STRATEGIC ANALYSIS OF INDIAN AVIATION AND RECOMMENDED REFORMS

STRATEGIC ANALYSIS OF INDIAN AVIATION

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Strategic Analysis of Indian Aviation

and recommendation for reforms Paper for Module Strategic Airline Management Submitted to:

Prof. Yvone Ziegler Dean – Faculty of Management

Frankfurt University of Applied Sciences

Frankfurt – Germany.

On

3/3/2015

Submitted By:

Baqar Raza & Avik Bhattacharya MBA – Aviation

Delhi Cohort.

INDIA


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Table of Contents

i. Table I: Developments In The Indian Aviation Industry .......................................6

ii. Table II- SWOT analysis ..........................................................................................7

iii. Table III- Recognition of crucial areas and subsequent elements .........................8

iv. Picture 1 ..................................................................................................................15

1. EXECUTIVE SUMMARY ....................................................................... 3

2. INTRODUCTION .................................................................................... 5

3. BACKGROUND ..............................................................................................6

4. SWOT ANALYSIS. .........................................................................................7

5. ANALYSIS AND RECOMMENDATIONS ..................................................8

5.1 Connectivity ............................................................................................................8

5.2: Aviation Infrastructure:.......................................................................................9

5.3 Restructuring of Air Navigation Services (ANS): .............................................10

5.4 Cargo .....................................................................................................................10

5.5 Maintenance and repair organisation (MRO): .................................................11

5.6 Safety and security ...............................................................................................11

5.7 Restructuring of Air India ..................................................................................12

5.8 Advancement of technology ................................................................................13

5.9 Capacity building for Human Resources (HR): ................................................14

5.10 Aviation turbine fuel (ATF): .............................................................................14

5.11 Foreign direct investment (FDI) in Aviation ...................................................15

6. REGULATORY ISSUES AND RECOMMENDATIONS .......................16

6.1 Requirements of fleet and equity ........................................................................16

6.2Requirement of fleet to start up international operation ..................................17

6.3Guidelines for route dispersal ..............................................................................17

6.4 Allocation of slots .................................................................................................17

6.5Airport privatization ............................................................................................18

6.8Availability of Government funds to Air India ..................................................19

6.9 Procurement procedures……………………………………………………..…21

7. CONCLUSION...…………………………………………………………………………………………...................

.....21

REFERENCES ……………………………………………………………………………..22


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1. EXECUTIVE SUMMARY

1.1 Subject Matter This report provides Strategic analysis and evaluation of current

scenario of Aviation Industry in India and recommended reforms to bring a positive

change in current condition of the industry.

1.2 Method Methods of Analysis include SWOT analysis of current scenario which

further leads to key factors responsible for current situation of Industry. All 7

recognized factors are analyzed individually with their associated factors if any

applicable and an inference is drawn for each one of them. For every inference a

recommendation is given to change the current scenario of aviation in India and to

meet the challenge which is right on door step.

1.3 Findings The analysis shows that current condition of Industry is not good enough

to meet the required pace of growth there are several challenges industry is facing.

New Government needs to take drastic reforms at strategic as well as regulatory

level.

1.4 Recommendations

(i) Government needs to plan a strategy to enhance connectivity between small cities

and regional hubs.

(ii) Aviation infrastructure needs urgent attention by up gradation of brown field airports

and more green field airports are required. ATM ANS need to be technically

upgraded to handle new traffic. MRO sector needs development through private

investment.

(iii) Both Safety and Security sectors need to be revaluated and better equipped to

handle the fast development without errors.

(iv) Air India needs restructuring and privatized to be a profitable airline.

(v) E-governance need to be applied across all government agencies for efficient and

fool proof functionality.


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(vi) Indian Aviation industry is facing scarcity of technically sound and well qualified

professionals, Government is required to provide resources for modern training and

qualification to fulfill the gap in industry.

(vii) Current Pricing and Tax procedures being applied on ATF are main reason of

Airlines going in losses, Government should look into the possibility of reducing

Taxes, centralizing the pricing and Tax procedures for ATF.

