Introduction to Indian aviation Industry
Initial growth of aviation industry
Which difficulties they are facing
Possible corrective measures
In 1994 the Air Corporation Act of 1953 was
repealed with a view to remove monopoly of air
corporations on scheduled services.
Enable private airlines to operate scheduled
service, convert Indian Airlines and Air India to
limited company and enable private participation
in the national carriers.
In beginning of 1990 private airline companies
were allowed to provide limited services.
That resulted in the increase of the share of
private airline operators in domestic passenger
carriage to 68.5% in 2005 from 0.4 of 1991.
NAME OF THE OPERATOR % Share In Market
Kingfisher Airlines and
Kingfisher Red (previously Air 28%
Jet Airways and Jet lite
(previously Air Sahara)
Air India and Indian (previously
Go air 3%
Paramount Airways 2%
MDLR airways 0.004%
The Indian aviation sector had witnessed
strong growth in 2005 with the entry of
many low cost carriers (LCC).
The increased competition resulted in
lower air fares for travelers.
passenger traffic grew from 19.8 million
during July 2004 and June 2005 to 27.5
million during July 2005 and June 2006.
Low fares because of competition
High fuel prices
Huge debt burden
ATF prices now form around 80% of the total
operating costs of Airline Industry.
ATF prices have almost doubled over the last year.
ATF prices which have demonstrated the inverse
relationship between airline stock prices and fuel
The industry reported a $10.4 billion loss in the
Driven by the drastically increasing passenger
traffic over the last 3 years, almost all domestic
players built their capacity
Assuming the growth would continue over the
next few years. Several new aircrafts were bought
within a short span of time which resulted in
excess capacity of around 15% to 20%.
Aircrafts ordered during good times are being
delivered during recession.
Maintaining such low levels of fares will be difficult
due to excess capacity, especially during the
ongoing global slowdown.
Healthy profits and increasing passenger
traffic saw airlines raising significant
amount of capital from bank to fund their
aggressive expansion plans.
Banks also were liberal in lending airlines.
The top three airlines including Air India,
Kingfisher Airlines and Jet Airways are
now carrying a cumulative debt burden of
approximately $8 billion.
Infrastructure continues to be a major
constraint for Indian Airline Industry today
Due to excess capacity created during good
Maintenance and Air Traffic Control (ATC)
infrastructure are grossly inadequate if the
industry expects to grow any further.
Security concerns still remain to be addressed.
Even though the industry is weighed down
with excess capacity, regional connectivity
continues to be poor.
Primarily due to the lack of infrastructure.
There is clearly a shortage of trained and
skilled manpower in the aviation sector
There is cut-throat competition for
The industry is unable to retain talented
cut-throat competition drives wages to
In August 2006, Spicejet had reported a net
loss of Rs. 414.2 million for the first year of
In 2006, Air Deccan, the largest LCC in India,
reported a net loss of Rs. 3.4 billion for the 15
month period ended June 30, 2006.
Jet Airways, a full service carrier, had also
reported a net loss of Rs. 1.0 billion for the
half year ended September 30, 2006.
October 16, 2006, the representatives of
major carriers decided to set up the
Federation of Indian Airlines.
Improving aviation infrastructure facilities
and reducing taxes on ATF.
The minister said that there would be closer
scrutiny of new applications before issuing
licenses to new carriers.
Ministry would take up the issue of high
aviation turbine fuel (ATF) prices with the oil
companies and the petroleum ministry.
Mergers between Air Deccan and
Indian Airline Industry was one of the fastest growing Airline Industry
across the world during the last decade. However, skyrocketing fuel prices,
economic slowdown, slashed corporate travel budgets over the last 3
years has forced all Indian Airlines to rethink their business model. Excess
capacity build-up and poor infrastructure continue to plague the industry
which is also experiencing a decline in passenger traffic at the same time.
Mergers, liquidation and consolidations seem to be necessary. Improving
energy efficiency of engines, developing infrastructure, increasing regional
connectivity will definitely have a positive impact on the industry.