An Analysis of Profitability of the Airlines Industry in India
Submitted On: 9th September, 2010
The Wright brothers brought to life one of the greatest dreams of mankind – sustained, powered flight. It did not take long for this invention to proliferate worldwide. The British brought it to India between the World Wars and the aviation juggernaut has been rolling since then. Post independence, India had nine airlines transporting both passenger and cargo traffic. The Indian government nationalized all the existing airline assets in 1953 as it was following the Soviet economic patterns. Indian Airline was set up to serve the domestic market, while Air India was set up to cater to the International sector. Both Indian Airline and Air India enjoyed monopoly over the Indian skies as during the License Raj, it was unimaginable for private players to set up and successfully run airline businesses. Due to this unhindered monopoly enjoyed by the two airlines, service was not up to the mark, flight delays were frequent and fliers had to face many hardships, especially in transit flights. Liberalization brought about the change which came as a booster for the Indian aviation industry.
The Aviation industry has witnessed phenomenal growth for both domestic and foreign passenger and cargo sector since the ‘Open Skies’ policy which resulted after globalization. The entry of private players (like Kingfisher, Jet) and low cost carriers (like Air Deccan, Spice Jet) took away the monopoly of Air India and Indian Airlines. The prices, which were hitherto prohibitively expensive, were brought down to levels where the middle class consumers could afford them. As a result, the number of first time fliers increased substantially. Since then, the Government of India has provided some initiatives for the promotion of the aviation sector. Foreign Direct Investments in Domestic Airlines have gone up from 40% to 49%, with Non Resident Indians and Persons of Indian origin being allowed 100% of the same. International routes have been freed for entry to Private players provided they had 5 years of experience in the domestic sector and owned a fleet size of more than 20 aircraft. There had been wide swings in the profitability with the fluctuating prices of Aviation Turbine Fuel, wide variations in Load Factor, ageing fleets of Air India/Indian Airlines, low cost airline price wars. The industry was in the limelight regarding mass layoff policies at Jet, a Rs. 4000 Core Liability for Air India and many more incidents. However, the industry has evolved over the years to become more customer-centric and lean. In the following pages, we will delve into the specifics of the profitability (and non-profitability) factors of the same. History of Aviation Industry in India:
The first Indian, or maybe even Asian, to have an airplane was the young Maharaja of Patiala, Bhupinder Singh, who had a keen interest in aviation. He sent his British Engineer CW Bowles to Europe to look at the new art or science of flying and bring a couple of planes back with him. Bowles returned to India in December 1910 with a Farman biplane made in England and a Gnome-Bleriot monoplane fitted with two seats. Fortune did not favour Patiala and neither of these aircraft became the first to get into the air. In early December 1910 a party from Belgium and two from England also came to India with several aeroplanes. The first of these to land in India was from Coventry’s Humber Motor Company, famous for its cars especially used by the police in UK. It included a leader, Capt WG Windham, two pilots, and two mechanics. The group arrived on December 5 at Allahabad. The first actual flight was successfully attained by Mr. Davies in a ‘Bleriot’ on the 10th of December. The second aircraft flew the next day, December 11, 1910, under the control of the French pilot Henri Pequet and carried the first air passenger in India, who was one of the sons of the Maharaja of...
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