Major Role Of Aviation In Development Of Country
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Major Role Of Aviation In Development Of Country

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    Major Role Of Aviation In Development Of Country Major Role Of Aviation In Development Of Country Presentation Transcript

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