Innovative Journal of Business and Management 1: 3 May June (2012) 54 56. Contents lists available at www.innovativejournal.

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CHALLENGES OF INDIAN AVIATION INDUSTRY IN CHAOTIC PHASE

Rajesh U. Kanthe*
Bharati Vidyapeeth Deemed University, IMRDA, SANGLI, India ARTICLE INFO Corresponding Author: Dr. Rajesh U. Kanthe* Associate Professor. Bharati Vidyapeeth Deemed University, IMRDA, SANGLI, India rajesha19@rediffmail.com ABSTRACT The Indian airline industry was mainly deregulated in 1990; plenty of enduring rules and regulations have made it nearly impossible for carriers to be efficient. Many believe that restrictions on foreign ownership and labor laws have kept the industry away from innovating. So instead of protective measures like, survival fund, bailouts, airlines need to work with government to tackle longer-term problems. Missions like bringing low cost carrier for an average Indian who dreams to travel by air once in life and secondly building more runways, running airports more efficiently, and reining in labor costs. This paper discusses and reviews the challenges faced by aviation companies which Include shortage of workers and professionals, safety concerns, declining returns and the lack of accompanying capacity and infrastructure. Moreover, stiff competition and rising fuel costs are also negatively impacting the industry 2012, IJBM, All Right Reserved (8.5%-10.0%) is an attractive proposition for airlines. However the challenges in importing, storing and transporting jet fuel will be a considerable roadblock for airlines due to OMCs monopoly on infrastructure at most Indian airports. From the working capital standpoint too, airlines will need to deploy significant amount of resources in sourcing fuel which may not be easy given the stretched balance sheets and tight liquidity profile of most airlines. INDIAN AVIATION INDUSTRY The first commercial flight in India took-off in , 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. The Indian Aviation Industry has been going through a chaotic phase over the past several years facing multiple headwinds high oil prices and limited pricing power contributed by industry wide over capacity and periods of subdued demand growth. Over the near term 54

KeyWords: Indian airline industry, challenges, commercial flight, Infrastructure

INTRODUCTION India aviation industry promises huge growth potential due to large and growing middle class population, favorable demographics, rapid economic growth, higher disposable incomes, rising aspirations of the middle class, and overall low penetration levels (less than 3%). While the domestic airlines have not been able to attract foreign investors (up to 49% FDI is allowed, though foreign airlines are currently not allowed any stake), foreign airlines may be interested in taking strategic stakes due to their deeper business understanding, longer investment horizons and overall longer term commitment towards the global aviation industry. Healthy passenger traffic growth on account of favorable demographics, rising disposable incomes and low air travel penetration could attract long-term strategic investments in the sector. There are challenges: i) aviation money matters is currently not favorable in India resulting in weak financial performance of airlines and ii) Internationally, too airlines are going through period of stress which could possibly discourage their investment plans in newer markets. Besides, foreign carriers already enjoy significant market share of profitable international routes and have wide access to Indian market through code-sharing arrangements with domestic players. Given these considerations, we believe, foreign airlines are likely to be more cautious in their investment decisions and strategies are likely to be long drawn rather than focused on short term valuations. On the proposal to allow import of ATF, we feel that the duty differential between sales tax (averaging around 22-26% for domestic fuel uplifts) being currently paid by airlines on domestic routes and import duty