(viii) In next five years industry needs an investment of USD20 Billions with immense

opportunities of profit for the investors. Government should look into the possibility

of bringing in foreign direct investment (FDI).

1.5 Limitation of the report: This report has limitation while analyzing and

recommending. Some Limitation are like India follows federal system of Taxation

and regulations in Aviation industry so all the figures, recommendations and policies

may not be true in one part of the country while it could be fully applicable in other

part of the country.

Aviation industry is vast and includes many stake holders and constituents. It was

practically not possible to analyze each one of these elements and only most crucial

issues have been paid attention.


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2. INTRODUCTION

India is one of the world’s fastest growing aviation markets and has huge potential

for growth for many decades to come. During last decade India has witnessed and

average passenger growth of 8 -12% and its likely to continue for many more years

to come. While the Indian Aviation Market is growing with a high pace the big

question comes “Can Indian Aviation industries sustain that growth and fulfill the

demand?” Indian aviation industry is currently facing a push back force because of

prevailing government policies, regulations and strategies. To meet the current and

future demands of aviation Government of India needs to some solid reform steps.

In this paper focus has been put on current scenario of Indian Aviation Vs Ideal

Scenario of Indian Aviation industry which can create favorable environment for

industry to grow at its full pace with controlled environment.

2.1 Problem statement: Previous Strategic Plan of Indian Aviation which was applicable

from 2010- 15 was revolutionizing for the industry, yet Industry faced many

challenges and setbacks like Kingfisher one the leading Airlines of India was

grounded in Oct 2012. Even current airlines in India are facing many challenges and

except one airline i.e. Indigo no other airline in Indian has been reporting profits.

There are reasons behind this turbulence of Industry and indentify those reasons and

their solutions the big question which arises is “What are the areas in Indian

aviation industry which should be revaluated and required reforms should be

applied?” Main focus in this paper will revolve around to find the answers for above

question.

2.2 Objective: Purpose of this research is to critically analyze the current strategic Plan

of Indian Aviation in light of requirements or expectations to meet the required

growth rate eradicating the hindrances being faced by current Indian Aviation.

2.3 Structure: At the outset of the topic calls for proper understanding of term “Strategic

Plan” and its relevance to the aviation. The author has tried to analyze the current

strategic plan of Indian aviation by reviewing different components of the plan

starting from the outline leading to plan documented through regulatory bodies for

implementation. Attention has also been paid on strategic issues which are related to

infrastructure and technology. In such case ground realties have been studies by


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taking support of different documents likes previous researches, performance

reports, news, and articles.

3. BACKGROUND

India completed 100 years of its Aviation Industry in 2011. The first Aircraft act was

brought in 1934 and that was the beginning of documentation and regulations of

Aviation Industry. Many additional changes kept taking places from time to time

however, it was only in 1990 with enactment of Open Sky Policy that India showed

its will to be in full fledge completion with world aviation industry.

In the framework of this report the current scenario of Indian Aviation will be

analyzed by SWOT (Strength, Weaknesses, Opportunities and Threats) Analysis

from where all points will be discussed one by one. Beside strategic issues attention

has also been paid to critical analysis of regulatory issues that not only affect the

industry but completely control the aviation industry. Beside above two tools author

will further go into the details of outline of current strategic Plan with regard to its

critical analysis and give his suggestion for amendments and reforms which need to

be brought in by current Government.

Table I: Developments in the Indian Aviation Industry

(SOURCE: Nathan Economic Consulting India Pvt. Ltd. 2012)


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4. SWOT ANALYSIS.

SWOT Analysis a strong strategic tool to understand Strengths and weaknesses and

also to indentify Threats and opportunities in a business. SWOT Analysis was

originally introduced by Albert S Humphery. It’s the best tool for strategic analysis

of a Business in short sentences and good ice breaker to further widen the horizons

of research and analysis of a given business in relation to different elements in its

environment. Here SWOT analysis will help the author to reach on key points

which will be further exploited to reach on a conclusion and corrective steps to be

taken. The whole scenario is summarized below.

