IMPACT OF HIGH OIL PRICES ON DOMESTIC AIR TRAVEL INDIA GROUP-2
MAJOR ROLE OF AVIATION IN DEVELOPMENT OF COUNTRY <ul><li>•  Aviation as a major driver for economic growth & investments <...
The State of Airline business in India <ul><li>•  Fiercely competitive </li></ul><ul><li>–  Market expansion driven also b...
CURRENT SCENARIO <ul><li>ATF Contributes to 40% of the operating cost of airlines </li></ul><ul><li>Priced 65% higher in I...
…CONTD <ul><li>In fact, there has been a 20% drop in the weekly flight schedule - from 10,922 flights a week in March 2008...
Contd.. <ul><li>The ATF price in India is Rs 37,800 per kilolitre as against the international price of Rs 21,800 per kilo...
<ul><li>The industry's growth rate has been 35% to 40%  more reasonable levels like 10% to 15% increase in sector </li></u...
Factors which contribute to high cost of ATF <ul><li>• Import Parity Pricing mechanism </li></ul><ul><li>• State Sales Tax...
REALITY ON ATF <ul><li>Oil marketing companies on 14 TH  September announced 16% reduction in price of ATF  </li></ul><ul>...
<ul><li>The overall impact of the high oil prices on the Indian economy is also restrained: </li></ul><ul><li>comfortable ...
CONSUMPTION OF ATF <ul><li>GRAPH </li></ul>
<ul><li>The government has long treated flying as a luxury and the taxes on ATF have reflected </li></ul><ul><li>If all th...
<ul><li>Tax Structure </li></ul><ul><li>Customs duty on ATF for domestic operations should be reduced  </li></ul><ul><li>E...
Fuel price rise will not impact domestic air travel growth  <ul><li>Increasing price of ATF would not hurt the industry, i...
MEASURES TO IMPROVE THE AIRLINE INDUSTRY <ul><li>New fuel-efficient aircraft and Next Gen air traffic control system-enabl...
<ul><li>The airlines which will survive this period of high oil prices are those with: </li></ul><ul><li>Fuel efficient ai...
CONCLUSION <ul><li>KPMG. says that “ATF price hikes can hurt the industry, but not kill it” </li></ul><ul><li>.&quot;The f...
REFERENCE <ul><li>BOOKS </li></ul><ul><li>INDIAN AVIATION INDUSTRY-ICFAI PRESS BOOK </li></ul><ul><li>WEBSITES </li></ul><...
THANK YOU.  HAVE NICE DAY AHEAD…..
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Major Role Of Aviation In Development Of Country

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Major Role Of Aviation In Development Of Country

  1. 1. IMPACT OF HIGH OIL PRICES ON DOMESTIC AIR TRAVEL INDIA GROUP-2
  2. 2. MAJOR ROLE OF AVIATION IN DEVELOPMENT OF COUNTRY <ul><li>• Aviation as a major driver for economic growth & investments </li></ul><ul><li>• Critical role in providing transport & connectivity </li></ul><ul><li>• New airlines, budget travellers & an expanding economy </li></ul><ul><li>• Airlines bear responsibility also of providing air connectivity to remote regions of the country </li></ul>
  3. 3. The State of Airline business in India <ul><li>• Fiercely competitive </li></ul><ul><li>– Market expansion driven also by aggressive pricing </li></ul><ul><li>– Airlines selling below costs </li></ul><ul><li>• Deal with only monopoly players </li></ul><ul><li>– Airports, Fuel suppliers, Aircraft mfrs, Equipment, </li></ul><ul><li>• Budget model demands firm control on costs </li></ul><ul><li>– A high cost environment in India: Fuel, wages, airport charges </li></ul><ul><li>• Airlines are still adding capacity with new planes </li></ul><ul><li>– 150 aircrafts in 2002 to 300 in 2007. Expected to further </li></ul><ul><li>double by 2010 </li></ul>
  4. 4. CURRENT SCENARIO <ul><li>ATF Contributes to 40% of the operating cost of airlines </li></ul><ul><li>Priced 65% higher in India on an average, compared to international benchmarks </li></ul><ul><li>– An FIA estimate indicates that a reduction in ATF price by 60% (to bring it closer to international benchmarks) has an impact of lowering airline operational losses by 25% </li></ul><ul><li>• High ATF charges not only a domestic airline issue </li></ul><ul><li>– IATA deeply concerned </li></ul><ul><li>– Hurts India’s prospects of being even a regional aviation hub </li></ul><ul><li>• A reduction of even Rs 1000 / kl translates to a saving of Rs 500 crore for the sector </li></ul>
  5. 5. …CONTD <ul><li>In fact, there has been a 20% drop in the weekly flight schedule - from 10,922 flights a week in March 2008 to 8,778 (15 th sept 08) </li></ul><ul><li>Even the passenger growth witnessed a decline by 12% July 2008 as compared to July 2007. </li></ul><ul><li>Domestic airlines are facing an estimated loss of $2 billion in fiscal 2009 </li></ul>
  6. 6. Contd.. <ul><li>The ATF price in India is Rs 37,800 per kilolitre as against the international price of Rs 21,800 per kilolitre, which is about 73% higher (at April'07 prices). </li></ul><ul><li>The high cost of ATF coupled with the high airport charges in India have adversely affected Indian airports' prospects of emerging as global / regional aviation hubs. </li></ul><ul><li>prices of ATF in India based on the &quot;International Import Parity Prices&quot;, directly linked to benchmark of Platt's publication of FOB Arabian Gulf ATF prices (AG). </li></ul>
