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India’s aviation sector has undergone rapid transformation since the liberalisation drive that began in 2003. The country has one state-owned airline, Air India, and six private airline groups, which between them carried just over 45 million domestic and 11 million international passengers in 2009/10. Total passenger numbers handled at Indian airports exceeded 120 million, making it one of the ten largest markets globally. Strong GDP growth, a young population and the expansion of India’s vibrant middle class is expected to see India achieve some of the fastest growth of any aviation market in the world over the next 20 years. And if costs can be continually brought down and competition remains strong, low fares should serve to stimulate new demand and draw millions of passengers away from the extensive rail network to faster and more comfortable air services.
The Ministry of Civil Aviation of India is responsible for the formulation of national policies and programmes for development and regulation of Civil Aviation and for devising and implementing schemes for the orderly growth and expansion of civil air transport. Its functions also extend to overseeing airport facilities, air traffic services (via Airports Authority of India and carriage of passengers and goods by air (via the Directorate General of Civil Aviation).
Jul-2013. Airport Authority of India (AAI) chairman V P Aggarwal announced the authority plans to issue INR10 billion (USD166 million) in tax-free bonds during FY2013-2014, to support the development of low-cost airports in the country. AAI plans to commence work on up to 15 low-cost airport projects during 2013, as part of plans to build 51 new airports to enhance connectivity to smaller cities and regional destinations. Mr Aggarwal stated that the development of the new airports will “strengthen the financial position” of the AAI. Eight new green field airports will also be developed under the public-private partnership model. The Indian Finance Ministry stated in 2012 that up to INR500 billion (USD8.3 billion) in bonds can be issued by state-run bodies for infrastructure projects.
Airports in India
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Airberlin delivered a 14% year-on-year increase in EBIT in 3Q2013, recording a positive quarter for the first time this year. The quarter also saw airberlin’s first reduction in unit costs (CASK) this year, reflecting good progress in the cost-cutting aspects of its Turbine restructuring programme.
However, the quarter also saw airberlin’s weakest RASK performance of 2013 and profits were not sufficient to restore a positive equity position to its fragile balance sheet. As a result mainly of a weak pricing environment, it has abandoned its previous FY2013 target for a breakeven EBIT result and set a softer target for year-end net debt reduction.
Airberlin CEO Wolfgang Prock-Schauer told analysts on the 3Q conference call that the relationship with Etihad was for the long term and that it “gives us time really to restructure the company properly”. This commitment looks likely to be tested again soon.
South African Airways (SAA) faces a pressing need to start moving forward with its new strategic plan, which includes pursuing expansion within Africa and cutting unprofitable long-haul destinations such as Buenos Aires. The new business plan, which was initially completed in Apr-2013, represents a critical step in finally fixing the long floundering carrier. But SAA has not yet implemented any major components of the plan although most of the pieces have secured the required layers of approval.
Under the new strategic plan, SAA will increase operations within Africa while cutting unprofitable long-haul routes and potentially hand more domestic routes to low-cost subsidiary Mango. SAA could also start operating alongside new partner Etihad on the Johannesburg-Abu Dhabi route, using the capacity freed up from axing highly unprofitable long-haul services, as it increases its reliance on partnerships to provide a stronger network beyond Africa.
The continued delays in implementing the long-term turnaround plan are costly as SAA continues to bleed. It needs to move quickly to build on its position in the intra-Africa market, with more flights from South Africa and a possible new base in West Africa, as competition within Africa is starting to intensify. SAA also needs to finally move forward in acquiring new widebody aircraft, which were identified in the plan as essential for a sustainable long-haul operation.
Star Alliance considers new platform for low-cost airlines, targeting Brazil's Azul & India's IndiGo
The Star Alliance is looking at following SkyTeam in offering a partnership platform for low-cost and hybrid carriers. Star sees the new platform, which would fall short of full membership but provide a model for selected LCCs to work with members, improving coverage in key markets.
Star has started to court Brazilian LCC Azul and Indian LCC IndiGo to join the potential programme, which would facilitate connections with participating Star members. Star has been trying to find a solution for India since 2011, when efforts to bring in Air India as a planned new member were suspended, while earlier this year Brazil’s largest carrier, TAM, began the process of transitioning from Star to oneworld.
But Star’s plan for a hybrid and LCC platform is controversial. Some Star members are against the concept of bringing in LCCs, fearing it could water down the alliance’s offering. Star’s pursuit of Azul is particularly controversial as at the same time the alliance has begun working at bringing in full-service carrier Avianca Brazil.
India's evolving global alliance mosaic: Star/SIA-Tata, oneworld/Air India-Qatar; SkyTeam/Jet-Etihad
Breathtakingly rapid changes in India are exposing a whole new panorama of the country's future international airline status. Just over two years ago, Star rejected Air India as a member, and the following year oneworld placed the admission of member-elect, Kingfisher on hold due to the carrier’s financial challenges. India's airlines were basket cases and its regulatory constraints promised to keep it that way. Today, thanks to some important (and long overdue) liberalising moves by the government, the country is shaping up as a potentially well balanced centre for each of the major BGAs.
Etihad clearly will have the first mover advantage, with its equity investment in Jet now having received regulatory approval to proceed, along with a substantial increase in seats in the Indian market. Meanwhile though, the long term pickings are so rich that other groups can no longer ignore the pressure to make a move.
All that is needed now is for India to remove its "5/20 rule" on international operations and - astonishingly - the country could leap from international dysfunctionality to commercial coherence in one bound. The impact for the national economy would be enormous.
But - there are one or two more barriers to be cleared. In India there always are. Perhaps this time the government will get it right, but don't bet on it just yet. And, although the alliances may be interested, they will remain wary of Indian pitfalls.
The structure of India’s airline market is expected to change significantly in coming months as carriers revisit their business models in order to restore industry viability. Nearly two thirds of the seats flying on domestic routes are on LCCs, one of the highest proportions in the world.
In this highly competitive system the six scheduled airlines have largely converged in terms of pricing and product. But given their significantly different cost structures, this situation is unsustainable for some, while presenting opportunities for others.
Over time the competing airlines will inevitably attempt to carve out more clearly differentiated market propositions, ranging from ultra-low cost to hybrid and premium full service. While that is high on the agenda, at the same time the merry-go-round of partnerships is starting to accelerate. All in all, a spicy cocktail.
CAPA and SITA jointly released a study on 27-Sep-2013 on the potential for IT to transform the passenger experience in India by 2015.
The research found among other things that, although progress in India has been constrained by financial factors since our first study in 2010, management has now recognised that IT issues are integral ingredients of management strategy - rather than merely an operational matter. This will be essential if the system is to adapt to the high levels of traffic growth envisaged over coming years.
The study combined CAPA’s extensive ongoing research and analysis of the Indian aviation sector with SITA’s IT domain expertise. Key stakeholders were interviewed across airlines, airports, ground handlers, air navigation services and border protection.
Consumer research consisted of a survey of 500 passengers across six metro airports and qualitative focus group discussions with travellers from a variety of ages, backgrounds and travel experience.