Documente Academic
Documente Profesional
Documente Cultură
Project Report
ON
“A STUDY OF THE INDIAN AVIATION INDUSTRY
WITH SPECIAL FOCUS ON ATF TRENDS”
This is an original piece of work & I have not submitted it earlier elsewhere.
VIPUL
BBA-3(A)
Enrollment no.
CERTIFICATE
I would like to thank my Project Guide Dr. Amit Gupta for his
immense guidance, valuable help and the opportunity provided
to me to complete the project under her guidance.
Last but not the least, my gratitude to great almighty and my parents
without whose concerned and devoted support the project would
not have been the way it is today.
Vipul
BBA-3(A)
Enrollment no.
4
EXECUTIVE SUMMARY
5
TABLE OF CONTENTS
TOPICS.
INTRODUCTION
o About Aviation Industry
o History of aviation industry
o Market Forecast
COMPANY PROFILE
o Company background
o Subsidiary Companies
o Aircraft of Air India
o Organizational structure
o Corporate Vision
o Business Strategy
o Product Upgradation
o Operational Improvement
o Network & Capacity Expansion
o Strategic Relationship
Merger of Air India and Indian Airlines
Major Expenditure
ATF – The major cost
o Type of Fuel
o Monopoly of PSU’s
o ATF price movement in India
o Price Structure in India
o Expenditure of NACIL on ATF
6
Staff Cost
Ratio Analysis
SWOT Analysis of AIR INDIA
SWOT Analysis of AVIATION INDUSTRY
Discussion and Conclusion
BIBLOGRPHY
7
INDIAN AIRLINES INDUSTRY- AN OVERVIEW
8
History of Aviation Industry in India
The first commercial flight in India was made on February 18, 1911, when a
French pilot Monseigneur Piguet flew airmails from Allahabad to Naini,
covering a distance of about 10 km in as many minutes.
Tata Services became Tata Airlines and then Air-India and spread its wings
as Air-India International. The domestic aviation scene, however, was
chaotic. When the American Tenth Air Force in India disposed of its planes
at throwaway prices, 11 domestic airlines sprang up, scrambling for traffic
that could sustain only two or three. In 1953, the government nationalized
the airlines, merged them, and created Indian Airlines. For the next 25 years
JRD Tata remained
the chairman of Air-India and a director on the board of Indian Airlines.
After JRD left, voracious unions mushroomed, spawned on the pork barrel
jobs created by politicians. In 1999, A-I had 700 employees per plane; today
it has 474 whereas other airlines have 350.
For many years in India air travel was perceived to be an elitist activity. This
view arose from the “Maharajah” syndrome where, due to the prohibitive
cost of air travel, the only people who could afford it were the rich and
powerful.
9
not only for international travel and trade but also for providing connectivity
to different parts of the country. Aviation is, by its very nature, a critical part
of the infrastructure of the country and has important ramifications for the
development of tourism and trade, the opening up of inaccessible areas of
the country and for providing stimulus to business activity and economic
growth.
Until less than a decade ago, all aspects of aviation were firmly controlled
by the Government. In the early fifties, all airlines operating in the country
were merged into either Indian Airlines or Air India and, by virtue of the Air
Corporations Act, 1953; this monopoly was perpetuated for the next forty
years. The Directorate General of Civil Aviation controlled every aspect of
flying
including granting flying licenses, pilots, certifying aircrafts for flight and
issuing all rules and procedures governing Indian airports and airspace.
Finally, the Airports Authority of India was entrusted with the responsibility
of managing all national and international air ports and administering every
aspect of air transport operation through the Air Traffic Control. With the
opening up of the Indian economy in the early
Nineties, aviation saw some important changes. Most importantly, the Air
Corporation Act was repealed to end the monopoly of the public sector and
private airlines were reintroduced.
