Overview Of Airline Industry Essay

2448 words - 10 pages

Overview of Airline Industry

Air travel has grown in the past decade. Travel grew strongly for both leisure and business purposes. India will have nearly 800 to 1000 airplanes by 2023, it was estimated by Airbus. In spite of growth between 30 to 50 per cent in Indian aviation industry, losses of approximately 2200 crore is estimated for the current year.

During 19991-1992, Modiluft, East West and Damania went bankrupt. Air Sahara and Jet Airways survived along with government own Indian Airlines because they had the capability to bear losses. Globalization and privatization had a major impact on aviation industry. Indian aviation industry was deregulated by the government in 1990s. As ...view middle of the document...

The government aims to set up joint venture to operate these airports and offered 74 per cent stakes. Foreign direct investment (FDI) can hold up to 49 per cent in this transaction, while 25 per cent must be held by private Indian companies. Remaining 26 per cent to be held by Airport Authority of India (AAI) and other government PSUs.

In an attempt to capture market share, many airlines in India are flying below their cost, thus incurs heavy losses. Due to overcapacity and competition, the government fear that the aviation boom now may soon go bust. Earlier, companies even before signing a lease for aircraft, used to procure licences. But now to regulate competition from September 2006 onwards a temporary moratorium is put on the new airline licences. No blanket ban will be there. But pending as well as new applications will go through high scrutiny. A plan for quarterly review of financial and operational statement of airline was introduced by ministry. It will be mandated by the federal Aviation Authority in US.

At present government is providing sops to planes which are less than an 80 seater. Under this new policy airline don’t have to pay landing charges, even route navigational charges are much lower than other aircraft. To encourage regional connectivity, government is now willing to offer some sops to airlines which fly on category two and three route.

Government has appointed a number of committees. Their main aim is to provide remedies to problems related to civil aviation industry of India. For instance, in November 2003, recommendation to develop a civil aviation roadmap was provided by Naresh Chandra Committee. Measures to increase airport and air traffic control (ATC) capacity were suggested by K Roy Paul Committee in April 2005. The MK Kaw Committee has recommended to restructure the Directorate General of Civil Aviation and to make major changes in the regulatory system in April 2006.

Economic Environment

In Indian economy, there is a robust growth of 8.9 per cent GDP, in first quarter of the current year. The aviation industry is at boom, where growth ranged between 30-50 per cent. The growth in aviation has been possible because of liberal policies in civil aviation, robust growth in tourism and exports. Few years back domestic market was dominated by three domestic carriers they were Indian Airlines (government owned), Jet Airways and Air Sahara (private players). But now there are 14 which include new players like Jagson, Air Deccan, Spice Jet, Go Air, Magic Air etc.

On 1 September 2004 new tax came into force. Indian companies which acquires an aircraft or aircraft engine on lease from foreign enterprise or a foreign country has to pay tax, which could vary from 10 per cent onwards.

Aviation turbine fuel (ATF) which ranged from 8 per cent to 24 per cent across states. ATF accounts for 45 per cent of operational costs in India, while internationally it is 20 per cent. Indian airline companies pay one of...

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