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School of Business Management, Hyderabad
PGDM 2017 – 19
Industry Analysis Aviation Industry
Atishay Patni – 80303170088 Dr. Kavita Kulkarni Faculty Guide – NMIMS, Hyderabad
Executive Summary
Indian Aviation Industry research and analysis is a huge topic to study. Indian aviation market is very competitive. Various players are struggling to fetch the profit. Most of them are facing various problems. There are issues with operations, government policies, taxation and huge investment to be brought in to start the business.
From the analyst point of view though this market is facing lot of issues and challenges it is growing at the rate of 21.24 percent per year. Many factors are contributing to this growth such as increase in disposable income of the population, industrial growth in the country or change in government policies such as FDI. From this perspective Indian market is lucrative.
Since few years most of the Indian population is moving from lower middle class to upper middle class. They are gaining capability to spend and upgrade their lifestyle. This is providing opportunity for low cost players to tap the market share.
Industry has faced many challenges and still it is going on. Many new players are entering into this market. Policy change such as 49 percent investment through foreign direct investment (FDI) is changing the face of the industry.
Major objective of this project is to study overview of the Industry structure, Major players, new players in the industry and Few major challenges faced by the industry. In addition to this another objective is to look at these players from the consumer point of view on criteria such as price, brand recall, time of arrival or departure, ease of booking and service etc..
Chapter 1
INDUSTRY & COMPETITION……………………………………………… 4 1.1 Market size and Characteristics……………………………………………. 4 1.2 Market Trends…………………………………………………………….12 1.3 Market Structure…………………………………………………………..14 1.4 Competition Scenario……………………………………………………..15 1.5 Ways of competition/Behavioural
traits of each major competitor ……………………………………………… 20
Chapter 1 Industry & Competition 1.1 Market size and Characteristics
Market Size of the industry
The civil aviation industry in India has emerged as one of the fastest growing industries in the country during the last three years. India is currently considered the 9th largest domestic civil aviation market in the world.
According to International Air Transport Association IATA, India will displace the UK for the third place in 2026.
The Civil Aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity.
Domestic air traffic rose nearly 16 per cent in August 2017, continuing its double digit growth, according to the civil aviation regulator Directorate General of Civil Aviation (DGCA). About 9.69 million passengers flew in August, up from 8.38 million a year earlier. Passengers carried by domestic airlines during January-August 2017 were 75.411 million as against 64.468 million during the corresponding period of previous year, thereby registering a growth of 16.97 per cent, as per the DGCA.

As against 395 aircrafts in the fleet of Indian carriers, there are 496 aircrafts in operation today, and another 654 are under purchase.
• Witnessing a growth of 18.5 per cent over the previous year, total passenger traffic stood at a 264.97 million in FY17, which was recorded at 223.6 million in FY16 in India.
• Growth in passenger traffic has been strong since the new millennium, especially with rising incomes and low-cost aviation; during FY06-17, passenger traffic grew at a CAGR of 12.39 per cent in the country.
• India’s passenger traffic grew 15.10 per cent y-o-y to 1.97 million in April- November 2017.
• By 2036, India is estimated to have 48 crore flyers, which will be more than that of Japan ( just under 22.5 crore) and Germany ( just over 20 crore) combined.
• India has become the third largest domestic aviation market in the world and is expected to overtake UK to become the third largest air passenger market by 2025.

• Domestic passenger traffic expanded at a CAGR of 13.52 per cent over FY06–17
• According to Directorate General of Civil Aviation, domestic passenger traffic
witnessed growth at a rate of 21.5 per cent in FY17, as against 21.24 per cent in
• International passenger traffic registered growth at a CAGR of 9.27 per cent over
• During FY17, international passenger traffic increased by 8.5 per cent.

• Total freight traffic registered a CAGR of 7.08 per cent over FY06-17
• During FY06-17, domestic freight traffic increased at a CAGR of 7.95 per cent,
while international freight traffic grew at a CAGR of 6.58 per cent during the same
• In FY17, domestic freight traffic stood at 1,123.18 million tonnes, while
international freight traffic was at 1,855.06 million tonnes.
• During FY17, domestic freight traffic increased at 7.39 per cent while international
freight traffic increased at 11.86 per cent in comparison with FY16.
• By 2023, total freight traffic is expected to touch 4.14 million tonnes exhibiting
growth at a CAGR of 7.27 per cent between FY2016 and FY23. In addition, international freight traffic is expected to grow at a CAGR of 7.13 per cent while domestic freight traffic is expected to grow at a CAGR 7.50 per cent between FY2016 and FY23.
• India’s domestic and international freight traffic grew 9.08 per cent yo-y and 18.22 per cent y-o-y to 0.81 million tonnes and 1.43 million tonnes during April- November 2017, respectively.
• Freight traffic on airports in India is expected to cross 11.4 million tonnes by 2032.
• Growth in import and export in India will be the key driver for growth in freight
traffic as 30 per cent of total trade is undertaken via airways.