Kanthe/Challenges of Indian Aviation Industry in Chaotic Phase the challenges facing the airline operators are related to high debt burden and liquidity constraints - most operators need significant equity infusion to effect a meaningful improvement in balance sheet. Improved financial profile would also allow these players to focus on steps to improve long term viability and brand building through differentiated customer service. Over the long term the operators need to focus on improving cost structure, through rationalization at all levels including mix of fleet and routes, aimed at cost efficiency. At the industry level, long term viability also requires return of pricing power through better alignment of capacity to the underlying demand growth Historically, the Indian aviation sector has been a foot-dragger relative to its growth potential due to unnecessary, government ownership and regulations of airlines and resulting high cost of air travel. However, this has changed rapidly over the last decade with the sector showing explosive growth supported by structural reforms, airport modernizations, entry of private airlines, adoption of low fare - no frills models and improvement in service standards. Like elsewhere in the world, air travel is been transformed into a mode of mass transportation and is gradually shedding its elitist image. CIVIL AVIATION POLICY IN INDIA: In the context of a multiplicity of airlines, airport operators (including private sector), and the possibility of oligopolistic practices, there is a need for an autonomous regulatory authority which could work as a watchdog, as well as a facilitator for the sector, prescribe and enforce minimum standards for all agencies, settle disputes with regard to abuse of monopoly and ensure level playing field for all agencies. The CAA was commissioned to maintain a competitive civil aviation environment which ensures safety and security in accordance with international standards, promotes efficient, cost-effective and orderly growth of air transport and contributes to social and economic development of the country. Objectives of Civil Aviation a) ) Security of civil aviation operations is ensured through appropriate systems, policies, and practices b) Private participation c) Safe, efficient, reliable and widespread quality air transport services are provided at reasonable prices d) Flexibility to adapt to changing needs. e) To provide all players a level-playing field f) Effective regulation of air transport in the country in the liberalized environment g) Encourage Trade, tourism and overall economic activity and growth h) Aviation safety, security AIRLINE PLAYERS IN INDIAN SKY Indian Airlines Indian Airlines was founded in 1953. Today, together with its fully owned subsidiary Alliance Air, it is one of the largest regional airline systems in Asia with a fleet of 62 aircraft(4 wide bodied Airbus A300s, 41 fly-by-wire Airbus A320s, 11 Boeing 737s, 2 Dornier D-228 aircraft and 4 ATR-42).It has many firsts to its credit, including introduction of the wide-bodied A300 aircraft on the domestic network, the fly-by-wire A320, Domestic Shuttle Service, The airlines network spans from Kuwait in the west to Singapore in the East and covers 75 destinations 57 within India and 20 abroad. The Indian Airlines 55 international network covers Kuwait, Oman, UAE, Qatar and Bahrain in West Asia, Thailand, Singapore, Yangon and Malaysia in South East Asia and Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and Maldives in the South Asian sub-continent.Indian Airlines is presently fully owned by the Government of India and has total staff strength of around 18562 employees. Its annual turnover, together with that of its subsidiary Alliance Air, is well over Rs.4000 crores (around US$ 1 billion). Source: Capitaline, ICRA Research Kingfisher Airlines: Kingfisher Airlines Limited is an airline group based in India. Its head office is in Andheri (East), Mumbai and Registered Office in UB City, Bangalore. Kingfisher Airlines, through its parent company United Breweries Group, has a 50% stake in low-cost carrier Kingfisher Red. The airline has been facing financial issues for many years. Until December 2011, Kingfisher Airlines had the second largest share in India's domestic air travel market. However due to the severe financial crisis faced by the airline, it has the fifth largest market share currently, only above GoAir. angalore, Dec 10: Kingfisher Airlines, which has been facing tremendous difficulties following the reports of successive days of flights cancellation, debt of Rs 7,500 crore and rising, a July-September quarter loss of Rs 469 crore, delayed salaries, pilots quitting, may once again fly in full gear. Now, the Chairman, Vijay Mallya has given a personal guarantee of Rs 249 crore to save the sinking airlines. Air Sahara Air Sahara has established itself as one of the leading players in the Indian Aviation industry. Air Sahara is part of the multi-crore Sahara India Pariwar. Sahara India Pariwar has interests in Public Deposit Mobilization, Media & Entertainment, Housing & Infrastruct ure, Tourism, Consumer Products and Information Technology. Starting on a modest scale and a capital of only Rs.2000 in 1978, Sahara India Pariwar has traversed a long way to become an icon in Indian entrepreneurship.Air Sahara began operations on December 3, 1993 following the Indian government's decision to open the skies to the private sector. It operated with a fleet of only two Boeing 737-200s. Air Sahara has introduced initiatives such as Steal-a-seat flexi fare options, Sixer/Super Sixer and Square Drive/Super Four. Jet Airways In May 1974, Naresh Goyal founded Jetair (Private) Limited with the objective of providing Sales and Marketing representation to foreign airlines in India. In 1991, as part of the ongoing diversification programme of his business activities, Naresh Goyal took advantage of the opening of the Indian economy and the enunciation of the Open Skies Policy by the Government of India, to set up Jet Airways (India) Private Limited, for the operation of scheduled air services on domestic sectors in India. Jet Airways has emerged as India's largest private domestic airline and has been acclaimed by frequent travellers as the most preferred carrier offering the highest quality of comfort, courtesy and standards of in flight and ground service and reliability of operations. It currently has a market share of 46.7% per cent and operates a fleet of Boeing and ATR72-500 turbo-prop aircraft

