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State Of Private Airlines in India
Submitted By:- Devesh Kumar Upadhyay Page 1
1.INTRODUCTION
India is one of the fastest growing economies of the world with an average GDP growth of
over 8.9 percent in last five years. For India to sustain its economic growth story it has to
strengthen its infrastructure sector and in particular, critically improve its transportation
infrastructure. Aviation is an important part of national infrastructure and one of the prime
movers for economic growth and an important strategic element of employment
generation. Aviation sector in India has been transformed from an over regulated and
under managed sector to a more open, liberal and investment friendly sector. Adoption of
global standards has made aviation a safer way to travel.
1.1 Air Traffic: Of a total number of 454 airports and airstrips in India, 16 are designated
as international airports. The Airports Authority of India (AAI) owns and operates 97
airports. A recent report by Centre for Asia Pacific Aviation (CAPA) states that over the
next 12 years, India's Civil Aviation Ministry aims at 500 operational airports. Top 5
airports in the country handle 70% of the passenger traffic of which Delhi and Mumbai
together alone account for 50%. Passenger and cargo traffic has growth at an average of
about 9% over the last 10 years.
1.2 Growth: The commercial aviation sector in India and the Middle East is expected to
achieve overall annual growth of 9 per cent and 10 per cent, respectively, for several
years to come and will account for 11-12 per cent of the total aircraft deliveries
worldwide over the next decade. Anticipated growth for International passenger
segment is 7% while the growth for International Cargo is likely to grow at a healthy
rate of 12%.
1.3 Privatization: Privatization of International Airports is in offing through Joint Venture
route. Three Greenfield airports are getting developed at Kochi, Hyderabad and
Bangalore with major shareholding of private sector. The work on Bangalore airport is
likely to commence shortly. Few selected non-metro airports are likely to be
privatized.100% foreign equity has also been allowed in construction and maintenance
of airports with selective approval from Foreign Investment Promotion Board.
1.4 Air movements: The total aircraft movements handled in October 2003 has shown an
increase of 15.4 percent as compared to the aircraft movement handled in October
2002. The international and domestic aircraft movements increased by 15.4 percent
each during the period under review. The reason for increase in aircraft movements is
due to increase of operation of smaller aircraft by airlines and the introduction of new
airlines viz., Air Deccan in southern region and international airlines (Air Canada, Polar
Air Cargo, Qatar Airways (Freighter), Turkish Airways, Air Slovakia at IGI Airport with
effect from October 2003.
1.5 Passenger Traffic: Generally it has observed that the air transport grows
at twice the rate of GDP growth. The international passenger growth has been growing at
CAGR of over 14% and domestic growth has been an impressive 22% for last 6 years.
1.6 Cargo Traffic: India already has an open sky policy for air cargo. An air cargo hub is
being developed at Nagpur by the Ministry of Civil Aviation. The ministry also has plans to
build dedicated cargo airports across the country to cater to increasing demand in air

cargo traffic. During the year 2007-08, the domestic cargo traffic grew by 11% while the
international cargo traffic grewby 15%. The domestic cargo is expected to increase at a
CAGR of 13% during the period 2007-2010 while the international cargo is expected to
grow at a CAGR of 14% over the same period. At present India contributes over 1% of the
world air cargo traffic..
During the month of October 2008, more than 5346 thousand aircraft movements
(excludes defence & other non-commercial movements), 40.33 lakh passengers and
88.59 thousand tones of cargo were handled at all the airports taken together.

2. History
The first commercial flight in India was made on February 18, 1911, when a French pilot
Monseigneur Piguet flew airmails from Allahabad to Naini, covering a distance of about 10
km in as many minutes.
Tata Services became Tata Airlines and then Air-India and spread its wings as Air-India
International. The domestic aviation scene, however, was chaotic. When the American
Tenth Air Force in India disposed of its planes at throwaway prices, 11 domestic airlines
sprang up, scrambling for traffic that could sustain only two or three. In 1953, the
government nationalized the airlines, merged them, and created Indian Airlines. For the
next 25 years JRD Tata remained the chairman of Air-India and a director on the board of
Indian Airlines. After JRD left, voracious unions mushroomed, spawned on the pork barrel
jobs created by politicians. In 1999, A-I had 700 employees per plane; today it has 474
whereas other airlines have 350.
For many years in India air travel was perceived to be an elitist activity. This view arose
from the “Maharajah” syndrome where, due to the prohibitive cost of air travel, the only
people who could afford it were the rich and powerful.
In recent years, however, this image of Civil Aviation has undergone a change and
aviation is now viewed in a different light - as an essential link not only for international
travel and trade but also for providing connectivity to different parts of the country. Aviation
is, by its very nature, a critical part of the infrastructure of the country and has important
ramifications for the development of tourism and trade, the opening up of inaccessible
areas of the country and for providing stimulus to business activity and economic growth.
Until less than a decade ago, all aspects of aviation were firmly controlled by the
Government. In the early fifties, all airlines operating in the country were merged into
either Indian Airlines or Air India and, by virtue of the Air Corporations Act, 1953; this
monopoly was perpetuated for the next forty years. The Directorate General of Civil
Aviation controlled every aspect of flying including granting flying licenses, pilots, certifying
aircrafts for flight.

Genesis of the Indian Airline Industry
1932:
1948:
1953:
1953:
1960
1989:
1990:
Mr. J.R.D.TATA flies a De Havilland Puss Moth from
Karachi to Bombay as part of the first Tata Sons Ltd.
flight to deliver mail carried by British Imperial Airways
Govt. of India acquires 49% stake in Tata Airlines,
designates it a flag carrier and renames it Air India
International (“AII”)
Jawaharlal Nehru, in friendly transaction, convinces
the Tata Group to let the Govt. of India acquire a
majority stake in AII and nationalizes air transport
Indian Airlines formed by merging eight former
independent domestic airlines
: India enters the jet age with an Air India B707; USA
and India are connected for the first time with an Indian
airline
Indian Airlines becomes one of the first airlines to
induct the A320 into its fleet
East West Airlines becomes the 1st private airline
since 1953

3. Civil Aviation Policy in India
In the context of a multiplicity of airlines, airport operators (including private
sector), and the possibility of oligopolistic practices, there is a need for an
autonomous regulatory authority which could work as a watchdog, as well as a
facilitator for the sector, prescribe and enforce minimum standards for all
agencies, settle disputes with regard to abuse of monopoly and ensure level
playing field for all agencies. The CAA was commissioned to maintain a
competitive civil aviation environment which ensures safety and security in
accordance with international standards, promotes efficient, cost-effective and
orderly growth of air transport and contributes to social and economic
development of the country.
3.1 Objectives of Civil Aviation Ministry
a) To ensure aviation safety, security
b) Effective regulation of air transport in the country in the liberalized
environment
c) Safe, efficient, reliable and widespread quality air transport services
are provided at reasonable prices
d) Flexibility to adapt to changing needs and circumstances
e) To provide all players a level-playing field
f) Encourage Private participation
g) Encourage Trade, tourism and overall economic activity and growth
h) Security of civil aviation operations is ensured through appropriate
systems, policies, and practices
3.2 Private Sector Participation and the Civil Aviation Policy
Private sector participation will be a major thrust area in the civil
aviation sector for promoting investment, improving quality and
efficiency and increasing competition.