10
11
Market Volume
12
Market value of the aviation sector
MARKET FORECASTS
13
14
2. Market Volume Forecasts
In 2011, the Indian airlines industry is forecast to have a volume of 205.2
million passengers, an increase of 411.8% since 2006. The compound
annual growth rate of the industr y volume in the period 2006-2011 is
predicted to be 38.6%. Estimated domestic passenger segment growth is at
12% per annum. Anticipated growth for International passenger segment is
7% while the growth for International Cargo is likely to grow at a
healthy rate of
15
16
AIR INDIA
Air India is India’s national Airline. Air India’s history can be traced to
October 15, 1932. On this day J.R.D. Tata, the father of Civil Aviation in
India and founder of Air India, took off from Drigh Road Airport, Karachi,
in a tiny, light single-engine de Havilland Puss Moth on his flight to
Mumbai via Ahmedabad.
Air India was earlier known as Tata Airlines. At the time of its
commencement, Tata Airlines consisted of one Puss Moth, one Leopard
Moth, one palm-thatched shed, one whole time pilot, one part-time engineer,
and two apprentice-mechanics. Tata Airlines was converted into a Public
Company under the name of Air India in August 1946.
On March 8, 1948, Air India International Limited was formed to start Air
India’s international operations. On June 8, 1948, Air India started its
international services with a weekly flight from Mumbai to London via
Cairo and Geneva with a Lockheed Constellation aircraft.
17
merger of eight domestic airlines to operate domestic services, while Air
India International was established to operate the overseas services. The
word 'International' was dropped in 1962. With effect from March 1, 1994,
the airline has been functioning as Air India Limited.
18
Incorporation
Subsidiary Companies
Air India has the following Subsidiary Companies with an Authorized /
Paid-up Capital (in Rs. Crores) as under
Authorised Paid-up
(a) Hotel Corporation of India 41.00
40.00
(b) Air India Charters Ltd. 30.00
30.00
(c) Air India Air Transport Services Ltd. 100.00
0.05
(d) Air India Engineering Services Ltd. 10.00
0.05
19
Subsidiary Companies
HCI
Hotel Corporation of India Ltd
Centaur Hotels at Juhu, Mumbai Airport and Rajgir Sold
Centaur Hotel at Delhi, Chefair-New Delhi and Chefair-Mumbai
Under Disinvestment
AICL
Air India Charters Ltd
New Airline Air India Express set-up under AICL
All AI Express operations carried out on B-737-800 with a current
fleet strength of 12.
AIATSL
Air India Air Transport Services Ltd
Incorporated in June 2003
Set up to undertake ground handling & other allied activities
Being operationalized at all domestic airports
20
AIESL
Air India Engineering Services Ltd
Incorporated to undertake engineering and other allied activities
To be operationalized
Cabinet approval required
21
AIRCRAFT OF AIR INDIA
The total aircraft on order are 111 (68 from Boeing and 43 from Airbus).
