost of expenditure.
Incase of AIR INDIA increasing of trading margin is not possible because
of the severe competition they face. Hence they should try to reduce there
cost of Expenses.
57
to finance increased operations (high debt to equity), the company could
potentially generate more earnings than it would have without this outside
financing. If this were to increase earnings by a greater amount than the debt
cost (interest), then the shareholders benefit as more earnings are being
spread among the same amount of shareholders. However, the cost of this
debt financing may outweigh the return that the company generates on the
debt through investment and business activities and become too much for the
company to handle. This can lead to bankruptcy, which would leave
shareholders with nothing.
A statistical unit in the airline industry; one fare-paying passenger carried one
mile. A revenue passenger kilometre (RPK) is a measure of the volume of
passengers carried by an airline. A revenue passenger-kilometre is flown
when a revenue passenger is carried one kilometre. A passenger for whose
transportation an air carrier receives commercial remuneration is called a
revenue passenger. This excludes passengers travelling under fares available
only to airline employees and babies and children who do not have a seat of
their own. The RPK of an airline is the sum of the products obtained by
multiplying the number of revenue passengers carried on each flight stage by
the stage distance - it is the total number of kilometres travelled by all
passengers.
58
Revenue passenger
carried
5000000
4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
0
500000 1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006-
98 99 00 01 02 03 04 05 06 07
Revenue passenger
carried
The passenger load factor (PLF) of an airline, sometimes simply called the
load factor, is a measure of how much of an airline's passenger carrying
capacity is used. It is passenger-kilometres flown as a percentage of seat-
kilometres available. This is a measure of capacity utilisation. As airlines
frequently have heavy fixed costs and are capital intensive, the efficiency
with which assets are used is crucially important.
This is an important efficiency measure, but it does not consider the pricing
and the profitability at which the capacity is sold. It also implicitly assumes
that the airline's fleet is fully utilised in terms of the number of kilometres
flown.
59
Passenger load
factor
74
72
70
68
66 Passenger load
64 factor
62
60
58
1997- 1999- 2001- 2003- 2005-
1998-
98 99 2000-
00 01 2002-
02 03 2004-
04 05 2006-
06 07
60
SWOT ANALYSIS OF AIR INDIA
Air India is the leading airlines in the India. Air India is based on
domestic enplaned passengers and scheduled domestic departures. Air
India has shown a strong performance in revenues in 2008. Strong
operating performance lends financial stability to the company which
could be leveraged to seek more growth avenues of growth in future.
However, the rising prices of aviation turbine fuel could adversely affect
Air India operating margins.
Strengths
Operational performance
Air India registered a strong operational performance for fiscal 2008-09.
61
Market leadership
Air India is the leading airlines in the India. The airline has been ranked
the top in India’s domestic airline (in terms of number of passengers) by
the bureau of transportation statistics (BTS) in 2005. Air India newly
orders about 68 from Boeing and 43 from Airbus. Air India dominates
the markets it serves, ranking first in market share in India. Its strong
market position is driven not just by consistent delivery of low fares but
also due to reliable service, frequent and convenient flights, comfortable
cabins, in-flight experience, frequent flyer programs, hassle-free airports,
and friendly customer service. Strong market position gives the company
the advantage of scale and helps it in strengthening its brand image.
Weaknesses
Passenger revenues accounted for major part of the Air India total
revenue. Cargo services allow airlines to generate additional revenues
from existing passenger flights. In addition, cargo revenues are usually
counter-cyclical to passenger revenues and have lower demand elasticity
than passenger business, which allows airlines to pass on fuel price hikes
to customers. Small cargo business exposes Air India to the demand
fluctuations in passenger business.
62
Lower load factor
Though the overall operating performance has been steady, Air India
passenger load factor of 63.2%, which was the company’s record, lags
the industry average of 75% in 2006-07.The load factor difference is
even greater when compared to other low fares carriers such as Air
Deccan. The company’s load factor is decreasing year by year, in 2005-
06 load factor is 66.2% which is more than present load factor. Air India
load factor is likely to be low because of the much higher frequency
operated on each route. Lower load factor could decrease the company’s
margins.
Opportunities
63
Growth in freight business
The Indian economy is one of the fastest growing in the world, but the
boom is not without its stops, starts, and bottlenecks, all of which also
make themselves felt in the country’s freight transport sector. Air India
had also launched a major cargo incentive scheme for cargo agents of Air
India and erstwhile Indian on the entire network. The scheme, which
generated enormous response, entitled top producing agents of each
region to become eligible for an all-inclusive incentive trip on Star
Cruise.
The demand for air travel to the Asia Pacific is rising driven by increased
economic activity in emerging Asian countries such as China and India.
Traffic is projected to grow at 7% in China and India combined, above the
world average of 5%. Further, the share of Asia Pacific region in world
passenger traffic (revenue passenger kilometers) is forecast to rise from
25% in 2003 to 31% in 2023. Against this backdrop, Air India is
64
well positioned to benefit with its increasing emphasis on Asia-Pacific
operations.