Competitive regulatory framework with minimal controls encourages
entry and operation of private airlines/ airports.
Encouragement of private sector investment in the construction,
upgradation and operation of new and existing airports including cargo
related infrastructure.
Rationalization of various charges and price of ATF/AVGas will be
undertaken to render operation of smaller aircraft viable so as to
encourage major investment in feeder and regional air services by the
private sector.
Training Institutes for pilots, flight engineers, maintenance personnel,
air-traffic controller, and security will be encouraged in private sector.
Private sector investment in non-aeronautical activities like shopping
complex, golf course, Entertainment Park, aero-sports etc. near airports
will be encouraged to increase revenue, improve viability of airports and
to promote tourism. CAA will ensure that this is not at the cost of
primary aeronautical functions, and is consistent with the security
requirements.
Government will gradually reduce its equity in PSUs in the sector.
Government will encourage employee participation through issue of
shares and ESOP
3.3 Security
Strict national civil aviation security programme to safeguard civil aviation
operations against acts of unlawful interference have to be established through
regulations, practices and procedures, which take account of the safety,
regularity and efficiency of flights. A good safety record is a judgment of past
performance but does not guarantee the future, although it is a useful
indicator. While pilot error is said to be on the decline, factors of fatigue,
weather, congestion and automated systems have complicated safety. Airline

operators, pilots, mechanics, flight attendants, government regulators and
makers all have a stake in making aviation as safe as possible. The
International Air Transport Association (IATA), the International Civil Aviation
Organization (ICAO), manufacturers and others bodies cooperate in this aim.
As world air traffic is expected to double or more by 2020, the accident rate
must be reduced in order to avoid major accidents occurring more frequently
around the globe.
3.4 Maintenance
Private sector participation is encouraged in existing maintenance infrastructure of Indian
Airlines and Air India like Jet Engine Overhaul Complex (JEOC) and new maintenance
facilities including engine overhaul and repairs with up to 100 % foreign equity.
Indian Airlines has major maintenance facilities for all the types of aircraft in IAL fleet i.e.
Airbus-300, Airbus-320, Boeing-737 and Dornier-228. The Engineering Department is
responsible for maintenance of aircraft and is answerable to Director General of
Civil Aviation (DGCA) in maintaining the Quality Control. The Maintenance of the aircraft
is carried out at four major bases located at Delhi, Mumbai, Calcutta and Hyderabad.
Sahara also has its own NDT Shops, wheels and brake assembly shop, battery charging
shop, avionics shop and seat repair shop. It is the only private domestic airline to have its
own hangar for aircraft maintenance. It is also the only private domestic airline to have self
maintenance capability.
Air Deccan, Bangalore-based airline, has decided to set up its engineering and
maintenance facility for Airbus-320 operations, basing two of a fleet of 11 Airbus jets here.
They have also sought land from the Airports Authority of India to build an exclusive
hangar to carry out 300 and 500-hour checks, apart from C-Checks and line maintenance.

4. Major Private Players
As of 30 October 2007 the total fleet size of commercial airlines in India was 439. 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. However, beginning 1990 private airline companies were allowed to
operate air taxi services, resulting in the establishment of Jet Airways and Air Sahara.
These changes in the Indian aviation policies 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.
Operational Airlines
Airline ICAO IATA Call Sign CommencedOperations Headquarters
Air India AIC AI AIRINDIA October 1932 Mumbai
Air India Express AXB IX EXPRESS INDIA April 2005 Kochi
Air India Regional LLR CD ALLIED 1996
(as Alliance Air)
Mumbai
Blue Dart Aviation BDA BZ BLUE DART 1995 Chennai
ClubOne Air — — — August2005 Delhi
Deccan 360 DEC 3C DECCAN CARGO 2009 Bangalore
Deccan Aviation DKN DN DECCAN 1997 Bangalore
GoAir GOW G8 GOAIR June 2004 Mumbai
IndiGo IGO 6E IFLY August2006 Gurgaon
InvisionAir — — — March 2011 Mumbai
JagsonAirlines JGN JA JAGSON November1991 Delhi
JetAirways JAI 9W JET AIRWAYS May 1993 Mumbai
JetKonnect JAI 9W JET AIRWAYS May 2009 Mumbai
JetLite JLL S2 LITE JET 1991
(as AirSahara)
Mumbai
KingfisherAirlines KFR IT KINGFISHER May 2005 Mumbai
KingfisherRed KFR IT KINGFISHER August2003 Mumbai
SpiceJet SEJ SG SPICEJET May 2005 Gurgaon
TajAir — — — — Mumbai

Marketshare
The market share of Indiancarriersas on October2011 inthe domesticaviationmarketisshownbelow:
Airline/Company % Share
Jet Airways (includes Jet Lite) 24.8%
IndiGo 19.6%
Kingfisher 16.7%
NACIL 16.6%
SpiceJet 16.1%
GoAir 5.3%
Revenue by Airline:
F/Y JetAirways SpiceJet KingfisherAirlines JagsonAirlines Total
99-00 - 0.5 - 4.8 5
00-01 - - - 5.2 5
01-02 - 3.8 - 4.7 8
02-03 - 1.6 - 5.2 7
03-04 - 4.1 - 7 11
04-05 4,420 3.9 - 6.3 4,430
05-06 6,135 453 1,352 10 7,950
06-07 7,401 748 2,142 21.1 10,313
07-08 10,246 1,439 1,546 15 13,245
08-09 13,078 - 5,577 7.6 18,663
09-10 11,876 2,242 5,271 11.7 19,401
10-11 14,523 2,961 6,496 10.8 23,990
Total 67,679 7,857 22,384 109 98,028
Jet Airways
(includes Jet
Lite)
25%
IndiGo
20%Kingfisher
17%
NACIL
17%
SpiceJet
16%
GoAir
5%
Market Share

Note:
 Revenue isreportedonlyforairlineslistedon BSE
 All figuresare inINRCrore
 Some airlinesinthe pastfollowedafinancial yearthatwasdifferentthanAprto Mar. Please refer
source for details
 JetAirways Revenue isinclusive of JetLiteRevenue
Profit / Loss by Airline
F/Y Jet Airways SpiceJet KingfisherAirlines Jagson Airlines Total
99-00 - -6.3 - 0.4 -6
00-01 - - - 0.6 1
01-02 - -10.7 - -0.5 -11
02-03 - -8.4 - -1.8 -10
03-04 - -3.1 - 0.1 -3
04-05 392 -29 - -0.6 363
05-06 452 -41 -341 0.4 70
06-07 28 -71 -420 -5.5 -468
07-08 -654 -134 -188 -6.2 -982
08-09 -961 - -1609 -7.1 -2,577
09-10 -420 61 -1,647 -5.7 -2,012
10-11 -86 101 -1,027 -7.8 -1,020
Total -1,249 -140 -5,232 -34 -6,655
Note:
 Profit/Loss is reportedonlyforairlineslistedon BSE
 All figuresare inINRCrore
 Some airlinesinthe pastfollowedafinancial yearthatwasdifferentthanAprto Mar. Please refer
source for details
 JetAirways Profit/Loss figuresare inclusive of JetLite Profit/Loss