Table II- SWOT Analysis

Strengths

World’s second fastest growing

economy

Fast growing middle class population

Scattered Tourist Destination

More than 100 years old Aviation

Industry

Indigenous entrepreneurship

Above average Safety Record

Opportunities

Potential of Inbound and Outbound

traffic

Development of India as prime medical

and tourist destination

Tourist Destination

Integration with the world economy

High cross country travel

To develop an Aviation hub between

Singapore and Dubai

Emergency evacuation and disaster

management

To Develop Helicopter Sector

Weaknesses

Weak Infrastructure

High operational cost

Dependence on Foreign resources

because of limited R&D

Limited Skilled manpower

Slow growth of cargo

Absence of MRO industry

Feeble integrated IT system

Poorly developed ANS and ATM

Corporate culture of National carrier is

not of international standards

Threats

Ongoing global terrorism

Economic downturns and recessions

Substitute mode of transport

Congestion in air space

International environment

NFC of neighboring country

Source: Ministry of Civil Aviation (Strategy Plan 2010-15)


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5. ANALYSIS AND RECOMMENDATIONS

On the basis of above SWOT analysis there are 8 most important areas are

recognized which need currents governments attention and reforms need to be

brought in. Though these elements are quite broad within themselves but here will be

discusses and analyzed in short to reach on a conclusion of current scenario of Indian

Aviation and how the reforms can be recommended.

Table III- Recognition of crucial areas and subsequent elements

S. No. Areas Elements (In relevance)

1. Connectivity Helicopter operations

Regional airlines

General aviation

2. Infrastructure creation Airports

ANS and ATM

Cargo

MRO

3. Safety and security

4. Restructuring Air India

5. Advancement of Technology E-governance

6. Capacity building of HR

7. Aviation Turbine Fuel (ATF)

8. Foreign Direct Investment (FDI)

5.1 Connectivity: To improve the connectivity following steps are recommended to new

Government in India.

• Government should increase airports either through green Airport model or by

reforming grey Airports, airports, airstrips and military operated airport. Best

suggestion is mix of all of them. At the same time already existing regional airports

should be transformed into regional hubs with better facilities to cater the regional

traffic.

• Helicopters – India is country of varied topography and geography so are the

catastrophic and emergency incidents in India. Helicopters are compatible to face


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different conditions and can reach in most dangerous airspace like Himalayan

region. Government should put efforts to develop this sector by attracting more

helicopter operators.

• In all parts of India a regional airport should be identified which should serve the

function of a hub to all small airport in that region. This model of airport operations

is called hub and spoke model.

• Government should consider offering special facilities and incentives to the airline

operators who are ready to operate at regional level.

• At present Indian aviation framework is not very structured except in few areas and

majority of industry is growing as it’s emerging. Government should take steps to

develop uniform civil aviation and for this a study needs to be conducted in

comparison to few benchmark nations. All future development of aviation in India

should follow the framework designed through study.

5.2: Aviation Infrastructure:

5.2.1 Airports: following principles can be used while considering development of

airports.

• Places of Tourist and Pilgrimage attraction should have an airport which can serve

an aircraft of passenger carrying capacity 30 – 80. Such Airports are categorized as

Category – 3C Airports.

• All regional airports or state capitol airports should be able to cater the service to

Aircraft from 8- 200 Passengers carrying Capacity. These airports should also be

large enough to serve as regional hub airport.

• All cities of commercial and business importance should be able to offer services of

airport to the aircraft category from 200 – 250 Passengers.

• All “B” category cities or non metropolitan cities should have an airport which can

facilitate an aircraft of 250 passengers and above.

• Air connectivity with special areas like Islands, Himalayan regions like Jammu and

Kashmir and North – Eastern stated should be developed using helicopters and

ATR’s.

5.2.2 Corporate Structuring of Airport Authority of India (AAI):

Airport Authority of India plays a complete role in Indian Aviation however,


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organizational capabilities of AAI are not that vast or are limited. Its required that

AAI should adopt a corporate structure to enhance its capabilities, financial

viabilities and swift and flexible decision making process. Aviation industry is going

through dynamic changes and only corporate structure of AAI will help Indian

Aviation to develop with the required pace.

