Airlines in The BRICS

AIRLINES IN THE BRICS
April 2013
INTRODUCTION
MARKET BACKGROUND
AIR TRANSPORTATION IN RUSSIA
AIR TRANSPORTATION IN CHINA
AIR TRANSPORTATION IN INDIA
AIR TRANSPORTATION IN BRAZIL
INTRODUCTION
Scope
Disclaimer
Transportation
Other
Transportation
Air
Schedule
Low Cost
Carriers
Bus/Coach
Rail
Charter
Euromonitor International
TRAVEL AND TOURISM: AIRLINES IN THE BRICS
Much of the information in this

briefing is of a statistical nature and,
while every attempt has been made
to ensure accuracy and reliability,
Euromonitor International cannot be
held responsible for omissions or
errors.
Figures in tables and analyses are
calculated from unrounded data and
may not sum. Analyses found in the
briefings may not totally reflect the
companies opinions, reader
discretion is advised.
Air transportation in the BRIC

countries is expanding rapidly,
as economic growth continues
and disposable incomes rise.
Whilst 2012 saw airline profits
dip due to high fuel prices and
currency fluctuations, growth in
capacity and passenger
numbers continued unabated.
Improvements to airport
infrastructure are occurring
across all the BRIC nations, in
particular in Brazil and Russia,
in readiness for future sporting
events.
PASSPORT 3
INTRODUCTION
Key finding
Substantial potential for
continued growth
The continued economic progress and large populations in the BRIC nations
offer air transportation a solid platform for growth now and in the near future.
All four BRIC countries have the potential to expand their current general
aviation services considerably.
Oil prices and currency

issues
Profits for many BRIC airlines were impacted in 2012 by the high price of fuel,
as well as significant depreciation in local currencies against the US dollar.
Russias legislation limiting

growth
Russias aviation growth has been hindered by restrictive legislation and

bilateral agreements which limit flight connections between key routes.
Chinas domestic market

highly sought after
The huge potential of the domestic air market in China, combined with limited
access by LCCs, has led foreign LCC airlines to establish joint ventures and
serve secondary and tertiary cities to get into the market.
Indias financial troubles
Many of Indias schedule airlines are struggling to show profits, despite

growing passenger numbers, due to high airport taxes, with national carrier Air
India receiving a huge bailout in 2012. By contrast, efficient low cost carriers
are enjoying good revenue growth.
Brazils consolidation
After numerous mergers and acquisitions, Brazil now has four main airlines,
and is investing massively in infrastructure projects and long-needed capacity
expansion at airports in readiness for the FIFA World Cup and Olympics.
PASSPORT 4
INTRODUCTION
MARKET BACKGROUND
MARKET BACKGROUND
Air performance in the BRICs

Air transportation is booming in the BRIC countries. All four nations have substantial populations combined
with a large geographical area making air travel the most efficient way of travelling around the country.
Whilst schedule airlines are showing growth, it is the low cost carriers in the BRICs that are trail blazing
within the industry, with China, India and Russia all predicted CAGRs of 15% or more over 2012-2016, and
Brazil slightly more sedate at 10%.
Rising disposable incomes and burgeoning middle classes in these countries are driving growth in air
travel, with low cost flights offering good links to domestic and regional destinations at reasonable prices .
BRICs Schedule and LCC: Air Sales Value 2012-2016
22
20
18
% CAGR
16
14
12
10
8
6
4
2
0
Russia
China
Schedule
India
Brazil
LCC
PASSPORT 6
MARKET BACKGROUND
The overheating of the BRICs economies
As China, India, Brazil and Russia mature from rapid,

investment-intensive growth, predictions are that their economies
will slow and thus reduce GDP growth in turn.
GDP
Inflation
The BRIC countries are all struggling with rising inflation, which
impacts their ability to stimulate economic growth. This in turn
can impact corporate air travel budgets.
Taxation
Taxation remains a complex issue in the BRICs, with investors

hesitant due to bureaucracy, as well as corruption being a
common complaint by foreign companies. Airport charges are
often high, leading to higher fares when they are passed onto
consumers.
Currency Depreciation
The four BRIC nations all faced currency depreciation in 2012,

which affected import prices as well as discouraging investment.
Higher prices and declining consumer confidence will also affect
consumer spending, additionally slowing economies.
PASSPORT 7
MARKET BACKGROUND
Visa restrictions and their impact