Defunct airlines:
Airline Commenced
Operations
Ceased
Operations
Headquarters
Air Services of India 1936 1953 Kolkata
Airways (India) Limited 1945 1955 Kolkata
ArchanaAirways 1991 1999 NewDelhi
Bhaarat Airways 1995 1999 Mumbai
Crescent Air Cargo 2000 2006 Chennai
Damania Airways 1993 1996 Kolkata
DeccanAirways 1992 2004 Mumbai
Darbhanga Aviations 1950 1962 Kolkata
East-West Airlines 1992 1995 Mumbai
Elbee Airlines 1995 2001 Mumbai
Gujarat Airways 1995 2001 Ahmedabad
Himalayans Air Transport &
Survey Limited
1934 1935 Kolkata
Himalayan Aviation 1948 1953 Kolkata
Indian 1953 2011 NewDelhi
Indian National Airways 1933 1945 Kolkata
Indian Overseas Airlines 1947 1950 Mumbai
Indian State Air Service (ISAS) 1929 1931 Kolkata
Indian Transcontinental
Airlines
1933 1948 Kolkata
Indus Airways 2006 2007 NewDelhi
Irwaddy Flotilla&Airways 1934 1939 Chennai
Jupiter Airways 1948 1949 Mumbai
MDLR Airlines 2007 2009 NewDelhi
ModiLuft 1994 1996 Mumbai
Sahara Airlines 1991 2006 Mumbai
Skyline NEPC 1947 1960 Chennai
Orient Airways 1946 1953 Kolkata
Tata Airlines 1932 1946 Mumbai
Vayudoot 1981 1997 NewDelhi
VIF Airways 1993 1996 Mumbai
Vijay Airlines 1981 1997 Chennai
Paramount Airways 2005 2010 Chennai

5. INDUSTRYGROWTH:
The Government aims to attract private investment in aviation infrastructure. India has
been witnessing a very strong phase of development in the past few years. Many
domestic as well as international players are showing interest in the growth and
development of the aviation sector with immense focus on the development of the airports.
With the opening up of the domestic skies to private carrier in the second half of the Tenth
Plan, air services have become affordable and are now competing with other modes of
transport. Propelled by economic growth and liberalization, the sector experienced an
unprecedented growth
during the Tenth Plan, especially during the last three years. Indian private airlines –
Kingfisher, Jet, IndiGo, Spice jet, Go Air, Paramount - account for around 84% of the
domestic passenger traffic. Some have now started international flights. For the next
years to come India is poised with strong focus on the development of its airports to meet
the international standards. The government is planning modernization of the airports to
establish a standard. The newly developed airports will help releasing pressure on the
existing airport in the country.
Growth of Air Passenger Traffic
. The passenger traffic has grown tremendously during the last five years. It has grown
from 5.92 crores in 2004-05 to 11.68 crores in 2007-08 showing an overall growth
(CAGR) of 25%. The main factors contributing to this growth include the growth of the
economy, falling fares, and increasing capacities of domestic private airlines.
Notwithstanding the slowdown in the year 2008-09 and in the current year, the passenger
traffic over the next 12 yrs is expected to grow from 11.97 crores in 2010-11 to reach
31.66 crores by 2022-23 with a growth (CAGR) rate of 8.44%.
Keeping with the growth of the Air Passenger Traffic the fleet size also grown (CAGR)
at 28.74% during the period 2004-05 to 2006-07 from 184 aircrafts to 305 aircrafts. As
of August 2009 the fleet size has crossed 400. Private sector is planning to add another
258 aircrafts in the near future. According to projections made by Boeing, over the next
20 years (2029-30), the Indian market would require 1,000 commercial jets valued at
approximately $100 billion.

Cargo Growth:
India already has an open sky policy for air cargo. An air
cargo hub is being developed at Nagpur by the Ministry
of Civil Aviation. The ministry also has plans to build
dedicated cargo airports across the country to cater
to increasing demand in air cargo traffi c.
During the year 2007-08, the domestic cargo traffi c
grew by 11% while the international cargo traffi c grew
by 15%. The domestic cargo is expected to increase
at a CAGR of 13% during the period 2007-2010 while
the international cargo is expected to grow at a CAGR
of 14% over the same period. At present India
contributes over 1% of the world air cargo traffi c.
The growth trends in the air cargo segment is
depicited in the next 12 year period of 2010-11 to 2022-23.
This requires creation of additional cargo capacity. As on date there are only seven cargo
aircrafts in India compared to 100 in China.

EconomicFactor Policy Factor
• Liberalisation and economic reforms
undertaken by the government
• Fast expansion of industries in
consonance with economic reforms
• Emergence of service sector
• Average GDP growth of around 8.9%
during the last 5 years
• Increase in inbound and outbound tourists
and medical tourism
• Over 300 million strong middle class
• Disposable incomes expected to increase
at an average of 8.5%
p.a. till 2015
• Emergence of low cost airlines
• The organised retail boom that would
require the need for timely
delivery thus contributing to the growth in
the air cargo segment
• Corporate showing increasing preference
for private jets and air
charter services
• Modernisation and setting up new airports
across country
• City side development of non metro
airports
• Providing international airport status to
major tier I and tier II cities
• Open sky policy
• Policy of license to new scheduled
operators
• Permission to acquire new aircrafts
• Permission of private operators to operate
on international sectors
• Encouraging private investments in
airlines and airport infrastructure
• Facilitative foreign direct investment norms
• Liberal bilateral service agreements
• Emphasis on development through PPP
mode

