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Air travel is a large and growing industry in the world as it facilitates tourism, international investment and economic growth and thus helps in globalization in many countries. Travel for business and leisure has increased considerably in last few years, except at the time of recession. Exhibit Business travel has increased due to the open economy of many developing countries which results in smooth entry and exit of the companies in terms of their trading policy, customers, investments and supply and production chains. Developing countries also realized the importance of tourism which brings-in more foreign currency in their economy and which helps in developing resorts and infrastructure to attract international tourists thereby increasing the number of air travellers (Standford University website, 2000).
The global aviation industry is expected to grow at a Compounded Annual Growth Rate (CAGR) of 5.6% in the period of 2004-2024. It is forecasted that the major conventional matured airline markets like US and Europe will have market share of 52% in 2025. Exhibit shows the air traffic distribution all over the world. At present it is mainly shared by US, Europe and Asia Pacific countries. Exhibit shows the projected growth rate of these Asia Pacific regions in the period of 2006 to 2025. Thus, the future growth of airline industry lies in this Asia pacific region mainly China and India. (LLC, 2007)
Aviation Industry in Asia Pacific
In the upcoming years, this region is forecasted to be the highest growing region in the world aviation industry. (Exhibit- sh ows the forecasted data till 2029). The dynamic nature of economy is the key factor in this market.
The key indicators for the growth of this industry are:
Number of passengers
The world aviation industry body International Air Transport Association (IATA) had said that carriers in the Asia-Pacific region mainly India and China have posted highest profits of $7.7 billion in 2010, overtaking airlines in North America and Europe. Emerging markets like China and India have shown great opportunities for civil aviation sector in the recent years. The volume of passengers and cargo has increased by around 7% in 2010 compared to in the year 2006. Freight traffic in Hong-Kong, one of the major cargo hubs in the world has grown by 34%. Shorter haul flying, including domestic and international travel within the region will grow 7.1% per year. Air cargo growth is estimated to be 6.8% per year during the next 20 years. In order to meet the demand of growing passengers and cargo, the number of airplanes will nearly triple from 4110 in 2009 to 12,200 in 2029 shown in exhibits (). (Boeing website)
Indian Aviation industry
India is the 9th largest aviation market and one of the fastest growing industries in the world. It has grown by about 400% in a short span of 6 years. Government's open policies have allowed many overseas players to enter in the market resulting in growth both in terms of players and number of aircrafts. By now, around 75% of the domestic market is owned by private companies. (Aviation industry in India, 2009)
Earlier, air travel could only be afforded by few people and that too mainly for business purposes. But now, with low fares due to increased demand and competition, number of passengers has increased drastically. The growth rate of number of passengers in India can be seen in exhibit number.
"India's civil aviation passenger growth, at around 20 per cent, is among the highest in the world. The sector is slated to cruise far ahead of other Asian giants like China or even strong economies like France and Australia. The number of passengers who will be airborne by 2020 is a whopping 400 million" according to Kapil Kaul, CEO, India and Middle East, Centre for Asia Pacific Aviation. (Overview, Indian aviation Industry, 2009)
Notable reasons for massive growth of the industry are-
Rise in Indian economy
Liberalization of aviation sector
Low Cost Carrier (LCC) flights
Government policy of 100% equity allowance in Greenfield airports
Low entry barriers
Exponential increase in tourist number due to open sky policy
Glamour of airlines
The liberalization has lead to the entry of private operators for business opportunities in India. The airlines choose an aircraft which is fuel efficient in order to provide low fares. More and more airlines are looking for fuel efficient aircraft thereby, increasing the competition in the market leading to huge cut in air fares resulting in massive growth of the industry. This growth has increased Indian GDP above 8% level. Moreover, it has also resulted in the increase in air traffic at a rate of 25% in the travel segment which is four times above international average. (Role of aviation in Indian GDP)
Services provided by Aviation Companies
Different types of services are provided by these aviation companies:
Normal passenger scheduled flights
Charter flights for pilgrimage in India
Hence there are different types of customers in the different segments both regional and international.
Indian aviation industry was introduced in 1911 with Karachi-New Delhi flight. In 1932, JRD Tata first introduced Tata airlines which in turn converted to Air India in 1946. In 1953, Government of India nationalized all airline assets and formed Indian Airline Corporation for domestic air services along with Air India for international services. Until 1991, these two companies played monopoly in India. In 1991, Government of India allowed private companies to operate chartered and non-scheduled airlines to uplift Indian tourism, followed by permitting scheduled services in 1994. After that, major changes have occurred in this segment only in last decade i.e. after 2000. (Aviation Industry in India, 2009)
The decade started with just three home grown players in the market- Air Sahara, Jet Airways and Air India. In 2003, Air Deccan came into the segment and introduced low airfare carrier, making the common man's dream of flying, come true. It created revolution in the industry and many more budget airlines like Spice Jet, Go Air and Indigo followed to enter in the market in next three years. At this time, Kingfisher airline was introduced and acquired Air Deccan. At the same time, Jet Airways bought out Air Sahara.
