Indian Aviation sector analysis

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Long Report on
Industry analysis-
Aviation sector
Scheduled Air Transport Services
12/20/2012
GROUP 6
Rohit Kumar Jaitly(92)
Sulagna Dutta (93)
Mohit Arora(97)
Praveen Kumar (99)
Monika Bansal(119)
SUBMITTED TO: Prof Vijayeta James
Prof Pankaj Chauhan

Aviation Industry Analysis _ Group 6_Section B Page 2
Table of Contents
EXECUTIVE SUMMARY............................................................................................................................3
Porters 5 forces Model .......................................................................................................................3
Industry Overview...................................................................................................................................4
Brief Introduction................................................................................................................................4
Top Leading Companies..................................................................................................................5
Highlights ........................................................................................................................................5
Classification of Indian Aviation Sector...............................................................................................7
Industry Market Size and Value..............................................................................................................9
TREND ANALYSIS...............................................................................................................................12
Trends in Aviation Industry...............................................................................................................12
Recent Initiatives and Developments...............................................................................................12
Government Initiatives .................................................................................................................14
COMPETITIVE LANDSCAPE....................................................................................................................15
Key Leading Players...........................................................................................................................15
AIR INDIA.......................................................................................................................................15
Star Alliance members reject Air India, invite Jet Airways. Air India should choose oneworld .........18
INDIGO ..........................................................................................................................................18
Jet Airways ....................................................................................................................................20
Future Outlook......................................................................................................................................23
Significant cost challenges, especially sustained high fuel and a weak Rupee.................................23
BIBLIOGRAPHY ......................................................................................................................................25

EXECUTIVE SUMMARY
Porters 5 forces Model
Industry analysis is a type of investment research that begins by focusing on the status of an
industry or an industrial sector. Porter’s 5 forces framework identifies the strength of all five
market levers (Suppliers, Customers, Competition Rivalry, Substitutes and New Entrants) of
an industry. Understanding each of these market forces allows businesses to make wise
decisions which can maximize return in any industry.
Threat of New Entrants is low
The airline industry is so saturated that there is hardly space for a newcomer even to squeeze
its way in. The main concern for this is the cost of entry. The airline industry is one of the
most expensive industries, due to the cost of buying and leasing aircrafts, safety and security
measures, customer service and manpower. Another major barrier to entry is the brand name
of existing airlines and it is really difficult to lure customers out of their existing brands.
Power of Suppliers is low.
The airline suppliers are mainly aircraft manufacturers, airports, fuel companies and there
isn't a lot of cutthroat competition among suppliers. Also, the likelihood of a supplier
integrating vertically is rare.
Power of Buyers is medium to and increasing
The cost involved with switching airplanes is decreasing as customers can access internet
easily to compare and buy air tickets online nowadays. With emerge of budget airlines like
Jetstar, Spicejet, Indigo and AirDeccan, more customers including travel agents and
individuals prefer to take the budget airlines rather than full service airlines
Availability of Substitutes is low
For international airlines, the threat is quite low as airline is the only way for travelling to
long destinations. eg- From India to USA.
For national airlines, the threat might be a little higher than international carriers as
passengers can use ground travel like train or bus as substitute. Time, money, personal
preference is also needed to be considered.
Competitive Rivalry is high
Airline industry is completely saturated. There are more service providers than needed in
both local as well as international markets. The various airlines are competing for the same
customers. The airlines are continually competing against each other in terms of prices,
technology, in-flight entertainment, customer services etc. Highly competitive industries
generally earn low returns because the cost of competition is very high.

