SWOT ANALYSIS OF THE INDIAN AIRLINE

INDUSTRY

Nikita Aggarwal C-04Banipreet Kaur C-09Gaurav Sharma C-28

Vinit Kumar Pandey C-31Avishek Samal C-32

Sumit Kumar Pandey C-53Neha Behl C-62

Chanchal Dubey D-25

TABLE OF CONTENTS

SNo. Particulars1. History of Civil Aviation in India2. Current Scenario

3. SWOT Analysis

HISTORY OF CIVIL AVAITION IN INDIA

The history of civil aviation in India began in December 1912. This was with the opening of the first

domestic air route between Karachi and Delhi by the Indian state Air services in collaboration with the

imperial Airways, UK, though it was a mere extension of London-Karachi flight of the latter airline. Three

years later, the first Indian airline, Tata Sons Ltd., started a regular airmail service between Karachi and

Madras without any patronage from the government.

At the time of independence, the number of air transport companies, which were operating within and

beyond the frontiers of the company, carrying both air cargo and passengers, was nine. It was reduced to

eight, with Orient Airways shifting to Pakistan. These airlines were: Tata Airlines, Indian National

Airways, Air service of India, Deccan Airways, Ambica Airways, Bharat Airways and Mistry Airways.

In early 1948, a joint sector company, Air India International Ltd., was established by the Government of

India and Air India (earlier Tata Airline) with a capital of Rs 2 crore and a fleet of three Lockheed

constellation aircraft. Its first flight took off on June 8, 1948 on the Mumbai (Bombay)-London air route.

At the time of its nationalization in 1953, it was operating four weekly services between Mumbai-London

and two weekly services between Mumbai and Nairobi. The joint venture was headed by J.R.D. Tata, a

visionary who had founded the first India airline in 1932 and had himself piloted its inaugural flight.

The soaring prices of aviation fuel, mounting salary bills and disproportionately large fleets took a heavy

toll of the then airlines. The financial health of companies declined despite liberal Government patronage,

particularly from 1949, and an upward trend in air cargo and passenger traffic. The trend, however, was

not in keeping with the expectations of these airlines which had gone on an expansion spree during the

post-World War II period, acquiring aircraft ad spares.

The Government set up the Air Traffic Enquiry Committee in 1950 to look into the problems of the

airline. Though the Committee found no justification for nationalization of airlines, it favored their

voluntary merger. Such a merger, however, was not welcomed by the airlines.

Foreign airlines carrying international passenger traffic to and from India existed long before

Independence. Their operations are governed by bilateral agreements signed from time to time between

the Government of India and the governments of respective countries. In 1980-81, the number of such

airlines was 35. It rose to 49 in 1996-97.

The share of foreign airlines in India's scheduled international traffic has increased. In 1971, their share

was 55.58 per cent which went up to 65 per cent and declined to 58 per cent during 1972-75. It fell to

55.72 per cent in 1976 and further to 55.02 per cent in 1977. Between 1978 and 1990 it gradually

increased and rose to 75.93 per cent. In 1996, the share was nearly 72 per cent.

OPEN SKY POLICY

The Open-sky policy came in April 1990. The policy allowed air taxi- operators to operate flights from

any airport, both on a charter and a non charter basis and to decide their own flight schedules, cargo

and passenger fares. The operators were, however, required to use aircraft with a minimum of 15 seats

and conform to the prescribed rules. In 1990, the private air taxi-operators carried 15,000 passengers.

This number increased to 4.1 lakh in 1992, 29.2 lakh in 1993, 36 lakh in 1994 and 48.9 lakh in 1995.

The 1996, private air taxi operators carried 49.08 lakh passengers which amounted to a 41.14 per cent

share in the domestic air passenger traffic. Seven operators viz NEPC Airlines, Skyline NEPC, Jet Air,

Archana Airways, Sahara India Airlines, Modiluft and East West Airlines have since acquired the

status of scheduled airlines. Besides this there were 22 nonscheduled private operators and 34 private

operators holding no-objection certificate in 1996. The number of plus 120 category aircraft in the

private sector was 34 and the total fleet strength was 75 in June, 1996. Two out of seven scheduled air

taxi operators suspended their operations in 1996 because of the non-availability of aircraft.

By 1995, several private airlines had ventured into the aviation business and accounted for more than

10 percent of the domestic air traffic. These included Jet Airways Sahara, NEPC Airlines, East West

Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways. But only

Jet Airways and Sahara managed to survive the competition. Meanwhile, Indian Airlines, which had

dominated the Indian air travel industry, began to lose market share to Jet Airways and Sahara. Today,

Indian aviation industry is dominated by private airlines and these include low cost carriers such as

Deccan Airlines, GoAir, SpiceJet etc, who have made air travel affordable.

CURRENT SCENARIO

The Indian aviation industry is one of the fastest growing aviation industries in the world with private

airlines accounting for more than 75 per cent of the sector of the domestic aviation market (as of 2006).