  7. 7. <ul><li>The industry's growth rate has been 35% to 40% more reasonable levels like 10% to 15% increase in sector </li></ul><ul><li>sees three major airlines emerging from the rubble and Merged of </li></ul><ul><li>Air India-Indian Airways </li></ul><ul><li>Jet-Sahara </li></ul><ul><li>Kingfisher Airlines- Spice Jet </li></ul>
  8. 8. Factors which contribute to high cost of ATF <ul><li>• Import Parity Pricing mechanism </li></ul><ul><li>• State Sales Taxes </li></ul><ul><li>• Customs & Excise Duties </li></ul><ul><li>• Throughput Fees (used as a criterion to decide winners in the recent for setting up fuel facilities at selected airports ) </li></ul><ul><li>• Lack of common distribution infrastructure </li></ul>
  9. 9. REALITY ON ATF <ul><li>Oil marketing companies on 14 TH September announced 16% reduction in price of ATF </li></ul><ul><li>Airlines refused to pass on this benefit to consumers by lowering fares </li></ul><ul><li>A reduction of even Rs 1000 / kl translates to a saving of Rs 500 crore for the sector </li></ul>
  10. 10. <ul><li>The overall impact of the high oil prices on the Indian economy is also restrained: </li></ul><ul><li>comfortable balance of payment position, the large foreign exchange reserves and the access to international capital. </li></ul><ul><li>Share of oil in total energy consumption went up slowly to 24.5% in the 2000 and it is expected to stabilize close to that level till 2011-12. </li></ul>
  11. 11. CONSUMPTION OF ATF <ul><li>GRAPH </li></ul>
  12. 12. <ul><li>The government has long treated flying as a luxury and the taxes on ATF have reflected </li></ul><ul><li>If all the levies (excluding company margins and mark-ups) are put together, the total is nearly 35% of the final sale price </li></ul><ul><li>ATF today costs around $1 per liter around the world, and marginally less in places like Dubai and Singapore. </li></ul><ul><li>This ranges from 4% in Andhra Pradesh to 30% in Gujarat. </li></ul>Levies and Losses
  13. 13. <ul><li>Tax Structure </li></ul><ul><li>Customs duty on ATF for domestic operations should be reduced </li></ul><ul><li>Excise duty on ATF should be made 4% </li></ul><ul><li>ATF should be given &quot;declared goods&quot; status, thereby attracting a uniform 4% sales tax across India </li></ul><ul><li>An Excise Duty of 8.24% (including cess) is levied on ATF </li></ul>
  14. 14. Fuel price rise will not impact domestic air travel growth <ul><li>Increasing price of ATF would not hurt the industry, it could never be the reason for an Airline to close down. </li></ul><ul><li>Domestic Airline will be adversely influenced by epidemic outbreaks, economic recession, terrorism, shift in policy, regulations and competitive market, but not by rise in oil prices </li></ul>
  15. 15. MEASURES TO IMPROVE THE AIRLINE INDUSTRY <ul><li>New fuel-efficient aircraft and Next Gen air traffic control system-enabled flight procedures can lower fuel bills by 20-30% </li></ul><ul><li>Require large capital outlays and massive upgrades to the ATC system. </li></ul><ul><li>Expects airlines to invest $12-18 billion of their own money to take advantage of Next Gen (&quot;next generation&quot; biofuels from grasses and trees because ethanol and biodiesel from grains and beans are blamed for helping to boost food prices. ) </li></ul>
  16. 16. <ul><li>The airlines which will survive this period of high oil prices are those with: </li></ul><ul><li>Fuel efficient aircraft, </li></ul><ul><li>Substantial cash balances </li></ul><ul><li>Low net debt and </li></ul><ul><li>Capable management who can increase efficiency </li></ul><ul><li>Airlines are also looking at other options for sourcing ATF. which will take the fuel out of the state sales tax net </li></ul><ul><li>To set up an “early warning mechanism” to forewarn them of low yields routes as well as identify potentially high traffic routes that may be seasonal </li></ul>
  17. 17. CONCLUSION <ul><li>KPMG. says that “ATF price hikes can hurt the industry, but not kill it” </li></ul><ul><li>.&quot;The future for the industry is positive and bright&quot;, despite the so called 'turbulence' </li></ul><ul><li>Oil companies are critical stake-holders In India’s aviation growth. The oil companies thus have a shared responsibility towards ensuring that the exponential growth in aviation is sustained. </li></ul>
  18. 18. REFERENCE <ul><li>BOOKS </li></ul><ul><li>INDIAN AVIATION INDUSTRY-ICFAI PRESS BOOK </li></ul><ul><li>WEBSITES </li></ul><ul><li>www.civilaviation.com www.businessweek.com </li></ul><ul><li>www.indianbusiness.nic.in www.easyjet.com </li></ul><ul><li>www.timesofindia.com www.fiaindia.in </li></ul><ul><li>www.southwest.com </li></ul>
  19. 19. THANK YOU. HAVE NICE DAY AHEAD…..
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