5.3 Restructuring of Air Navigation Services (ANS): Indian Airspace is one of the

most complicated, highly utilized and demand increasing with a rapid pace. It’s not

only about Indian Aviation but international air traffic crossing over Indian Air space

is growing rapidly. ANS of India is not yet ready to meet the challenge and

development in this area is very slow. India can make European and transatlantic

airspace the benchmark in this area. Gulf countries are also facing same challenge in

current times and it will be interesting to see how they work on it. Based on the

future challenges ANS should be equipped and developed on a fast pace based on

following guidelines.

• Enhanced safety

• Increased system capacity

• Optimized use of airport capacity

• Reduced delays

• Reduced flight operating costs

• Reduced fuel consumption and carbon emissions

• More efficient use of airspace; more flexibility and reduced separations

• More dynamic flight planning by better accommodation of optimum flight profiles

• Reduced controller workload and increased productivity

5.4 Cargo: India has tremendous potential for Cargo movement on domestic as well as

international routes. Currently this opportunity is majorly being cashed by Indian

Railways, Road Transports and foreign Airlines. Regional development of cargo hub

is one of the most required steps of government. Previous government had this

agenda in their strategic plan for aviation however, little was done on ground for the

development of this sector. Still it’s nice to see that private airport operators have

recognized this opportunity and have already started working on this. Recently GMR

has taken some bold steps to develop RGIA – Hyderabad as regional and

International Hub for Cargo. It’s required that where ever Government is operating


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the Airport AAI takes fast steps, and wherever there are private airport operators

they are motivated to work towards the development of cargo sector. There is need

to develop integrated hub for cargo handling including free zones.

5.5 Maintenance and repair organisation (MRO): MRO is a critical element of

aviation infrastructure. Currently, majority of airlines in the country are being

required to send their aircrafts overseas for several maintenance and repair activities.

This leads to loss of fleet time and potentially higher costs. In order to aid the

development of this sector, it is highly desirable that an MRO sector be created

within the country. This will also strengthen the case of India as a global aviation

hub, since an MRO in the country could also be used by airlines in several other

countries. At this stage, we envisage that the key success factors for this enterprise

will be as follows

• Plan with the global market in mind: The MRO business is global in nature and

India should look to capture a share of that market. Currently, Indian planes go to

other countries for services; the aim should be to reverse that trend. This will also

help build scale for the project by enhancing the user base.

• Ensuring a world-class facility: India can look forward towards European Union

for help in development of this sector. It is critical to create acceptance among the

airlines and build the volumes required. Therefore, the desire is to bring in technical

partner for the venture.

• Ensure price competitiveness: It should very apparent to the airline the advantage

of using domestic MRO facility and reduction in cost. A high standard MRO facility

with reasonable costing will not only grow for itself but will also ensure advance

development of Aviation in India.

• Develop HR capabilities as required: Since MRO sector of country is not as per

the demand of International market, so is the case with Aviation engineers in India.

Government should look into the possibility of building Training Facilities of

International standards within country. European Countries could be a good partner

for India in this sector.

5.6 Safety and security:

5.6.1 Safety: There are 4 major elements within safety which need the attention


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• Currently safety of Aviation sectors is looked over by DGCA. India should look into

the possibility of setting up independent Safety agency which will regulate the safety

issues and accident investigations under the guidelines of ICAO.

• Introduction of National Safety Management Program along with Safety

Management System as per the guidelines of ICAO and enhanced safety standards to

be included keeping in mind the national industry working condition and attitude

towards safety. Government should also ensure that financial resources provided to

Safety Agency are sufficient and utilized to maximize the performance of agency.

• Safety agency should develop a comprehensive flight and ground duty time hours to

ensure that Human factor does not become the part of safety issue.

• Safety standard and aviation activities of federative states should fall within the

control national safety agency under uniform safety regulations.

5.6.2 Security: Prevailing current global political disturbances Indian Aviation needs

to be on highest standards of security. First and foremost need is that safety

regulations should be should be revaluated frequently be the experts. Advanced

technology needs to be used for scanning cargo and check in baggage. Security staff

needs to be trained at advance level of security standards those can efficiently

perform the duty without disturbing the operations.

