Economics
companies. A reduction in duties will certainly provide some breathing space to the players. High airport fees is another area where the Indian players are at the receiving end as they pay some of the highest airport fees in the world. The recent steep increase in airport fees at Delhi and the one proposed in Mumbai will exacerbate the problem. Their exists intense competition in the industry and the pricing strategies of the players reflects this. The state owned Air India has off late been dropping its fares considerably and as a result the other players are following the suite, as they are left with few choices. This has not only inflated the debt of Air India, but also had a profound effect on the other players as the industry is witnessing a deadly combination of high costs and price based competition which can be lethal in the long term. Air India is also suffering from o ver employment when compared to major International and domestic players. the sector offers is one of the many attractive facts that would bring in foreign investments. Another major advantage for the Indian players is the operational expertise that the foreign players bring along with them. This will certainly help in optimizing the operations of the national players. The Indian Aviation industry is still in the development phase and will thus gain immensely from the experience of the other foreign airlines. Globally there have been many successful models of low cost airlines such as Air Asia, Ryanair, Southwest Airlines and others. These will certainly help their Indian counterparts in improving their operational efficiency and thus improve their bottom lines.
Also FDI will give a boost to the Maintenance Repair and Overhaul (MRO) industry that serves as the backbone for the industry. The current size of the MRO industry in India is US$800 million and is expected to grow to US$ 1.5 billion by 2020. The Indian players must now justify their positions so as to seem attractive for foreign airlines to infuse capital in them. For the Foreign Airline, this is a valuable opportuCoupled with these issues, the companies are facing acute nity to enter one of the fastest growing aviation markets shortage of funds and are not even able to meet their daily globally and gain a substantial share in the market that is still operational expenses. Most of them have already developing. At present most of the foreign airlines are skepexhausted their credit limits and banks are now wary of tical of entering the Indian market and watching every extending more credit. So on paper, most of the players movement in the sector closely. As stated by Aviation are not even worth Re. 1 as mentioned in a newspaper think-tank Centre for Asia Pacific Aviation, "The floodgates headline. According to a report the entire sector has loans of investment are unlikely to open in the short term but worth Rs. 1,10,000 crores, but the net worth of the sector from the perspective of improving sentiment and demonis just 25 percent of the total loans and thus the sector is strating that the government is committed to supporting the worth nothing when looked purely from the accounting development of a viable airline industry, this is a positive milestone". It thus becomes clear that FDI alone would not perspective. While problems are plenty for the sector, the FDI regula- be able to rescue the Indian aviation sector as it faces a tion will certainly provide some relief to the cash crunch humongous task ahead. It has to be coupled with many players in the industry. The immense growth potential that other allied reforms in the sector to make the sector come out of the red.
Figure 2: Passenger Load factor
85% 80% 75% 70% 65% 60% 2009 AirIndia Jet Airways Jetlite 2010 King?sher Spicejet 2011 GoAir IndiGo
250 200 150 100 50 0 Air India British Airways Lufthansa Singapore Airlines Indigo Air Deccan (past data) 221 178 127 140 96 70
79% 76% 75% 73% 71% 69% 66%
84% 81% 81% 79% 78% 75% 71%
83% 81% 78% 78% 76% 74% 72%
Figure 5: Employees per Aircraft
Employees per aircraft
Source: Ministry of Civil Aviation Figure 3: On time performance
95% 90% 85% 80% 75% 70% 2009 AirIndia Jet Airways Jetlite 2010 King?sher Spicejet GoAir 2011 IndiGo 83%83% 80%80% 73%75% 71% 86%85% 85% 83% 73% 76% 75% 91% 91% 89% 88% 87%
Em
Source: India Today, Business Today
82% 73%
Source: Ministry of Civil Aviation
iNM - Magazine Vol. 4 9