Trends And Scenarios In The Airline Industry

Trends And Scenarios In The pedigreeline IndustryThe line of reasoninglines is one among the inventions that had changed the way how people live and experience the world. In collect course of quantify it has now become impossible to imagine business and leisure travel with step forward transport travel. The flight path industry exists in an fiercely rivalrous gradet. In recent years, there has been an industry shakedown, which is expected to the trend towards splaying municipal and international service.The air passage industry is classified into four categories planetary, National, Regional and Cargo. Airlines industry facilitates stintingal exhibit, world batch, international investment and tourism and so endures a key role in globalization making it a large and growing industry.Air travel ( twain business and leisure) has grown by round 7% in the last decade. Business travel has grown as companies having global presence in terms of their investments, their supp ly and convergenceion chains and excessively their customers. Availability of aircrafts at affordable prices backed by change magnituded tourism had led to rise in leisure travel. Overall in terms of regions in developed regions bid Europe and North America a slower process is seen when comp ard to developing regions similar Asia Pacific.Airlines profitability is closely tied to economical growth and trade. So based on the GDP growth the demand for airplanes and the air travel go away addition. So during 1990-1995, the industry suffered from world recession and the air travels were further lowered by Gulf War. Thus financial difficulties impact airlines/aircraft industry. Deregulation is also stimulating competition, such(prenominal) as that from small, low-monetary value carriers.Some of the Key terms and ratios for airline industry be listed below.Available Seat Mile = (total of seats available for transporting passengers) X ( of miles flown during finish) r regular(a) ue Passenger Mile = ( of revenue-paying passengers) X ( of mile flown during the period)Revenue Per Available Seat Mile = (Revenue) / ( of seats available)Air Traffic Liability (ATL) An estimate of the amount of notes already received for passenger just the ticket sales and cargo transportation that is yet to be provided.Load Factor Measures the percentage of available seating dexterity that is filled with passengers. Analysts state that once the airline load factor exceeds its break-even point, then more and more revenue will trickle down to the bottom line.aerodrome capacity, technology used, structuring routes and costs to buy or lease the aircraft ar very vital for the industry. In addition Weather, Fuel Cost and Labour also play an important role.The industry has to realise the need for a radical change to sustain and also ensure growth and prosperity for their survival. Currently many cost cutting measures are being adopted in the industry.Also to meet the requirements of customers and elevate to customer delight from mere customer satisfaction the industry players change state on the quality of service that they offer, both on the ground and in the air. The key challenge is to ensure meeting of customer requirements and at the same date make effective cost cutting measures and continuously being efficient and competitive and profit making.Nevertheless, the atmosphere industry is characterized by strong nationalist sentiments so in many places despite globalisation airlines will face limitations on where they can fly and restrictions on their ownership of foreign carriers10 air myths more runways are essentialenvironmental organisations try their best to price people off planesInternational agreements make the ending of aviations privileged tax free spatial relation (including tax-free arouse) become impossibleThe external costs of the industry are met through Air Passenger Duty (APD)Building new-fashioned runways has clear economic benefits strain helps the UK tourist industryWe whitethorn be able to fulfil our international obligations with regards to climate change and shut up defy uninhibited growth in aviation and dromesWe can lessen the damage done to our environment, heritage and countryside that has been caused by aviation and airport expansion and also compensate for the same airports can expand and we can still meet EU air quality standardsTechnology has delivered significant environmental improvements in the past and will continue to do soEmerging MarketsThe Asia-Pacific region and Middle East are the emerging merchandises in airline industry. They are expected to experience a higher traffic growth and expand rapidly. For better analysis please see the graph belowRegional traffic growth (% change year-on-year) 2009 to 2012FNote (Data by ICAO (International Civil air power Organisation))Chief Characteristics of Airline IndustryCapital Intensive Its a capital-intensive business which requires huge amounts of money to operate effectively. This industry requires capital for expensive equipments homogeneous aircrafts, caution systems, control towers, simulators etc.Labour Intensive Airlines need personals like pilots, crew members, security guards, cleaners, engineers etc. Its a very labour-intensive industry and nearly 1/3rd of the revenue is used for the payment of workforce.Thin Profit Margin The profit margin is very thin in this industry. It averages to about 1-2% only.Seasonal earliest airlines used to see a heavy load during summers (because of vacations) and a relatively lesser load during winters. The seasonal factors results in rise and fall of airline revenues all over the course of the year. Over the years the seasonal effect has reduced to a greater extent.History and the Current Scenario of the Indian Aviation SectorGenesis of Indian Airline Industry1932 Mr. J.R.D.Tata flies a De Havilland Puss Moth from Karachi to Mumbai as part of the first Tata Sons Ltd. Flight to deliver mail carried by British Imperial Airways1948 Govt. of India acquires 49% stake in Tata