A Project Report on

Indian Aviation Industry

Challenges Associated with Indian Aviation

Industry for Sustainable Growth

Guide
Dr. Belur Baxi

Members
Aman Pardeshi Hard Dave Ilesh Sharda

For Partial Fulfillment for the award of

Post Graduate Diploma in Marketing & Sales Management from AMA, Ahmedabad &
CSUSB-AMA Joint Certificate in Marketing & Sales Management
 DECLARATION

We Aman Pardeshi, Hard Dave & Ilesh Sharda declare that the report entitled “Challenges for Indian
Aviation Industry and Strategies for Growth”
Is a result of our own work and our indebtedness to other work of publications references to which
has been duly acknowledged.

Place: Ahmedabad
Date: Aman Pardeshi
Hard Dave
Ilesh Sharda

2
 EXECUTIVE SUMMARY
There are very few industries in India which has seen an unprecedented double growth every month
for the past 5 years. The Indian civil aviation industry is one of them. Indian civil aviation market
topped the growth chart for the 12th time in last 13 months in July 18. Despite this growth in
passenger traffic we see airlines running out of cash or posting quarterly loss & worst of all going
bankrupt with huge amount of bank loan.

In this project report we have tried to find the reasons behind these consequences and the core
challenges faced by airline industry from becoming profitable. Also we have come up with some
strategies and suggestions through which the airlines can sustain their growth while handling the
potential market.

In first chapter we have given the introduction of Indian as well as global civil aviation industry and
evolution of civil aviation in India

In second chapter we have discussed in length about the aviation industry of India. We have covered
the government policies, Industries Statistics of passenger as well as of cargo traffic, government
initiatives and contribution of airline industry to the economy of India.

In third chapter we have discussed the current scenario of aviation industry and current
characteristics of the industry, marketing mix of the industry as well the current statistics of major
airlines in India. We have also mentioned the current as well as perpetual challenges faced by the
airline industry of India.

In fourth chapter we have tried to summarize the articles pertaining to Indian airline industry written
by various experts by understating it in a form of literature review

In fifth chapter we have discussed our research methodology, our data collection technique and
analysis technique

In sixth chapter we have done the industry analysis of civil aviation in India by various analytical
models such as PESTEL model, Michael Porter five forces Model, SWOT analysis

In seventh chapter we have discussed the findings obtained by the above mentioned models and its
effect on industry

In eighth chapter we have given some suggestion which we feel can help airline industry in India
overcome few of its core challenges

In ninth chapter we have concluded our project report.

3
 INDEX
Chapter 1 : Introduction……………………………………………………………………………………………………………6

 Global Aviation Industry……………………………………………………………………………………………..7

 Evolution of Aviation Industry in India…………………………………………………………………………7

Chapter 2 : Aviation Industry of India………………………………………………………………………………………..9

 Indian Aviation Policy

 History of Indian Aviation Policy………………………………………………………………………………..10
 Area covers under policy…………………………………………………………………………………………..10
 Liberalization of Policy (Open Sky Policy)………………………………………………………………....13
 Industry Statistics…………………………………………………………………………………………………………………………17
 CAGR of Passenger Traffic YOY basis……………………………………………………………….………..13
 CAGR of Cargo Traffic YOY basis……………………………………………………………………….……….14
 Market size, change in market size YOY basis………………………………………………….………..15
 Growth of the Industry on YOY basis…………………………………………………………………………16
 Air Traffic handled by major Airports………...……………………………………………………………. 17
 Government Initiatives………………………………………………………………………………………………………………. 17
 UDAN Regional Connectivity Scheme……………………………………………………………………….17
 Liberalization of 5/20 fleet requirement for Internal connectivity routes…………………19
 Public Private Partnership of major Airports …………………………………………………………… 19
 Make In India : Initiative for developing Aircraft Manufacturing Facility in India……… 19
 Aviation Industry’s contribution to the Indian Economy……………………………………………………………..20
 Growth Prospect of Indian Aviation Industry……………………………………………………………………………...22
 Key Drivers for the Growth……………………………………………………………………………………….23

Chapter 3 : Current Scenario of Indian Aviation Industry and its challenges…………………………….25

 Characteristics of Airline Industry…………………………………………………………………………………………………26

 Services offered by Airlines……………………………………………………………………………………….26
 Marketing Mix of Airline Service…………………………………………………………………………………………………..29
 Demographic Customer Segmentation………………………………………………………………………………………..35
 Income Demographic Segmentation…………………………………………………………………………35
 Behavioral Segmentation (Business Travel or Leisure Travel)……………………………………36
 Pattern of Travel Segmentation (Seasonal Bases, Event Basis – Trade Shows, Festival
Time, Weekly bases – starting at Monday & returning on Friday)……………………………. 37
 Current Scenario………………………………………………………………………………………………………………..….…… 38
 List of Major Airlines in India…………………………………………………………………………………….38
 List of Airport Infrastructure in India…………………………………………………………………………39
 List of Aircraft Fleets with major Airlines…………………………………………………………………. 39

4
  List of resources available with Airlines like Manpower, Equipment, Licenses, Crude
storage capacity, Maintenance facility, IT resources etc…………………………………………..40
 List of associated Business with Airlines like Tourism, Cargo, MRO, Trade etc…………. 41
 Challenges associated with Airline Industry……………………………………………………………………………………………..43
 Lack of Infrastructure………………………………………………………………………………………………43
 Taxes levied on Airlines…………………………………………………………………………………………..44
 Fuel Prices……………………………………………………………………………………………………………….45
 Depreciation of Indian Rupees………………………………………………………………………………..46
 Non Supportive Government Policy………………………………………………………………………..46
 Intensive Competition…………………………………………………………………………………………….46
 Major Market Players of Indian Aviation Industry……………………………………………………………………………………47
 Market share of major Airlines……………………………………………………………………………….47
 Future of Indian Aviation Industry…………………………………………………………………………………………………..49

Chapter 4 : Literature Review………………………………………………………………………………………………………53

Chapter 5 : Research Methodology……………………………………………………………………….......................60

 Research Objectives…………………………………………………………………………………………………………………………. 61
 Research Design…………………………………………………………………………………………………………….…………………. 61
 Type of Data……………………………………………………………………………………………………………………………………….61

Chapter 6 : Industry Analysis………………………………………………………………………………………………………62

 Michael Porter’s Five Force Model – To identify the competition level in the Industry…………………….. 63
 PESTAL Analysis- To identify Macro Environmental Factors affecting the Airline Industry………………… 64
 SWOT Analysis……………………………………………………………………………………………………………………………………68
 To identify Strength & Weakness of major Airlines …………………………………………………………69
 To determine the Opportunity & Threats of the Industry……………………………………………….70
 Deriving Strategy based on SWOT Analysis for Sustainable Growth of the Airline……………………………..72
 Cost saving strategies, Competitive Strategy, Revenue Generation & Profit maximization
Strategy, Corporate Strategy, Market Expansion Strategy, Business Strategy…………………72

Chapter 7 : Findings…………………………………………………………………………………………………………………….75

Chapter 8 : Suggestions……………………………………………………………………………………………………………….79

Chapter 9 : Conclusion…………………………………………………………………………………………………………………82

Appendix………………………………………………………………………………………………………………………………………………………. 84

5
 CHAPTER 1:
INTRODUCTION

6
 CHAPTER 1: Introduction

Introduction

Aviation is helping fuel for the growth of the global economy and nowhere more so than in Asia where many
residents are traveling abroad for the first time. We can see the journey till date that the Air transports have
changed the way people and businesses connect with each other extraordinarily.

Aviation is the key driver for the positive connectivity across the globe.

It brings people together — families, friends and business colleagues. It helps minds to meet and exchange
ideas. It gives people the freedom to be almost anywhere in just 24 hours. The Aviation supports the trade &
tourism business on very greater manner. As per the report, 57% of the world tourists travel by Air.And it has
turned our wonderfully big planet into a wonderfully small world of enormous and wonderful opportunities.

Global Aviation Industry:

Aviation connects the world, carrying more than four billion passengers a year.

The connectivity provided by aviation is vital to economic growth and development. Aviation supports jobs
and trade, and helps people to lead better lives.

In addition to noting that more than 65 million jobs and $2.7 trillion annual economic activity which is 3.6% of
global economic activity that the industry supports, more than 10 million people are working for the Industry
directly around the world

As the demand increases, the possibility of un-organization increases due to lackof ability of handling the
potentiality of market.

Evolution of Aviation Industry in India:

The history of civil Aviation in India dated back to 1929-1930 when the British, the Dutch and the French
introduce international routes extending services in India.

After World War II, civil aviation got a boost & in 1946, the Indian Airways Act was amended to make it
obligatory for new entrants to get permission and license to operate new services. Within two years eleven
licenses were granted to various companies. In International sector, Air India International was formed with
the authorized capital of two crores. Meanwhile, air companies started winding up due to poor performance,
intense competition and deep financial crisis. The Government appointed an inquiry committee in 1950. The
Government decided to bring Air Transport under its control. The Act was adopted in May, 1953. It provided
for setting up of Indian Airlines and Air India by amalgamating the remaining private airlines.

7
 From 1948 to mid-1990s, the Aviation Industry was directed as mentioned below:

 Government of India established a joint sector company, Air India International Ltd in association with Air
India (earlier Tata Airline) in 1948.
 Air Corporation Act 1953, the Government has nationalized all nine airline companies
 Indian Airlines Corporation (IAC) was established for domestic operations of Air transportation while the Air
India International was responsible for International operations.
 The Government owned Airlines were dominating in Indian Aviation Sector till mid-1990s.
 In 1994, the Open Sky Policy was adopted by the Government which has given a new vision to the Industry &
stops the monopoly of Government Airlines by allowing the Private Airlines.

The parliamentary committee recommended changes in the Government Policies and amendment of Air
Corporation Act 1953.The Private air taxis are facing a number of problems, which are hampering their
smooth functioning. They were not allowed to publish their departure schedules in print media, discriminated
against in providing space and adequate facilities in airports and note permitted to lift domestic air cargo. The
private airlines recommended credit facility for aviation fuel against the bank guarantee. The Private Airlines
formed an association and started bringing pressure on the government to take necessary steps for the
healthy growth of the Airline Industry. Their demands are speedy repeal of Air Corporations Act 1953 to avail
the passenger the full benefits of the governments liberalized aviation policy, lifting the condition to fly 7 km
of non-profitable routes for every 2500 Km of flying and lifting the ban on advertising the schedules.

Relation of Indian Aviation Sector with Indian Economy

The domestic passenger traffic is positively correlated to the GDP growth of the country. As the GDP slowed in
the year 2012-13, the domestic passenger growth fell by almost 5%. Recovery in GDP post 2013-14 led to
sustained growth in domestic passengers.

Graph: Passengers handled and GDP (%) growth

Source: DGCA

The share of domestic passengers has been greater than 55% over the last decade. In 2007-08, the share of
domestic passengers was 62%, which dropped to 58% in 2013-14. In 2016-17, the share of domestic
passengers to total passengers stood at 65.5% indicating a recovery in domestic passenger numbers in line
with the GDP growth.

8
 CHAPTER 2:
AVIATION INDUSTRY OF
INDIA

9
 CHAPTER 2: AVIATION INDUSTRY OF INDIA
TOPIC: INDIAN AVIATION POLICY

1. History of Aviation Policy

 1915: The first Indian airline, Tata Sons Ltd., started a regular airmail service between Karachi and Madras.
 1924: Construction of civil airports began in India. Construction began at Dum Dum in Calcutta, Bamrauli in
Allahabad and Gilbert Hill in Bombay.
 1927: Department of Civil Aviation was set up to look after all civil aviation matters.
 1937: The Indian Aircraft Act was proposed in 1934 and was formulated in 1937.
 1940: Hindustan Aeronautics Limited (HAL) was set up by major efforts of Mysore Government at Bangalore.
 1946: ‘Air India’ came into being when Tata Airlines changed its name to Air India.
 1948: Air India signed an agreement with the Government to operate international services under the name
Air India International Ltd.
 1953: The Indian Parliament passed the Air Corporations Act, 1953 and Indian Airlines and Air India
International were set up after nationalization of the entire airline industry. Eight formerly independent
domestic airlines: Deccan Airways, Airways India, Bharat Airways, Himalyan Aviation, Kalinga Air Lines, Indian
National Airways, Air India, Air Services of India were merged.
 1972: The International Airports Authority of India (IAAI) was constituted.
 1986: The National Airports Authority was constituted.
 1987: The Bureau of Civil Aviation Security was established.
 1990: The Government adopted Open-sky policy and allowed air taxi- operators to operate flights from any
airport, both on a charter and on a non-charter basis and to decide their own flight schedules, cargo and
passenger fares.
 1994: Air Corporations Act, 1953 was repealed and was replaced by Air Corporations (Transfer of Undertaking
and Repeal) Act, 1994 thus enabling private operators to operate scheduled services and number of private
players
 1995: Airport Authority of India was constituted by merging the International Airport Authority of India with
National Airports Authority.
 1997: Policy on Airport Infrastructure of India was developed for the use and development of airport
infrastructure.
 1999: CIAL –Cochin Airport was the first airport in India which was built with public-private participation and
was made operational. The process for development of CIAL as a private airport began in 1993.
 2004: Government approved setting up of private Greenfield airports at Hyderabad and Bangalore.
 2004: Indian Scheduled carriers with a minimum of 5 years of continuous operations and a minimum fleet size
of 20 aircraft, were permitted to operate scheduled services to international destinations.
 2006: The government approved the restructuring and modernization of Mumbai and Delhi brownfield
airports through the public-private partnership model.
 2008: The path breaking Greenfield Airport Policy of the Government was announced.
 2009: AERA was established to regulate the economic aspects of airports. It is an autonomous body set up by
an Act of Parliament.


10
 2012: Government allows direct ATF imports by airlines. FDI allows for foreign airlines to hold up to 49% stake
in scheduled and non-scheduled air transport services while NRIs are permitted to hold 100% equity in airlines
 2016: National Civil Aviation Policy has covered the broad areas for the development of the Industry includes
Regional Connectivity Scheme, bilateral policies with foreign countries, liberalization of 5/20 rules for
international operations.
 2018:The recent development in sector as mentioned as below
 The government has approved the leasing of six Airports includes Ahmedabad, Jaipur, Lucknow, Guwahati,
Thiruvananthapuram & Mangalore for operation, management & development under Public Private
Partnership.
 India & Australia formalized an open sky agreement that allows airlines of both sides to deploy unlimited seats
to six Indian metros and six cities in Australia respectively.
 The Excise Duty on Jet Fuel has reduced to 11% from 14% in October’2018.

2. Area Covered Under Policy

National Policies & Programmes

The Aviation Industry is built on the key pillars of Airport Infrastructures, Aircrafts, Safety legislations, Air
traffic management & ground staffing to handle the passengers & cargo movement. The centralized control
over the Industry ensures the sustainable growth of the Industry. The legislative framework for the Industry to
identify the key challenges & develop the supportive policies by Ministry of Civil Aviation having Autonomous
bodies under the organization structure.

Ministry of Civil Aviation

The Ministry of Civil Aviation is responsible for formulation of national policies and programmes for the
development and regulation of the Civil Aviation sector in the country. It is responsible for the administration
of the important legislations pertaining to the aviation sector in the country. This Ministry exercises
administrative control over below mentioned principle autonomous organizations & mentioned its core
functions:

Directorate General of Civil Aviation: (DGCA)

It responses to the Civil air regulations, regulates Air Transport Services (ATS), air safety & air worthiness
standards. It performs the major functions of issuance of licenses, permits & certificates.

Airports Authority of India: (AAI)

AAI has been constituted under the Airport Authority of India Act, 1994. It is responsible for the development,
expansion & modernization of the Air Traffic Services, passenger terminals, and cargo facilities at the Airports
in the Country. It also manages, maintain & upgrade the infrastructure both on ground & air space in India.

Airport Economic Regulatory Authority: (AERA)

It regulates the tariff for aeronautical services & passenger services fees to monitor the performance standard
relating to the quality & reliability of the service.

11
Bureau of Civil Aviation Security: (BCAS)

It issues aviation security standards follow as per the national & international treaties. To prevent any
unethical or unlawful interference in Aviation, it issues orders, instructions, & guidelines to airport authorities,
air carriers, State or territory police force & many others.

The Ministry of Civil Aviation is responsible for the administration of some of the principle regulations as
mentioned below:

The Aircraft Act, 1934 &Aircraft Rules, 1937:

It regulates the rules & permits for manufacture, use, operations, maintenance, sales, import & exports of the
Aircrafts. It determines the parameters for air worthiness, maintenance of aircrafts, general conditions for
flying & safety, registration of aircraft and investigations.

The AAI Act, 1994

It has established the AAI with merger of National Airport Authority & International Airport Authority of India
with responsibilities of development, finance, operations & maintenance of all government airport of India.

The Civil Aviation Requirements (CAR)

It provides the set of standards expected to be met before a license, permit, certificate is granted.

