26782461 Airline the Service Industry (1)

8/8/2019 26782461 Airline the Service Industry (1)

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AIRLINE: THE SERVICE INDUSTRY

S. No Topic Page No1. Summary 1

2. Service Marketing 2

3. Unique Characteristics Of Service 2

4. Marketing Mix For Service Marketing 8

5. Introduction to Airline Industry 17

6. Structure Of The Industry 20

7. How Major Airlines Are Structured 218. The Indian Aviation Industry 24

9. Airport Infrastructure 29

10. Development Of Civil Aviation 31

11. Civil Aviation Policy 34

12. Infrastructure Developments 36

13. Airport Privatization 38

14. Alliance Strategy 4015. Benefit To Passengers 43

16. Recent Development 45

17. Future Growth Of Non Metro Airports 50

18. Case Study Jet Airways 53

19. Conclusion 63


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SUMMARYWe owe it to the Wright brothers for having invented

airplanes. The Wright brothers could not have imagined how

airplanes would change the way people live & do business.

The airline industry has witnessed a sea change from twowheeler bi-planes to the Boeing 747's that are visible in our

skies today. The passage of time has witnessed competition grow from leaps to

bounds. Today airplanes are present in every country around the world with

expectation of a few places. Even the industry has been growing year on year

It was JRD Tata who made the first move to build up an airline industry in

India. He with the help of Nevil Vincent, a former RAF pilot, went ahead and

drew a plan for the operation of first flight from Karachi to Mumbai with single

stopover at Ahmedabad. This is how Tata Airlines was born which was donated

to Indian Government. On 28th May 1953, Air Corporation Act 1953, the

government of India nationalized the airlines industry. In accordance with this

act, the two air corporations, viz. Indian Airlines Corporation and Air India

International were established. In 1994 the monopoly was ended and Indian

skies were opened for any carriers who fulfills the statutory requirement

The Indian aviation industry can be broadly classified into two main segments -

Civil and Cargo. In fact, the birth of civil aviation is attributed to air cargo and

mail. In the beginning, mail and air cargo were the important elements of air

carrier services than passengers. The major players in the Indian context are


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Air India in the international segment and Indian Airlines, Jet Airways and

Sahara in the domestic segment.

Over the years, the aviation sector in India has evolved and today it is on the

threshold of a major shake out with the divestment of the Indian government's

stake in Air India and Indian Airlines on the cards. A number of domestic and

foreign parties have evinced interest in the divestment process. Foreign airlines

have also entered the Indian skies.

The Indian aviation sector till recently was highly regulated by the government.

As recently as the eighties saw the introduction of some new initiatives like the

air taxi scheme, whose main objective was to boost tourism.

Domestic and international passenger traffic in India is projected to grow

annually at 12.5% and 7% respectively over the next decade. At the same time,

domestic and international cargo traffic is expected to grow at 4.5% and 12%

respectively. By the year 2010, Indian airports are likely to handle 60mn

international passengers and 300,000 tons of domestic and 1.2mn tons of

international cargo.


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SERVICES MARKETINGService industry is witnessing a major boom in India. Services like banking, car

financing, consumer durable credit, cellular, paging, express, hospitality, travel

and tourism, airlines, and, educational services on are today realizing the

importance of marketing. Along with these big service businesses, many small

businesses ranging from beauty saloons, pubs, gyms, play schools and so on

are realizing the importance of marketing.

UNIQUE CHARACTERSTICS OF SERVICES

What is a service? And why should services receive special treatment from

marketers? A popular definition describes services as

"Any act or performance that one party can offer to another that is essentially

intangible and does not result in the ownership of anything. Its production may or

may not be tied to physical product."

Although, the distinction between goods and services is somewhat artificial,

since the success of goods manufacturers is vitally dependent on the service

they provide, there are four commonly cited characteristics of services that

make them different to market from goods: Intangibility, Inseparability,

Variability and Perishability.

Intangibility:Pure services such as baby-sitting cannot be seen or touched. They are

ephemeral performances that can be experienced only as they are

delivered. As the above definition of service suggests, intangibility may


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represent the most critical difference between services and goods, and its

implications for marketing are great.

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. A passenger cannot feel the service that he

would encounter in the airplane, however person may talk to other

travelers who have experienced the same service, but their experience

does not necessarily be the same.

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. Life insurance companies are particularly savvy about this

problem. Their service is, after all, the most intangible service: by

definition, the buyer will never know the ultimate result of what he or

she has bought! To compensate for this intangibility the major

companies over the world have developed strong visual symbols for their

firms.

y Prudential The rock of Gibraltary All state -Protective handsy Travelers -A red umbrellay Nationwide -A blankety Wausau -A train station

Inseparability:Different service marketing marketers interpret this characteristic

differently, but all interpretations point out those special operations

problems exist for the firm's managers. One interpretation of this term is

the inseparability of customers from the service delivery process. In

particular, many services require the participation of the customer in the


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production process. A child getting a haircut must sit still; otherwise, the

family photo may have to be delayed for a month. The person who comes

to a Chartered Accountant (C. A.) at the last minute with boxes of

disorganized records may cause the C. A. to overlook some possible

deductions. These examples illustrate the fact that, unlike goods, which

are often produced in a location far removed from the customer and

totally under the control of the manufacturing firm, service production

often requires the presence and active participation of the customer -

and of other customers. Depending upon the skill, attitude, and

cooperation and so on that customers bring to the service encounter, the

results can be good or bad, but in any event are hard to standardize.

A second interpretation of inseparability refers to the fact that in some

service industries the service delivered is inextricably tied to particular

individual service providers. Customers may have ground for complaint if

their service is not provided by, for example, the surgeon or lawyer they

thought they were paying for.

Variability: The fact that service quality is difficult to control compounds the

marketer's task. Intangibility alone would not be such a problem in

customers could be sure that the services they were to receive would be

just like the successful experiences their neighbors were so pleased with.

But in fact, customers know that services can vary greatly. 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 cooperationand 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.


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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. The appeal of

some service personnel - particularly, those involved in such expensive

personnel services as beauty parlors treatments or home decoration - lies

in their spontaneity and flexibility to address individual customer needs.

The danger with too much standardization is that these attributes may

be designed right out of the services, therefore reducing much of their

appeal. 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.

Perishability:The fourth characteristic distinguishing services from goods is their time

dependence. Services cannot be inventorised, since they are performed in

real time. And time periods during which service delivery capacity sits

idle represent revenue-earning potential that is lost forever. Periods of

peak demand cannot be prepared for in advance by producing and

storing services, nor can they be made up for after the fact. A service

opportunity occurs at a point in time, and when it is gone, it is gone

forever. This can present great difficulty in facilities planning. A survey of

service firms found that the greatest operational challenges facing them

were posed by the Perishability of their products.

Matching service capacity to demand patterns can involve managing one

or both elements. Perishability often puts a greater burden on servicemarketers to manage demand than it does on goods marketers, who can

build up inventories to meet peak demand or can reduce prices later to

move the unsold inventory. The cited survey found that the firm's

principal method for controlling demand was to increase personnel


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selling during potentially slow periods. Surprisingly, few firms claimed to

use the standard economic solution of price changes to increase or

decrease demand, although some service industries, such as resort

hotels with seasonal demand, do this routinely.

Few service providers had opinion that they developed alternative,

counter seasonal service products to use slack capacity, although that

has long been a common practice by goods marketers. Many service

providers also control demand by requiring appointments. The

alternative to controlling demand is to make service capacity flexible.

Some service firms keep on call frontline personnel who can arrive on

short notice to meet the surges in demand, or cross train support

personnel to assist with customer service during busy periods.