Threats
The price of aviation turbine fuel (ATF) has soared to record highs in the
past few years and continues to hold at that level. Last few years have
once again clearly highlighted the highly cyclical nature of the Aviation
industry worldwide. ATF consumption has roughly doubled from 2002 to
2007 The ATF prices in India are substantially higher than its
price in international markets. Aircraft fuel is a major contributor to Air
India operating expenses.
65
High interest rates
The past few years have seen Central Banks impose higher interest rates
to check inflation and the over heating of regional economies. The
Reserve Bank of India has led the way raising interest rates. Inflation
fears in the India may see another raise in the short-term.
66
GDP real Growth
Rate
12.00%
10.00%
8.00%
2.00%
0.00%
2003 2004
2005 2006
2007 2008
Intensifying competition
AIR INDIA is now competing against more credible low cost carriers
such as Spice jet, Go air, Indigo Airline, and Jetlite etc. Indigo Airlines
remains Air India strongest competitor because of its competitive cost
structure, strong brand name and ambitious growth plans over the next
seven years. Air India also faces increased competition from Air Deccan
low-fares subsidiary, Song. Moreover, major legacy airlines have been
focusing on restructuring costs, which has improved their
competitiveness. With costs restructured, the legacy airlines are
becoming more formidable competitors in terms of increasing capacity,
matching prices and leveraging their frequent flier programs. Increasing
competition could adversely affect the company’s margins.
67
SWOT Analysis of Aviation Industry
Strengths
Liberal Environment
: India's airlines operate in a liberal environment in
both the domestic and international spheres. With three major airline
groups and four smaller carriers all operating domestic routes, there is no
shortage of competition, although this factor combined with excess
capacity has tended to depress yields. Nevertheless, carriers are free to
operate any domestic routes without seeking permission from the
government, and without restriction on pricing. One condition that
airlines find onerous however, is the requirement to operate a proportion
of ASKs to remote and underdeveloped regions of the country.
68
relatively young and modern fleet, ensuring a high quality passenger
experience, improved safety and good operational reliability.
High Quality
: India's airlines offer a good quality product in each of the
operating models in existence. Jet Airways and Kingfisher Airlines are
competitive in terms of their in-flight service against the leading carriers
in the world. Kingfisher for example is one just half a dozen global
carriers such as Singapore Airlines and Cathay Pacific, with a Skytrax 5
star rating. In fact it could be argued that the full service product on
domestic routes is excessive for the sector lengths involved and results in
a higher cost structure, which the passenger does not necessarily see
value in paying for. The LCC’s too, by and large, offer a comfortable,
efficient and reliable service. Until a couple of years ago, Air Deccan was
one carrier that had developed a reputation for poor on-time
performance, flight cancellations and overbooking, however since being
acquired by Kingfisher, most of these operational issues appear to have
been resolved.
Economic Growth
: Economic growth has historically been the primary
driver of air traffic, and the relationship has generally been even stronger
in developing countries. Between 2004 and 2007, India enjoyed four
years averaging 9% per annum GDP growth. This slowed to 6.5% in 2008,
however against the background of a global economic recession, this was
a creditable performance. The increased business confidence following
the general election result in May 2009 has eased concerns that growth
may slow further. The stock market has soared 25% in the last
69
month and the outlook for growth and consumption has improved, which
is a positive for the aviation industry.
Political Stability
: The re-election of the Congress Party, with a stronger
majority is expected to allow the new administration to push ahead with
further economic reforms, which had to date been blocked by coalition
partners. The prospect of a government which has the ability to last its full
term and pursue its agenda is extremely encouraging. In addition, Minister
Praful Patel, who was the architect of the dramatic transformation of
the aviation sector, has retained the portfolio, which brings experience and
stability to the aviation industry.
Weaknesses
Airport Infrastructure
: The rapid growth in air traffic over the last few
years exposed the deficiencies of airport infrastructure across the country.
After decades of neglect, many of India's airports were forced to operate
well above design capacity. The resulting congestion in the terminals and
on the runways delivered a poor experience for the passenger and a
costly, inefficient operating environment for the airlines. However,
although a weakness today, it is also fair to say that it is becoming less so,
as the airport modernisation program starts to deliver results, with new
airports in Bangalore and Hyderabad, and improving facilities at Delhi
and Mumbai. The upgrade of non-metro airports remains behind schedule
so it may be another 3-4 years before we see good quality facilities
across the country, but there are tangible signs of improvement.
70
Airways Infrastructure
: Although congestion on the ground is
relatively visible, another current area of weakness is the limited
investment that has taken place in improving infrastructure for air traffic
management. This too results in expensive aircraft holding patterns,
indirect flight paths and sub-optimal use of runways.
National Carrier
: The state-owned carrier, Air India, is in a dire
situation. The carrier is estimated to have posted losses of close to USD1
billion in 2008/09, and morale within the bloated workforce is at a low.
