Innovative Journal of Business and Management 1: 3 May June (2012) 54 56.

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INNOVATIVE JOURNAL OF BUSINESS AND MANAGEMENT
Journal homepage:http://www.innovativejournal.in/index.php/ijbm

CHALLENGES OF INDIAN AVIATION INDUSTRY IN CHAOTIC PHASE

Rajesh U. Kanthe*
Bharati Vidyapeeth Deemed University, IMRDA, SANGLI, India
ARTICLE INFO
Corresponding Author:
Dr. Rajesh U. Kanthe*
Associate Professor. Bharati
Vidyapeeth Deemed University,
IMRDA, SANGLI, India

KeyWords: Indian airline industry,

challenges, commercial flight,
Infrastructure

ABSTRACT
The Indian airline industry was mainly deregulated in 1990; plenty of
enduring rules and regulations have made it nearly impossible for
carriers to be efficient. Many believe that restrictions on foreign
ownership and labor laws have kept the industry away from
innovating. So instead of protective measures like, survival fund, bailouts,
airlines need to work with government to tackle longer-term problems.
Missions like bringing low cost carrier for an average Indian who dreams
to travel by air once in life and secondly building more runways,
running airports more efficiently, and reining in labor costs. This paper
discusses and reviews the challenges faced by aviation companies
which Include shortage of workers and professionals, safety
concerns, declining returns and the lack of accompanying capacity and
infrastructure. Moreover, stiff competition and rising fuel costs are also
negatively impacting the industry
2012, IJBM, All Right Reserved

INTRODUCTION
India aviation industry promises huge growth
potential due to large and growing middle class
population, favorable demographics, rapid economic
growth, higher disposable incomes, rising aspirations of
the middle class, and overall low penetration levels (less
than 3%). While the domestic airlines have not been
able to attract foreign investors (up to 49% FDI is
allowed, though foreign airlines are currently not allowed
any stake), foreign airlines may be interested in taking
strategic stakes due to their deeper business
understanding, longer investment horizons and overall
longer term commitment towards the global aviation
industry. Healthy passenger traffic growth on account of
favorable demographics, rising disposable incomes and
low air travel penetration could attract long-term
strategic investments in the sector. There are
challenges: i) aviation money matters is currently not
favorable
in India resulting
in weak financial
performance of airlines and ii) Internationally, too airlines
are going through period of stress which could possibly
discourage their investment plans in newer markets.
Besides, foreign carriers already enjoy significant market
share of profitable international routes and have wide
access to Indian market through code-sharing
arrangements with domestic players. Given these
considerations, we believe, foreign airlines are likely to be
more cautious in their investment decisions and strategies
are likely to be long drawn rather than focused on short term valuations.
On the proposal to allow import of ATF, we feel
that the duty differential between sales tax (averaging
around 22-26% for domestic fuel uplifts) being currently
paid by airlines on domestic routes and import duty

(8.5%-10.0%) is an attractive proposition for airlines.

However the challenges in importing, storing and
transporting jet fuel will be a considerable roadblock for
airlines due to OMCs monopoly on infrastructure at most
Indian airports. From the working capital standpoint too,
airlines will need to deploy significant amount of
resources in sourcing fuel which may not be easy given
the stretched balance sheets and tight liquidity profile of
most airlines.
INDIAN AVIATION INDUSTRY
The first commercial flight in India took-off in ,
1911, when a French pilot Monseigneur Piguet flew
airmails from Allahabad to Naini, covering a distance of
about 10 km in as many minutes. Tata Services became
Tata Airlines and then Air-India and spread its wings as
Air-India International. The domestic aviation scene,
however, was chaotic. When the American Tenth Air Force
in India disposed of its planes at throwaway prices, 11
domestic airlines sprang up, scrambling for traffic that
could sustain only two or three. In 1953, the government
nationalized the airlines, merged them, and created Indian
Airlines. For the next 25 years JRD Tata remained the
chairman of Air-India and a director on the board of
Indian
Airlines.
After JRD left, voracious unions
mushroomed, spawned on the pork barrel jobs created by
politicians. In 1999, A-I had 700 employees per plane;
today it has 474 whereas other airlines have 350.
The Indian Aviation Industry has been going
through a chaotic phase over the past several years facing
multiple headwinds high oil prices and limited pricing
power contributed by industry wide over capacity and
periods of subdued demand growth. Over the near term
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Kanthe/Challenges of Indian Aviation Industry in Chaotic Phase