• Airports across the globe are planning on increasing their spending on new technology to keep up with surging passenger traffic, which is expected to double to 370 million by 2020. The anticipated double digit growth would make India as the world’s 3rd largest aviation market by 2020.
• Fliers would soon be able to use biometric details for security checks at airports after good feedback from a pilot project.
• India’s total freight traffic grew 14.73 per cent y-o-y to 2.24 million tonnes duringApril-November 2017.

Characteristics of Aviation Industry
The Indian Aviation Industry can be divided into 3 main categories :-
1) Scheduled Air Transport Services – Scheduled Air Transport Service means an air transport service undertaken between the two or more places and operated according to a published time table or with flights so regular or frequent that they constitute a recognisably systematic series, each flight be ing open to use by members of the public. It includes Domestic and
International Airlines.
Example of Scheduled air transport service providers.

2) Non Scheduled Air Transport Service – Non-Scheduled Operation means an air transport service other than scheduled air transport service and that may be on charter basis and/or non-scheduled basis. The operator is not permitted to publish time schedule and issue tickets to passengers. It includes Charter operations and Air Taxi Operations.
3) Air Cargo Service – Air cargo is any property carried or to be carried in
an aircraft. Air cargo comprises air freight, air express and airmail.Cargo emerged as a solid pillar of the industry in 1990s. The catalysts for the renewed growth in the sector were the express parcel carriers, typified by FedEx, DHL, TNT and UPS, and changes in practices in the manufacturing sector. In 1992, FedEx sent software on computer disks to thousands of customers, allowing them to track shipments from their own workstations.
The rise of internet during in the years that followed contributed to increase the reliability and accessibility to the air cargo industry. Most airlines now offer to their customers real-time flight status and the booking and tracking options. In addition, the industry is adopting electronic procedures,4 such as the electronic air waybill, to reduce the amount of paper documentation accompanying each shipment and increasing the security and safety of the transportation.

1.2 Market Trends
1) Rising private participation and investments – Currently, five international airports have been completed successfully under PPP mode. Investment made by private sector during the 12th Five Year Plan (2012–17) is expected to increase by 69.1 per cent to US$ 9.3 billion over that during the 11th Five Year Plan Four existing airports and two greenfield projects will be offered on PPP basis which is expected to attract investments from private players .Delhi International Airport, a GMR led consortium, signed a land license agreement with Airbus to set up India’s 1st full flight simulator at the Aerocity, Indira Gandhi International (IGI) Airport.
2) Greater use of non-scheduled airlines – Rising business activity leading to higher demand for non-scheduled airlines .As of September 2017, there are 112 operators (NSOP).
3) User development fees – Increasing use of development fees by airport developers and operators. Airport Development Fee: Delhi, Mumbai airports to fund expansion. User Development Fee: Hyderabad, Bengaluru airports for maintenance
4) Focus on non-aeronautical revenue – Indian airports are emulating the SEZ- aerotropolis model to enhance revenues; focus on revenues from retail, advertising, vehicle parking, etc. With the initiative of displaying “Art for a cause,” Nagpur airport became India’s 1st airport to take up the cause of empowering the girl child in a unique way. Absence of complementary meals in low-cost airlines have boosted the F retail segment at airports.

1.3 Market Structure
The aviation industry in India, especially with regard to passenger airlines, follows a strictly oligopoly-type structure with the characteristics.
(1) An industry dominated by a small number of large firms (see market shares,
(2) firms sell either identical or differentiated products (the only differentiation here
being in service quality and frills offered) , and
(3) the industry has significant barriers to entry (which holds true both with respect
to regulations and huge capital investment required).
One sees the following characteristics with respect to the Indian passenger airlines market –
1. Fewnumberoffirmscontributingtomajorityofthemarketshare
2. Productsaredifferentiatedintermsofservicequalityandofferings
3. MR=MC
4. P>MC
5. EntryBarriers
6. Firmisaprice-setter
7. Longrunprofit>=0
8. Strategydependentonindividualrivalfirm?sbehaviour
Market Share Concentration

Main players in the industry
Indian aviation industry is dominated by the Low Cost Carriers (LCC). These players can be classified into three major categories.
1. Public Players
i. Air India
ii. Alliance Air- Air India Regional- LLC
2. Private Players
i. Jet Airways
ii. IndiGo
iii. Spice Jet
iv. Go Air
Also in 2014 the industry has saw entry of five new players. These new players are:
i) JET Etihad deal has been finalized (FDI)
ii) Tata-Singapore airlines Ltd-VISTARA
iii) Air Costa (Part of LEPL Group)
iv) Tata-Air Asia Ltd
v) Air Pegasus Ltd
These are the five new players in the industry. They have different strategies to tackle the market.
Passenger load factor, or load factor, measures the capacity utilization of public transport services. Considering passenger load factor analysis, Indigo and Air India has shown better results. From the data of CAPA we can compare it for the month of April and May 2013. All the companies are trying to increase load factor to 100 percent. This will directly results into their profit gain.