6. INFRASTRUCTURE AND INVESTMENTS:
Investment
 During the Tenth Plan an outlay of Rs 12,928 crore was provided to the Ministry of
Civil Aviation (MoCA) out of which 60% was spent.
 The anticipated investment in infrastructure in airports in the Tenth Plan is Rs 6771
crs. The centers share is 56.46%, states share is 0.18% and the private share is
43.36%.
 The total projected outlay for the Eleventh Plan for MoCA is Rs 49267 crore at
current prices. In addition, the sector is expected to generate private sector
investment of Rs 93,493 crore during this period. As per the data available with
MoCA expenditure incurred at the end of 2nd year of Eleventh Plan is Rs 17,681
crores which is 35.89% of the projected outlay.
 The projected investment in infrastructure in airports during Eleventh Plan is Rs
30,968 crs. The centers share is 29.99%, states share is 0.16% and the private
share is 69.85%. The share of private sector investment in infrastructure is gone up
substantially from 43.36% in Tenth Plan to 69.85% in Eleventh Plan.
 The Development of Airports is undertaken historically with the Internal Resources,
ADF/UDF charges, and budgetary sources. Now they are funded in addition to the
normal funding sources, the resources from market borrowing, development of city
side facilities, Private Financing and Viability Gap Funding.
 According to the Civil Aviation Policy Vision for 2020 the air passengers are
expected to reach 280 million by 2020. The number of aircrafts required to handle
this traffic is going to be 1000. The expected increase in the number of aircrafts
and the air passengers would require an investment of US$110 billion. Out of this
$80 billion will be for acquiring new aircrafts and US$30 billion will be for
development of airport infrastructure
PPP FRAMEWORKS / INITIATIVES
As on date six airports at Hyderabad, Delhi, Bangalore, Cochin, Kannur and Mumbai
have been undertaken on PPP mode with a total investment of Rs 20,041 crores. Airport
at Hyderabad only required the funding from VGF scheme. Recent invitation of calling of
bidders for some of the airports did not elicit any response. As per the recent report by
Centre for Asia Pacific Aviation (CAPA), over the next 12 years, India's Civil Aviation
Ministry aims at 500 operational airports. To achieve this ambitious target more and more
airport projects should be structured with VGF component and other incentives to make it
attractive to the prospective bidders. Encouragement should also be given for utilizing the
Fund from IIPDF for taking the help of Transaction Advisors for successful bidding out the
airport projects.
PPP ProjectsIn India
As per the details available from the PPP India data base maintained by DEA, 300 PPP
.Projects were undertaken on PPP mode with total project cost of Rs135876 crores.

Vision 2020
NEW AIRPORTS AND OTHER RELATED INFRASTRUCTURE
RegionalAirlines
33. To improve regional connectivity and create regional hubs, the Civil Aviation ministry
has mooted a proposal to set up ‘regional airlines’, defined as carriers with aircraft having
less than 80 seats and which operate exclusively on regional routes from any one
metropolitan airport, which includes Delhi, Mumbai, Chennai, Kolkata, Bangalore and
Hyderabad. The ministry has also suggested that the first airline to connect cities that are
not linked by air should be exempt from all airport and navigation charges at both airports
for the first year of operation. For regional airlines, navigation and landing charges often
constitute up to 10 per cent of the overall costs (Source: India Infrastructure Report 2008.
PP.28)
New Opportunities
34. Private sector participation in airports has given rise to new opportunities for new

businesses. GMR Infrastructure Ltd, which has MIAL concession, has made its first
foray in the international arena. A joint consortium that includes the GMR Infrastructure
Ltd has bagged the contract to develop Sabiha Goken International Airport in Instanbul.
The BOT project includes not only the construction of a new international terminal
within thirty months capable of handling 10 million passengers annually but also
managing the existing domestic and international terminals.
The GMR Group plans to set up an airport based SEZ near the new Hyderabad
International Airport, which it has the mandate to develop. Planned on the lines of free
trade zones in Hamburg and Dubai, the SEZ will house aircraft component
manufacturing industries and also see high end aircraft engineering support activities.
Besides, the SEZ will house high end electrical and auto component manufacturing
facilities and software units. The group also has plans to set up high precision
pharmaceutical equipment manufacturing to cash in on international air connectivity. If
allowed, the GMR group has plans to develop aereotropolis-new ‘cities’ springing up
around airports a new concept which is seeded in an urban hubs. An aerotropolis offers
operational convenience for companies and organizations to maximize benefits, while
cutting down on expenditure significantly. The GMR group would like to give the
concept concrete shape around the new Hyderabad airport. The airport is going to be the
nucleus of the country’s first aerotropolis, a new urban form that would house business
parks, hotels, residential units, and entertainment areas. The GMR group, which also
bagged the international airport project at Delhi with Fraport of Germany, will develop
the aerotropolis near Delhi airport as well (The Hindu, 12 February 2007). Maharashtra
Airport Development Company (MADC) is also developing an SEZ at the Nagpur
airport. Cochin International Airport (CIAL) has approved a 480 acres land utilization
plan for an aircraft maintenance facility, an aviation academy, and a golf course, among
other things. (Source: The Infrastructure Sector in India 2007, pp.29).

7. FUEL PRICING:
There are a host of elements, which all contribute to raising the cost of ATF in India to
levels which make airlines in India lose competitiveness.
The ATF Pricing mechanismin India:
Following the dismantling of the ‘Administered Price Mechanism' (APM) effective April
2001, the prices of ATF in India are based on the "International Import Parity Prices", and
directly linked to the benchmark of Platt's publication of FOB Arabian Gulf ATF prices
(AG); and do not relate to the actual cost of producing ATF in India.
ATF prices for domestic operations also include Freight charges from Gulf to India;
Customs Duty of 10% ad valorem (which adds up to an effective rate of approx 20%
inclusive of the CVD & cess); domestic transportation and other charges; Excise Duty of
8.24% (including cess); Sales Tax (levied by the State Governments) averaging across
the country at 25% as add-ons to the AG prices, besides the Oil Companies' marketing
margin; and throughput charges paid to the Airports Authority.
Customs Duty:
India is an ATF surplus country, with its production being higher than the consumption of
ATF in the country. Even though the ATF supplied at Indian airports (both for domestic
and international operations) is not imported into India but is the product of crude refined
in Indian refineries from imported crude, the Customs Duty of 10 % ad valorem (effective
duty of approx 20% inclusive of the CVD & cess) is taken into account in fixing the prices
of ATF supplied to the airline operators.
0
20
40
60
80
100
120
140
160
180
Nov/06
Mar/07
Jul/07
Nov/07
Mar/08
Jul/08
Nov/08
Mar/09
Jul/09
Nov/09
Mar/10
Jul/10
Nov/10
Mar/11
Jul/11
Jet Fuel - Monthly Price
(Indian Rupee per Gallon)
Change -
Jet Fuel - Monthly Price
(Indian Rupee per Gallon)
Price 79.07

 Customs Duty Exemption for ATF uplifted for International flights: In April 2006,
ATF uplifted by foreign bound aircraft was declared as a "DEEMED EXPORT". The
fuel suppliers, as per this notification were made eligible for exemption of custom
duty at the time of importing crude (input material for ATF). However, till date the
Oil Companies have not passed on any benefit to the airlines. ATF suppliers for
international flights at airports in India, namely the 3 Government owned oil
companies, need to immediately adjust their pricing accordingly, so that airlines can
derive the resultant benefits.
Excise Duty:
An Excise Duty of 8.24% (including cess) is levied on ATF. Given that the crude prices
have increased by around 40% between January 2005 and September 2006 as well as
the increase in the number of flights operated by domestic carriers in India by over 50%,
the revenue collections by the center has also increased significantly over this period.
 Cenvat Credit for Excise Duty paid on ATF: The Service Tax Department has
advised that credit of Excise duty paid on ATF is not available under the provisions
of the CENVAT Credit Rules, 2004 ("CCR, 2004") as is in force today. This view is
contrary to the language and scope of the provisions of the CCR, 2004, in terms of
which credit of Excise duty is available in respect of all "Inputs" other than
specifically excluded inputs. This has also been substantiated by an Opinion
obtained from reputed tax consultants.
 Non-allowance of credit to the airlines on ATF is against the fundamental principle
of the CENVAT provisions, which may result in the cascading effect of taxes. In this
regard, a representation has been filed by an FIA member airline, with the Ministry
of Finance on 28th August'2006 submitting that ATF credit is available to an Airline
Company in terms of Rule 3 of the CCR, 2004; that ATF is distinct from LDO, HDO
and Motor spirit and as such ATF is not specifically excluded under the definition of
inputs under CCR, 2004; that ATF is received at the premises of airlines i.e. at the
various Airports in the country, where the airlines have their offices / operations;
and ATF is used as an "Input" for providing taxable service.
Sales Tax:
Sales Tax on ATF for Indian carriers flying international routes has already been
withdrawn. The situation needs to be redressed for the domestic flights as well.
While the VAT rates on inputs & final products across the different states have been set at
4 % & 12.5%, the VAT act allows special rates to be charged for fuel and ATF under
Schedule-III of the state VAT Acts. This has allowed states to charge sales tax on ATF at
excessively high levels.