This sudden emergence in the aviation sector forced government to privatize major metro airports. Due to so much of privatization, Air India started making losses and Government finally merged Air India with Indian Airlines. Soon after, global crisis occurred and aviation industry took a hard hit. Fuel prices soared, air traffic dipped. No company made a profit at this time and many were about to close their services. By the end of November 2009, aviation sector has accumulated loss of around 1.7 billion USD. (A decade of booms and bust-ups for the aviation industry, 2010)
Current Infrastructure of Indian Aviation Industry
Civil aviation forms a very important infrastructure in boosting trade and commerce. Nearly 30% of India's foreign trade is handled by airports.
Key findings of current Indian aviation infrastructure are-
Currently, there are 454 airports and airstrips in India out of which, 16 are international and 111 are domestic airports.
97 Airports are operated by AAI (Airport Authority of India).
A Greenfield airport is already operational at Bangalore and one at Hyderabad is going to be operational soon.
Delhi's IGI Airport is business airport currently handling an average of 843 flights per day.
Hyderabad airport ranked among top five airports of India in annual Airport Sevice Quality (ASQ) Survey. It is managed by public private joint venture of GMR group, Malaysia Airport Holding Berhad and State Government of Andhra Pradesh.
India currently owns 335 aircrafts which is likely to increase to 1000 by 2020. (Overview, Indian aviation Industry, 2009)
In the recent years, the free flow of goods and services in these emerging economies has contributed to increased air traffic and consequently demand for new airplanes related services. Exhibit-2 shows the increasing demand for airplanes and their carrying capacity in the next 20 years which indicates the future problem of air traffic. The demand of the number of airplanes after 20 years is almost double as compared to the present level. From the exhibit, it can be seen that the highest increase in the demand of the size of airplanes is in the category of the single aisle airplanes, which means that it will lead to a serious problem of air traffic and the availability of airports. According to Air India, while the domestic market witnessed a growth of 22 per cent in the January-April period this year compared to the same period last year, its domestic traffic posted a growth of 26 per cent. (Air India clocks 16.7% growth in number of passengers, 2010)
Exhibit - 3 shows that there is a direct relationship of GDP of a country to the air traffic in the last four decades. Hence, in the developing nations like India wherein GDP is expected to grow at a faster pace, the growth of air traffic is correctly forecasted to be tremendous.
As India have placed the biggest order for aircrafts globally it's an indication to the increase in the handling problems-
Pushing more private players in airport activities
Modernization of airlines fleet to handle the growing competition
Rapid expansion plans for the major airports
Development of regional airports
Airline foreign investment and liberalization stimulates competition, provides passengers more choices and lowers ticket prices thus increases the demand for air travel, contributing to GDP growth.
Recent advances and investments in this industry show hidden potential and its growth story. This growth provides hassle free service to more customers and destinations and creates more job opportunities and growth for several other aviation related businesses.
Current Infrastructure Bottlenecks of Indian Aviation Industry
As seen from the given data of this report, Indian aviation industry is one of the fastest growing industries in the world. Number of passengers in 2009, travelling through airline was 393.53 lacks. This number has increased by 18.93% to 468.09 lacks in 2010. This is estimated to be growing to two to three folds till 2020. While the number of passengers and demand for other services are increasing with an amazing growth rate, the number of airports, aircrafts and overall investment forecast shows that there is going to be huge demand supply gap in upcoming future. (Corporate News, india Infoline, 2010)
In the 11th Five year plan (2007-2012), the government noticed the increasing growth rate of aviation industry and taken steps to improve overall infrastructure of the industry. 11th plan showed a massive budget for investing in aviation industry which is around 3 times more than previous one But even after these efforts, the demand is increasing to such a level in last 2 years i.e. after fragile recovery from crisis that infrastructure is again becoming the bottleneck of the aviation industry. (Eleventh Five Year Plan (2007-2012), 2007)
Key points of current bottlenecks of aviation industry are-
Lack of aircrafts- "The growth in the first-half of 2010 has been 22 per cent. However, it will not sustain and we think that about 12-15 per cent will be a sustainable one. Indian air-carriers' total fleet-size currently stands at 335 and at a passenger growth rate of 12-15 percent annually, they will need 35-40 planes per year to meet this demand. India will have the highest growth in the next 20 years on a sustainable basis." Said Dinesh Keskar, Boeing India president. The demand forecast till 2020 shows that there will be around 100 million for aviation industry in 2020 (Aviation industry in India, 2009). That means India's aviation infrastructure must be enough to handle 100 million customers in 2020, which is approximately 20 times the present one. The growth rate in aviation infrastructure is far less than required and it doesn't seem to be fulfilling demand in 2020. And even at present, there is less number of aircrafts and airports. So this issue, if not handled properly, will have a snowball effect on the industry and going to be a major issue in upcoming years.