Despite BRIC travellers being widely sought after, visa
requirements remain complicated and often expensive for
outbound travel. As a result, travel to regional destinations remains
popular, as visas are often not required.
Countries Offering Visa-Free or Visa

Upon Arrival for BRIC Travellers
Visa costs are often high and can be restrictive when combined
with high flight prices and additional airport taxes. The price of a
Brazilian visa for the US, for example, is US$140.
Country of
origin
Recent developments have eased the process for US visas for

BRIC citizens, with their countries put on a priority list for speedy
processing in order to boost tourism. The US has opened two new
consulates in Southern Brazil to assist in visa processing, and has
invested US$40 million to improve the procedure.
Brazil is the only BRIC nation whose citizens do not require a visa
for Europe. As a result, European countries such as France and
Portugal are very popular amongst Brazilian travellers.
Russia and Brazil started visa-free travel between their two
countries in 2010, designed for short-term tourism travel only.
Brazil
China
Key countries offering

visa free travel or
offering visa upon
arrival
Europe, South Africa,
Russia, South America
except
Indonesia, Thailand,
Tanzania, Uganda
India
Hong Kong, Indonesia,

Kenya, Thailand,
Russia
Brazil, Egypt,
Kazakhstan, Ukraine
Travel throughout Europe for Chinese, Indian and Russian

travellers has been facilitated by the Schengen visa arrangements.
Once tourists have obtained a Schengen visa, travel throughout
the other EU countries within the agreement is visa free.
PASSPORT 8
MARKET BACKGROUND
Heavy regulation
The aviation industries in the BRICs have many restrictions, some of which
are legacy issues from previous governments or institutions. As these differing
markets mature, the regulations are changing, but there is no common
approach.
INDIA
India has recently
increased the amount of
foreign direct investment
allowed in domestic
airlines.
Previously only nonairlines were allowed to
own up to 49% of
company stock. Rules
changed in 2012 and
saw foreign airlines able
to invest in up to 49% in
Indian domestic airlines.
BRAZIL
Brazil put plans on hold for an
Open Skies agreement with the
EU in early 2013.
Negotiations were halted due to
issues surrounding carbon
emissions, with resistance from
the Brazilian airlines, in common
with many other foreign airlines,
including Indian and Chinese
companies.
There will be some time before
full liberalisation of air
transportation with the EU and
this could impact the numbers of
the highly sought after Brazilian
tourists visiting EU countries.
CHINA
As market liberalisation
progresses in China,
foreign airlines will be
given greater access.
Major European and US
carriers, including
Lufthansa but also low
cost carriers, are seeking
opportunities in China.
AirAsia and Jetstar
Airways have both made
moves into China, and
Chinese airlines will face
more international
competitors in the
domestic market over
2013-2018.
RUSSIA
Russian carriers
international growth is
restricted by the bilateral
agreements Russia has
with other countries.
Traditionally, only stateowned Aeroflot was
allowed to fly on key
routes from Moscow.
However, recent
changes to legislation
regarding France and
Italy in 2012 has allowed
a second carrier to
compete on key routes.
PASSPORT 9
MARKET BACKGROUND
Currency fluctuations and oil prices

Escalating oil prices continued to threaten the aviation industry in 2012, with the IATA stating it was the
main threat to the industry. Fuel prices now account for 30% of operating costs, up from 13% in 2002.
Oil prices dropped in early 2013, much to the relief of airlines worldwide. Many saw losses in 2012 due to
high fuel prices, with Kingfisher in India suffering greatly.
Currency fluctuations can affect aviation in the BRICs significantly, as assets can be priced or paid in
multiple currencies, which can create increased opportunities as well as greater risks.
Currencies in the BRICs saw
significant currency depreciation in
2012. Brazil, in particular, saw a
drop of 24% in value against the
US dollar, and the Indian rupee fell
by 20% during the first two months
of 2012. The Russian rouble also
saw its lowest rate against the
dollar since 2009 in May 2012.
World Oil Prices 2003-2013 (Crude Oil (Europe Brent

