INDIAN AVIATION INDUSTRY : INDIAN AVIATION INDUSTRY as service sector Presented by:
Santosh kumar Flow of presentation : Liberalization and history
Summation/conclusion/recommendation Flow of presentation Indian Aviation liberalization : Indian Aviation liberalization Industry characteristics : Industry characteristics Capacity expansion and competitors : Capacity expansion and competitors Sector structure/Market size : With a growth rate of 18 per cent per annum, the Indian aviation industry is one of the fastest growing aviation industries in the world.
Today, private airlines account for around 75 per cent share of the domestic aviation market.
India has jumped to 9th position in world's aviation market from 12th in 2006 Sector structure/Market size Aviation policy : Aviation policy Demand drivers : Demand drivers PESTEL : Political – Govt.is not stable
Economy – Disposable income is increasing .
GDP grow is more than 9%.
Social -- Status conscious
-- Awareness is increasing
-- Increase in Entrepreneurship
Technology – Indigenous technology is coming for aircrafts & airports.
Legal -- Flexibility in entry .
The five year stringent law towards flying abroad .
Environment – Stiff competition for hiring pilots (poaching)
Easy FDI(49%) through secondary market PESTEL STP : SEGMENTATION
- HNI People .& others
-Oil exploring companies
Chartered air service –
Statement - STP Slide 12: Services/product – Hell Skiing, Leisure channels flights, Charter flight for pilgrimage,
Hiring Jet/Chopper film shooting ,Air ambulance. On shore service
Price -- Epic jet (7seater) - Rs 167,000/hr
Cessane luxury jet(7seater) - Rs 217,000/hr
Robinson chopper(5seater) - Rs 35,000/hr
Honda Chopper(Medical) - Rs 50.000/ hr
Promotion – Strategy - Advertising in all leading corporate/travelling magazines
Tie-up with corporate/Travel Agencies Slide 13: Physical evidence - Aircrafts
People - Pilots
Productivity /process - Giving convenience in travelling
Place – Metros & capitals Challenges : Declining yields
Building on cost efficiencies
High input costs
Gaps in infrastructure Challenges Declining yields : LCCs and other new entrants together now command a market share of around 46%
Legacy carriers forced to match low LCC fares, during a time of escalating costs
Increasing growth prospects have attracted & likely to attract more players
More players – more competition – lower fares – a continuous cycle
The bottom-line – lower yields for all operators Declining yields Building on cost efficiencies : Low yield regime to continue
Airlines have to build on their cost efficiencies & drive down costs below the yield that their product will fetch, to return to profits
For an industry that is estimating losses of US$ 500-550 million by end of current fiscal, this is a daunting challenge
Yet, airlines have no control on external input costs Building on cost efficiencies Contd.. : High input costs
ATF prices in India continue to be far higher than global rates, making ATF account for 35-40% of operating cost, as against global average of 20-25%
High basic rates aggravated by high taxes imposed by State Govt.’s
ATF cost / kilolitre :
US$ 755 in Delhi
US$ 780 in Mumbai
US$ 455 in Singapore
US$ 497 in Dubai
High input costs
Witholding tax on interest repayments on foreign currency loans for aircraft acquisition
Witholding tax proposed on aircraft lease rentals for leases concluded after 1st April’07.
Increasing manpower costs due to shortage of technical personnel Contd.. Gaps in Infrastructure : Airport and ATC infrastructure inadequate to support growth
Airlines paying for these strategic gaps in many ways
Higher fuel consumption - long holding times, on ground and in the air
Lower utilisation of aircraft - slot constraints and air traffic congestion
Sub-optimal route network strategies, due to lack of night parking stands at major airports and navigational aids at many of the smaller airports
Increased passenger facilitation costs
While a start has been made to upgrade infrastructure, the results will be visible only after 2 – 3 years Gaps in Infrastructure Opportunities : A large & growing potential market
Developing alternative revenue streams
Air cargo operations
Airframe, engine & component overhaul
Leveraging the internet
Access to new markets Opportunities Air Cargo : Freight carriage in India currently around 4200 tons per day
CAGR of 15% over the past 2 years
Fuelled by a fast growing economy, supported by a strong industrial base
Forecast to grow at 11.4% p.a. till 2011-12 Air Cargo Ground Handling : Ground handling business in India estimated at Rs. 1074 crores
Expected to grow at 15% CAGR till 2011-12
Opportunity lies in 3rd party handling as well as entering into service contracts with private airports / AAI to offer comprehensive ground handling solutions, e.g. AI – CIAL at Cochin Ground Handling Training : Airlines in India will need training for pilots, engineers, cabin crew, load & trim, etc.
Projected requirement for 3600 additional pilots in the short to medium term
Cabin crew, engineers, technicians will also be required to support aircraft being inducted
Opportunity for simulator training establishments
IA already has a Central Training Establishment at Hyderabad, with facilities for most categories / types of trainings on A320 Training Leveraging the internet : Increasing numbers are booking directly from the airlines’ websites
Traditional sales channels with paper tickets cost airlines ~10% of ticket price
Comparatively, e-ticket sales from own website cost an airline only ~3% of ticket price
For every direct booking from their website, airlines save an estimated US$ 4 plus 5% agency commission
Airlines can also turn their websites into one stop shops for all travel related services, generating additional revenue Leveraging the internet Access to new markets : As airlines complete 5 years of domestic operations, those with 20+ aircraft will get international access
Access to new revenue streams
Help even out the seasonality factor of domestic operations
Spread the risk of downturn in a single market
The opportunity for some will be a challenge for the existing international players
The risk – cycle of increased competition, low yields, and growth transferred to the international arena Access to new markets Current scenario of Indian aviation industry : The Indian aviation industry Is one of the fastest growing aviation industries in the % share of the world.
India has 454 airports and airstrips; of these,16 are designated international airports.
With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transforamtion.priavate airline account for around 75% share of the domestic aviation market
Being primarily a govt-ownwed industry ,the Indian aviation industry is now dominanated by privately owned full service airlines and low cost carriers. Current scenario of Indian aviation industry Market size : Domestic and international traffic is up 45% and 15.1 %,respectively.
Over 135 aircraft have been added in the past two year alone.
Center for Asia pacific aviation (CAPA) estimates domestic traffic to grow 25-30 % annually and international traffic 15%untill 2010. Market size Summation : Indian Aviation has seen high growth on account of sustained Indian socio economic growth and liberalized Government initiatives
Airport Infrastructure needs to improve significantly to meet the current and future demand of the Indian Aviation Sector
Authorities have initiated various steps to implement modernization, reconstruction and development of airport infrastructure to implement infrastructure development plan
Provides a huge opportunity for private players operating in Aerospace and allied industries
Significant opportunity for foreign companies as Indian companies not technologically equipped to cater to requirements Summation In sum…… : Despite a growing market, airlines in India are fighting for survival in a highly competitive environment
A host of initiatives are required to be taken by all concerned, to tide over the current situation
Improve quality of service
Develop a large pool of skilled / technical manpower
Attract more professionals to manage the aviation industry
Develop infrastructure to match growth plans
Liberalise rules & regulations governing civil aviation, without compromising on safety & security
Reduction in ATF prices and taxation on ATF and lease rentals In sum…… THANK YOU : THANK YOU