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REFORMS IN AVIATION SECTOR
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Presentation Summary
1. Industry Overview
2. History
3. Major players
4. Effects on Indian Economy5. Government Initiatives
6. FDI in Aviation
7. Reforms in Aviation
8. Analysis and Interpretation of Findings
9. Future Scope
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INDUSTRY OVERVIEW
India is Worlds 9th largest market
Comprises of Domestic Airline, Air Cargo and Airports.
Scheduled services available from to/fro 82 airports
Bilateral with 104 countries.
Worlds 4th Domestic air passenger.
Enhanced connectivity 72 foreign airlines of 49 countries.
14 scheduled airlines operating exclusively in passenger
sector.
Presently it contributes 0.5 % of GDP and it is expected that
by 2030 it will contribute 5 % of GDP
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HISTORY
The history of civil aviation in India started with its first commercialflight on February 18, 1911.
It was a journey from Allahabad to Naini made by a French pilotcovering a distance of about 10 km.
Since then efforts were on to improve the health of India's CivilAviation Industry.
The aviation industry in India gathered momentum after three yearswith the opening of a regular airmail service between Karachi and
Madras by the first Indian airline, Tata Sons Ltd.
However this service failed to receive any backing from the Indiangovernment.
In 1932, J.R.D. Tata founded Tata Airline, the first Indian airline.
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PRE1993
The two government airlines Air India andIndian Airlines were the only Indian carriers.Both carriers operated with relatively old
aircraft and inefficient work practices, fromairports which were functional at best.
There was no focus on developing traffic andthe market grew at uninspiring single digitrates.
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19931995
Deregulation of Aviation Sector .
Govt. protecting state-owned carriers. Only JetAirways and Air Sahara survived beyond the
initial couple of years.
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19952003
After the failure of the deregulation
experiment, the industry fell into dormancy.
No new carriers entered the market and Air
India and Indian Airlines continued to bestarved of capital. Despite the fact that the
broader economy performed well during this
period, aviation continued to show limitedgrowth.
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20032006
Arrival of Ministers of Civil Aviation recognised theimportance of aviation for the development ofbusiness, trade and tourism.
Domestic open skies policy which saw market entry by
several carriers. The arrival of the low cost airline model in India with
the launch of Air Deccan, and subsequently SpiceJet,IndiGo and Go Air
Placement of orders for 111 new aircraft for Air Indiaand Indian Airlines.
Increased foreign direct investment caps in certainsectors of the industry.
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Traffic ( in millions)
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20062007
During this period,
traffic continued to accelerate further, to levelsapproaching 40% in 2007.
Costs were increasing because of the poor state of
airport infrastructure and a shortage of human resources. There was a mismatch between supply and demand, the
rate of growth was simply too great for the industry tohandle from a management and capital perspective.
In a period of global boom, demand for skilled personnelsuch as pilots and engineers also outstripped supply,leading to a sharp escalation in wages.
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20082009
Oil reached close to US$150/barrel.
As costs spiraled upwards, carriers were
forced to raise fares, and with a simultaneous
slowdown in the Indian economy, there was
resulting decline in traffic of around 1012%
yearonyear.
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200910
Indias GDP growth slowed from over 9% in
2007/08 to 6.1% in 2008/09. However, given
the contraction globally, this was a relatively a
good result. The economy recovered earlierthan expected, with GDP growth of 7.9% in
the last quarter, ahead of expectations.
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Year over Year (YoY) growth of Domestic Passengers
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2010 ONWARDS:
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Major Players (Market Share)
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MAJOR Reforms
Major liberalization reforms in 1991
Independent aviation regulator appointed
Bilateral and multi-lateral agreements at
government level
Modernization of airports
Setting up of privatized and Greenfield airorts
100% FDI in existing airports
49% in domestic airlines under domestic route
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Effects on INDIAN Economy
10 years back there were just 2 airlines. Both state owned .But In the last 10years the economy has opened up.