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MARKETING MIX FOR SERVICES MARKETING

The marketing mix refers to the blend of ideas, concepts & features whichmarketing management put together to best appeal to their target market

segments. Each target segment will have a separate marketing mix, tailored to

meet the specific needs of consumer in the individual segment.

Service marketing managers have found that the traditional four P's of

marketing are inadequate to describe the key aspects of the service marketer's

job. The traditional marketing mix is said to consist of the following elements of

the total offering to consumers: the product (the basic service or good,

including packaging, attendant services etc.); its price; the place where the

product is made available (or distribution channels - not generally a real issue

for most services, except perhaps for repair and maintenance); and promotion

(marketing communication: advertising, public relations and personal selling).

Price

Product

Physical

Evidence

People

Place

Promotion

Process

Service

Quality

7 Ps of Service Marketing


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The Product Mix: The product here refers to Airline service offering. Although service

products are essentially intangible, there are certain pyhsical

characteristics which consumer assess in their evaluation of productchoice. It the service mix, there is passenger services , cargo services, &

the mail services.

Attractiveness of the offering in terms of pyhsical features such as

consumers have high expectation, the food & drinks offered ,

entertainment.

Facilities available, associated level of services such as, quality of seats &

interior decoration. The product is quite complex one since it comprises

of aservice of certain tangibal such as free flight bags or free bottle or

duty free spirit in order to encourage booking.

Thr airline product includes 2 types of services, on the ground services

and in-flight services. The on-the ground, services include car parking

facilities at the airport, duty free shopping, reservation counter, efficient

checking of baggage, transport etc

y Reservation:Reservation of air-line ticket is now easy since it is fully

computerized and now you can reserve your ticket through thr

internet. There are 24 hours reservation, passenger can even

specify their seat preference at the time of reservation.


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y Checkin: The check-in and flight handlingsystem has also been

computerized. Kingfisher airline has offered tele-check-in facilities

to the passengers can call their special tele-check-in numbers at

the airport upto 45 minutes before the departure and confirm their

ticket. Their boarding card will await them at the airport. In order

to relax after their check-in special lounges are provided.

y Baggage facilities:

About 30kgs of check-in baggage is allowed. Passenger, carryinginternational tickets are given further allowance of around an

added 30kgs priority baggage delivery is offered to the members.

y Transport facilities:Free transport service is provided to passengers in order to help

them reach their destination faster. Apart from these tangibal

elements the seating arrangement in the aircraft should bespacious and comfortable. The in-flight foods provide physical

evidence to the airline service.


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The Promotional Mix:

The aims of promotion fall into three main categories: to inform, to

remind, & to pursuade. It will always be necessary to inform prospective

consumers about new products & services, but other issue may alsoneed this type of communication to consumers; new uses, price changes,

information to build consumer confidence & to reduce fears, full

description of service offering, image building. Similarly consumers may

need to get reminded about all these types of issues, especially in the off-

peak season.

It is vitally important to recognisse that promotion, or marketing

communications generally, may not always be aimed at potential

consumer or end user of service. In many business areas, it is to design

promotions aimed at channel customers to complement end user

promotion.for e.g Airlines will need to promote their services to tour

operaters as well as end user.


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The Pricing Mix:

Pricing in airlines is a fairly complex issues,since there are price variations because

variations in the level of demand, particularly

due to seasonality, when every Airlines gives

price discounts & competition is tough.

Airlines will always faced by high levels of

fixed costs, leading to variants of cost-plus

pricing or ROI as key determinants of pricing levels. It is important toincludde pricing tactics which exploit price sensitivities fully. It

differentiates service levels & offer higher price value added services, as

in business class air travel.

We have diffenent authorities to manage and control domestic as well as

international air transport busines. The ministry of civil aviation, the

indian airline corporation, the national airport authority, the

international airport authority of india and the air india corporation are

the bodies directly or indirectly influencing the process of pricing

decision.

The cocept of fair price is very important, pricing can be classified in 3

ways.

y Cheapvaluepricing:This method of pricing is used to undercut the competition and

trigger immediate purchase. Though the unit profits aer low, the

overall profits are achived.

In order to meet the competition and consolidate their position in

the market. Air india and indian airlines have their price.


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y Value formoneypricing:In this method average price is charged for the product and it is

emphasized that it represents excellent value for money at this

price. This enables the airline to achieve the good level of profit.

y Premiumpricing:In this method the prices are set above the market price either to

reflect the image of quality or the unique status of the product

premium pricing succeeds if the company enjoys a strong

reputation that the brand image alone is sufficient or the product

features are not shared by its competitors.

Place:The air transport organisation has to make sure that the prospects dont

face any difficulty while buying the tickets and make necessary

arrangements for the confirmation of the booking. It is also confirmed

that the users booking their luggages do not face any inconveniences.

Another dimension of place is related to the location and management of

offices of airways, travel agent, tour operators, transport operators etc.

Easy accessibility should be the main criteria in selecting the place. The

place should be safe, well connected with all weather proof roads where

all the required infrastructure facilities are available.

The water and sanitation facilities for the users and comfortable seating

arrangements must be made available. Lighting and ventilation facilities

should also be taken care of. The interior decoration furnishing,

plantation needs aesthetic sense so that the user forms a positive

opinion regarding the airway services.


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People Mix:Many services require personal interactions

between customers and the firm's employees

and these interactions strongly influence thecustomer's perception of service quality. For

example, a person's stay at a hotel can be

greatly affected by the friendliness,

knowledge ability and helpfulness of the

hotel staff - in most cases the lowest paid people in the organization.

One's impression of the hotel and willingness to return are determined to

a large extent by the brief encounters with the front-desk staffs, bellhops,

housekeeping staff, restaurant wait staff and so on, many of which take

place outside the direct control of the hotel management. In fact, the

average hotel patron has very little contact with the hotel supervisors

and managers.

Therefore, management faces a tremendous challenge in selecting and

training all of these people to do their jobs well, and, perhaps even more

important, in motivating them to care about doing their jobs well, and,

perhaps even more important, in motivating them to care about doing

their jobs and to make an extra effort to serve their customers. After all,

these employees must believe in what they are doing and enjoy their

work before they can, in turn, provide good service to customers.

For this reason, human resources management policies and practices are

considered to be of particular strategic

importance for in delivering high-quality

services. Establishing a customer-orientedculture throughout the firm and

empowering employees to provide quality

service cannot be established merely by

putting up inspiring posters. Management


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leadership, job redesign and systems to reward and recognize

outstanding achievement are among the issues that a successful service

manager must address. The term "internal marketing" has been coined to

characterize the sets of activities a firm must undertake to win over the

hearts and minds of its employees to achieve service excellence.

The "people" component of the service marketing mix also includes the

management of the firm's customer mix. Because services are often

experienced at the provider's facilities, other customers who are being

served there can also influence ones satisfaction with a service. Ill

mannered restaurants customers at the next table, crying children in a

nearby seat on an airplane and commercial bank customers whose

lengthy transactions take up the teller's are all examples of unpleasant

service conditions caused by a firm's other patrons.

On the other hand, the right mix of customers can greatly increase the

enjoyment of experience - for example, at entertainment services, such as

nightclubs or sporting events. Determining the desirable customer mix

for a service, segmenting the market into compatible groups and

managing customer arrivals to avoid conflict and enhance the service

experience are essential components of service management.

The Physical Evidence Mix: This element of the expanded marketing mix addresses the "tangible"

components of the service experience and firm's image referred earlier.

Physical surroundings and other visible cues can have a profound effect

on the impressions customers form about the quality of the service they

receive. The "services cope" - that is, the ambience, the backgroundmusic, the comfort of seating and the physical layout of a service facility

- can greatly affect a customer's satisfaction with a service experience.

