Budget airlines are the real culprits in fleecing

AIR TRAVELLERS, accustomed to paying low fares since the advent of low-cost airlines, have been up in arms at being ‘fleeced’ by airlines during the recent weeks. High fares on certain sectors for last-minute ticketing has compelled the DGCA and the civil aviation ministry to intervene and reportedly force the airlines to roll back the fares.

As all of us would naturally be interested in low fares, the justification of supply-demand determining fare levels advanced by the airlines hasn’t found acceptance. They have been described as greedy and engaged in exploitation. As the dust on the issue settles with fares returning to almost normal levels, it’s time to take a dispassionate look at the issue. Which of the two sides has been right and to what extent?

It needs to be understood that the airline industry is in the unregulated sector and market forces should therefore logically determine the are levels, like in other sectors of the industry. It also needs to be appreciated that the airlines are here for business, not charity. The industry is seasonal in character and passenger loads are not uniformly even year round. India has witnessed low fares not because they are economical and give adequate returns on investment to the airlines, but because the new players, who entered the market in the 2004-06 period, first offered low fares to garner marketshare. The subsequent years of economic downturn compelled the airlines to keep fares at low levels — thus making them, though uneconomical from the airlines’ point of view, look like ‘realistic’ fares.

All airlines, irrespective of their geographical location, follow a revenue management system like the Indian carriers. Seats on a flight are segmented in various sub-classes at different fare levels. If you buy the initial few seats you pay less. By the same logic, if you buy close to the flight’s departure time, you pay more and this fare is at the core of the controversy. Airlines have worsened their case by listing fares at Rs. 30,000-Rs. 40,000 at the upper end of the price band. The media has largely focussed on these ridiculous fares rather than presenting the realistic scenario of fares being high only during peak periods when flights operate with high occupancy and last-minute travellers are buying the last few seats. Fewer the number of seats available, higher the value of tickets. Nothing unique about this principle.

If a section of the media and some passengers had been unreasonable in accusing the airlines of charging exorbitant fares during peak periods, airlines recovering from the losses incurred during the economic downturn of 2008 apparently began feeling that these happier days may not last very long and hence should boost their bottom line by charging whatever they can get a passenger to pay. This action is clearly indefensible. As passengers are the bread and butter for an airline, the latter need to maintain long-term relationships rather than enhance revenue manifold by taking a myopic view. What’s been surprising is that it has been the low-cost airlines that have jacked up their fares to astronomical levels, giving the entire industry a bad name.

Considering that the number of passengers has been growing and the augmentation of capacity in the domestic market hasn’t been keeping pace, airlines are expected to continue recording high load factors and therefore be in a position to manipulate the market. The ministry should logically monitor capacity and not fares. Induction of capacity periodically by either the existing airlines or new airlines will be the safest guarantee against exorbitant fares.

My Views -

Its unfair to blame low cost airlines for this fair, each airline is equally important in this. I my self has paid around Rs. 8000/- for a Bangalore-Delhi (via-Ahmadabad) flight 3 years back when I bought it directly from the airport with luggage in my hand.

Though last moment fares can be higher if Airlines are selling with deep discounts for initial tickets, but those should not create a hole in passengers purse.

Air India may lose 'national carrier' tag

The Union Cabinet is set to meet soon to decide if beleaguered state-owned carrier Air India should retain its 'national' character at all. It will also debate if strategic disinvestment is the best way forward for the airline, which is estimated to have accumulated Rs 7,200 crore in losses in 2009-10. With most of Air India's woes emanating from its international operations - where it loses around Rs 3,000 crore a year on 30 routes - a group of ministers (GoM), chaired by finance minister Pranab Mukherjee, has recommended that the airline stop flying to these routes. "This will change the character of Air India," this would turn Air India into a regional airline. The civil aviation ministry is preparing a detailed note for the Cabinet on the carrier's financial health and turnaround measures recommended by the GoM. "Cutting down loss-making international routes will have serious implications. Basically, the government has to decide if Air India continues to fly abroad or within India alone". At the same time, the Cabinet may also debate the issue of strategic disinvestment as a long-term viable option for the carrier. "The government cannot pump money into the National Aviation Company of India Ltd (Nacil) forever". But, it is likely that the Cabinet refers back some of these issues to the GoM for its detailed and considered. A major blow to Nacil's finances comes from prestigious but loss-making daily non-stop flights to New York from Delhi and Mumbai on the latest long-range fleet of Boeing, accounting for losses to the tune of Rs 750 crore a year. The GoM, set up to monitor Air India's turnaround plan, was also to decide on the politically sensitive matter of wage cuts of Air India's 31,000 employees. But it has now left the decision for the Cabinet. To avail government bailout, the carrier was asked to undertake cost-cutting measures that would help it save around Rs 2,000 crore by March 2010. Air India was able to cut costs to the tune of Rs 700-800 crore till December last year. As part of its turnaround strategy, the carrier has shortlisted five candidates for the post of chief commercial.

