AVIATION INDUSTRY IN INDIA

INTRODUCTION

Aviation Industry in India traces back its History to 1912, with first flight from Karachi to Delhi
started by Indian State Air Services and Imperial Airways UK collaboration. Actually it was just
an extension of the London-Karachi flight by imperial airways.

However the actual instigation of India Aviation Industry was in the form of Tata Airline by JRD
Tata in 1932. He was also the first Indian to get an A-License. In 1946, Tata Airlines was
transformed into Air India. At the dawn of independence, India had nine air transport
companies providing both cargo and passenger services.

In 1953, the Government of India nationalized all existing airline assets and formed Indian
Airline Corporation for domestic air services along with Air India International for international
air services. Until, 1991, these two companies played monopoly in India. It was only in this year
that private airlines were allotted the 'air taxi scheme', under which they could operate
chartered and non-scheduled services for uplift of Indian tourism. In 1994, as a result of a
repeal of the air corporation act, private airline companies obtained permission to operate
scheduled air services.

Indian Aviation Industry witnessed a major change in 2003, when Air Deccan introduced budget
flying by lowering down the fares to mere 17% of what the other airlines were charging. Now
the list includes Spice Jet, Go Airways, Jetlite, Indigo and Kingfisher Red. 'All-business class
airline' Paramount Airways also belongs to this group. These budget airlines have taken up the
major Indian Aviation Industry market share. They have established newer trends in the
aviation industry.

The plan of the assignment is as follows:

 Environmental analysis of Aviation industry in India

 PEST analysis
 Porter’s five forces on Aviation industry
 Competitors, their market shares and segments
 Growth rates, profitability and recent mergers, Competencies required and
environmental trends in the industry

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ENVIRONMENTAL ANALYSIS OF AVIATION INDUSTRY IN INDIA

In April 1990, the Government adopted open-sky policy and 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. In 1994, the Indian Government, as part of its
open sky policy, ended the monopoly of IA and AI in the air transport services by repealing the
Air Corporations Act of 1953 and replacing it with the Air Corporations (Transfer of Undertaking
and Repeal) Act, 1994. Private operators were allowed to provide air transport services. Foreign
direct investment (FDI) of up to 49 percent equity stake and NRI (Non Resident Indian)
investment of up to 100 percent equity stake were permitted through the automatic FDI route
in the domestic air transport services sector. However, no foreign airline could directly or
indirectly hold equity in a domestic airline company.

By 1995, several private airlines had ventured into the aviation business and accounted for
more than 10 percent of the domestic air traffic. These included Jet Airways Sahara, NEPC
Airlines, East West Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and
Damania Airways. But only Jet Airways and Sahara managed to survive the competition.
Meanwhile, Indian Airlines, which had dominated the Indian air travel industry, began to lose
market share to Jet Airways and Sahara. Today, Indian aviation industry is dominated by private
airlines and these include low cost carriers such as Deccan Airlines, GoAir, SpiceJet etc, who
have made air travel affordable.

Airline industry in India is plagued with several problems. These include high aviation turbine
fuel (ATF) prices, rising labor costs and shortage of skilled labor, rapid fleet expansion, and
intense price competition among the players. But one of the major challenges facing Indian
aviation industry is infrastructure constraint. Airport infrastructure needs to be upgraded
rapidly if Indian aviation industry has to continue its success story. Some steps have been taken
in this direction. Two of India's largest airports-Mumbai and New Delhi-were privatized
recently. Two green field airports have come up at Bangalore and Hyderabad in southern India.
Investments are pouring into almost all aspects of the industry, including aircraft maintenance,
pilot training and air cargo services. The future prospects of Indian aviation sector look bright.

Indian Aviation Industry 2010 takes names of some of the leading airlines in the aviation
industry world over. Aviation industry statistics have shown a growth curve that establishes the
emergence of a new world leader. The latest Aviation Industry news shows airlines launching
newer flights everyday with very low fares to attract the maximum number of customers.

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PEST ANALYSIS

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a
framework of macro-environmental factors used in the environmental scanning component of
strategic management.