Airlines, designated it a flag carrier and renamed it as Air India International1953 Jawaharlal Nehru, in friendly transaction, convinces the Tata assort to let the Government of India acquire a major(ip)ity stake in Air India International and nationalizes air transport1953 Indian Airlines formed by merging eight former independent domestic airlines1960 India enters the jet age with an Air India B707. USA and India are connected for the first time with an Indian Airline1990 East West Airlines becomes the first cloistered airline since 1953After 19911991 Private airlines were allowed to provide the service under air taxi scheme to operate chartered and non-scheduled service.1994 Private airlines permitted to operate as scheduled air service providers.2003 Air Deccan lowered down the fares to 17% of previously charged rates consequently introducing the concept of budget airlines in Indi a.ConsolidationThe under-pricing of tickets repayable to the intense competition and the increasing number of budget carriers resulted in losses to the budget carriers as well as to the entire aviation sector. Consolidation was looked as the iodin way out which would lead to less competition and stable fares.The main reason for the increasing costs and reduced efficiency and flexibility for the Indian aviation sector was poor Airport infrastructure and manpower shortages. In 2007, there were 13 scheduled carriers which was estimated that this number would fall to 8-10 by 2010 in this fragmented Indian domestic aviation sector and the estimation is almost true considering the current scenario of the aviation sector.2007 Jet Airways announced that it would buy Air Sahara for US$500 jillion2007 Air India and Indian Airlines merged into one entity named NACIL2008 Kingfisher-Deccan deal was the third alliance in the Indian aviation sector.Current Scenario of Aviation IndustryThe India n Aviation Industry, being one of the worlds fastest growing aviation industries, has a compound annual growth rate of 18%. There are 454 airports and airstrips in India, of which 16 are international airports. As of May 2006, private airlines accounted for more than 75% of the sector of the domestic aviation market.The Indian aviation sector saw an increase in revenue by nearly US$ 21.4 zillion in December 2009 due to increase in traffic movements. Moreover, the Airport Authority of India may gain better margins in the near future as predicted by Ministry of Civil Aviation. These have been attributed primarily to the boost in the parcel out of revenue from Delhi International Airport Limited and Mumbai International Airport Limited. According to a report released by the Ministry of Civil Aviation the number of passengers carried by domestic airlines rose from 67, 61, 000 to 80, 56, 000 for the period January February 2009 and January February 2010 respectively. The increase in passenger attach a growth of 19.2% for the aforementioned period. Some of the factors that have resulted in higher demand for air transport in India include the growing purchasing power of middle class, low airfares offered by budget airlines, the growth of tourism industry, increasing outbound travel from India and overall economic growth of India.Besides this, Indian airports are being ranked among the top airports of the world. The Hyderabad International Airport now ranks amongst the top 5 Airports in the world as per the annual Airport Service Quality passenger survey. The other airports to figure in the top 5 are the ones at Seoul, Singapore, Hong Kong and Beijing. There are even talks going on between India and United States to make the country an aviation hub.The Airport Authority of India is set to spend over US$ 1 billion in 2010, towards modernization of airports. The civil aviation ministry has also converted Delhi airport into an international hub for passenger airlin es to help the airport utilize large amounts of additional capacity.The investment policy of India in aviation industry currently allows FDI up to 100% under the automatic route for green topic projects and for live projects, FDI up to 100 % is allowed upto 74% under the automatic route and beyond 74% under the government route.Potential for GrowthDespite the slowdown and slow recovery, Indian Aviation industry sector still continues to look promising. This is primarily due to the burgeoning middle class with increasing massive purchasing power, low cost carriers providing services at very attractive low fares, the growth of Indian tourism and increasing outbound travel from India. In addition, the Government has planned to modernise non-metro airports, phasing out new international routes, putting into place new airports and renovating existing ones. Experts are estimating the growth of industry as high as 25% YoY.Since 2006, most of the major Indian airline operators such as Ai r India, Indian Airlines, Jet Airways and Kingfisher Airlines have reported large losses, reason being high aviation turbine fuel (ATF) prices, rising labour costs and shortage of skilled labour, rapid fleet expansion, as wheel as intense price competition. Adding to all these problems are the new players entering the industry even before the existing players could stabilize their operations. As a result, all the airlines suffered even further when the recession hit.Even then also the Indian aviation industry has been more prone to crisis as compared to their global counterparts and thus, India has the highest passenger growth rate among the entire airlines sector in the world including economies like Australia and France.The total number of passengers travelling by air will be a whopping 400 million by 2020. To meet with this accelerated demand, existing players need to increase fleets and broaden their reach including regional destinations as well. They are also going to get the c ompetition from international low cost airlines like Air Asia (Malaysian) and JetStar Asia (Australian).Flight into the futureAs estimated by the Centre for Asia Pacific Aviation (CAPA), by 2011, the