The carrier recently received a shot in the arm with the government releasing Rs 400 crore as a first tranche towards equity infusion. Air India had asked for Rs 5,000 crore as equity infusion and a letter of comfort from the government to convert its high-cost debt into low-cost ones.

Indian Aviation 2010 Snapshot

The Indian aviation industry is one of the fastest growing aviation industries in the world (& incurring maximum losses) with private airlines accounting for more than 75 per cent of the sector. With a CAGR at 18 per cent and 454 airports and airstrips in place in India, of which 16 are designated as international airports, Union Civil Aviation Minister Praful Patel has stated that aviation sector will witness revival by 2011. With an increase in traffic movement during December 2009 and increase in revenues by almost US$ 21.4 million, the Airports Authority of India seems set to accrue better margins this fiscal, as per the latest estimates released by the Ministry of Civil Aviation. This is being primarily attributed to increase in the share of revenue from Delhi International Airport Limited (DIAL) and Mumbai International Airport Limited (MIAL) along with increase in airport charges. The Hyderabad International Airport has been ranked amongst the world's top five in the annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul, Singapore, Hong Kong and Beijing. The Hyderabad International Airport is managed by a public-private joint venture consisting of the GMR Group, Malaysia Airports Holdings Berhad and both the State Government of Andhra Pradesh and Airports Authority of India (AAI). Airports Authority of India (AAI) is also spending US$ 427.5 million on developing the airports in Kolkata and another US$ 384.7 million on Chennai airport. The AAI is also looking at upgrading and modernising 35 non-metro airports. Both Chennai and Calcutta airports will be completed by next year. In addition to actual airport infrastructure, the government is also looking at building infrastructure in the air in terms of air traffic control (ATC) and CNS systems. Safety and surveillance is another huge area being worked upon. The civil aviation ministry has prepared a blueprint to convert Delhi airport into an international hub for passenger airlines with effect from August 2010 to help the airport, which is being expanded by a GMR-led consortium, utilise large amounts of additional capacity that will be ready by July 2010. Under the plan, NACIL will set up its hub in Delhi (Delhi currently serves as the hub for domestic operations and Mumbai for international operations).The government is also planning to make Delhi a regional hub to connect south-east Asia to Europe by capitalising on the capital’s strategic mid-point location, according to ministry sources. State governments too are taking interest in setting up special economic zones (SEZs) for the aerospace industry.

• Investment Policy With the draft FDI compendium being finalised in end of March 2010, changes are expected in the aviation policy too. Currently, Foreign equity participation in airport infrastructure is permitted upto 74 per cent with automatic approvals and upto 100 per cent in special permission. FDI upto 40 per cent is permitted in domestic air-transport services. Foreign investors are allowed to have representation (upto 33 per cent in domestic airline companies).
• The Road Ahead Investment opportunities of US$ 110 billion are being envisaged up to 2020 with US$ 80 billion in new aircraft and US$ 30 billion in development of airport infrastructure, according to the Investment Commission of India.
• Indian aerospace companies are growing too. Hindustan Aeronautics Limited (HAL) was ranked 40th in Flight International's list of the top 100 aerospace companies last year.
• Aircraft manufacturing major, Boeing is in the process of setting up the US$ 100 million proposed Maintenance Repair Overhaul (MRO) facilities in Delhi. Air India is also in the process of launching Cargo Hub in Nagpur while Deccan Aviation has already started one from the city.
• North India's first private sector greenfield international airport, Aerotropolis, will soon come up near the industrial hub of Ludhiana in Punjab. Aerotropolis will be built with an allocation of almost US$ 3.77 billion covering an area of 3000 acres by Messrs Bengal Aerotropolis which has partnered Changi International Airport of Singapore.
• Punjab will also become the first state in the country to set up a Maintenance, Repair and Overhaul (MRO) hub at Ropar, 45 km from Chandigarh, for the civil aviation sector at a cost of US$ 6.4 million
• The country's first SEZ dedicated to the Aerospace Hattaragi, 37 km from Belgaum, in Karnataka was also inaugurated. The SEZ is spread over 300 acres of land and will come up with an investment of US$ 32.06 million.
• An Aerospace and Precision Engineering Special Economic Zone with a proposed investment of US$ 641.2 million has also come up at Adibatla, Ranga Reddy district, Andhra Pradesh.

Unused Airports in India...