Spot Price)
140
China, which still uses a semi-fixed

rate currency pegged to the US
dollar, is now facing intensifying
pressure from the US to float its
currency, due to the perception that
the value of the Chinese renminbi
is being kept artificially low.
US$ per barrel
120
100
80
60
40
20
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
PASSPORT 10
MARKET BACKGROUND
Importance of outbound tourist flows

India is leading outbound tourism growth out of the BRIC nations, with forecast CAGRs of more than 10%
for trips and spend, and over 9% for annual disposable income between 2012 and 2016. China, however,
leads the way in actual numbers with an increase of over 27 million outbound trips over 2012-2016.
The BRIC countries are now the focus for many tourism organisations across the world, particularly in the
developed countries, which are looking to diversify from their traditional Europe and US source markets,
which remain stagnant.
Brazil is predicted to show the least impressive growth for the BRIC countries, with only a 3.3% CAGR for
outbound trips between 2012 and 2016.
An impressive increase in annual disposable income for Russians is boosting outbound spending, with a
focus on luxury goods and brands contributing to this high level of expenditure whilst travelling.
BRICs: Growth in Outbound Trips, Spend and Annual Disposable Income 2012-2016
14
12
% CAGR
10
8
6
4
2
0
Brazil
China
Outbound trips
Outbound spend
India
Russia
Annual disposable income
PASSPORT 11
MARKET BACKGROUND
Airport numbers in the BRICs

The BRICs are some of the largest countries of the world in terms of population and land mass, but airport
infrastructure lags far behind what is necessary to accommodate potential travellers.
In December 2012, Brazils president announced a project to build an additional 800 regional airports. The
project aims to provide each Brazilian city with over 100,000 inhabitants with an airport within a 60km
range. This would include 96% of the Brazilian population.
The Chinese government announced similarly ambitious plans in 2012, to build 82 new airports and
expand 101 other airports by 2015. This puts 80% of the Chinese population within 100km of an airport.
Over the next 10 years, investment in Indian airport infrastructure is expected to reach US$30 billion, which
would encompass upgrading existing airports, the provision of second airports at leading cities, as well as
the construction of 14 green field sites. It is hoped that this would create a system capable of handling four
times the existing capacity of Indian airports.
Major Airports, Population and Land Area in the BRICs 2012
Country
Number of airports with

runway length > 2.4km
Population
Total country area (km2)
Brazil
33
193 million
8.5 million km2
China
186
1.3 billion
9.7 million km2
India
80
1.2 billion
3.2 million km2
Russia
256
143 million
17 million km2
PASSPORT 12
MARKET BACKGROUND
Business and leisure divide

There are distinct differences between the
BRIC countries in terms of the breakdown
of business and leisure air travel.
Business travel dominates domestic
flights in Brazil, with the low cost carriers
carrying the bulk of these travellers.
By contrast Russian air travellers are
predominantly leisure focused, with a tiny
3.6% of outbound departures for business
purposes. The vast majority of these use
scheduled airlines due to the lack of low
cost options.
Similarly, in China, the majority of flights
are taken for leisure purposes, with
scheduled state-controlled airlines such
as Air China and China Eastern shielded
by regulations which allow little
competition.
Indias air travel market is more mixed,
with domestic air travel relying on
business visitors. Increasingly, business
travellers are opting for low cost carriers in
order to reduce expenditure on trips.
Breakdown of Business and Leisure % Split for

Air Travel in the BRICs 2012
Russia Departures
Russia Arrivals
Russia Domestic
India Departures
India Arrivals
India Domestic
China Departures
China Arrivals
China Domestic
Brazil Departures
Brazil Arrivals
Brazil Domestic
0%
20%
Business
40%
60%
80%
100%
Leisure
PASSPORT 13
MARKET BACKGROUND
Fleet orders and fleet production