The industry is growing at a compound annual growth rate (CAGR) of 18 per cent. The country has 454

airports and airstrips, of which 16 are designated as international airports.

Currently, India ranks ninth in the global civil aviation market.

Passengers carried by domestic airlines from January-June 2010 stood at 25.71 million as against 21.1

million in the corresponding period of 2009—a growth of 22 per cent—according to data released by the

Directorate General of Civil Aviation (DGCA). In terms of market share, private carrier Jet Airways was

the market leader with 26.5 per cent share, followed by Kingfisher Airlines with 21 per cent, Air India

with 16.9 per cent, Indigo with 16.4 per cent, SpiceJet with 13.3 per cent and GoAir with 5.8 per cent

during the month of June 2010

The AAI is set to spend over US$ 1.02 billion in 2010, towards modernisation of non-metro airports. AAI

is planning the city-side development of 24 airports, including those at Ahmedabad and Amritsar.

Additionally, 11 new greenfield airports have been identified to reduce passenger load on existing

airports, according to Praveen Seth, member-operations, AAI.

AAI also plans to spend around US$ 3.07 billion in the next five years for developing, upgrading and

modernising metro and non-metro airports.

With the growth in the industry, airport retailing has also gained pace in the recent times. Development of

new terminals and airports such as the recently inaugurated T3 in New Delhi has provided added impetus

to this segment.

SWOT ANALYSIS OF THE INDIAN AVIATION INDUSTRY

SWOT means the strengths, weakness, threats and opportunities. This is one of the essential requirements

of any organization and the foundation for understanding the industry of that particular organization. The

continuous volatile environment of the aviation industry has been analysed with respect the extended

marketing mix ( product, price, place, promotion, process, people and physical evidence). While

individual airlines each analyze and make decisions based on their own situations, there are overall

industry similarities that all airlines face, with each endeavoring to maximize strengths and opportunities

while minimizing weaknesses and threats.

STRENGTHS

• A major strength of any airline is the product itself (air travel). Despite downturns, over time air

travel continues to grow, not only due to population growth, but also due to an increased

propensity to fly.

• The entry of low-cost carriers pioneered by Air Deccan helped greatly reduce the costs involved in

flying. This helped attract consumers for whom air travel was only a dream. Now a number of low-

cost airlines are operating in India, namely Go Airways, Spice Jet, and Kingfisher Air, and they

have a major share of the Indian aviation industry.

• Indian labour costs are an advantage, at $30-35 per man-hour. This compares with $55-60 in

South-East Asia and Middle East and even higher in the USA and Europe.

• The change in lifestyle of people and growth in the disposable income has resulted in an increase

in leisure travelers for the past few years; 5 years back 85% were business travelers.

WEAKNESS

• All the major players in the aviation industry focus on particular regions rather than focusing on

India as a country. For example Air Deccan focuses exclusively on south Indian market while Go

Air focuses on southern and western India.

• The unplanned location of airport and the lack of proper infrastructure facilities at the airport.

Though the government has tied up with private companies such as GMR and has upgraded

airports such Delhi and Banglore but still there is a long way to go.

• Airlines have a high "spoilage" rate compared to most other industries. Once a flight leaves the

gate, an empty seat is lost and non-revenue producing.

OPPORTUNITIES

• Government allows 100% FDI via the automatic route for the green field airports. Also, foreign

investment up to 74% is permissible through direct approvals while special permissions are

required for 100% investment. Private investors are allowed to establish general airports and

captive airstrips while keeping a distance of 150 km from the existing ones. About 49% FDI is

allowed for investment in domestic airlines via the automatic route. However, this option is not

available for foreign airline corporations. Complete equity ownership is granted to NRIs (Non

Resident Indians). Foreign direct investment up to 74% is allowed for non-scheduled and cargo

airlines. Thus, all these policies promote foreign investment in this industry.

• Investment opportunities of US$ 110 billion are being envisaged up to 2020 with US$ 80 billion

towards new aircraft and US$ 30 billion towards the development of airport infrastructure,

according to the Investment Commission of India.

• Technology advances can result in cost savings, from more fuel efficient aircraft to more

automated processes on the ground. Technology can also result in increased revenue due to

customer-friendly service enhancements like in-flight Internet access and other value-added

products for which a customer will pay extra.

THREATS

• One of the basic weaknesses in the aviation industry is the fuel costs which are 70% higher than

International standards. The fuel bill is 40% of operating cost. Aviation Turbine Fuel (ATF) prices

in India is around Rs. 37,800 per kilo litre against Rs.21,800 in the Average International Markets.

Also 20% of the Operational Budget is spent on training pilots. Furthermore, landing and parking

charges are 78% higher than the international average.

• There is a shortage of skilled manpower which includes pilots, cabin crew and ground staff. Also

there is high attrition rate among the skilled manpower within the aviation industry.