The appearance of the staff, including clothes and grooming, may be

used as important clues. Promotional materials and written


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correspondence provide tangible reassurance; they can be incorporated

into the firm's marketing communications to help reduce customer

anxiety about committing to the purchase. Service firms should design

these items with extreme care, since they will play a major role in

influencing a customer's impression of the firm. In particular, all

physical evidence must be designed to be consistent with the

"personality" that the firm wishes to project in the marketplace.

The Process Mix:Because customers are often involved in the production of services, the

flow and progress of the production process is more important forservices than it is for goods. A customer who buys a television set is not

particularly concerned about the manufacturing process that made it.

But the customer at a fine restaurant is not merely interested in the end

result - the cessation of hunger. The entire experience of arriving at the

restaurant - of being seated, enjoying the ambiance, ordering, receiving

and eating the meal - is important. The pace of the process and the skill

of the provider are both apparent to the customer and fundamental to

his or her satisfaction with the purchase.

The importance of the process is true even for less 'sensual" experiences.

A customer who applies for a loan at a bank evaluates the purchase not

only by the amount of the loan received and the interest rate paid. The

speed and sensitivity of the approval process, the interaction with the

bank officers, the accuracy of bank statements and the ease of getting

redress if mistakes are found all affect the person's attitudes about doing

further business with the bank and his or her willingness to recommend

it to others. Therefore, when designing service production processes,

particular attention must be paid to customer perceptions of that

process. For this reason, marketing and operations are closely related in

service management.


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INTRODUCTION TO AIRLINE INDUSTRY

We owe it to the Wright brothers for having invented airplanes. The Wrightbrothers could not have imagined how airplanes would change the way people

live & do business. The airline industry has witnessed a sea change from two

wheeler bi-planes to the Boeing 747's that are visible in our skies today. The

passage of time has witnessed competition grow from leaps to bounds. Today

airplanes are present in every country around the world with expectation of a

few places. Even the industry has been growing year on year.

Technology has also made a significant contribution to the airline industry;

over the years technological advances have been incorporated into the science

of flying airplanes. The industry has also propelled the growth of ancillary

services like travel agents, courier services, cargo handling, clearing &

forwarding agents etc


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HISTORY OF INDUSTRY

Nevill Vincent, a former RAF pilot came to India from Britain in 1929, on a

brainstorming tour to survey a number of possible routes. It was through

providence that he met JRD Tata, the first Indian to secure an A-license within

the shortest number of hours. Vincent worked out a scheme, secured JRD's

approval and together they presented it to Mr. Peterson, the director of Tata

Sons and also JRD's mentor. Sir Dorab Tata, the then chairman of Tata Sons,

pleasantly surprised all by giving the scheme his okay. So they went ahead and

drew plans for the operation for the first flight from Karachi to Mumbai with a

single stopover at Ahmedabad. All that they asked was a guarantee from the

government for a year for the sum of Rs.100,000. This, however, was turned

down. The Tata-Vincent combine was naturally disappointed but not dismayed.

A second scheme was prepared. This time the guarantee asked was Rs.50,000

for the first year, Rs.25,000 for the second year and no guarantee at all from

the third year onwards. This scheme was rejected too. The team then tried a

third time. This time they offered to donate an air service to the Government of

India with no strings attached. The Government finally agreed and thus wasborn Tata Airlines that later became Air India.

On 28th May 1953, consequent to the coming into force of the Air Corporations

Act, 1953, the Government of India nationalized the airlines industry. In

accordance with this Act, the two air corporations, viz. Indian Airlines

Corporation and Air India International, were established and the assets of all

the then existing airline companies (nine) were transferred to the two new

Corporations. The operation of scheduled air transport services was under the

monopoly of these two Corporations and the Act prohibited any person other

than the Corporations or their associates to operate any scheduled air

transport services from, to, or across India.


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However, after 40 years, in 1994, the wheel had turned a full circle as the Air

Corporation Act, 1953 was repealed with effect from 1st March 1994. That

ended the monopoly of the Corporations on scheduled air transport services.

Air transport in India is now open to any carrier who fulfills the statutory

requirements for operation of scheduled services.


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STRUCTURE OF THE INDUSTRY

Typesof AirlineCertification

All airlines hold two certificates from the federal government: a fitness

certificate and an operating certificate. The Department of Transportation

(DOT) issues fitness certificates - called certificates of public convenience and

necessity - under it's statutory authority. Basically, the certificate establishes

that the carrier has the financing and the management in place to provide

scheduled service. The certificate typically authorizes both passenger and cargo

service. Some airlines, however, obtain only cargo-service authority. Commuter

airlines that use aircraft with a seating capacity of 60 or fewer seats or a

maximum payload capacity of no more than 18,000 pounds can operate under

the alternative authority of Part 298 of DOTs economic regulations.

Operating certificates, on the other hand, are issued by the Federal Aviation

Administration (FAA) under Part 121 of the Federal Aviation Regulations

(FARs), which spell out numerous requirements for operating aircraft with 10

or more seats. The requirements cover such things as the training of flight

crews and aircraft maintenance programs. All majors, nationals and regionals

operate with a Part 121 certificate.


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HOW MAJOR AIRLINES ARE STRUCTURED

Line Personnel: These include everyone directly involved in producing or selling an

airlines services - the mechanics, who maintain the planes; the pilots,

who fly them; the flight attendants, who serve passengers and perform

various inflight safety functions; the reservation clerks, airport check-in

and gate personnel, who book and process the passengers; ramp-serviceagents, security guards, etc. Line personnel generally fall into three

broad categories: engineering and maintenance, flight operations, and

sales and marketing. These three divisions form the heart of an airline

and generally account for 85 percent of an airlines employees.

Operations:This department is responsible for operating an airlines fleet of aircraft

safely and efficiently. It schedules the aircraft and flight crews and it

develops and administers all policies and procedures necessary to

maintain safety and meet all FAA operating requirements. It is in charge

of all flight-crew training; both initial and recurrent training for pilots

and flight attendants, and it establishes the procedures crews are to

follow before, during and after each flight to ensure safety.

Dispatchers also are part of flight operations. Their job is to release

flights for takeoff, following a review of all factors affecting a flight. These

include the weather, routes the flight may follow, fuel requirements and

both the amount and distribution of weight onboard the aircraft. Weight

must be distributed evenly aboard an aircraft for it to fly safely.


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Maintenance:Maintenance accounts for approximately 11 percent of an airlines

employees and 10-15 percent of its operating expenses. Maintenance

programs keep aircraft in safe, working order; ensure passenger comfort;

preserve the airlines valuable physical assets (its aircraft); and ensure

maximum utilization of those assets, by keeping planes in excellent

condition. An airplane costs its owner money every minute of every day,

but makes money only when it is flying with freight and/or passengers

aboard. Therefore, it is vital to an airlines financial success that aircraft

are properly maintained

Airlines typically have one facility for major maintenance work and

aircraft modifications, called the maintenance base; larger airlines

sometimes have more than one maintenance base. Smaller maintenance

facilities are maintained at an airlines hubs or primary airports, where

aircraft are likely to be parked overnight. Called major maintenance

stations, these facilities perform routine maintenance and stock a large

supply of spare parts.

A third level of inspection and repair capability is maintained at airports,

where a carrier has extensive operations, although less than at its hubs.

These maintenance facilities generally are called maintenance stations.