There are 32 airports belonging to Airports Authority of India (AAI) which are non-operational (Unused). They are Cuddapah, Donakonda and Warangal in Andhra Pradesh; Passighat in Arunachal Pradesh; Rupsi in Assam; Jogbani, Muzaffarpur and Raxaul in Bihar; Bilaspur in Chhattisgarh; Deesa in Gujarat; Chakulia in Jharkhand; Mysore in Karnataka; Khandwa, Panna and Satna in Madhya Pradesh; Akola, Solapur and Jalgaon in Mahrashtra; Shella in Meghalaya; Aizwal in Mizoram; Jharsuguda in Orissa; Kishangarh in Rajasthan; Vellore in Tamil Nadu; Kailashahar, Kamalpur and Khowai in Tripura; Asansol, Balurghat, Behala and Malda in West Bengal & Jhansi and Lalitpur in Uttar Pradesh. Expenditure incurred on the maintenance of some of these 32 non-operational airports during the last 3 years as well as the loss incurred at these airports are as under. The expenditure made and loss occurred (Rs. In lakhs) are in bracket:- For the year 2006-07 – Cuddapah (10.51,10.47), Jogbani (0.50, 0.50), Jharsuguda (78.77, 78.11), Kailshahar (1.24, 1.24), Vellore (6.95, 6.93), Balurghat (4.81, 4.51), Behala (24.88, 24.88) and Malda (23.07, 22.76); for 2007-08 – Cuddapah (14.50, 14.48), Jharsuguda (83.73, 83.37), Vellore (11.12, 10.81), Balurghat (10.48, 10.48), Behala (51.36, 43.64) and Malda (36.48, 36.48), and for 2008-09 – Cuddapah (42.33, 41.86), Mysore (13.88, 13.88), Jharsuguda (154.79, 154.79), Vellore (18.78, 18.79), Balurghat (10.76, 10.76), Behala (112.59, 112.59) and Malda (56.41, 56.41). Cooch Behar in West Bengal and Akola and Solapur in Maharashtra were made operational in the last three years. Mysore Airport in Karnataka will be made operational in 2009-10. This information was given by Shri Praful Patel, Minister of Civil Aviation in Lok Sabha.

India's Airline Industry Goes From Boom to Bust...

A few years ago, India's airline industry was flying high. A booming economy made India one of the fastest growing and most competitive aviation markets in the world. Six new carriers launched while established airlines laid on new routes and bought new jets. In the last four years, Indian carriers ordered 400 Boeing and Airbus jetliners worth about $37 billion.

Brace for impact. The global recession has hit air carriers everywhere, but a sharp decline in passenger numbers is especially bad news for India. With oil prices rising to $73 a barrel, Indian airlines — which carry just 2% of the world's passengers — could sustain more than $2.5 billion in losses this year, accounting for one-fourth of the projected $9 billion in losses for the entire industry, according to the International Air Transport Association. Weighed down by overcapacity, debt and the government's refusal to provide bailouts, Indian carriers are being forced to slash their operations and reduce ticket prices. "Indian aviation is undergoing a regime change in just four years," says chief executive officer of the Center for Asia Pacific Aviation.

That change includes deferring aircraft deliveries, cancelling orders, rationalizing routes and trimming staff to stave off financial collapse. "It's going to be tough, but we mean business," says Praful Patel, India's civil aviation minister. At the same time, three of the country's largest carriers — state-owned Air India, and private players Jet Airways and Kingfisher — are trying to attract more passengers by turning their full-service domestic fleets into budget businesses. In January, India's budget airlines fleet totaled 75 jets, compared with 120 full-service planes. The Center for Asia Pacific Aviation's Kaul reckons that by the end of the year, the skies will be dominated by up to 160 low-fare jets as companies switch to budget operations.

Hardest hit by the economic downturn has been national carrier Air India: It reported annual losses of $1 billion in the fiscal year ending March 31, along with an accumulated debt of $3.5 billion; that debt load is expected to rise to $7 billion by 2012 if it takes delivery of 111 new aircraft already on order. Air India alone accounts for 10% of the total projected losses for the global airline industry this year — even though it carries just 0.35% of global traffic. Air India is suffering from an aging fleet and a bloated staff roster of 31,000 permanent employees and 20,000 contract staff; its labor costs amount to 18% of its total operating expense, the highest ratio in the world, according to Patel.

With no bailout help from New Delhi in sight, Air India is bidding to bring its profitable international budget brand — Air India Express — to Indian turf. Air India Express, which has been flying routes to the Middle East and Southeast Asia for the past five years, will configure 10 of its 57 planes for budget flights by September, says Air India managing director Arvind Jadhav. The company plans to increase the number of budget flights a day from 25 initially to 43 by October. Ticket fares will be down 25% making it attractive for fliers. The logic, says aviation minister Patel, "is to fill up seats and operate at lower costs." Unlike its parent, the profitable Air India Express operates as an independent company with lower overheads. Besides, with no business seats they will be able to pack in more people at a time when the passenger count for all airlines is down 30% since last year.