Indian aviation sector is likely to cross the mark of 60 million domestic passengers, whereas the total number of passengers i.e. both domestic and international is expected to cross the 100 million-mark over the next three years.India is gear up for heavy investments in the aviation sector of India. According to the Investment Commission of India, Investment opportunities of around US$ 110 billion by 2020 are now being predicted. It is estimated that about US$ 80 billion will go towards purchase of new aircraft and US$ 30 billion for the teaching of airport infrastructure.Over the next 10 years, the Indian aviation sector will try to cash in on the potential to grow by 25% annually, as said by Praful Patel, the Minister for Civil Aviation. Also it could attract the highest investment s among all the industries in India i.e. an amount up to $45 billion.India needs improvements in services offered, huge number of skilled personnel and to menses already experiencing shortage of pilots and thereby problems like direct and indirect employment. Hence, India can look at this time to play a transforming role in this sector, as it holds great promise for development as well needed for the Indian economy to grow at a faster rate.Major players in domestic marketIndianKingfisher Airlines Ltd. Full Fare AirlinesJet Airways Ltd.IndiGoJetliteBudget AirlinesSpiceJetParamount AirwaysGo AirKingfisher RedCurrent Market SharesChallenges faced by Airline Industry1) Rising Aviation Turbine Fuel (ATF) Prices ATF prices form about 40% of the total operate costs of airline industry. As fuel prices climb, a trend of airline stock prices going down has been noticed. The rising fuel prices make it difficult for airlines to increase profits and they are forced to increase the air fares.2) High input costs Input costs are high due to-Various taxes by State Governments and on repayment of interest on foreign currency loans taken for purchasing aircrafts due to which some airlines are under high debts . receivable to shortage of technical personnel, manpower costs are also high.3) Decreasing returns After the advent of Low cost carriers, the legacy carriers were forced to decrease their prices and thus profits were impacted. With the ever-increasing competition, there is a price war that is giving low returns to all airline operators.4) Employee Management Training, recruiting and retaining talented employees is a major concern due to shortage of skilled personnel including pilots, unionism and cut-throat competition. After- recession effects like retrenchments, salary cuts along with no-new-hiring policy, strikes by Air India and Jet Airways staff etc. has make this task even more challenging.5) Infrastructure Upgradation The infrastructure upgradation progress in In dia is far behind the western countries. While steps are being taken to upgrade major airports in Hyderabad, Delhi and Mumbai, another(prenominal) issue that is yet to be fully addressed is security. Proper airline scheduling and passenger handling is another task besides physical and IT infrastructure. Attracting private sector investments and implementing the planned projects efficiently is a concern.6) Overcapacity There has been excess capacity of aircrafts that were ordered to increase market share before the global slowdown but were delivered after the same.7) Regional connectivity Though there is excess capacity in some airlines, some studys are still not well connected due to poor infrastructure. The airlines have to concentrate on building remote regional connectivity other than concentrating only on metros.8) Environmental Regulations The carbon emission and fuel efficiency standards have to be met by technology investments and commitment. RD on bio-fuels, that have the c apacity to reduce aviations carbon footprint by up to 80%, needs to be carried forward aggressively.9) Congestion Due to increase passenger traffic and cargo growth, there has been congestion on major routes on airports like Hyderabad, Delhi and Mumbai etc. This has to be tackled effectively by either expanding capacity or creating new airports.All this needs real strategic readying in the industry with technological innovations and best management practices.global scenario and trendsIn the past decade, travel by air has increased by 7% per year, for both business and leisure. Large aircrafts like the Boeing 747 have made it convenient for people to travel at affordable costs. Governments in developing nations give impetus to the development of infrastructure to lure tourists from prosperous countries and add to their national economies. Besides tourism, business travel has grown considerably owing to the rapid growth of world trade in goods and services. Some airlines are owned b y the state. The ones that are independent are vulnerable to economic uncertainties. Changes in the regulations of the governments and the presence of an intensely competitive market have led to many hardships in the industryCommercial flights began within a decade of the invention of aircraft in the early 20th century. There was a surplus of aircraft and pilots ecumenic after world wars I and II. DELAG, Deutsche Luftschiffahrts-Aktiengesellschaft, the worlds first airline, was founded on November 16, 1909 with government assistance, and operated airships manufactured by The Zeppelin Corporation. Its headquarters were in Frankfurt. By the 1950s, airline companies created the framework of international travel and commerce that exists to this day.The Airline industry is highly unionised viz. there exist multi-unions. The industry is highly regulated in terms of routes, hours of work, etc. De-regulation in US in 1978 and in Europe in 1990s and again 2007/08 has removed control of the government over fares, routes and has marked the entry of new low cost airlines in US, Europe and now India and SE Asia.In Europe, major players like Iberia, TAP, Alitalia, KLM, Air France, Lufthansa were all once state-owned. The aviation industry is governed and set apart by strong