1. ECONOMIC REFORM
AVIATION SECTOR - INDIA

2. SUMMARY OF PRESENTATION
• Introduction
• India’s economy before 1991
• Aviation Industry before 1991
• Liberalisation policies/Government initiatives
• Impact of Liberalisation Policy
• Growth Story
• SWOT Analysis
• Reasons for current losses by Indian LCC and Govt measures
• Conclusion

3. INDUSTRY OVERVIEW
• India is World’s 9th largest market
• Comprises of Domestic Airline, Air Cargo and Airports
• Scheduled services available from to/fro 82 airports
• Bilateral with 104 countries
• Domestic air passenger - Worlds 4th
• Enhanced connectivity – 72 foreign airlines of 49 countries
• 14 scheduled airlines operating exclusively in passenger
sector
• Presently it contributes 0.5 % of GDP and it is expected that
by 2030 it will contribute 5 % of GDP

4. HISTORY
• Completed 100 years in the year 2011
• February 18, 1911 - First commercial plane between
Allahabad & Naini carrying mails
• During Independence - 09 Companies
Tata Airlines, Indian National Airways
Air service of India, Deccan Airways
Ambica Airways, Bharat Airways
Mistry Airways.
• Inaugural flight of Air India International Ltd - June 8, 1948
Mumbai-London
• Nationalized in 1953 - Private airlines not allowed
Transport for elite class
Restricted Growth
High Cost structure
Underdevelopment of infrastructure

5. INDIA’S ECONOMY BEFORE 1991
• Influenced by Protectionism and Public ownership.
• Existence of License Raj (Red Tape).
• Average growth rate of India was 3.5% p.a with per capita
1.3%p.a.
• More focused on Heavy Industries and Agriculture.
• Less attention towards service sector.
• Downfall of USSR and Gulf War added fuel to the fire of crisis.

6. INDIA’S ECONOMY BEFORE 1991
• Major imbalance in payments of loans.
• International Monetary Fund (IMF) demanded for economic
reforms in return of aid.
• Prime Minister Narasimha Rao and Finance Minister Manmohan
Singh took initiative to bring Liberalization.

7. ECONOMIC REFORMS POST 1991
Policies
• Liberalisation - Private Players
• Open Sky
• Direct import of ATF - Regulation
• FDI – Domestic Services Sector
• Airports control - Airports Authority of India (AAI)
• Green Field Airport

8. Major Timelines
1912: Indian 1953: Indian
State Air Airlines
service and Corporation
Imperial formed 2003
Airways, UK 1932: through Air Entry of
collaborate Tata Corporation low cost
to ply on first Aviations Act, 1953, by carriers.
domestic establish nationalizing Air
route, ed. It Air India and Deccan,
between goes to Indian Spice Jet,
Delhi and Colombo National Go Air,
Karachi. in 1938. Airways. Indigo.
1915: 1948: 1994: Air
Tata Sons Designated Corporatio
start as flag n Act. 1953
airmail carrier repealed
service under the and thus
between name Air allowed
Delhi and India private
Madras. Internationa players to
l with 49% come.
govt.
control.

9. IMPACT OF LIBERALISATION
• The Air Corporation Act, 1953 repealed
Opening up of the domestic sector
Disinvestment of the two public sector airlines
New privately owned domestic airlines
• Open Sky
Allow foreign airline of any country or ownership to land at
any port on any number of occasions and with unlimited seat
capacity.
• Foreign Direct Investment
Up To 49% Of Foreign Equity & 100% Of NRI investment is
allowed Pertaining to the Domestic Air Transport Services

10. IMPACT OF LIBERALISATION
• Private Carriers permitted to operate scheduled services – 75%
share in domestic aviation
• Entry of low cost carriers
• City side development of non-metro airports
• Allowing Indian carriers to compete on international routes
• Reduction in Landing charges.
• Fleet expansion plans of Air India

11. IMPACT OF LIBERALISATION
• Restructuring of Delhi and Mumbai airport and development
of Greenfield airports at Bangalore and Hyderabad
undertaken.
• Up gradation/ expansion/ development of airports
undertaken depending upon traffic potential, requirement of
airline operators and need of air passengers.

12. IMPACT OF LIBERALISATION
• With the liberalization of the Indian aviation sector, aviation
industry in India has undergone a rapid transformation. From
being primarily a government-owned industry, the Indian
aviation industry is now dominated by privately owned full
service airlines and low cost carriers.