The Carriage by Air Act, 1972 (CAA)

It governs the rights & liabilities of the air carriers irrespective of the origin or nationality of the carrier
performing the Air services.

National Civil Aviation Policy 2016 & its major Initiatives

The National Civil Aviation Policy 2016 was released after the modifications of the NCAP 2014 with supportive
policies & initiatives for Industry’s affordable, safe and sustainable growth. The policy has presented many
interesting proposals to promote growth in the aviation sector, and its vision to enable 300 million domestic
ticketing by 2022, although ambitious, highlights the hidden potential of the Indian aviation sector. For super-
charging growth in the aviation sector, urgent remedial measures are required. India needs to be promoted as
a trade and tourism hub in order to derive synergistic benefits for the aviation industry. Leading aviation hubs
like USA, EU, UAE, Singapore, China etc have a robust industrial, trading, maritime and tourism ecosystem that
both supports and benefits from their aviation sector. Close collaboration between the Ministry of Civil
Aviation, related ministries (finance, home, defense, external affairs, commerce and industry, tourism,
environment, HRD etc), regulators and the industry is the need of the hour.

12
 The key changes initiated in policy as are as:

Regional Connectivity Scheme (UDAN)

Liberalization of 5/20 rule for International Operations

Public Private Partnership for modernization of Airports

Make In India: Initiative for developing Aircraft Manufacturing Facility in India

FDI Policy for Civil Aviation of India

In starting of 2018, the Government has liberalized the Foreign Direct Investment Policy to attract the
investment in India, to increase the Ease of Doing business, Economical growth & job creations in the country.
The FDI liberalization has also benefited the Civil Aviation Sector in following manner:

 Non Schedule Air Transport Services: 100% FDI is allowed through automatic route in non schedule air
transportation services, Helicopters & sea plane services.
 Schedule air transportation services & Regional air transportation services: Up to 49% FDI is allowed through
automatic routes while more than that will require the Government approvals.
 Airport Infrastructures: 100% FDI is allowed through automatic route in Airport Infrastructure.
 Ground handling services: 100% FDI is allowed through automatic route in Ground handling services subjected
to sectoral regulations & security clearances.
 MRO Industry, Flying training institutes & Technical training institutes: 100% FDI is allowed through automatic
route in MRO Industry & for training institutes.

3. Liberalization of Policy (Open Sky Policy)

The boom in Aviation Sector has come only after the government announced the Open Sky Policy in April
1990. The new policy permits air taxis to operate form all 93 airports open to schedule operations, which
restricted to only 55 airports earlier. The restriction to operate flights two hours before or after flights of the
national carriers has been removed. Under the new policy, use of multi-engine fixed wing aircraft is allowed
for operation and NRIs allowed importing aircraft using their own foreign exchange reserves, provided they
set up 100% Indian Companies. This policy has yielded rich dividends, with many NRIs starting new ventures.

The recent change in the Civil Aviation Policy, 2016 has broad areas covered as Regional Connectivity Scheme
(UDAN Scheme), focuses air connectivity to un-served & underserved Routes, liberalization of the 5/20 rules
for International routes, liberalization of domestic code share points in India.

13
 TOPIC: INDUSTRY STATISTICS

Air Passenger Traffic in India, both domestic and international witnessed a positive growth in the year 2017-
18compared to the previous year.

PASSENGER TRAFFIC AT A GLANCE

PASSENGER TRAFFIC UNIT 2017-18 2016-17

123.32million 103.75 million

Domestic Passengers Departing Passengers
(18.86) (21.77)

117.04 billion 98.64 billion

Domestic Airline Demand Revenue Passenger Kilometers (RPK)
(18.65) (21.82)

134.54 billion 116.94 billion

Domestic Airline Capacity Available Seat Kilometers (ASK)
(15.05) (19.66)

60.58million 54.68 million

International Passengers Departing and Arriving Passengers
(10.79) (9.84)

183.90 million 158.43 million

Total Passengers (Domestic & International)
(16.08) (17.37)

(Reference: DGCA Report)

ASK is calculated as the sum of products obtained by multiplying the total number of seats that are available
in each flight stage by the corresponding stage distance.
RPK is calculated as the sum of the product obtained by multiplying the number of revenue passengers
carried on each flight stage by the corresponding stage distance.

YEAR ON YEAR COMPARISON OF NUMBER OF SCHEDULED MAJOR DOMESTIC PASSENGERS &

PASSENGER LOAD FACTOR (PLF)
PASSENGERS PLF (%)
NAME OF THE (In Number)
AIRLINE
2016-17 2017-18 YoY Growth (%) 2016-17 2017-18 CHANGE (+/-)
AIR INDIA 13734192 14755383 7.4 79.2 80.5 1.3
SPICEJET 13236143 16130815 21.9 92.9 94.7 1.8
JET AIRWAYS 16276098 18550776 14.0 81.8 84.3 2.5
INDIGO 41600088 48955983 17.7 85.2 88.2 3.0
GO AIR 8645969 10829141 25.3 88.0 88.6 0.6
JETLITE 2751042 2757497 0.2 79.2 85.3 6.1
AIR ASIA 2668553 4984419 86.8 85.6 86.0 0.4
VISTARA 2926586 4434987 51.5 78.0 85.9 7.9
The high growth of 18.86% in the total domestic passengers during 2017-18 is mainly due to the high growth
in passengers carried by Air India, Indigo, Spice Jet, Vistara, Air Asia and Go Air.

14
 PASSENGER TRAFFIC CARRIED BY SCHEDULED CARRIERS OVER THE PAST DECADE
200.0 183.9
-----Passengers (In Million)-----
158.4
135.0
150.0 123.3
115.8
99.0 98.2 103.7 103.7
88.9 85.2
100.0 71.6 77.4
70.1
68.4
60.8 57.9 60.7
53.8
44.4 39.5 45.3
50.0
54.7 60.6
43.1 45.7 49.8
35.1 38.1 40.3
27.2 28.9 32.1
0.0

INTERNATIONAL PASSENGERS TOTAL PASSENGERS

The domestic passenger traffic registered a compound annual growth rate (CAGR) of 10.76%during the
period 2007-08 to 2017-18while the international passenger traffic grew at8.32% (CAGR) during the same
period.

During the year’s from2007-08 to 2017-18, the capacity (ASK) in the domestic market grew at a rate of
8.30 % (CAGR) while the demand (RPK) grew at 10.87 % (CAGR) during the same period.

CARGO TRAFFIC AT A GLANCE

Air cargo carried by scheduled airline operators, both domestic and international witnessed a positive
growth in 2017-18.

CARGO TRAFFIC 2017-18

6.97 Lakh MT
DOMESTIC (9.25)
15.13 Lakh MT
INTERNATIONAL* (14.61)

The domestic cargo traffic registered a growth of 6.6% (CAGR) over the period from 2007-08 to 2017-
18while International cargo traffic grew at 5.4% (CAGR) during the same period.

PROPORTION OF INTERNATIONAL CARGO CARRIED BY INDIAN AND FOREIGN CARRIERS

YEAR INDIAN CARRIERS (%) FOREIGN CARIERS (%)

2016-17 18.8 81.2

2017-18 20.5 79.5

15
 INDIA'S INBOUND INTERNATIONAL INDIA'S OUTBOUND INTERNATIONAL
FREIGHT TRAFFIC, 2017 -18 FREIGHT TRAFFIC, 2017 -18

1.5
1.5
7.3
20.7 27.5 16.0

51.6

23.3 23.6
27.0

AFRICA & MIDDLE EAST EUROPE AFRICA & MIDDLE EAST EUROPE

ASIA PACIFIC CHINA & NORTH ASIA ASIA PACIFIC CHINA & NORTH ASIA

THE AMERICAS THE AMERICAS

Freight traffic is coming to India in almost equal proportion from around the World except the freight traffic
from the Americas while from India, more than half of the freight traffic is carried to the countries in the
Africa & Middle East.

Air Traffic handled by major Airports in India

16
 TOPIC: GOVERNMENT INITIATIVES

UDAN: Let the common citizen of the country fly

It is a government initiative for the successful regional connectivity at pan India, In most of the Developed
Countries, the air travel is very affordable and convenient. The main Goal of UDAN is to cover Tier 2, Tier 3 &
Tier 4 Cities for the Air Connectivity of Aviation Network. Through UDAN, the government has planned to for
additional 30 Airports in Network in coming one Year, while there are only 75 operational Airports are there in
India. UDAN’s main target is cover all the potential small cities like Jalandhar, Gwalior, Ludhiana, Kanpur,
Jamshedpur, Mysore in Aviation Network for that the Policy must be in favor of Airlines to attract them for
more Nos. of flights & add nos. of flight in a day for the major cities also. For Example, Kanpur hasn’t any flight
service though the population of city is 3 million people. The policy package would be designed in such a way
to attract Airlines for the connectivity in these cities.

The policy package operates on multiple levels; the first, major support of the particular state Government is
required. The support from State Government to the UDAN offers a reduction in Taxes on Aviation Turbine
Fuels. The Airports covered in UDAN has taxation of only 3% reduces from 30% to 40% means if you refuel in
Ludhiana, you are going to pay only 3% Tax.

Second major initiative in waive of Charges for UDAN Airports, like if you fly into Mysore, there is no Airport
Landing Charges, no need to pay for Police charges as well as fire charges. Even if you fly from Mysore to
Chennai, your airport landing charges at Chennai is waived.

Third is the Viability Gap Funding through putting a Price Cap, For an hour of Flying, the charges would not be
more than Rs. 2500 and 50% of seats have to be within that Price cap. Airlines bids for the subsidy that they
need for balance 50% of the seat.

The UDAN major Initiative for connectivity for Tier 3 & Tier 4 cities is through Three Year Exclusivity. If an
Airline successfully operated Delhi- Kanpur flight than this Three Year Exclusivity is offered to Airline by lower
taxes & zero airport charges.

The Government applies levies on Non UDAN flights and that fund goes to Regional Connectivity Fund to
provide subsidies to UDAN flights. The levies paid by the Passengers of Non UDAN flights help UDAN to open
up 30 New Airports.

Hence through Exclusivity, subsidies, Low Taxes on Fuels, Zero Airport Charges attracts Airlines for the
Economical operations for the UDAN airports.

The passenger Traffic for major cities flight are more than the small cities, For Example, Airlines are getting
more profit for Delhi Bangalore Flight than the Delhi Kanpur flight due to low traffic. The New Policy package
plays attraction to fly to Kanpur instead of Bangalore. Spice Jet is in pace with the Flight connectivity of UDAN
airports & hence they are getting a good incentives for it. The policy knows how to provide appropriate
incentive to make a change.
17
Challenges for UDAN:

First & main important challenge is the All State Support, as all States had signed the Memorandum Of
Understanding with Ministry of Civil Aviation to provide necessary support mainly waiving of taxes & airport
charges, The state pays for 20% of subsidy as other 80% being paid by the passengers. In this way the State
strongly initiative can help to make the change in picture.

Second is to make a launch quickly for another 30 Airports takes a lot f work to ensure all these airports are
functional & had passed all the Directorate General of Civil Aviation (DGCA) and safety requirement.

The major was to get the Airlines on bard with UDAN. Initially they have gone for legally against the UDAN
scheme specifically for the allowing subsidy. However through the lengthy discussion the Airlines are finally
convinced. The UDAN initiative is best interest for Airlines as it will help to expand the aviation network & a
balanced growth across the network. After the solution of conflict between UDAN & Airlines, the Airlines has
shown a great interest through the initiating good Investment for purchasing the Low Cost Carriers for the
better connectivity specially by Indigo & Spice Jet.

Till now the air connectivity is with Major Cities only, through UDAN it becomes possible to cover the tier 2
Tier3 & Tier 4 Cities. Hence the regional aviation market is created & its growth helps the economy. The next
step is for Remote locations like North Easter belt or Uttarakhand where the helicopter connectivity will be
provided. In this way Remote aviation market will going to be built up.

Liberalization of 5/20 Rule:

International operations are lucrative for airlines because they generate higher yields, enable better utilization
of aircraft, and permit airlines to purchase cheaper jet fuel overseas. Under the 5/20 rule, only Indian airlines
that had at least five years of operational experience and a minimum fleet of 20 aircraft were allowed to fly
internationally. Over time, however, the increasingly prevalent view was that this restriction, which is unique
to India, needed to be replaced by a scheme that would provide a level playing field and allow airlines, both
new and old, to introduce international operations provided they continued to meet some obligation
regarding domestic operations. The aviation ministry faced aggressive opposition to elimination of the 5/20
rule by older airlines such as Jet Airways, Indigo, SpiceJet and Go Airlines, while new entrants such as Vistara
and AirAsia advocated for the rule’s abolition. The Policy discarded the controversial 5/20 rule and now any
domestic airline may fly overseas provided it deploys 20 planes or 20 percent of its total capacity for domestic
operations. The Government of India does not want airlines to focus on international operations to the
detriment of domestic service; rather it wants airlines that are allowed to fly internationally to ensure that
their domestic flights account for at least 20 percent of their total seats.

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Privatization of Airport Infrastructure: Investment Prospective

It is widely appreciated that GDP and air traffic demand have, historically, exhibited a strong positive
relationship; increases in GDP were associated with increases in passenger traffic and vice versa. As such, GDP
growth has been used as a key explanatory variable in forecasting future air travel flows in numerous studies
in government, industry, and academia.

Identifying investment opportunities with strong growth prospects requires an understanding of trends in the
forces affecting revenue growth. For airport infrastructure this is driven primarily by passenger growth.
Globally around 500 commercial airports have some form of private sector participation,1 and many of these
are larger airports in mature markets such as Europe and Australia. Investors have traditionally formed their
analysis on developed markets when crafting their infrastructure investment strategies; however, more
recently there has been increasing interest in emerging markets. Many growth opportunities lie in the
emerging economies where the aviation market is still very much developing.

Globally, India has one of the highest forecasts for airport infrastructure investment; it is expected to see an
average annual increase in infrastructure spend of 15.4%, amounting to around US$14 billion over the next
decade. Given Asia’s high economic growth and expanding population, such traffic growth is not surprising.
Subsequently, India’s outdated airport infrastructure is undergoing serious redevelopment to facilitate the
anticipated traffic growth, reflected in the high investment forecasts. The loosening of controls on foreign
investment and privatization of airports should facilitate meeting of these targets.

Make In India: Initiative for developing Aircraft Manufacturing Facility in India

The MRO facilities is slowly taking its place in Indian market & some of the MRO service providers are also
established in last few years. However the major MRO business I still outsourced to foreign countries. The
government is in verge to develop the industry with below mentioned areas covered to support the sector like
Foreign MRO experts visas are promptly allowed, Airport entry pass for MROs are allowed, all future airports
are developed with MRO built in facilities, exemption from Airport charges for first five years etc.

Prospective of the MRO Industry in India:

The MRO Industry is one of the most attractive Industries in India specifically for FDI investment as the
Government has allowed 100 % Foreign Direct Investment through the automatic route. It also opens the
avenue for the training Institutes in India. Currently MRO Industry has a potential of 8 million USD in India
which is expected to grow up to 2 billion USD by 2020.

19
The dedicated Airport Infrastructure for the Growth of the Industry is the need of the hour. The outskirts or
remote locations Airports are facilitating the growth. This will give a boost to the “Make In India” initiative;
provide ease of business with much needed speed & flexibility, also benefiting slow moving remote regional
aviation market.

With the aim of gradually make India an aircraft manufacturing hub, the government needs to actively
encourage the business with supportive policies to manufacture certified aircraft parts, components, and
assemblies to same foreign exchanges.

The Foreign Companies derive tremendous cost benefits when outsourcing aerospace engineering design to
India, Hence nurturing this Industry provides the avenues for all levels of workforce. For that Industrial &
Investment Policies will need to be realigned to encourage the OEMs to form joint ventures with Indian
Companies. This will help to gain required Know-how & also driving towards the assembly lines of small
Aircrafts in India.

Within Aviation Sector, Air craft management System & services has potential to generate employment
opportunities.

The Policy recognizes the critical role of the MRO sector in the development of the aviation industry. Today,
most Indian airlines send their aircraft overseas for maintenance and repair. As the MRO business of Indian
carriers is valued at around $1 billion, 90 percent of which is currently spent outside India, the Government of
India is keen to develop India as a MRO hub in Asia as part of the “Make in India” initiative, which in turn will
attract business from foreign airlines. Ministry of Civil Aviation will persuade state governments to make value
added tax (VAT) zero-rated on MRO activities. Airport royalty and other charges will not be levied on MRO
service providers for a period of five years from the date of approval of the Policy.

Bilateral Air Service Agreement:

India has agreed on Air service agreements with various countries in which airlines are permitted to fly
between contracting states as per the agreed number of flights or quoted of seats. The India has adopted the
Open Sky policy with many countries under which unlimited flights or quotas of seats are permitted to fly
between states.