Sales Tax Rate on ATF
Northern States Eastern States Western States Southern States
Rajasthan 28% Bihar 29% Gujarat 30% Andhra Pradesh 33%
Himachal 25% West Bengal 25% Maharashtra 25% Tamil Nadu 29%
UP 21% Chhatisgarh 25% Madhya Pradesh 28.75% Karnataka 28%
Delhi 20% Assam 22% Goa 20% Kerela 28.75%
Punjab 20% Nagaland 15% Andaman 0%
Mizoram 0%
ATF sold to turbo-prop aircraft was categorized as Declared Goods under the Central
Sales Tax Act. Union Budget 2007-08 has also accorded the same benefit to regional jets
with a take-off mass less than 40,000 kg. If ATF altogether is given a "declared goods"
status, it would attract a uniform 4% sales tax across India.
In an environment where the cost of ATF itself has gone up by 70% (between Mar 04 &
Mar 07), coupled with a 58% increase in the fleet of aircraft population in India, the states
have an opportunity to provide a fillip to aviation activity by reducing the sales tax rate
substantially – without adversely affecting the contribution of ATF sales tax revenue to the
state exchequer.
A quick calculation of the revenue from sales tax on ATF which the states earn, is
indicative of how the contribution to the state exchequer has grown manifold. The below
calculation for Mumbai presumes that at-least 50% of the total aircraft fleet is uplifting fuel
in Mumbai; and for Hyderabad that at-least 15% of the aircraft fleet is uplifting fuel in the
city. Mumbai has a sales tax rate of 25 % on ATF, while Hyderabad has a rate of 33%.
The aircraft population in Mar 2004 was 195, which has grown to 310 aircraft in Mar 07.
Mumbai:
Mar 04: Rs 21,200/kl X 97 aircraft X .25 = Rs 5,14,100
Hyderabad:
While these are not the actual absolute amounts of estimated fuel uplifted at the 2 centres,
the calculation does reveals that between Mar 04 & Mar 07, the sales tax contribution of
ATF to the state exchequer has increased by 172% in the case of Mumbai & by 170% in
the case of Hyderabad.

An evidence of the correlation between the sales tax rate & the level of fuel uplifted from a
particular centre is available from the fact that a reduction in sales tax rate to 4% in 2002-
03 in Andhra Pradesh, led to an over-50% increase in fuel uplifted from Hyderabad by the
country's major carriers.
Lack of Transparencyin pricing:
Based on the import parity pricing mechanism, changes in domestic rates should be
similar to the changes experienced in AG prices. However, in the majority of such
instances, when there are increases in benchmark oil prices, the corresponding increase
passed on to airlines in India are higher than the increase in benchmark prices.
Conversely, when benchmark prices have been reduced, the corresponding decreases
have not been fully passed on to airline operators in India.
Whilst from April 2005 to October 2006, the benchmark prices have reflected a net
increase of 16.2%, the oil companies have passed on a net increase of 31.6% to domestic
airlines in India.
The oil companies also add high margins towards handling & distribution costs to fix the
basic price of ATF in a non-transparent manner. This clearly demonstrates the lack of
transparency in the pricing mechanism. The Indian ATF supply market needs to move
towards a transparent pricing structure based on an international jet fuel price marker (e.g.
Mean of Platts Arab Gulf) plus a differential as practiced at most major airports around the
world.
The hike in ATF charges applicable for May 2007 announced by the oil companies,
provides more evidence of the lack of transparency in determination of the ATF price. The
differential change month-on-month between the domestic price of ATF and the bonded
price, has been approximately the same. For example, if the domestic ATF price went up
by 4.71% between Mar to Apr 2007, the bonded price went up by 5.44%. For May 2007
however, while the domestic ATF price has increased by Rs 1350 (3.6% hike) over Apr
07, the bonded price for ATF has increased by double this amount to Rs 2700 (a 9.3%
hike) over the previous month.
Monopolyof PSU Oil companies:
A major reason for high price even after deregulation of ATF price, is the monopoly of the
3 state owned Oil companies. Because of limited number of suppliers there has hardly
been any effective choice for the airline industry, with the 3 state owned oil companies
fixing the ATF price on a mutually agreed common formula between them.

The government has granted marketing rights to some companies in the oil sector like
Reliance, Essar, ONGC etc. None of these companies however, could start supply of ATF
as they were not allotted space by the Airport Authority. Recently Reliance has been
allotted land at 25 airports in India; and is moving towards setting up Aviation Fuelling
stations at some of these airports.
It is hoped that the resultant competition will bring about a reduction in the unreasonable
ATF price levels prevalent in India.
Lack of Open access for fuel supply through a CommonDistribution
Infrastructure:
In order to enable the private oil companies to supply ATF to airlines at Indian airports, it is
necessary to make suitable distribution infrastructure & facilities available at the airports,
including common terminals for ATF distribution. Additionally, installation of Hydrant Fuel
Dispensation systems (as opposed to current bowser based systems) should be
undertaken on a priority basis. The entire logistics for supply of fuel to Indian airports
should be properly scrutinized to ensure that no supplier has a stranglehold on any portion
of the supply infrastructure (e.g. pipelines to the airport) that would hinder the entry of
competition. Without the same, simply granting marketing rights to new oil companies will
not have any meaningful impact on bringing about competition led decrease in ATF prices.
The Naresh Chandra ‘Committee on a Road Map for the Civil Aviation sector' had earlier
recommended that the Airport Authority of India (AAI) could buy out the distribution
infrastructure of the state-owned oil companies and provide all oil companies equitable
access to such facilities. Alternately, the state-owned oil companies should be required to
provide private oil companies access to these facilities on a "common user / carrier"
principle. In either case, the Committee had suggested that fuel supply infrastructure at
airports should come under the purview of the proposed AERA – Airport Economic
Regulatory Authority.
This would result in improved efficiencies, reduced delays for airlines, & cost reduction for
the oil companies.
Throughputcharges & bidding processes:
A throughput fee is being levied by Airport Authority of India (AAI) on oil companies. Whilst
oil companies are expected to absorb this throughput fee, in practice, it is simply passed
through in entirety to the airlines. This throughput fee is an unnecessary base cost which
adds to the total price of ATF applicable to the Airlines.
Recent competitive bidding exercises for erecting fuel facilities at select airports use