Following similar logic, private players Jet Airways and Kingfisher, owned by the liquor baron Vijay Mallya, are expanding existing budget operations to try to increase business during the economic downturn. They aren't starting from scratch. Both airlines already had rechristened budget carriers — Jet Lite and Kingfisher Red — acquired in 2007. Now they are transferring capacity to the economy fleets. Kingfisher Red jets are flying more routes; as a result, about 75% of all domestic passengers that now fly with Kingfisher are traveling budget class, up from 50% a year ago. Meanwhile, Jet Airways, India's oldest private player, has converted some of its jets by removing all business-class seats and rebranding them as JetKonnect — giving the company two budget brands. "It gives us the flexibility and speed to deploy capacity and reverse it to meet changing trends," said Sudheer Raghavan, chief commercial officer of Jet. Launched in May, JetKonnect offers 40% lower fares and plans to take the current 130 flights a week to 160 by October.

Officials for both carriers say they hope to resume normal operations once the economy rebounds. But analysts say that may be difficult because the industry has yet to solve a basic problem: too many airlines flying too many flights in a country that, despite its economic growth, is relatively poor. India's airlines are now crowding into the budget market, just as they crowded into regular and premium air travel services a few years ago. "With everybody fighting for the same piece of business, this could once again create overcapacity and fuel fare wars," says Ankur Bhatia, executive director of Bird Group, a New Delhi company that provides technology to the travel industry. Lowering fares may attract more travelers but it may not improve the overall financial health of the industry. "To make profits while shifting business models, the airlines have to think, act, breathe and be low cost," Amitabh Malhotra, managing director of investment bank NM Rothschild & Sons in Mumbai. "That doesn't happen overnight." Adds Patel, India's aviation minister: "This time every airline will learn a lesson the hard way."

India as Global Aviation hub...

India’s aviation industry is in a mess.

Pick up any of India’s main papers and stories abound about India’s airlines losing $2 billion in the last financial year. NACIL, the publicly-owned company that runs Air India is in particularly bad shape. The government has rejected a request for a $3 billion bailout package. Instead, the government wants to overhaul AI’s management within a month and has started the hunt for an experienced chief operating officer. With accumulated losses as of March 31 that total a staggering $1.5 billion, for the first time in its history the airline delayed paying its salaries in June. None of the other large carriers, including Jet Airways and Kingfisher, are faring much better. Those two have taken excess capacity out of the market and reduced overheads. Airport operators, oil companies, hotels and others have either threatened to introduce or already are operating cash-and-carry regimes with carriers that have, in some cases, significantly exceeded their credit limits. The spectacular growth rates of 30% to 40% that enticed airlines to ramp up aircraft orders and to devise unsustainable (but until not too long ago universally followed) strategies of buying market share by discounting tickets and adding capacity are now history.

In such a scenario, is there any chance that India will emerge as a global aviation hub?

Looking at its metropolises, including the megacities of Delhi and Mumbai, India should already sport at least one major global aviation hub. Both cities have populations approaching 20 million inhabitants. Delhi is the country’s political capital and arguably its second most important commercial hub. It also does not suffer from the severe space constraints afflicting Mumbai’s Chhatrapati Shivaji International Airport. In fact, the masterplan for Delhi’s Indira Gandhi International Airport envisages a capacity of 100 million passengers at the end of its development. The capital hosts embassies of most of the world’s countries, international schools, good hotels and entertainment facilities, a rapidly growing infrastructure and, if one includes the satellite towns of Gurgaon and Noida, more head offices of multinational companies than any other city in India. Until today, infrastructure has been a major handicap. Lack of efficient connectivity between the domestic and international terminals made transfers from domestic to international flights (and vice versa) an unpredictable nightmare for passengers and airlines. With the airport’s development and the construction of an integrated domestic/international terminal this problem will be resolved by the middle of next year.

“Capacity reduction is still lagging behind demand.”

However, their poor shape and the relatively small size of India’s airlines compared with majors such as Emirates, Lufthansa or Singapore Airlines — all with their already well-established hubs and route networks — will make it difficult for any desi carrier to assert itself. The merger of Air India and Indian Airlines was conceptually the right way forward. It was aimed at giving the state carrier the size and route network to effectively compete with its domestic and international challengers. Unfortunately, the marriage between the two airlines was never properly consummated and hardly any of its envisaged synergies have materialized.

So what should India’s aviation industry do to extricate itself from this mess?