The major airlines within the BRICs continue to order
their fleet largely from Airbus and Boeing. The most
popular planes are the Airbus A320 and the Boeing 737,
which are both single aisle aircraft.
Snapshot of Airline Orders for Four BRIC

Airlines as of February 2013
Airline
Airplane orders
China Southern Airlines is the only BRIC airline currently

to operate the Airbus A380, and has four in operation.
Russian airline Transaero has ordered four A380s with
delivery scheduled for 2015 at the earliest.
Air China
47 Airbus, 163 Boeing, 20

Comac
Aeroflot
33 Airbus, 87 Boeing, 50 Irkut,

21 Sukhoi
IndiGo
216 Airbus
Boeings troubled Dreamliner 787 has 92 orders for
airlines in the BRICs. The airliner was grounded in
TAM
116 Airbus, 9 Boeing
January 2013 after a number of issues with on-board
Source: Company websites
lithium batteries. Boeing has announced that all
deliveries will be halted until the battery problem is
resolved.
Russia and China are both competing in producing airplanes, with the Sukhoi Superjet, and the Comac
ARJ21 and C919, respectively. The Sukhoi Superjet is already in operation in Russia, whereas the Comac
ARJ21 is awaiting authorisation from the Civil Aviation Authority in China. Ryanair has expressed an
interest in a bespoke version of the C919, which would have wider doors to enable faster embarkation.
A recent joint venture between Russia and China was announced, whereby the two countries plan to work
together to manufacture long haul aircraft. Russias United Aircraft Corporation (UAC) and Comac signed a
memorandum of understanding in June 2012 for development of a wide body aircraft, with production
centred in China.
PASSPORT 14
MARKET BACKGROUND
Intra-regional travel a major driver

Most popular
outbound
destinations for:
Brazil
1. USA
2. Argentina
3. France
4. Portugal
China
1. Hong Kong
2. Macau
3. Taiwan
4. S Korea
India
1. Singapore
2. Thailand
3. UAE
4. Malaysia
Russia
1. Ukraine
2. Finland
3. Turkey
4. Kazakhstan
PASSPORT 15
INTRODUCTION
MARKET BACKGROUND
Russias performance
STRENGTHS
WEAKNESSES
Growing economic
Strong domestic focus
strength
Russias economy is
The sheer size of
showing steady growth,
Russia means that
and together with
domestic air
greater integration into
transportation is key,
financial and commodity and accounts for 60% of
markets, the aviation
the total volume of
sector is ripe for
flights.
continued expansion
Air safety issues
OPPORTUNITIES
THREATS
Fragmentation
Whilst global aviation

The break-up of the
safety improves year on Soviet Union created a
year, there has been an patchwork aviation
increasing number of
industry in Russia, with
incidents involving
numerous players
Russian aircraft, with 15 spread across the
accidents since 2008
country. New legislation
involving fatalities.
should start to improve
this situation.
Aircraft development
Foreign LCCs
Over-regulated market
Russia signed a joint

venture with China in
June 2012 to
manufacture long haul
wide body aircraft. If
successful, this could
challenge the supremacy
of Airbus and Boeing.
Easyjet will enter Russia

in 2013 with a MoscowLondon flight. Vueling
has increased flights
between Moscow and
Majorca, and Air Arabia
and FlyDubai are
expanding destinations.
Russian aviation is very The Russian

strictly regulated, which
government is now
has hindered
reviewing a bill
development and kept
prohibiting Russian
LCC involvement
airlines from
minimal. Further
participating in emission
changes to regulations
trading, which would
are needed.
limit flights to the EU.
EU emissions
PASSPORT 17
What is happening in Russia?

