| Last decade saw the Indian Airline industry grow at a | | | | traffic. Besides focusing on designing fuel efficient |
| breakneck speed. The industry experienced a drastic | | | | engines, aircraft manufacturers like Boeing and Airbus, |
| increase in number of passengers, driven by | | | | along with OEMs are developing sustainable bio-fuels |
| privatization of aviation industry and introduction of | | | | which will give them some relief from the vulnerability |
| low cost carriers like Deccan Airlines, GoAir, SpiceJet | | | | of profits due to consistently rising fuel prices. |
| etc. In fact, Indian Aviation Industry was one of the | | | | Excess Capacity |
| fastest growing Aviation Industry in the entire world. | | | | Driven by the drastically increasing passenger traffic |
| Economic growth and increasing link with global | | | | over the last 3 years, almost all Indian airlines build |
| businesses resulted in a dramatic increase in | | | | their capacity assuming the growth would continue |
| passenger traffic. However, the current global | | | | over the next few years. Several new aircrafts were |
| economic slowdown and dramatic rise in aviation fuel | | | | bought within a short span of time which resulted in |
| prices continues to negatively impact the Aviation | | | | excess capacity of around 15% to 20%. Aircrafts |
| Industry across the world. The following report will | | | | ordered during good times are being delivered during |
| brief the reader on overview and challenges faced by | | | | recession. According to industry experts, around 17% |
| the Indian Airline industry. | | | | of the current fleet (around 4,000 aircraft) are |
| Overview of Indian Airline Sector | | | | scheduled for delivery during the next 3 years. Even |
| Liberalization on Aviation sector followed a rapid | | | | though the industry grew above 40%, almost half of |
| transformation of Indian Airline Industry which has | | | | the growth was primarily stimulated due to low fares. |
| gone from being a government-owned industry to an | | | | Maintaining such low levels of fares will be difficult due |
| industry which is now being dominated by the | | | | to excess capacity, especially during the ongoing |
| privately owned airlines, offering both full services | | | | global slowdown. Consolidation therefore seems to be |
| and low cost carriers. The first low cost airline, Air | | | | the next logical step to get rid of this excess |
| Deccan was launched in the year 2003 with the key | | | | capacity problem. |
| objective to increase their reach to a largely | | | | Hugh Debt Burden |
| untapped middle class segment. Low cost carriers | | | | Healthy profits and increasing passenger traffic saw |
| were primarily driven by the increasing per capita | | | | airlines raising significant amount of capital from |
| income, improved connectivity and affordability. | | | | Financial Institutions and Banks to fund their |
| Supportive Government initiatives and increasing | | | | aggressive expansion plans. Banks also were liberal in |
| private and public investments further boosted the | | | | lending airlines. The top three airlines including Air India, |
| industry. However, airways still forms only a small | | | | Kingfisher Airlines and Jet Airways are now carrying a |
| part of the overall transportation services in India, | | | | cumulative debt burden of approximately $8 billion. |
| with annual passenger traffic of around 96 million in | | | | Incidentally, this is almost equivalent to the losses of |
| 2007, compared to 6 billion passengers carried by | | | | $8.5 billion posted by all global carriers. Restructuring |
| railways in the same year. | | | | this huge amount of leverage will be a challenge as |
| Challenges Faced by Airline Industry | | | | resorting to equity capital will also be equally difficult |
| After a period of drastic growth, Indian Airlines is | | | | during economic slowdown. |
| now gripped with challenges that are also impacting | | | | Poor Infrastructure |
| the industry across the globe, including high Aviation | | | | Infrastructure continues to be a major constraint for |
| Turbine Fuel (ATF) prices, rising labor costs, shortage | | | | Indian Airline Industry today, which has been |
| of skilled labor, excess capacity, huge debt burden | | | | aggravated further due to excess capacity created |
| and intense price competition. | | | | during good times. Maintenance and Air Traffic |
| High Aviation Turbine Fuel (ATF) Prices | | | | Control (ATC) infrastructure are grossly inadequate if |
| ATF prices now form around 80% of the total | | | | the industry expects to grow any further. While |
| operating costs of Airline Industry. The industry | | | | steps are being taken on this front to upgrade major |
| across the world continues to be plagued with high | | | | airports in Mumbai, Delhi and Hyderabad, security |
| ATF prices which have demonstrated the inverse | | | | concerns still remain to be addressed. Attracting |
| relationship between airline stock prices and fuel | | | | investments from private sector will go a long way |
| prices. ATF prices have almost doubled over the last | | | | to develop and maintain the infrastructure which is |
| year. Almost all Indian carriers are also feeling the | | | | crumbing due to the built-up excess capacity. |
| heat and are desperately resorting to measures like | | | | Regional Connectivity |
| cutting routes, increasing fuel surcharge, promoting | | | | Even though the industry is weighed down with |
| the use of e-tickets and charging for food items to | | | | excess capacity, regional connectivity continues to be |
| reduce their losses. Skyrocketing ATF prices, | | | | poor, primarily due to the lack of infrastructure. |
| depreciating rupee coupled with global recession has | | | | Industry experts suggest that increasing regional |
| directly impacted the Indian Airline Industry. The | | | | connectivity instead of concentrating in metros and |
| industry reported a $10.4 billion loss in the last year. | | | | redeploying current fleet to routes where there is |
| Increasing air fares have worked against the logic of | | | | demand will help airlines in managing their excess |
| increasing profits, as it has resulted in decreased air | | | | capacity. |