To begin with, the airlines will have to start addressing the problems that they themselves have caused. This process has already started with Jet and Kingfisher deferring orders for new aircraft, mothballing new deliveries or, where possible, leasing or selling them to foreign carriers. In short, with the exception of some of the low cost operators, a significant amount of capacity has been taken out of the market. Jet has transferred much of its remaining capacity to its economy-only Jet Konnect product as well as to its low cost subsidiary JetLite. Kingfisher has followed the same strategy by shifting passengers onto its no frills Kingfisher Red product. On another front, a truce in the price wars has yet to be reached. Yet capacity reduction is still lagging behind demand. With all airlines chasing bums on seats, charging prices that will cover costs and hopefully leave a margin for profit remains difficult in such a hotly-contested market. We will surely see more consolidation or bankruptcies in the medium term. This is precisely an area where the government should step in. Before the elections, the Ministry of Civil Aviation contemplated allowing up to 49% foreign domestic investment in domestic airlines. This would include foreign airlines as potential investors – something that is currently explicitly prohibited. It seems obvious that in an industry where average profit margins do not exceed 1.5%, the most likely investors would be other airlines seeking to strengthen their market position, increase their route network or realize economies of scale. Since the elections, however, nothing more has been heard of this proposal.

Another deterrent: The cost of fuel, which in India is among the highest in the world. At current prices, fuel accounts for 45% to 50% of operating costs in India. While the central government has instructed the public-sector oil companies to provide generous credit terms to the airlines, it could do more by naming fuel a declared good which attracts a uniform 4% sales tax.

At present, it is up to individual states to charge fuel taxes as they see fit. Some of them are charging well over 30% – a figure that keeps on rising in absolute terms as fuel prices go up. Internationally, aviation fuel does not attract any levies in many major markets. For India, this means a distorted market, putting its carriers at a relative disadvantage especially on international routes and making technical or fuelling stops in India for international carriers non-viable.

Furthermore, service tax and other levies have been a bone of contention between the airline industry and the government. A review and streamlining of the entire tax regime would surely be a sensible thing. Getting the fundamentals right is obviously a prerequisite for the establishment of a successful hub. To date, India has been fairly liberal in its approach to so-called bilateral agreements which regulate how many flights and/or to which points carriers from two contracting countries can serve. This is a good thing. An open bilateral regime stimulates competition and traffic growth as the examples of Singapore and Dubai have shown. It is also instrumental in bringing down the cost of travel and promoting economic growth.

For the sake of its national economy, the current plight of the national carrier should not discourage India from keeping its aviation market open. Instead, liberalization should be used as a tool to make its industry more competitive and its national carrier a leaner, more focussed and especially a more customer-centric organization.

Air India has taken a couple of encouraging steps. It has selected a European hub at Frankfurt, its first outside India. It is phasing out its unreliable fleet of old B777s and B747s. It has been selected as a member of the Star Alliance and is in the process of joining. That will give Air India a greater reach into the coveted U.S. market in addition to its flights from India. It is through its alliance membership that Air India could widen its appeal and route network from India to the rest of the world.

Overall, India either has or is building the necessary ingredients for establishing a successful aviation hub, most likely in Delhi. But to fulfil that promise will require a broader partnership involving alliance partners, regulators, airport operators and local authorities to overcome the many hurdles that remain.

Firemen declare Delhi's new airport terminal 'unsafe'

The Delhi Fire Service has declared the brand new departure terminal 1 D at the capital's Indira Gandhi International Airport (IGI) unsafe.

Delhi Fire Service chief R.C. Sharma has refused to provide a no-objection certificate (NOC) for terminal 1 D, citing many shortcomings during the two inspections conducted by his team in the past few months.

In his last report on May 13, Sharma cited six shortcomings. He said the ventilation system in the VIP lounge, baggage area and the office area was yet to be completed. Further, he stated, the exit route in the retail area should have a separate staircase or passage.

"In some places sprinklers are hidden in the false ceiling, which should be brought down. Some of the restaurants are under construction and are using wooden material. The wood works need to be painted with fire retardant chemicals. Necessary fire alarms or sprinkler system should be extended to these areas," Sharma noted in his report.

He further said systems at the new departure terminal could not be checked due to passenger movement and asked for arrangements to test the systems whenever possible.

But so far the Delhi International Airport Ltd (DIAL), a joint venture between the state-run Airports Authority of India and a consortium led by infrastructure major GMR, has not made any arrangements for the inspection of the systems.

In his report Sharma concluded that "terminal 1 D cannot be considered safe from the safety point of view till safety arrangements are fully completed."

Terminal 1 D, which is spread over 33,000 sq m, has replaced 1 B, the old terminal. It was opened for operations April 19. Kingfisher, Kingfisher Red and IndiGo, Jet Airways, JetLite and Spice Jet are operating from the new terminal, while GoAir, Air India and others are operating from terminal 1 A.

According to the airport officials, around 200 flights operate daily from the new departure terminal, which has been built at a cost of Rs.500 crore ($100 million). The terminal is able to handle 10 million passengers annually and is equipped with 72 check-in counters. It was inaugurated by Civil Aviation Minister Praful Patel.

The airport authorities had first invited the Delhi Fire Service officials April 8. At that time, the fire service wrote in its report that fire pumps and the fire control room were yet to be fully operational and that the sprinkler line was not charged with water at many places.

DIAL sent a report to the fire department May 4 stating that measures suggested had been complied with. The fire department again conducted an inspection and highlighted fresh shortcomings.

