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THE INDIAN INSTITUTE OF PLANNING & MANAGEMENT

IntroductionThe mastery of the turn is the story of how aviation became practical as a means of transportation. It is the story of how the world became small. Aviation Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transformation. From being primarily a government-owned industry, the Indian aviation industry is now dominated by privately owned full service airlines and low cost carriers. Private airlines account for around 75% share of the domestic aviation market. Earlier air travel was a privilege only a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people.

HistoryPre Independence Era

The origin of Indian civil aviation industry can be traced back to 1912, when the first air flight between Karachi and Delhi was started by the Indian State Air Services in collaboration with the UK based Imperial Airways. It was an extension of LondonKarachi flight of the Imperial Airways. In 1932, JRD Tata founded Tata Airline, the first Indian airline. At the time of independence, nine air transport companies were carrying both air cargo and passengers. These were Tata Airlines, Indian National Airways, Air service of India, Deccan Airways, Ambica Airways, Bharat Airways, Orient Airways and Mistry Airways. After partition Orient Airways shifted to Pakistan. Post Independence & Pre Liberalisation Era (1948 1990)

In the early 1948, Government of India established a joint sector company, Air India International Ltd in collaboration with Air India (earlier Tata Airline) with a capital of Rs 2 crores and a fleet of three Lockheed constellation aircraft. The inaugural flight of

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THE INDIAN INSTITUTE OF PLANNING & MANAGEMENT

Air India International Ltd took off on June 8, 1948 on the Mumbai-London air route. The Government nationalized nine airline companies vide the Air Corporations Act, 1953. Accordingly it established the Indian Airlines Corporation (IAC) to cater to domestic air travel passengers and Air India International (AI) for international air travel passengers. The assets of the existing airline companies were transferred to these two corporations. This Act ensured that IAC and AI had a monopoly over the Indian skies. A third government-owned airline, Vayudoot, which provided feeder services between smaller cities, was merged with IAC in 1994. These governmentowned airlines dominated Indian aviation industry till the mid-1990s.

Post Liberalisation Era (1991 Present Date) In April 1990, the Government adopted open-sky policy and allowed air taxioperators to operate flights from any airport, both on a charter and a non charter basis and to decide their own flight schedules, cargo and passenger fares. In 1994, the Indian Government, as part of its open sky policy, ended the monopoly of IA and AI in the air transport services by repealing the Air Corporations Act of 1953 and replacing it with the Air Corporations (Transfer of Undertaking and Repeal) Act, 1994. Private operators were allowed to provide air transport services. Foreign direct investment (FDI) of up to 49 percent equity stake and NRI (Non Resident Indian) investment of up to 100 percent equity stake were permitted through the automatic FDI route in the domestic air transport services sector. However, no foreign airline could directly or indirectly hold equity in a domestic airline company.

By 1995, several private airlines had ventured into the aviation business and accounted for more than 10 percent of the domestic air traffic. These included Jet Airways, Sahara, NEPC Airlines, East West Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways. But only Jet Airways and Sahara managed to survive the competition. Meanwhile, Indian Airlines, which had dominated the Indian air travel industry, began to lose market share to Jet Airways and Sahara. Today, Indian aviation industry is dominated by private airlines and these include low cost carriers such as GoAir, SpiceJet etc, who have made air travel affordable.

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THE INDIAN INSTITUTE OF PLANNING & MANAGEMENT

An Overview of the Indian Aviation Industry in the 21st CenturyThe 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 (USD 10 roughly), compared with Full Service fares offered by the incumbents, averaging about INR 3000 or more. Since then, Spice Jet (restructured Royal Airways and ModiLuft), Go Airways and Kingfisher Air also entered the industry. Paramount Airways was another player, though it positioned itself on the other end of the spectrum, as an all business class airline. With the further advent of online ticket sales through companies such as makemytrip.com, prices have crashed and tickets are available for as little as INR 0.99. In fact, now many airline tickets can be bought for a price comparable to an upper class railway ticket for the same route.

In December 2004, Indian scheduled carriers with a minimum of 5 years of continuous operations and a minimum fleet size of 20 aircraft were permitted to operate scheduled services to internationals destinations. On January 11, 2005 the government designated four scheduled Indian carriers (Air India, Indian Airlines, Jet Airways and Air Sahara) to operate international services to and from Singapore, Malaysia, Thailand, Hong Kong, the UK and the USA. However, in mid-2006, many airline operators announced large losses. Analysts opined that a combination of factors such as high aviation turbine fuel (ATF) prices, rising labor costs and shortage of skilled labor, rapid fleet expansion, and intense price competition among the players were responsible for the losses in this sector. The problem was also compounded by new players entering the industry even before the existing players could stabilize their operations. It was estimated that the industry as a whole could face losses of over Rs. 22 billion in 2006-07. Some experts expect the industry to consolidate in the near future. The government also was keen to restrict the losses in this sector by closer scrutiny of the business plans of new entrants, conducting quarterly financial audits, etc. Aviation has undergone a change and aviation is now viewed in a different light as an essential link not only for international travel and trade but also for providing

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THE INDIAN INSTITUTE OF PLANNING & MANAGEMENT

connectivity to different parts of the country. Aviation is, by its very nature, a critical part of the infrastructure of the country and has important ramifications for the development of tourism and trade, the opening up of inaccessible areas of the country and for providing stimulus to business activity and economic growth. Until less than a decade ago, all aspects of aviation were firmly controlled by the Government.

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THE INDIAN INSTITUTE OF PLANNING & MANAGEMENT

Low Cost Carriers ( LCCs ) Revolution or DelusionThe low cost airline industry has changed the definition of airlines that air travel is a luxury and it is only for the upper segment of the population. The key objective of low cost carriers is to increase their reach and provide the services to a large segment. In India, low cost carriers came into existence in 2003 when Air Deccan launched its first low cost airline and that was the first move to open the doors of the airlines industry for middle class.

LCCs has not only ended the monopoly of the regular airlines, but it has also given the Indian Railways a run for their money. The middle class and the upper middle class are slowly getting inclined towards air travel as their preferred mode of travel. The increasing level of disposable income in this segment has also been an important contributor to the change in preference of the Indian consumers towards air travel. Another major driver is the booming tourism industry in India. However, the low cost airline segment is facing challenges of increasing competition, rising fuel prices and inadequate infrastructure.

However, the LCCs have regularly been questioned in regards to their sustainability in the long run. The LCC model started off very brightly but despite of its bright start, it has taken a beating in terms of profitability in the past few years. Even the LCC model is not recession proof was clearly proven during the dark slowdown periods. Low cost carriers have made heavy losses and many mergers and takeovers have taken place. These airlines also constantly complain of being over burdened by the tax levels and serious doubts have been cast over their future as the poor infrastructure in terms of airports is also not helping their cause.

Kingfisher Red (formerly Air Deccan) is the market leader, holding the maximum share in LCC market, followed by Jetlite, Air India Express, GoAir, and Indigo, who are making the competition stiffer. Kingfisher Red enjoys the first mover advantage in terms of access to a large number of overnight parking spaces and landing & take-off slots during the peak period.

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THE INDIAN INSTITUTE OF PLANNING & MANAGEMENT

The Players of the Indian LCC Market are as follows.y y y y y y

Kingfisher Red Indigo Air Spice Jet Go Air Jet Lite Indian (formerly Indian Airlines) is also contemplating entry into the LCC segment.

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THE INDIAN INSTI