airlines industry

Industry Research Update

FRPT Research 1

Indian Aviation Industry - Update

Introduction

Indias aviation sector is enjoying a steady growth. Passenger output rose to 144

million in FY 2011 from 73 million in FY 2006, as per a joint study by FICCIKPMG

(2012). This positive growth path can be attributed to the 11th Five-Year Plan

(20072012). This period witnessed the completion of four international airport

projects through the publicprivate partnership (PPP) mode; it was also during this

period that five Indian carriers began to function on international routes.

Air transport in India today supports 56.6 million jobs and produces over US$ 2.2

trillion of the global gross domestic product (GDP). Air passenger traffic is also

increasing at a healthy rate, a development driven by modern facilities and

infrastructure.

The Centre had set aside an investment of US$ 12.1 billion in the airports sector

during the 12th Five-Year Plan period, of which US$ 9.3 billion is projected to come

from Indias private sector for construction of new and low-cost airports and

development of existing ones.

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Market Size

India would be the third largest aviation market by 2020, as per Mr Ajit Singh,

Minister for Civil Aviation, Government of India.

Passenger throughput increased to 159 million and cargo to 2.19 million metric

tonnes (MMT) in FY 2013, a compound annual growth rate (CAGR) of 13 per cent

and 10 per cent respectively over the period FY 20032013, as per data from the

Airports Authority of India (AAI).

The Indian civil aviation industry is among the top 10 globally with a size of around

US$ 16 billion, as per a KPMG report.




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Investments

The foreign direct investment (FDI) inflows in air transport (including air freight)

during April 2000 to March 2014 stood at US$ 495.24 million, as per data released

by Department of Industrial Policy and Promotion (DIPP).

The following are some of the major investments and developments in the Indian

aviation sector:

Tata-Singapore Airlines plans to launch its services in India from September

2014, with 87 weekly flights in its first year of operations, as stated in the

airlines application for an air operators permit to the Directorate General of

Civil Aviation (DGCA). These flights will link Delhi with Ahmedabad,

Bangalore, Chandigarh, Goa, Hyderabad, Jammu, Mumbai, Patna, and

Srinagar.

Bengaluru-based GMR Infrastructure has won a contract to upgrade Mactan-

Cebu international airport in the Philippines. GMR Infra and its partner,

Philippine firm Megawide Construction will make an upfront concession

payment of US$ 325 million and invest US$ 375 million over the next five

years to build a new terminal and upgrade the current one.

The DGCA granted an air operators permit (AOP) to AirAsia on May 7, 2014,

opening the path for the airline company to launch low-cost services in India.




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AirAsia India will launch services with three Airbus A320 aircraft, from its

Chennai hub.

Trichy in Tamil Nadu has, over the past few years, become the fastest

growing international airport in India. International passenger traffic in the

town increased 382 per cent to 773,423 between 200607 and 201213.

This year, it is expected to become the 10th biggest international airport in

the country.

Low-cost airline SpiceJet is changing its network strategy in order to be more

cost effective and have better yields. The airline signed a US$ 4.4-billion deal

in March 2014, for 42 fuel-efficient Boeing 737 Max planes which would be

delivered from 2018 onwards.




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Government Initiatives

Indias Ministry of Civil Aviation revised the bilateral air traffic entitlements with

Dubai in February 2014, permitting them a 20 per cent increase in seats to India.

We have allocated Dubai 11,000 seats in three phases till the summer schedule of

2015. Dubai has agreed to grant change-of-gauge facility for Indian carriers at the

existing airport, as per a senior official of the Ministry.

The Ministry has also signed a Memorandum of Understanding (MoU) with AAI for

FY 201415, which lists targets to be achieved by AAI on some key performance

areas during the fiscal. The main features of the MoU include parameters such as

risk management, implementation of Enterprise Resource Planning (ERP) tools and

development of disaster management plan.

Delhi Airport will soon become a zero-diversionary airport. The Committee set up

by the DGCA to look into the matter, has presented its report with 27

recommendations. There were 57, 89 and 143 diversions in 2011, 2012 and 2013,

respectively. Chances of diversions of flights at Delhi Airport are expected to come

down drastically after the recommendations have been implemented.




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Future Outlook

The aviation industrys potential in India is massive. The market already caters to

about 150 million passengers passing through its many airports, with the potential

to grow further. By 2020, traffic at airports in India is anticipated to reach 450

million. The aviation industry presently supports about 0.5 per cent of the Indias

GDP.

A KPMG report notes that the industry will continue to grow in India on the back of

the performance of regional airports. Currently, there are about 450 used/un-

used/abandoned airports and airstrips spread across India. Many Indian states,

particularly in Eastern India, have begun taking steps to promote air connectivity.

Still, more needs to be done. Today, many Tier II and Tier III cities are unconnected.

The proposed Essential Air Services Fund (EASF) by the Ministry of Civil Aviation

needs to be established as quickly as possible. All this will have a multiplier effect

with regards to higher growth of tourism, employment and local economic activities

in the country.




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Disclaimer

The contents (Information, material, suggestions) have been provided for general information. The information and opinions contained in the document have been compiled from publicly available data or sources believed to be reliable. If the said content contains any mistakes, omissions, inaccuracies and typographical errors, etc. FRPT Research assumes no responsibility thereof. The company does not warrant the totality and absolute accuracy, adequacy or completeness of this information and materials and expressly disclaims any liability for errors or omissions in this information and materials herein.

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