Russian airlines carried over 70 million passengers
during 2012, up by 9% over the previous year.
There are a number of factors influencing the

current growth and success of Russian aviation.
The economy is performing well, resulting in
increasing consumer wealth and rising disposable
incomes. Air transportation is also becoming more
accessible, with investment in infrastructure
improvements.
This growth in passengers carried is predicted to
continue for the next five years, boosted by the
country hosting the Winter Olympics in 2014 and
the FIFA World Cup in 2018.
70
60
50
Passengers carried (million)
International traffic rose by 22.2% to 29.9 million

passengers, and domestic traffic increased by
8.3% to 27 million. The load factor was 79.4%, up
by 1.6 percentage points from the previous year.
The total market share of Russias five biggest
airlines increased to 62.4% in 2011 from 56.4% in
the previous year.
Russian Air Transportation 2012-2016
40
30
20
10
0
2012
2013
Charter
2014
LCC
2015
2016
Schedule
PASSPORT 18
Russias top players

National carrier Aeroflot remained the leading
Russian airline in 2011, with a 26% market share.
However, the airline is struggling for revenues,
showing H1 2012 revenues of U$S7 million,
boosted into positive figures only by the presence
of overflight fees charged to foreign airlines.
The Russian government has developed wideranging plans to consolidate and revitalise the
airline industry within the country, with Aeroflot
playing a leading role. In 2011, six regional
airlines (Kavminvodyavia, Orenair, Rossiya,
Saratov Airlines, SAT and Vladivostok Avia), none
of which were performing well, merged with
Aeroflot.
Historically, the numerous regional players flying
within the Russian market have made profitable
operations very difficult for airlines, a situation
exacerbated by the countrys vast size coupled
with a thinly spread population. With the
integration of these six airlines into Aeroflots
operations, the Russian government is hoping to
boost profitability for the flagship carrier.
Leading Russian Airlines 2011

Airline
% Market share
Aeroflot Russian International

Airlines (ARIA)
26.0
Transaero AK OAO
14.5
S7 Group ZAO
9.9
Utair Aviakompaniya OAO
7.4
Rossiya Aviakompaniya OAO
4.2
Uralskie Avialinii OAO
3.5
Orenburgskie Avialinii OAO
2.3
Others
32.3
S7 has seen strong domestic growth and continues

to have the largest national network in Russia. Its
successful charter division, Globus, operates Boeing
737s taking tourists to international holiday
destinations, such as Turkey and Egypt.
PASSPORT 19
Why are local LCCs not surviving?

Schedule airlines dominate Russias aviation
market, with only foreign LCCs offering a handful of
flights. Whilst the destinations served by LCCs are
growing, the operating conditions in Russia make it
difficult for low cost airlines to thrive.
British low cost air carrier Easyjet will start

operations to Russia with flights between London
and Moscow from early 2013. The LCC will provide
up to 14 flights a week from Londons Gatwick
airport to Moscows Domodedovo.
The classic low-cost model characterised by

Southwest and Ryanair is impossible to maintain.
Regional airports do not offer any special
conditions for LCCs, and there are no secondary
hubs.
Tickets prices will start from US$200 about half

of the average ticket price for a Moscow to London
flight.
The recent start up and demise of two Russian

LCCs (Sky Express and Avianova) illustrate the
pitfalls for LCCs operating in Russia. Key to the fall
of Avianova, which had being launched in 2009
with backing from Indigo (a US investment firm
which owns other LCCs), were the aircraft import
duties, making configuring planes for LCC
business impossible.
Gulf-based Fly Dubai and Air Arabia are slowly

increasing destinations throughout the country,
with the latter re-starting flights to Moscow in 2011,
and adding Yekaterinburg, Ufa and Kazan in 2012.
FlyDubai flies to the same destinations, excepting
Moscow.
PASSPORT 20
Case study: Transaero
Transaero
PASSPORT 21
Transaero: A Russian success story

