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Aviation Industry Sectorial Analysis

BY –Ankit Nayar 11Deepti Kher 20Dinesh M 21Harmeet Arora 25Mansi Pathak 28Yogesh Kasar 62

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ABOUT THE AVIATION SECTOR

Aviation is  the  design,  development,  production,  operation, and use of aircraft, especially heavier-than-air aircraft

Civil aviation: Civil aviation includes all non-military flying, both general aviation and scheduled air transport.

• Air transport :There are five major manufacturers of civil transport aircraft :Airbus, based in Europe, Boeing, based in the United States, Bombardier, based in Canada

Embraer, based in Brazil, United Aircraft Corporation, based in Russia.

• General aviation: General  aviation includes all non-scheduled civil flying, both private and commercial.

Military aviation : Military aircraft have been built to meet ever increasing capability requirements. Manufacturers of military aircraft compete for contracts to supply their government's arsenal. Aircraft are selected based on factors like cost, performance, and the speed of production.

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Services Provided by the Aviation

Sector

1. Manufacturing2. Commercial3. Customer4. Airport

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AWARDSIN

AVIATION

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Awards in Aviation Sector1. ATW Airline Industry Achievement Awards2. World Airline Awards3. NBAA awards4. CAPA Aviation Awards5. Annual Laureates Awards6. ACI's Airport Service Quality Awards

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KEYSERVICE

CONCEPTS

Service Package• Supporting facilities: aircraft, layout, areas for terminal support services (such as

airline catering and mechanical equipment maintenance facilities) and airport

maintenance facilities, areas to store ground support equipment, logistics

support infrastructure (goods and waste management)

• Facilitating goods: food items

• Information: information on booking tickets, preference for seat, delays,

cancellation or reschedule details to be prompt.

• Explicit Services: comfortable seats, clean seat covers, organized magazines, smell

inside the aircraft, service provided by the crew members, safety belt.

• Implicit  Services: safety instructions, promise by the airlines for safe landing,

belief in the airlines for the adequate training required for the pilots.

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Service Recovery

A customer expects 3 shorts of

fairness in case of service recovery:

1. Interaction fairness

2. Procedure fairness

3. Outcome fairness

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Global Scenario

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•Air travel has grown by 7% per year. Travel for both

business and leisure purposes grew strongly worldwide.

•Airlines carried 1.5 billion passengers last year.

•Business travel has also grown as companies become increasingly international in terms of their investments, their supply and production chains and their customers

Global Scenario

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The World's biggest Airlines

Airline Passengers (in millions) 2010

Passengers (in millions) 2011

Headquarter/ City

Country

Africa/Middle East

Emirates Airline 27,454 31,422 Dubai United Arab Emirates

Asia/Pacific

China Southern Airlines 66,279 76,455 Guangzhou China

Europe

Air France KLM 71,394 71,320 Paris France

North America

Delta Air Lines 1,61,047 1,62,615 Atlanta USA

Southwest Airlines 1,01,430 1,06,307 Dallas USA

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Overview Of Indian Aviation

Industry

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• Passenger Growth : The international passenger growth has been growing at CAGR of over 14% and domestic growth has been an impressive 22% for last 6 years.

• Cargo Growth : The domestic cargo is growing at a CAGR of 13% during the period 2007-2010 while the international cargo is growing at a CAGR of 14% over the same period. At present India contributes over 1% of the world air cargo traffic.

INDIAN AVIATION INDUSTRY

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• Air Charter Services Pvt Ltd: Air Charter Services Pvt. Ltd. performs its business operations with private business aircrafts, executive and corporate air charters, helicopter tours, VIP charter flights, and photo and video flights.

• Aviation India: Aviation India provides services like cargo services, flight operation, air charter services, passenger services, freight control, advisory and consultancy, aircraft preservation and renovation, international flight operation, air supervision and helipad engineering.

KEY PLAYERS

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• Indian Airlines: It is recognized as one of the biggest regional airline systems in Asia. It has a fleet of 70 airplanes and covers 76 destinations, 58 Indian destinations and 18 foreign destinations.

• Indigo: Indigo is a utilitarian low-price domestic airline which offers feasible flying alternatives for millions. The airline was facilitated by the Air Passengers Association of India (APAI) as the “Best Low-Fare Carrier in India for the year 2007”. Indigo has 120 daily departures and a fleet of 19 Airbus A320.

• Spice Jet: Spice Jet is basically a low cost airline which incorporates many Boeing 737-800 airplanes in its fleet. It covers 14 destinations in India.

• Air Sahara (Jet Konnect): It comprise of 27 aircrafts, 135 daily departures and availability of 16500 seats on regular basis.

• Jet Airways: It earns yearly revenue of Rs 2502.89 and total income of approx 117868.8 Million. At present it is India's biggest private domestic airline with 62 aircrafts and a market share of 25%. It covers 50 destinations with 340 regular departures.