Lack of skilled manpower- Skilled workforce helps proper control and back-up to several schedule/ non-schedule operations. There is a shortage of skilled manpower and Air Traffic Controllers (ATC) in aviation industry, which in turn, leads to a cut-throat competition for employees as a consequence of which, wages rises to an unsustainable level. It again hampers the growth of the industry by increasing overall costs of the airlines and thus reducing demand. Another issue of concern of inadequate manpower is that unskilled or semi-skilled employees are not capable of handling demand efficiently. This issue also creates a bottleneck in the industry. Overall we can say that in upcoming years, this is going to be a big concern for aviation industry and will hamper growth to a major extent. (Indian Aviation Industry: Issues & Challenges)
Lack of Airports and other related facilities- Due to less number of airports and their individual capacities, congestion costs are increasing. Many flights get delayed due to inadequate infrastructure facilities. This in turn, increases the overall operating costs of airlines resulting in fewer profits especially for low cost carriers (LCC) airlines. This forces airlines to increase their fare which is detrimental to growth of the industry as increment in fares leads to reduction in demand. Also, regional connectivity is a big issue in hampering growth of the industry as more and more cities are developing in terms of business and investments. For example, Bhopal, capital of Madhya Pradesh, has a limited airport capacity and flights are available only for Delhi and Mumbai. Other facilities at airports, like restaurants, also have limited capacities as compared to demand.
Efficient management of this Airport infrastructure can be achieved by increasing involvement of private sector
Proper coordination with other modes of transport for trade and travel should be emphasized
Proper world class infrastructure need to be done in order to maintain the growing demand and ensuring maximum utilization of available capacities.
The development and implementation of the modernization of Air traffic management will increase system capacity; lower operating costs for the aviation companies, reduces fuel burn, and improves the passenger's experience as delays and cancellations are reduced. Due to the lack of infrastructure improvements, capacity constraints will hinder industry growth.
Giovanni Bisignani, Director General and CEO of the International Air Transport Association (IATA), has called on India to give direction to the efforts in shaping future aviation policies, including environment and commercial freedoms. "In a few years, Asia Pacific will be the largest single aviation market. India is a key driver of that growth. India's enormous size makes it an important market." (Overview, Indian aviation Industry, 2009)
The Road Ahead
A projected investment of $ 8.5 billion is planned in 11th plan for the development of Indian airports.
Another Greenfield airport is planned at Navi Mumbai by public private partnership.
Over the next five years, Airport Authority of India has planned a massive investment of US$ 3.07 billion - 43 per cent of which will be for the three metro airports in Kolkata, Chennai and Trivandrum, and the rest will go into upgrading other non-metro airports and modernising the existing aeronautical facilities.
The demand for corporate jets in India has gone up considerably in the past few years and is likely to grow two-fold by the end of 2011. To further fuel the rapidly growing private jet industry, the government has plans of developing over 300 redundant airstrips in the country. The work will be carried out in a phased manner subsequent to the expansion and development of 35 non-metro airports by 2010. The government plans to focus on airstrips near major cities in order to relieve major airports from their burgeoning traffic.
Additionally, the government is also considering a new policy to permit private airstrips in the country. The Indian civil aviation minister, Praful Patel has said that India will require around 300 to 400 private jets in the next three to five years. The demand for private jets can even see a growth rate of about 50 per cent on a year-to-year basis.
A sum total of $110 billion has been planned to be invested till 2020, out of which $80 billion is for adding new aircraft. The aviation ministry is planning to invest the remaining $30 billion for modernizing the existing airports in order to handle the growing number of passengers every year. (Overview, Indian aviation Industry, 2009)
Exhibit 1: Growth of aviation industry region wise and its measures
Exhibit 2: Demand of Airplanes by type (Worldwide)
Exhibit 3: Forecasted growth and share of fleet
Exhibit 4: Direct relationship between GDP of a nation and the air traffic growth
Exhibit 4: Market share of different Indian aviation companies
Name of the company
Jet Airways and Jet Lite (previously Air Sahara)
Kingfisher Airlines and Kingfisher Red (previously Air Deccan)
Exhibit 5: Market share of different economy
Exhibit 6: Forecasted Traffic volume in 2028 in terms of multiple of current volumes
Exhibit 7: Forecasted traffic volume in terms of numbers
Exhibit 8: Forecasted air traffic in India
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