- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Market Risks
- 5 Top Market Opportunities
- 6 Market Drivers
- 7 Market Restraints
- 8 Industry Challenges
- 9 Technology Trends
- 10 Regulatory Trends
- 11 Market Size and Forecast
- 12 Market Outlook
- 13 Competitive Factors
- 14 Key Market Players
- 15 Strategic Conclusion
- 16 References
- 17 Appendix
Definition / Scope
Aviation industry refers to the sector that deals with the design, production, maintenance and operation of all types of aircraft. It is also a collective term for the companies involved in air industry. It is the global transportation network that carries goods and passengers via air.
In the 1800s, the earliest aircraft, lighter than air was created. In 1903, the American Wright Brothers created the first heavier than air flying vehicles. Within a decade, great progress was made in the field of aviation. Airplanes were developed for commerce, travel and military use. The aviation industry now generates billions of dollars in annual revenue.
Civil Aviation Industry in India is one of the fastest growing industries in the country. Aviation industry in India has been transformed from an over regulated and under managed sector to a more open, liberal and investment friendly sector. India has become the third largest domestic aviation market in the world and is expected to become the world’s largest domestic civil aviation market by 2025. Aviation supports 7.5 million Indian jobs and US$ 30 billion of GDP. Indian aviation is growing at an accelerating rate; as a result Government of India is planning to increase the number of airports to 250 by 2030.
The Ministry of Civil Aviation (MCA) is the Ministry responsible for the formulation of policy and regulation of civil aviation in India. The Airports Authority of India (AAI) creates, upgrades, maintains civil aviation infrastructure both on ground and air.
|Base Year||2017||Researched through internet|
- Airlines are highly affected by the price of oil. A slight hike in fuel price can cause a huge increase in the cost of each trip. It is estimated that just a $1 increase per barrel of oil can cost the global airline industry an additional $1 billion a year. This risk is outside the control of individual airline company.
- The airlines industry has been disrupted by the emergence of low-cost carriers. The risks of price-cutting by competitors are more of a problem in the airlines industry than any others.
- The airline is risky business around the world with high CAPEX and low profit margins.
- A slight slowdown in the global economy can have a devastating effect on air travel. The number of business trips and holidays during times of economic crisis and can have impact on the profitability of airline business.
Top Market Opportunities
- FDI inflows in air transport between April 2000 and December 2017 stood at US$ 1,608.51 million. The government has 100 percent FDI under automatic route in scheduled air transport service, regional air transport service and domestic scheduled passenger airline.
- India’s aviation industry is expected to have US$ 15.52 billion worth of investments in the coming 5 years.The Indian government is planning to invest US$ 1.83 billion for development of airport infrastructure along with aviation navigation services by 2026.
- Indian’s aviation industry is expected to create around 2.5-5 lakhs new jobs across various sectors like airport management, operations, logistics, tourism, etc.
- Low cost carrier business model of commercial aviation has opened up avenues for third party independent maintenance, repair and overhaul facilities. In low cost carrier business model, only line maintenance is done in-house and all other maintenance jobs are outsourced to the independent MROs.
- The deregulation has opened up the skies for small business jets to fly across the length and breadth of the country, creating opportunities for Air Charter business in India. Other opportunities are offered in the areas of fuel hedging, ground handling services, ground support equipment, and airport infrastructure.
The Civil Aviation industry is driven by factors such as low-cost carriers, higher disposable income, strong economic growth, tourist inflow, modern airports, foreign direct investment (FDI), advanced information technology (IT) and growing emphasis on regional connectivity.
1. Government Schemes - The government scheme like UDAN aims to connect 56 and 31 unserved airports and helipads respectively and NABH Nirman aims to expand India’s overall airport capacity by more than five times so that they can handle up to billion trips yearly.
2. Investment by airlines- Indian airlines are intending to buy a whopping 2,100 new aircraft for US$ 290 billion in a bid to increase flights and accommodate the ever growing passengers. Indian airlines IndiGo and Vistara are procuring new aircraft to fill the demand and supply gap of tier-2 and tier-3 cities.
3. Increase in passenger numbers- The increasing purchasing power of the passengers along with decreasing ticket price is acting as major driver for the increase in number of passengers.
4. Global connectivity- Global connectivity that only aviation can provide is a critical driver of all modern economies. Long distance travel and country to country travel is possible only via air transportation.
5. Low-cost carriers- Low cost carriers like IndiGo and SpiceJet have been instrumental in driving growth. The market share of LCCs increased from 25 to 65 percent in the past decade while full-service carriers saw sliced in half in their market share from 70 to 35 percent.
The infrastructure constraints and government policies that impose excessive costs on aviation limits growth in Indian aviation industry. India’s carriers are suffering a “double-whammy” of steeply rising fuel costs and the decline in the value of the Indian Rupee. The rise in fuel costs in particularly acute for Indian carriers for which fuel makes up 34% of operating costs.
- The inadequacy of India’s infrastructure planning, a fast emerging shortage of skills, flawed policy initiatives and weak regulatory oversight are major challenges for the industry.