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We Now Turn Our Attention To Plethora Of Issues Facing The

Aviation Sector

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• Shortage of trained employees• Rising fuel prices• Gaps in infrastructure • Regional connectivity• High input costs• Taxes

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ISSUES / CHALLENGES

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• Money spinner – Sale-and-leaseback transactions• Exploiting market conditions – Cost cutting

partnership with suppliers• CRM – On time performance record• Marketing strategies - Innovative branding• Focus on basics – Fly more• International expansion – Expansion in South East Asia

Best Practices Of INDIGO Airlines

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Market GrowthDrivers

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RISING GROSS DOMESTIC PRODUCT (GDP)• The demand for aircraft is related to air travel, which in turn is linked to

the increasing wealth, increasing per capita income and positive Gross Domestic Product (GDP)

• An increase in air travel has occurred in the developing economies like India and China; both of these countries signify robust optimism for the Aviation segment

• Indian GDP is expected to grow between 4.4% and 4.6% until 2015.

• Best indicator for measuring the performance of the Aviation segment is the world Gross Domestic Product (GDP).

• Other factors leading to Civil Aviation growth include international trade

and globalization.

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Expanding Middle Income Group

• These income groups drive the consumption pattern in India and are primarily concentrated in urban areas.

• NCAER analysis reveals that the middle income group population in 2010 stood at 160 million individuals i.e. 13.3% of the total population, which is expected to rise to 547 million in 2025 (i.e. 37.2% of the total population)

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Demographic Dividend

• 62% of the population is in the working age group of 15-60 years and this proportion

is set to increase in future indicating a larger employee base, greater business travel and greater economic activity.

Rising Urban Population

• Mckinsey Global Institute’s projections state that India’s urban population will be 590 million by 2030 i.e. about 40 percent of the total population of India.

• The number of million plus cities will increase to 68 by 2030 of which 13 cities will have more than 4 million and six cities will have more than 10 million persons.

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Significant Market Developments

• Low Cost Carrier model which made air travel affordable to common man• The domestic traffic is rapidly shifting towards the LCC model. Market sources

suggest that this has crossed 67% during 2011-12. • In India, low-cost carriers SpiceJet and IndiGo continue to grow as they

replace the airlines likes of Air India, JetAirways and Kingfisher Airlines.• Boeing and Airbus also predicted that he companies will require

approximately 5,200 new airliners in the 100 to 210 seat category, such as the best-selling A320 family. This increase in demand will be driven primarily by the growth in fleet size of the LCCs

• IndiGo, SpiceJet and JetLite ordered 46 new aircraft which are to be delivered by 2014.

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Investment in Airport and related Infrastructure

• Opening up of the airport infrastructure to private sector participation fuelled the growth of the air traffic in India. Total investment made by private airport operators in the last five years was to the tune of Rs 30,000 crores spread across Greenfield development of Hyderabad and Bengaluru international airports and modernization of Delhi and Mumbai international airports29.

• Rapidly expanding air transport network aided by massive investments in the airport infrastructure could be cited as one of the key reasons for the surge in air passenger traffic in India.

• Passenger terminal capacity in all airports put together is expected to be 230-240 million by 2012 and by 2017 it would be about 370 million across all airports as per the investment plans of the operators.

• Cargo growth presently being witnessed will necessitate investment in specialized cargo terminal and equipments.

• Airlines are highly dependent on the strength of their network to register revenues. Therefore, they are constantly making efforts to ensure that their routes maintain an acceptable return for their investment

• Focus on Fuel-Efficient Aircraft: According to the International Air Transport Association (IATA), jet kerosene prices have doubled since their low point in early 2009, reaching US$113 a barrel in early 2011

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Rising Tourism• Tourism in India has displayed

stellar performance during the last decade.

• Foreign tourist arrivals in to India and Indian National Departures grew by 9.2% and 11.5 % respectively during last decade

• Tourist’s visits within India stood at 740.2 Million for the year 2010.31 In

• The number of foreign tourist arrivals in India stood at 5.6 Million in the year 2010 as against

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Trade Associations Pertaining In

Aviation Industry

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• IATA International Air Transport Association

• African Airline Association

• Airline Tariff Publishing company

• Canadian Airport Council

• World Tracer

• Regional Aviation Association Of Australia

Trade Association Pertaining To Aviation

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Business Strategies

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Business Strategies

• Low Cost Carriers (LCCs)

 

- They have made air travel accessible to the middle class. Some travellers who were using trains and buses have switched to travelling by LCCs because of the low fares.

- Indian Airlines and Air India: These two national carriers enjoyed monopoly power in the industry until the Air Corporations Act was repealed. They enjoyed a monopoly on domestic services until 1994, had its market share decline from 100% to 17% since.

- Jet Airways and Air Sahara: Jet Airways acquired Air Sahara in April 2007 , has since been rebranded as a low-cost carrier, called Jet Lite.