throughput fee as a criterion for tender award. A supplier that bids the highest throughput
fee wins the tender and the winning throughput fee is then similarly applied to all the
existing fuel suppliers at the airport concerned.
There is a serious flaw in using throughput fee as an award criterion. Since the bidders
(the oil companies) are not the ultimate payers of the throughput fee, they would have no
qualms in submitting incredulously high bids. Recent tenders at MAA & CCU based on
throughput fee at airports resulted in bids which were 21 and 17 times higher than existing
throughput fees respectively. In unit price terms, an award of license to bring in an
additional fuel supplier would result in a higher cost of around 30 USD/Metric tonne,
essentially negating any benefit derived from increased competition amongst the fuel
suppliers.
IATA has also highlighted that throughput fees should be cost-based in accordance with
ICAO Policy on User Charges (Document 9082/7). The high throughput fees at Indian
airports suggest an absence of correlation with cost which then makes them inconsistent
with ICAO policies.
It would be a major setback for the Indian aviation industry if the high charges are not
rescinded and consequently be used as a benchmark for throughput fees at other airports.
The flawed methodology for introducing competition should also be ceased.
Fuel Hedging:
In its Annual Monetary & Credit policy 2007-08, the RBI has now allowed authorised
banks to permit airlines to hedge their exposures in the international commodity
exchanges, based on airlines' domestic purchases of ATF. For their domestic operation,
the Airlines earlier had to procure ATF only through domestic refineries at International
Prices. Since the carriers were not physically importing the commodity, the airline
companies were not permitted to hedge the commodity risk. The Monetary Policy has
now allowed actual users of ATF viz. the Airlines, to hedge economic exposure.
The announcement on the expansion of hedging facilities by the Central Bank, is a
positive step which will allow the airlines to employ hedging as a tool to smoothen their
exposure to the volatile fuel price movements. Hedging will allow airlines to reduce their
fuel price risk to some extent – with a possible downside of incurring losses in case the
price movement is infact against the hedged positions.
Allowing fuel hedging for the airlines is thus only a small step to bringing about
moderation in the excessively priced ATF in India. This needs to be followed through by
bringing down the base price of ATF charged by the oil companies; and also reduction in
the levels of sales tax on ATF by the states, which are currently in the region of 20-35 %.

ATF accounts for roughly 40% of the total operating costs of airlines; and is priced
approximately 65% higher in India, than other airports globally.
RECOMMENDATIONS
A reduction in the cost of ATF cost has a significant impact on the airline balance sheets.
A quick calculation to estimate the impact of a reduction in ATF price on the losses being
registered by the Indian carriers indicates that a reduction in ATF price by 65% (to bring it
closer to international benchmarks) results in a close-to 25% increase in operating profits.
A mid-sized airline in India whose balance sheet indicates an operating loss of Rs 12,000
lakhs for the quarter ended 31st December 2006, would infact have reported an operating
profit of Rs 3,000 lakhs for the same period if the ATF charges were closer to international
benchmarks.
The distortion in ATF price by the domestic oil companies and the taxation structure
results in a huge burden on the airline bottom-lines – making airlines in India
uncompetitive and unattractive for equity capital and debt financing.
FIA believes that Rationalization of ATF prices for domestic operations, to international
benchmarks will result in an estimated annual savings of USD 624 million for the airline
industry. The following is recommended on a priority basis to prevent further losses for the
Airline industry;
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
ATF Base Price,Pricing mechanism & competition
 The Ministry of Petroleum & Natural Gas should instruct the state owned oil
companies to provide immediate relief to the Airlines by reducing the base price of
ATF.
 The ATF pricing should be made transparent by building in the various sub-heads
in the billing process.
 The increases in ATF prices passed on to the domestic carriers should not be
higher than the increases in the benchmark prices;
 The decreases in the benchmark prices should be fully passed on to the Airlines;&
 The marketing margins built-in by the oil companies in fixing the ATF prices should
be reduced and competition be introduced in the supply of ATF by allowing private
players to supply ATF at Indian airports.

ATF Distribution Infrastructure
 The current storage and supply facilities for ATF at the Indian airports should be
converted to Common User facilities owned by a neutral agency instead of
duplication of such infrastructure, by investments in separate facilities by the state
owned oil companies as at present.

8. Tax structure:
With private carrier Kingfisher Airlines cancelling dozens of flights across the country and
its competitors Jet Airways and SpiceJet sliding into red, an industry body Saturday called
for lowering taxes on jet fuel and relaxing foreign direct investment (FDI) norms to make
the aviation sector viable.
'The state-run and private carriers are incurring huge losses as the heavily taxed aviation
turbine fuel accounts for one-third of operating costs,' the Associated Chambers of
Commerce and Industry of India (Assocham) said in a statement here.
Alarmed over the mounting debt burden of the state-run Air India, Jet Airways, Kingfisher
and SpiceJet, Assocham general secretary D.S. Rawat said though the aviation industry
had the potential to growth both passenger and cargo traffic, they were bedevilled by
spiralling fuel costs and price wars among them.
'The Indian aviation industry is in dire straits as the airlines are projected to post a
combined loss of Rs.15,000 crore this fiscal (2011-12), with Air India alone accounting for
half of it,' Rawat observed.
Noting that rising crude oil prices, depreciating rupee and fierce competition have eroded
airlines' ability to raise fares despite passenger growth of 19 percent this year, Rawat said
unless they raise fresh funds to run their operations, their very survival would be at state.
'The government should allow foreign airlines to invest in domestic carriers by lifting the
ban imposed earlier as overseas investment up to 49 percent is already permitted.
Referring to the benefit of zero import duty enjoyed by foreign companies on maintenance,
repair and overhaul (MRO) facilities, while domestic carriers pay about 40 percent tariff on
overseas supply of spares and parts, Rawat said the government should come out with a
new aviation policy to end this discrimination against Indian carriers.
'In addition, 18.5 percent minimum alternate tax is levied on aerospace special economic
zones coming up at Nagpur in Maharashtra, Belgaum in Karnataka and Hyderabad in
Andhra Pradesh,' Rawat pointed out.
Growing at a conservative rate of 10 percent, the passenger traffic crossed 140 million in
fiscal 2010-11 and is projected to grow nearly four-fold to 540 million by 2025 and cargo
traffic is set to touch nine million tones from 2.4 million tonnes in the like period.
'As our unique geographical position offers an opportunity to become a global hub for
international airlines, the government must rationalise tax structure to boost the airline
industry growth exponentially,' Rawat asserted.
In view of the potential to grow passenger-cum-cargo traffic, private carriers will require
huge investments to increase their aircraft fleet to about 1,500 by 2025 from 430 in 2011.
'For achieving the potential targets, a right policy mix, an encouraging tax structure and a
healthy regulatory mechanism are the need of the hour,' Rawat added.