nationalist sentiments towards a countrys domestic flag carriers. In many parts of the world, airlines will, therefore, continue to face bound on where they are allowed to fly and restrictions on their ownership of foreign carriers.The global airline industry being high competitive has resulted in huge additive losses. Many airlines have either gone bankrupt or have collapsed. For example, Sabena, Swissair, Alitalia, Delta, United.future trendsWorldwide economic activity, reflected in the global gross domestic product (GDP), is the most powerful driver for airplanes demand. The global GDP is projected to grow at an average of 3.2 percent per year for the next 20 years. Reflecting the economic growth, worldwide passenger traffic will average 5.3 percent growth and cargo traffic will average 5.9 percent growth over the forecast period.The above graph represents the growth in the future. However, this growth can be achieved only if the surging price of fuel is controlled as it directly affect flight schedules, ticket prices and services offered. So order to survive airlines need to become more lean and mean by addressing issues like rising costs, constraints on revenue growth and increasingly dissatisfied customers.Now we need to understand that three features are vital. That is services that give customers more control over their journeys, an infrastructure that can be easily changed to cope with variations in demand and greater collaboration among travel providers. The 5 technological innovations that can help the industry deliver the above mentioned features areSelf-service solutions Its a cost cutting measure but now gives the passengers the choice and control they wantIntegra ted baggage handling Using IT systems and process and technologies like RFID together and thereby speed up at the same time efficiently handle the security checks for the customers baggage.Shared Services There are three levels of shared services. One is share commodity application which reduces infrastructure costs. Next is common service hosting, which allows applications to be used by the partners and other clients. whence finally traditional application hosting, which enables multiple clients to use commodity applications as per their usage rate.Modular, flexible airport operating systems Airports need to improve their operating systems and have a modular, flexible architecture so has to improve the efficiency and contribute to growth.New Security Technologies Identity management solutions like finger print interconnected etc. and other such improved techniques have to be employed as the threat of terrorism is growing.Thus with all such measures we can expect a good growth in the airline industry.OpportunitiesThe rise in low cost carriers and increasing disposable income of consumers with the growing population of youth works generation, especially in metros, all give rise to tremendous opportunities to the aviation industry-1) Enhancing non-aeronautical revenue streams and Airport retailing Revenues from vehicle parking, advertisements, shop rentals are being targeted with increased modernisation of airports and attracting international luxury brands for a 24/7 shopping experience for the customers. E.g.- New airport terminals such as the T3 in New Delhi.2) Airport development through PPP The restructuring of airport infrastructure for metro and non-metro airports, developing Greenfield airports by attracting large private investments is a part of governments Eleventh Plan, where it expects an investment of around US$ 6.5 billion. This would fulfil the gaps to build world-class user-friendly airports with modern technology and provide airport capacity a head of demand.3) Bio-Fuels Instead of focusing only on crafting fuel-efficient engines, manufacturers of aircraft (like being done by Boeing and Airbus),can focus on developing sustainable bio-fuels that can protect them from wavering profits due to rising fuel prices.4) Maintenance, deposit and overhaul (MRO) business This offers high investment and business potential. An Ernst Young report says that the MRO business in the aviation sector can absorb investments of up to US$ 120 billion 2020. Air India has signed an agreement with GE Aviation, a unit of General Electric Co. (GE), to set up a $90 million facility to maintain aircraft engines in Mumbai.5) Private Jet market With increasing number of billionaires in the country and the glamour quotient attached to airlines, the private jet market in India is a great business opportunity. The government is also considering permitting private airstrips in the country.6) Heli-tourism and Commonwealth games A major portion of visitors during the Common wealth games including spectators, athletes and coaches will travel via airlines. Tourism to various parts of India can be boosted at the same time by heli-tourism or attractive offers by airlines connecting major tourist spots.7) Exploring alternate revenue streamsAir Cargo operationsGround Handling opportunities lie in offering comprehensive ground-handling solutions,3rd party handling and service contracts with private airports.E.g- AI-CIAL at CochinTraining will be needed for pilots, airhostess, engineers, cabin crew, technicians, ground staff which is a huge business opportunity considering the demand for aviation jobs.Internet business can be leveraged for e-ticket bookings thus saving agent commission costs and airline websites can pose as one stop shops for all travel related information thus boosting revenues.Emergency medical services (EMS) business Eurocopter, a division of EADS which is world leader in the field of aerospace defence and related services , is looking forward to entering the emergency medical services (EMS) business in India. Leading hospital majors like the Manipal group and the Apollo group are being considered for the purpose. The company operates around 480 helicopters in India that cover both the civil and military sectors. The company also plans to increase its business area by entering the heli-tourism sector.