In order to get the ease in International operations & tapping the global passenger market, the government
has liberalized the regime. Hence India has intended to enter the bilateral agreement with SAARC countries &
countries which are outside the 5000 km distance from Delhi.

20
 Contribution of the Aviation Industry to the Economy of India:

Air transport has always been considered as a very special sector in the international context. It facilitates
global economic and social growth, international and domestic tourism, world trade growth. It has been a
dominant factor in the process of globalization.

Connectivity is key to the growth of any Nation. Aviation is the backbone of the modern economy. The Sector
makes the Country more stable and secure, as employment and economic sustenance is provided to people
through industries that are set up by business. Business aviation is the catalyst India needs to grow and attain
its regional & global supremacy.

The Industry’s foot print on Economy of India is measured by its contribution on GDP, jobs creations & tax
revenues generated by the sector & its supply chain.

As per the IATA’s (International Air Transport Association) report, the Sector contributes 0.5% to the Indian
GDP through Direct, Indirect & Induced way while the cumulative contribution to GDP is 1.5% including
Catalytic way:

 Direct Contribution: Output of the Aviation Sector like Airlines, Airports, Ground Services, and Aerospace etc.
 Indirect Contribution: Aviation Sector’s supply chain like IT service Provider, Aircraft Manufacturer &
maintenance Venders etc.
 Induced Contribution: Employment & output supported by the spending of those directly or indirectly
employed in the Aviation Sector.
 Catalytic Contribution: Some of those include the activity supported by the spending of foreign visitors in India
via Air and the level of trade directly enabled by the transportation of merchandise

Aviation is emerged as an essential part of national Transportation System. The sector actually contributed to
the nation economy, enable fastest connectivity, industrial work, medical evacuation, tourisms etc.

IATA REPORT:

The report focuses on the challenges of realizing the economic and social benefits of an Indian aviation
industry that has tremendous potential for continued high-speed demand growth.

Indian aviation is growing fast

In 2010, 79 million people traveled to/from/or within India. By 2017 that doubled to 158 million. That number
is expected to treble to 520 million by 2037.
Air transport makes a significant economic contribution to India
 Aviation in India supports 7.5 million jobs: 390,000 directly, 570,000 in the value chain, and 6.2 million in
tourism.
 Aviation contributes some US$30 billion annually to India’s GDP.
India will be the third largest domestic market (behind the US and China)
 Domestic load factors are high, hitting a record 90% in February 2018.
 The 98 million domestic passenger trips in 2017 equal 7.3% of India’s population.
 After adjusting for inflation, average domestic fares fell by more than 70% since 2005.

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 The number of domestic airport pairs is 700 (a 50% increase on 2015 levels).
 Low cost carriers account for about 70% of domestic seats.
India's international market is growing more slowly than domestic
 In 2017 there were about 60 million international journeys to/from India.
 Low cost operators account for about 25% of international capacity.
 India is directly linked to 304 international destinations, up from 230 in 2008.
 About 41% of India’s direct international connectivity is to the Middle East—much of it to super-connector
hubs of UAE and Qatar.
The Indian outbound air cargo market topped 1 million tonnes in 2017 (+16.9% on 2016)
 UAE is India’s largest cargo market (30%); Ethiopia is the fastest growing of the main markets (+114% on
2016).
 Delhi and Mumbai are India’s largest cargo hubs; Mumbai and Chennai are the fastest growing (+18.1% and
+17.2% respectively).

Future Prospect:
Fundamentals supporting Indian market growth are strong. By 2036 India’s population is expected to reach 1.6
billion and average incomes are expected to rise to almost $5,000 per capita (a five-fold increase on 2006).
With that, the number of “middle class” households should reach 20% by 2036 (up from 2% in 2006).
Domestic markets will continue to drive industry growth. Of the 359 million additional passengers expected to
fly in 2036, 228 million will be on domestic routes and 131 million will be connecting internationally.
By 2026 India is expected to be the third largest air transport market in the world.

The study identified several factors that could impact the future growth of Indian aviation:
 Policy: Baseline growth rate of 6.1% annually is expected to result in a total market of 520 million Indian
passengers in 2037. Globally, liberalization and policy stimulus could see India’s growth rate rise to 9.1%,
taking the total market to nearly 900 million by 2037. Equally, protectionist and other negative policy impacts
globally could hold India’s growth back to 4.9% and the total market would be 400 million in 2037.
 Ease of Doing Business: Over the last five years India has risen from 132 to 100 on the World Bank’s Ease of
Doing Business survey. Continued improvement in this area will be critical to sustainable growth of aviation.
 Travel and Tourism Competitiveness: India has also risen from 52nd place (2015) to 40th (2017) place in the
2017 World Economic Forum’s Travel and Tourism Competitiveness Index. Improvements in visa policies,
infrastructure and preservation of monuments have assisted this rise. Continuous improvements in these
areas as well as in human resources development, airport infrastructure density, and tourism infrastructure
are among the areas that could further enhance India’s competitiveness.

“Meeting the significant growth potential of Indian aviation will also create challenges – for the airlines, its
industry partners and policy-makers. For example, this will require the right type of infrastructure at the right
time and in the right place. Equally, the broader business and policy environment should not place hurdles
which inhibit growth and reduce the level of benefits that aviation can deliver to the nation. The industry, its
supply chain partners and the government and policy-makers have a clear mandate to work in collaboration
towards the common goal of ensuring that aviation’s economic and social benefits are fulfilled,

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 Growth Prospect in Indian Aviation Industry

Global air passenger traffic has grown substantially (70%) in the past decade. Innovations in the aviation
market, such as greater airspace liberalization in the developed economies and the increasing prominence of
low-cost carriers (LCCs) in intra-regional routes, have helped spur this growth. Propensity to fly has also been
positively driven by global economic growth; in particular, rising incomes in the emerging markets. Air traffic
demand growth is more impressive in the last decade, given that it has been characterized by structural
challenges and economic volatility.

Historically, as the global economy grows, people and businesses tend to have more disposable income that
could be spent on flights, to facilitate their leisure plans or business activities. On top of this, the increased
connectivity between regions that were not before connected as well as domestic connectivity – which has
proved increasingly important as people’s time has become more valuable – have helped push up global air
traffic demand. For investors and stakeholders, it is important to understand what lies ahead for the
consideration of both opportunity and remediation in the aviation industry. Investment opportunities with
strong growth prospects require an understanding of trends in the forces that ultimately affect revenue
growth.

Key drivers for this phenomenal growth

a) Rising income levels and demographic profile:

As compared to the developed country standards, India's GDP (per capita) at $3,100 is still very low but as
India is shining, at least in metro cities and urban centers, where IT and BPO industries have made the young
generation prosperous. Demographically, In India people in age group of 20-50 among its 50 million strong
middle class, has the highest percentage with high earning potential. It contributes the boost in domestic air
travel, particularly from a low base of 18 million passengers.
b) Trade & Tourism Business:
Increase in Trade & Tourism Business on National & International level opens wide opportunity for the
Industry
c) Aviation policy:
Most leading countries have deregulated the air transport sector and have gone for open skies agreements
with other leading countries.
d) Lower Airfares:
Air travel costs have remained nearly stable due to competition and technological advancements. Airfares
today are around 90% lower than the same journey would have cost in 1950 – this has enabled access to air
travel by greater sections of the population.
e) Modernization of the Airports:
Under NABH Norman Scheme, the government is focusing on building next gen airport infra in the country;
expand airport capacity more than five times capable of handling over a billion trips per year.Privatization of
the Airport Infrastructures facilitates the Foreign Direct Investment in India. The Airport Authority of India
(AAI) has planned for the Investments of 15,000 Crore INR for the 2018-19.

f) Foreign Direct Investment allowed:

Without any Government approval, foreign equity up to 49 % is allowed in Schedule Air transport services &
regional connectivity services while 100 % FDi is allowed in non schedule air transport services.

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g) Low entry barriers:
Nowadays, to launch an airline venture capital of $10 million or less is enough. Private airlines are hiring
foreign pilots, get expatriates or retired personnel from the Air Force or PSU airlines in senior management
positions.
h) Attraction of foreign shores:
Many private players like Jet and Sahara have gone international by starting operations, first to SAARC
countries, and then to South-East Asia, the UK, and the US and many more domestic airlines too will be
entitled to fly overseas by using unutilized bilateral entitlements to Indian carriers.
i) Untapped potential of India's tourism:
Presently India attracts 3.2 million tourists every year. Due to the open sky policy Tourist arrivals in India are
expected to grow exponentially.
j) LCCs:
Low Cost Carriers (LCC) have developed their value chain and strategies with a focus on cost reduction in
comparison to network carriers who also focused on excellent customer service. Industry specialists and
consumers both believe that LCC have benefited the industry by providing low fares and made air travel
affordable.

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 CHAPTER 3: CURRENT
SCENARIO OF INDIAN
AVIATION INDUSTRY & ITS
CHALLENGES

25
 CHAPTER 3: CURRENT SCENARIO OF INDIAN AVIATION
INDUSTRY & ITS CHALLENGES
TOPIC: Characteristics of Airline Industry

INTANGIBILITY
Intangible services are difficult to sell because they cannot be produced and displayed ahead of time. They are
therefore harder to communicate to prospective customers. It means that services are high in credence
qualities whereas goods are high in search qualities.
Marketers of services can reduce these risks by stressing tangible cues that will convey reassurance and
quality to the prospective customers. These tangible cues range from the firm's physical facilities to the
appearance and demeanor of its staff to the letterhead on its stationery to its logo.
In the airline industry transportation is the core product. Since it is intangible in nature a service company can
distinguish itself from its competitors by providing several tangible clues like:

 Food / Beverages
 Newspapers
 Movies
 Music
 Staff uniforms- Air India’s staffs always wears a printed blue sari.
 Logos - Air India's centaur is the logo and maharaja is the mascot.
 Color and design - Jet airways have blue colour tickets.
 Seats and cushions
 Audio / Video facilities for work or pleasure
 Baggage retrieval
 Flight bookings

INSEPARABILITY
Many services require customers to participate in creating the service product. In the airline industry, it is very
important for the company to consider the customers as a part of the company in order to serve them better.
The inseparability of services leads to:

 Customer being co-producer;

 Often customer being co-consumers with other customers and;
 Customer travelling to the point of service production.
 All the above three problems are face by the service marketer in the airline industry. So the service marketer
has to think of ways in which he can satisfy his consumers in an efficient manner.

In the airline industry, the customer has to be physically present in the service factory. Hence, he is coming in
direct contact with the service provider as well as other customers of the airline.

IRREPLACEABILITY
A bad airline service, for that matter any service once offered, as offered and cannot be replaces by a good
one.

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INCONSISTENCY
Different front-line personnel have different abilities. Even the same service provider has good days and bad
days or may be less focused at different times of day. Services are performances, often involving the
cooperation and skill of several individuals, and are therefore unlikely to be same every time. This potential
variability of service quality raises the risk faced by the consumer. The service provider must find ways to
reduce the perceived risk due to variability. One method is to design services to be as uniform as possible - by
training personnel to follow closely defined procedures, or by automating as many aspects of the services as
possible.
E.g.: most airlines include online booking resulting in a standardized procedure & fewer mistakes due to
human errors. A second way to deal with perceived risk from variability is to provide satisfaction guarantees or
other assurances that the customer will not be stuck with a bad result. Another way of reducing inconsistency
in airlines is the standardization of in-flight procedures for example the security instructions given at the
beginning of the flight.

INVENTORY
Service businesses cannot normally stockpile their output, because the time bound nature of service delivery
makes it impossible to inventory the finished goods. For example, the potential income from an empty seat of
an airline flight is lost forever once the flight takes off.
Conversely, when demand for service exceeds supply, the excess business may be lost. If someone cannot get
a seat on one flight another carrier gets the business or the trip is cancelled or postponed. The inventory for
airline industry is mainly the food and the aircrafts spares and parts. Airlines face the problem of inventory
mainly due to irregular demand patterns.

SUBJECTIVITY
Service offered by an airline can be tested only by experiencing the same.

Air connectivity is key to unlocking a country’s economic growth potential, in part because it enables the
country to attract business investment and human capital. An increase in air connectivity also spurs tourism,
which is vital to many countries’ economic prosperity.

By understanding how air connectivity is measured, how it has changed, how it relates to economic growth,
and what drives it, key aviation stakeholders (including states, airports, and airlines), can make strategic
decisions on how to enable and unlock the air connectivity potential of a country.

PERSONALIZED ATTENTION
The service depends in the person who provides is and where it is provided.

PERISHIBILITY
Timely service is very important to an airline. The core product is the Air travelling seat which is highly
perishable. On time service to customers is core of the Perishability.

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 AIR CONNECTIVITY

We can use a variety of measures, at various levels of granularity, to measure air connectivity. These measures
include total passenger movements, air fares, the number of direct destinations, and travel time.

Travelers have different priorities, depending on the purpose of their journey. That means we can use
different measures to assess air connectivity for each passenger segment. For instance:

 Business travelers tend to be time sensitive and relatively indifferent to fare levels. Frequent and flexible
service that enables passengers to quickly change flights to a more convenient time, coupled with easy surface
accessibility, matter most to this segment. Thus air connectivity for them could be measured by frequency of
service, convenience of schedule, travel time, number of direct routes available, and proximity to the city
centre.
 Leisure travelers care more about fares, with cost-effectiveness often the most important factor in decisions
about whether to travel and where, especially for short breaks. An unacceptably high fare could cause them to
change their mind about their destination. Measurements of air connectivity for this segment should
therefore include fares.
 Visiting friends and relatives passengers are travelling primarily to see loved ones. In some markets, this
category of travel is substantial. Passengers travelling for this purpose tend to consider fares a major factor in
determining how frequently they travel. However, unlike leisure passengers, they don’t have the option of
changing their travel destinations if fares are too high.

How improved air connectivity plays a large role in creating such economic value. Obviously, it benefits
travelers by giving them access to a wider network as well as more frequent and better connected services.
But it also can strengthen a country’s economy over the long haul, boosting productivity through its positive
impact on businesses. For example:

 Increased connectivity reduces air travel times, giving businesses access to a wider marketplace.
 Increased connectivity makes it easier for managers and executives to oversee far-flung operations, which
infuses efficiency into those operations.
 Better transport linkages enable investment and human capital to flow more freely across borders, improving
returns on investment for some projects.

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 Marketing Mix of Airline Industry

Service Marketing Triangle:

The services marketing triangle shows the three interlinked groups that work together to develop, promote
and deliver services.

There are three entities in the whole transaction process.

CUSTOMERS
Customers refer to the persons who have certain needs, wants and desires. The company makes promises to
its customers. In the Airline industry, the customers refer to those persons who feel the need of travelling
from one destination to another. The customers are further classified as Individual and Institutional.
Institutional customers are those corporate who need their employees and executives to fly very often. Hence
they have block bookings (reserved bookings) with the airliners.
COMPANY
The Company is the dreamer and the offer provider. The company dreams up an idea of service offering which
will satisfy the customers’ expectation. The company is established with the basic objective of providing the
specific transport service. Thus the airline industry with players like Indian airlines, jet airways, Indigo etc.
came into being.
PROVIDERS
these are finally the persons (staff) who interact with the customer. They are the ones who carry out the final
transaction. This interface of the customer with the company is through the customer’s interaction with the
employees of the company. In order to keep its promises, the company enables its employees to through
setting up facilities to deliver the promises that is by setting up ticket and enquiry counters. Hence the
company aims at offering its providers with the required infrastructure and training to optimize the quality of
the transaction. For e.g.: Yearly employee training programs and performance appraisals done by airlines.

29
 The strategic points where the provider and the customer interact are:
Enquiry of the services, flight timings, routes etc., Purchasing tickets, either from the airlines or from the travel
agencies, Checkingin, Duringboarding, On board crew, During disembarkation.

In a triangle, all three sides are essential to complete the whole. For services all three marketing activities
represented by the sides of the triangle are critical to success; without one of the sides in place, the triangle or
the total marketing effort cannot be optimally supported.

Marketing Mix

Getting the product right is the single most important activity of marketing. If the product isn’t what the
market wants, no amount of price adjustment or brilliant promotion will encourage consumers to buy it. The
airline product is quite a complex one since it comprises of a service of incorporating the temporary user of
airline seat and certain tangible products such as free flight bags or a free bottle of duty free spirit to
encourage booking.

 The Services Marketing Mix consists of a set of tactics that a company can use to promote and encourage
potential customers to buy their service. The Services Marketing Mix is also known as the 7 P’s of Marketing.

