History of Airline Industry in India History of Airline Industry in India Genesis on Feb 18, 1911 In 1932, JRD Tata launched TATA Airline In 1948, Air India International came into being between Indian Govt. and AIR India (TATA Airline)

1953: Nationalization of Aircraft Industry Indian Airlines, primarily serving domestic sectors Air-India, primarily serving the international-sectors Implication Aviation became a preferred mode of transport for elite class Restricted Growth of Aviation Industry High Cost structure Underdevelopment of infrastructure History of Airline Industry in India

1953: Nationalization of Aircraft Industry

Indian Airlines, primarily serving domestic sectors

Air-India, primarily serving the international-sectors

Implication

Aviation became a preferred mode of transport for elite class

Restricted Growth of Aviation Industry

High Cost structure

Underdevelopment of infrastructure

History of Airline Industry in India 1986: Private Sector Players permitted as Air taxi operators Players including Jet, Air Sahara, NEPC Sky liner, East West, Modiluft,etc started service 1994: Private Carriers permitted to operate scheduled services Six operators granted license however only Jet and Air Sahara able to service 2003: Entry of low cost carriers Air Deccan, Spice Jet, Go Air, Indigo

History of Airline Industry in India Implication -Aviation has become affordable with check fares and discount schemes -Various Operators with different business model Huge growth foreseen in the Aviation Industry

Airline Industry in India : Characteristics HUGE POTENTIAL Under penetrated Market - Total Passenger Traffic only 50 mn as on 31 st Dec 2005 amounting to only 0.05 trips per annum as compared to developed Nations like United States have 2.02 trips per annum - High Level of potential demand with growth in Indian economy Untapped Air Cargo Market - Air Cargo has not yet been fully taped in the Indian markets and is expected that in the coming years large no of players would have dedicated fleets. What this means… - Build up of capacity by existing players and entry of new players

HUGE POTENTIAL

Under penetrated Market

- Total Passenger Traffic only 50 mn as on 31 st Dec 2005 amounting to only 0.05 trips per annum as compared to developed Nations like United States have 2.02 trips per annum

- High Level of potential demand with growth in Indian economy

Untapped Air Cargo Market

- Air Cargo has not yet been fully taped in the Indian markets and is expected that in the coming years large no of players would have dedicated fleets.

What this means…

- Build up of capacity by existing players and entry of new players

CONSTRAINTS - Infrastructure Constraints, Shortage of airport facilities, parking bays, air traffic control facilities and takeoff and landing slots. - Continued growth might be hampered Relatively Limited Reach Only 454 airports with less than 100 airports having more than one daily service Airline Industry in India – Characteristics

CONSTRAINTS

- Infrastructure Constraints, Shortage of airport facilities, parking bays, air traffic control facilities and takeoff and landing slots.

- Continued growth might be hampered Relatively Limited Reach Only 454 airports with less than 100 airports having more than one daily service

Medium Term Growth Forecast: India GDP: 9.6% p.a . Domestic Air Travel: 20% - 25% p.a . WTTC Travel & Tourism: 8.8% over next 10 years Airline Industry in India : Characteristics

Air Cargo Trends Passenger Traffic Trends 2010 (Projection ) : 3,360 thousand tones 2010 (Projection ) : 105-115 million (69 million domestic & 40 million international) High Growth in Passenger and Air Cargo Traffic

Airline Industry in India – Domestic Aviation Market Share 2.4 33 by 2008 4 GoAir 1.9 38 by 2010 6 Spice Jet 4.5 100 by 2012 11 Kingfisher 2.7 79 by 2010 29 Air Deccan 2 30 by 2012 53 Jet Airways US $Bn PLANS FLEET INVESTMENTS ACQUISITION CURRENT AIRLINE

Airline Industry in India – Full Service Vs Price Graph Competitive Pressure Full Service Price Low cost Carriers changing the game Indigo

MACRO ENVIRONMENT ANALYSIS Refers to the factors which influence an industry but are beyond its control. Main factors are: P OLITICAL E CONOMIC S OCIO-CULTURAL T ECHNOLOGICAL Other Factors DEMOGRAPHIC NATURAL ENVIRONMENT

Macro Environment Analysis - POLITICAL Open Sky Policy Deregulations in different spheres Less Entry Barriers Reduction in FDI Limits : 49% for airlines 100% for airport A: B: C: D:

Amendments in Civil Aviation Laws - Summary NO RESTRI CTIONS NO RESTRI CTION 1997 ANY INDIAN COMPANY MAX 30 FOR NEW ENTRANT 1994 40% FOREIGN EQUITY 1993 NO RESTRI CTION NO RESTRI CTIONS CITIZENS, GOVT , NRIs CAN OWN ALL AIRPORTS MIN 15 NO LIMIT ON MAX 1990 MAX 50 1989 2hr GAP WITH NATIONAL AIRLINE NATIONAL AIRLINE REGULATED NATIONAL, NON-SCHEDULED ONLY NOTIFIED AIRPORTS MAX 10 1986 SERVICE WHEN? FARES WHO CAN SERVICE? SERVICE TO? NO. OF SEATS AMENDMENT

Macro Environment Analysis – Socio-Cultural Aspect GROWING MIDDLE-CLASS 1993 to 1999 : 39.5 million to 56.7m households 2005 : 300 million 2010 : 400 million estimates Increase in leisure travel by tourists by 15% in 2005 3.2 million foreign tourists visited India last year in 2006 ; tourism industry grew 8.8 per cent over 2005, the highest growth rate in the world.