India has experienced growth rate of8% per year. The mainfactors which effect the Indian Economy are:- 1. Increased no.of domestic airlines 2. Low cost airlines 3. India's improving
economy
The other factors are:-
Increased in number of business travellers to differentcountries,
Increased number of incoming tourist and businessenterprises
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PASSENGER FLOW
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GOVERNMENT INITIATIVES
Merger of AI and Indian Airlines to optimizefleet acquisition and to leverage the assetbase.
100% FDI is permissible for existing airports;approval required for FDI beyond 74%
100% FDI under automatic route is
permissible for Greenfield airports. 100% tax exemption for airport projects for a
period of 10 years.
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INITIATIVES CONTD.
Foreign carriers allowed to make strategic
investments (up to 49% stake) in Indian Carriers
While the domestic airlines have not been able to
attract foreign investors, foreign airlines may beinterested in taking strategic stakes due to their
deeper business understanding, longer
investment horizons and overall longer termcommitment towards the global aviation
industry.
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Modernization of Airports
(AAI) is undertaking the development andmodernization of all 35 non-metro airports in thecountry
Two green-field airports at Bangalore andHyderabad are being developed under PPPformat.
With the developments in aviation infrastructure,
we may also see some airports making moneynot purely on passenger traffic, but also bymeans of cargo, logistics, SEZs and real estateprojects being developed adjacent to airports
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LCC OPERATIONS IN INDIA
India's first low-cost airline, Air Deccan startedservice on August 25, 2003.
Success of Air Deccan has spurred the entry of
more than a dozen low-cost airlines in India.Air Deccan now faces stiff competition fromother low-cost Indian carriers such as Jetlite,SpiceJet, GoAir and Paramount Airways.
Within 8 years of operations in India, LCCshave taken the domestic market share of 49%
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FACTORS FOR LCC SUCCESS
Low Entry barrier
Attraction of Foreign Shores
Increased permitted Foreign Equity
Rising income levels and demographic profile,
have contributed significantly to the
unprecedented growth ofLCCs in India.
M j Ti li
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Major Timelines1912: Indian
State Airservice and
ImperialAirways, UKcollaborate
to ply on firstdomestic
route,betweenDelhi and
Karachi.
1915:Tata Sons
startairmailservice
betweenDelhi andMadras.
1932:Tata
Aviationsestablish
ed. Itgoes to
Colombo
in 1938.
1948:Designated
asflagcarrier
under thename Air
IndiaInternational with 49%
govt.
control.
1953: IndianAirlines
Corporation
formedthrough AirCorporationAct, 1953, bynationalizingAir India and
IndianNational
Airways.
1994: AirCorporatio
n Act. 1953repealedand thusallowedprivate
players tocome.
2003Entry oflow costcarriers.
AirDeccan,
Spice Jet,Go Air,
Indigo.
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Analysis and Interpretation of Findings
The current condition of the Indian aviation industry can be
attributed to a number of factors:
Rising Fuel Prices
Congestion
High Airport Charges
Lack of skilled manpower
Land Acquisition
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Rising Fuel Prices
Aviation Turbine Fuel (ATF) prices in India are higher than the international market.
The ATF price accounts for nearly 45% of the operational expenses.
A 10% increase in fuel price would push up costs by at least 4%,
In India there is no direct import of ATF and the ATF supplied by the Indian oil companies is from
imported crude refined by them.
The various taxes imposed on procurement of ATF include:
An import duty of 20%
An add on of 16-49% towards marketing margin and contingencies on the refinery transfer
price
An excise duty of 8% levied by the central government.
A local sales tax ranging from 4% to 39% levied by the various state governments which on
an average works out to be around 25% countrywide.
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Reforms
Reduce the excise duty to 4%
Remove the disparity in the state levied taxes. This can also be done by putting ATF
under Declared Goods category
Allowing airlines to import ATF may help in reducing the cost by almost 25% than
what the airlines are paying to the oil companies. Airlines however will have to
consider the logistics of importing fuel, including warehousing.
Investigate and report on how reductions in state level ATF taxes can lead to state
governments reaping economic benefits of local job creation within the sector,
growth of businesses associated with the sector, as well as economic development
resulting in more business and leisure traffic to the State.
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Congestion
Congestion leads to a huge wastage of fuel.