the challenges facing the airline operators are related to
high debt burden and liquidity constraints - most
operators need significant equity infusion to effect a
meaningful improvement in balance sheet. Improved
financial profile would also allow these players to focus on
steps to improve long term viability and brand building
through differentiated customer service. Over the long
term the operators need to focus on improving cost
structure, through rationalization at all levels including
mix of fleet and routes, aimed at cost efficiency. At the
industry level, long term viability also requires return of
pricing power through better alignment of capacity to the
underlying demand growth
Historically, the Indian aviation sector has been
a foot-dragger relative to its growth potential due to
unnecessary, government ownership and regulations of
airlines and resulting high cost of air travel. However, this
has changed rapidly over the last decade with the sector
showing explosive growth supported by structural
reforms, airport modernizations, entry of private airlines,
adoption of low fare - no frills models and improvement in
service standards. Like elsewhere in the world, air travel is
been transformed into a mode of mass transportation and
is gradually shedding its elitist image.

international network covers Kuwait, Oman, UAE, Qatar

and Bahrain in West Asia, Thailand, Singapore, Yangon and
Malaysia in South East Asia and Pakistan, Nepal,
Bangladesh, Myanmar, Sri Lanka and Maldives in the
South Asian sub-continent.Indian Airlines is presently fully
owned by the Government of India and has total staff
strength of around 18562 employees. Its annual turnover,
together with that of its subsidiary Alliance Air, is well over
Rs.4000 crores (around US$ 1 billion). Source: Capitaline,
ICRA Research
Kingfisher Airlines:
Kingfisher Airlines Limited is an airline group
based in India. Its head office is in Andheri (East), Mumbai
and Registered Office in UB City, Bangalore. Kingfisher
Airlines, through its parent company United Breweries
Group, has a 50% stake in low-cost carrier Kingfisher Red.
The airline has been facing financial issues for many years.
Until December 2011, Kingfisher Airlines had the second
largest share in India's domestic air travel market.
However due to the severe financial crisis faced by the
airline, it has the fifth largest market share currently, only
above GoAir. angalore, Dec 10: Kingfisher Airlines, which
has been facing tremendous difficulties following the
reports of successive days of flights cancellation, debt of Rs
7,500 crore and rising, a July-September quarter loss of Rs
469 crore, delayed salaries, pilots quitting, may once again
fly in full gear. Now, the Chairman, Vijay Mallya has given a
personal guarantee of
Rs 249 crore to save the sinking airlines.

CIVIL AVIATION POLICY IN INDIA:

In the context of a multiplicity of airlines, airport
operators (including private sector), and the possibility
of oligopolistic practices, there is a need for an
autonomous regulatory authority which could work as a
watchdog, as well as a facilitator for the sector,
prescribe and enforce minimum standards for all agencies,
settle disputes with regard to abuse of monopoly and
ensure level playing field for all agencies. The CAA was
commissioned to maintain a competitive civil aviation
environment which ensures safety and security in
accordance with international standards, promotes
efficient, cost-effective and orderly growth of air
transport and contributes to social and economic
development of the country.
Objectives of Civil Aviation
a) ) Security of civil aviation operations is ensured
through appropriate systems, policies, and practices
b) Private participation
c) Safe, efficient, reliable and widespread quality air
transport services are provided at reasonable prices
d) Flexibility to adapt to changing needs.
e) To provide all players a level-playing field
f) Effective regulation of air transport in the country in
the liberalized environment
g) Encourage Trade, tourism and overall economic activity
and growth h) Aviation safety, security