Macro Environment Analysis - Technological Modernization of Airports -Induction of modern technology for efficient handling of Aircraft, Passenger and Cargo at airports. -Example: Installing ILS-Instrument Landing System and CAT-3 System at Airports and in Aircrafts respectively . Developing the Greenfield Airports with Private Sector -Example: Bangalore International Airport Ltd

Macro Environment Analysis - Demographic Changing structure of consumers Highest % people of Age Group 20-25 Educational Environment Shift towards nuclear family concept Source NCAER: Middle class income over Rs. 90,000 p.a

Changing structure of consumers

Highest % people of Age Group 20-25

Educational Environment

Shift towards nuclear family concept

Source NCAER: Middle class income over Rs. 90,000 p.a

Macro Environment Analysis – Natural Environment HIGH ENERGY COSTS The cost of aviation turbine fuel ATF in India for domestic airlines is almost double for international market. Govt. increased prices by 7.5%. From 32.56 to 35/litre. ATF price in Feb soared by 3.5% to the price in Jan 06.

HIGH ENERGY COSTS

The cost of aviation turbine fuel ATF in India for domestic airlines is almost double for international market.

Govt. increased prices by 7.5%. From 32.56 to 35/litre.

ATF price in Feb soared by 3.5% to the price in Jan 06.

Why a LCC is needed? The world’s largest democracy, India has a population of 1.1 billion, With a middle class (income over IDR90,000 per annum) estimated at 300 million in 2005 and projected to hit 400 million in 2010. That would be equal to the enlarged European Union and larger than the USA. 15 Million People Travel by Train Daily 700,000 people a day travel by AC.If just 5 % of this segment Switches to Air travel, it will result in 40,000 seats a day being added Further more it is easier to create air capacity then rail or road capacity.

The world’s largest democracy, India has a population of 1.1 billion,

With a middle class (income over IDR90,000 per annum)

estimated at 300 million in 2005 and projected to hit 400 million in 2010. That would be equal to the enlarged

European Union and larger than the USA.

15 Million People Travel by Train Daily 700,000 people a day

travel by AC.If just 5 % of this segment Switches to Air travel,

it will result in 40,000 seats a day being added Further more it

is easier to create air capacity then rail or road capacity.

Low Price Tags Apex Fares Internet Auctions Bulk Purchases Last Day Fares Start of the BOOM

Low Price Tags

Apex Fares

Internet Auctions

Bulk Purchases

Last Day Fares

S.W.O.T Analysis of the Industry Key Attractions: Low entry barrier Attraction of foreign shores Foreign equity allowed Rising income levels and demographic profile Key Problems: Crippling “Oil Shock” Absence to Institutionalized Funding Acute shortage of trained Pilots, severely limiting growth prospects. Unplanned location of Airports.

Key Attractions:

Low entry barrier

Attraction of foreign shores

Foreign equity allowed

Rising income levels and demographic profile

Key Problems:

Crippling “Oil Shock”

Absence to Institutionalized Funding

Acute shortage of trained Pilots, severely limiting growth prospects.

Unplanned location of Airports.

S.W.O.T Analysis of the Industry Cont’d… Key Developments that may Influence the future: Average growth of about 25%-30% Air Freight segment is growing faster than the Passengers segment. Duties slashed on ATF and IATT. Pilot license applications have tripled. Expecting investments - US $30 billion by 2012 and about US $50 billion by 2015. Expected Market Size is projected to be about 50 million by 2010.

Key Developments that may Influence the future:

Average growth of about 25%-30%

Air Freight segment is growing faster than the Passengers segment.

Duties slashed on ATF and IATT.

Pilot license applications have tripled.

Expecting investments - US $30 billion by 2012 and about US $50 billion by 2015.

Expected Market Size is projected to be about 50 million by 2010.

Air Deccan – S.W.O.T Analysis Market Share:21.2% Strengths Highest load efficiency. Flies to destinations in the Hinterland A 'Lean-and-Mean' approach to staffing Expanded operations into Sri Lanka Leader in LCC segment, first to target the Middle Class Weaknesses Focuses almost exclusive on south Indian markets. Image plagued by frequent breakdowns and near misses Very limited advertising Already reached the threshold of cost efficiency

Market Share:21.2%

Strengths

Highest load efficiency.

