HISTORY OF AIRLINE INDUSTRY

1912 :- The first airline took off between Karachi and Delhi. Three years later Tata Sons Ltd started a privately owned airmail service

which operated between Karachi and Chennai. Orient airways shifted its base to Pakistan post-Independence. 1953:- Government of India decided to establish an industry of itself for

Aviation and Airlines. { Air India (for international Travel) and Indian Airlines (for domestic travel)}

Two infamous incidents which resulted in bankruptcy of the airlines are – interference in purchase of A-310

aircraft by Air India in mid 1980s(these aircraft did not meet the basic operational requirements of the airlines) and the extended grounding of the then newly purchased A-320 aircraft for Indian Airlines by the ministry of civil aviation in 1990.

Demand Drivers

Poor Road and Rail Infrastructure Domestic consumption story – cannot be imported Increasing Per Capita

Cont.

Demographics

Cont.

Exploding Middle Class

Healthy Growth of Passenger Traffic Witnessing a growth of 17.62 per cent over the previous year, total

passenger traffic stood at a 223.6 million in FY16, which was recorded at 190.1 million in FY15 in India. 

Growth in passenger traffic has been strong since the new millennium, especially with rising incomes and low-cost aviation; during FY06-16, passenger traffic grew at a CAGR of 11.8 per cent in the country. 

Market Size

During January-August 2016, domestic air passenger traffic rose 23.14 per cent to 64.47 million from 52.36 million during the same period in 2015

Passenger traffic during FY 2015-16 increased at a rate of 21.3 per cent to 85.57 million from 70.54 million in the FY 2014-15.In July 2016, total aircraft movements at all Indian airports stood at 168,400, which was 14.3 per cent higher than July 2015

International aircraft movements increased by 8.2 per cent to 32,830 in July 2016 from 30,330 in July 2015

Domestic aircraft movements increased by 15.8 per cent to 135,570 in July 2016 from 117,050 in July 2015.

Cont. Indian domestic air traffic is expected to cross 100 million passengers

by FY2017, compared to 81 million passengers in 2015, as per Centre for Asia Pacific Aviation (CAPA)

India is among the five fastest-growing aviation markets globally with 275 million new passengers

The airlines operating in India are projected to record a collective operating profit of Rs 8,100 crore (US$ 1.29 billion) in fiscal year 2016, according to Crisil Ltd.

Major Cost of Aviation Industry

The major expenses that affect companies in the airline industry are labor and fuel costs

Labor costs are largely fixed in the short term, while fuel costs can swing wildly based on the price of oil

For this reason, analysts pay more attention to fuel costs in the near term.

Two-thirds of the costs of flying an airplane are fixed, so changes in fuel costs can swing a flight from profit to loss depending on how many people are on the flight

Cont. This is a consequence of being in a competitive business where

customers have little brand loyalty; airlines have to compete on price rather than quality

Since growing profits is difficult, companies are forced to cut costs to be more profitable

Fuel costs account for 10% to 12% of operating expenses They buy futures contracts to lock in their costs for a set period of

time, turning it into a fixed expense When fuel prices rise, this behavior is rewarded. When fuel prices

decline, this is punished as the market price of fuel is less than what they are paying

SpiceJet

Earlier known as Royal Airways, SpiceJet is a reincarnation of ModiLuft, one of India's first post-deregulation airlines, launched in 1994 and shut down in 1996

SpiceJet was launched in May, 2005, and is being promoted by Ajay Singh and the Kansagra family

The goal of the airline is to compete with the Indian Railways air conditioned coaches and, obviously, offer a better deal to its passengers

SpiceJet aircraft are named after spices In 2009, SpiceJet won World Travel Market Award By 2008, SpiceJet became India’s second-largest low-cost airline in

terms of market share

Indigo IndiGo is an Indian low-cost airline set up by Rahul Bhatia of

InterGlobe Enterprises and Rakesh Gangwal, a United States-based NRI. InterGlobe holds 51.12% stake in IndiGo, and Caelum Investments, Gangwal’s Virginia-based company, Caelum Investments, 48%