Salesand Marketing: This division encompasses such activities as pricing, scheduling,

advertising, ticket and cargo sales, reservations and customer service,

including food service. While all of them are important, pricing and

scheduling in particular can make or break an airline, and both have

become more complicated since deregulation. As explained in the next

chapter, airline prices change frequently in response to supply and


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demand and to changes in the prices of competitors fares. Schedules

change less often, but far more often than when the government

regulated the industry. Airlines use sophisticated computer reservation

systems to advertise their own fares and schedules to travel agents and

to keep track of the fares and schedules of competitors. Travel agents,

who sell approximately 80 percent of all airline tickets, use the same

systems to book reservations and print tickets for travelers.

Subcontractors:While major airlines typically do most of their own work, it is common for

them to farm out certain tasks to other companies. These tasks couldinclude aircraft cleaning, fueling, airport security, food service and in

some instances, maintenance work. Airlines might contract out for all of

this work or just a portion of it, keeping the jobs in house at their hubs

and other key stations. However, whether an airline does the work itself

or relies on outside vendors, the carrier remains responsible for meeting

all applicable federal safety standards.

Securitymeasures:The government will most probably accept the recommendations of the

technical up gradation committee, set up to look into the different

aspects of air security

For international flights Air India & Indian airlines, security personnel

have been trained in passenger profiling, supposed to be the "most fool-

proof" security arrangement to identify suspicious traits among

passengers. The government is willing to spare more highly trained

commands, but the airlines have to be prepared to pay the price of

having the sky on board, it is learnt


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THE INDIAN AVIATION INDUSTRY

The civil aviation activities can be broadly classified into three areas:

Operational, Infrastructure Regulatory-cum-developmental.

On the operational front, Air India provides international air services while

Indian Airlines is involved in the field of domestic air services. Pawan Hans

supplies helicopter support services, primarily to the petroleum sector. Air

India, Indian Airlines and its subsidiary Alliance Air (which also provides

domestic services) and Pawan Hans are government-owned. Other than them,there are a few private domestic operators too. Airports Authority of India (AAI),

which was formed in April 1995 through the Airports Authority of India Act, by

merging the separate national and international airport authorities that

existed earlier supply infrastructural facilities.

In terms of characteristics, the aviation industry is seasonal in nature. In the

period April to May and again from November to December, demand is high.

However, in the June-July period demand falls.

Top Playersin Airlines:

Indian Airlines:

The network of Indian Airlines spans from Kuwait in the west to Singapore inthe East and covers 75 destinations - 59 within India and 16 abroad. The

Indian Airlines international network covers Kuwait, Oman, U. A. E, Qatar and

Bahrain in West Asia, Thailand, Singapore, Yangoon (Rangoon) and Malaysia in

South East Asia and Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and

Maldives in the South Asian subcontinent.


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Indian Airlines flight operations center on its four main hubs the main metro

cities of Delhi, Mumbai, Calcutta and Chennai. Together with its subsidiary

Alliance Air, Indian Airlines carries a total of over 7.5mn passengers annually.

At present, Indian Airlines has a fleet strength of 55 aircraft's. Out of them, are

11 Airbus A300, 30 Airbus A320, 11 Boeing B737 and 3 Dorniers D0228.

Indian Airlines has total staff strength of around 22,000 employees. Its annual

turnover, together with that of its subsidiary Alliance Air, is over Rs.40bn.

Jetairways:

Jet Airways, India's most preferred airline, is now giving the world a better

choice in the skies.

The airline operates over 350 flights daily across 44 destinations within India

and also operates flights to Nepal, Sri Lanka, Singapore, Malaysia, United Kingdom, Thailand,

Belgium, United States of America & Canada on one of the youngest and best maintained

fleets. Jet Airways plans to extend its international operations further in North

America, Europe, Africa & Asia in the coming years with the induction of wide-

body aircraft into its fleet years.

Kingfisher Airlines:

Kingfisher Airlines is another highly regarded full service airline. The airline,

which has the same "King of Good Times" owner as India's Kingfisher beer,

started operating in mid 2005 and has a 15% market share. Its headquarters


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are in Bangalore, with bases in Mumbai, Hyderabad, and Delhi. In total, the

airline covers almost 40 destinations across India. The average age of its fleet is

less than two years.

Kingfisher's larger than life owner has given the airline many personal touches.

Passengers are treated as guests, seating is spacious and comfortable, and the

airline puts significant effort into recruiting charming and attractive staff. It

also leads the way in regard to in-flight entertainment on domestic flights in

India.

Indigo:

Indigo Airlines is based in Delhi and flies to around 15 destinations all over

India. This privately owned airline started operating in mid 2006, and has a

market share of almost 11%. It's considered to be India's best low cost carrier.

Its airplanes are new and clean, and despite keeping fares low, the airline

hasn't compromised on punctuality, connectivity of flights, safety, or customer

service. Of course, don't expect any frills, but the amount of leg room is decent.

If you're looking to fly with a low cost airline, IndiGo offers good value for

money. The limit for check-in baggage is 20 kilograms.

Spicejet:

SpiceJet is another decent, privately owned, low cost carrier. The airline, which

is based in Delhi, started operating in mid 2005. It has just over 10% share of

the market, and services most capital cities in India.


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Spice Jet has new and clean planes. However, punctuality on some routes is an

issue. Seats on the older planes can be a bit uncomfortable. Also the limit for

check-in baggage is 20 kilograms, as opposed to 25 kilograms on some other

airlines. Definitely give it a try if you're on a budget though!

Kingfisherred:

Kingfisher Red, originally called Air Deccan, is a privately owned low cost

airline based in Bangalore. It started operating in mid 2003 and was India's

first low cost carrier. Kingfisher Airlines took over the airline, which has

captured just under 15% of the market, in early 2008. The average age of its

airplanes is four and a half years.

Kingfisher Red has improved a lot since its merger with Kingfisher Airlines. It

now accepts international credit cards for bookings, seat numbers are

allocated, and staff are more committed and friendly. There's a 25 kilogram

limit for checked in baggage, and hot snacks are served on board. However,

there's not much leg room and flights are still often delayed.

Jetlite:

JetLite used to be Air Sahara until Jet Airways successfully took the company

over in mid 2007. The low cost airline focuses on providing flights that connect

India's capital cities, and it has a 7% share of the market. In addition to its

headquarters in Delhi, it also has bases in Mumbai and Hyderabad.


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Unfortunately, what JetLite has in common with its parent airline stops with

its brand name. Many passengers report poor service and baggage handling. Its

older aircraft also have very cramped seating that allows hardly any leg room.

The limit for checked-in baggage is 25 kilograms.

Goair:

Go Air is a small privately owned, low cost airline that started operating in late

2005. It has almost a 5% market share and operates a fleet of brightly colored

airplanes to twelve cities in India. Its remote destinations include Jammu,

Srinagar, and Guwahati. Go Air now has the youngest fleet of aircraft in India,

with the average age of its eight A320 Airbus airplanes being approximately

seven months.

Go Air has some of the cheapest domestic fares available in India. However,

punctuality has been a common complaint about this airline in the past. Thesedays, it seems to have greatly improved. The limit for checked-in baggage is 25

kilograms, and 40 kilograms for international passengers flying within 24

hours of arrival in India.

AirIndia:

Air-India International was registered on March 8, 1948

and it inaugurated its international services on June 8,1948, with a weekly flight from Mumbai to London via

Cairo and Geneva with a Lockheed Constellation aircraft. Later on in 1962, the

word 'International' was dropped. Effective March 1, 1994, the airline has been

functioning as Air-India Limited.


