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Indian Aviation Sector

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  Indian Aviation Sector : CURRENT MARKET STRUCTURE The domestic airline space, in its present form, is largely dominated by low-cost carriers such as IndiGo, SpiceJet Ltd and GoAir. It is an oligopolistic structure with a relatively small number of players holding significant market share but no one airline dominating it. There are significant cost barriers to entry and economies of scale and scope are a given. For an airline to break even in this environment, it must achieve minimum levels of efficiency in its operations.   Aviation sector in India has been transformed from anover regulated and under managed sector to a more open, liberal and investment friendly sector since 2004. The civil sector, where private airlines have now created a large and growing market, is still struggling with issues of profitability. The expansion of the aviation industry into the fabric of the country through the creation of smaller airports is still in its early stages, while the MRO industry where India could take a lead, is suffering from a lack of competitiveness relative to Singapore, Dubai and Sri Lanka. Reducing the time lag for general aviation aircraft clearances, lack of tax incentives, lack of manufacturing capabilities and skill sets, are some of the other challenges which the industry needs to deal with.   There is a strong correlation between the gross domestic product (GDP) and the aviation industry. As a country’s per    capita GDP grows, so does its residents’  desire and ability to afford travel, and this desire in turn fuels the demand for aircraft. It is now well-acknowledged that economies outside North America and Europe are expected to lead the world in GDP growth. By 2030, more than 50% of the top 10 economies are expected to be outside the Western Europe and US region. Countries of Asia-Pacific, Latin  America and Russia, where long-term GDP growth is forecast above average are expected to have a profound impact on commercial aviation.    Recent events in the ‘Open Skies’ airline environment:  In 1994, India repealed the Air Corporation Act of 1953 and opened up its skies to competition. This effectively ended the government’s monopoly on air transport. Air traffic grew and several private players joined the fray.  As competition in the sector intensified, the consumer began to see some positive benefits in the form of improved service quality and reduced airfares. The TataSons-Singapore Airlines venture, where the Tatas will hold 51% stake and Singapore Airlines the remaining 49%, is an extension of the vision of the Tata Group, which forged a tripartite partnership with Air-  Asia and Arun Bhatia’s Telestra Trade place for low - cost carrier Air Asia’s entry into India. This will open up competition on west-bound routes. It will initially operate domestic services from New Delhi and compete with full service carriers Air India Ltd and Jet Airways (India) Ltd, which are the only players in the full-service market since the collapse of Kingfisher Airlines Ltd in 2012.  Around 70% of the Indian domestic market is dominated by low-cost carriers such as IndiGo, SpiceJet Ltd and GoAir. Tata is also starting up a low- cost carrier joint venture with Malaysia’s AirAsiaBhd, increasing the competition in this segment. Etihad picked up a 24 percent stake in Jet Airways for about Rs 2060 crore. The main shareholders in the merged airline are Naresh Goyal, the current chairman of Jet Airways with 51%, Etihad with 24%, and others, including the public, with 25%. Meanwhile, on 16 December, SpiceJet Ltd, India’s second largest low -fare airline, signed a three-year inter-line agreement with Tiger Airways, which operates Tigerair, connecting 14 Indian cities to Singapore via Hyderabad.  The high cost operating environment and the continued weakness in the economy would suggest that domestic traffic growth remains vulnerable and all other things being equal may remain in low single‐digit territory in FY2015. However,  there is considerable uncertainty about the potential impact of the new market entrants. If a fares war is instigated traffic growth could be stimulated significantly above this underlying rate however this would be at the expense of the airline balance sheets. Domestic traffic performance could therefore be volatile from month to month. However, we may see signs of a more sustained recovery from 3QFY2015 onwards as economic confidence is expected to increase following the general elections. International traffic on the other hand has been a strong and steady performer over the last decade, even during periods where the domestic has dropped into negative territory. Growth for the 12 months ending 31‐Mar‐14 is expected to   reach 12% year‐on‐year. In FY2015 double‐digit growth of 10‐12% is expected  once again and may exceed 15% if the 5 year/20 aircraft rule is lifted and a number of bilaterals are relaxed. Current jet-etihad deal:  India’s largest private carrier Jet Airways has expanded its code -share partnership with Etihad  Airways which holds a 24 percent stake in the former. The agreement will allow Jet passengers from India to connect on to flights on the Etihad network via Abu Dhabi to European destinations including, Amsterdam, Brussels, Düsseldorf, Dublin, Frankfurt, Geneva, Manchester, Milan, Munich, and Paris, to north American destinations such as Chicago, New York (JFK) and Washington Dulles. Other destinations include Johannesburg and Nairobi in Africa, and Brisbane in Australia via Singapore. Jet Airways will places its flight code 9W on flights operated by Etihad Airways, between Abu Dhabi and India destinations Ahmedabad, Bangalore, Calicut, Chennai, Delhi, Hyderabad, Mumbai, Kochi and Trivandrum. Etihad Airways places its code EY on Jet operated flights between Abu Dhabi and Mumbai, Delhi, Cochin, Bangalore, Hyderabad and Chennai. This increases the frequency and capacity for both the airline between Abu Dhabi and India. The code-share also enables Etihad passengers to access Jet’s services to Singapore, Hong Kong and Bangkok, though it is difficult to understand why any passenger would choose a transit stop in India when Etihad already operates direct flights to these destinations from Abu Dhabi. Frequent flyer members of Jet Privilege and Etihad Guest can earn and redeem miles across the global networks of both airlines. Elite level members of both programs will enjoy the same extended reciprocal benefits like baggage, lounge access, priority boarding etc., when travelling on flights operated by both carriers. A code-share agreement offers airlines the ability to use one flight, operated by a partner airline‟s “metal,” with multiple flight numbers. Passengers on board theseflights can accrue frequent flyer program miles, elite qualifying miles and other perks, such as priority check in, boarding, etc.
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