Traffic Growth
Domestic
and international traffic have seen an acceleration of growth in recent years.
In the 12 months to 31 March, 2007, airlines carried 35 million domestic
passengers (up 39.5% year-on-year) and 22.4 million international passengers
(up 15.1%). This follows domestic traffic growth of 28% the previous year and
20% the year before. Domestic traffic
has consequently doubled in the space of three years.
The Centre
for Asia Pacific Aviation, a special consulting and research practice, projects
domestic traffic will grow at 25-30% per annum and international traffic at
15%, until 2010. The domestic market
size is expected to cross 60 million and international traffic 40 million
by the end of 2010.
New Airlines
The boom
in the aviation sector has attracted several new entrants. Until 2003 there were three main scheduled
domestic airlines – Jet Airways, Indian Airlines and Air Sahara. Since August 2003, they have been joined by
Air Deccan, Kingfisher Airlines, SpiceJet, Paramount Airways, Go Air and IndiGo.
The industry
is now moving towards consolidation with the confirmation of the Air India-Indian
merger, Jet Airways, acquisition of Air Sahara, and the controlling stake
taken in Air Deccan by the parent of Kingfisher Airlines.
Fleet Expansion
In order to
meet the expected traffic growth mentioned above, new and incumbent carriers
are placing significant aircraft orders.
Indian carriers have approximately 480 aircraft on order for delivery
up to 2012, which compares very impressively with a fleet size of 310 aircraft
operating in the country today.
Almost 150
aircraft have been added in the last two years alone for scheduled services
(at a rate of up to six aircraft a month in the domestic market), with a further
growth in excess of 50 aircraft in the general aviation category.
Some of the
aircraft on order will be used for replacement rather than expansion. However, India’s fleet will reach approximately
500 to 550 by the end of 2010 and the general aviation fleet will be 300 plus
by 2010 compared with 177 today.
Financial Performance
According
to industry sources, the combined airlines of India are expected to have posted
a loss of approximately $500 million the financial year ended 31 March, 2007.
However, the industry has the prospect of returning to profitability
in 2008-09.
New Horizons
Domestic airlines
meeting certain qualifications (five years of operation and fleet size of
at least 20 aircraft) have now been granted permission to operate to international
destinations.
International Policy
Government
policy in the are of bilateral air services agreement has evolved to one which
sees air connectivity as being essential for trade and tourism. As a result,
the government has granted increasingly liberal access to foreign carriers
to operate services to India. Existing
carriers have been increasing services and a number of airlines have entered
the market for the first time in the last couple of years.
Total seat
entitlements under bilateral agreements between India and all countries have
increased 123% between Summer 2003 and Summer 2006 to reach 46.48 million
seats per annum. The frequency entitlements,
for example, between India and Europe (including the UK) has increased from
70 flights per week to 204 flights during the same period.
On the India-US
route, annual traffic has increased from 447,000 in 2003-04 to 827,000 in
2006-07, an increase of 85% in just three years.
International
air services agreements will increasingly be driven by India’s strategic,
economic and political interests. The
government has removed the need for mandatory commercial agreements with the
national carrier for any additional operations by foreign airlines. Existing commercial agreements will only remain
in force until 2009, India has taken a decision to incorporate multiple designation
in bilateral agreements.
India has
been following an open-sky for policy for all cargo services since 1993, under
which designated foreign airlines are permitted to operate unlimited air services,
to/through any point in India via any intermediate point, to any beyond point
and vie-versa, utilizing any aircraft type, with full traffic rights except
cabotage.
The government
has also taken an in-principle decision to accede to the Cape Town Montreal
conventions.
Foreign Direct Investment
Under current
regulations, the foreign direct investment (FDI) limit in domestic airlines
is 49% through the automatic route, although foreign airlines are not permitted
to hold equity. Non-resident Indians
may invest up to 100%. The Ministry
of Civil Aviation is reviewing a proposal to increase the foreign direct investment
limit to 74% in the non-scheduled and ancillary sector. Some of the highlights of the investment policy
are as follows:-
For Greenfield airport projects, 100% FDI is permitted
through the automatic route;
For existing airport facilities, there is 100% FDI, with the
Foreign Investment Promotion Board’s approval required for FDI beyond 74%;
For air transport services, there is an FDI cap of 49% through
the automatic route and 100% for Non-Resident Indian investment through the
automatic route;
The Ministry of Civil Aviation proposes to liberalize the FDI
policy further in most sectors, details of which are under consideration.
Air India-Indian Airlines Merger
The Government
has merged the two state-owned carriers into a new company, which will strengthen
their operations. The new airline
is the largest in the country, with a fleet size of almost 120 comparable
to other airlines in Asia, and a further 111 aircraft on order.
The merged
entity will have an integrated national and international footprint, and will
enable these two airlines to pool their resources, achieve synergies, face
competition and establish new benchmarks for efficiency and reliability. The formal merger of the two airlines has been
completed in August 2007 and integration of operations will proceed in a phased
manner over the next two years.
The merger
is in keeping with the industry trend of moving towards consolidation to achieve
synergies and reduce costs. The merged
airlines will be able to offer an integrated schedule from interior points
in India to various international destinations and vice versa, offering seamless
connectivity to passengers.
A larger and
stronger public sector national carrier will also increase regional connectivity
to hitherto under-serviced and un-serviced destinations.