By the end of 2010, IndiGo already had 17.3% of the market share, replacing the state-run flag carrier Air India as the third airline in India, behind Kingfisher Airlines and Jet Airways

In 2011, IndiGo placed an order for 180 Airbus A320 aircraft, 30 regular A320 and 150 A320neo, a new generation version of the A320 scheduled for delivery from 2016

In 2013, IndiGo was the second fastest growing LLC in Asia, behind Indonesian airline Lion Air. In August 2013, the Center for Asia Pacific Aviation ranked the airline among the 10 biggest low-cost carriers in the world

Cont. As of September 2015, with a market share of 36.5%, IndiGo is the

largest airline in India in terms of passengers flown. IndiGo operates more than 647 daily flights to 39 destinations, 34 in India and 5 international. Its primary hubs are at Indira Gandhi

No fatal accidents involving IndiGo aircraft were registered so far

Jet airways

On the 1st of April 1992, Jet Airways was incorporated as an air taxi operator, starting commercial operations one year later, with a fleet of four Boeing 737-300 aircraft

In early January 1995, Jet Airways was granted its scheduled airline status, after the Air Corporations Act was abolished. This came as a renewal of the Indian flight market, given the fact that, since 1953, Indian Airlines held the monopoly in the domestic segment

In March 2004, Sri Lanka became the first international destination served by Jet Airways, once the Chennai – Colombo route was established

In August 2008, Jet Airways announced its intentions to fully integrate JetLite into its services

Technology

Unlike ground vehicles, which don’t need to be optimized for efficiency to the same extent as aircraft because they can refuel often, long-distance aircraft must carry all their fuel with them

Fuel is expensive, heavy and takes up a great deal of storage room. Its weight can limit the range of an aircraft and it needs to be stored in tanks which affect the wing size and the payload able to be carried. At the same time, the aviation industry is doing all it can to limit its environmental impact

New technologies on the horizon have the potential to significantly decrease greenhouse gas emissions from aviation, and solutions that are being implemented today also promise other savings. Even small savings here-and-there offer significant benefits in total

Cont. Today, engineers and researchers are making incremental and

frequent improvements that offer large savings overall. For instance, the wingtip devices airlines and manufacturers install on new aircraft increase aerodynamic efficiency and reduce fuel usage

Technology on new aircraft can either be to improve fuel burn through aerodynamic efficiency (mainly airframe), or to reduce actual combustion use (mainly engine-related). Combined, these elements create a new aircraft with a reduced environmental impact

Regulations Government agencies project that around 500 brownfield and

greenfield airports would be required by 2020. The private sector is being encouraged to become actively involved in the construction of airports through different Public Private Partnership models, with substantial state support in terms of financing, concessional land allotment, tax holidays and other incentives

In the Union Budget 2016-17, the government introduced various proposals for Maintenance, Repair and Overhaul (MRO) operations for airplanes

These include customs and excise duty exemption for tools and tool-kits used in MRO works

Some major initiatives undertaken by the government are The Ministry of Civil Aviation has finalized and put forward for

approval to the Union Cabinet, the new aviation policy, which includes proposals such as allowing new airlines to fly abroad, introduction of more regional flights and a new formula for granting bilateral flying rights.

The Indian Space Research Organization (ISRO) has signed a memorandum of understanding (MoU) with the Airports Authority of India (AAI), aimed at providing space technology for construction of airports

Competition Competitive rivalry among sellers New entrants High substitutes’ availability High power of the suppliers Buyers’ bargaining power

How industry is growing

Conclusion India’s aviation industry is largely untapped with huge growth

opportunities, considering that air transport is still expensive for majority of the country’s population, of which nearly 40 per cent is the upwardly mobile middle class

The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions that would boost India’s civil aviation industry. With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2020 and the largest by 2030