Russias second largest airline
Safety First
Transaero is Russias second largest and leading

private airline. It operates predominantly long haul
and domestic flights to leisure destinations in
Russia, Far East, Asia, Europe, Caribbean and
North America.
The airline carried 10.3 million passengers in 2012,
up by 22.2% from 2011. Domestic passenger traffic
grew by 35% in 2012, and 19% for international
routes. It has consistently increased market share
over the past five years.
In terms of airline safety, Transaero ranks 16th on

the list of the world's biggest airlines, and sixth
among European carriers, according to a recently
published ranking by the Jet Airliner Crash Data
Evaluation Center (JACDEC).
The airline has largely replaced its Russian aircraft
with Boeing planes, using 737, 767, 777 and 747s.
There are also orders for four Boeing 787s, four
Airbus A380s and plans for six Sukhoi Superjets.
Making a profit
Star Alliance?
The carrier saw strong increases in sales in the first

half of 2012. Revenues were up by 29.6% from the
same period in 2011 to reach US$1.4 billion,
resulting in a net profit of US$5.3 million, up by
40.5%.
Serving popular holiday destinations in southern
Europe and Egypt has proved successful in the
summer months, with over 10,000 weekly seats to
Egypt in August alone.
As Russias number two airline, Transaero is likely

to be a target for Star Alliance. Lacking
representation in the Russian market, Star Alliance
will have found the carriers new focus on growing
its domestic network increasingly attractive.
PASSPORT 22
Air safety remains a big issue

Russia has a very poor track record on aviation safety. There have been over 15 incidents in the past five
years involving fatalities, with the latest occurring in December 2012, when five people died when their
plane crashed into a road outside Moscows international airport.
In 2011, Russia, combined with its former Soviet republics, had a total accident rate almost three times the
world average, according to the International Air Transport Association (IATA). Overall global airline safety
improved in that year.
The main reasons for these accidents are that the aircraft fleets of many Russian airlines are rapidly
becoming obsolete and decrepit, while much of the countrys airport infrastructure is in need of
refurbishment. According to Gunther Matschnigg, IATA senior vice-president for safety, a key problem in
Russia is that pilots and ground technicians are having to adapt to a growing number of highly sophisticated
aircraft, and additional training is needed.
Another problem is a lack of qualified Russian pilots, which has resulted in uncertified pilots flying planes
illegally. Additionally, incidents have occurred where pilots behaved irresponsibly and committed violations
because they know they will not be fired. There were 1,500 incidents on flights in 2012 involving drunken
passengers, including 26 cases where the passengers attempted to open the doors mid-flight.
Led by flagship carrier Aeroflot, the airlines want to start compiling blacklists of both passengers and pilots
who have violated flight safety rules. This list would be available to all airlines, but they would not be able to
refuse to provide services, as there is no legal enforcement.
PASSPORT 23
Airline capacity growing strongly for charter flights

Whilst all Russian airline categories are predicted to show growth to 2016, schedule airlines will lead the
way, with increases in capacity of over 10% each year.
Charter airlines are predicted to show higher growth in capacity than rival LCCs. Charter flights are usually
part of a package holiday, with the tour operator assisting in obtaining the visa for travel, which is a major
selling point for holidaymakers.
Low cost carriers have yet to expand in Russia as they have throughout the rest of Europe, with a lack of
secondary airports and long flying sectors frequently being cited as the reasons for this. In addition, LCC
travel often relies on independent travel, and Russia remains a somewhat difficult destination for
independent visitors to get around. However, foreign LCCs are slowly expanding in the Russian market,
and capacity will increase as additional destinations are added.
% growth
Growth in Airline Capacity in Russia 2012-2016

20
18
16
14
12
10
8
6
4
2
0
2012
2013
2014
Charter
Schedule
2015
2016
LCC
PASSPORT 24
Preferred destinations for Russians

The leading destinations for Russian travellers are
neighbouring Ukraine and Finland, which are
popular for family visits and shopping, respectively.
Leading Countries for Outbound Travel and