30
Product Mix
Getting the product right is the single most important activity of marketing. If the product isn't what the
market wants, no amount of price adjustment or brilliant promotion will encourage consumers to buy it. The
airline product is quite a complex one since it comprises of a service of incorporating the temporary user of
airline seat and certain tangible products such as free flight bags or a free bottle of duty free spirit to
encourage booking.
The airline product includes of two types of services:
1. on the ground services,
2. In-flight services

The on-the-ground services include a convenient airport with car parking facilities, duty free' -shopping quick
and efficient checking of baggage, efficient service at reservation counter, transport to the airport, etc.
The service provided inside is intangible and is highly variable. The cabin crew staffs are trained to provide
polite, warm and courteous service. The courteous service that the representatives at the baggage counter,
reservation counter provide goes a long way in developing customer loyalty. The travel agents of the airlines
also need to be efficient and polite.
Differentiating the Product
It is important to recognize that what the consumers are demanding are not products, or features of products
but the benefits they offer. Producing added benefits thus helps the marketer to distinguish one product from
another. Good design or style of service can form the basis of differentiation. This enables the company to
create a personality for its service.

Price Mix
Price plays as much a tool of marketing as promotion plays a critical role in the marketing mix. The concept of
'fair price' is paramount. Buyers judge whether a product is fairly priced by seeing whether it represents value
for money.
Pricing Strategies are categorized in below three segments:
Premium Pricing
The airlines may set prices above the market price either to reflect the image of quality or the unique status of
the product. The product features are not shared by its competitors or the company itself may enjoy a strong
reputation that the 'brand image' alone is sufficient to merit a premium price.¬
Value for Money Pricing
The intention here is to charge the average price for the product and emphasize that it represents excellent
value for money at this price. This enables the airline to achieve good levels of profit on the basis of
established reputation.
Discounted Value pricing
The objective here is to undercut the competition and price is used to trigger the purchase immediately. Unit
profits are low, but overall profits are achieved. Air India and Indian Airlines have slashed their prices to meet
the competition of private airlines so that they can consolidate their position in the market.

Airlines usually practice differential pricing. There are three classes: The First Class, The Executive or Business
Class and The Economy Class. Fares for each class are different since the facilities provided and the comfort
and luxury level is different in each class. Seasonal fares are also fixed, fares rise during the peak holiday times.

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Low-cost Pricing
With the advent of the low-cost airlines in the Indian aviation industry, a different low-cost flying concept has
come up. Since these low-cost airlines are trying to woo the customers by providing air travel in exceptionally
low prices, a price-band kind of pricing has to be designed.
In low-pricing strategies, the airlines provide very low prices for the flight tickets. Also, they prices are made
cheaper by booking the tickets long before the flight date.

Place Mix
Understanding what, where, why, when, and how the target market buy, is the first step in designing the
marketing channel. The marketer must understand the service output levels desired by the target market and
types and levels of services that the people want and expect when they purchase the service.
The place mix of airlines consists of mainly the distribution channels. The number of destinations that an
airline flies to can also contribute to its place mix.
Distribution channels
The Four methods of distribution are as following:
A] Consolidation: The direct sale of tickets from airport to the passenger on the airline desk.
B] Tour Operator/ Travel Agent: Customers approach travel agents or tour operators who book the tickets
from the airline and take commission. E.g. SOTC
C] Affiliated with companies: As the name defines, airlines gets affiliated with companies who carry all its trips
with a same airline who in turn gives special discounts or offers in return.
D] Direct through home leased system, e.g. phone, fax, email and also online e-booking.

Promotion Mix
The formulation of an ideal promotion mix is essential to inform sense and persuade the users. In the Indian
perspective, we need more creative efforts considering the less preference to the Air Travel compared to
other modes of transportation. The users appears to be more conscious, aware of their rights and in a majority
of the cases are found to be sophisticated and therefore the promotional efforts have to be creative. Many
airlines are facing financial crunch, it is pertinent that they make optimum use of different components of
promotions

Advertisements
Airlines need creative advertisements to promote their business. In the view of rising cost of inputs and the
increasing impact of worldwide economic depression on the airlines, advertisements should be budget
optimistic vis-à-vis optimal. The telecast media and print media are important for promoting the air business.
The airlines have to make sure that whatever strategic decision they make to promote the businesses are in a
position to establish an edge over competitor’s promotional measures. Also the airlines should keep in mind
the quality and the nature of the target markets and the level of expectations.
It is also essential that while advertising airlines should also keep in mind the image of our country, the scenic
beauty, tourist attractions, rich cultural heritages or which would attract number of tourists. While advertising
it is impact generating that one should select an opportune moment of flight is an attractive scene of take off,
and so on. Airlines can also use broadcast media. The domestic flights should use radios because due to
increasing access to FM.

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Publicity
Publicity is an important component of promotion mix. It is a process of persuasive communication.
Strengthening the PR activities is essential to promote airlines business. The marketing professionals can seek
the cooperation of media people by organizing press conference etc to publish news items which are in favor
of airlines.
Sales promotion

The sales promotion measures are meant for both the related sources channelizing and using the business,
such as the travel agents, tour operators and all of them who process the services and the passengers and
business houses who use the services.
The travel agents contribute a lot to the promotion of airlines business and therefore the need to think of
them in their favor on their priority basis. In addition the tour operators, the frontline staff also must be given
priority. Hence they should be offer some incentives this will motivate them to promote the product. The user
also deserves incentives.
The incentives may be in the form of concessional services, a small gift etc.

Word of mouth
‘Customer Loyalty Ladder’
this happens to be an important constituent of the promotion mix in which the promoters act as a hidden
sales force. The satisfied groups of users, opinion leaders narrate outstanding merits or salient features of
services used by them.
If you travel by an Airline and are satisfied with the services offered by them then it is natural that you will
share your experiences with your friend’s relatives, they trust in you and therefore the stimulation process is
on. The moment your friends and relatives get an opportunity to travel they find that particular Airline their
first choice.

People Mix
In the service industry, service personnel come in direct contact with their customers in the course of
production and consumption of the services.
Because people provide most services, the selection, training, and motivation of employees can make a huge
difference in attaining customer satisfaction. Ideally, employees should exhibit competence, caring attitude,
responsiveness, initiative, problem solving ability, and goodwill. Many service organizations trust their people
enough to empower their front-line personnel to resolve customer problems.
The flight attendant in any airline come in contact with the customers in the process of providing the service,
while the cock-pit crew are employees who contribute to the service product but do not come in direct
contact with the customers.
The physical presence and the percentage of time the customer is present reflect the customer contact and
extent of contact respectively. Services with high contact are more difficult to control and manage because of
the degree of variability in the quality, demand and nature of service.
The service contact personnel in the airline industry is an flight attendant who is expected to possess a
pleasing personality with polite service handling. While on the other hand the cock pit crew, being categorized
as a low contact personnel, require possessing high analytical and technical attributes. In the airline industry,
there is also the ancillary service personnel, the travel agent who helps to create the service exchange but is
not a part of the service.

33
While delivering services, airlines ensure that the service is delivered as promised and this is often totally with
in the control of the front-line staff. This ensures some amount of reliability. This in turn affects the degree of
responsiveness sought from customers. The quality of service that the front-lone staff provides is highly
depended on his/her ability to communicate their credibility. Airlines deliver caring and individualized
attention to customers through their attendants. Empathy implies that these personnel will listen, adapt, and
be flexible in delivering what individual customers need. Also the appearance of an employee are important
aspects as it forms the tangible dimensions of quality along with other factors like service quality, decor etc.
To start off, airlines hire the right personnel with essential requirements. They recruit the right people and
develop, and train them to deliver quality service. These employees are provided with effective and sufficient
support systems and are motivated in a manner, they stick to the organization.

Process Mix
The process of airline service lays emphasis on the involvement of channels, front line staff, travel agency
offices, offices of the tour operators or so form where the services flow & reach to the ultimate users.
The process begins at the time of reservation goes on to the confirmation of seats.
By giving details of where to book and how to book airlines help in providing quality services to the customers.
They also offer concession, by not charging any cancellation charges and also giving them the option to make a
change in the reservation status if he requests so on the presentation of ticket, all these facilities go a long
way in increasing passenger convenience.
Then facilities at the airport, the baggage handling, flight information, etc. also helps in delivering quality
service and making travel a pleasure.
In the aircraft the meal service, in-flight entertainment, reading material, in-flight amenities, etc. help the
customers, the travelers to have an enjoyable and convenient travel.
All these procedures form a part of the total process designed to deliver quality service. Airlines are making
every effort to constantly redefine service procedures to enhance service satisfaction levels.

Physical Evidence
Physical Evidence refers to the environment in which the service is delivered and where the service industry
and customer interact. The aircraft by itself, the seating configuration meant to be comfortable and spacious,
and the in-flight services provide physical evidence to the airline service.

The in-flight services are another, important aspect. Passengers are requested to indicate their reference at
the time of reservation itself.
Booking offices, ticket counters, etc. must be spacious and well designed with good looks. Further the air
craft’s must be given good exteriors and must be maintained well.
The aircraft must have elegant interiors and must be incorporated with all basic facilities. The aircrafts must
have well designed seats with more leg room especially in the business class.
Domestic lounges are enhanced with good interiors and basic amenities which will make it an ideal place to
conduct business, entertain or relax.
The Airline logo prominently displayed on each of its aircrafts, is used a cue to trigger of a reminder of the
customer’s experience & also of all the values that Airline stands for.

34
It is a very import tool of marketing mix which should be in complete in line with your Brand image & what an
Airline wants to convey to their target Customers.

For Indian Airlines, it is very important to emphasize on safety & assurance. It comes first in mind of customer
at the time of Air travelling. It should be followed by punctuality & comfort, hence considering these
parameters the branding contents should cover all tangible to make unique brand awareness.

The Logo colors & shape also convey the hidden message

The two most common colors used in airline logos are blue and red. Blue conveys calm and trustworthiness.
Red is an image of bold strength. The two colors balance each other well.

Purple would make a good color for a luxury airline,

The shape of your logo also communicates a message. Round logos speak of comfort and security, while
triangular logos give an indication of speed and forward thinking.

35
The physical evidence would also include the other facilities in the aircraft. Some of the bigger aircrafts have
more than the usual facilities on board. These sort of tangible clues act as identification marks for the airline &
help the customer to evaluate on airline from another.

Demographic Customer Segmentation:

Segmentation: Based on Income Demographic

Low Fares

Economy Class Travel

Low Income
Ease of Ticket booking by Travel desk/online
Segment
Influenced through Newspapers, Radio, TV Ads

Low / Medium Fares

Economy Class Travel

Ease of Ticket booking by Websites/Travel

Medium Income
desk/mobiles
Segment
Influenced through Newspapers, Radio, TV Ads,
Online Media

Normal/High Fares

Business Class Travel

Ease of Ticket booking by

High Income
Websites/Mobiles/Agents
Segment
Influenced through Newspapers, Mobile Media,
Online Ads

Behavioral Segmentation:
Airlines, on the other hand, typically use customer segmentation based on behavior. The underlying
segmentation is generally ‘purpose of trip’ (business vs. leisure) rather than customer age or affluence. Since
business travelers tend to book their trips closer to the departure date and often demand additional ticket
flexibility, airlines can take advantage of this with fares that vary significantly by days-before-departure (DbD)
and refund ability.

36
The Analytical study of the large amount of Travelers Data led to airline was further breaking down business
and leisure into sub-segments. He identified seven such segments; four businesses and three leisure
segments. Business segments included both commuters (short haul; out on Monday, back on Friday) and
seasonal workers (long stays); leisure included a differentiation between weekend vacationers and weekday
vacationers.

Airlines will segment their customers by class of seating, such as economy class, business class and first class.
However, while this gives some indication as to the willingness to pay for additional service and the consumers
overall price sensitivity, it does not give us much insight into the consumers’ needs and motivations in terms
of their needs for airline travel.

In this market segmentation example for airlines, five distinct market segments are identified each having quite
distinct needs and different evaluation and purchase approaches. These five market segments are identified:

Non Business Frequent Fliers:

These are non-business consumers that are frequent travelers via airlines. Generally they would be perhaps retirees,
aged group who have the time and money to holiday quite frequently

They would seek some comforts of travel and probably would not choose an airline simply based on price. They
would be less likely to research airlines as well, as they are very experienced consumers in terms of airline travel.
Therefore, in addition to their frequency of purchase, they are an attractive and important market segment as they
have significant ability to influence the purchase decisions of other consumers in the airline market.

Loyal Customers:
The second market segment of airline consumers are also quite regular airline travelers. Some may travel for
business, but the majority will travel for personal reasons, such as holidays and visiting family.

As suggested by their segment name, they are highly brand loyal to a particular airline wherever possible. The prime
motivation for their strong loyalty is to accumulate frequent-flier and/or loyalty points.

As a consequence of their brand loyalty, they may form an emotional view of the airlines brand (that is, see them as
a very good airline), far less price sensitive and are far less willing to consider alternative airlines.

This is an ideal target market for airlines, as they provide a long-term customer base. Of course, the difficulty with
this market segment is attracting them in the first place they are far less willing to switch between airline brands.

Urgent Travelers:
Urgent travelers are infrequent users of airlines and generally represent a fairly small market segment in terms of
size. These consumers have an urgent need to travel that is usually unexpected. An example of urgent travel may
relate to attending a wedding or funeral, or having a sick relative or having some business/work situation that needs
immediate attention.

Given their need to travel almost immediately, they are more concerned flight availability and destination
requirements, rather than any consideration of price or airline brand.

Airlines will typically withhold a handful of seats on each flight in the last few days prior to the flight to be sold at a
premium price in expectation that a proportion of consumers will have an immediate need to travel.

37
Business Travelers:
Business travelers usually form a large proportion of an airline’s domestic customer base. Many businesses
have operations in different parts of the country or will have sales opportunities in different cities,
necessitating the need to frequently travel by plane.

Generally, business customers make an organization-wide decision as to the choice of airline, rather than the
individual traveler being involved in the purchase decision.

As indicated by its name, many businesses choose travel business class, particularly for employees expected
travel frequently or for management and executive level staff.

Needless to say, this market is relatively brand loyal to an airline and is quite price insensitive. As a result, it is
common for the airline to arrange a contractual deal with larger businesses, organizations and even
government bodies in order to win a significant proportion of this business on an ongoing basis.

Budget Conscious:
Budget conscious air travelers tend to be more infrequent travelers and holidaymakers, or consumers who
perceive little difference between airlines.

Most markets will have a group of consumers (that is, a market segment), who are more pricing sensitive. In
this case, infrequent travelers may not have the direct experience to distinguish between airlines and
therefore may use a price decision to simplify their choice. (However, some of these consumers may choose a
more expensive flight, believing it to be of higher quality.)

However, consumers who see little difference between airline offerings will simply aim for the cheapest price,
as it represents the most value for them, given they see no extra benefits attached to any particular airline.

Hypothesis

The main challenge for Indian Airlines is to manage the unprecedented growth of air traffic with safety.
Efficient & orderly operations are ensured.
It is demanded to study the causes of the issues & address them so not to obstruct the growth path of the
aviation sector.
With the proper synergy of Cost, Safety, Passenger Interest, Quality the Indian Airlines can boost the growth of
the Indian Economy.

38
 Current Scenario:

India is the fastest growing Domestic Civil Aviation Market since last three years & it becomes the third largest
Domestic Civil Aviation market of the World.

The Aviation is considered as a third mode of Transportation in India after Road & Railway. The market was
controlled by Government through their Air Carrier Service provider which was transformed to the Private
airlines now a day. Hence the rapid changes in market are coming due to its development phase. The India
Aviation Sector includes the large Nos. of consumers (Includes Passengers & Cargo) where the nos. of Airlines
with their significant market share makes the very competitive market structure where the Business Strategy
of one Airline can affect to others. In such a situation the operational efficiency makes a very crucial role in it.

India is on the way to economic advancement, and the reform trajectory is expected to steadily and gradually
pay the way for a double digit growth over the next two decades. Aviation is globally recognized as a trigger to
the growth of business and economical development.

Indian Aviation Industry is largely untapped with huge growth potential, considering that Air transport is still
expensive for the majority of Country’s population, while the Economic Growth of the Country & higher
disposal income will lead the growth of the sector.

Along with the rapid growth in Aviation Business, there is a opportunity created for charter business as well
since last two decades where the Business Class prefer to travel by charter or Private aircraft instead of
commercial airline.