5.7 Restructuring of Air India: For various political reasons Government has been

handling Air India as while elephant. Despite huge losses of Rs 11000 carores

incurred by Airline steps were not taken towards the privatization of this airline.

Rather losses were simply written off and more cash was infused in the airline. Air

India even after being given preferential treatment by Government does not stand in

competition or market share with private airlines line Jet Airways and Indigo. Given

the current condition of AI its highly recommended that new Government should

consider the privatization or public listing of AI so the organization can feel the

pressure and take solid steps to improve its prevailing condition. Air India posted

profits of 11 & 13 Carore Rupees in Dec and Jan in current Fiscal year, however as

per the news of 22 Feb 2015 AI has declared that it will fall short of its commercial


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Targets for month of Feb 15. Last two month’s profits were results of huge drop in

ATF prices and not because of any major strategic commercial or operational steps

taken by airline. Airline has also exhausted out last financial infusion by the

government and yet again waiting for new financial infusion. This pitiful situation

will continue unless complete restructuring takes place along with some privatization

of the airline if not completely.

5.8 Advancement of technology: While India has adapted itself well to the advance

technology and also acquired the technological advances on government’s side the

pace of technological advances is very slow. Airport Authorities of India (AAI),

Directorate General of Civil Aviation (DGCA) and National Carrier Air India (AI)

are still use to for old trends of technology and reforms are not taking place at

international standards. One of the example is crew scheduling in Air India is still

done using old system which not only increases the cost of operation by decreasing

efficiency but also risk accuracy. While in most of GCC Airlines Crew know their

schedule a fortnight in advance AI crew can is still informed about their schedule

just few days in advance.

5.8.1 E-Governance: While India is considered as major IT supplier to the world

back home situation is very different. Ministry of Aviations website takes ages to

open and contents are nothing more than few PDG files and appearance of the

website does not provide good impression to the first time visitor. DGCA website

though works faster but does not help stake holders by providing e-governance and

to interact online. We expect Govt. of India to take following steps to modernize and

to implement e-governance for all the stake holders.

The Ministry, DGCA and BCAS should develop a bilingual interactive website in

order to provide maximum information to users and in order to create a transparent

work culture.

Since DGCA also interacts with a large number of stake holders who seek different

types of services, it is suggested to provide most of these services online. An

ambitious and comprehensive e-Governance project should be implemented on

BOOT basis to cover all aspects of regulatory and licensing activities. This, besides

facilitating the stake holders would also lead to substantial savings in transaction


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time and costs. The project should provide end to end process automation with cross

functional integration with DGCA’s medical and examination centers, flying

institutes and clubs, airlines and other stake holders.

All airlines operators should be provided an online interface to submit their schedule

requests and receive approvals.

Online examination should be implemented to facilitate aspiring pilots. This would

also lead to reduction in total training period of pilots in India and bringing it at par

with international courses.

An Automated Airport Entry Pass Issue System would be implemented to reduce

discretion and introduce transparency in the system.

5.9 Capacity building for Human Resources (HR): One of the major constraints in

development of Indian Aviation industry is shortage of well qualified professional.

Till now government has not taken enough corrective steps to solve this problem

which is becoming even bigger with every passing day. Previous government had

given a green signal to single domain Aviation University and as per plans by Sep

2014 University website should have been functional but till now no development

has been seen in this regard after the change of the government. India is also a big

poaching hub of Airlines professionals especially by Middle Eastern careers which

deepens this problem even further. Hence, new government should take faster and

solid steps to meet the demand and supply of Qualified Aviation professionals.

Government should also keep in consideration that the production of qualified

aviation professional should be much above the requirements of Indian Aviation

industry so the demand of regional countries can be fulfilled without allowing Indian

Aviation to suffer.

5.10 Aviation turbine fuel (ATF): ATF has been major concern especially in Indian

when compared to the International Prices, Airlines in India have to pay 30 – 45%

higher price mainly because of Taxes applied by Govternment of India. In last

couple of months International prices for ATF went down to less than USD50 per

gallon from above USD 100 per gallon. It brought some relief to Indian Airlines

however, still the Tax policy of Govt. of India is same and it has not changed the

scenario from bleeding to healing. It’s Actually the Pricing Policies of Indian Oil

companies which are filtering out the benefit of Low International Price of ATF.