Industry Overview
Brief Introduction
Indian Aviation Industry has been one of the fastest-growing aviation industries in the world
with private airlines accounting for more than 75 % of the sector of the domestic aviation
market. With a compound annual growth rate (CAGR) of 18 % and 454 airports and airstrips
in place in the country, of which 16 are designated as international airports, it has been stated
that the aviation sector will witness revival by 2011.
In 2009 with increase in traffic movement and increase in revenues by almost US$ 21.4
million, the Airports Authority of India seems set to accrue better margins in 2009-10, as per
the latest estimates released by the Ministry of Civil Aviation.
This is being primarily attributed because of the increase in the share of revenue from Delhi
International Airport Limited (DIAL) and Mumbai International Airport Limited (MIAL).
Passengers carried by Indian domestic airlines from January-February 2010 stood at
8,056,000 as against 6,761,000 in the corresponding period of 2009-a growth of 19.2 %,
according to a report released by the Ministry of Civil Aviation.

Today Hyderabad International Airport has been ranked amongst the world's top five in the
annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul,
Singapore, Hong Kong and Beijing. This airport in Hyderabad is managed by a public-private
joint venture consisting of the GMR Group, Malaysia Airports Holdings Berhad and both the
State Government of Andhra Pradesh and the Airports Authority of India (AAI).
Top Leading Companies
Players in Indian aviation industry can be classified into three groups:
Public players
Private players
Start up players
Public players - Air India, Indian Airlines and Alliance Air
Private players - Jet Airways, Air Sahara, Kingfisher Airlines, Spice Jet, Air Deccan
and many more
Start up players - The starts up players are those planning to enter the markets. Some
of them are Omega Air, Magic Air, Premier Star Air and MDLR Airlines
Highlights
The Indian airlines industry had total revenues of $14.2 billion in 2011, representing a
compound annual growth rate (CAGR) of 8.5% between 2007 and 2011.
Industry volumes increased with a CAGR of 7.9% between 2007-2011, to reach a
total of 79 million passengers in 2011.
The performance of the industry is forecast to accelerate, with an anticipated CAGR
of 18.1% for the five-year period 2011 - 2016, which is expected to drive the industry
to a value of $32.7 billion by the end of 2016.
India has released its first ever detailed Aviation Carbon Footprint Report for 2011,
which states that CO2 emissions from Indian scheduled airline operations as well as
from foreign airlines to international destinations represent less than 1 per cent of the
country's total CO2 emissions, which is significantly lower than the global average
contribution of airlines.

Delhi's Indira Gandhi International (IGI) Airport has been ranked the second-best
airport in the world for 2011 by the Airports Council International. The airport scored
this distinction in the category of airports with 25-40 million passengers per annum.
Last year, it had been ranked fourth in the same category.
India's domestic aviation market has tripled in the past five years, according to a latest
report of the International Air Transport Association (IATA). India posted a strong
domestic growth at 25.6 per cent in the aviation sector, and continuing its trend of
high-speed growth for a robust market
India is the 9th largest aviation market in the world as per a report, Indian Aerospace
Industry Analysis, published by research firm RNCOS. The Indian Aviation sector
grew around 13.6 per cent year-on-year in FY 2010, which was amongst the highest
globally.
The rapidly expanding aviation sector handles 2.5 billion passengers across the world
in a year; moves 45 million tonnes of cargo through 920 airlines, using 4,200 airports
and deploys 27,000 aircraft. Today, 87 foreign airlines fly to and from India and five
Indian carriers fly to and from 40 countries.
Passengers carried by domestic airlines during Jan-Sep 2012 (first three quarters of
calendar year) were 438.39 lakhs, according to the latest data released by the
Directorate General of Civil Aviation (DGCA).
Centre for Aviation and Airports Authority of India (CAPA India) expects domestic
traffic growth of 17-18 per cent, possibly as high as 20 per cent. International
passenger numbers, which grew by about 10 per cent last year, are expected to
increase towards the upper end of a 10-12 per cent range over the next 12 months.
According to the Department of Industrial Policy and Promotion (DIPP), the FDI
inflow into air transport (including air freight) has been US$ 438.23 million from
April 2000 to May 2012
Currently, the aviation industry is responsible for 0.5 percent of India’s GDP and
supports more than 1.7 million jobs. However, Indian travellers on average only make
0.1 trips by air per year, compared to 1.8 trips per year in the US, reflecting that there
is still a lot of potential unexplored.
At present, fuel makes up a total of almost 45 percent of operating costs for Indian
carriers due to a combination of excise duty (8.24 per cent) and state fuel taxes (30
per cent), while the global average stands at 32 per cent of operating costs.