List of Airlines in India:

 Air India : National Carrier

 Jet Airways : Full Service Carrier
 Indigo : Low Cost Carrier
 Spice Jet : Low Cost Carrier
 Go Air : Low Cost Carrier
 Air Asia : Low Cost Carrier
 Vistara : Full Service Carrier
 Air India Cargo : Cargo Airline
 Blue Dart Aviation : Cargo Airline
 Deccan 36 : Cargo Airline
 Quick jet Airline : Cargo Airline
 VRF Group : Cargo Airline

39
List of Airport Infrastructure in India:

2017-18
TYPE OF AIRPORT NON-
OPERATIONAL TOTAL
OPERATIONAL
INTERNATIONAL AIRPORTS OF AAI 20 20
INTERNATIONAL AIRPORTS OF AAI (CIVIL ENCLAVES) 3 3
INTERNATIONAL JOINT VENTURE / PRIVATE AIRPORTS WHERE
3 1 4
CNS/ATM IS PROVIDED BY AAI.
(A)-TOTAL INTERNATIONAL AIRPORTS 26 1 27
CUSTOMS AIRPORTS OF AAI 4 4
CUSTOMS AIRPORTS OF AAI (CIVIL ENCLAVES) 4 4

(B)-TOTAL CUSTOMS AIRPORTS 8 0 8

DOMESTIC AIRPORTS OF AAI (OPERATIONAL) 50 50
DOMESTIC AIRPORTS OF AAI (NON-OPERATIONAL) 27 27
DOMESTIC AIRPORTS OF AAI (CIVIL ENCLAVES) 19 19
DOMESTIC PRIVATE / STATE GOVT./ U.T. AIRPORTS WHERE
5 5
CNS/ATM IS PROVIDED BY AAI.
(C)-TOTAL DOMESTIC AIRPORTS 74 27 101

PRIVATE GREENFIELD AIRPORT 2 2

TOTAL AIRPORTS(A+B+C) 110 28 138
ADDITIONAL AIRPORTS BEING DEVELOPED/
2
PROPOSED TO BE DEVELOPED.
Source: DGCA Reports

List of Aircraft Fleets with major Scheduled Indian Airlines

Sr. No. NAME OF THE OPERATOR NUMBER OF AIRCRAFTS

1 AIRASIA 18
2 AIR INDIA 136
3 AIR INDIA EXPRESS 23
4 BLUE DART 6
5 GO AIR 37
6 INDIGO 172
7 JET AIRWAYS 113
8 JETLITE 7
9 SPICE JET 58
10 VISTARA 21

40
 List of resources available with Airlines

NAME OF THE Pilots & Other Cabin Maintenance Ticketing & All Other Total
AIRLINE Co-Pilots Flight Crew & Overhaul Sales Personnel (All
Crew Personal Personnel Personnel)
JET AIRWAYS 1924 390 3702 2094 1104 6079 15293
INDIGO 2094 132 3880 916 217 7365 14604
AIR INDIA 1378 0 1984 754 4038 3758 11912
SPICEJET 598 0 1214 725 384 3981 6902
GO AIR 337 79 549 374 477 954 2770
VISTARA 168 0 435 79 55 749 1486
AIR ASIA 141 0 315 172 217 396 1241
Blue Dart 64 0 0 138 0 899 1101
AIR INDIA
181 0 516 157 26 193 1073
EXPRESS
JETLITE 141 1 298 304 0 10 754
QUIKJET CARGO 8 0 0 26 0 60 94

Maintenance Facilities in India:

MRO providers prefer long-term maintenance agreements for engine repairs, allowing organizations to offload
activities that are not compatible with standard operations.

Passenger growth and fleet size growth are important factors contributing to the MRO industry. The combined
fleet of India and China are projected to reach 3000, almost three times existing size by 2016. As a result of
this growth in fleet size, the Chinese and Indian MRO market is likely to touch $3.8 billion and $ 1 billion
respectively, growing at 9.5% and 10% respectively.

The Indian MRO market is estimated at $800 million and is growing at about 8% annually against a 4% world
average. A recent Ernst &Young study has stated that Indian MRO market is expected to grow at an average
annual rate of 15 per cent.

Adequate facilities for maintenance and repair of planes are available in the country. However, for overhaul,
only limited facility is available. Therefore, operators are taking their planes to other countries for overhaul.
There are 110 Maintenance, Repair & Overhaul (MRO's) approved in India, of which only 7 are capable of
carrying out overhaul of planes.

41
 List of associated Business with Airlines:

Foreign Tourist Arrival:

FOREIGN TOURIST ARRIVAL & INTERNATIONAL INBOUND PAX TRAFFIC

35.0
----No. of Passengers (In Million)----

29.3
30.0
26.6
25.0 23.8
22.4
21.2
18.9 19.8
20.0 17.4
15.7
14.1
15.0 13.1
11.3
9.7 10.0
10.0 8.0 8.8
7.0 7.7
5.8 6.3 6.6
4.5 5.1 5.3 5.2
5.0 3.9

0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

FOREIGN TOURISTS ARRIVAL INBOUND INTERNATIONAL PAX

Source: Ministry of Tourism, India.

An important aspect of international traffic to and from India pertains to trend in foreign tourist arrivals in
India. In 2017, Foreign Tourist Arrivals accounted for 34.3% of inbound international traffic in India

42
 The share of Travel & tourism in India’s GDP is reached at 9.6% in 2017 & is expected to grow at CAGR of 7.2%
per annum between 2017 and 2027.

The graph shows that the leisure travel & tourism spending grew to 181.7 billion USD in great percentage of
increment with respect to the 2016 figure.

The whole tourism Industry is widely dependent on Airlines Services specifically foreign travelers & higher
Income people of the country

Import & Export Business

India’s exports expanded at a CAGR of 4.47 % during period of 2009 – 17, to US$ 276.28 billion in FY17.

Imports registered a CAGR of 2.53% during 2009-17 which reached to US$ 75.9 billion in FY17.

Rising trade raises the aircraft movement

 Increasing airline operators

 FDI in aviation and liberalized aviation policy
 Growth in passenger traffic
 Rise in freight traffic

43
 TOPIC: CHALLENGES ASSOCIATED WITH THE AIRLINE INDUSTRY.

I. Increase in fuel prices

Aviation turbine fuel (ATF) is one of the important sections of the industry. Indian government didn’t
reduce the jet fuel prices in proportion to the fall in international crude oil prices. But, when there is a
rise in crude prices, it increases in the fuel cost would eventually increase the operation of the airline.
Besides, it could compel airlines to go for an upward fare revision to offset the increased cost of
operations. Why, the jet fuel accounts for 45 percent of an airline's cost of operation. For the past one
year, the ATF price has witnessed an increase of nearly 30 percent and around 25 percent in just last
six months.

As seen from the data above the price of Air Turbine Fuel (ATF) is Rs.74.177/Liter on October 2018 compared
to Rs.52.318/Liter for the same month of previous year. This shows an increase of 41.78 %. Whereas for USA
for the same duration the price of ATF were Rs.34/liter and Rs.46.5/liter respectively showing an increase of
35.4 % (1dollar = 70INR).

44
Key Points:

a) As ATF in India is almost 60-70% costlier than global average due to policy apathy in the past, opaque
pricing structure and multitude of taxes - excise, customs, VAT. Calling it a subsidized fuel for the well-off is
misguiding. ATF can be called 'subsidized' if it is sold cheaper than global prices.

b) High ATF prices in the past have led to flying becoming the preserve of the Well-off. Since international ATF
prices are low, at times an all-expense paid trip flight to Thailand or Malaysia turns out cheaper than flying
within India. India's skewed pricing policy on ATF has actually done more damage to Indian Trade and tourism
than good.

II. Taxes Imposed by Government, AAI.

 Passenger Service Fees: To cover Security and Facilitation at all AAI airports and Private airports.
The amount of the fees varies between Rs.210 to Rs.250 per passenger.
 User Development Fees: To fund passenger facilitation at select airports, levied by airports
The amount of the fees varies from airport to airport airports. It ranges between Rs.100 to Rs.400 per
passenger.
 Therefore on an average a regular air passenger in India ends up paying somewhere between 350 to
650 rupees in Taxes as against average of $3-$4 (Rs.210-Rs.280) for the same in USA.
 This therefore discourages the customer to take up Air travel and look for alternatives despite the fact
that gross fare for air travel might be lower than its alternatives.

III. Severe Competition Resulting in Declining Yields

There is a cut throat competition faced by the top airline due to ticket pricing. Established Airlines are
threatened by low cost carriers, which are eating up their market share. In order to consolidate their market
share, top premium airlines were forced to reduce their ticket fares to around 15- 20 per cent. Such a slash
down in price will lead to a price war in the long run amongst the airlines with the only goal of increasing their
market share.

Airline operator’s business models are more inclined towards increasing their market share and thus they are
even ready to compromise on profitability and peg their ticket prices lower than the break-even point.

This business model is not long time sustainable and is more prone to operational losses for many airlines.

IV. Lack of Infrastructure

Although Indian government and Airport Authority of India (AAI) has decided to invest 15000 Crores in
building new airports and expanding old ones there is still long way to go before India has satisfactory air
travel infrastructure .

45
 The major areas of concerns are:

 Maintenance, Repair and Overhauling (MRO) Challenge: MRO is considered to be a Rs. 9,000-10,000 crore
industry in India. India is one of the most attractive markets to initiate the development for Aircraft
Maintenance & repair business due to best suitable geographical locations, high manpower capabilities and
many other resources. The need of the hour for development for MRO Industry is to restructuring of taxation
regime where the contribution from central government & state government should come in synergy for the
foreign investment and also new startup promotion. The development of MRO industry in India would bring
the overseas business in India helps to grow the economy of India. Government allowance for 100% FDI is one
of the key initiatives in this direction. Still it is way behind the other countries. Spares and vital parts continue
to be imported in the country with domestic manufacturing limited to low value products. India’s growth to
one of the largest aviation market has prompted some of the Global manufacturers to tie-up with Indian
conglomerates to set up joint manufacturing and MRO facility in India.
 Congestion at major airports:The Indian airports are surging where the major airports likeMumbai, Delhi,
Chennai, Bengaluru&Kolkata cater the high percentage of passenger traffic compared to nation’s total
passenger traffic & it is still in high growth year on year. Mumbai airport which is a single runway airport,
handles over 900 flights everyday on an average. That is almost 38-40 flights every hour. This number is
expected to increase as more UDAN flights are operational. Congestion also leads to delay in operations and
fall in operating efficiency of both airlines and airports. As the network congestion at major airports increases,
they would accordingly curtail on servicing smaller aircrafts by making the services and facilities expensive.

 Connecting airports with cities: Connecting airports with regional city centres with airports continues to be a
challenge. New Delhi is a prime example of connecting users to airports from across the city. The Delhi Metro
has finalized and is implementing a plan which aims at connecting all metro lines with the Delhi airport, which
makes it easy and time saving for commuters to reach the airport from any part of the city. For tier 3 and 4
cities, the onus would be on airline and airport operators to provide public transport.

46
 Investment in developing smaller and regional airports: Even though the government is pushing for regional
connectivity through UDAN scheme, private investments have not been made beyond airports at Tier-1 and 2
cities. UDAN even though aims at making air travel affordable and reaching unserved and underserved cities,
the footfalls generated are limited which further limits the possibility for airport operators. AAI has been
instrumental at operating these airports, but the scope to scale up these smaller airports at the moment is
limited given the limited capital which could be invested by AAI on new airports.
 Lack of Qualified Personnel:For every aircraft maintained in a fleet, an airline requires an average crew of 15
pilots. The industry at present is facing shortage of trained pilots in the country. The airline fleet in the country
is expected to witness an addition of 1,000 aircraft in the next 5-7 years which would require an additional
14,000-15,000 trained pilots. At the current rate, the shortage in trained pilots may persist in the country,
which would require airlines to retain a mix of Indian and foreign pilots. This is expected to drive employee
costs of the airlines.
 Reduction in On-Air Time: Airport and air traffic control (ATC) infrastructure is insufficient to support growth.
While a initiate has been made to upgrade the infrastructure, the results will be visible only after some years.
The Major Airports are overcrowded & traffic is increasing drastically which ultimately give the burden to the
Airlines. As if a flight hang around half an Hour would use 25 to 30% extra fuel which cost more than Rs.50,000
to the Airlines.

V. Dollar V/s Rupee

The Dollar to Rupee value is depreciating every day and thus airlines need to shell out more rupees to buy
turbine fuel, airplanes and other operational requirements for the same international price in dollars. Due to
severe competition the ticket prices does not see much growth does not match the growth of Dollar prices
and thus makes it difficult to sustain the profitability for the airlines.

 High Input Cost: The input costs are also very high because of some of the reasons like Withholding
tax on interest repayments on foreign currency loans for aircraft acquisition. Increasing manpower
costs due to outsourcing of technical personnel and work.
 Impact of Indian Rupees depreciation on Indian Domestic Airlines

List of Domestic Profit/Loss Profit/Loss Profit/Loss

Airlines (Jan’18 – March’18) (April’18 - June’18) (July’18-Sept’18)
Indigo 117 INR Cr. 27.8 INR Cr. -652 INR Cr.
Spice Jet 46 INR Cr. -38 INR Cr. -389 INR Cr.
Jet Airways -1036 INR Cr. -1323 INR Cr. -1297 INR Cr.

47
From the above observation of major Indian Airlines performance for current Year against the Indian Currency
depreciation for same period, It is observed that for the first Quarter of 2018 Year the Airline performance was
moderate against the small percentage of depreciation of Indian Rupees. In second Quarter, it has started
impacting the Airlines revenue performance significantly due major depreciation of India rupees. While in
third quarter from the July to Sept’18 where the highest percentage of Indian Rupees has depreciated the
Airline has made major loss in that quarter.

There is complete correlation between the Airline performances with the Indian Rupees depreciation.

VI. Lackluster government policies

Frequent government intervention is proving to a great obstacle for the growth of Aviation industry. Several aviation
experts have pointed out that India government should follows aviation industry free from policy hurdles like
regulating airfares and slash taxes, including jet fuel. Besides, they advise the government to focus on building
infrastructure and the air navigation system. The Indian aviation industry which contributed five per cent of GDP,
offers four million jobs and another seven million jobs through tourism and related activities. So more efforts are
needed, on creating infrastructure which will enable further growth.

Current Major Players in the Indian Aviation Industry

48
Market Share:

MARKET SHARE(%) IN TERMS OF DOMESTIC MARKET SHARE(%) IN TERMS OF

DOMESTIC MARKET DEMAND (RPK)-2017- PASSENGERS CARRIED-2017-18
18
12.0
12.2 8.8
8.8 0.5 13.1 1.0
4.1 4.0
12.3
3.6
4.3 2.2
1.9
14.6 15.0

0.2 0.4

40.9 0.1
0.1 39.7
0.02
0.03
INDIGO JET AIRWAYS INDIGO JET AIRWAYS SPICEJET
SPICEJET AIR INDIA
GO AIR AIR ASIA AIR INDIA GO AIR AIR ASIA
VISTARA JETLITE VISTARA JETLITE ALLIANCE AIR
ALLIANCE AIR TRUJET
AIR INDIA EXPRESS OTHER AIRLINES* TRUJET AIR INDIA EXPRESS OTHER AIRLINES ^

In the year 2017-18 both in terms of RPK and passengers carried, IndiGo had the maximum market share
followed by Jet Airways, SpiceJet and Air India.

INTERNATIONAL PASSENGER MARKET SHARE

MARKET SHARE (%) OF SCHEDULED INDIAN CARRIERS AND FOREIGN CARRIERS IN TERMS OF
INTERNATIONAL PASSENGERS CARRIED.
YEAR FOREIGN CARRIERS INDIAN CARRIERS

2014-15 63.0 37.0

2015-16 63.4 36.6

2016-17 62.3 37.7

2017-18 61.1 38.9

49
 MARKET SHARE (%) OF TOP 15 SCHEDULED OPERATORS – INTERNATIONAL OPERATIONS, 2017-18.

NAME OF THE AIRLINE SHARE(IN%)

JET AIRWAYS 13.8

AIR INDIA 10.4
EMIRATES 9.2
AIR INDIA EXPRESS 6.2
INDIGO 5.3
ETIHAD 4.3
OMAN AIR 3.3
QATAR AIRWAYS 3.3
SPICEJET 3.2
SRILANKAN AIRWAYS 3.2
AIR ARABIA 3.0
SAUDI ARABIA AIRLINES 2.5
THAI AIRWAYS 2.3
LUFTHANSA 2.1
SINGAPORE AIRLINES 2.0

Out of total 93 scheduled international operators, top 6 operators accounted for nearly 50% of total
international Passenger traffic and top 15 operators accounted for nearly three fourth of the total
international Passenger traffic in the year 2017-18. Jet Airways had the maximum market share (13.8%)
followed by Air India (10.4%), Emirates Airline(9.2%), Air India Express(6.2%), IndiGo(5.3%) and Etihad
Airways(4.3%).

Future Trends in Indian Aviation Industry

Before 25 years, when the Aviation Industry was liberalized in India, the predicted growth of the Industry has
completely revived today. The unprecedented growth of the Industry has many influencing factors behind it.
The Economical growth of the country is one of the major contributions for the Industry, GDP growth per
capita, higher disposal income, technological revolutions, higher youth populations, liberalized government
policy, foreign investment, increasing tourism awareness are the dominating factors for the Industry.

The future is looking very bright for the Aviation Industry in India without any major hindrances. Still the true
potential of the Industry can be brought outside when few of the challenge shall given proper directions to
diverse its impact on the Industry. The International Aviation Transport Association (IATA) & Federation of
Indian Airlines has derived the barriers drawing back to the precedence growth like higher Jet fuel prices,
higher airport charges, lack of Airport infrastructures, high government taxation on fuel cost, lack of the
supportive policies for the Industry etc.