Pilots
The rapid
fleet expansion by airlines is driving a strong demand for pilots. This had led to an increase in salaries and
inter-airline poaching. India will
require an additional 2,000 pilots by 2010, a requirement which cannot be
met by locally trained resources alone. Already,
India has 500 foreign pilots. The
government has introduced some regulatory measures to attempt to address this
issue, e.g. increasing the retirement age from 60-65 and relaxing the process
for appointment of foreign pilots, such as increasing permitted contract terms
from one to three years, and permitting both the commander and the co-pilot
of an aircraft to be foreigners.
These initiatives
will alleviate the situation in the short term. However, the long-term future of the industry
will require investment by airlines, aircraft manufacturers and private operators
in training academies across the country.
The state-owned
Indira Gandhi Rashtriya Uran Academy is planning a $15 million investment,
in conjunction with the private sector, to upgrade and expand its capacity.
The Airports Authority of India is also planning to establish a world-class
flying school at Gondia in Maharashtra. At
least five other international operators (including Airbus and Boeing) are
evaluating investment opportunities in India.
Freight and Logistics
India’s increasing
international trade, combined with a strong domestic economy, will continue
to drive demand for airfreight and logistics. Meanwhile, all major international express
freight operators are reporting strong growth in the Indian market. New dedicated cargo airlines are planning to
launch shortly.
Massive investment
plans in the organized retail sector, as well as in high-value manufacturing,
will require the support of sophisticated logistics facilities.
India’s economic
development will require the support of dedicated freight cities with multi-modal
interchanges, state-of-the-art cargo terminals, cold storage facilities, and
electronic data interchange systems. The Indian government is shortly expected to grant permission for
the development of a major cargo hub in centrally located Nagpur.
General Aviation
The general
aviation sector in India, comprising non-scheduled operations, such as business
jets and charter, is currently very underdeveloped by international standards,
with 177 registered non-scheduled aircraft and approximately 150 private aircraft,
compared with at least 150,000 in the US. Rising affluence, record corporate profitability and increasing
tourism are all expected to drive growth in this sector. India now has its first fractional ownership
corporate jet programme. The number
of aircraft in the non-scheduled category is likely to increase to 300 by
2010. A proposal is under review to
increase the foreign direct investment limit in the non-scheduled aviation
category from 49% to 74%.
MRO
In the light
of the significant planned expansion of India’s fleet, opportunities in maintenance,
repair and overhaul (MRO) are also emerging. Given low labour costs in India and the significant
pool of engineers, efficient world-class MRO operations would have the potential
to attract offshore work from across Asia and beyond.
Airbus and
Boeing have both confirmed plans to establish MRO facilities in the country.
Meanwhile, a number of third-party providers have also expressed interest,
e.g. SIA Engineering, ST Aerospace, Lufthansa Technik and AAR, along several
major companies keen to enter this sector.
International Policy
Bilateral
talks are held at regular intervals, depending upon the growth of traffic,
based on the principles of mutual benefit and reciprocity. Diplomatic considerations and the overall economic
interest of the country are also taken into account. Some highlights of the development/policy an
international aviation are as follows:
India has so far entered into Air Services Agreements with
102 countries.
A total of 64 airlines of 50 countries are presently operating
to India, out of which 25 foreign airlines of 25 countries are providing
unilateral operations.
The Indian scheduled carriers together operate to 28
countries.
In view of the huge unused bilateral rights which India has
access to, it was decided in 2005 to permit private scheduled carriers with
five years’ domestic experience and a minimum fleet size of 20 aircraft to
operate international routes.
Gulf/West Asia, South-East Asia, UK/Europe and USA are some
of the major markets as far as international traffic to/from India is
concerned.
Recent years have witnessed a significant growth in air
capacity out of India. Our air services
arrangements with ASEAN and SAARC countries have been liberalized considerably.
Tourist charter guidelines have also been liberalized by removing
all restrictions on frequency, size of aircraft and points of call, subject
to availability of immigration and customs facilities for inbound inclusive
tour charters.
Liberalization of Air Services
In accordance
with the policy of liberalization in the civil aviation sector and with a
view to attract more foreign passengers, the government has adopted a liberal
approach in the matter of granting traffic rights under bilateral agreements
with various foreign countries.
A revised
Air Services Agreement was signed with the US to increase cooperation in the
aviation sector. Under this agreement,
both sides can designate any number of airlines to operate services to any
point in the territory of the other country, with full intermediate and beyond
traffic rights.
Similarly,
traffic rights were enhanced with various other countries also in order to
enable greater connectivity to/from India.
These countries included Australia, UK, Germany, China, France, the
Netherlands, Belgium, Canada, Singapore, Mauritius, New Zealand, UAE, Thailand,
Italy, Russia, Taiwan, Finland, Maldives, Tanzania, Japan, Sri Lanka, Kuwait,
Italy, Japan, Spain, Oman, Scandinavian countries, Egypt, etc. This will not only lead to increased flights
and improved connectivity to/from India, but also provide more commercial
opportunities for all operating carriers.
New Air Services Agreement
The signing
of a new Air Services Agreement is the first milestone to achieve for the
purpose of establishing air connectivity with new countries. Recently, a number of new Air Services Agreements
have been initialed/signed based on modern practices in civil aviation sector.
Air Services
Agreements with some countries were signed some time back and required updating
in view of the changing circumstances and developments in international civil
aviation, and with respect to newer standards and recommended practices.
These countries include the US, UK, Australia, Brazil, New Zealand,
Iceland, Finland, Tunisia and Qatar.
MC/GK
(Release ID :32038)