The total number of airports or airfields recognisable from the air is 352
The number of scheduled passenger airline operators has grown to 15 and the number
of aircraft in their fleet has risen to more than 400. International flights have increased
to 706 flights per week. Due to enhanced opportunities for international connectivity,
69 foreign airlines from 49 countries are flying into India
Classification of Indian Aviation Sector
The Indian aviation sector can be broadly divided into the following main categories:
1. Scheduled Air Transport Services- It includes domestic and international airlines.
2. Non-scheduled air transport service - It includes charter operators and air taxi
operators.
3. Air cargo service - It includes air transportation of cargo and mail.
Scheduled air transport service:
It is an air transport service undertaken between two or more places and operated according
to a published timetable. It includes:
1. Domestic airlines, which provide scheduled flights within India and to select international
destinations. Air Deccan, Spice Jet, Kingfisher Airline and Indigo are some of the domestic
players in the industry.
2. International airlines, which operate scheduled international air services to and from India.
At present, there are many scheduled private airlines like (Jet Airways, Spice Jet, Air Sahara
etc.), which provide regular domestic air services along with Indian Airlines.
Non-scheduled air transport service:
It is an air transport service other than the scheduled one and may be on charter basis and/or
non-scheduled basis. The operator is not permitted to publish time schedule and issue tickets
to passengers.
In addition there are 47 non-scheduled operators providing air-taxi/non-scheduled air
transport services.

Air cargo services:
It is an air transportation of cargo and mail. It may be on scheduled or non-scheduled basis.
These operations are to destinations within India. For operation outside India, the operator
has to take specific permission of Directorate General of Civil Aviation demonstrating his
capacity for conducting such an operation.

Industry Market Size and Value

TREND ANALYSIS
Trends in Aviation Industry
1. Consolidation in aviation sector: In aviation industries the rise in the number of alliances
will help in promote the growth of aviation sector in India. Example of the Jet-Sahara merger
is just the beginning. Indian aviation industry is looking forward to more consolidations.
2. The number of passengers travelling by air is on the rise: By 2025 passenger boarding
expected to double and by the same time aircraft operations are expected to triple, the number
of passengers travelling by air is on rise.
3. For the travelling public, price is paramount in choosing a carrier: Airfares are fully
transparent to the public and travellers are choosing the lowest price option because of the
Internet and round-the-clock search facility. Even business travellers, who have been less
price-sensitive, are resisting fare increases. Travellers are not giving preference to brand but
the only premiums they are willing to pay for are time-of –day and direct flights.
4. Capacity is growing without much constraint: The new aircraft have been ordered by
Indian carriers for delivery in the coming period, without clear plans to retire older planes.
Significant numbers of regional jets are also adding by them.
5. Cost structures will continue to handicap legacy carriers as they compete with newer
airlines, as well as with overseas carriers: Great threats are being posed by the low cost
carriers to legacy carriers, as a result of which they are reshuffle, their pricing policies. Apart
from this, they are also facing competition from overseas players.
6. Outsourcing: Private airlines are famous to hire foreign pilots, get expatriates or retired
personnel from the Air Force or PSU airlines, in senior management positions. Airlines are
also famous to take on contract employees such as cabin crew, ticketing and check-in agents.
Recent Initiatives and Developments
Toward modernization of non-metro airports the Airports Authority of India (AAI) is
planning to spend over US$ 1.02 billion in 2010. There are even plans of the city-side
development of 24 airports, including airports at Ahmedabad and Amritsar. There are even