 Jet Fuel alternatives: Increasing prices of the Crude oil & Jet fuels due to some of the economical factors,
brings the scope for the bio fuel utilization for the Jets. Few of the reputed Airlines have initiated the
utilization of the bio fuels to reduce the dependency on the Jet fuels as well as to reduce the carbon foot print.
The bio fuels become one of the good alternatives as green source of energy conservation.

50
 Small & Medium size Aircrafts: Due to emphasize on the regional connectivity, the requirement of the small &
medium size air fleets will increased as the connectivity of small towns to the metro cities. These will
ultimately bring the Aircraft manufacturers to establish the set up in India as well as it shall open the avenue
for the startups & its supporting service function businesses.

 Investment of Foreign Airlines in India: One of the most attractive markets for the Foreign Airlines in India,
the scope of merger of Indian Airline with Foreign airlines would help the local industry to understand the
business model for its sustainable growth. The recent mergers are Jet Etihad merger, Tata – Singapore Airline
merger, Tata & Air Asia merger.

 Potential for MRO Industry: Currently, 90 percent of the Indian airlines outsource the maintenance of the
aircraft outside the India. India has the advantage of the geographical location, economical advancement,
proper business environment, potential skilled & unskilled labour would develop the Industry, create the jobs,
contribute toward the nation economies & can also opens avenue for other Industries like Technical training
institutes, OEMs for small parts for Aircrafts in India. It would also bring the business from other Asian
countries to India will help to Indian economy.

 Development in Airport Infrastructure: As the passenger traffic is going to be increase for next two decade &
increasing the regional connectivity in India, there would be huge investment in Airport Infrastructure in
synergy with the public private partnership.
As the Airports are surging with the traffic, the advance scope the technology will be established to reduce the
timing of the check in & check out on completely automatic way.

 Technological advancement: The Airline industry deals with the lot of data analysis from customer data to the
maintenance of the Aircraft, traffic management & security management. The business analytics or advance
machine learning technology would bring the data analysis in such a manner where an Airline would identify
the travelling pattern of the passenger & target the potential segment, it would help to bring the loyalty of the
customer with the airline, it would help to create the value added services for the airline, it will maintain data
of the performance of the Aircraft & instruct for the maintenance of the aircraft to avoid any major failure.
The technological advancement would also bring the accuracy in security management system.

Outlooks for near future of the Industry

 Passenger growth: The combined passenger traffic is expected to double in the next 5 years with a
growth rate of 14-15% annually.

 Domestic airport traffic: The proportion of domestic to international passengers is expected to widen
further during the coming years as airlines offer tickets priced at par with train tickets between
selective destinations.

 Domestic traffic growth is expected to emanate from the smaller and UDAN cities which were
untapped and un-served till now. The fact that most airlines have not sought Viability Gap Funding to
service customers under the UDAN scheme highlights the untapped demand in the sector.

 Increase in passenger capacity at airports: Two major airports expected to add sizeable capacity are
Navi Mumbai International Airport (Mumbai regions) and Jewar International Airport (New Delhi
Noida). Addition of up to 100 million capacities is expected at UDAN scheme airports over the next 3-
5years.

51
 Cost pressure: With the prices of crude oil firming up, ATF price rise is inevitable. A 20% rise in crude-
oil prices from the current $65-70 levels may bring down the operation margins (OPM) to 4-6% levels
for airlines. Airlines may have to pass on fuel cost to consumers which may affect demand.

 Fleet addition across airlines: 500-600 aircrafts are expected to be added over the next 5-7 years in
order to meet the passenger traffic. 1/3rd of this fleet addition would make up for replacement of
retired aircrafts. Workforce required to operate the additional aircrafts would be an additional 4,500-

52
 CHAPTER 4:
LITERATURE REVIEW

53
 CHAPTER 4: LITERATURE REVIEW
1) IBEF(Indian Brand Equity Foundation)

Aviation- Sept 2018

This report is given by IBEF (Indian brand equity foundation ) in year 2018,As India is set to become 3rd
largest aviation market by 2020 this report initially talks about the growth drivers that airlines
business can have like robust demand, increasing investments, policy support, opportunities so that
this can give a major benefits to airlines sector and other than that evolution of Indian aviation sector,
because since 2013 there has been an increment in no. of passenger traffic, freight traffic and airplane
movements and also after 2013 there are major public and private sector players who are aggressively
taking participation in a development of airport infrastructure before that AAI was the only major
player involved in development.

Different strategies and recent trends that has seen for some years in which recent trends like
participation of private players, greater use of nonscheduled airlines, user development fees, focus on
non-aeronautical revenue has seen and strategies like expansion of capacity, ancillary services,
increasing operations, Governments push has also adopted.

Points that should be taken care of:

1. Indian airlines should focus much on leisure travel along with business travel because there has
been a high rate of increment in no. of leisure travel as compared to business travel.

2. And also taxes that are imposed on airlines should be reduced to support airline business according
to this report.

2) IATA’s Director General Alexendre de juniac(Dec 14 2018) interview to Mint

Indian Aviation Industry is the fastest growing Industry in India, and it is set to become the third
largest Aviation market by 2025, due to various opportunities and potential that Indian market has it is
assumed to grow in double digits in next few years by global aviation Industry.

At the same time there are many factors which are hindering a growth of Indian Airlines which are:

 Non availability of second airport and related infrastructure at major cities.

 Bringing down the high tax structure on jet fuel, MRO (maintenance, repair and overhaul)
services.
 Airport capacity needs to be increased.
 Airlines also have an issue with costs. The taxation on fuel and the resulting fuel costs are too
high and prevent higher growth for the sector.
 Increased competition in Indian Aviation sector is another major factor which hinders Industry
growth.

54
What steps need to be taken to improve growth of Aviation sector

 Consolidation in Indian Aviation sector can be boosting factor for Industry to grow.
 Abolishing GST on International tickets.
 FDI limitations need to be improved. E.g. FDI limitation in Indian aviation sector has
improved, and it has allowed Singapore Airlines to start a joint venture in India.

3) Nishith Desai Associates

The Indian Aviation Sector- August 2016

Indian aviation sector is rapidly growing sector which has shown an increment in freight traffic,
passenger traffic, and airplane movements not only this but India is expected to become 3rd largest
market by 2031 so there is also a great demand for maintenance, repair and overhaul(MRO).

The report has given the detailed of Indian Aviation Policy along with brief History, rules & regulations,
recent developments in National Civil Aviation Policy.

Some of the negative points due to which airlines growth can be shatter are:

 Rise in Aviation Turbine Fuel cost (ATF), Discontinuing of Airlines, Over saturates Airports.

Along with this negative points Indian airlines industry has some of the positive factors:

1. Growing middle class population.

2. Increase in disposable income leads to increase in passenger traffic, and also passenger traffic has
created a demand for civil aviation services.

3. Government should promote tourism as much as possible.

4. Should highly focus on maintenance, repair, and overhaul (MRO).

Some of the good measures taken by central government.

1. It has not only raised the limit of FDI permitted in sector, but has also permitted foreign airlines to
invest in India’s airline segment

2. Additionally, the AAI is actively promoting regional interconnectivity by developing airports in non-
metro cities, and state governments are also contributing by donating land and forming public/private
partnerships (PPP) with private investors like GVK.

55
 4) CARE Ratings

Airlines & Airports (march 28, 2018)

Indian airlines industry is one of the major industries of India which had been showing many downfalls
in a sector but post 2013 there has been an appreciable growth in Airlines industry due to three major
factors o this industry in India are:

1. Lowering cost of air travel.

2. Growing middle population.

3. Better substitute for long and medium distances.

The growth in the sector comes with opportunities and challenges at the same time, but one of the
most important step taken by govt. is by implementing UDAN which connect tier 3, 4 cities with larger
cities and other cities which provide much affordable travel medium to large population. So this step
can be a major factor to cater with challenges associated with airlines industry and to take as much
opportunities as possible for growth.

The report has covered the statistical data like influence of ATF Price Year on Year,

Relationship between passenger traffic and economic growth.

This shows that how domestic traffic has reduced as GDP slowed down in year 2012-13and recovery in
year 2013-14 led to increase in domestic traffic. In 2007-08 the share of passengers was 62% which
dropped to 58% in 2013-14 and in year 2016-17 it has shown recovery in its total no. of passengers
which stood at 65.5%.

Revenue drivers for Airlines:

(i) Capacity, (ii) Passenger (iii) load factor, (iv) Passenger yield. (v) Fee/other services.

Cost drivers that are added to be taken care of to increase revenue:

(i)Labour cost (ii) Operational cost (iii) Fuel cost (iv) Maintenance, repair and overhaul (MRO)

Challenges for Airlines are

(i) Congestion at major airports (ii) Investments in developing small and regional airports

(iii) Connecting airports with cities (iv) Maintenance and fleet management

56
 5) Akhil Mohan Pillai (Alliance University- MBA 2013-15)

A Secondary Research Study on Indian Airline Industry 2013-14 (July-2014)

Here it has been shown an evolution of airlines industry from 1953-2014

Growth in airline industry

1. This growth is seen due to many macro-economic factors such as govt. reforms and market lead
dynamics, further it talks about various market dynamics which various companies use to attract
passengers to fly with them.

2. Airlines industry using multiple pricing policies, wherein the price of the tickets change in second
and are sold to different customer at different prices based on availability and date of travel.

Aviation strategy of Indian civil aviation

The aviation is growing at an exponential rate, according to Thomas the estimated CAGR of the
passenger traffic to be planned for in the aggregate, would be conservatively of the order of 15%, with
this growth there would be a growth by 6 folds by 2020.Further to gain competitive advantage in
future in aviation market Thomas suggested that Indian Aviation industry needs to be democratized
which requires moving from elitist to a mass transit mode for which cost effectiveness is imperative.

Mergers and acquisition

Due to a development of Indian aviation industry the infrastructure has also developed to a great
extent which is proving beneficial to economy to a large extent.

All the companies are continuously engaged in innovation and are now able to attract more and more
customers due to various pricing policies.

Challenges of Indian aviation industry

1. Restrictions on foreign ownerships and labour laws which has kept industry away from innovating.

2. Low cost carriers should be adopted.

3. Shortages of workers and professional.

4. Lack of airports and infrastructure.

6) Asian research journal of business management (ARJBM) (8 July 2017)

Aviation sector had been shown a healthy growth arc with more challenging economy of a developing
country. In India after IT sector, the Aviation sector is most attractive sector for investment and
growth. According to UNCTAD’s world investment prospectus survey 2010-1012,India is the second
most attractive destination for FDI in the world, but at present Indian airlines facing so many
challenges, we have to face the present challenges firmly and overcome, also there is need to make
more liberal and powerful domestic aviation policy.

57
 7) Vijay SatappaMagdum, PGP Student, IIM INDORE

Indian Aviation Industry (2/12/2015)

India has very high potential in the aviation Industry but still it is going through tough time. Indian
aviation Industry has high growth rate as disposable income of the people is growing and most of the
people tending to upgrade their lifestyle.

Airline industry in India is very competitive and price conscious. Most of the people look for the price
and very least look for the brand. There are very few people who are loyal customers of the airlines.
Also most of these are high class business persons. People follow the promotional ads of the airline
and look for the low price carrier. Now days Spice Jet is offering tickets at very low price. They are
promoting their campaign as “Less than train fare”.

To give lowest price possible these airline companies are looking to cut the costs. Along with these
they have to function at very less margin.

Following are recommendation to improve sustainability of the airline business.

1. Government Policies: Government interventions are one of the common threats for the
private players. They need some liberty.
2. Government Tax: Government of India is imposing many taxes on the airline industry. This
directly results into increase in the ticket price,. Considering airline is one of the basic
transportation systems, government has to revise their taxation policy.
3. Fuel is highly charged because of the taxes on it. Very few companies such as IOCL, BPCL are
providing fuel to aviation companies. These oil companies charge it high due to taxes.
Government needs to subsidies fuel for the airline industry.
4. There is high potential in Tier II and Tier III cities. Airline companies have to explore these
options for better revenue.
5. Indian consumer is addicted for the promotions. Airline companies have to update their
promotional and marketing strategies time to time.

8) SCITECH RESEARCH ORGANISATION

Dr. Chandrani Chattopadhyay University of Hyderabad, India.(June 15,2015)

In terms of economic factors, the world economy is mature, but there is a high growth in emerging
economies. Even in the areas of high growth, however, where air travel demand is also growing fast,
the profitability of the airline industry is weak or negative. The only positive hope for the industry is
there is a rise in real incomes and disposable incomes which can result in more air travel ergo growth
of aviation industry. But coming to the negative side of the rise of real income, it invites more income
polarization which causes the exclusion of the poorer parts of the population from the industry. In
terms of social factors, there is a higher level of multi-culturalism and demand for learning about and
understanding new cultures which fuels demand for air travel. At the same time, though,
environmental concerns lead to severe criticism of the industry and its effects on CO2 emissions.
Compared to other industry the role played for air pollution by aviation industry is much lower, but it

58
receives a disproportionate criticism and attention from activists. Finally, in terms of technological
factors, internet has revolutionized air travel. Today because of internet purchase decisions or
information flow has become very transparent. Internet has also helped the aviation industry to come
out of its elite status and become more people oriented. Internet is used by the airline to improve the
quality of its service. The impact of the internet has been tremendous. One of its greatest effects from
the point of the customer is better transparency in information regarding purchase decision with
reduced search cost. Other technological advances include new plane designs which enable longer
range travel as well as higher capacity in terms of passenger numbers and efficiency in terms of fuel
consumption. In addition, bio-metric check-in, customer relationship management (CRM) software
and traffic management technologies for airport enable activities to be undertaken more efficiently as
well as allow airlines to relate to their customer base more effectively.

9) International Journal of Innovative Knowledge Concepts

Anubhav Singh , April 2016

In light of the growth in aviation industry, specifically in the MRO and Air charter sectors, this study
becomes important due to the fact that people are traveling more frequently and wish to do so
quicker and more efficiently. With businesses growing faster than before, the need for Air Charter is
increasing day by day and hence a study of the evolution and challenges faced by the entrepreneurs
engaged in Air Charter would add value to the industry. The challenges faced by MROs which is a
limiting factor in the growth of this sector, would create a problem for the Airlines in the near future.

10) Michael Burns Partner, PwC UK, (November 2015)

Our recommendation is that government policy makers and planners in Asia consider moving beyond
simply considering the provision of capacity to meet demand, and instead think through the options
for providing a cost effective travel experience for passengers. Such options should take into account
surface travel distance to the airport, time spent navigating the airport (kerbside to aircraft), and
operating efficiencies that airlines gain with shorter taxi distances from runway to gate as well as slots
that are available to suit passenger and airline schedules. Our expectation is that airports with
terminal capacities of 20-25 million passengers and runway capacity of around 50 million passengers
(twin independent parallel runways) will give the optimal combination of scale economy whilst
allowing the majority of passengers to travel on point-to-point flights. As such, governments should
plan to construct more optimally sized airports with capacities of 20-50 million passengers per annum,
rather than mega-hubs exceeding 100 million passengers. In this way, they will stand a better chance
of meeting Asia’s growing demand in a way that enhances air connectivity and improves the quality of
travel.

59
CHAPTER 5: RESEARCH
METHODOLOGY

60
 CHAPTER5: RESEARCH METHODOLOGY

Research Objectives

 Conceptual Study of the Aviation Industry

 Study of National Civil Aviation Policy
 The Micro Environment & Macro Environment Factors affecting the Airlines Industry
 Current Scenario of the Indian Civil Aviation Industry: Challenges & Government Regulations affecting
the Industry
 Study of the Industry through the Analytical Models & getting the valuable outcomes
 Findings & Suggestions for Indian Aviation Industry for their sustainable Growth & enable to handle the
potential Business ahead

Research Design

The Study will be a descriptive survey based where the major Secondary Data collection & analysis will be
involved, it follows as:

 Study on History of Aviation Industry in India

 Study of Industry based on the Secondary Data Resources
 Collection of Primary Data through the Personal Interview
 Data Collections & its Analysis through theoretical models
 Necessary Outcomes to correlate with the Objective of Study

Type of Data

Data Collection Tool:

Secondary Data Collection Tools are Online Interviews of Industry experts, Magazines, Newspapers, relevant
articles & Case Studies on similar Subject

Data Collection Technique:

Secondary Data Collection Technique: - Observations, Documents & Records

Statistical Tool use for Data Analysis:

Michael Porter’s Five Force Analysis Model

PESTEL Analysis

SWOT Analysis

61
 CHAPTER6:
INDUSTRY ANALYSIS

62
 CHAPTER 6: INDUSTRY ANALYSIS

Environmental Analysis

There are few factors which are affecting to any small or big size Organization related to the any Industry.
The Environmental Analysis helps to determine the affecting factors, but the objective to find the origin of
these factors which helps to determine the Strategy for the Organizations.

