report on civil aviation

8/3/2019 Report on Civil Aviation

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Submitted To Submitted ByDr. Renu Verma Gaurav Singh SainiRickey RustagiSudesh Sharma


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Index

Overview Of Airlines Industry In IndiaGrowth Of Indian Aviation IndustryPlayers in Indian MarketFuture of Airlines Industry In IndiaChallengers For Low Cost AirlinesChallenges For Low Cost Carriers (LCC)Demand CurveDemand And Supply In The Airline IndustryHow Aviation Industry Is Effecting India's Economy?Pattren Of Indian Air- FaresAirline Costs In IndiaExpenses & Revenue Of Aviation Industries In IndiaCompetitors Analysis


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Overview of Airlines industry in India

The aviation industry in India is one of those sectors that saw a constant pace

growth among the other industries in the world over the past many years. The op

sky policy of the government has helped a lot of overseas players entering

aviation market in India. From then, it has only been growing in terms of players a

the number of aircrafts. At present, private airlines account for around 75% porti

of the domestic aviation market.

Growth of Indian Aviation industry

The Indian Civil Aviation market grew at a CAGR of 18%, being valued round

US$ 5.6 billion in 2008. Further statistics revealed that the air traffic in August

2009 was a double digit figure. The domestic airliners flew 3.67 million passeng

in August 2009, as against 2.92 million in the corresponding period of 2007, up b

26%. The Centre for Asia Pacific Aviation (CAPA) has estimated that the domes

traffic will go up by 25% to 30% till 2010 along with a surge in the international

traffic by 15%. There would be more than 100 million passengers by 2010. Then

again by 2020, Indian airports will in all probability handle over 100 million

passengers every year. The investment plans to the tune of US$ 9 billion has bee

made by the Aviation Ministry for modernizing the existing airports by 2010.

In terms of domestic passengers' volume, US have always been the leader with

followers in the league like China, Japan and India. The number of domestic flig


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went up by 69% from 2005 to 2008, with the domestic aviation sector growing a

9-10%.

PLAYERS IN INDIAN MARKET

Name of the players Market

Share

Kingfisher Airlines and Kingfisher Red (previously Air

Deccan)

28%

Jet Airways and Jet Lite (previously Air Sahara) 25%

Air India and Indian (previously Indian Airlines) 16%

Indigo 14%

Spice Jet 12%

Go Air 3%

Paramount Airways 2%

MDLR Airlines 0.004%


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Future of Airlines industry in India

The challenges of the Indian aviation industry are cited below:

Passenger traffic is estimated to grow at a CAGR of over 15% in the comingfew years.

The Ministry of Civil Aviation would handle around 280 million passengersby 2020.

US$ 110 billion investment is envisaged till 2020 with US$ 80 billion solely

for new aircraft and US$ 30 billion for developing the airport infrastructure.

CHALLENGES FOR LOW COST AIRLINES

Challenges for LCCs in Indian Aviation Market

The challenges facing LCC are: (i) crippling oil shock; (ii) absence of Institution

Funding; (iii) acute shortage of trained Pilots, severely limiting growth prospects

(iv)unplanned location of Airports; (v) competition amongst the LCCs; (vi) ima

plaguedby frequent breakdowns and freak accidents; (vii) LCCs already reache

the threshold of cost efficiency; (viii) limited advertising. The aviation industry

loses approximatelyRs 2000 crores annually due to underpricing of tickets and

increasing fuel costs.


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Challenges for Low Cost Carriers (LCC)

Domestic air traffic has crashed to 5 year low. One of the major factors f

this crash is the decline in consumer demand for air travel.The decline i

consumer demand has primarily due to slowdown in global economy and

rise in airfares. The major happenings of these phenomena has been

brought out in the following points:

The slowdown in economy has made a negative shift in the consumer

demand as mentioned in the graph below. This shift is due to decline in

demand due to prevailing negative sentiments among consumers and

companies.


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Negative Shift in Demand Curve due to Global Economy Slowdown

Price / Airfare Demand curve before slowdown

Demand curve after slowdown

Qty./ Load Factor / Air traffic

The rise in the base fare and fuel surcharges together was ranging from

30% to as good as 100% from June 08 to Sep.08. This has directly hit the

demand in economy class where economy class has a hefty portion

in the total domestic aviation business. The rise in air fares has made a

movement along the demand curve leading to decline in demand as

mentioned in the graph below:

Movement along the demand curve due to hike in Air fares

Price / Air fare

along demand curve

Qty./ Load Factor / Air traffic Shows the demand movement


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The ATF accounts for nearly 40% of the input cost of airlines from Oct. 07

to June 08, due to the spiral rise in the international crude oil prices and

consequent rise in the ATF prices the domestic airlines were forced to

increase their fares to either maintain their profit margins or even to

increase to sustain their business. The rise in Input cost (ATF primarily) a

fall in supply or cut in operation by service providers/airlines as mentionedin the graph below :