additionally, 11 new Greenfield airports which are in pipeline which have been identified to
reduce passenger load on existing airports.
The government has formed National Aviation Company Ltd (NACIL) by merging national
carriers Air India and Indian Airlines into a single entity. The blue print was prepared by the
civil aviation ministry to convert Delhi airport into an international hub for passenger airlines
and has been done so recently.
Modernization of Airports
Airports Authority of India (AAI) manages the development and modernization of all 35 non-
metro airports in the country simultaneously and work is due to be completed by the year end
of 2010. Wholly owned subsidiaries of AAI are being created for betterment of these airports.
According to the AAI there are work orders for terminal buildings at 13 airports, and for
airside development, including runway, taxiway, apron, fire station, control tower and
isolation bay, at 19 airports.
Policy on Merchant Airports
Indian Aviation Industry will allow 100 % foreign direct investment (FDI) in the
development of airport infrastructure, the Government is fast moving towards finalizing a
policy on merchant airports. Under this new concept, merchant airports will be built entirely
by private parties with their own resources, without any government funding.
Growth in MRO Segment
Indian Aviation with the advent of low-cost airlines & ever-increasing passenger traffic there
is a fleet expansion. There is an Initiation of the whole new business avenue for global
aircraft companies in maintenance, repair and overhaul (MRO). This MRO facility provides
major and minor maintenance, refurbishment and repairs of aircraft. The gaint players like
Boeing and Airbus have announced their plans for MRO facilities in India.
Foreign Equity Participation in Air Transport Services
Recently the Government in India has approved the Domestic Air Transport Policy which
provides for foreign equity participation up to 49% and also investment by Non-Resident

Indians (NRIs) up to 100% in the domestic air transport services. As the government plans to
fix a higher foreign direct investment (FDI) ceiling for five sub-sectors of the industry in days
to come the flow of foreign investment into aviation is likely to get smoother.
Government Initiatives
To create world class airports, the government has recognised the need for the
involvement of private players in the development of airport infrastructure.
Development of airports at Delhi and Mumbai has been taken up under Public Private
Partnership (PPP) mode
The capital expenditure is funded through private equity, borrowings, and internal
resources of joint venture companies. The development work of Mumbai airport is
likely to be completed by 2012 whereas the work of a new terminal (Terminal 3) at
Indira Gandhi International Airport at Delhi got completed in July 2010. The
development work of Kolkata and Chennai International airport has been taken up by
Airport Authority of India whereas Bangaluru and Hydrabad international airports
have been developed on PPP mode as greenfield airports. The AAI has taken up the
development of 35 non metro airports at an estimated cost of US$ 777.80 million
The Government has also developed a model concession agreement to develop
greenfield airports under the PPP mode. The government has also allowed 100 per
cent FDI, under the automatic route, for greenfield airports. FDI up to 49 per cent is
allowed in the domestic airlines sector under the automatic route. Recently, the
Government has relaxed rules to allow foreign carriers to buy up to 49 per cent stake
in Indian airlines
The adoption of Open Sky Policy has resulted in the entry of several new privately
owned airlines and increased frequency / flights for international airlines.

COMPETITIVE LANDSCAPE
As:
• Few big players controlling the market
• Entry to the market difficult
• Huge capital at their disposal
• Low level of competition
Key Leading Players
AIR INDIA
Air India Ltd. (Air India) is a state owned airline service provider in India, offering passenger
and cargo transportation services. The company operates with a fleet of 135 passenger
aircraft and nine cargo carriers. It serves 63 domestic destinations within India and 33
international destinations across five continents. It also serves more than 10 destinations
through its code share agreement with Aeroflot, Air Mauritius, Austrian Airlines, Lufthansa
and Singapore Airlines. The company principally focuses on its international network
covering Kuwait, Oman, United Arab of Emirates, Qatar and Bahrain in West Asia. It
operates its route system through two major hubs in Mumbai and Delhi, along with secondary
hubs in Calcutta and Chennai. Air India is headquartered in Mumbai, Maharashtra, India.