9. FOREIGN DIRECT INVESTMENT(FDI)
With Kingfisher and several other airlines landing into dire straits, the Industry Ministry has
moved a draft Cabinet note on allowing 26 per cent FDI by foreign airlines in the domestic
carriers.
"Private airlines in the country are in dire need of funds for their operations and service
upgradation to compete with other global carriers," the note circulated by the Department
of Industrial Policy and Promotion (DIPP) said.
The DIPP in the Industry Ministry has stuck to its guns suggesting FDI cap of 26 per cent
and not 24 per cent, as proposed by the Civil Aviation Ministry.
The DIPP feels anything below 26 per cent would not attract strategic investment from the
foreign airlines.
Investor with 26 per cent or more holding is considered strategic, as he can have say in
the policy decision of a corporate entity under the Indian company laws. An investor with
26 per cent support can block a special resolution in board of directors for policy change.
The note has been circulated among the key ministries including the civil aviation, finance,
home and and law. At present, FDI in domestic passenger airlines is allowed up to 49 per
cent by overseas entities, other than the foreign airlines. Non-resident Indians can invest
100 per cent.
"Obviously the policy has not worked and it needs changes..." the official said.
Kingfisher reported net loss of Rs 468 crore, Jet Airlines Rs 713 crore and Spicejet Rs 240
crore for the second quarter of the current fiscal under the impact of rising AFT price and
weakening rupee.
Most of the private airlines have been seeking policy change for opening the crisis-ridden
sector to FDI. Kingfisher Airlines has also approached the government for direct import of
jet fuel.
Rationalise tax structure for aviation sector, ease FDI norms: ASSOCHAM
With dozens of flights cancellations across the country, industry body ASSOCHAM today
called for low taxes on jet fuel, liberal foreign investment norms and a new civil aviation
policy which are in tune with current global and domestic realities.

The aviation industry has all ingredients to grow but airlines are facing huge losses as
over one-third of operating costs are on account of aviation turbine fuel which is heavily
taxed, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
As the key infrastructure sector expands to keep up with booming passenger and cargo
traffic, investments of Rs 1.5 lakh crore will be required in the next 15 years. But major
private and government-owned airlines like Air India, Jet Airways, Kingfisher Airlines and
SpiceJet have flown into debt turbulence due to elevated fuel costs and fierce price wars.
"Airlines could suffer losses worth about Rs 15,000 crore in the current financial year with
Air India alone likely to account for more than half of it," said ASSOCHAM secretary
general D.S. Rawat.
Airlines need fresh funds and there will be a question mark on their survival if they are
unable to raise them, he said. Rising crude oil prices, depreciating rupee and cut-throat
competition have eroded airlines' ability to raise fares despite passenger growth of about
19 per cent this year.
The government allows foreign investment of up to 49 per cent in Indian carriers.
However, foreign airlines are not allowed to invest directly or indirectly in domestic
carriers, a rule the government should scrap for healthy growth of civil aviation sector, said
Mr Rawat.
Airport charges must come down and ground handling operations need to be streamlined.
Maintenance, repair and overhaul (MRO) facilities are subject to 10.3 per cent service tax.
There is no import duty for foreign MRO companies from overseas suppliers but domestic
players have to pay import duty of 30 to 40 per cent.
In addition, there is 18.5 per cent minimum alternate tax on aerospace special economic
zones which are coming up at Nagpur, Belgaum and Hyderabad.
Passenger traffic totalled 14.2 crore in 2010-11 which is growing by a conservative growth
rate of ten per cent. The throughput is expected to be 54 crore passengers by 2025. At the
same time, cargo traffic is expected to touch 90 lakh tonnes from 24 lakh tonnes in the last
financial year.
India’s scheduled airlines have 430 planes now. ASSOCHAM said this figure is likely to go
up to 1,500 by 2025. Besides, the general aviation comprises of 700 small planes and 300
helicopters. In addition, the business jet fleet has about 140 aircraft. This is expected to
grow to 2,500 aircraft and 900 helicopters.
"India’s unique geographical position offers an opportunity to become a global hub for
international airlines as well,” said Mr Rawat. "The government must rationalise tax
structure so that the airline industry can grow further."
The increase in traffic and aircraft fleet will require significant investments in terms of
expanding and upgrading existing infrastructure facilities besides creating new ones. “For
that, a right policy mix, an encouraging tax structure and a healthy regulatory mechanism
are essential.”

10. Recommendations
Government Recommendations:
Codesharing is an important tool for airlines to minimise the costs of operating services.
By selling seats on a flight operated by another carrier, codesharing enables an airline to
make direct cost savings by rationalising services or establishing market presence on a
route without actually operating on it. Thus, both airlines may be able to save on fuel,
labour and other variable costs, as well as making more effective use of aircraft and other
overheads.
Cabotage:
Restricting access by foreign carriers to the Indian domestic market gives the Indian
carriers a solid base from which to extend into international aviation. The same applies to
most other countries, with the exception of city economies such as Singapore and Hong
Kong. Restricting cabotage rights for the carriage of passengers and freight to domestic
airlines reduces competition on domestic routes. These restrictions help keep fares and
freight rates higher than they otherwise might be, boosting domestic airline revenue at the
expense of domestic consumers. Allowing foreign carriers some cabotage rights could
improve competition in the domestic market. Integrating domestic and international
services allows airlines to achieve:
operational synergies and efficiencies by being able to switch capacity and aircraft
between the domestic and international sectors; and
network advantages such as economies of scope and traffic density as well as the
marketing advantages of operating a combined domestic and international network.
The opposition to this recommendation is the view that It is most likely that foreign carriers
would engage in ‘cherry picking’ i.e. carry domestic traffic on the most profitable routes.
Incumbent airlines would need to counter any loss of profitability on routes affected by
cabotage and this could mean a reduction in the number of services provided on these

routes, or the reduction or withdrawal of services from less profitable routes, with
consequential loss of amenity to passengers, including those making connections to other
parts of the domestic network.
Eliminate Regulatory Structure
The regulatory structure inhibits competition in many ways. It can prevent or deter entry,
constrain capacity, and limit the potential for airlines to win market share. A problem in
assessing regulatory impacts is the structure of aviation markets. Economies of scope and
traffic density favour large airlines operating many services. On the demand side, a single
carrier operating a long thin route with multiple frequencies will attract better business than
multiple carriers who each operate one service per week. Thus markets tend to be
concentrated with a small numbers of carriers operating on most routes.
It cannot be presumed that these airlines respond to normal commercial incentives.
Instead of shareholder value, they may be managed for national prestige, employment
enhancement, technology transfer, or defence, which might require government subsidies.
Continued use of substantial government subsidies is an obstacle to efficient air services,
and has important implications for competition in a less regulated international
environment.
Eliminate the fuel tax
A most regressive tax whose burden becomes larger as fuel costs increase (and airlines’
ability to pay diminishes). As an interim step – cap tax revenue and determine a better
way of obtaining (e.g., a per passenger levy).
Eliminate category III restrictions
Eliminate category III restrictions and provide essential air services subsidies where
required (with costs shared by national/state/local authorities). Category III mandates that
an operator deploy on routes in Category-II (North-Eastern region, Jammu & Kashmir,
Andaman & Nicobar and Lakshadweep) at least 10% of the capacity deployed on routes in
Category-I and of the capacity thus required to be deployed on Category-II routes, at least
10% would be deployed on service or segments operated exclusively within the North-