Aircraft Total
Airbus A 310 8
Airbus A 319 15
Airbus A 320 43
Airbus A 321 12
Airbus A 330 2
Boeing 737-800 22
Boeing 747 6
Boeing 737 5
Boeing 777 14
Airbus A 310 Freighters 4
Boeing 737 Freighters 6
ATR* 7
CRJ 700 3
Total 147
22
ORGANIZATION STRUCTURE
Organization Structure
Chairman & Managing Director
Chief Director- Director- Director- Director-
Vigilance Engineering Finance Personnel Commercial*
Officer
ED - Commercial
ED - Public Relations**
ED - Security
ED - Ground Services
ED - Northern Region
ED – Internal Audit
ED - Planning & Intl’ Relations
ED – Air Safety
ED - Corporate Affairs
ED - Properties & Facilities **
ED - Training *
ED – Co- ordination
9
* Yet to be appointed Company Secretary
** Presently in charge in the grade of GM.
23
Corporate Vision
Vision
To be among top five Asian airlines in terms of Yield,
Profitability, Productivity, Size and Quality
Mission
Focus on customer satisfaction
Grow with emphasis on sustained profitability
Provide exciting and satisfying work environment to retain and
develop employees committed to Corporate Vision
Focus on social responsibility – environment & community
Objectives
Achieve unit revenue, unit cost, profitability, productivity and
service level targets, based on benchmarked parameters
24
Business Strategy
A Multi-pronged approach
Capacity & Network Expansion – to increase market share & garner
competitive strength
Achieve dominance in core markets (USA/UK/Gulf/SEA)
Increase market access through strategic alliances
Product Upgradation:
Deploy modern aircraft with state-of-art passenger amenities
Operate customer friendly schedules with increased network
connectivity
25
Product Upgradation
Other Benefits
Better Aircraft utilization
Lower Fuel Consumption
Lower Maintenance Expenditure
26
Operations Improvement
27
– Ground Handling
– Information Technology
– Security
– Cargo
Technology Upgradation – IT Projects
Revenue Management – PROS implemented
Ticketing Time-Limit software implemented
Direct connect with GDS’s
Integrated computerization system for MMD
Disposal of surplus/redundant inventory
Implementation of Unit Load Device management system
Disaster recovery site at remote location
Air India Express IT Infrastructure
Data Mart for CRS sales data
Ramp Assistance Billing System for GSD/Finance
Online Financial Information System (FINESS)
28
Network & Capacity Expansion
29
Strategic Relationships
30
Awards and Recognitions
• Air India was conferred the ‘Best West Bound Airline from India’
award at the Galileo Express Travel and Tourism awards 2005
function held in Mumbai on 7 December 2005.
• The ‘Most preferred Brand’ Award in the international airlines
category by CNBC AWAAZ, a leading Hindi business television
channel, was presented to Air India at the AWAAZ consumer
awards 2006 function held in New Delhi on 18 July 2006.
• ‘Reader’s Digest Trusted Brand Gold’ Award was presented to Air
India at a function held in Mumbai on 18 May 2006.
31
Amalgamation of Air India Limited and Indian Airlines
Limited with National Aviation Company of India Limited
32
Ministry of Corporate Affairs is awaited.
The Authorized and Paid-Up Share Capital of the merged entity will be
Rs.1500,05,00,000/- and Rs.145,00,00,000/-, respectively.
It has been decided that post merger, the new entity will be known as “Air
India” while “Maharaja” will be retained as its mascot. The logo of the new
airline will be a red coloured flying swan with the “Konark Chakra” in
orange placed inside it. The flying swan has been morphed from Air India’s
characteristic logo “The Centaur” whereas the “Konark Chakra” was
reminiscent of Indian’s logo. The Corporate Office of NACIL will be at
Mumbai.
33
MAJOR EXPENDITURE
Most aviation fuels available for aircraft are kinds of petroleum spirit used in
engines with spark plugs i.e. piston engines and Wankel rotaries or fuel for
jet turbine engines which is also used in diesel aircraft engines. Alcohol,
alcohol mixtures and other alternative fuels may be used experimentally but
are not generally available.
34
TYPE OF AVIATION TURBINE FUEL
1) Duty Paid Fuel: - It is a type of fuel which is used for the operation with
in India like a flight from Delhi to Mumbai. This type of fuel is expensive
then the foreign fuel because it includes the sales taxes according to state
wise and also the exice duty which will affect to increase the price of ATF.
2) Bonded Fuel: - It is a type of fuel which is used for the operations outside
the India in this case fueling is done in India only and flight is moving
outside the India like a flight from Delhi to Bangkok. The bonded price
applicable for international flights ex-India is higher than the ATF price in
the international markets.
3) Foreign Fuel: - It is a type of fuel which is used for the operation outside
India in this case the fueling is done in the foreign station only and flight is
coming from abroad to India like a flight is coming from New York to
Delhi. This is the cheapest type of fuel among all of the fuels.
35
Last few years have once again clearly highlighted the highly cyclical nature
of the Aviation industry worldwide. ATF consumption has roughly doubled
from 2002 to 2007
36
Monopoly of PSU Oil companies:
A major reason for high price even after deregulation of ATF price, is the
monopoly of the 3 state owned Oil companies. Because of limited number of
suppliers there has hardly been any effective choice for the airline industry,
with the 3 state owned oil companies fixing the ATF price on a mutually
agreed common formula between them.
The government has granted marketing rights to some companies in the oil
sector like Reliance, Essar , ONGC etc. None of these companies however,
could start supply of ATF as they were not allotted space by the Airport
Authority. Recently Reliance has been allotted land at 25 airports in India;
and is moving towards setting up Aviation Fuelling stations at some of these
airports.