Air Sahara
Air Sahara has established itself as one of the
leading players in the Indian Aviation industry. Air Sahara
is part of the multi-crore Sahara India Pariwar. Sahara
India Pariwar has interests in Public
Deposit
Mobilization, Media & Entertainment, Housing &
Infrastruct ure,
Tourism, Consumer Products and
Information Technology. Starting on a modest scale and
a capital of only Rs.2000 in 1978, Sahara India Pariwar
has traversed a long way to become an icon in Indian
entrepreneurship.Air Sahara began operations on
December 3, 1993 following the Indian government's
decision to open the skies to the private sector. It operated
with a fleet of only two Boeing 737-200s. Air Sahara has
introduced initiatives such as Steal-a-seat flexi fare
options, Sixer/Super Sixer and Square Drive/Super Four.
Jet Airways
In May 1974, Naresh Goyal founded Jetair
(Private) Limited with the objective of providing Sales and
Marketing representation to foreign airlines in India. In
1991, as part of the ongoing diversification programme of
his business activities, Naresh Goyal took advantage of
the opening of the Indian economy and the enunciation of
the Open Skies Policy by the Government of India, to set
up Jet Airways (India) Private Limited, for the
operation of scheduled air services on domestic sectors in
India. Jet Airways has emerged as India's largest private
domestic airline and has been acclaimed by frequent
travellers as the most preferred carrier offering the
highest quality of comfort, courtesy and standards of in
flight and ground service and reliability of operations. It
currently has a market share of 46.7% per cent and
operates a fleet of Boeing and ATR72-500 turbo-prop
aircraft

AIRLINE PLAYERS IN INDIAN SKY

Indian Airlines
Indian Airlines was founded in 1953. Today, together
with its fully owned subsidiary Alliance Air, it is one of
the largest regional airline systems in Asia with a fleet
of 62 aircraft(4 wide bodied Airbus A300s, 41 fly-by-wire
Airbus A320s, 11 Boeing 737s, 2 Dornier D-228 aircraft
and 4 ATR-42).It has many firsts to its credit, including
introduction of the wide-bodied A300 aircraft on the
domestic network, the fly-by-wire A320, Domestic Shuttle
Service, The airlines network spans from Kuwait in the
west to Singapore in the East and covers 75 destinations 57 within India and 20 abroad. The Indian Airlines
55

Kanthe/Challenges of Indian Aviation Industry in Chaotic Phase

Air Deccan: Captain Gopinath
Formed air Deccan in 1995.Air Deccan is a unit
of Deccan Aviation Private Limited, India's largest private
heli-charter company. Formed in 1995, Deccan Aviation
Private Limited has carved a niche for itself in the Indian
aviation scene with its reputation for providing speedy and
reliable heli-services for company charters, tourism,
medical evacuation, off-shore logistics and a host of other
services. The company has a modern fleet of ATR-42-320
aircraft, one of the finest and most efficient Turbo-Prop
aircraft flying. ATR is a European joint venture between
Alenia Aeronautica and EADS. The ATR 42 has become a
reference aircraft amongst airlines around the world, by
offering a safe, easy to maintain and comfortable aircraft
operating on the regional market with the best economics
on short haul sectors. To date, ATR has sold over 650
aircraft to more than 100 operators in 73 countries all
around the world. The company has adopted a 'lean-andmean' approach to staffing and aims at maintaining a low
aircraft-to-employee ratio. Source: Capitaline, ICRA
Research