SWOT analysis of AIR INDIA
Strengths of AIR INDIA
Air India has been the largest air carrier in India in terms of traffic volume and
company assets.
It owns the most updated fleet and competent repairs and maintenance expertise.
Its information systems are advanced and compatible with its operation and service.
It has a good reputation in both international and domestic markets, quality service
and the age-old Goodwill that has still kept it alive in the interests of the rescue
operators.
Has financial backing of the Government
Weaknesses of AIR INDIA
Air India is operating across broad international and domestic markets competing
with world leading giant airlines as well as local small operators. This lack of clarity
on the strategic direction largely dilutes its capabilities and confuses its brand within
markets.
Low profitability and utilization of capacity.
12,400.00
12,600.00
12,800.00
13,000.00
13,200.00
13,400.00
13,600.00
13,800.00
14,000.00
14,200.00
14,400.00
2008 2009 2010 2011 2012
Air India
Revenue

Growing Competitor base and entry of Low-Cost Carriers (LCC’s)
The airline’s high-cost structure and the compulsions of being a public sector unit are
the reasons and it had been making a loss and shall continue to make losses for some
more quarters.
Opportunities of AIR INDIA
India airline industry is growing faster and will continue to grow as the GDP
increases, and the trend is predicted to continue once the slowdown recedes.
Worldwide deregulations make the skies more accessible; the route agreement is
easier to be achieved. The number of foreign visitors and investors to India is
increasing rapidly.
Complementary industry like tourism will increase demand for airline service. The
Civil Aviation Ministry’s strong regulation and protection provides opportunities for
consolidation and optimization.
Customers are getting wealthier, tend to be less price-conscious and prefer to choose
quality service over cost.
Best time for introducing LCC’s
Threats for AIR INDIA
Air India faces imminent aggressive competition from world leading airlines and
price wars triggered by domestic players.
The Indian Railway Ministry has dramatically improved speed and services in their
medium/long distant routes, attracting passengers away from air service, with prices
almost at par with the low cost carriers
Current News
Air India threatens to stop operations to North East airports

Flights within the northeastern region may be hit from New Year, with Air India threatening
to stop its operations to airports like Tezpur, Lilabari and Shillong following non-payment of
funds by the North East Council (NEC).
Loans taken by Air India now stand at Rs. 47,226 crore
Air India has a loan of over Rs. 47,000 crore and 95 services of the national carrier were not
even meeting the cash cost of the operations
Star Alliance members reject Air India, invite Jet Airways. Air India
should choose oneworld
The Star Alliance, a global grouping of 27 airlines, has rejected the application of national
carrier Air India to join the group. In over 14 years, and 28 applicants, this is the first time the
application of any airline has been rejected because of the mountainous losses of Air India,
and its crashing brand value, especially due to the recent pilots' strike. OneWorld having
weak connection in the Indian and South Asian market. Along with Air India, oneworld can
bridge this gap and gain a commanding presence in the Gulf to South-East Asia geography
with the upcoming entries of Malaysia Airlines, and Sri Lankan Airlines. Air India used to
provide good inflight service, and with the assistance of oneworld and the backing of
respected airlines like British Airways and Cathay Pacific would hopefully allow Air India to
re-shape itself as an excellent service provider.
INDIGO
IndiGo is a private, low-cost airline based in Gurgaon, Haryana, India. It was established in
2005 as a subsidiary of Interglobe Enterprises. The airline started operations in August 2006
and by August 2012 was the largest low cost carrier in India and was India's largest carrier by
market share. As of March 2012 it is the only airline in India making profits.
IndiGo operates to 33 destinations in India and abroad with 373 flights each day. Unlike most
low cost carriers, IndiGo uses a hub and spoke model used by full service airlines where the
airline flights to different destinations are routed through its hub.It plans to serve 100 cities in
India, South East Asia, Middle East and China by 2025. It plans to acquire 125 new aircrafts
by 2025.