It is hoped that the resultant competition will bring about a reduction in the
unreasonable ATF price levels prevalent in India.
37
contingencies on the Refinery Transfer Price after the addition of the
import parity add-on.
The add-on varies between the various cities.
On this, the Central Government levies an Excise Duty of 8%.
On the resultant price, the various State Government levy local Sales
Taxes ranging from 4% to 39%: which on an average works out to
25% countrywide.
The Government levies thus works out to an add-on of 35%.
A
T Refined
ATF
F
Government levies of
ATF Price 35% - 8% Central
Sales Tax plus 25%
State Sales Tax
38
Thus, Domestic carriers in India pay nearly double the prices vis-à-
vis elsewhere in the world.
ATF Expenses: Constitute around 40% of the total operating costs for
domestic Indian carriers.
14000
12000
10000
Delhi
Qua n tity (KL)
8000 Mumbai
Kolkata
Chennai
6000 Bangalore
Hyderabad
4000
2000
0
April June Aug Oct Dec Feb
2007-2008
Months
39
The three Governments owned oil companies viz. Indian Oil
Corporation, Hindustan Petroleum and Bharat Petroleum jointly fix
prices. Also,
Airlines cannot source supply of ATF from any other supplier.
Airlines are offered common terms by the three suppliers, with
no competition amongst themselves.
Government still has a role in determining the applicable prices
even though APM has been abolished.
The infrastructure – Hydrants & Storage facilities– are owned by Oil
Companies, who are unwilling to share these facilities with private
suppliers e.g. Reliance who as a result export the ATF they produce.
40
Policy makers and aviation specialists have recognized the distortions
created in economics of Indian civil aviation industry because of
current high prices of ATF and present pricing policy
A Committee appointed by the Government to review the Indian civil
aviation scenario and make recommendations about future civil
aviation policy has made several recommendations about ATF in its
report.
41
60000
50000
40000
Duty Paid
30000
Bonded
20000
10000
0
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
02 03 04 05 06 07 08 09
42
Movement of ATF in last 2 years
43
AT F R AT E S D U R IN G 2 0 0 7 - 0 8 & 2 0 0 8 - 0 9
80000
70000
60000
50000
R s / Kl
40000
30000
20000
10000
MONTHS
2 0 0 8 - 2 0 0 9 D u t y P a id 2008-2009 Bonded
2 0 0 8 - 2 0 0 9 F o r e ig n 2 0 0 7 - 2 0 0 8 D u t y P a id
2007-2008 Bonded 2 0 0 7 - 2 0 0 8 F o r e ig n
44
high then the last year price of Rs 26700 per KL. But as the year move
further the ATF price of year 2008 start decreasing and in the month of the
December 2008 the ATF price is much lowers then the last year ATF prices.
In December 2008 the domestic ATF prices is 35300 which is almost 41%
lower then the last year price of Rs 49750 per KL and the bonded ATF price
is 30750 which is almost 28% lower then the last year price of Rs 39350 per
KL and the international fuel price is Rs 24800 per KL in December 2008
which is almost 34% lower then the last year fuel price i.e. Rs 33250 per
KL. Indian carriers bought ATF at Rs 37,800 / kl in April 07, while
international carriers paid only Rs 21,800 / kl in Singapore, which is about
73% higher
45
- Madhya Pradesh - 28.75%
- Lowest
- Port Blair - Nil
46
Average ATF prices in India (As on 1st May’ 2009)
(Rs./Kl)
Domestic flights 34400
International flights (Ex-India) 24500
ATF prices in international market 20500
As would be seen from above, the ATF price in India is Rs. 34400 per
Kilolitre i.e. about 68% higher compared to international price of
Rs.20500 per kilolitre. Even the bonded ATF price in India is Rs.
24500 per Kilolitre i.e. about 20% higher compared to international
ATF price.
Despite, deregulation of ATF price since, 1st April, 2002, there has
been no major reduction in ATF price as PSU oil companies continue
to enjoy virtual monopoly for ATF supply in India. There is almost
cartelization amongst PSU oil companies whereby they fix common
ATF price as per some non-transparent formula applied by them.