Flies to destinations in the Hinterland

A 'Lean-and-Mean' approach to staffing

Expanded operations into Sri Lanka

Leader in LCC segment, first to target the Middle Class

Weaknesses

Focuses almost exclusive on south Indian markets.

Image plagued by frequent breakdowns and near misses

Very limited advertising

Already reached the threshold of cost efficiency

Air Deccan – S.W.O.T Analysis Cont’d… Opportunities Extensive network to exploit the booming Air cargo business. Plenty of scope for expansion of operations Could start “Contractual Employment” Strengthen its position in the Chartered Flight segment. Threats High Attrition rate The Threat of New Entrants into (LCC) segment esp GoAir, Spice Jet, Indigo and Jagson Airlines High Risk Perception

Opportunities

Extensive network to exploit the booming Air cargo business.

Plenty of scope for expansion of operations

Could start “Contractual Employment”

Strengthen its position in the Chartered Flight segment.

Threats

High Attrition rate

The Threat of New Entrants into (LCC) segment esp GoAir,

Spice Jet, Indigo and Jagson Airlines

High Risk Perception

Spice Jet – S.W.O.T Analysis Market Share: 6% Strengths Entered with Rs. 99 fares for first 99 days “ Offering low everyday spicey fares” Aim: Compete with Indian Railways AC sgment Fleet of 6 Boeing 737-800 with 189 seats. Weaknesses Small fleet structure Concentrating at only North-West-South Indian Sectors Small Load Efficiency compared to Air Deccan

Market Share: 6%

Strengths

Entered with Rs. 99 fares for first 99 days

“ Offering low everyday spicey fares”

Aim: Compete with Indian Railways AC sgment

Fleet of 6 Boeing 737-800 with 189 seats.

Weaknesses

Small fleet structure

Concentrating at only North-West-South Indian Sectors

Small Load Efficiency compared to Air Deccan

Spice Jet – S.W.O.T Analysis Cont’d… Opportunities Future Fleet expansion will increase its Market Share. Attractive fares and up to date quality service will generate a huge customer base comprising Frequent Flyers. Threats High Attrition rate The Threat of New Entrants into (LCC) segment esp. GoAir, Indigo and Jagson Airlines High Risk Perception

Opportunities

Future Fleet expansion will increase its Market Share.

Attractive fares and up to date quality service will generate a huge customer base comprising Frequent Flyers.

Threats

High Attrition rate

The Threat of New Entrants into (LCC) segment esp.

GoAir, Indigo and Jagson Airlines

High Risk Perception

Go Air – S.W.O.T Analysis Market Share: 2% Strengths LCC promoted by The Wadia Group GoAir FreeFares Weaknesses Small network : flights in southern & western India with the first nine A320s Small Fleet Structure Small Load Efficiency compared to Air Deccan & Spice Jet

Market Share: 2%

Strengths

LCC promoted by The Wadia Group

GoAir FreeFares

Weaknesses

Small network : flights in southern & western India with the first nine A320s

Small Fleet Structure

Small Load Efficiency compared to Air Deccan & Spice Jet

Go Air – S.W.O.T Analysis Cont’d… Opportunities Future Fleet expansion will increase its Market Share. Flight network extension Attractive fares and up to date quality service will generate a huge customer base comprising Frequent Flyers. Threats High Attrition rate The Threat of New Entrants into (LCC) segment esp. GoAir, Indigo and Jagson Airlines High Risk Perception

Opportunities

Future Fleet expansion will increase its Market Share.

Flight network extension

Attractive fares and up to date quality service will generate a huge customer base comprising Frequent Flyers.

Threats

High Attrition rate

The Threat of New Entrants into (LCC) segment esp.

GoAir, Indigo and Jagson Airlines

High Risk Perception

• Greenfield airports –Bangalore/Hyderabad • J/Vs for Ground Handling and MRO facilities • Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this year. • AAI set up more radar stations – to bring entire Indian airspace under radar monitoring. • Training more Pilots and Air Traffic Controllers. • Raising retirement age of pilots to 65 from 61. The Positive Steps

Allow al Indian Careers, Public or Private-to operate International roots. Lower the cost of aviation turbine fuel. Lower the Landing and airport charges. Strengthen and promote short haul tourism for business development, trade and tourism. Encourage of Proactive involvement of overseas investors and technical managers in the privatization of airports. Encourage commercial activities within airports such as hotel, restaurants etc. Ensure a healthy growth in traffic to the private airports. Some Recommendations

Allow al Indian Careers, Public or Private-to operate International roots.

Lower the cost of aviation turbine fuel.

Lower the Landing and airport charges.

Strengthen and promote short haul tourism for business development, trade and tourism.

Encourage of Proactive involvement of overseas investors and technical managers in the privatization of airports.

Encourage commercial activities within airports such as hotel, restaurants etc.

Ensure a healthy growth in traffic to the private airports.

Thank You