During the month of May 2013, Spice Jet has shown more capacity deployment than the mandatory capacity deployment requirements given in the Route Dispersal Guidelines.
Price of the ticket.
Comparison of the players on price factor is difficult. Price varies according to time of the booking as well as the route to be chosen, time of the day etc. Every carrier has different price strategy. For the sake of convenience I have chosen following parameters to compare:
i. Route: Delhi to Mumbai
ii. Time duration: 7 pm to 12 am iii. Time of booking:
a. Immediate booking
b. 3 months prior booking
Hence in prior booking Indigo is providing lowest fare with better services. Followed by Air India and Spice Jet. Air India is giving maximum frequency which provides better ease of booking.
Comparison on other factors
A large survey all over India by “Trip Advisor” following is the findings on scale of 100 percent:
Industry Life Cycle

Introductory Stage:-
• 1910: The first Indian, or maybe even Asian, to have an airplane is the young Maharaja of Patiala, Bhupinder Singh. Commercial aviation came in the year 1911.
• JRD Tata launches India’s first scheduled airline in 1932. Tata Airlines flies 160,000 miles, carries 155 passengers and 10.71 tones of mail.
• 1946: Tata Airlines changes its name to Air India.
Growth Phase:-
• Legislation comes into force to nationalize the entire airline industry in India in 1953.
• East West Airlines becomes the first national level private airline to operate in the country after 37 years in 1990. Domestic Passenger traffic Compound Annual Growth Rate (CAGR) – 10.1% (FY 2006-16).
• International Passenger traffic CAGR – 8.8% (FY 2006-16).
• Total freight compared to International air freight traffic CAGR in Domestic Sector
– 7.6% (FY 2006-16) and in International Sector 4.8% (FY 2006-16)
• India has more than 86 scheduled international airlines constituted of 5 Indian
carriers and 81 Foreign carriers. Currently India has air connectivity with 55
countries through more than 300 routes.
• Passenger traffic is growing at 20% per annum in the last 2 years.
1.5) Ways of competition/Behavioural traits of each major competitor
Porter 5 Forces
New entrants’ threat-
Low • This industry requires a huge capital and without a strong customer base there will be little to no profit in the first few years.
• There are two aspects that do however raise the threat level.
• First, there are extremely low switching costs.
• Second, there are no proprietary products or services involved.
Customers/buyers bargaining power-
High • The airline industry is made up of two groups of buyers.
• First, there are individual flyers. They buy plane tickets for a number of
reasons that can be personal or business related. This group is extremely diverse; most people in developed countries have purchased a plane ticket by themselves.
• The other group of They can do this through the specific airline or through the second group of buyers; travel agencies and online portals. This buyer group works as a middle man between the airlines and the flyers. Bargaining power held by suppliers- Low
• Most firms have long term contracts with their suppliers. Planes are such high capital products that firms probably make long term loan agreements and have more favourable credit terms when they don’t switch companies.
• The top two manufacturers in the world currently are Boeing and Airbus(Odell,Mark).
• Threat of substitute products- high
• There are substitutes in the airline industry. Consumers can choose other
form of transportation such as a car, bus, train, or boat to get to their
destination. There is however a cost to switch.
• Over this the main competitor for this industry is online chat industry. • The
fixed costs are extremely high in this industry. This makes it hard to leave the industry because they are probably in long term loan agreements in order to stay in business. The products involved or the planes are highly complex which also heightens the competition.
• Industry Rivalry- Moderate
• Existing firms can and will use their high capital to retaliate against newer
firms with whatever means necessary such as skimming pricing technique ,
better services, low or no cancellation charges, etc.
• The fixed costs are extremely high in this industry. This makes it hard to
leave the industry because they are probably in long term loan agreements in order to stay in business. The products involved or the planes are highly complex which also heightens the competition.

Key Strategies adopted

Strategic Industry Mapping
India’s aviation industry is largely untapped with huge growth opportunities, considering that air transport is still expensive for majority of the country’s population, of which nearly 40 per cent is the upwardly mobile middle class. The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions that would boost India’s civil aviation industry. With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third- largest aviation market by 2020 and the largest by 2030.


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