ENVIRONMENTAL CONDITIONS & TRENDS DISTINCTIVE COMPETENCE

↓ ↓

OPPORTUNITIES & RISKS Strengths and weaknesses

└------------------------------------------------------------------------------------┘

Evaluation to determine best match of opportunity and resources

Environmental analysis is very essential to get an idea about the complexity of particular Industry. It gives the
characteristics of the Industry. Any Industry is affected by Nos. of the factors which is categorized as: Internal
Environmental Factors & External Environmental Factors.

Every industry is affected by so many factors while few of them are dominating as per the nature of the
Industry. So there is set of Questionnaires which determines the relevant Environmental Factors:

Que: Five external factors which impact on Indian Airline operation, what would they be?

 Economic Growth & higher Disposal Income, Increasing Turbine Fuel Cost, Depreciation of Indian
Rupee in Global market, Lack of Airport Infrastructures, Higher Taxations of Local & Central
Government

Que: What five external factors can be seen as the major threats to Indian Airline business?

 Increasing Turbine Fuel Cost, Depreciation of Indian Rupees, Increasing Intense Competitions in Local
Airline Business, Foreign Airline investment in Domestic Business, lack of Infrastructure &
Maintenance facilities, Impact of Natural Disaster on Business, Impact of Terrorist Activity on Business

Que: If asked to define a company strategic direction, what five external factors would be the most critical in
performing this task?

 Level of competition in the Industry, Reliability of Services, Product/Service differentiation, Revenue

Generations through the Ancillary Product/Services, Energy Efficient Aircrafts, Government Supportive
Policies, Strongly execution of Key Performance Indicators, Increasing demand of Charter Business
63
Que: What five external areas would be the most likely to show changes which would be most favorable to the
Indian Airline future?

 Low Airport Charges, Low Taxation of Turbine Fuel Cost, Government Supportive Policies,
Modernization of Airport Infrastructures through Properly execution of Public Private Partnership,
Higher Economic growth of the Country, Tourism publicity, Regional Connectivity, Liberalization of
5/20 Rules for International Operations, Bilateral Treaties with Foreign Countries, Huge Qualified &
Young Man power

This method of Questionnaires to identify the relevant factors affecting to the Indian Airline Industry is called
Relevant Environmental Analysis.

TOPIC: Michael Porter's Five Force Model

Threat of Substitutes

Threat of
New Entrant

Threat of
Suppliers

Threat of
Buyers

Threat of
Rivalry

As moving away from the center, the effectiveness of the threat decreases.

It is very useful tool to analyze the competitiveness of the Industry

64
Threat of Potential Entrant
 As the Airline Industry requires huge scale of Investment includes Financial Strength, Equipment
Capital Investment, High cost of Government Licenses, Technical &Non Technical manpower
recruitment, Foreign Pilot salary cost & expensive training
 The return on investment takes a very long time
 The gestation period of airline industry in India is 8 to 9 years.
 The Industry is highly Independent of Size & service oriented like reliability of services, comfort of
travelling, in flight value added services etc.
Looking toward the above factors, the potential threat of new entrant in the Indian Airline Industry is low

Threat of Rivalry
 The Airline Industry in India is in mature phase with Nos. of players
 The overall Industry growth is slow however since last few years, it is taking unexpected growth
 There is no such extra ordinary Product or Service differentiation offered by competitors as the basic
Product & service is same
 The exit barrier of the Industry is very difficult as the specialized assets are involved & high transfer
cost, a company continue to compete while hoping for the good time

Threat of Buyer's Power

Buyers affect an Industry through their ability to force down prices, bargain for higher quality or more services
and play competitors against each other

 Buyers purchases the large portion of the Airline Product/services

 No Product/Service differentiation
 Switching cost from One brand to another brand is negligible
 There is no such brand loyalty

Threat of Supplier's Power

Suppliers can affect the Industry through their ability to raise the prices or reduce the quality of purchased
goods or services
 Airbus & Boeing are the only major supplier of Aircrafts to the Industry
 Through the Indian Airlines, these suppliers serves large customer base
 Looking toward the Indian Aviation growth in coming years, the Indian airlines are valuable customers
for the suppliers
 The Oil companies in India has a little power as a major Supplier which is regulated by International
Norms

Threat of Substitutes

Substitutes limit the potential returns of the industry by restricting the price which a firm can profitably charge.

 The close substitute of the Airline Industry is the Railway, however considering the time consumption
of travelling, it bring very less threat to the Industry.
 The overall passenger growth in Railway Industry has a drop of 0.26 percent last five year while the
Airline Industry has the positive growth of 10 percent over the last five years.
 Development of New Technologies, like Video Conference brings lesser need of Business travel, future
scope of the fastest travelling technologies like Bullet trains may bring the threat to the Industry.

65
 PESTEL Analysis

•FDI Policy Restructuring to attract the Foreign Investment & growth of Aviation Industry in India
•Regional Connetivity Scheme (UDAN)
•Higher txation of Federal & Central Government on Jet Fuel
•Implementation of Public Private Partnership Model for airport Infrastracture
Political •Bilateral Agreemnt with Foreign Countries

•Higest Growing economy of the World

•Increasing disposal Income of middle segment
•Dependency on highly volatile crude price
•Depreciation of Indian Currency in global market
Economical •Major investment of Capital Equipments, Resources, man power & maintainance in Foreign Currency
•Higher availibility of Skilled & unskilled manpower

•Highly diversified Cultures in India

•Increasing Tourism awarness by Government through Incredible INdai compagian
•Airlines & Travel agencies are more focused on Packaged Tours which gets attraction in Society
•Highest Travelling during Festivals due to Social & Cultural inclination
Social •Ease of travelling is the current trend of the Population
•Major customers are price sensitive, shows no brand loyalty

66
 •Online paltform has completely changed the Airline Service Industry
•Energy Efficient Aircrafts & Technology of Low Cost Carriers has removed the barrier for Avaition Industry growth
•Digital marketing is the highest major source for AIrlines
•Information Technology upgradation in Airline Industry has reduced the travelling time
Technological •Biometric Authentication System for e boarding reduces the speed of travelling by Air

•After Automobile, Avaition is the third emitting green house gases

•After Air polution, Noise pollution is teh major ecological issue created by Aircrafts
•Alternative source of Bio Fuels & Solar power shall change teh Aviation Industry in future
Ecological •Natural Disaster is teh major issue faced by Airlines

•Impact of Terrrirsm on Airline Industry

•Safety regulations are the top priorities to reduce smuggling
•Strigent regulations affecting the Cargo business
•Upgradation of technology in Security systems is the call of the hour
Legal •Merger & Aquations are passed through multiple legal stages.

Any Industry is affected the by the environment & its factor, the organizations operating in particular Industry
analyzes the environment & its major factors affecting to it organization & industry to take strategic move
ahead.

To study the environment of any Industry, there are basically two kind of analysis of environment is there:
Internal Environment Analysis & External Environment Analysis. The Internal environment analysis derives the
strength & weakness of the organization, while the external environment analysis evaluates the opportunity
for the organization or threat to overcome as an external environment factors. PESTEL Analysis is the tool to
evaluate the external environment analysis on basis of subset of Political, Economical, Social or Cultural,
Technological, Ecological & Legal.

The Indian Aviation Industry is one of the most growing Industry of the nation where the foreign investors has
highly encouraged for same, in such a scenario the PESTEL Analysis help to get the overview in recent situation
of the Industry.

Political

In India, the major Industry is highly affected by the political moves, the Indian Aviation Industry is one for which
the Political factors are highly dominating. Considering the recent scenario, the higher taxes on Jet fuels
discourage the players of the Industry while at the same time government focus on regional connectivity scheme
has influence the Industry. In India, the safety concerns, passenger security are highly addressed as the political
move. Since the history, any of the political moves has influence the Industry in very great manner brings the
opportunity or threat which is mentioned below:

67
  The legislation comes into force to nationalize the entire airline industry in India in 1948; hence the Indian
Aviation Industry was government monopoly business.
 In 1994, by liberalization of the Policy, the government has allowed the Private Airlines to enter in
Domestic market, lead the growth of the Industry.
 In FDI Policy, the Government has allowed up to 49% Investment through the automatic route for
schedule Airlines, 100% FDI through automatic route for Non schedule Airline has attracted the foreign
investment in Airline Industry like TATA & Singapore Airlines joint venture through the Vistara Airlines in
India.
 The recent National Civil Aviation Policy initiatives, modernization of Airport infrastructure, UDAN regional
connectivity scheme has a great influence on the Industry
 The Public Private Partnership model & 100% FDI Investment allowed for Airport Infrastructure
development has also one of the major foreign investment
 Apart from all positive moves, the higher taxation on jet fuel up to 30% has drawn back the Industry at
great percentage.

The Political factor is one of the dominating in Indian Aviation Industry where its influence plays a major role in
merger & acquisition of two airlines as well as in disinvestment of the Airline. In recent times, the Air India
disinvestment or the Jet airways stake sale talk has the political influence as well.

Economical

Economic situation of the country is highly influencing the Industry, as during the global recession during the 2009,
the Industry had major impact worldwide. As one of the emerging Industry in India, the aviation came back on
track in a short span of time. The Airlines are dependent on few of the resources like skilled & unskilled man
power, crude oil prices, Airport Infrastructure, maintenance & inventory facility etc. Hence the Industry is highly
volatile on the basis of nations & global economy scenario.

 The crude price in India & international market is highly volatile, while the Industry is highly dependable
on the economic position.
 From acquisition of aircraft to the foreign pilots hired and fuel hedging to the outsourcing of the aircrafts
in foreign countries, the airlines has so much dependency on the global Indian rupees value, hence the
depreciation of Indian rupees has major impacted the Industry.
 One of the major influencing factor for the Indian Aviation Industry, the increasing disposal income of the
middle class people who is the highest percentage of the total population, bring the Indian Aviation
Industry to one of the top three aviation market of the world.
 The Aviation Industry is contributing 0.5% to the GDP of the Country which shows its dependability on the
international economy. Through the make In India initiative & developing the skilled &semi skilled man
power the Aviation Industry becomes self sustain& gives contribution to the Nation’s economy.

68
Social/Cultural

In a country like India, where all the companies campaign the marketing in line with the Social trend. It is one of
the highest dominating factor determines the profit of the Airline basis of their services, cultural attachment of the
Airline& value based offerings. India is of the market where any product or service sells boost at higher value
during the festivals just like other Asian countries like Indonesia, Vietnam, Thailand, Malaysia etc. For particular
Indian Airline Industry, the current social trend is highly influenced by air travel as the ease of the travelling while
at the same time the segments highly price sensitive where the brand loyalty is placed nowhere. Considering the
social or cultural trend it is very difficult for the Full Service Carriers to survive in such highly competitive market
where no frill airlines like Indigo, SpiceJet, air Asia worked on the proper business model as per the Indian market.
Also the cultural view do not allow the people to see the Industry as a lucrative for the carrier prospect, hence the
shortage of the man power is drawing back.

Technological

Technological advancement has completely changed the era where the major change in Aviation Industry came
from the social media promotion of the Airlines to the online reservation to the Low Cost Carrier has revived the
air transport service as one of the economical & safer mode of transportation. The technology has brought the
customer & airlines closer to each other to give best possible service & price benefits directly to the customer. It
has also made more eco friendly alternatives of the Jet fuel as well as the advancement has brought the fuel
efficient aircrafts with minimum maintenance requirement.

The technology has also reduced the overall travelling time by reducing the pre departure & post landing
clearance time. Biometric e boarding system in Hyderabad reduces the time of travelling.

Ecological

Since last few years, the world awareness on green house emission gases &eco friendly product usage has been
increased at higher level. Jet fuel burning emits the higher level green house gases to the environment. The
Aviation Industry is third highest emitting green house gases in the world after automobiles & power sector. Apart
from greenhouse gases, it is also contributing for Noise pollution. The alternatives like bio fuel & solar planes are
also at development stage which can bring the exposure at lower level.

Legal

As one of the faster mode of transportation, the Aviation Industry is strictly bounded with the stringent Rules &
regulations to keep the safety & security at the top most priority. The Indian Aviation Industry is governed by
Ministry of Civil Aviation under which there are autonomous bodies of Airport Authority of India, Directorate
General of Civil aviation & others with its specific tasks to bring the valuable outcomes from the Industry with its
regulations as a priority. The regulation has been formed to regulate the Industry with its high importance of safe
transport with convenience.

The Merger & Acquisition in Airline Industry has to pass through many legal Stages as other Industries are also
affected with same issues; it makes the overall process very tiresome.

69
Equilibrium Analysis

This method is derived by David Hussey, which help to get eh overall scenario of the Industry.

From the above Analysis, we came to know the relevant & major factor driving the Industry out
of which few of them is holding down the Industry while some are in favor of the Industry
growth, hence the Industry gets neutralized by these factors as mentioned below.

Higher Higher
Depreciation of Intense Lack of Airport
Turbine Fuel Government
Indian Rupees Competitions Infrastructure
Cost Taxes
│ │ │ │ │
│ │ │ │ │
│ │ │ │ │
↓ ↓ ↓ ↓ ↓
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−›
↑ ↑ ↑ ↑ ↑
│ │ │ │ │
│ │ │ │ │
│ │ │ │ │
Revenue generation
Higher GDP Higher Disposal Regional
Tourism Inflow through Ancillary
Growth Income Connectivity
Product/Sevice

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TOPIC: SWOT Analysis & SWOT Matrix

• High population of the country • Reliability of services

with increase propensity to fly • Lack of airport infrastructure
• Low cost carriers • High taxation of fedrel & state
• Increasing disposal income of the govenrment on ATF
middle class segment • Higher airport charges
• energy efficient aircrafts & • Shortage of aircraft maintennace
technology advancements facility
• Increasing tourism awareness • Lack of Qualified & Trained
technical manpower

Strength Weakness

Opportunity Threat

•Economical Growth of the country • Increasing ATF prices

•Revenue generation through the • Depreciation of Indian Rupee in
ancialliary products & services global market
•Increasing cargo movement • Intense competition
•Increasing demand of charter • Foreign airlines investment in
business
domestic operations
•Government supportive policies
and FDI investment • Impact of disasters on business
•High scope for development of • Impact of terrorism on business
MRO industry

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 Strengths

 High population of the Country with increased propensity to fly

India is the second populated country of the world where large percentage of population has not
travelled by Air till yet, hence the large untapped market for the Airlines is there. India has the largest youth
percentage of total population as one of the biggest strength
 Low Cost Carriers
India is the developing country where the large population is of growing middle class who cannot afford luxury.
The Low Cost Carrier has made the air travelling affordable which is the strongest point in favor of Aviation
Industry.
 Increasing disposal Income of the middle class segment
India is the place where the 50% of total population is of middle class segment. The unusual growth of lower
middle class of upper middle class is also very significant. This growth is able to be catered
through leisure travels & tourism.
 Energy Efficient Aircraft& Technology up gradation
The new technological up gradation, digital media has completely change the Airline Service Industry where the
traveler can book a ticket online, check In process, seat selection at ease of the fingertips. The new technology
has also made the air travelling more efficient than earlier to make the air travelling the fastest & affordable
route of travelling.
 Increasing Tourism Awareness
India is the multi-cultural country with the favorable weather condition. Since last so many decades India is the
spot for the tourism for travelers. The Government Initiative through “Incredible India” has revived the tourism
industry in country. The tourism Industry is also on a growth path & has valuable contribution for the Economy
of the country. The higher disposable income & increasing tourism awareness in India has really supported by
the Aviation Industry & same scenario will continue for next decades.
 Low manpower cost
India is the highest potential of skilled & unskilled population where the cost of man power falls up to 2500
Indian Rupees per hour which significantly lowers than Middle east & South East Asia.

Weaknesses

 Reliability of Services
As per Indian Airline Customer feedback study, the major issue faced by the Customer is the lack of the Service
includes the lack of personal attention, Crew staff behavior, delay in schedule, poor seat & space availability
issues, mishandling of luggage. The delay in schedule is the major dominating issue among others in recent
scenario.
 Lack of Airport Infrastructures
The lack of infrastructure reduces the overall efficiency of the Airlines & ground staff members increases the
turnaround time for each flight, increases the discretionary cost. Also the lack of parking bays & maintenance
facility at Airports need to be improved to handle the Air Traffic effectively.

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 Higher Taxation of federal& Central Government on Jet Fuel
After the GST implication from 2017, the Jet fuel is one which is not covered under GST regime where the total
taxation includes the Excise duty of 11% & federal state tax up to 15% to 17% which brings the total taxation to
28% on Aviation Turbine Fuel in India which brings the huge burden on Airlines

 Higher Airport Charges

As per the financial statics, the airport charges counters as much as 10% on total operating cost of Airlines in
India. Aeronautical tariffs include the parking, landing and navigation fees for airlines. The price hike for Airports
charges under the Public Private partnership is tremendous ranging from 80% to 750% hike for Delhi, Mumbai &
Bangalore Airports.

 Lack of Aircraft Maintenance Facility

Due to lack of Maintenance facility in India, more than 90% Aircrafts are sent outside of India for maintenance
which is paid by Airlines in foreign currency with higher man power charges.