 

- Air Deccan and Kingfisher Airlines: India's first low-cost carrier, Air Deccan, which started the low fare boom in India, reported a $43 million loss for the fourth quarter ending June 2007. To keep afloat, Air Deccan sold 26% of stake to Vijay Mallya's then two-year-old Kingfisher Airlines. This stake was later increased to 46%

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• Reduced Discounting on ticket rates

• Expand International operations

• Low-haul low cost carrier

Business Strategies

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Government Policies

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Present Government Policies

• A domestic or foreign company wishing to do business in the Indian aerospace and defence industry has to comply with the following policies:

 

1. The Foreign Trade (Export/Import) Policy

2. Foreign Exchange Management Act (FEMA)

3. The Civil Aviation Regulations

4. The FDI policy.

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The Foreign Trade (Export/Import) Policy

• The export and import of goods and services in India is presently governed by the Foreign Trade Policy 2009-14 (FTP). An export or import can be made by any person only against an import export code (IEC) number unless specifically exempted.

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Foreign Exchange Management Act (FEMA)

• To consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.

•  under this act everything was prohibited unless specifically permitted

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FDI policy

• By foreign airlines into domestic scheduled and non-scheduled air transport services. FDI up to 49% was permitted for scheduled air transport services.

• investment by NRIs was permitted up to 100% but foreign airlines were prohibited to invest in this segment.

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Civil Aviation Regulations

• The Ministry of Civil Aviation is in the process of formulating a Civil Aviation Policy and examining the proposal of having a new Civil Aviation Act and Civil Aviation Rules to replace the present Aircraft Act,1934 and the Aircraft Rules, 1937 framed under the Act.

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Growth Retarders

• Ground handling policy : Airlines are subject to discrimination between how security functions are handled by domestic airlines versus international carriers. Airlines are denied the right to self-handle.

• The User Development Fund (UDF) imposed increases the ticket cost and is high enough. The airlines are compelled to pass this on the consumer.

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Growth Retarders

• Complexities of taxes and Airline ATF varies from state to state.

• The stunted growth of Indian aviation comes with an economic cost. India’s population is about 240 times the size of Singapore’s. But the number of aviation jobs is just about 14 times larger at 1.7 million. And the economic contribution of aviation is still only 0.5 percent of the Indian economy

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Suggestions for Further Growth

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• We have studies various articles and drilled down to the following recommendations :-

• Infrastructure Improvement• Infrastructure is the backbone of Aviation Industry • Infrastructure includes Airports, MRO Activities,

Technological Infrastructure, Trained Manpower• Indian Government’s prime aim should be

Infrastructure Improvement

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Airport Improvement

• Key enablers to achieve the projected growth are as follows:

a) Allow no-frills airport model to lower the fixed cost of airport development and improve the financial viability of tier II/III airports b) Enable stable, transparent, predictable and investor-friendly regulatory regime with a mechanism for time-bound resolution of issues c) Upgrade Air Traffic Control (ATC) infrastructure and allow all weather operations including night landing facility at Indian airports, to provide impetus to tourist traffic

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MRO Activities Improvement

• The following key enablers would be imperative for India to become a preferred MRO hub:

a) Eliminate discriminatory taxation policy for domestic MROs, as there is nearly 40% tax differential between domestic and foreign MROs b) Incentivize airlines to set up their dedicated MRO hubs in India through three-way joint ventures with MRO service providers and airport companies c) Consider abolishing import duties on spare pa

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Improvement in Air Connectivity• Some key enablers that can facilitate the growth are as follows:a) Rationalize ATF charges with international benchmarks thorough policy changesb) Connect less lucrative Tier II/III cities through government incentivesc) Allow more Indian carriers to fly overseas by utilizing full quota of bilateral agreementd) If the government is prepared to consider allowing direct importation of fuel, it would appear to be far more logical to instead seek consensus on sales taxation with state governments e) Augment air cargo complex infrastructure through higher automation, increasing number of screening machines, 24X7 security etc. f) Mandate CBEC to switch over to multiple shifts of customs operations and augment the number of customs personnel to cater to the increasing trade requirements

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Future Outlook for Aviation

Sector

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Future for Aviation Industry • By the end of this decade, i.e. in 2020, air traffic in India is projected to

grow 3.5 times from today's level, • Third-largest market in the world, behind the US and China, according to

the CAPA India 2011-12 aviation industry outlook.

• Liberalization and economic reforms undertaken by the government. • AAI has announced that it will seek the government's clearance for its

proposal to issue USD 1.04 billion worth of infrastructure bonds to further develop 15 airports in the country.

• 100% FDI: Under the civil aviation sector‘s investment policy, 100% FDI is permissible for existing airports, with Government approval required for FDI beyond 74%

• Until recently, the AAI was the only major player involved in developing and upgrading airports in the country.

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THANK YOU