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At present, Air India has a fleet strength of 23 aircrafts. Out of them are 6

Boeing 747-400, 4 Boeing 747-200, 2 Boeing 747-300 Combi, 8 Airbus 310-

300 and 3 Airbus 300-B4. The airline has plans to induct 4 more A-310-300

aircraft on dry lease effective December 2000. From a total of three stations

served at the time of nationalization, Air-India's network today covers 44

destinations. In addition, Air India has a so-called 'code sharing' arrangement

with a number of foreign airlines. These include Swiss Air, Bellview Airlines,

Austrian Airlines, Asiana Airlines, Air France, Virgin Atlantic, Scandinavian

Airlines, Singapore Airlines, Aeroflot, Air Mauritius, Kuwait Airways and

Emirates.Air India carried a total of 3.35mn passengers in FY2000 as against

3.17mn in FY99. This made for a plant load factor of 70.3%.


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AIRPORT INFRASTRUCTURE

There are a total of 449 airports/airstrips in the country. Airports are presently

classified as international and domestic airports.

International Airports:

These are available for scheduled international operations by Indian and

foreign carriers. Presently, Mumbai, Delhi, Chennai, Calcutta and

Thiruvananthapuram fall into this category.

Domestic Airports:

In this category fall those airports which have custom and immigration

facilities for limited international operations by national carriers and for foreign

tourist and cargo charter flights. These include airports Bangalore (CE),

Hyderabad, Ahmedabad, Calicut, Goa (CE), Varanasi, Patna, Agra (CE), Jaipur,

Amritsar, Tiruchirapally, Coimbatore, and Lucknow.

Yet another type of airports are known as Model Airports. These have a

minimum runway length of 7,500 feet and are capable of handing A320 type

Airbuses. They can cater to limited international traffic, if required. These

airports are in Bhubaneswar, Guwahati, Nagpur, Vadodara, Imphal and

Indore.

There are 71 domestic airports, which fall in the category of 'Other' Domestic

Airports. There are also 28 civil enclaves (CE) in Defense airfields. Twenty of

them are currently in operation. Mumbai airport is the busiest in India and

handles about 30% of the total passenger traffic in the country. The

Chhatrapati Shivaji international airport's share of the country's international

traffic is around 40%.


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Airports AuthorityofIndia:

The Airports Authority of India (AAI) was formed after the merger of

International Airports Authority of India and the National Airports Authority byway of the Airports Authority Act (No.55 of 1994). It came into existence on 1st

April 1995. AAI manages 5 international airports, 87 domestic airports and 28

civil enclaves. It provides air traffic services over the entire Indian airspace and

adjoining oceanic areas.

The AAI also undertakes assignments like airport feasibility studies, airport

design project implementation, project supervision and manpower training. The

AAI has undertaken consultancy projects in Libya, Algeria, Yemen, Maldives,

Nauru and Afghanistan.


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DEVELOPMENT OF CIVIL AVIATION IN INDIA

Travel by air in the modern sense began in India only in 1877, when Joseph

Lyna took off from the Lalbagh Gardens in Bombay, and ascended to an

altitude of about 7,500 feet and landed at Dadra. In the years that followed,

there was a tremendous development of air transportation in India as in any

other countries due to technological advances and cooperation from the

government.

In 1920, the Indian Air board was set up as a part of the Department ofIndustries and Labour to provide safe navigation and landing places and live

up to its International Commitments.

With a view to draw up a plan in anticipating the post-war needs for civil air

transport, the government of India appointed in 1943 the Reconstruction of Air

Services Committee under the chairmanship of the Director of Civil Aviation.

Captain F.C. Tymms, M.C., (later Sir Frederick Tymms). Armed with vast

technical and administrative experience and an alarming capacity for work, Sir

Frederick submitted by September 1943, a series of carefully thought out

papers on all aspects of post-war aviation. Accepting the basic recommendation

of the Tymms report, the government appointed a Committee in 1944 under

the chairmanship of Sir Mohammad Ushman, a member of the Post and Air

Department to follow up the Tymms plan. After a critical examination of the

development of civil aviation in India, USA and European countries, the

Committee suggested certain measures for the construction of new aerodromesand air routes by recommending that more local air services be started and

that India should participate in the establishment of governmental assistance

in the form of subsidy atleast in the initial stage, and introduction of the

system of licensing for air carrier companies. However it had not suggested any


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ceiling on the number of such licenses as recommended by the Tymms

Committee.

The cabinet after much discussion and deliberation decided to nationalize the

civil air transport scheduled carriers and to create two monopoly corporations

in the public sector. In March 1953, Indias Parliament passed the Air

Corporation Act, which received the assent of the President on 20th May.

The main provisions of the Act were that:

There shall be transferred to and vested in:

y Indian Airlines, the undertaking of all the existing Air Companies (otherthan Air India International Limited) and

y Air India International, the undertaking of the Air India InternationalLimited (AIIC).

The saga of Indian Airlines began on the 1st of August 1953, following the

amalgamation of eight private airlines. The journey began with a modest fleet

but high aspirations and over the years, Indian Airlines innovated and

upgraded its fleet to emerge as one of the largest domestic airlines in the world.

Today, Indian Airlines, along with its subsidiary airline, Alliance Air, provides

an extensive network, which encompasses the whole of India - a geographical

area equivalent to Western Europe, besides reaching out to 17 International

Stations.

In the last four decades, Indian Airlines has progressed by leaps and bounds

and built an excellent track record of manpower and infrastructuraldevelopment. It has thus emerged as a proud symbol of modern India.

Some of the highlights of this glorious period of evolution include:


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y Increase in passenger carriage from 0.5 million in 1954-55 to 8.4 millionin 1997-98.

y Spread of network from 23,000 kilometres in 1953 to 1,18,000kilometres in 1997-98.

y Growth of assets from Rs.21 million to Rs.30, 000 million in 1997-98.y A manifold increase in system seat capacity from 3,070 seats per day in

1955 to 35,700 seats per day.


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CIVIL AVIATION POLICY

The Ministry of Civil Aviation is the main central agency responsible for the

formulation of national policies and programs for development and regulation

of Civil Aviation and for devising and implementing schemes for orderly growth

and expansion of Civil Air Transport. Its functions also extend to overseeing the

provisions of airport facilities, air traffic services and carriage of passengers

and goods by air.

The Government has approved a new policy to promote private investments in

the Aviation Sector. The highlights of the policy are as follows.

y Foreign equity upto 40% and investment by non-resident Indians(NRIs) or overseas corporate bodies' (OCBs) upto 100% will be

permitted in domestic air transport services.

y Equity from foreign airlines will not be allowed directly, or indirectly,in domestic air transport services. Existing companies in which equity

is held by foreign airlines will be advised to disinvest this equity.

y Entry and exit barriers have been removed. There will be a scrutiny ofapplications to verify financial soundness and maintenance, security

and safety aspects of operations.

y The choice of aircraft type and size is left to the operator.y To achieve economies of scale, the minimum fleet size for a scheduled

operator has been raised from the existing three aircraft to five. Also

the minimum amount of shareholders' funds has been increased from

the existing Rs.50mn (US$ 1.4mn) to Rs.100mn (US$ 2.9mn) for

aircraft of all-up weight below 40,000 kg and from Rs.100mn (US$

2.9mn) to Rs.300mn (US$ 8.7mn) for all-up weight exceeding 40,000

kg.


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y Total capacity requirements in the air transport sector are beingprojected for a period of at least five years on an annual basis, to help

the developer make investment decisions.

y In the distribution of this capacity, while preference will be given toIndian Airlines according to its fleet augmentation plan, private

operators' proposals to induct new capacity will be considered, based

on the demand, load factor, past track record and financial

soundness.

y All scheduled operators are required to deploy 10 per cent of theircapacity in NorthEast, Jammu and Kashmir, Andaman and Nicobar

Islands and Lakshadweep.

