Analysis of the Indian Aviation Industry

7/30/2019 Analysis of the Indian Aviation Industry

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Industry Analysis

Of

Indian Aviation Sector

Shrey Chaurasia

2012175


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IntroductionIndian aviation sector has 6

major airlines

28%

25%19%

16%

7%5%

Market share of Indian Airlines

Jet Airways

IndiGo

Spicejet

Air India

GoAir

Kingfisher

As On

May-12

More than 75% of passenger load is carried by private airlines

Airport Authority of India(AAI) operates and maintains 126 Airports, 329 airstrips, 16

International airports, & 84 domestic airports.

Estimated growth for domestic passenger load is 23%, for international travel is 14%and international cargo is 18% for the next 5 years.

Privatization of some airports in JVs has taken place, which has been built through

foreign equity. Hyderabad,Bangalore,Cochin airports are examples

India, is today the 9th largest Aviation market in the world.


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Indian Skies ruled by LCCsAir Deccan started the trend of Low Cost Carriers in India in 2003

Today, many LCCs like Spicejet,Indigo,GoAir dominate the Indian market, which wasdominated by Full Service carriers(FSC) a decade ago.

Airport charges & other costs are same for FSCs & LCCs.

LCCs try to avoid cost by smaller crew,avoiding in-flight services,selling tickets through the

internet, inventory reduction through the use of similar aircraft.

99% 95%71% 66%

54% 52% 37% 31%

1% 5%29% 34%

46% 48%63% 69%

0%

20%

40%

60%

80%

100%

FSC% LCC%

This chart shows

LCC dominance

in the Indian

market over the

past decade.


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Cost structureMajority of an airlines costs are dependent on external factors which it cant manage. This

includes fuel cost(~40%), Maintenance Cost(~12%), & Ownership cost(~10%).Fuel Costs form a larger part of overall costs than international standards because ofhigher

Central & State govt. levies & high congestion at major airports.

Given the fact that Indian airlines have been expanding at an aggressive rate, there is a

shortage of pilots, & foreign pilots command higher salaries

These Constraints can be improved if there is significant improvement in infrastructure, and

in the secondary airports along with direct ATF imports.

20000

30000

4000050000

60000

70000

Jan

-09

Mar

-09

May

-09

Jul-09

Sep

-09

Nov

-09

Jan

-10

Mar

-10

May

-10

Jul-10

Sep

-10

Nov

-10

Jan

-11

Mar

-11

May

-11

Jul-11

Sep

-11

Nov

-11

Jan

-12

ATF Price trend Rs./KLitre


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Todays Challenges

The Indian aviation sector is facing significant operating & Non-operating challenges.

Slowing sales growth: There has been slow sales growth in the last 5 quarters. Besidesprice wars among domestic carriers is leading to moderated sales growth for airlines.

Rising ATF Prices & Rupee Depreciation: ATF prices have spiked by 57% in the past 14

months despite a just a 12% rise in crude oil prices. Besides 18.7% depreciation in the

value of Rupee has added to costs like lease rentals, expat salaries etc

Profit margins: Over all due to i)Slow sales growth, ii)lower yields due to excessive

competition, iii)Rising ATF prices, iv)Steep rupee depreciation & v)Rising level of debt theprofitability of the entire sector has been severely impacted.

Center for Asia Pacific Aviation estimated the indian aviation sector to have a cumulative

loss of $2.5Bn in 2011-12, much higher than 2008-09 during high crude oil prices.

Overall the industry has been marred by cost efficiencies and is bearing the brunt of

aggressive price cuts, rising fuel prices, weaker rupee etc. government support to bailoutsuch airlines has been visible in the recent past, while almost all the airlines are incurring

heavy losses. Govt. seems to be mulling plans to have foreign carriers pick up strategic

stakes in domestic airlines as the last attempt to infuse some equity into them


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Future Prospects Passenger traffic is expected to grow at a CAGR of 17% till 2020.

The Ministry of Civil Aviation will have to handle 280 Million people by 2020

Indian Aviation sector envisages investment of $110Bn till 2020

FDI Proposal:The Civil Aviation Ministry is soon expected to pass a proposalallowing upto 49% equity investment by foreign carriers in domestic airlines. This

will benefit the airlines and the end-consumer as well offering world-classexpertise more flexibility & possibly better prices

Direct ATF Import: Another proposal to be passed is for direct importof ATF, which will lead to high taxation differential, though the capability of

indian airlines for such infrastructure for storing & transporting said ATF might

be questionable.

International Routes:Civil Aviation Ministry has lifted the freeze fromoverseas expansion of indian airlines. Indigo & spicejet have already begun

operations. This will lead to availability of new markets for indian airlines

Analysis of the Indian Aviation Industry

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