47
The fuel cost of NACIL including Alliance Air has gone up
manifold over the years as indicated below:
Year (Rs.Crores)
1999-00 1568
2002-03 2271
2003-04 2588
2004-05 3944
2005-06 5446
2006-07 6331
2007-08 7309
2008-09 (Budget estimates assuming 2007-08 av. price) 7700
2009-10 (Budget estimates assuming Feb’09/Mar’09 price) 5291
2009-10 (Revised estimates based on current price) 5300
9000
8000
7000
6000
5000
Total expenditure on ATF
4000
3000
2000
1000
0
1999- 2002-- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
00 03 04 05 06 07 08 09 10
48
From above, it would be seen that ATF cost for the
combined network of NACIL has already gone up for the
current year i.e. 2009-10 by Rs. 572 cr. over and above the
budgeted cost.
49
- ATF for domestic flights be made available at the same rate
(i.e. bonded price) as applicable for international flights.
- There is a need to fix ATF price by PSU Oil companies in a
transparent competitive manner
50
Fuel Prices and Lack of Efficiencies Causing Airlines’ Losses
The sharp increase in crude oil prices in the first half of 2008 has led to a
corresponding rise in the price of aviation turbine fuel (ATF) for all airline
companies, due to which they are expected to post heavy losses. Fuel cost as
a percentage of total operating costs has increased by 300-600 basis points.
51
STAFF COST:
A staff cost constitutes nearly 20% of Air India's total cost. Currently, the
carrier runs an annual wage bill of over Rs.3,000 crore. AI is also looking at
improving productivity of employees, elimination of restrictive work
practices and reducing wasteful expenditure. The national carrier has around
31,000 employees. The airline was now targeting a reduction in employee
cost to the tune of Rs 500 crore per annum.
The following efforts were made to reduce the staff cost:
- Freezing of external recruitment in non-operational categories;
- Freezing of vacancies and abolition 781 vacant posts;
- Reduction in staff strength in India through a rolling back of the retirement
age from 60 to 58 years;
- Implementation of Schemes such as Shorter Working Week(SWW) and
Leave Without Pay(LWP);
- Redeployment of staff from non-operational to operational areas;
- Reduction in temporary postings and duty tours abroad;
- Retrenchment of staff at foreign stations through Voluntary Retirement
Schemes.
52
RATIO ANALYSIS
(As balance sheet available of year 2005-06)
Short Term Solvency Ratio
53
Working Capital Ratio=0.08
The working capital ratio is an indicator of the efficiency of a company's
management of stocks, debtors and creditors. If the working capital ratio is
0.2, this means the company needs 8p of working capital for every Rs1 of
annual sales. If annual sales increase by Rs1,00,000 of then the company
will have to invest Rs8,000 in working capital to be able to meet this. A
working capital ratio of less than 1 indicates negative working capital.
Fixed asset turnover is the ratio of sales (on the Profit and loss account) to
the value of fixed assets (on the balance sheet). It indicates how well the
business is using its fixed assets to generate sales. Generally speaking, the
higher the ratio, the better, because a high ratio indicates the business has
less money tied up in fixed assets for each rupees of sales revenue. A
declining ratio may indicate that the business is over-invested in fixed assets.
However, financial analysts claim that such a ratio is inconclusive:
companies do not generally cite or reference these figures. The fixed assed
turnover ratio of AIR INDIA has been on the lower side. That means it
shows that the company has been not effective in using the investment in
fixed assets to generate revenue. There is no exact number that determines
whether a company is doing a good job of generating revenue from its
investment in fixed assets. This makes it important to compare the most
recent ratio to both the historical levels of the company along with peer
54
company and/or industry averages. But due to lack of availability of data this
could not be done.