 Lack of Qualifies, Technical & trained man power

India is still in premature phase for full flange development of the Aviation Industry where there is huge shortage
of qualified, trained Pilots, ground service staff, cabin crew staff & Engineers are there where the slow awareness
of the training institutes are there.

Opportunities

 Economic Growth of the Country

India is one of the fastest growing countries in the world with the growth in per capita income to 8.6% in FY18
which was 5.5% a year before. With country’s high GDP growth & per capita income is the wonderful opportunity
for the Indian Aviation Industry to tap the hidden potential of the Industry

 Revenue generation through the Ancillary Product/Services

The highest volume of the middle class population in India, the increasing disposal income of the population will
attract more business for Option al Product & service business for Airlines.

 Increasing Cargo movement

With the revolutionary era of the Indian Economy where the supply chain & logistic is the major contributor to the
“Make In India” initiative, the Air Cargo Business has the golden opportunity to untapped the potential where the
Air cargo has an average growth of 10% on Year on Year basis.

 Increasing demand of Charter Business

Since last few years, the upper most segment of the Country would like to travel by their own Planes. Many
corporate are now in a verge of the charter plane now a day. There are some startups are initiated for the Charter
Service, hence it will make a good scope for the Industry in nearby future.

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 Government Supportive Policies & FDI Investments
The National Civil Aviation Policy 2016 has some valuable initiatives in favor of Industry like Regional Connectivity
Scheme, Bilateral Agreements with Foreign countries, liberalization of 5/20 rules for International operations,
liberalization in FDI Policy to attract foreign investment in Country will definitely give a boost to the growth of the
Industry.

 Hugh scope for Development of Aircraft Maintenance, Repair & Overhaul (MRO) Industry

India has a favorable geographical location to connect with Middle East & South East Asia, with huge man power
availability as most low rate gives an immense opportunity for the MRO Industry to make its own establishment.

Threats

 Increasing Turbine Fuel Cost

The Jet Fuel cost in India is highest as compared with any of the International market. The prices are continuously
increasing with high percentage accounts for 34% on overall operating cost of the Airlines in India, which brings a
biggest threat for Airlines.

 Depreciation of Indian Rupees in Global Market

The Indian Airlines has a huge transaction in foreign currency for Jet Fuel hedging, Pilot staff salary, MRO facility
payment & many others which has a huge impact due to depreciation of the Indian Currency creates a big threat.

 Intense Competitions in Indian Aviation Industry

As per the International Air Transport Association, Indian Airline Industry is the highest competitive as compared
any other Asian market. The Airlines are dropping the fares to get the competitive advantage against the
competitions which cannot sustain the Airlines for long term on same strategy.

 Foreign Airline Investment in Domestic Business

The entry of Foreign Airlines in India increase the competition as the Foreign Airlines has the huge benefits of their
countries Economy, their expertise & financial strength. It is one of the biggest challenges for Indian Airlines.

 Impact of Disaster on Business

India has overall a favorable weather condition still the recent Kerala Flood incident has impacted the Airline
Business in South.

 Impact of Terrorism on Business

Airline is one of the safest modes of transportation still Terrorist activity like 9/11 on World Trade Center has
impacted the business for so many years, however the security norms are very strict afterward, still it is one of the
major threats for the Industry.

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Strategies

 Cost Saving Strategy: By Government Policies & Trade Association Initiative for utilization of Energy
efficient Aircraft, a valuable revenue generation & profitability can be achieved with lesser fuel
consumption, environmental benefits. It can also help to boost the Cargo & Charter business.
 Revenue Generation & Profit maximization Strategy: Through Digital India campaign, more use of IT
Technologies help to enhance the Industry &Economic growth, The better utilization of IT facilities by
Airlines helps to enhance the revenue generation through ancillary Product/services, It also make possible
faster cargo movement & It becomes a very essential component for modernization of Airports, The latest
IT technology execution helps Airlines to be in pace with Global market, better synchronizations with
Foreign Airports & business
 Strategy for Competitive Advantage: A strong execution of Key Performance Indicators by Airlines will
help to create the better brand image which will attract higher class Business Persons & executive levels
which will help for Ancillary Product/service business, It also help to create the better Brand Image in a
mind of Customers
 Corporate Strategy: As a part of CSR activity, Airlines should promote the tourism Business to get better
Customer base & better brand image
 Market Expansion Strategy: Low Cost Carriers becomes the catalyst for the revolution on Charter
Business& also expedite the execution of UDAN Regional connectivity Scheme
 Business Strategy: Airlines should make tie ups with the Corporate with some additional valued services
to enhance the Charter Business as now days it looks as a potential opportunity & LCCs make it feasible.
 Business Diversifications Strategy: As the higher Economic Growth & prospective future of the Industry,
the Airlines should make valuable Investment in the Business& also open the scope of the Diversifications
by expanding wings in Cargo business, Charter Business& International routes
 Establishment of Resources & Capability: With the Government Initiative to make the modernization of
Airport Infrastructure in partnership with genuine organizations & proper contract norms, the Industry
growth will be achieved with supportive Infrastructure resources.
 Competitive Strategy: With Make In India Campaign, the Government should promote the Maintenance
Facility to be established with supporting Policies. It helps in depreciation of Indian Currency in Global
Market. It will help to boost the success ration of Regional connectivity scheme, also modernization of
Airport can be handful by developing in house facility, enhance the economic growth of the country by
creating job opportunity
 Establishment of Resources & Capability: Airline Industries & National Carrier should establish the
training Facilities for better Job opportunities, increasing the reliable services; increase the contribution to
the GDP of the Country. It also helps to expand the business in Foreign Countries
 Overcome the Threats: Through the Modern technologies like Aircraft tracking facilities & security
equipment, the threat of the Terrorist activity can be minimized & it also help in Disaster management
also.
 Increasing Operational Efficiency: On continues improvement on Key Performance Indicators, the burden
of additional Cost like higher airport charges can be reduced. E.g. Indigo has the best performance on KPIs
to improve Cost efficiency
 Competitive Advantage: Airlines should develop the facility of Fuel Hedging to reduce the burden of
Turbine Fuel fluctuation in Global Market.
 Policy Rehabilitation: As the Government Initiative on reduction on Taxation of Fuel Price which is
currently around 30% (differs as per the state taxes), helps the airlines to compete the Foreign Airlines &
also helps the Airlines on Fuel hedging
 Overcome the Threat: With proper training facility to the Pilots & Cabin Crews, the threat of terrorist
activity can be reduced.

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CHAPTER7: FINDINGS

76
 CHAPTER 7: FINDINGS
I. Improvement in Key Performance Indicators:

Below mentioned the important Key Performance Indicators & their outcomes to improve the economy of
Airlines

Passenger Load Factor:

It is generally used to assess how efficiently a transport provider fills seats and generates fare revenue.
Almost all transport systems have high fixed costs, and these costs can only be recovered through selling
tickets. Airlines often calculate a load factor at which the airline will break even; this is called the break-even
load factor. At a load factor lower than the breakeven level, the airline will lose money, and above will record
a profit.
A higher Passenger Load Factor implies that an airline is successful in selling available seats. However, higher
PLF may not result in higher operating profit. When Load Factor is less than break-even load factor, the airline
in question is running losses. Evidently, in the year 2016-17, only Air India Express, Go Air, Indigo, SpiceJet and
Jet Airways were operating at a Passenger Load Factor higher than break-even load factor (BELF).

Turn Around Time:

It refers to the time required to unload a plane after its arrival at the gate and prepare it for the next
departure. For every minute an aircraft is on the ground, the fewer money-making routes it can fly.

Airlines, therefore, are constantly working to improve their on-time performance and reduce turnaround time
without compromising quality.

Employee Aircraft Ratio

Nos. of Employee looking after one Aircraft Fleet is the ratio which helps to derive or to maximize the
utilization of Employees potential per Fleet.

Indigo has managed the best way of utilization with 106 Nos. of Employees for 136 Fleets.

Stage Length
It is flying time per flight, lesser the stage length lesser is the inventory required increases the Fuel Efficiency
of the Aircraft & lowers the overall operational cost.

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 II. Focus on Ancillary product & services by Airlines:

The Low Cost Carriers in India like Indigo, Spice jet, Air India, Go Air has the lowest rate for getting higher
passenger load factor to operate the Airlines above the breakeven point for its sustainable operations.

The Airlines are providing basic Air transport service & luggage facility where they are charging for every other
services includes the on board meal, Online check in, selection of seat on chargeable basis, higher prices for
more leg room seat booking at first row & at emergency door, car rental booking & Hotel bookings.

This value added Service or it is called as Optional Pricing strategy where the Core Product is priced at lower
while the optional Product & services are charged at higher prices. The airlines are more focused on ancillary
product & services now days for revenue generations.

III. Reduction in Inventory & maintenance Cost of Aircrafts

Major Low cost airlines in globe has adopted the model of acquisition of single type aircraft fleet. The major
reason behind is that the similar fleet of Aircraft creates the easiness on daily operational activities, low cost
of inventory & reduces the maintenance cost.

In India, the Indigo has adopted the same model which brings it the competitive advantage over the other
Airlines.

IV. Impact of Civil Aviation Policy, 2016 on Aviation Industry

The Civil Aviation Policy in 2016 has silent feature to support the Indian Aviation policy by liberalizing the
regulations & implementing the new supportive policies. Below mentioned the major impact of Civil Aviation
Policy, 2016 on Industry:

 The core intention of New Policy is to enhance the regional air connectivity by developing facilities at
semi schedule & unscheduled areas, where the investment of Airlines in regional connectivity has
increased drastically. Also the new regional airlines have started their operations includes Air Deccan,
Luwang Air for Civil Air line services while Quickjet Airlines for Cargo & Carter Air Services. In coming
few years the new Airlines will start operations at regional level. The Foreign Airlines shall also invest
in India for grabbing the opportunity of regional connectivity.
 The liberalization of 5/20 rules of International operations, opens the doors for domestic airlines. The
major domestic airlines includes Indigo, Go Air, Spice Jet, Vistara has started their international
operations. Domestic Airlines has diversified their business by taking advantage of the opportunity
which also reduces their attention on domestic operations. It shows that the Indian Airlines do not
consider the domestic business as lucrative because of intense competition & price sensitive
consumer base.

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  After the liberalizing the FDI policies in India for foreign investment in India, there is no major
investment is done till date where many airlines & aviation industry shows interest for investment in
India near future includes Qatar Airways, Ryan Airlines, British Airways, Lufthansa, Etihad etc. The
MRO Industry is also shown very potential by foreign companies which shall plan for investment in
India. It indicates that still there are some barriers that need an attention for better foreign
investment in Aviation Industry.

V. Competitiveness of the Indian Aviation Industry

From the Michael Porter’s five force model, we came to below mentioned findings:

Michael Porter’s Model Impact on Indian Aviation Industry

Threat of Potential Entrants Low
Threat of Rivalry High
Threat of Buyer's Power High
Threat of Supplier's Power Low
Threat of Substitutes Low

Expected Average Industry Performance Mixed

From the Porter’s model study, it is derived that the domestic airline consumer base is highly price sensitive
who can easily switch over to the other brand due to rivalry offer.

It shows that no airline in domestic market has the differentiation of its product & services. While the Price
insensitive Customers or Upper class customers who is the niche market is in search for the valued services
from Airlines.

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CHAPTER-8 SUGGESTIONS

80
 CHAPTER 8: SUGGESTIONS

Suggestions

 India has a unique advantage of geographical location connecting Middle East & South East Asia.
This geographic location benefit should be taken into consideration by Airlines to schedule their
routes accordingly from Middle East countries (Dubai, Abu Dhabi, Qatar etc.) to South East
countries (Malaysia, Singapore, Indonesia, Thailand) & Australia via India. It will help their
business diversified in International market as well as revenue generated in foreign currency
helps airlines against the depreciation of Indian currency.

 The Foreign Airlines are interested for the potential domestic Indian market and have shown
interest for the investment after liberalization of FDI policies, while the Indian domestic Airlines
are a dilemma of its own survival & sustainable growth. The Indian Airlines should strategically
take a move ahead for joint venture with foreign Airlines for getting financial backup; a wide
experience base of foreign airlines will help the local domestic airlines to work in a synergy to
come out from the situation against the challenges for its sustainable growth.
E.g. Tata had ventured with Singapore airlines & Malaysia Airlines to get the strategic advantage
of the situation.

 The one of the major challenge for airlines is shortage of skilled, trained & technical manpower.
As the Industry is growing rapidly, there shall be huge demand of manpower with proper set of
skills. The trade association, airlines & government should work on development of training
institutes with valuable suggestions from Industry expert’s to cater the supply & demand
manpower with required skills set. As the Indian Airlines is very competitive Industry, the Cost
leadership will create competitive advantage for Airlines by reducing the discretionary cost like
Aircraft maintenance, Inventory Cost reduction, by reducing the turnaround time of flights gives
cost saving of Airport charges, focused on Key Performance Indicators

 The Cost leadership can also be achieved by revenue generation through the Diversifications into
Cargo Business, Charter Services & International operations. The airlines should focus on ancillary
Product/services for better revenue generations & profit maximizations.

 The domestic airline customer base is highly Price sensitive who can easily switch over to the
other brand due rivalry offer. Hence no airline in domestic market leads with the differentiation
of their Product & service.
It is an opportunity for the Airlines to differentiate their Brand image with the reliable
services, safety & assurance to make their space in consumer mindset with proper Marketing &
advertising campaign.

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 There is niche market of higher income class, upper middle class and business class People who
are price insensitive. The Airline should strategically position its premium brand image with
targeting particular niche customer segment with their valued services, marketing campaign
&corporate tie-ups.

 Looking toward the prospective future of the Industry, there is huge scope of the Maintenance,
Repair & Overhaul Industry to develop in India as the country has the huge resource of skilled,
semi-skilled& non skilled manpower, unique geographical location in South Asia, supportive
government policy for 100% FDI through automatic route for MRO Industry, implicating GST
regime in MRO Industry etc. shows an opportunity for developing a MRO hub in India. It shall also
attract the foreign Aircraft maintenance in India, helps in theeconomic growth of the country,
and creates the job opportunities.

 The major two challenges for airlines are higher Taxation on Jet Fuels & higher Airport
charges. The operating cost of fuel accounts approximately 34% of total operating cost while
the Airport charges accounts for 10% of total operating charges. The taxation on ATF price is
one of the dominating factors for Airlines which brings total taxation of 28% in India which
need to be covered under GST regime for better sustainability of the Airlines. The
government should immediately focus on taxation of jet fuels & Airport charges, should take
the counter measure as it impacts the profitability of the Airlines.

 Modern Infrastructure will bring down the unnecessary cost of the Airlines & while the in-house
maintenance facility & parking bay also bring more favorable conditions for Low Cost Airlines.

 Indian Airlines is one of the highest competitive Industries in Asia where the intense competition will
make it difficult for airlines to sustain in the long term. In such situation the Industry association &
Airlines should work in synergy to reduce the price competition for sustainable growth of Airlines as
well as Industry.

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CHAPTER 9: CONCLUSION

83
 CHAPTER 9: CONCLUSION

After having gone through various industry data and analytical models, we observed that Indian Aviation
Industry is largely untapped with huge growth opportunities, considering that air transport is still expensive
for majority of the country’s population the situation which will change in upcoming years. With relatively low
penetration level, a favorable macroeconomic environment, support from government policies and
development of new airports the domestic passenger is definitely going to be the third largest Aviation
industry in world

The only concern for the airlines in India is the profitability which could be largely addressed by the price of
ATF by the government by either subsidizing it or bring it under GST regime. The other factor affecting
profitability is depreciation of rupee which is not in hand of airlines and hence to neutralize it the airline
association should work towards reducing the cut throat competition within the industry.

Thus by taking some measure and by building robust infrastructure the airline industry despite challenges can
sustain its growth profitably.

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 APPENDIX
Websites Referred

Indian Brand Equity Foundation- www.ibef.org

Directorate General of Civil Aviation – www.dgca.nic.in

International Air Transport Association – www.iata.org

Ministry of civil aviation, India – www.civilaviation.gov.in

CAPA- Centre of Aviation – www.centreforaviation.com

LiveMint newspaper website – www.livemint.com

Financial Times website – www.ft.com

Articles/ Documents referred

1) Final Report on 5th International exhibition and conference on civil aviation -

https://www.telanganatourism.gov.in/partials/events/india-aviation-2016.html
2) DGCA Handbook for year 2017-18 & 2016-17
http://www.dgca.nic.in/reports/hand-ind.htm
3) IBEF report on civil aviation for September month
https://www.ibef.org/industry/indian-aviation.aspx
4) India Economy Review Magazine
http://www.theindiaeconomyreview.org/Default.aspx
5) Care Ratings—Airlines & Airports ,march 2018
http://www.careratings.com/upload/NewsFiles/Studies/Airlines%20and%20Airports.pdf

85