Negative Shift in Supply curve to rise in Input Cost

Price / Air fare Supply before

rise in input costs

Qty./ Load Factor / Air traffic

The rise in these fares directly affected the demand in the sector. After this

period, the major decline in the demand started from June 2008 onwards when

the consumers directly felt the heat of the hike in air fares. The passenger load

factors dropped to 77.6 percent in June 2008, down from 78.8 percent recorded

for June 2007. The situation further worsens in the coming months. The average

load factor for these airlines has fallen to 55% in Sep.2008 against over

65% in Sep.2007. This scenario clearly follows the Demand curve the

relationship between Price and Quantity demanded. No doubt, the decline in

demand was not only due to hike in fares but also due to slowdown in the

international economy & financial crisis. However, the hike in the air fares was

one of the major reasons resulting a decline in the consumers

demand.


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Due to this sudden decline in demands in Jul.-Sep.2008, The airlineshave taken serious steps to tide war the crisis and regenerate the demand.These measures are primarily focused to reduce overhead costs to sustainany declining demand scenario.

To absorb the rise in the input costs the airlines are taking serious

measures to improve efficiency and cut the operation expenses. Fewof the measure are as below:

Airlines, struggling to combat the rising costs are trying for jointoperations to synergize their resources. This has lead to serious

consolidation and mergers in aviation industry i.e. Joint Operations by

Kingfisher & Jet Airways, Kingfisher and Air Deccan, merger of Air

India

& Indian Airlines, Acquiring of Sahara by Jet Airways.

There has been a drive to cut the operations to decrease the losses.The

airlines have ceased their flights in unviable, highly competitive and

Seasonal routes.

During the last two month, the main private companies of aviationsector have tried to lay off their employees to reduce the operationcosts. The govt. owned company like Air India has come up with

novel concepts like voluntary leave for few years for their

employees.

The airlines have also either ceased or defer their plans to buy newairplanes to control the current operational costs. Also, there are

plans to use small aircrafts for operation to reduce operation costs

and meet the changed demand.

These moves are clearly to cut the expenditure and a way to absorb the

rise in input costs instead of directly passing any further increased input

cost directly to the consumers. This way the airlines will be able to tide

over the current crisis.


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Demand and supply in the airline industry

Airlines have announced price cuts targeting leisuretravelers through the usually busy winter holiday season and

beyond. Analysts view the moves as an attempt to woo back

consumers who are putting off trips in response to the unfolding

economic crisis.

Translation: income falls (or is expected to fall or is moreuncertain), demand falls creating a surplus and price falls.

The downturn is emerging as the biggest threat to theindustry since it was buffeted by summer fuel prices. Now fuel

prices are retreating, but so is the demand for seats.

Translation: Don't buy airline stock. In theory, there should be few empty airline seats.

Airlines have eliminated about 200,000 seats per day by

zapping routes and grounding planes.

Translation: Supply fell ... The reduction was supposed to give airlines room to

raise fares. But analysts say winter sales suggest that airlines are

struggling to fill their planes.

Translation: But demand has fallen even farther ... And where you have empty seats, you have discounts,

saysRick Seaney, chief executive of FareCompare.com, which

allows travelers to compare prices among Web sites.


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How aviation industry is effecting india's economy?

10 years back there were just 2 airlines. Both state owned . In the last

10years the economy has opened up. India has experienced growth rate

of 8% per year.

The main factors 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:-

1. Increased in no. of business travellers to different countries

2.Incresed no. of incoming tourist and business enterprises


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PATTERN OF INDIAN FARES

AIRLINE COSTS IN INDIA


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EXPENSES & REVENUE OF AVIATIONINDUSTRIES IN INDIA

Kingfisher Vs Jet Airways

Kingfisher is one of the latest Airlinesin INDIA.

Overall growth in year 2006-07 is37%.

Kingfisher acquired 46% share in AirDeccan.

Domestic airlines poised to gointernational flights.

In a short span of 2 years its marketshare has become 28% including AirDeccan.

Personal in-flight entertainment inevery seat.

It was awarded the Best New AirlineOf the Year award.

Already have training academy

Jet Airways is the experienced airlinein INDIA.

Overall growth in year 2006-07 is16%.

Jet airways acquired Air Sahara in2006.

Jet Airways already has domestic aswell as international flights

Jet Airways has its market share 31%including Air Sahara.

Average entertainment services. Jet Airways won Double Honour

Travel Trade Gazette Travel award. They are plan to start training

academy.


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COMPETITORS ANALYSIS

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