Mr. Shahnawaz Hussain has announced that the Aviation Policy would also

focus on the need for setting up joint ventures to develop smaller airports,

lease out the bigger airports and improve the existing aviation infrastructure.


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INFRASTRUCTURE DEVELOPMENTS

Private sector is now allowed in building airports. Among the private sector-

aided airports to be developed in the next five years are Hassan (Karnataka),

Mumbai, Goa and Bangalore. These airports are capital-intensive projects that

have to be run efficiently to make them commercially profitable. The Mumbai

project, for instance, will cost an estimated Rs.16bn (US$457mn). The

Government has also decided to concentrate on developing existing airports

rather than on new airports. The AAI is investing Rs.4.4bn (US$125.7mn) to

develop model airports in 12 cities, with state-of-the-art equipment.

Part financing of facilities through a tax paid by embarking international air

passengers is an idea being tried out at Kozhikode, which generates large West

Asia-bound traffic. A similar method may be adopted for development of

airports in Rajasthan and Goa that are popular tourist destinations.

Among airport construction projects with private participation, the HyderabadInternational Airport has progressed the furthest. It has passed the initial

planning and the land acquisition stage. The project is expected to cost around

Rs.1.6bn (US$45.7mn) in the first phase, and go up to around Rs.3bn

(US$85.7mn) finally. In the first phase, equity will account for Rs.640mn

(US$18.3mn), 26% of which the government of the State of Kerala holds, and

the rest by non-resident Indians, banks, users (airline firms) and contractors.

Term loans and short-term borrowings for working capital from banks will fund

the rest of the project.

The AAI has also drawn up an Rs.40bn (US$1.1bn) plan to modernize and

expand its airspace infrastructure to meet the demand growth projected for the

coming five years. The growth strategy envisages not only better passenger


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facilities but also improved navigational and communication systems. The first

phase will involve upgradation of conventional communication, navigational

and surveillance systems as an immediate measure. The second will be a

transition from the present ground-based ATS systems to satellite-based

CNS/ATM by the year 2000.

The internal resources generated at present being inadequate, the AAI plans to

enhance revenues through rationalization of the tariff structure, as well as

from commercial, cargo and duty-free shops.

IATA - TheInternational Air Transport Associations

IATA - The International Air Transport Association- was founded in Haryana,

CUBA, IN APRIL 1945. It is the prime vehicle for inter-airline cooperation in

promoting safe, reliable, secure and economical air service - for the benefit of

the world's consumers.

The international scheduled air transport industry is now more than 100 timeslarger than it was in 1945. Few industries can match the dynamism of that

growth, which would have been much less spectacular without the standards,

practices and procedures developed within IATA.

At its foundation IATA had 57 members from 31 nations, mostly in Europe and

North America. Today it has over 230 members from more than 130 nations in

every part of the globe.


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AIRPORT PRIVATIZATION

The Airport Authority of India, which manages five international airports, 87

Domestic airports and 28 civil enclaves at defense airfields, is facing an uphill

task, as it for funds, management talent and its adherence to the government

procedures. Government policies provide for privatization of airports at Delhi,

Mumbai, Calcutta and Chennai through long lease and new developments at

existing airports and Greenfield airports through private initiative.

It's true that there is risk in privatization of airports, since airports essentially

provide public utility services in monopolistic situations. There are

apprehensions that private enterprises are profit motivated and with

privatization users may not get quality services at affordable prices.

To begin with, for four airports which the government has decided to privatize,

consultants should immediately put the website details of assets, traffic figures

for the past 10 years and figure projections, revenue figures existing and

projected, profit & loss for last 10 Years, details of manpower, business plans,

capital investment programs etc. This would enable potential investor to start

preparatory work on their due diligence investigations.

Consultants should immediately develop draft terms and conditions governing

lease of these airports clearly bringing out obligations of new managements in

terms of service levels, commitment to minimum investments for development

of airport facilities, operational standards to meet our national and

international obligations, clauses to deal with emergency situations,

termination in event of breach, etc. These should be discussed with the

aviation industry and finalized.

Government should set up a regulatory Authority whose main functions would

be economic regulation and operational safety audit. This authority through its


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statutory powers and intervene if standards of airport services in terms of

safety, reliability and cost effectiveness are not met.

Some of the states are taking initiative for development of Greenfield airports

and they should be assisted by the Ministry of Civil Aviation in adopting more

professional approach. In the first instance state governments should develop

techno -economic feasibility reports for airport projects through experienced

organizations / consultants of repute.

Airport Authority of India (AAI) has a large number of airports where the traffic

volumes are low. Private entrepreneurs are not likely to be interested in such

airports, which are not financially viable. These airports should be

commercialized by exploiting the commercial potential of airport lands, cost

containment, increased productivity and improved cost recoveries. Thus, some

of these airports may in the next few years reach a stage when they can also be

privatized.

There are some other airports with AAI, which could be transferred to state

governments, local bodies or tourism agencies who are in an advantageous

position to operate and manage them more cost effectively. It is conceded that

privatisation is not likely to remove all the hiccups in the development of

aviation sector .We need to have a model tailored to Indian Conditions,

keeping in view the local laws, rules and regulations in tune with the political

philosophy and psychology of local travelers. The funding pattern should be

such that the investment made is beneficial to the investors due to monopoly

nature of airport business.

Foreign investors do not want to investment in aviation sector in India, due to

abnormal delays in decision making, undue interference, non- consistent

policies of government and to some extent inflated fear of corruption in India.

It's therefore essential that sectors like aviation be left in hands of professional

managers and the role of bureaucracy should be only custodial and regulatory


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ALLIANCE STRATEGY

Alliances in various manifestations have come to stay and airlines around theworld are spending agonizing hours deciding who they will marry and on what

terms. The basic reason for all these alliances and equity partnerships is that

the competition is growing and the World Trade Organization (WTO) is spurring

the move towards open skies in the real sense of the word. Multilateralism in

the field of aviation would mean any airline could fly anywhere in the world

without being bound by bilateral agreements like that exist at present. The

impact of these global handshakes is being felt by smaller airlines, as about 70

percent of the large carriers have become a part of the various groupings. No

individual airline can match the reach and the connectivity of the large

groupings and the smaller carriers can only watch as the globe is carved up

among the various mega alliances.

As a strategy, an alliance involves

Extensivecodesharingandthe frequent flierplansCode- Sharing is where an airline flies on behalf of the other on a

particular sector. The Indian example is that of Indian Airlines and Air

India that share codes in the Delhi-Mumbai as well as in the Gulf sector.

The frequent flier programmes are yet another advantage. The miles

earned on domestic flights can be redeemed on international flights. The

Jet Airways has an alliance with KLM/Northwest and the British

Airways. The passenger who flies on any of these airlines is eligible for

the Jet Privilege card subject to the fulfillment of terms and conditions.


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It also involves co-ordination of schedules to maximizeloads:

By this it implies that the two airlines that were earlier competing with

each other on a particular route compete no longer because of the

alliance. They instead time their flights so that their payload is

maximized and they do not compete against each other. Effective

scheduling of flights does this. When a domestic airline goes into an

alliance with an International airline then the scheduling is done in such

a way that the domestic flight can act as a connecting flight for the

passengers of the international flight. The Indian example of such an

alliance is that of Jet Airways with KLM/Northwest and British Airways.

By this not only the domestic airline has an increased load factor but the

international airline also has an increased load factor through better

connectivity.

Routeplanning:In route planning the alliance partners join hands for a particular route

or a combination of routes. For example if Air Lanka has got scheduled

flights from Colombo to Mumbai, then a passenger from Colombo can be

issued a ticket from Colombo to New Delhi. From Mumbai to Delhi the

alliance partner will carry the passenger.