SWOT Analysis of IndiGo Airlines
Strengths
• IndiGo is the only profitable airlines running in India in low cost carriers segment
• It is backed by young and talented management team
• It is one of the very few airlines that incorporates the best technology, human resource and
service at an affordable cost to the customer
• IndiGo’s growth is ahead of aviation’s overall industry growth in India
• IndiGo covers 32 destinations covering all major cities in India
• IndiGo is the second largest airline in India in terms of market share
• The company had a profit of Rs.650 cr in the FY 2011
Weakness
• It doesn’t have its presence in international market
• IndiGo has to focus more on branding
• Concentrates only on middle class society
• Customers are not happy with inflight catering services
• It has to focus on proper baggage handling and improve the seating comfort level
Opportunities
• IndiGo has attracted many loyal customer of other airlines and converted into IndiGo flyers
in a very short span of time
• Competitors in the aviation market are not running good show and hence it is time for
Indigo to grab the opportunity to go ahead
• It has good opportunity to go abroad markets
• IndiGo has shown tremendous growth both terms of market share and profits in the recent
years
• It witnessed a rapid expansion by buying new A320S airbus
• Expanding economy class fliers
Threats
• Rising fuel costs has increased operational cost of LLC airlines
• The companies are cutting their air travel due to the economic crisis
• It faces competition from other LLC airline like spicejet, jetkonnect etc
• Increasing airport fees, declining rupee value, high taxes add woes to the industry

Current News
IndiGo Air makes Rs 88cr operating loss in 2011-12
IndiGo, the countrys largest air carrier by passengers carried, had an operating loss of Rs 88
crore after operating revenue of Rs 5,552 crore last year
Jet Airways
Jet Airways is a major Indian airline based in Mumbai, Maharashtra. It is India's largest
airline and the market leader in the domestic sector. It operates over 400 flights daily to 67
destinations worldwide. Its main hub is Chhatrapati Shivaji International Airport, with
0
5000
10000
15000
20000
25000
30000
35000
40000
2008 2009 2010 2011 2012
Indigo Airlines Revenue (in Million Rs.)
Indigo Airlines Revenue (in
Million Rs.)

secondary hubs at Delhi, Chennai, Bengaluru, Pune and Kolkatta. It has an international hub
at Brussels Airport, Belgium. Jet Airways is owned by Naresh Goyal.
Jet Airways was incorporated as an air taxi operator on 1 April 1992. It started Indian
commercial airline operations on 5 May 1993 with a fleet of four leased Boeing 737-300
aircraft. In January 1994 a change in the law enabled Jet Airways to apply for scheduled
airline status, which was granted on 4 January 1995. It began international operations to Sri
Lanka in March 2004. The company is listed on the Bombay Stock Exchange, but 80% of its
stock is controlled by Naresh Goyal (through his ownership of Jet’s parent company,
Tailwinds). It has 10,017 employees (as at March 2007).
SWOT Analysis of Jet Airways
Strength of Jet Airways
1. Has created a good image among the Indian fliers
2. Trusted Airline by the Corporates
3. One of the biggest Indian airline companies with over 13,000 employees
4. Operations in over 75 Indian cities and over 400 daily flights
5. Top of the mind brand due to excellent operations and marketing
6. It also has international destinations in nearly 20 countries
Weakness of Jet airways
1. Competition from the LCCs and other competitors means market share growth is tough
2. Presence of other airlines on international routes making it difficult to have significant
market share
Opportunities for Jet Airways
1. Strongly positioned in the International routes
2. Has presence in every segment