Eastern region, Jammu & Kashmir, Andaman & Nicobar and Lakshadweep. In the interim,
allow airlines to transfer category III obligations to a competitor or third party operator –
who could use a standard, appropriate fleet and be paid by the majors to meet their
category III requirements.
Improve quality of and access to airports and hangars
Privatize or municipalize. Develop a robust traffic management system that addresses
relevant technical issues and meets strategic objectives through rigorous systems
engineering and large-scale integration efforts such that rising air traffic demand is
supported in a safe, secure and efficient manner.
Today, Indian airlines have difficulty accessing hangars for maintenance. As a result,
private operators have to do some maintenance abroad. Airline maintenance and overhaul
should be an area where India could develop a major international business, leveraging its
low labour costs and world-class engineering to service aircraft for other countries as well
as its own.
Industry Recommendations
Reduce labour costs:
All major carriers need to win significant concessions from their workers. Low labour
outlays would consist of a mix of reduced wages, more flexible work rules and trimmed
benefits including pension.
Simplify flight operations
Low-cost carriers use just a few types of aircraft, a strategy that cuts training and
maintenance expenses. Larger airlines who fly internationally, to more remote destinations
require varied fleets of large and small planes. However, they can and should work toward
streamlining the types of planes they fly.
Another way to simplify operations is modifying the hub-and-spoke model, which uses
designated headquarter airports for transfers. Traditionally, the big airlines have sent
many of their flights through hub airports at peak business-travel hours. That way, since
carriers typically charge heaps more for business fares, they can get more revenues per

flight. But many experts argue that it's time to give up on that model - especially as low-
cost carriers increase service along heavily travelled routes.
Experts like the idea of so-called rolling hub operations, where flights are scheduled
throughout the day so that an airline's assets - from employees to planes to hangars - can
be used more efficiently. In a traditional hub system, planes and workers spend more time
waiting for connecting flights to come in at peak operating times. With rolling hubs,
travellers may end up waiting a little longer to get a connecting flight, but planes end up in
the air for more hours of the day.
Offer more transparent pricing
The legacy carriers have long had an exotic, almost incomprehensible pricing system.
However, these days, with the Internet allowing travellers to shop for the cheapest tickets
easily, and low-cost airlines offering uncomplicated set prices, traditional carriers have to
follow suit or risk losing more and more passengers.
Get smart on fuel
With oil near $50 a barrel, airlines must be smarter about how they incorporate its price
into their costs. Discount carriers such as Southwest hedge as much as 80% of their jet-
fuel costs. Essentially, that means that they lock in prices on future fuel when the price
drops. Small wonder Southwest is one of the few success stories in the airline business.
Stop chasing market share
Airlines need to be savvier about capacity. At the start of 2004, many planned to add more
flights amid signs of an improved economy. When it became clear that demand wasn't as
strong as originally forecast, most carriers still wouldn't retrench from their plans for fear of
losing out if the market snapped back. Rather than scrambling to add seats in fear of
missing out on the party, airlines would do well to take a more cautious approach and
focus on efficiency and margins.

From bailouts to government partnership
Although the Indian airline industry was largely deregulated in 1990, plenty of lingering
rules and regulations have made it nearly impossible for carriers to be efficient. Many
believe that restrictions on foreign ownership and labour laws have kept the industry from
innovating. So instead of lobbying for protective measures like bailouts, airlines need to
work with government to tackle longer-term projects like building more runways, running
airports more efficiently, and reining in labour costs.
A new model for premium pricing
Most of the industry's improvement efforts have focused on whittling down costs.
However, boosting revenues also needs to be a priority. After all, people are willing to pay
more if they believe they're getting more value. Legacy carriers still offer certain
advantages, especially to the business traveller including airport lounges and more
comfortable seating.

11. SUGGESTION
India needs to be clear if requires a CAPITALISTIC democracy . The CAPITALISTIC
democracy is found in the western world, i.e US, UK etc. This involves a democracy that
over time has been misused by some forces to bring more power to the corporates in the
day today functioning of the democracy. with corporates funding election with their big
money and the elected govts reciprocating after being elected. However that means the
companies that are interested in making profit for a few of the share holder (even if it
means a part of the public) starts driving even governmental policies which are meant for
the peoples good in general. US Health Industry, power industry, car industry being
some.. They work on basis of competition, profit for share holder bases. with top
management often taking huge profits irrespective of if their management failed to give
any profit to tehcomapny or not. they will fire employees but not let their exorbitant salaries
be reduced. India need to be careful not to get into this form of capitalistic democracy. our
PM seems to be taking our country in that direction in the name of liberalization. It is also
not understood why PM should meet the company representatives when they can raise
their issue with transport minister of chamber of commerce or other business forums. if a
company doesnt perform due to its management incapabilities let it suffer why common
mans taxes be utilized and why they should be given tax sops, they are not a new industry
and had been making profits. If they are not making profits let them first disclose how
much money is being paid for the failed top management and CEO and check if the
problem is in the CEO and/or management. Let the comapnies try with a new
management and new CEOs. The industry allowed nicely a company like Deccan be
eaten up by KIngfisher as a fair practice..then why not allowing kingfisher be eaten by
some other fish.. letteh kingfisher share prices goes down. What is governments mandate
in such a case, why it has to intervene. And as someone has raised a point before
me..what about taxi drivers who may also face similar situations and when they expect the
taxes etc to be reduced or fuel prices to be reduced.. WHY doesnt the PM meet them, why
is it just the transport minister that too after the Transport unions have to make strikes
allover the country..how many employees that is??? What prompted the PM to give
immediate appointment to these comapny representatives..Because they are Rich?? Rich
and poor is not the bases of democracy..its very clear that Congress is seeing opportunity

to make some money out of this. Move tax payers money or the money that was to have
been coming to the govt through taxes from these companies and redirecting them back to
the same companies and in turn take in a slice of the pie.This PM is a sham..the worst PM
that i can remember.. and all people should oppose any such move by the govt to provide
concessions to the private sector.
The Delhi high court on Friday upheld the Directorate General of Civil Aviation's
decision to take over ground handling services from private airlines at major
airports across the country.
Dismissing a petition filed by private airlines challenging the DGCA's decision, a
division bench of Chief Justice DipakMisra and Justice Manmohan said the
alteration in the DGCA's rule was neither unjust nor illegal.
Accepting the Centre's argument that the decision was taken on security reasons
as the safety and security of general public is paramount, the court rejected the
contention of the airlines that security facet has been introduced to curtail their
commercial interests.

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