When asked why necessary clearance was not sought before the new terminal came into operation, DIAL spokesman Arun Arora said the terminal was absolutely safe for operations and for passengers.

"DIAL is very much alive to the required fire safety norms. We have been following all fire safety norms (domestic as well as international) for all equipment and procedures".

"All necessary documents have been submitted to the fire department and inspections have been carried out by the Delhi Fire Service officers. All observations and suggestions made by them were carried out by DIAL. The suggestions made by them during their subsequent visit to terminal 1 D are also being carried out," he added.

Arora said to ensure fail-proof fire safety DIAL has taken many initiatives.

"We have deputed 18 well trained firemen who keep patrolling all areas of the terminals - like the check-in area, airline ticketing areas and security holds. More than 50 fire hydrant outlets have been deployed inside and outside the terminal for greater safety," Arora said.

Though DIAL has been running the new terminal without fire safety clearances, the Delhi Fire Service was silent on why no action was being taken against the airport authorities. As per the powers conferred upon the fire department, it can cut electricity and water supplies to a building or even shut it down if the fire safety norms are not met.

Mid Year assessment of Aviation Industry...

Its exactly half of 2009, lets have a assessment of Aviation industry in India. This report has been take from IBEF : -

*Sector structure/Market size : With a growth rate of 18 per cent per annum, the Indian aviation industry is one of the fastest growing aviation industries in the world. The government's open sky policy has led to many overseas players entering the market and the industry has been growing both in terms of players and number of aircrafts. Today, private airlines account for around 75 per cent share of the domestic aviation market. India has jumped to 9th position in world's aviation market from 12th in 2006. The scheduled domestic air services are now available from 82 airports as against 75 in 2006. *Potential for Growth : The Indian Civil Aviation market grew at a compound annual growth rate (CAGR) of 18 per cent, and was worth US$ 5.6 billion in 2008. The Centre for Asia Pacific Aviation (CAPA) has forecast that domestic traffic will increase by 25 per cent to 30 per cent till 2010 and international traffic growth by 15 per cent, taking the total market to more than 100 million passengers by 2010. India's civil aviation passenger growth, presently at 20 per cent, is one of the highest in the world. By 2020, 400 million Indian passengers are likely to be airborne. By 2020, Indian airports are expected to handle more than 100 million passengers including 60 million domestic passengers and around 3.4 million tonnes of cargo per annum. Moreover, significant measures to propel growth in the civil aviation sector are on the anvil. The government plans to invest US$ 9 billion to modernise existing airports by 2010. The government is also planning to develop around 300 unused airstrips. *Airport Infrastructure : Mumbai and Delhi airports have already been privatised and are being upgraded at an estimated investment of US$ 4 billion over 2006-16.Greenfield airports are operational at Bangalore and Hyderabad. These are built by private consortia at a total investment of over US$ 800 million. A second greenfield airport being planned at Navi Mumbai is going to be developed using public-private partnership (PPP) mode at an estimated cost of US$ 2.5 billion. 35 other city airports are proposed to be upgraded. The city side development will be undertaken through PPP mode. Over the next five years, AAI has planned a massive investment of US$ 3.07 billion—43 per cent of which will be for the three metro airports in Kolkata, Chennai and Trivandrum, and the rest will go into upgrading other non-metro airports and modernising the existing aeronautical facilities. *Aviation Policy : Many policies supporting the infrastructure are now in place. 100 per cent FDI under automatic route is permissible for greenfield airports. For existing airports, FDI up to 74 per cent is permitted through automatic approvals and up to 100 per cent through special permission (from FIPB). Private developers allowed setting up of captive airstrips and general airports 150 km away from an existing airport. 100 per cent tax exemption for airport projects for a period of 10 years. 49 per cent FDI is permissible in domestic airlines under the automatic route, but not by foreign airline companies. 100 per cent equity ownership by Non-Resident Indians (NRIs) is permitted. overhaul (MRO) and training offer high investment potential. A report by Ernst & Young says the MRO category in the aviation sector can absorb up to US$ 120 billion worth of investments by 2020. 74 per cent FDI is permissible in cargo and non-scheduled airlines. The Indian government plans to set up an Airport Economic Regulatory Authority to provide a level playing field to all players. *Major Investments : Over the past year, various companies have shown an interest in the Indian aviation industry. US-based business jet maker, Hawker Beechcraft Corporation (HBC), opened its first authorised service centre in Delhi in partnership with Interglobe General Aviation with a total investment of US$ 8 million. Richard Branson, who controls UK carrier Virgin Atlantic Airways Ltd, has sought permission to start a domestic airline in India. GMR Infrastructure is looking to tap the growing corporate jet market in India with investment plans to the tune of US$ 151 million. It is also in talks with aircraft component manufacturers such as Honeywell and Safran to set up a components assembly plant in the country. The company plans to invest US$ 60 million for the proposed JV. US aircraft maker, Boeing Co, will deliver 100 planes worth US$ 17 billion over the next four to five years to India. *Road Ahead : The Indian aviation sector is likely to see clear skies ahead in the years to come. Passenger traffic is projected to grow at a CAGR of over 15 per cent in the next 5 years. The Vision 2020 statement announced by the Ministry of Civil Aviation, envisages creating infrastructure to handle 280 million passengers by 2020. Investment opportunities of US$ 110 billion envisaged up to 2020 with US$ 80 billion in new aircraft and US$ 30 billion in development of airport infrastructure. Associated areas such as maintenance, repair and

