Pest Analysis Indian Aviation Sector

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Overview of Airline Industry

Air travel has grown in the past decade. Travel grew strongly for both leisure and business purposes. India will have nearly 800 to 1000 airplanes by 2023, it was estimated by Airbus. In spite of growth between 30 to 50 per cent in Indian aviation industry, losses of approximately 2200 crore is estimated for the current year.

During 19991-1992, Modiluft, East West and Damania went bankrupt. Air Sahara and Jet Airways survived along with government own Indian Airlines because they had the capability to bear losses. Globalization and privatization had a major impact on aviation industry. Indian aviation industry was deregulated by the government in 1990s. As a result now 14 airlines are operating today in Indian sky. Now, collaboration with international organization and foreign direct investment are welcome to improve infrastructure and technology. Today people who can not afford high prices of Full Service Carriers (FSC) can travel by Low Cost Carriers (LCC) or budget airlines. Air Deccan was India’s first LCC started in 2003. It flies to several metro and non-metro destinations. All airlines have three major fixed costs i.e. fuel costs, financing or aircraft lease and labour cost. But LCC costs are 10 to 15 per cent lower than FSC. This is because of three reasons. Firstly, saving on distribution cost as passengers book tickets on the internet. Secondly, no frills are offered on board. Thirdly, to accommodate additional seats, catering and cabin crew space in these aircraft has been used. So these aircraft have 40 seats more than the FSC.

Political Environment

There are several limitations in aviation infrastructure in India for instance parking bays, gates to board passengers, landing slots etc are in short supply. This often leads to massive delays, cancellation and major losses in revenue for many LCCs. For upgraded infrastructure facilities, India’s civil aviation minister Praful Patel said on 15 February 2006 that Indian government defer decision on privatization of International Airport in Delhi and Mumbai. The government aims to set up joint venture to operate these airports and offered 74 per cent stakes. Foreign direct investment (FDI) can hold up to 49 per cent in this transaction, while 25 per cent must be held by private Indian companies. Remaining 26 per cent to be held by Airport Authority of India (AAI) and other government PSUs.

In an attempt to capture market share, many airlines in India are flying below their cost, thus incurs heavy losses. Due to overcapacity and competition, the government fear that the aviation boom now may soon go bust. Earlier, companies even before signing a lease for aircraft, used to procure licences. But now to regulate competition from September 2006 onwards a temporary moratorium is put on the new airline licences. No blanket ban will be there. But pending as well as new applications will go through high scrutiny. A plan for quarterly review of financial and operational statement of airline was introduced by ministry. It will be mandated by the federal Aviation Authority in US.

At present government is providing sops to planes which are less than an 80 seater. Under this new policy airline don’t have to pay landing charges, even route navigational charges are much lower than other aircraft. To encourage regional connectivity, government is now willing to offer some sops to airlines which fly on category two and three route.

Government has appointed a number of committees. Their main aim is to provide remedies to problems related to civil aviation industry of India. For instance, in November 2003, recommendation to develop a civil aviation roadmap was provided by Naresh Chandra Committee. Measures to increase airport and air traffic control (ATC) capacity were suggested by K Roy Paul Committee in April 2005. The MK Kaw Committee has recommended to restructure the...
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