With no clear direction, management instability at the top and continuing
issues with the integration of Air India and Indian Airlines, the carrier is
in need of radical restructuring. It is imperative that the government
develops a turnaround strategy for Air India as an urgent priority.
Deep Pockets
: Over the last three years, India's carriers have
accumulated billions of dollars in losses and debt. Ironically, a
characteristic that would normally be considered a strength - namely deep
pockets - has resulted in carriers remaining afloat that would perhaps in
other circumstances have failed. With the backing of either the
government or large corporations, several carriers have been able to
access funding that they might have been denied on a strictly commercial
basis as standalone airlines. As a result of the intense competition which
has been perpetuated, airlines have struggled to raise fares to break even
levels.
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High Cost Structure
: India's airlines operate in a relatively high cost
environment, primarily due to the punitive taxation structure. The
greatest impact is felt in the area of sales taxation on fuel, which can
increase the cost to 60% above the international benchmark. The
limitations of airport infrastructure also increase costs due to the fact that
carriers are unable to schedule fast turnarounds, resulting in reduced
aircraft utilisation. In addition, the fact that high quality ancillary services
such as MRO and training are not currently available in India, means that
aircraft and personnel have to be sent overseas.
Skilled Resources
: Domestic air traffic in India tripled in the five years
to 2008, while international passengers doubled. This rate of growth far
outstripped the capacity to develop skilled technical and management
personnel. The gap was partly addressed by employing expatriates,
particularly as pilots, and by learning on the fly. This means there is a lack
of in-depth experience and knowledge at all levels. Furthermore, there is
an absence of high quality training infrastructure in-country to deliver the
resources to support future growth. This lack of personnel affects the
government as well and the FAA has expressed its concern at the shortage
of qualified safety inspectors within the Directorate General of Civil
Aviation (DGCA). India has been put on notice that unless this issue is
addressed, it may be relegated to a Category II nation, which would mean
that Indian carriers would not be permitted to increase services to the
US.
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Opportunities
Market Growth
: Despite the rapid expansion of recent years, India has
only just scratched the surface of the potential for the aviation sector.
Trips per capita remain low even by the standards of other developing
countries. China's domestic market is more than four times the size of
India's 40 million passengers. Even, Australia, a country with a
population of just 21 million, compared with India's 1.1 billion, has a
market 25% larger. Similarly on the international front, less than 1% of
Indians travel overseas each year. Inbound visitor nunbers at 5.4 million in
2008 for the entire country, were less than for Dubai or Singapore. It is not
difficult to see the expansion potential from such a low base as
economic growth continues apace.
Geographic Location
: India is ideally positioned as a major aviation hub
at the crossroads between Europe, the Middle East and Asia Pacific. The
fact that aviation was a neglected sector for so long has allowed airports
such as Dubai and Singapore to effectively establish themselves as
offshore hubs for Indian passengers, and they now have a significant head
start. However, as India's airports improve, and its airlines receive
international awards for their service, there may be an opportunity to
leverage its huge home market to compete with these longer established
hubs.
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improvements in airport and airspace infrastructure, the development of
indigenous training and maintenance facilities and the potential for fiscal
reform, all point to the potential for Indian aviation to increasingly
operate in a lower cost, higher quality and more efficient manner. This
could in due course lead to an opportunity for India to develop as a global
outsourcing hub in areas such as aerospace manufacturing, MRO and
training.
Threats
Terrorism
:country
India has
hasseen frequent
shown terrorist activity
great resilience in recent
in bouncing backyears.
afterThe
each attack;
however inbound international traffic in particular is sensitive to such
events. Similarly the potential for India to develop as a global traffic and
services hub is contingent upon it being seen as a safe and attractive
destination.
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DISCUSSION
However, it was made abundantly clear to NACIL that any financial help
from the government will come, if and only if, NACIL is able to
convince it about two things ― it has a plan, and more importantly, that
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it can implement it. Also, any assistance from the government would have
to be matched by an aggressive cost reduction, including a drastic cut on
salaries, and a better revenue management by NACIL and that it must
come up with a concrete cost reduction proposal.
The idea is to save money on lease dole outs and, instead, use that for
paying for the new planes that would also be very fuel efficient unlike the
old rented ATF guzzlers. But getting the companies to take the planes back
is going to be a huge challenge. A leased Boeing 777, for instance, has a
monthly rental of $9 lakhs. The airline also told the panel that it needed
new aircraft to phase out the old ones in its fleet in order to compete.
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Other remedial costs measures taken to improve operating results include:- -
Focus on cost reduction and rationalization of costs in major areas of
Company's functioning;
- closing down uneconomical offices and the down sizing of foreign offices;
- More economical hotel accommodation for operating and Cabin crew;
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BIBLOGRPHY
www.airindia.co.in
www.wikipedia.org
http://search.ebscohost.com
Business India
Economics Times
I M Pandey
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