Operating Ratio=104.52%
55
Operating profit & expenditure analysis
(in
crores)
Operating Operating Operating
Years revenue expenses profit
2006 8439 9870 -1431
2005 8833 9233 -400
2004 7588 7538 50
2003 6146 6113 33
2002 5275 5465 -190
2001 4751 4805 -54
2000 4927 4924 3
1999 4448 4372 76
1998 4135 4139 -4
1997 3837 4029 -192
1996 3533 3945 -412
56
12000
10000
8000
Operating expenses
2000
0
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996
-2000
The Gross Profit Ratio of AIR INDIA has been just 1.06, mainly because of
the fewer profit margins. The only way it can improve its GP Ratio is by
increasing its trading margin, or by decreasing its cost of expenditure. Incase
of AIR INDIA increasing of trading margin is not possible because of the
severe competition they face. Hence they should try to reduce there cost of
Expenses.
57
to finance increased operations (high debt to equity), the company could
potentially generate more earnings than it would have without this outside
financing. If this were to increase earnings by a greater amount than the debt
cost (interest), then the shareholders benefit as more earnings are being
spread among the same amount of shareholders. However, the cost of this
debt financing may outweigh the return that the company generates on the
debt through investment and business activities and become too much for the
company to handle. This can lead to bankruptcy, which would leave
shareholders with nothing.
58
Revenue passenger carried
5000000
4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006-
98 99 00 01 02 03 04 05 06 07
59
Passenger load factor
74
72
70
68
66 Passenger load factor
64
62
60
58
1997- 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006-
98 99 00 01 02 03 04 05 06 07
60
SWOT ANALYSIS OF AIR INDIA
Air India is the leading airlines in the India. Air India is based on
domestic enplaned passengers and scheduled domestic departures. Air
India has shown a strong performance in revenues in 2008. Strong
operating performance lends financial stability to the company which
could be leveraged to seek more growth avenues of growth in future.
However, the rising prices of aviation turbine fuel could adversely affect
Air India operating margins.
Strengths
Operational performance
Air India registered a strong operational performance for fiscal 2008-09.
The company recorded revenues of Rs 15000 Crore during the fiscal
year, an increase of 70% over 2005-06. During fiscal year 2008, the
company’s revenue growth was driven by increase in passenger segment
revenue and merger with Indian airlines. The increase in passenger
revenues primarily was due to an increase in capacity, and an increase in
load factor. In addition the revenue growth is backed by growth in freight
and cargo revenues, which was a result of higher rates charged. This
growth was also partly driven by improved efficiency in the company’s
operations. Strong operating performance lends financial stability to the
company which could be leveraged to seek more growth avenues in the
future.
61
Market leadership
Air India is the leading airlines in the India. The airline has been ranked
the top in India’s domestic airline (in terms of number of passengers) by
the bureau of transportation statistics (BTS) in 2005. Air India newly
orders about 68 from Boeing and 43 from Airbus. Air India dominates
the markets it serves, ranking first in market share in India. Its strong
market position is driven not just by consistent delivery of low fares but
also due to reliable service, frequent and convenient flights, comfortable
cabins, in-flight experience, frequent flyer programs, hassle-free airports,
and friendly customer service. Strong market position gives the company
the advantage of scale and helps it in strengthening its brand image.
Weaknesses
62
Lower load factor
Though the overall operating performance has been steady, Air India
passenger load factor of 63.2%, which was the company’s record, lags
the industry average of 75% in 2006-07.The load factor difference is
even greater when compared to other low fares carriers such as Air
Deccan. The company’s load factor is decreasing year by year, in 2005-
06 load factor is 66.2% which is more than present load factor. Air India
load factor is likely to be low because of the much higher frequency
operated on each route. Lower load factor could decrease the company’s
margins.
Opportunities
63
Growth in freight business
The Indian economy is one of the fastest growing in the world, but the
boom is not without its stops, starts, and bottlenecks, all of which also
make themselves felt in the country’s freight transport sector. Air India
had also launched a major cargo incentive scheme for cargo agents of Air
India and erstwhile Indian on the entire network. The scheme, which
generated enormous response, entitled top producing agents of each
region to become eligible for an all-inclusive incentive trip on Star
Cruise.
In January 2008, Air India registered a growth of 6.4% whereas industry
showed negative growth of 12% compared to September 2007. In the
month of March 2008, industry grew by 24.8% over January 2008
carriage whereas Air India cargo showed an increase of 43.4%. Strong
economic and foreign trade growth is underpinning the freight upturn.