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Indian Government Should look into the possibility of decreasing Taxes on ATF.

Also Government should regulate the pricing policy of Oil companies in India to

ensure that Airline operators don’t suffer because of different pricing policies of oil

companies. Government can also consider allowing FDI in ATF in India. Some

relief has been brought by allowing Airlines to import ATF directly. However this

policy cannot sort out the problem of small and young airlines. If Indian

Government wants airline to go in green than they need to work urgently on Ta

policy and Pricing policy of ATF by allowing more competition from International

suppliers.

Picture 1

SOURCE – CAPA – Centre for Aviation, Indian Oil corporation

5.11 Foreign direct investment (FDI) in Aviation: India needs USD 12.1 Billions of

investment in Aviation sector by 2017. Out of this amount USD 9.3 Billion is

expected to come from private investors. These private investors could be foreign

investors as well. India has already allowed 100% FDI in Greenfield airports and

74% FDI is allowed in existing airport Projects. 49% of FDI is allowed in Indian

Airlines. Also 100% FDI is allowed in MRO sector. So the investment opportunities

are already open for foreign investors and Aviation Sector of India is highly

attractive for foreign investors because of its promising future based on following

reasons.

• India is 9th Largest Civil aviation market and also fast growing market in the world.


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• Indian Aviation industry is projected to be 3rd largest Aviation industry of the world

by 2020.

• India Aviation market is one of the least penetrated markets with 0.04 trips per

capita. Because of the fastest growing middle class population this market is

expected to grow a very fast pace.

• Airlines in India are expected to reach 800 aircrafts by 2020.

Based on above reasons foreign direct investment is easiest and best solution for the

growth of Indian Aviation as per required pace. Few good Signals of FDI are already

received in last 02 years by the deals between Etihad Airlines and Jet Airways of

Indian, Singapore Airline and TATA group , Air Asia and TATA group.

4. REGULATORY ISSUES AND RECOMMENDATIONS.

After the analysis of strategic issues, it’s also important to do analysis of few

regulatory issues that either lead to non competitive behavior or limit the horizon of

airline operators. Many of the acts and regulations of aviation have not been changed

since long time and they seem to be outdated in modern industry. For example

aircraft act of India is same since 1934. Hence it’s very important to into the details

of few acts and regulations which have a negative impact on modern aviation

industry in India.

6.1 Requirements of fleet and equity: As per the regulation of Civil Aviation

requirement (CAR) Section 3 Part II and III for an aspirant schedule airline which

uses an aircraft of take off mass of 40,000 Kgs. or more its mandatory to buy or

lease minimum 5 aircrafts at the time of start up with an equity of Rs 50 carore

(USD 8100,000 Approx.) further as fleet of the airline grows above five aircraft the

equity requirement also grows by Rs. 20 Carore (USD 324,000 Approx.). For Airline

using aircrafts of take off mass less than 40,000 Kgs the start up equity remains at 20

carore (USD 324,000 Approx.) and equity requirements grows with Rs. 10 Carore

(USD 162,000 Approx) for addition of every 5 aircrafts.


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Recommendation: It would be better of airline operator if the incumbent airline is

asked to produce Financial statement of the company which will show the financial

health of the company to operate and compete in the market, instead of asking for

minimum number of aircrafts and start up equity.

6.2 Requirement of fleet to start up international operation: According to the norms

of CAR for an airline to start up international operations it should be in possession of

minimum 20 Aircrafts purchased or leased plus minimum of 5 years of experience in

domestic operations within India.

Recommendation: This regulation is giving advantage to foreign International

Airlines as there is a barrier for Indian Airlines of minimum 5 years of domestic

operations. We suggest that new Government should consider to take off this

regulation and should allow domestic carriers to operate on international routes as

soon as possible to increase the competition.