Jointpricing:As stated above the passenger from Colombo to Delhi can be issued onesingle ticket though he shall be availing of the services of two airlines.

This is called as joint pricing where in one of the partner issues a ticket

on behalf of the other.


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Inventorymanagement:In the aviation industry the inventory costs form a major part of the cost.

The inventories are quite expensive as well. The alliance partners

maintain common set of inventories and this helps in the reduction of

the inventory costs, as a large amount of capital is not blocked for this.

Integrationofinformationtechnology:This is yet another highlight of a successful alliance. The partners can

have joint reservation, check in and check out systems and can also use

the information technology infrastructure of the alliance partner.

Jointpurchasingbythealliancepartners:The benefit of scale and bargaining powers can provide great synergies

and the cost reduction to the partners.


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BENEFIT TO PASSENGER

Easyconnectionsacrosstheglobe:An easy connection across the globe is made possible as the passenger

has the advantage of flying to such locations where the international

flights do not operate. In such a case the alliance partner provides the

connecting services (provided it has the same in that region).

Loungeaccessatvariousairports: The advantage of the frequent flier program is also that the passengerwho holds the frequent flier status is eligible for availing of the lounge

services of the alliance partner as well. For example the Gold Card

holder of Jet Airways is eligible to avail of the lounge services of

KLM/Northwest and British Airways.

Times have changed to an extent that carriers, who were bitter rivals

once, are now talking about joint sales incentives, sharing revenues and

profits.

Though no Indian carrier is yet a part of the giant global alliances, Air-

India, Indian Airlines and Jet Airways are already in other alliances like

code-sharing, joint frequent flier programs. Airlines hold hands with each

other in several ways depending on their needs. Of course, the most

drastic measure is taking an equity stake, a method that is actually

going out of vogue these days. Other common ways are Code- Sharingwhere an airline flies on behalf of the other on a particular sector.

Examples in India are Air-India and Air Lanka on flights to Delhi, Air-

India and Indian Airlines on domestic flights to Delhi and flights to the

Gulf, Jet Airways and KLM / Northwest. Joint marketing and frequent

flier programs co-operation is another popular measure to tie-up. An


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example is Jet Airways frequent flier program Jet Privilege, where it has

a joint co-operation with British Airways and KLM /Northwest. This

primarily means that the miles earned on domestic Indian routes can be

redeemed on international flights. A corollary of this is the joint

utilization of reservation, through check in and operational systems.

Otherwaysofalliancebetweentheairlines forgreater

synergies:

1.Blockseatarrangements:In this the airlines agree to take up a certain percentage of seats on

another carrier on a particular route.

2.Blockcargoschemes:For cargo, airlines have block cargo undertaking to provide a certain

tonnage to another carrier; they can also have Cargo Code Sharesbetween them.

3. Strategicpartnership: This is another amorphous term wherein airline tie-up for long-term

commercial gains. This sort of relationship usually ends up in equity

partnership or more permanent commercial arrangements. The latest

example is that of Singapore Airline taking a 49 percent stake in RichardBransons Virgin Atlantic.


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RECENT DEVELOPMENTS

Going by the developments in the Indian aviation sector in the last few years,

there stands no doubt that there is enormous scope for growth in Indias air

traffic over the next few years. Today, the Indian aviation market is estimated

to be around Rs 25,000 crore and is growing rapidly with the entry of

numerous new players.

The aviation industry in India began with the birth of Tata Airlines, through the

business relationship between Mr Nevill Vintcent, a Royal Air Force pilot and

Mr JRD Tata, the first Indian to get an A-licence. Tata Airlines became Air India

in August 1946. In 1953, the Air Corporation Act nationalised all existing

airline assets and established the Indian Airline Corporation and Air India

International for domestic and international air services, respectively.

These two companies enjoyed monopoly power in the industry until 1991,

when private airlines were given permission to operate charter and non-

scheduled services under the Air Taxi scheme to boost tourism. These carrierswere not allowed at the time, to fly scheduled flights or issue air tickets to

passengers. In 1994, following the repeal of the Air Corporation Act, private

players were permitted to operate scheduled services.

The next big change in the industry came in late 2003 with the emergence of

Indias first no-frill airlines, Air Deccan. It revolutionized the industry, offering

fares as low as INR 500 (roughly $ 10), compared to full service fares.

The key headlines in 2007 are going to be on dramatic increase in tourism and

the "de-seasoning" of many destinations, which will again stir a surge in the

aviation industry. The Indian tourism sector now accounts for 320 million

domestic travelers and three million inbound travelers, mostly comprising Non-

Resident Indians (NRIs) and People of Indian Origin (PIOs). This double-digit


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growth expected in the travel and tourism industry will surely reflect on the

Indian aviation industry.

While international tourism, both inbound and outbound is growing rapidly,

India will be most impacted by domestic growth. The reason being that several

destinations that were purely seasonal (for e.g. Goa from December to March)

are now witnessing the flattening of these peaks to some extent and its

believed that this process will continue and gain further momentum.

E-ticketing has also played a pivotal role by reducing the obscure task of

manual booking of airline tickets and the cost of issuing e-tickets is expected to

reduce drastically.

However, there are some hindrances that the Indian aviation industry needs to

overcome like more airports, pilots, flight crew and less-stressed air traffic

controllers. Apart from the visible infrastructure level improvements,

modernisation, HR issues, aviation methodology, technological growth and

controlling traffic congestion are some of the other issues that demand careful

and timely attention.

But, right now the scales seem to be in the favour of the Indian aviation

industry, for which the sky is not the limit.

Indian skies are more open than ever before. International airlines are servicing

passengers right from Amritsar to Ahmedabad to Kochi, Greenfield airports are

emerging at Hyderabad and Bangalore and plans to modernize and restructure

the two gateway airports are moving ahead aggressively. On the other hand,

private domestic carriers are now flying to international routes like Kuala

Lumpur, Singapore and London and have ambitious plans to expand and

spread wings to the US as well.

Model of the new HyderabadAirport to be operational by

March 2008


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During the year 2004-05, air transport witnessed a growth of nearly 25 per

cent, giving reason for the government to have an optimistic outlook and expect

an average growth rate of 10 per cent by the year 2010 in the sector.

The years 2004-05, 2005-06 and 2006-07 have been years of record growth in

air traffic in the country. During the period of April- December 2005, domestic

and international traffic grew by 24.2 per cent and 18 per cent, respectively.

While international and domestic cargo during the same period recorded a

growth of 11.7 per cent and 6.6 per cent. This growth has been the second

highest in the world, next to China.

Further, during the period April- September 2006, international and domestic

passengers recorded a growth of 15.8 per cent and 44.6 per cent, respectively,

leading to an overall growth of 35.5 per cent. During the same period,

international and domestic cargo recorded growth of 13.8 per cent and 8.7 per

cent, respectively, resulting in an overall growth of 12.0 per cent.

LLCsareheretostay:The Centre for Asia Pacific Aviation forecasts Asia Pacific and Middle

East LCCs will expand their seat capacity by over 230 per cent by 2012

over current levels or around 40-50 per cent capacity growth each year

over the next five years, according to the Outlook 2007 report.

"A key story in the Asia-Pacific region for 2006 was the capacity restraint

of the full service airlines, resulting in higher load factors. But there was

a price. They lost market share, particularly to European and Middle

East carriers, as well as the fast-growing Asia-Pacific LCCs", informed

Mr. Peter Harbison, Executive Chairman of the Centre for Asia Pacific

Aviation.According to the Outlook report, Asia is a two-speed market, with flag

carriers growing much more slowly than other airlines, including carriers

of India and China and the LCC sector. Association of Asia Pacific

Airlines carriers increased aggregate capacity (ASKs) by just 0.9 per cent


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in 2006, while Asia-Pacific LCC capacity surged 55 per cent year-on-year

in 2006 to account for 8.9 per cent of the regional total and close to 11

per cent in the last quarter of 2006.