- Aviation Turbine Fuel (ATF) prices in India is higher than the global market. The ATF price accounts for almost 45% of the operational expenses thus even a slight rise in fuel prices would affect the financial health of airline business.
- Overcrowding has become of the major challenge. Due to capacity limitations if a flight hang around in the sky for an additional half an hour, it can consume between 25 to 30 percent extra fuel.
- The airport charges payable at the International airports are higher than that of domestic airport. Thus, the domestic airlines in India are incurring additional cost at the international designated airports.
- The cut off of price by LCCs has led down to decline in market share for premium airlines. To moderate the decline in market share, the premium airlines are forced to reduce their fares.
- Airlines must use the newest technology to offer customers a better travel experience. Hyper connectivity, which refers to the use of several devices, is changing the rules and etiquette of airlines service strategy by offering travelers multitasking features and more.
- Another growing trend in airline service is use of biometrics and check-in baggage solutions. Sensors and tracking technology is also gaining interest as airlines explore smart technology.
- Airlines are also using cloud solutions to maintain and share vast amounts data. Forward-thinking airlines are turning to advanced digital security solutions to ensure proper governance of all data and fully protect sensitive customer information.
- AAI is going to invest US$ 2.32 billion in 2018-19 for expanding existing terminals and construction 15 new ones.
- Regional Connectivity Scheme has been launched under the policy.
- In February 2018, the Prime Minister of India launched the construction of Navi Mumbai airport which is expected to be built at a cost of US$ 2.58 billion.
- The allocation to Civil Aviation Industry has been tripled to US$ 1,019.9 million under Union Budget 2018-19.
Market Size and Forecast
During the fiscal year 2006-17, domestic freight traffic grew at a CAGR of 7.95 percent, while international freight traffic grew at a CAGR of 6.58 percent during the same period. In FY 18, domestic freight traffic stood at 1,213.06 million tonnes, while international freight traffic was at 2,143.97 million tonnes. In comparison to 2016, the domestic freight traffic and international freight traffic increased at 7.39% and 1.86 percent respectively in 2017. The total freight traffic registered a CAGR of 7.08 percent over 2006-17.
As of March 2018, there are about 550 commercial aircraft operation in India. India’s passenger traffic grew at 16.52 percent year on year to reach 308.75 million. It increased at a CAGR of 12.72 percent during 2006-2018. Domestic passenger traffic grew YoY by 18.28 percent to reach 243 million in 2018 and is expected to become 293 million in 2020. International passenger grew YoY by 10.43 percent to reach 65 million in 2018 and traffic is expected to become 76 million in 2020.
India’s domestic and international aircraft movements increased 14.40 percent YoY and 9.40% YoY to 1.88 million and 0.437 million during 2017-18 respectively.
India is expected to become the third largest air passenger market by 2025 overtaking UK. By 2023, total freight is expected to increase up to 4.14 million tonnes. In other words, growth at a CAGR of 7.27 percent is expected between 2016-2023. By 2036, India is expected to have 480 million flyers, which will be more than that of Japan and Germany combined.
At present, the low cost carrier model is dominating the market the Indian market. The market share of LCCs increased from 25 to 65 percent in the past decade while full-service carriers saw sliced in half in their market share from 70 to 35 percent. If we look at the vast majority of Indian middle class consumers, it is important to make the travel affordable for them. Cost control is one of the important factors which some of the players compete on.
However, customers are also looking into other factors like timing, airports, facilities, food, etc. Most of the passengers spend substantial parts in the airport. So, services received from airports also equally play an important role to avail the air transport. Being in the service industry, it is important to develop the services products in such a way that customer becomes delighted.
Key Market Players
The figure below shows the list of top airlines services operating in Indian market. Air India and Indian Airlines are dominated the market since its operation as they have the monopoly business. If we look at the market share of various airline operators, Indigo is leading the Indian domestic market with 38% of market shares followed by 83.6% of passenger load factor. The market share of Jet Airways and Jet Lite jointly stands at 18% approximately. Spice Jet stands at 3rd position with 14% market share followed by Air India which has a market share of 13.2% There are other players in the market too but their market share and load factor are comparatively lower.
India’s aviation industry is largely untapped with huge opportunities lying for those willing to enter the industry. Air transport is still expensive for majority of the population, of which about 40 percent is the upward middle class.
The stakeholders should collaborate with policy makers to implement efficient and well-organized decisions to boost India;s civil industry.
Low-cost carrier – It is a low-cost or discount airline that operates without most of the traditional services provided in the fare resulting in low fare.
Full service carrier – It is a higher fare airline which offers passengers inflight entertainment, meals, checked baggage and all the comforts.
AAI - Airports Authority of India
ATF - Aviation Turbine Fuel
CAGR - Compound Annual Growth Rate
CAPEX - Capital Expenditure
FDI - Foreign Direct Investment
FY - Fiscal Year
GDP - Gross Domestic Product
IATA - International Air Transport Association
LCC - Low Cost Carrier
MCA - Ministry of Civil Aviation
MRO - Maintenance, Repair and Overhaul Facilities
US - United States