6.3 Guidelines for route dispersal: As per the orders of Ministry of Civil Aviation it

regulates how an airline allocates its fleet resources to different destinations within

the country. For this country has been divided into three categories. The first

category is of Metro Cities or regional hubs while in II and III category come

smaller and unpopular cities. Its understood this regulation serves the social need but

economically its harmful for the airline as they may be forced to disperse their

resources that commercially are not feasible for airline to operate.

Recommendation: New government should consider to phase out this regulation

and should invite all the stake holders to suggest lucrative incentive program which

will attract more and more airlines to operate to smaller cities.

6.4 Allocation of slots: In India currently Slot allocation procedure is followed

according IATA Guide Lines which states that an Airline which has operated more

than 80% frequencies on allocated slot is first one to retain that slot. In this case an

incumbent airline can only chose from available pool of slot and the preferred slot

may have been already allotted to the airline that already operated on it. This rule

minimizes the chances of incumbent Airline to get a slot of its choice.


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Recommendation: Airport Authority of India (AAI) and DGCA both need to

review the procedure of slot allocation and should ask all stake holder to provide

alternative procedures of slot allocations which will be just and acceptable to all the

airline.

6.5 Airport privatization: At present there are 5 Private Airports in India. These

airports are CSIA – Mumbai, IGI – New Delhi, KIA – Bangaluru, RGIA –

Hyderabad and CIA – Cochin. As per the reports all these airport are not doing very

well and studies have proved that one of the major reason for poor financial

performance of these airports is their earnings on non- aero revenue is very low.

Reason of low non – aero revenue is that non aero facilities are under the control of

AAI and AAI does not have sufficient funds to invest in such facilities which need

huge investments.

Recommendations:

(a) Government should allow more private investors in existing (Brownfield Airports).

This will add up more equity to Indian Aviation which is highly required in current

time. Also better non aero facilities will add up the better profits of airports hence a

development beneficial for all.

(b) Development of 5 PPP Airport model has helped a lot in growth of aviation and

economic development in region. Government should consider developing more

Airports in PPP models. Priority should be given to Calcutta, Chennai, Ahmedabad,

Lucknow and Jaipur Airports.

(c) 6 Major Airports in country i.e. Delhi, Mumbai, Chennai, Calcutta, Hyderabad and

Banglore should be developed as Major international Hubs. These airports should

function as “Hub and Spoke” model for access of international traffic to and from

these airports to different parts of the country.

6.6 Anticompetitive behavior in Airline pricing: While ATF Prices are one of the

major reason of Airlines In India going in red figure another reason is exceptionally

low pricing trends in Indian Aviation market. Except one Airline i.e. Indigo all other

Indian Airlines are running in losses. This kind of Pricing behavior to be considered


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as “Predatory Pricing”, Price should be less than average cost of operation, There

should be exit of a competitor from the market and Airline should suggest a way by

which airline can overcome the losses incurred by such pricing for short time.

However, this type of pricing is an entry barrier for new entrants by making the

business unprofitable hence limits the competition.

Recommendation: The new Government should consider lowering the other entry

barriers for new entrants, which will increase competition. Thus lower entry barriers

and large number of participants will increase the incentive for competition and

decrease the incentive for predatory pricing.

6.7 Blue eyed baby behavior towards Air India: As per the current Government

regulation first flying to preferred destination is given to Air India sidelining other

Indian Airlines even though they fulfill the equity and fleet requirements of

Government of India. This biased behavior of Government gives Air India stronger

passenger base sidelining the ethical competitive behavior.

Recommendation: New government should revaluate its regulation of preferential

behavior towards Air India and all Indian Airlines should be given equal opportunity

to fly to their preferential destination in competition with Air India. Under reforms

Government should also consider incentive schemes to attract Airlines to fly to

destinations of low preference.

6.8 Availability of Government funds to Air India: As per the Air Corporation Act of

India, Government may provide capital expenditure funds and also bail out to

National Carrier Air India.

Recommendation: Bringing in Private investor as well as operators will help Air

India in resolving some of its problems. Private operators will restructure Air India

for efficiency will private investors will work towards the better return on

investment and over all it will improve Air India’s condition.