13. PASSENGER FLOW
2006 - 2011

14. MARKET SHARE
2011

15. MAJOR GOVERNMENT INITIATIVES
• Reduction of high Aviation Turbine Fuel(ATF) cost and review
of its Tax structure
• Multi Modal Connectivity by building expressways to
facilitate advantage of air transportation by reducing the
total travel time
• Promotion of Regional Airlines by the way of liberal policy
and provision of better infrastructure facilities
• Development of MRO hub

16. MAJOR GOVERNMENT INITIATIVES
• Merger of AI and Indian Airlines to optimize fleet acquisition
and to leverage the asset base
• 100% FDI is permissible for existing airports; approval
required for FDI beyond 74%
• 100% FDI under automatic route is permissible for
Greenfield airports
• 100% tax exemption for airport projects for a period of
10 years

17. GROWTH OF THE INDUSTRY
• The growth of airlines traffic in Aviation Industry in India is almost
four times above international average.
• Domestic airlines passengers traffic in increasing at the rate of 25%.
• India ranks fourth after US, China and Japan in terms of domestic
passengers volume.
The number of domestic flights grew by 69 per cent from 2005 to
2008.
The domestic aviation sector is expected to grow at a rate of 9-10
per cent to reach a level of 150-180 million passengers by 2020.
• The industry witnessed an annual growth of 12.8 per cent during
the last 5 years in the international cargo handled at all Indian
airports.

18. GROWTH OF THE INDUSTRY
• Further, there has been an increase in tourist charter flights to India
with around 686 flights bringing 150,000 tourists.
• It is predicted that international passengers will grow upto 50
million by 2015
• Aviation is now affordable with check fares and discount schemes.
• Various Operators with different business model.
• Regional connectivity – Tier II & Tier III cities

19. Contribution to GDP
Present Contribution < 1%.
Poised to grow at 5% contribution to GDP by 2030

20. OPPORTUNITIES
Airport development and modernisation
• The government is promoting private participation for the
development of greenfield airports and modernisation of existing
airports.
Airport connectivity
• The Ministry of Civil Aviation is focussing on improving connectivity
to major airports.
City-side development
• The government is focussing on the city-side development of airports,
including real estate and commercial development. The city-side
development of 24 non-major airports is being taken up.

21. SWOT ANALYSIS

22. CHALLENGES
• Initializing privatization in the airport activities
• Modernization of the airlines fleet to handle the pressure of
competition in the aviation industry
• Rapid expansion plans for the major airports for the increased
flow of air traffic
• Development for the continuously growing Regional Airports
• Costs pressures (ATF Prices & Staff Cost)

23. Problems that effected airline
industry- The low cost carrier ( LCC)
• The Indian aviation sector was exposed to intense competition
with the advent of a low-cost airline - Air Deccan back in 2003.
The success of Air Deccan spurred the entry of other LCCs like
SpiceJet, Indigo, Go Air and subsequently low fare offerings from
Jet airways and Kingfisher Airlines. However, longer term
viability of LCCs models in India remains to be seen (Kingfisher
exited the segment recently) as airport charges are same for
FSCs and LCCs in India
• ATF costs contributes 30-45% of overall operating costs for Full
Service Carrier’s (FSC’s) & 40-55% for Low cost carriers (LCCs)
• Domestic ATF prices are linked to fluctuation in crude oil prices
and movement in INR vs. $
• High central and state levies translates into a 60-70% higher ATF
prices in India over the global average

24. Problems that effected airline
industry- The low cost carrier ( LCC)
• Significant congestion at major domestic airports increases fuel
costs considerably.( (half an hour hovering at major airport could
increase fuel costs by Rs.60,000 to Rs. 115,000 depending on
aircraft, besides impacting aircraft utilizations)
• High airport charges, dearth of experienced commercial pilots and
their demand of salaries in dollars, inflexible labor laws and overall
higher cost of capital.
• While the passenger traffic growth has been steady (averaging 14%
in 2010-12), intense competition has impacted yields and forced
airlines back into losses in an inflated cost base scenario.

25. Current Govt. measures
• Proposal to allow foreign carriers to make strategic investments
(up to 49% stake) in Indian Carriers.(Latest News)
• Improvement in infrastructure such that LCCs could operate on
secondary airports.
• Proposal to allow airlines to directly import ATF lifting the freeze
on international expansions of private airlines.
• While the domestic airlines have not been able to attract foreign
investors (up to 49% FDI is allowed, though foreign airlines are
currently not allowed any stake), foreign airlines may be
interested in taking strategic stakes due to their deeper business
understanding, longer investment horizons and overall longer
term commitment towards the global aviation industry.

26. CONCLUSION
• The success of the “open sky” policy in the first phase of
economic reforms in the domestic aviation sector, international
cargo, airport infrastructure .
• The opening of the Airports sector with new ‘Green field
Airports ’to the private sector, has been a step forward.
• The Disinvestment of shareholding in the public sector
airlines still remains to be completed.
• Reforms like allowing foreign airlines to buy stake in domestic
carriers and rationalisation of central and state levies on jet fuel
implemented for a sound sustained growth.

27. THANK YOU