Privatisation of Airports and Airline industry

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Summary
Primarily govt. was regulating the Aviation

industry but was not able to regulate the Aviation Industry effectively.

Privatization of Airports could led to better

operations and lower costs of Aircraft carriers.

So after PPP scheme new Airports have

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been setup in Semi Urban area.

It was a tremendous scheme in a way that

the company earned a huge profit.

It increased the competition among the

airports and allowed airline operator to negotiate for landing prices that help it to cut cost in air ticket.

The price of Air India ticket was not

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affordable so Govt. thought of divesting its

Privatization allowed private airlines to run

domestically.
It created problem for state airlines as

they didnt have the technology up gradation.

Ministry of Civil Aviation in India have

already adopted many scheme for growth 8/28/12 of Air Transport.

New Aviation policy:

Construction of private Airports. Purchase of new Aircraft etc. will increase competition before private players.
The policy accommodate to provide

additional slots

for foreign airline at Indian Airports & attract 8/28/12

Open Skies Policy

private players to offer their services internationally at lower cost & thus the Boom period came.

Airline Industry had no control on:

FC(leases & taxes) VC(fuel & landing) ATF : 40% of airline operating cost that is 2 8/28/12 times

Govt. is planning to allow private players

for ATF supply to remove monopoly form IOC,BPCL,HPCL .

400 airports ,only 62 are running out of

which Delhi & Mumbai have 40% air traffic on Major & Feed routes.
Poor infra, less space for parking Bays,
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check in counter space etc.

Ernest & Young industrial consultant

India needs $10 billion for investment to upgrade airports. Liberalization will work here as:
1. Much better infra.
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Consultancy Centre for Asia Pacific Aviation

Domestic traffic will grow much faster by

2010.

60 million Indians will be travelling by air. Resulting in an industry thats Rs. 30,000

cr. Or $17 billion big.

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Most private airlines offer differentiated

products & competitive fare on First cum First serve basic.

That is the source of information to public

airlines like Indian Airlines to reduce their prices

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Business environment in the industry

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Globalization
Foreign equity allowed:

Foreign equity up to 49 per cent and NRI (Non Resident Indian) investment up to 100 per cent is permissible in domestic airlines without any government approval.
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Economic factors
As it is mentioned in the case that

liberalization will lead to cost reduction for Airline industry so looking from the consumer point of view the price of ticket will be lower resulting in high mass travel through air.

Cost associated with ground landing:

Ground handling business in India estimated at Rs. 1074 cr.

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 Landing and parking charges. 1 2 3

http://www.aai.aero/misc/Updated_Airport_Charges_as_on_11_ 01_2011.df

Jet airways has introduced a plan to give

only basic facility so the cost got reduced.

First cum first service has taken into

account so this was another factor that brought the competition in this industry.

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Air Cargo: Freight carriage in India currently around 4200 tons per day forecast to grow at 11.4% p.a. till 2011-12. ATF: Higher fuel price also affect the airline industry. 8/28/12

Socio economic factor

Leveraging the internet: Increasing numbers are booking directly from the airlines websites.
Traditional sales channels with paper
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tickets cost airlines ~10% of ticket price

For every direct booking from their

website, airlines save an estimated US$ 4 plus 5% agency commission.

Airlines can also turn their websites into

one stop shops for all travel related services, generating additional revenue.

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Social factors
The travelling pattern of the public is

changing day by day as already by CAPA mentioned that approximately 6o million of people will be traveling by air by 2010. numbers are booking directly from the airlines websites sales channels with paper tickets cost airlines ~10% of ticket price

Increasing

Traditional
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Comparatively, e-ticket sales from own

website cost an airline only ~3% of ticket price.

For every direct booking from their

website, airlines save an estimated US$ 4 plus 5% agency commission.

Airlines can also turn their websites into
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one stop shops for all travel related

Political factors
Many policies supporting the infrastructure are now in place:
100 per cent FDI under automatic route is

permissible for Greenfield airports.

For existing airports, FDI up to 74 per cent

is permitted through automatic approvals and up to 100 per cent through special 8/28/12 permission (from FIPB).

Private developers allowed setting up of

captive airstrips and general airports 150 km away from an existing airport.

100 per cent tax exemption for airport

projects for a period of 10 years.

49 per cent FDI is permissible in domestic

airlines under the automatic route, but not by foreign airline companies. 100 per cent equity ownership by Non-Resident Indians (NRIs) is permitted.

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International airlines are greatly affected

by trade relations that their country has with others. Unless governments of the two countries trade with each other, there could be restrictions of flying into particular area leading to a loss of potential air traffic (e.g. Pakistan & India)
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The most significant political event

however has been September 11. The events occurring on September had special significance for the airline industry since airplanes were involved. The immediate results were a huge drop in air traffic due to safety & security concerns of the people.

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THANK YOU

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