The demand for air travel to the Asia Pacific is rising driven by increased
economic activity in emerging Asian countries such as China and India.
Traffic is projected to grow at 7% in China and India combined, above
the world average of 5%. Further, the share of Asia Pacific region in
world passenger traffic (revenue passenger kilometers) is forecast to rise
from 25% in 2003 to 31% in 2023. Against this backdrop, Air India is
64
well positioned to benefit with its increasing emphasis on Asia-Pacific
operations.
Threats
65
High interest rates
The past few years have seen Central Banks impose higher interest rates
to check inflation and the over heating of regional economies. The
Reserve Bank of India has led the way raising interest rates. Inflation
fears in the India may see another raise in the short-term.
According to Economics times, the India real GDP growth is 9.20% in
2007 to 9.00% in 2008 and this downward trend is also seen in 2009.
This in turn could depress consumer spending and offset some of the
positive trends in the India for the company.
66
GDP real Growth Rate
12.00%
10.00%
8.00%
4.00%
2.00%
0.00%
2003 2004 2005 2006 2007 2008
Intensifying competition
AIR INDIA is now competing against more credible low cost carriers
such as Spice jet, Go air, Indigo Airline, and Jetlite etc. Indigo Airlines
remains Air India strongest competitor because of its competitive cost
structure, strong brand name and ambitious growth plans over the next
seven years. Air India also faces increased competition from Air Deccan
low-fares subsidiary, Song. Moreover, major legacy airlines have been
focusing on restructuring costs, which has improved their
competitiveness. With costs restructured, the legacy airlines are
becoming more formidable competitors in terms of increasing capacity,
matching prices and leveraging their frequent flier programs. Increasing
competition could adversely affect the company’s margins.
67
SWOT Analysis of Aviation Industry
Strengths
68
relatively young and modern fleet, ensuring a high quality passenger
experience, improved safety and good operational reliability.
High Quality: India's airlines offer a good quality product in each of the
operating models in existence. Jet Airways and Kingfisher Airlines are
competitive in terms of their in-flight service against the leading carriers
in the world. Kingfisher for example is one just half a dozen global
carriers such as Singapore Airlines and Cathay Pacific , with a Skytrax
5 star rating. In fact it could be argued that the full service product on
domestic routes is excessive for the sector lengths involved and results in
a higher cost structure, which the passenger does not necessarily see
value in paying for. The LCC’s too, by and large, offer a comfortable,
efficient and reliable service. Until a couple of years ago, Air Deccan
was one carrier that had developed a reputation for poor on-time
performance, flight cancellations and overbooking, however since being
acquired by Kingfisher, most of these operational issues appear to have
been resolved.
69
month and the outlook for growth and consumption has improved, which
is a positive for the aviation industry.
Weaknesses
Airport Infrastructure: The rapid growth in air traffic over the last few
years exposed the deficiencies of airport infrastructure across the country.
After decades of neglect, many of India's airports were forced to operate
well above design capacity. The resulting congestion in the terminals and
on the runways delivered a poor experience for the passenger and a
costly, inefficient operating environment for the airlines. However,
although a weakness today, it is also fair to say that it is becoming less
so, as the airport modernisation program starts to deliver results, with
new airports in Bangalore and Hyderabad, and improving facilities at
Delhi and Mumbai. The upgrade of non-metro airports remains behind
schedule so it may be another 3-4 years before we see good quality
facilities across the country, but there are tangible signs of improvement.
70
Airways Infrastructure: Although congestion on the ground is
relatively visible, another current area of weakness is the limited
investment that has taken place in improving infrastructure for air traffic
management. This too results in expensive aircraft holding patterns,
indirect flight paths and sub-optimal use of runways.
Deep Pockets: Over the last three years, India's carriers have
accumulated billions of dollars in losses and debt. Ironically, a
characteristic that would normally be considered a strength - namely deep
pockets - has resulted in carriers remaining afloat that would perhaps in
other circumstances have failed. With the backing of either the
government or large corporations, several carriers have been able to
access funding that they might have been denied on a strictly commercial
basis as standalone airlines. As a result of the intense competition which
has been perpetuated, airlines have struggled to raise fares to break even
levels.