"Based on recent LCC growth rates and aircraft orders, their share could

reach 20 per cent by the end of this decade, with much higher levels of

penetration in such markets as India, Thailand, Australia, Malaysia and

Indonesia. The LCC share in Asia was less than 1 per cent in 2001. Such

an outcome would eclipse the pace of LCC development in every other

geographic region, albeit a delayed development in this region", said Mr.

Harbison.

Aircraft deliveries over the next five years will also be focused on the

fastest growing markets in particular, China and India where there

is great potential for demand growth to absorb new capacity additions,

according to the report.

ExploringNewDestinations:AI has identified the need for non-stop operations to the US and is

planning 12 new destinations in a phased manner to San Francisco,

Washington, Houston, Toronto, Manchester, Beijing, Seoul, Taipei,

Sydney, Lagos, Mauritius and South Africa. It has already started flights

to Shanghai, Los Angeles, Seoul, Manchester and Toronto.

Private airlines too have started operating to Kathmandu, Colombo,

Kuala Lumpur, Bangkok and Singapore. Jet Airways has mounted flights

to London from Delhi and Mumbai and plans to begin operations to the

US.

The open sky policy and liberalised bilateral agreements with number of

countries have led to a quantum jump in forging greater connectivity to

and from India, beginning with the UK whose carriers have been given

access to Bangalore, Hyderabad and Kochi, besides the four metro


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destinations. Reciprocally, Indian carriers can fly to Glasgow, Edinburgh

and Bristol in addition to London, Manchester and Birmingham.

A revised air services agreement was signed with US on April 14, 2005

granting unlimited access for the designated airlines to any points of call

in each others territory as against four airports under the earlier

agreement. Thus, there is American Airlines mounting direct, non-stop

flights on the Chicago- Delhi sector in code-sharing agreement with Air

Sahara (now part of Jet Airways) and Continental Airlines operating non-

stop long haul flights on Delhi-New York sectors.

Surging

demand

for

air

cargo:

While the passenger transportation sector is already bustling with

activity, the interest of various aviation playerspassenger as well as air

cargo operatorsis shifting to the largely untapped air cargo sector. Civil

aviation minister Mr Praful Patel has indicated that the government is

looking progressively at liberalising the air cargo sector, with plans to

allow 74 per cent foreign direct investment (FDI).

According to analysts, air cargo has not even scratched the surface of

cargo industry in India. As per the Airbus market outlook for the next 20

years, the number of dedicated freighters in India will go up from the

current dismal figure of 8 to around 165 aircraft by 2025.

Air cargo accounts for only 5 per cent to 7 per cent of the total cargo in

terms of volume, but in terms of value, air cargo stands for 35-40 per

cent of the total cargo trade, according to sources.

Though Indian air-cargo is a fairly nascent industry, IATA is, however,

bullish on the positive outlook for India.


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FUTURE GROWTH OF NON METRO AIRPORTS

Traffic growth at non-metro airports is expected to exceed that of the metro

airports in near future. According to research undertaken by the rating agency

Crisil, Indias nonmetro airports are expected to host as many as 74 million

passengers by the year 2009-10almost four times than the 19 million

passengers at the metro airports. The basis behind the projections are that

there are 35 non-metro airports in the country, compared to 5 metro airports.

Right on the cue, private airlines have lined up plans to reach 31 new

destinations. These include tourist destinations like Pathankot and Bagdogra

as well as commercial and crucial destinations like Coimbatore and Porbander.

Of the nine airlines, Air Deccan has the maximum number of non-metro

airports on its radar. Needless to say, such growth in the air traffic entails

major improvement in airport facilities.

And this spells mammoth opportunities for the private sector. The total

investment for the 35 non-metro airports is expected to be well over Rs 6,000.

Of this, Rs 3,266 crore is to be spent on building airport facilities, while Rs

1,396 crore will go towards air side development, which will be primarily

handled by AAI. However, it is likely that many private sector players will want

to be involved in the city side development. The total investment in this area is

expected to cost about Rs 1,500 crore.

Governments initiative to carry on the programme of upgrading the metro and

the non-metro airports augurs much too well for the countrys civil aviation

industry. However, it would be well imperative that the initiatives are effectively


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implemented and sustained policy reforms are undertaken to make the sector

remain buoyant for the time to come.

OpportunityinIndia:In India, we at present stand witness to a major economic boom. As more

and more sophisticated, high-tech products are being manufactured,

assembled, and distributed in the country, the need for integrated air

express service is subsequently increasing.

Air cargo has started showing increased growths in the last year in line

with GDP growth, to which it has a direct correlation. Currently, the size

of the domestic organized Indian express market is pegged at Rs 10.75

billion, according to A C Neilson Report and we estimate the market

growth in double-digit figures following last years trends.

India is still not a mature market. However, with encouraging GDP

growths projected, current increase in manufacturing, development of

various industries, and India emerging as an important sourcing hub,opportunities exist like never before.

ChallengestoovercomeIt is a fact that growth and challenges always go hand-in-hand, and the

air express industry is no exception to this rule. While we have reason to

be optimistic about the macroeconomic indicators like the encouraging

GDP growths that augur well for our business, there are issues that we

constantly need to address.

For instance, fuel prices are a concern as they account for a significant

part of our operating expenses. And even though we have a fuel

surcharge mechanism in place, there is always a risk that prices would


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escalate beyond control. Any kind of political disturbance or disruption is

also detrimental to our business.

Another important factor that particularly needs consideration in India is

infrastructure. Infrastructure related to cargo terminals, cold storage,

automatic storage and retrieval systems, mechanized transportation of

cargo, computerization and automation, and needs to be improved.

In short, the much-talked airport modernisation across the country has

to step up pace.


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CASE STUDY


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The Take Off:Naresh Goyal, Chairman of Jet airways was the one-man show behind

Jet airways birth. Goyal started his career as a marketing executive at

the General Sales Agent (GSA) with Lebanese international airlines in

Delhi. He than worked with Iraqi airways for a couple of years, before

joining Royal Jordanian Airlines as a regional manager. Goyal's diligence

& incredible ability to memorize flight schedules caught the attention of

Ali Ghandour, who was then president & chairman of Royal Jordanian

Airlines. Ghandour introduced Goyal to the wider world of aviation

outside India.

In 1974, Goyal decided to get into the GSA business himself establish Jet

air Transportation representing Kuwait Airways & Air France.

Simultaneously, Goyal was appointed regional manager of Philippine

Airlines. Over the next few years, Goyal expanded his network picking up

agencies for some more airlines. He was regular member at the AGM of

International Air Transport Association (IATA) the global aviation body .

Meanwhile Goyal turned into NRI & shifted his base to London. During

the same time, Goyal also toyed with the idea of setting up his own

airlines. The opportunity came in early 1990s, with the GOI's open skies

policy permitting private investment (including NRI's) in the domestic

aviation. In April 1992, Jet airways India was set up as a 100 %

subsidiary of tailwind ltd., a company registered I Cayman islands

(situated in the northwest Caribbean sea ) . Kuwait Airway's & Gulf Air

had 40 % stake in tailwind ltd. Soon after being incorporated as a

privately owned airline, Jet airways hired lintas the ad agency to develop

Jet airways 's corporate logo, IMRB the market research firm to do a

consumer survey & Anderson consulting to do feasibility study & help

prepare the business plan. By 1992, goyal put his start-up team in place.


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26782461 Airline the Service Industry (1)

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