Kanthe/Challenges of Indian Aviation Industry in Chaotic Phase Air Deccan: Captain Gopinath Formed air Deccan in 1995.Air Deccan is a unit of Deccan Aviation Private Limited, India's largest private heli-charter company. Formed in 1995, Deccan Aviation Private Limited has carved a niche for itself in the Indian aviation scene with its reputation for providing speedy and reliable heli-services for company charters, tourism, medical evacuation, off-shore logistics and a host of other services. The company has a modern fleet of ATR-42-320 aircraft, one of the finest and most efficient Turbo-Prop aircraft flying. ATR is a European joint venture between Alenia Aeronautica and EADS. The ATR 42 has become a reference aircraft amongst airlines around the world, by offering a safe, easy to maintain and comfortable aircraft operating on the regional market with the best economics on short haul sectors. To date, ATR has sold over 650 aircraft to more than 100 operators in 73 countries all around the world. The company has adopted a 'lean-andmean' approach to staffing and aims at maintaining a low aircraft-to-employee ratio. Source: Capitaline, ICRA Research CHALLENGES FOR AVIATION INDUSTRY The growths in the aviation sector and capacity expansion by carriers have posed challenges to aviation industry on several fronts. Fuel prices: As fuel prices have climbed, the inverse Relationship between fuel prices and airline stock prices has been demonstrated. Moreover, the rising fuel prices have led to increase in the air fares Employee shortage: There is clearly a shortage of trained and skilled manpower in the aviation sector as a consequence of which there is cut-throat competition for employees which, in turn, is driving wages to unsustainable levels. Moreover, the industry is unable to retain talented employees Local connectivity: One of the biggest challenges facing the aviation sector in India is to be able to provide regional connectivity. What is hampering the growth of regional connectivity is the lack of airports Infrastructure: Airport and air traffic control (ATC) infrastructure is inadequate to support growth. While a start has been made to upgrade the infrastructure, the results will be visible only after 2 - 3 years Reserves routes: The entry of new players would ensure that air fares are brought to realistic levels, as it will lead to better cost and revenue management, increased productivity and better services. This in turn would stimulate demand and lead to growth. High participation expenditure: Apart from the abovementioned factors, the input costs are also high. Some of the reasons for high input costs are:-Withholding tax on interest repayments on foreign currency loans for aircraft acquisition. Increasing manpower costs due to shortage of technical personnel RECOMMENDATIONS Low-cost carriers Use just a few types of aircraft, a strategy that cuts training and maintenance expenses.. Another way to simplify operations is modifying the hub-and-spoke model, which uses designated headquarter airports for transfers. Traditionally, the big airlines have sent many of their flights through hub airports at peak business-travel hours. That way, since carriers typically charge heaps more for business fares, they can get more revenues per flight. But many experts argue that it's time to give up on that model - especially as low-cost carriers increase service along heavily travelled routes. More clear pricing The inheritance carriers have long had an unusual, almost incomprehensible pricing system. However, these days, with the Internet allowing travelers to shop for the cheapest tickets easily, and low-cost airlines offering uncomplicated set prices, traditional carriers have to fo llow suit or risk losing more and more passengers. Most of the industry's improvement efforts have focused on whittling down costs. However, boosting revenues also needs to be a priority. After all, people are willing to pay more if they believe they're getting more value. Legacy carriers still offer certain advantages, especially to the business traveller including airport lounges and more comfortable seating. This would sound like a new model for quality pricing FROM BAILOUTS TO GOVERNMENT PARTNERSHIP Although the Indian airline industry was largely deregulated in 1990, plenty of lingering rules and regulations have made it nearly impossible for carriers to be efficient. Many believe that restrictions on foreign ownership and labour laws have kept the indu stry from innovating. So instead of lobbying for protective measures like bailouts, airlines need to work with government to tackle longer-term projects like building more runways, running airports more efficiently, and reining in labour costs. REFERENCES 1. Study of the Indian Aviation Industry: Ashish Dhawan, Nidhi Mishra, Nithya R, Payal Yadav, Rajesh B, Siddharth Dahiya, Siddhartha Butalia http://www.ch2. Retrieved from aviation.ch/portal/aircraft.php?search=set&airline=KIF 3. Retrieved from http://en.wikipedia.org/wiki/Kingfisher_Airlines_destinati ons 4. India Today, Kingfisher in trouble: Vijay Mallya refuses to accept his business model is to be blamed for crisis, 19 November 2011, retrieved 4 December 2011 5. The World's official 5-Star Airlines SKYTRAXhttp://www.airlinequality.com/Forum/kingfishe r.htm 6. Retrieved from http://in.finance.yahoo.com/news/kingfisher-operate120-daily-flights-114123710.html 7."Domestic Passengers carried by Indian Scheduled Airlines in the Month of May, 2009". Pib.nic.in. Retrieved 2010-08-30. 8. Retrieved from http://civilaviation.nic.in http://www.skygod.com /quotes/http://www.flykingfisher.com 9. Retrieved from http://www.goindigo.in http://indiaaviation.aero http://www.wikipedia.org 10. Retrieved from http://www.flyairdeccan.net http://www.goair.in http://www.spicejet.com 11. Retrieved from http://www.hinduonline.com http://www.civilaviationweek.com 12. Retrieved From: //www.businesstravelindia.com http://www.yahoo.com.

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