Snapshot of Aviation Industry in India

Growing at a rate of 18 per cent annually, the Indian civil aviation market holds out great promise for potential investors into the sector. India's civil aviation ministry expects 80 million passengers by 2020. The number of air travellers increased by a record 38.5 per cent in 2006-7. India anticipates doubling of passenger traffic over the next decade. The second largest aviation industry of the world, the Indian fleet comprised 370 aircrafts by the end of the year. And growth is expected to continue apace: the Government estimates that India’s fleet will reach approximately 500-550 aircraft by the end of 2010. India's civil aviation passenger growth, at 20 per cent, is among the highest in the world. The sector is slated to cruise far ahead of other Asian giants like China or even strong economies like France and Australia. The number of passengers who will be airborne by 2020 is a whopping 400 million. The Centre for Asia Pacific Aviation (CAPA) predicts that domestic traffic will grow at 25 per cent to 30 per cent a year until 2010 and international traffic growth by 15 per cent, taking the overall market to more than 100 million passengers by the end of the decade. Indian carriers have 480 aircraft on order for delivery by 2012, which compares with a fleet size of 310 aircraft operating in the country today. the number of air travellers is about 0.8 per cent of the population. By the time even 10 per cent of the population begins to fly, India will need about 5,000 aircraft.

• taken from http://www.ibef.org/ for more information plz click on the title.

Death of Low Cost Airlines from Indian Aviation…

From the time Kingfisher acquired a stake of 26% in Air Deccan, I have a gut feeling that this is the beginning of slow but, steady death of Low Cost Airlines in India. The ticket price has risen from the very next day. The colour of Aircrafts, change in attires of Airport staff etc. has been taking place. If Air Deccan dies its slow death, which I strongly feel so, then, I personally don’t think other small players will able to survive for long. Air Deccan was the largest operator in India, with touching more than 60 cities (even more than state owned Air India). If its gone than other players like Spicejet, Indigo Airlines & GoAir which do not constitute more than combined market share of 18-20%, will not be able to survive the blood bath. Next target is Spicejet for, every one from Kingfisher to Jet Airways & even Paramount is also looking for its bigger pie in the acquisition party. GoAir is already in trouble & Indigo will be left alone to wait & watch, it may also convert itself into a full service carrier. If this happens then, it will be blow for the growth of Indian Aviation, as common man may not be able to take on the sky. All blames to Ministry of Civil Aviation because, why the Jet fuel cost is rising in India, while other countries are still able to provide it much cheaper than India. Jet fuel counts nearly 35-40% of total operational cost for an Airline. Is the common mans airlines still for a common man, when the tax paid on an air ticket is Rs. 1500 & the fare is only Rs 1200 i.e. a person has to shell out Rs. 3700 in this case, which is more than triple of the fare. Due to lack of infrastructure Low Cost Airlines are not able to reduce there turn around time, which is the operational advantage for them. With all these adverse conditions how long will they be able to float them self??? Not much longer I think so…

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Private Airports goes Commercial…

The Ministry of Civil Aviation (MCA) has given approval to 03 private airstrips to go commercial. These are –

• Jamshedpur Airport owned by Tata Steel Ltd.
• Vijaynagar Airstrip owned by JSW Steel.
• Mundra Airport (Gujarat) run by Adani Group.

These can boost Regional Airlines, which will use smaller airports. Air Traffic Control will be manned by AAI, but airport charges can be levied by their own discretion. Air Deccan has started operating a flight b/n Jamshedpur & Kolkata with an ATR. Tata has guaranteed a minimum number of seats to the airline. All these gives a rosy picture about boom in Indian Aviation, bt, I have a couple of serious questions-

• What if the govt. do not complete its 5 yr. term? (shows the current tussle b/n Left parties & Congress Party )
• Even if it completes 5 yr. term bt, do not come to power after the gen. elections in 2009. What if new govt. change its policy or even slow down the whole process? (the way it happened in the case of much-hyped golden quadrilateral by the then, NDA govt. & as soon as UPA came in to power the whole process slowed down). Well I am not against any govt. or taking a political side bt, a fair question to be asked… because all this happens in India… Jus hope 4 d best.