Political factors are how and to what degree a government intervenes in the economy.
Specifically, political factors include areas such as tax policy, labor law, environmental law,
trade restrictions, tariffs, and political stability. Political factors may also include goods and
services which the government wants to provide or be provided and those that the government
does not want to be provided. Furthermore, governments have great influence on the health,
education, and infrastructure of a nation.

Economic factors include economic growth, interest rates, exchange rates and the inflation
rate. These factors have major impacts on how businesses operate and make decisions. For
example, interest rates affect a firm's cost of capital and therefore to what extent a business
grows and expands. Exchange rates affect the costs of exporting goods and the supply and price
of imported goods in an economy

Social factors include the cultural aspects and include health consciousness, population growth
rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect
the demand for a company's products and how that company operates. For example, an aging
population may imply a smaller and less-willing workforce. Furthermore, companies may
change various management strategies to adapt to these social trends.

Technological factors include ecological and environmental aspects, such as R&D activity,
automation, technology incentives and the rate of technological change. They can determine
barriers to entry, minimum efficient production level and influence outsourcing decisions.
Furthermore, technological shifts can affect costs, quality, and lead to innovation.

(PEST Analysis of Indian Aviation Industry follows in next page)

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Techno-CtributilgaEm
4
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IAL
PORTERS 5 FORCES ON AVIATION INDUSTRY

The model originated from Michael E. Porter's 1980 book "Competitive Strategy: Techniques for
Analyzing Industries and Competitors." Since then, it has become a frequently used tool for
analyzing a company's industry structure and its corporate strategy.

In his book, Porter identified five competitive forces that shape every single industry and
market. These forces help us to analyze everything from the intensity of competition to the
profitability and attractiveness of an industry. Figure shows the relationship between the
different competitive forces.

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o Threat of New Entrants.  At first glance, one might think that the airline industry
is pretty tough to break into, there is a need to look at whether there are
substantial costs to access bank loans and credit. If borrowing is cheap, then the
likelihood of more airliners entering the industry is higher. The more new airlines
that enter the market, the more saturated it becomes for everyone. Brand name
recognition and frequent fliers point also play a role in the airline industry. An
airline with a strong brand name and incentives can often lure a customer even
if its prices are higher.

o Power of Suppliers. The airline supply business is mainly dominated by Boeing

and Airbus. For this reason, there isn't a lot of cutthroat competition among
suppliers. Also, the likelihood of a supplier integrating vertically isn't very likely.
Probability of seeing suppliers starting to offer flight service on top of building
airlines is very unlikely.

o Power of Buyers.  The bargaining power of buyers in the airline industry is quite
low. Obviously, there are high costs involved with switching airplanes, but also
take a look at the ability to compete on service. Is the seat in one airline more
comfortable than another? Probably not unless you are analyzing a luxury liner
like the Concord Jet.

o Availability of Substitutes. What is the likelihood that someone will drive or take
a train to his or her destination? For regional airlines, the threat might be a little
higher than international carriers. When determining this you should consider
time, money, personal preference and convenience in the air travel industry. In
short passengers can just switch airlines, there is no close substitute for air
travel.

o Competitive Rivalry. Highly competitive industries generally earn low returns

because the cost of competition is high. This can spell disaster when times get
tough in the economy.

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COMPETITORS, MARKET SHARE AND SEGMENTS

Airlines belonging to India, their IATA code, call signs, operation commencement date and
segments are:

COMMENCED
AIRLINE IATA CALLSIGN SEGMENTS
OPERATIONS

Jet Airways 9W JET AIRWAYS May 1993 Economy

Jet Lite S2 LITEJET April 2007 Budget

Kingfisher Airlines IT KINGFISHER May 2005 Economy

Kingfisher Red IT DECCAN August 2003 Budget

Air India AI AIR INDIA October 1932 Economy

Air-India Express IX EXPRESS INDIA April 2005 Budget

Air India Regional IX EXPRESS INDIA April 2005 Economy

GoAir G8 GOAIR June 2004 Budget

Indian Airlines IC INDIANAIR May 1953 Economy

SpiceJet SG SPICEJET May 2005 Budget

Jagson Airlines JA JAGSON November 1991 Economy

IndiGo Airlines 6E IFLY August 2006 Budget

MDLR Airlines 9H MDLR March 2007 Budget

Paramount Airways I7 PARAWAY October 2005 Business class

Market share of the major competitors in the business

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GROWTH RATE, PROFITABILITY,COMPETITION, TREND AND RECENT MERGERS

For Aviation Industry Growth in the domestic airports infrastructure, Federation of Indian
Airlines (FIA) was formed. The federation has the main aim of establishing a forecast of all time
highest growth in the domestic Aviation Industry India. The future outlook of the Indian
Aviation Industry depends majorly on the various aviation schools operational in the country.
The aviation industry research undertaken by the Ministry of Civil Aviation can ensure
technological advances.

Aviation industry conferences and expo are held regularly that give detailed reports of the
various events in the aviation industry in India, the advantages for the Indian aviation industry,
the various aviation industry jobs and employment opportunities available. Aviation industry
report analysis helps in solving the various aviation industry problems.

-It is one of the Fastest Growing Aviation Market which is currently 18% per annum.

-There are approximately one billion people & only about 0.05% of them fly

-More and more middle class families now prefer air travel to traditional rail travel

-The Indian travel market is expected to triple to $51 billion by 2011 from $16.3 billion in 2005-
06

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-AAI totally manages 127 airports

Includes 13 International airports

7 Custom airports

80 Domestic airports

28 Civil enclaves

New airports are also in the pipeline

Mergers in the last few years in the Indian aviation industry are:

-In 2007 Govt. gave a green signal to Air India and Indian Airlines merged together to make Air
India bigger.

-Kingfisher bought over Deccan in 2007.

-Jet Airways bought over Air Sahara and converted it in to Jetlite in 2006, which is Jet’s new low
cost airline.

Competition & Trends

Economic reality is reshaping India's airline industry. Just a few years into a third wave of
private operators, the high cost of fuel has led to a number of mergers, including a high-profile
agreement to combine Indian Airlines with Air India. Other issues, including infrastructure
constraints, increased competition, and wage inflation, have left low-cost carriers, such as
Sahara and Air Deccan, with no alternative but to merge with larger airlines. 

A new crop of airlines has sprung up in the last few years. Deccan Aviation, India's first low-cost
carrier (LCC), began operations in 2003. SpiceJet, also an economy carrier, took wing in 2005.
Kingfisher Airlines, headed by the flamboyant liquor baron Vijay Mallya, started the same year.
Other newcomers include GoAir and Paramount, while East West and another old-timer,
ModiLuft, have returned.

From this current trend we can analyze that low cost and intense customer satisfaction is the
way to go to become a great airline company.

CONCLUSION & RECOMMENDATIONS

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Few tricks which all the airlines can carry on to get a competitive advantage and to bring out an
economic edge to their strategic management are:

o Remove the flights from low passenger frequency routes

o Try to bring down the cost-per-flight if an airport services more number of flights
o Economically viable fares to attract more customers
o Avoid aggressive expansion of fleets
o Avoid full-course meals, give snacks
o Try to focus on smaller aircrafts (50-70 seaters) and fuel efficient planes for short
distance
o For a long term strategy, internationally focus should remain on one region at a
time

India is one of the fastest growing aviation markets in the world. With the liberalization of the
Indian aviation sector, the industry had witnessed a transformation with the entry of the
privately owned full service airlines and low cost carriers. Private carriers accounted for around
75% share of the domestic aviation market. The sector has also seen a significant increase in
number of domestic air travel passengers. Some of the factors that have resulted in higher
demand for air transport in India include the growing middle class and its purchasing power,
low airfares offered by low cost carriers, the growth of the tourism industry in India, increasing
outbound travel from India, and the overall economic growth of India.

REFERENCES

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www.ibef.org

www.indiahousing.com

www.icmrindia.org

www.iloveindia.com

www.marketresearch.com

www.wikipedia.org

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