71
High Cost Structure: India's airlines operate in a relatively high cost
environment, primarily due to the punitive taxation structure. The
greatest impact is felt in the area of sales taxation on fuel, which can
increase the cost to 60% above the international benchmark. The
limitations of airport infrastructure also increase costs due to the fact that
carriers are unable to schedule fast turnarounds, resulting in reduced
aircraft utilisation. In addition, the fact that high quality ancillary services
such as MRO and training are not currently available in India, means that
aircraft and personnel have to be sent overseas.
Skilled Resources: Domestic air traffic in India tripled in the five years
to 2008, while international passengers doubled. This rate of growth far
outstripped the capacity to develop skilled technical and management
personnel. The gap was partly addressed by employing expatriates,
particularly as pilots, and by learning on the fly. This means there is a
lack of in-depth experience and knowledge at all levels. Furthermore,
there is an absence of high quality training infrastructure in-country to
deliver the resources to support future growth. This lack of personnel
affects the government as well and the FAA has expressed its concern at
the shortage of qualified safety inspectors within the Directorate General
of Civil Aviation (DGCA). India has been put on notice that unless this
issue is addressed, it may be relegated to a Category II nation, which
would mean that Indian carriers would not be permitted to increase
services to the US.
72
Opportunities
Market Growth: Despite the rapid expansion of recent years, India has
only just scratched the surface of the potential for the aviation sector.
Trips per capita remain low even by the standards of other developing
countries. China's domestic market is more than four times the size of
India's 40 million passengers. Even, Australia, a country with a
population of just 21 million, compared with India's 1.1 billion, has a
market 25% larger. Similarly on the international front, less than 1% of
Indians travel overseas each year. Inbound visitor nunbers at 5.4 million
in 2008 for the entire country, were less than for Dubai or Singapore. It is
not difficult to see the expansion potential from such a low base as
economic growth continues apace.
73
improvements in airport and airspace infrastructure, the development of
indigenous training and maintenance facilities and the potential for fiscal
reform, all point to the potential for Indian aviation to increasingly
operate in a lower cost, higher quality and more efficient manner. This
could in due course lead to an opportunity for India to develop as a global
outsourcing hub in areas such as aerospace manufacturing, MRO and
training.
Threats
Terrorism: India has seen frequent terrorist activity in recent years. The
country has shown great resilience in bouncing back after each attack;
however inbound international traffic in particular is sensitive to such
events. Similarly the potential for India to develop as a global traffic and
services hub is contingent upon it being seen as a safe and attractive
destination.
74
DISCUSSION
75
it can implement it. Also, any assistance from the government would
have to be matched by an aggressive cost reduction, including a drastic
cut on salaries, and a better revenue management by NACIL and that it
must come up with a concrete cost reduction proposal.
The idea is to save money on lease dole outs and, instead, use that for
paying for the new planes that would also be very fuel efficient unlike the
old rented ATF guzzlers. But getting the companies to take the planes
back is going to be a huge challenge. A leased Boeing 777, for instance,
has a monthly rental of $9 lakhs. The airline also told the panel that it
needed new aircraft to phase out the old ones in its fleet in order to
compete.
76
Other remedial costs measures taken to improve operating results include:-
- Focus on cost reduction and rationalization of costs in major areas of
Company's functioning;
- closing down uneconomical offices and the down sizing of foreign offices;
- More economical hotel accommodation for operating and Cabin crew;
- Introduction of measures of all stations in India and abroad to curtail use of
hotels for staff on duty tours by encouraging them to return to the base the
same day;
- A cut of 10% in daily outstation allowance payable at all foreign stations
and 25% at Indian stations;
- Reduction of meal wastage and the rationalization of catering on board;
- Curtailment of Cash Publicity Budget;
- Curtailment of overtime, temporary posting and a substantial reduction in
costs in respect of controllable heads viz. Communication, Printing and
Stationery, General Charges etc;
- Outsourcing of staff transport and redeployment of drivers to operational
areas.
77
BIBLOGRPHY
www.airindia.co.in
www.wikipedia.org
http://search.ebscohost.com
Business India
Economics Times
I M Pandey
78