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The new begining with Merchant Airports !!!

With so much of buzz regarding Indian Aviation, hw can the Airport infrastucture can b (left) behind...from privatisation to PPP models. here comes the merchant airports...

They have been conceptualized as airport infrastructure entirely in private sector with private resources and with no Government funding. The entrepreneur will set up and operate airport on the basis of commercial viability subject to the safety and security oversight of the Government. Such a proposal would dispense with the requirement for investment of Government resources and therefore, a more liberal and only a license based approval procedure could be considered. It is proposed to allow 100% FDI in such airports.‘Merchant Airports’ would be totally built by private companies, land being a State subject, the assistance of State Government would be necessary. Similarly, facilitation by the Central Government in terms of clearances from Defence, Environment etc. would be essential besides the regulatory oversight. The Ministry of Civil Aviation has received 03 proposals so far to develop merchant airports. these are at -

• Gwalior (Madhya Pradesh) - Cargo Airport to be developed by Gwalior Sugar Corporation Ltd.
• Durgapur (West Bengal) - Passenger Airport by a JV of KOlkata based Reality Developer & Haryana based HUDCO.
• Jhhajjar (Haryana) - Cargo Airport (Int'l) by Reliance Industries, may be to supplement its supply chain for which it is also planning to set up a Cargo Airline...

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Finally the Regional Airlines...

yesterday's newspaper were full of the news regarding Regional Airlines, bt, none of them gave an insight wat is the complete scenario for that...i thought to do sm research & came up with the following-->

The Ministry of Civil Aviation has introduced a separate category of permit - Scheduled Operator Permit for Regional Airlines.

1. As per the notification of the Ministry: A separate category of operator permit will be introduced i.e., Scheduled Operator Permit for Regional Airlines. This will be applicable for both fixed wing and helicopter operators. These airlines would be called as Regional Airlines.
2. To qualify for the permit, the applicant Company should undertake operations primarily between airports of any of the four regions – North, South, West and East/North East. The airports in the region would be as defined by the Airports Authority of India for their respective regions.
3. On grounds of operational and commercial exigencies, the companies would be allowed to operate flights from airports in their designated region to all airports in any other region except the metro airports of the other region. The Regional Airlines would not be permitted to operate on Category-I routes of the Route Dispersal Guidelines.
4. For the purpose of this policy, the metro airports would be Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad.
5. In view of the fact that the southern region has three metro airports, the regional airlines of the southern region would be allowed to operate between the designated metros of the southern region.
6. The Company would have to acquire at least three aircrafts within one year and at the end of two years, the Company would be required to operate with minimum five aircrafts.

The paid up capital of the Company would be:

• For aircrafts of and above 40,000 kg. take off mass upto 3 aircrafts – Rs. 30 crore. Addition of each aircraft would require additional Rs. 10 crore subject to a maximum of Rs. 50 crore after which no further enhancement of equity would be required.
• Airlines with take off mass below 40,000 kg. up to 3 aircraft – Rs. 12 crore. For further two aircrafts total paid up capital of Rs. 20 crore will be required.

Other conditions/requirements prescribed for Scheduled Operator permit would remain the same for Regional Airlines. The matter regarding Regional Airlines was being considered in view of the fact that there was a need to expand air services to the Tier II and Tier III cities to meet the unfulfilled demand for the same which the existing operators are unable to cater to for various reasons. It was felt that a separate category of Airlines mainly with smaller aircrafts might be encouraged to fill this gap and also contribute to the overall growth in the sector. In this connection it may be clarified that the existing provisions for Scheduled Operator Permit would also remain in force and such permit for unrestricted operation of scheduled flights throughout the country would be considered only for those companies which have proven financial strength and organizational capabilities to successfully manage such complex operations.

• note--> taken from Press Information Bureau press Release...

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LCC then Regional Airlines & now Low Cost Airports...ufff

after lowcost airilines, it is the turn of no-frill & low cot airports. these r planned in tier-II & tier III cities, the airports would be in adtion to Ministry of Civil Aviation's modernisation of 35 non-metro airports. the investment in such airports will b in the range of Rs.40-100 crores. cities identified are- Hassan, Shimoga, Gulbarga, Bidar, Mysore... (Karnatka); Shirdi, Jalgaon, Solapur, Akola... (Maharashtra); Kannur... (Kerala); Madurai, Tiruchirapalli... (Tamil Nadu); Rupsi... (Assam); Ajmer, Mount Abu, Kailashar... (Rajasthan); Behala, Cooch Behar, Malda... (West Bengal); Jharsuguda... (Orissa); Muzzaffarpur... (Bihar); Kamalpur... (Tirupura); Passighat... (Arunachal Pradesh); big cos. like Changi Airport Singapore, TATA group, GMR Group, GVK Group r intersted in such projects...these airports could act as operational bases 4 regional airlines... Seed Newsvine Dig the Web!