3. Increasing number of people opting to travel by airlines
Threats for Jet Airways
1. LCCs eating up the marketshare
2. Rising Fuel Costs and Labour Costs
3. Unfavorable Govt policies and aviation regulations
Current News
Jet Airways introduces Cash on Delivery
Jet Airways, India’s premier international airline, has announced the introduction of “Cash on
Delivery”, an additional form of payment, exclusively on the airline's website at
www.jetairways.com. This convenient payment option allows guests to book their tickets
online and pay by cash later.
Jet Airways first to introduce new short-haul One Fare Pass For domestic travel
Jet Airways, India’s premier international airline, today announced the introduction of a 4
coupon “ONE FARE PASS” booklet for facilitating increased and convenient travel on Jet
Airways and JetKonnect flights in regional domestic markets.
Jet Airways implements proactive fog preparedness plan
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
16,000.00
2008 2009 2010 2011 2012
Jet Airways
Revenue

Jet Airways, India’s premier international airline, and its low fare brand JetKonnect, have
undertaken steps to minimize guest inconvenience in the likelihood of flight disruptions and
cancellations on account of fog this winter season.
Future Outlook
Indian aviation is facing its most uncertain phase in more than a decade. After reporting an estimated
record loss of just over USD2 billion[1] in the 12 months ended 31-Mar-2012, India’s airlines sare
facing an equally challenging year ahead. Weak balance sheets, increasing costs, regulatory
uncertainty, a sluggish Indian economy and a difficult global environment will continue to pile the
pressure on airlines, especially the poorer performing carriers. However, this may in turn create
market opportunities to exploit for those that are better positioned. Some of the key highlights of the
CAPA India Outlook 2012/13 include
CAPA estimates that domestic passenger traffic will grow by 8-10% in FY12/13 and more likely
towards the lower end of the range. Much will depend upon the impact of oil prices and other input
costs on airfares.
In the 12 months ending 31-Mar-2013, Air India is once again expected to be the worst performer in
the industry and to report a loss of INR70 billion (USD1.3 billion). Kingfisher Airlines is projected to
lose INR12-14 billion (USD220-260 million). However, the remaining four private carriers combined
could post a modest profit of approximately INR11 billion (USD200 million).
Although the troubles facing Air India and Kingfisher Airlines have been positive for all of the other
carriers, Jet Airways has been, and will continue to be, the largest beneficiary. Kingfisher’s dramatic
contraction from 66 to 16 operational aircraft, of which half are regional ATR aircraft, has left the
domestic business market open for Jet Airways. Similarly, the temporary industrial action on Air
India’s long-haul international routes has driven North American and UK traffic to Jet Airways.
Significant cost challenges, especially sustained high fuel and a weak Rupee
India’s carriers will face a deteriorating cost environment in FY2012/13 on a number of
fronts. These include:

1. Fuel prices: A high, and more importantly sustained high, oil price environment.
There remains a possibility that oil prices could rise substantially with effect from Jul-
2012 should the European Union proceed with plans to introduce an embargo on oil
supplies from Iran;
2. Weak currency: Further depreciation of the Rupee, which has already fallen more
than 20% in the last 12 months, thereby pushing up the price of dollar-denominated
costs such as fuel, aircraft leases, maintenance and offshore interest obligations;
3. Airport charges: The regulator has already approved a 334% increase in charges at
Delhi Airport, with Mumbai expected to be allowed to raise fees by an even higher
amount of up to 500%. Combing these additional levies is likely to have the impact of
increasing Delhi-Mumbai airfares by 15-20% which will have a negative impact on
traffic. Increased airport charges are expected to be progressively introduced at other
airports such as Chennai and Kolkata to fund the modernisation programmes;
4. Service tax: The extension of the service tax regime on economy class airfares from a
fixed amount to an ad valorem percentage will increase the absolute level of the
impost on most sectors.

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december 2012
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carriers-low-cost-airline-foreign-carriers
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India/Local%20Assets/Documents/aIndian%20Aviation.pdf
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indigo/465252/
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Other Sources:
11th Five Year Plan Working Commission Report on Aviation Sector
Annual Report 2007-08, Ministry of Civil Aviation, India
Presentation on “An Overview of India’s Airports: Vision 2020” by K N Srivastava,
Jt. Secretary, Ministry of Civil Aviation

Indian Aviation sector analysis

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