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INDIAN AIRLINE SECTOR ANALYSIS

Ever since the aviation sector opened up the skies to private carriers, airpassenger travel in India has been expanding at about 25% a year. The

Airline industry has experienced a drastic increase in number of passengers,driven by privatization of aviation industry and introduction of low costcarriers like Deccan Airlines, Go Air, and Spice Jet etc. It is said that IndianAviation Industry is one of the fastest growing Aviation Industry in theentire globe. Due to economic growth and increasing link with global

businesses, it has resulted in an increase in passenger traffic. However, thecurrent global economic slowdown and dramatic rise in aviation fuel pricescontinues to negatively impact the Aviation Industry across the whole globe.

According to the International Air Transport Association (IATA), byits latest estimates, India will contribute significantly to global air travel,which is set to grow from US$ 5.1 billion to US$ 5.6 billion thisyear. Market research firm PhoCus says that domestic air traffic is likely tomore than double and touch 86.1 million passengers by 2010, up from 32.2million passengers in 2007

Overview of Indian Airline Sector

According to government estimates, growth in this sector will outpacethe global average until 2025. The Indian aviation market is on a boom. Theestimated growth of domestic passenger segment is at 51% per annum andgrowth for international passenger segment is 26%. The international cargois likely to grow at a rate of 13%.

From April-September 2006, domestic and international passengers recordeda growth of 44.5 per cent and 15.6 per cent respectively, leading to anoverall growth of 35.5 per cent. Moreover, the international and domesticcargo recorded growth of 13.8 per cent and 8.7 per cent respectively,

resulting in an overall growth of 12.0 per cent. The year 2007 was the bestever in terms of growth for India's civil aviation sector. The domesticairlines passenger load increased by 36.47 % (to 317.29 lakh passengers) inthe first three quarters of 2007

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AIRLINES: CURRENT FLEET AND ACQUISITION &

INVESTMENT PLANS

SWOT ANALYSIS ON AVIATION

Strengths :

Growing Tourism: Due to growth in tourism, there has been

an increase in number of the international and domestic

passengers. The estimated growth of domestic passenger

Airlines Current

fleet

Acquisition

plans

Investment in US

$billion)Jet Airways 62 30 by 2012 2

Air Deccan 43 79 by 2010 2.7

Kingfisher 11 100 by 2012 4.5

Spice Jet 6 38 by 2010 1.9

Go Air 4 33 by 2008 2.4

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segment is at 50% per annum and growth for international

passenger segment is 25%.

Rising income levels: Due to the rise in income levels, the

disposable income is also higher which are expected to enhance

the number of flyers.

Weaknesses:

Under penetrated Market : The total passenger traffic was

only 50 million as on 31st Dec 2005 amounting to only 0.05

trips per annum as compared to developed nations like United

States have 2.02 trips per annum.

Untapped Air Cargo Market: Air cargo market has not yet

been fully taped in the Indian markets and is expected that in

the coming years large number of players will have dedicated

fleets.

Infrastructural constraints: The infrastructure development

has not kept pace with the growth in aviation services sector

leading to a bottleneck. Huge investment requirement for

physical infrastructure for airports.

Opportunities:

Aviation essentially refers to all activities involving theoperation of aircrafts. While the common perception about the sectoris that its only about pilots and airhostesses, there are other equally

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significant job options that the industry cannot function without. Someof the Operations jobs include: Pilots, airhostesses, air trafficcontroller, cabin safety instructor, in-flight managers, In-flight basemanagers, cabin services instructor, maintenance controllers, aircraftmaintenance engineers, quality control manager, cargo officers andground staff. There is also a wide range of positions on the ground andthese include the services of mechanics, baggage handlers, ticketagents and reservations agents.

Expecting investments: investment of about US $30 billion

will be made.

Expected Market Size: Average growth of aviation sector is

about 25%-30% and the expected market size is projected to

grow upto100 million by 2010.

Threats: Huge investments are expected to take place in aviation

sector in near future. It is estimated that by 2012.

Shortage of trained Pilots: There is a shortage of trained

pilots, co-pilots and ground staff which is severely limiting

growth prospects.

Shortage of Airports: There is a shortage of airport facilities,

parking bays, air traffic control facilities and takeoff and

landing slots.

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Rising income levels and demographic profile: Though India's

GDP (per capita) at $3,100 is still very low as compared to the

developed country standards. Demographically, India has the

highest percentage of people in age group of 20-50 among its 50

million strong middle class, with high earning potential.

Untapping India's tourism: Currently India attracts 3.2 million

tourists every year, while China gets 10 times the number. Tourist

arrivals in India are expected to grow exponentially, especially due

to the open sky policy between India and the SAARC countries

and the increase in bilateral entitlements with European countries,

and US.

Glamour of the airlines: Airline tycoons from the last century,

like J. R. D. Tata and Howard Hughes, and Sir Richard Branson

and Dr. Vijay Mallya today, have been idolized. Airlines have an

aura of glamour around them, and high net worth individuals can

always toy with the idea of owning an airline.

Top Employers:

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Some of the top employers of the industry are Air India, Indian Airlines, Jet

Airways, Air Sahara, Paramount Airways, Go Air Airlines, Kingfisher

Airlines, Spice Jet, and Air Deccan.

Challenges for Aviation Industry

The growths in the aviation sector and capacity expansion by carriers

have posed challenged to aviation industry. This includes shortage of

workers and professionals, safety concerns, declining returns and the lack of

accompanying capacity, infrastructure, competition and rising fuels costs has

made an adverse effect on the industry.

Employee shortage: There is clearly a shortage of trained and skilled

manpower in the aviation sector as a consequence of which there is

cut-throat competition for employees which, in turn, is driving wages

to unsustainable levels.

Regional connectivity: One of the biggest challenges facing the

aviation sector in India is to be able to provide regional connectivity.

What \is hampering the growth of regional connectivity is the lack of

airports.

Rising fuel prices: As fuel prices have climbed, the inverse

relationship between fuel prices and airline stock prices has been

demonstrated. Moreover, the rising fuel prices have led to increase in

the air fares.

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Gaps in infrastructure: Airport and air traffic control (ATC)

infrastructure is inadequate to support growth. While a start has been

made to upgrade the infrastructure, the results will be visible only

after 2 - 3 years.