more for business fares, they can get more revenues per
flight. But many experts argue that it's time to give up on
that model - especially as low-cost carriers increase service
along heavily travelled routes.
More clear pricing
The inheritance carriers have long had an unusual, almost
incomprehensible pricing system. However, these days,
with the Internet allowing travelers to shop for the
cheapest tickets easily, and low-cost airlines offering
uncomplicated set prices, traditional carriers have to fo
llow suit or risk losing more and more passengers. Most of
the industry's improvement efforts have focused on
whittling down costs. However, boosting revenues also
needs to be a priority. After all, people are willing to
pay more if they believe they're getting more value.
Legacy carriers still offer certain advantages, especially to
the business traveller including airport lounges and more
comfortable seating. This would sound like a new model for
quality pricing
FROM BAILOUTS TO GOVERNMENT PARTNERSHIP
Although the Indian airline industry was largely
deregulated in 1990, plenty of lingering rules and
regulations have made it nearly impossible for carriers to
be efficient. Many believe that restrictions on foreign
ownership and labour laws have kept the indu stry from
innovating. So instead of lobbying for protective measures
like bailouts, airlines need to work with government to
tackle longer-term projects like building more runways,
running airports more efficiently, and reining in labour
costs.

CHALLENGES FOR AVIATION INDUSTRY

The growths in the aviation sector and capacity expansion
by carriers have posed challenges to aviation industry on
several fronts.
Fuel prices: As fuel prices have climbed, the inverse
Relationship between fuel prices and airline stock prices
has been demonstrated. Moreover, the
rising fuel prices have led to increase in the air fares
Employee shortage: There is clearly a shortage of trained
and skilled manpower in the aviation sector as a
consequence of which there is cut-throat competition for
employees which, in turn, is driving wages to
unsustainable levels. Moreover, the industry is unable to
retain talented employees
Local connectivity: One of the biggest challenges facing
the aviation sector in India is to be able to provide regional
connectivity. What is hampering the growth of regional
connectivity is the lack of airports
Infrastructure: Airport and air traffic control (ATC)
infrastructure is inadequate to support growth. While a
start has been made to upgrade the infrastructure, the
results will be visible only after 2 - 3 years
Reserves routes: The entry of new players would
ensure that air fares are brought to realistic levels, as it
will lead to better cost and revenue management, increased
productivity and better services. This in turn would
stimulate demand and lead to growth. High
participation expenditure: Apart from the abovementioned factors, the input costs are also high. Some of
the reasons for high input costs are:-Withholding tax on
interest repayments on foreign currency loans for aircraft
acquisition. Increasing manpower costs due to shortage of
technical personnel

REFERENCES
1. Study of the Indian Aviation Industry: Ashish Dhawan,
Nidhi Mishra, Nithya R, Payal Yadav, Rajesh B, Siddharth
Dahiya, Siddhartha Butalia
http://www.ch2.
Retrieved
from
aviation.ch/portal/aircraft.php?search=set&airline=KIF
3. Retrieved from
http://en.wikipedia.org/wiki/Kingfisher_Airlines_destinati
ons
4. India Today, Kingfisher in trouble: Vijay Mallya refuses to
accept his business model is to be blamed for crisis, 19
November 2011, retrieved 4 December 2011
5. The World's official 5-Star Airlines SKYTRAXhttp://www.airlinequality.com/Forum/kingfishe
r.htm
6. Retrieved from
http://in.finance.yahoo.com/news/kingfisher-operate120-daily-flights-114123710.html
7."Domestic Passengers carried by Indian Scheduled
Airlines in the Month of May, 2009". Pib.nic.in. Retrieved
2010-08-30.
8. Retrieved from http://civilaviation.nic.in
http://www.skygod.com
/quotes/http://www.flykingfisher.com
9. Retrieved from http://www.goindigo.in
http://indiaaviation.aero http://www.wikipedia.org
10. Retrieved from http://www.flyairdeccan.net
http://www.goair.in http://www.spicejet.com
11. Retrieved from http://www.hinduonline.com
http://www.civilaviationweek.com
12. Retrieved From: //www.businesstravelindia.com
http://www.yahoo.com.

RECOMMENDATIONS
Low-cost carriers
Use just a few types of aircraft, a strategy that cuts
training and maintenance expenses.. Another way to
simplify operations is modifying the hub-and-spoke model,
which uses designated headquarter airports for transfers.
Traditionally, the big airlines have sent many of their
flights through hub airports at peak business-travel
hours. That way, since carriers typically charge heaps

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