6.9 Procurement procedures: Under current situation the procurement procedures of

Airport authority of India are not fare enough for the competition. In case of domestic

tenders 3-4 weeks time is taken to open the tender to contractors while in global


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tenders 4-6 weeks time is taken. This time is further slashed in case of exceptional

emergency. In case of emergency tenders are requested through Fax or through Speed

Post (Courier Service of Indian Post).

Recommendation: Tenders should be requested through AAI and Ministry of Civil

Aviation website. This will make procurement process more transparent and

competitive. Also Tenders can be requested online as that’s the fast and safe way for

the process. Previous government had plans to make the procurement process online

under e-governance. New government should take this vision forward and should

consider applying online procurement process at earliest.


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7. CONCLUSION

It can be seen that all required factors for the growth of Aviation industry in India in

favor and demand forecast is very high. However, it is observed that Governments

initiatives are not sufficient for the required support for growth of Aviation. Urgent

steps need to be taken by new government of India to address the issues which are `

in growth of the industry.

At the ground level Aviation infra structure is not developed enough to meet the

demand of operations in coming years. Infrastructural elements are Airports, ANS,

ATM, Safety and Security. To develop this infrastructure government needs to

attract private investors and possibly foreign investors who will also bring the new

technology to the country. Without development of MRO sector development of

Aviation industry is almost impossible as MRO is back bone of Aviation in any

country.

Government should take its hands off of Air India which is White elephant and

private investors should be called to invest in Air India. Also this will end

preferential treatment of Air India which is making the whole Industry suffer.

Prices of ATF are one of the major concerns for all aviation operators in India.

Major reason of high prices of aviation is Tax policy of the government. If

government seriously wants aviation industry to grow in India they need to revaluate

the Tax policy and bring the prices downs.

Many regulatory hitches need to be removed for free and fair competition and equal

opportunity of business for all aviation stake holders.

Based on above reasons it can be concluded that current government should urgently

analyze the reforms required and apply them as quickly as possible.


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REFERENCES

i. Sethi, Reena Dr. Draft Civil Aviation Policy 10 Nov 2014

ii. Report – Competitive framework of Civil Aviation in India 2014 – Ministry of

Civil Aviation

iii. Report - Strategic Plan 2010 – 15 Ministry of Civil Aviation India

iv. Report – Research study of the Civil Aviation Sector in India – Nathan

Associates – Jan 2012

v. Websites:

a) Aircraft Act of 1934. http://dgca.nic.in/rules/1937-ind.htm

b) Air India website.

http://www.airindia.ch/joomla/index.php?option=com_content&task=view&id=1

9&Itemid=45

http://home.airindia.in/S BCMS/Webpages/Destinations.aspx?MID=26

c) Air Transport Association website.

http://www.airlines.org/ATAResources/AirportsQA/pages/airportsqa.asp

d) Airports Authority of India website.

http://www.aai.aero/public_notices/aaisite_test/orign.jsp

e) Directorate General of Civil Aviation website, http://dgca.nic.in/

f) Transport Corporation of India Limited website. http://www.tcil.com/ca.asp#air

g) CAPA website. https://centreforaviation.com/

h) Ministry of Civil Aviation website. www.civilaviation.gov.in

i) Ministry of Commerce website. www.commerce.nic.in/

j) Association of Private Airport Operator’s website. http://www.apaoindia.com/

http://dgca.nic.in/rules/1937-ind.htm

http://www.airindia.ch/joomla/index.php?option=com_content&task=view&id=19&Itemid=45

http://www.airindia.ch/joomla/index.php?option=com_content&task=view&id=19&Itemid=45

http://home.airindia.in/S%20BCMS/Webpages/Destinations.aspx?MID=26

http://www.airlines.org/ATAResources/AirportsQA/pages/airportsqa.asp

http://www.aai.aero/public_notices/aaisite_test/orign.jsp

http://dgca.nic.in/

http://www.tcil.com/ca.asp#air

https://centreforaviation.com/

http://www.civilaviation.gov.in/

../Downloads/commerce.nic.in/

http://www.apaoindia.com/

STRATEGIC ANALYSIS OF INDIAN AVIATION AND RECOMMENDED REFORMS

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