Indian Airline Industry free essay sample

Forecasts by AAI for the next 5 years have projected a sustainable growth rate of 16% for international and 20% for domestic aviation sector. Recognizing the exponential growth of air traffic in India, the Ministry of Civil Aviation has been following a very liberal policy in the exchange of capacity entitlements / traffic rights. Domestic airlines have been allowed to fly overseas, forge partnerships with foreign carriers while foreign carriers in turn have been interlining with domestic airlines to access secondary destinations. The government has also tried to ensure an environment conducive for growth of all stakeholders associated with Indian aviation segment. With the rise in the number of airlines, growing passenger segment and route expansion, there is however a need for Indian airports to have their infrastructure in place, which unfortunately at present is the weakest link in the chain. Greenfield and modernization projects are being developed on PPP model to develop facilities conforming to international standards and to encourage the domestic operators to shift base, so as to decongest major airports. We will write a custom essay sample on Indian Airline Industry or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page To monitor the quality of services rendered by various airports and their tariff, an independent regulator, Airport Economic Regulatory Authority (AERA), is proposed to be appointed. To ensure competitive practices in ground handling services, the government has proposed adoption of a new ground handling policy from January 2009. Global and domestic aircraft manufacturers are upbeat on the aircraft demands from India. Non scheduled services have also steadily picked up and are growing at a CAGR of 19% primarily driven by a sustained growth in the economy and facilitated by the need of Indian corporate captains to invest in more productive hours every day. In addition, total cargo traffic of all airports has increased from 10% during 2006-07 to 14% in 2007-08, recording a CAGR of 13% for last six years. With the growth in the passenger and aircraft traffic in India, there has also been a significant focus on requirement of maintenance, repair and overhaul (MRO) facilities. The Indian MRO market is growing at about 15% annually. However, on the manpower front, currently there is a shortage of qualified pilots and other technical staff including Aircraft Maintenance Engineers and Air Traffic Controllers. While there are a lot of new avenues in aerospace services in the coming decades, the constraints associated need to be addressed to enable the smooth growth of the sector. Some of the issues faced by the sector include mounting losses of the airlines, rising aviation fuel prices, congestion at airports, shortage of qualified pilots and technical manpower, upgradation of security, land acquisition, high taxation, high airport charges etc. There is a need to study the causes of the issues and address the same thereby paving an unobstructed growth path for the various opportunities. The need of the hour is to efficiently utilize the existing resources and at the same time commission the planned infrastructure in a timely manner. In addition, a collaborative effort must be initiated involving all the stakeholders concerned to chalk out a framework detailing the measures, the Indian aviation sector needs to pursue in the next five to ten years. This framework would act as a platform to scale new heights and make India one of the leaders in the global aviation industry. The framework would require prioritization of various issues on the basis of importance (high, normal or low). This would ensure a focused approach to understand the root cause of the issue and to address the same by taking necessary remedial actions. The framework would also emphasize on the time lines for leveraging the opportunities abound in the sector. INDIAN AVIATION India is one of the fastest growing economies of the world with an average GDP growth of over 8. percent in last five years. For India to sustain its economic growth story it has to strengthen its infrastructure sector and in particular, critically improve its transportation infrastructure. Aviation is an important part of national infrastructure and one of the prime movers for economic growth and an important strategic element of employment generation. Aviation sector in India has been tra nsformed from an over regulated and under managed sector to a more open, liberal and investment friendly sector since 2004. The international passenger growth has been growing at CAGR of over 14% and domestic growth has been an impressive 22% for last 6 years. Cargo growth India already has an open sky policy for air cargo. An air cargo hub is being developed at Nagpur by the Ministry of Civil Aviation. The ministry also has plans to build dedicated cargo airports across the country to cater to increasing demand in air cargo traffic. During the year 2007-08, the domestic cargo traffic grew by 11% while the international cargo traffic grew by 15%. The domestic cargo is expected to increase at a CAGR of 13% during the period 2007-2010 while the international cargo is expected to grow at a CAGR of 14% over the same period. At present India contributes over 1% of the world air cargo traffic. Growth drivers The factors contributing to the air traffic growth can be broadly classified into economic and policy factors. Entry of low cost carriers, higher house hold incomes, strong economic growth, increased FDI inflows, surging tourist inflow, increased cargo movement, strong business growth and supporting government policies are the major drivers for the growth of aviation sector in India. For growth drivers refer the table below: Table 2: Growth drivers Economic Factor| Policy Factor| †¢ Liberalization and economic reforms undertaken by the government†¢ Fast expansion of industries in consonance with economic reforms†¢ Emergence of service sector†¢ Average GDP growth of around 8. 9% during the last 5 years†¢ Increase in inbound and outbound tourists and medical tourism†¢ Over 300 million strong middle class†¢ Disposable incomes expected to increase at an average of 8. 5%p. a. ill 2015†¢ Emergence of low cost airlines†¢ The organized retail boom that would require the need for timelydelivery thus contributing to the growth in the air cargo segment†¢ Corporate showing increasing preference for private jets and aircharter services| †¢ Modernization and setting up new airports across country†¢ City side development of non metro airports†¢ Providing international airport status to major tier I and tier II cit ies†¢ Open sky policy†¢ Policy of license to new scheduled operators†¢ Permission to acquire new aircrafts†¢ Permission of private operators to perate on international sectors†¢ Encouraging private investments in airlines and airport infrastructure†¢ Facilitative foreign direct investment norms†¢ Liberal bilateral service agreements†¢ Emphasis on development through PPP mode| Source: (Commision, 2007-12) Bilateral Agreements India has so far entered into Air Services Agreements with around 101 countries. A bilateral Air Transport Agreement (also sometimes called a bilateral Air Service Agreement) is an agreement which two nations sign to allow civil aviation between their territories. Air Services Agreement provides the basic legal framework for operation of air services between India and the country concerned. The number of flights/ seats per week to be operated by the designated airlines of India and the contracting foreign country are decided by Government level bilateral talks, which are held at regular interval depending upon growth of traffic based on the principle of mutual benefit and reciprocity.