It is estimated that if a flight hovers in the sky for an additional half an
hour due to delay in allocation of landing slot, it can consume between 25
to 30 per cent extra fuel thereby increasing the operational cost of theairline by over Rs. 50,000 /-
Assuming 40 flights operating in a day from Delhi to Mumbai with an
average circling time of 30 minutes the loss amounts to Rs 40 lakhs
The congestion also affects the turn around time of the aircraft and
reduces the average aircraft utilization.
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Reforms
The airports which have been closed on account of development of
new airports in various cities may be used for other facilities like
MRO, aircraft parking and air taxi services.
These airports can be mainly used for short routes and mainly for
the LCC aircrafts.
Deployment of latest technology for air traffic management to
reduce congestion, rapid exit taxiways, keeping the size of airport
and aircraft fleets in proportion to avoid further congestion
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High Airport Charges:
The airport charges payable at the International airports are higher
than those payable at the airports designated asDomestic airports
for domestic flights.
As a consequence, the domestic airlines in India are incurring
additional costs at the international designated airports without
enjoying or utilizing any additional facilities.
In addition, the airport charges levied by the Indian airports are
stated to be amongst the highest amongst the Asian and the Gulf
countries.
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Reforms
Setting of airport charges with reference to the net costs of running the
airport, taking into account other revenues arising at the airport, loosely
called non aeronautical revenues
Providing access to the carriers to a Route Development Fund by providing
incentives to carriers to initiate new routes in the form of package
discounts on airport charges and marketing support.
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Lack of skilled manpower
There is a shortfall in the skilled manpower available in the country, to
occupy the jobs which are available across the Aviation spectrum pilots,
engineers, technicians, cabin crew, flight dispatchers, customer services,
sales, marketing, HR, finance, IT, cargo and security.
Similarly the demand for Aircraft Maintenance Engineers and Air Traffic
Controllers would rise with the increasing number of flights and the new
airports
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Reforms
DGCA on its part has undertaken certain measures to facilitate availability of more Chief
Flight Instructors (CFI), Flight Instructor In-charge (FII) by redefining eligibility criteria and also
by obtaining Qualified Flight Instructors from Defence.
A Civil Aviation Requirement (CAR) has also been issued, which permits pilots holding Flight
Instructors Rating to impart training up to the age of 65 years.
The government is setting up various training institutes and has started upgradation and
modernization of infrastructure at the India Gandhi Rashtriya Udaan Akademi to enhance its
training capacity from 40 to 100 pilots and reduce the training period.
The dearth of flight instructors is largely due to the relatively low paying nature of the job. To
retain Flying Instructors at these flying schools, compensation and other benefi ts need to
improve.
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Land Acquisition
Of late, a number of large projects are facing extreme opposition from
landowners and the cumbersomeness of the land acquisition process has
recently come to significant highlight.
It has been observed that the lack of coordination between administrative
departments of the state and central government agencies is the major
cause of delay for the infrastructure projects.
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Reforms
The land would preferably be acquired in advance by the government
before the contract is awarded to the concessionaire
Project implementing authorities must commence the land acquisition
process at the planning stage of the project rather than at the
implementation stage.
The government has recently come up with the National Rehabilitation
and Resettlement policy to address the interest of the land owners andothers affected by land acquisition. The policy stresses on minimising
displacement, land for land, making land owners stakeholders and a job
per family of Project Affected People (PAP).
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FUTURE SCOPE
The boom in the aviation sector is likely to generate nearly 3 lakh jobs by the year 2013.
The study says that the civil aviation sector is also set to become a Rs. 35,000-crore
industry by the same time.
Scheduled Aircraft - The total aircraft fleet is likely to reach 1000 by 2020,including
replacement of the current fleet of 312 aircraft, with an estimated value of US$80bn +
The growth ofIndias aviation sector has the potential to absorb up toUS$120 billion of
investment by 2020.
Air Traffic - CAPA research projects that domestic passenger traffic will reach 150-180
million by 2020, with international traffic in excess of 50million.
Airports US$ 30 billion plus investment requirement by 2020(Included 9billion already
committed)