Spend for Russian Travellers 2012
Air travel accounted for 43% of all outbound

Russian trips in 2012, a total of 19 million
departures.
Country
Departures
('000)
Spend
(US$ million)
Ukraine
8,946.1
2,475.1
Turkey is the most popular summer holiday

destination for Russians, due to the visa on arrival
process, in addition to being well-served by tour
operators chartering flights in peak season.
Finland
4,446.8
1,830.6
Turkey
3,506.5
1,941.3
Kazakhstan
3,335.6
715.3
China
2,529.0
2,455.7
Egypt
2,042.0
1,281.4
Estonia
1,669.9
844.2
Germany
1,352.5
711.8
Thailand
1,165.9
433.6
904.8
357.0
China is a growing destination for Russian tourists,

as well as receiving the second highest expenditure
for outbound tourists in 2012. Links between the two
countries are expanding, particularly economically,
with China now the most important trade partner for
Russia.
Some destinations are trying to attract Russian
visitors by offering visa-free stays in high season, or
enabling visas to be obtained online. Mexico
introduced an online visa in 2012, as well as laying
on charter flights to attract Russian tourists.
Azerbaijan
PASSPORT 25
Russian airport development

Recent infrastructure development in Russias airports
has focused on Moscows airports, with six runways
being completely rebuilt. However, the focus is now
switching to regional airports, with the government
preparing to spend approximately US$5.7 billion on
airport infrastructure between 2013 and 2015. It is
hoped that this injection of government funds will help
promote private investment.
Changi Airports International (CAI) formed a joint
venture with investment company Basic Element and
Sberbank to invest in and develop airports in the
country. Basic Element currently owns a number of
airports in the Krasnodar region, including Sochi Airport
and Krasnodar Airport. Other foreign investment
includes the Korean Incheon International Airport
Corporation, which owns 10% of Khabarovsk airport.
Much of the development is focused around the
forthcoming sporting events in Russia, the first of which
is the World University Games in Kazan in 2013.
Recent expansion should increase Kazans airport
capacity to 3 million passengers annually.
Leading Russian Airports by Passenger

Numbers 2012
Passengers in % growth
Airport
2012 2011/2012
Domededovo
International,
28,200,000
9.7
Moscow
Sheremetyevo
International,
26,188,000
16.1
Moscow
Pulkovo, St
11,154,560
16.1
Petersburg
Vnukovo
International,
9,699,450
18.3
Moscow
Koltsovo,
3,783,069
12.7
Yekaterinburg
Tolmachevo,
3,266,745
18.1
Novosibirsk
Pashkovsky,
2,599,100
3.5
Krasnodar
PASSPORT 26
Competition: Skies are very slowly opening up

There are a growing number of international players opening routes to Russia, due to a slight relaxing of
the regulations governed by bilateral agreements. However, Russias complex regulatory policy continues
to restrict the industrys potential, with a bias towards Aeroflot having become somewhat entrenched.
Additionally, the Russian Air Code still forbids foreign carriers from operating domestically, and there has
been no low-cost domestic air traffic since local airlines Avianova and Sky Express collapsed in 2011.
Despite this, the Federal Anti-Monopoly Service is examining the possibility of providing access to domestic
routes for foreign low cost carriers, in an attempt to develop internal competition and cut air ticket prices.
Easyjet has recently won slots to fly from Moscow to Heathrow, after the purchase of BMI by British
Airways left the national carrier operating a monopoly service between the two capitals. Virgin Atlantic was
also very keen to acquire these slots, due to traffic between London and Moscow trebling in the last 10
years, with demand continuing to grow.
Other international low cost carriers, such as Air Berlin, Germanwings and Wind Jet, have continued to
expand their operations in Russia, resulting in better connectivity between key Russian cities and Western
European destinations for budget travellers.
South Korean Star Alliance member Asiana started a daily flight in November 2012 from Incheon to
Vladivostok in east Russia. This is Asianas third route to the country, after Khabarovsk and YuzhnoSakhalinsk, and represents a large expansion in Russia for the Asian airline.
PASSPORT 27
INTRODUCTION
MARKET BACKGROUND
China
STRENGTHS
Big population
WEAKNESSES
Five year plan
China has a population Investment in air

of over 1.3 billion. With
transportation is a major
a rapidly growing middle part of the 12th five year
class and disposable
plan, with over 260
incomes on the rise, the airports expected to be
country is well placed to established throughout
continue current growth
the country by 2015.
in aviation.
OPPORTUNITIES
Biofuel
THREATS
Partnerships
The Civil Aviation

Domestic airlines are
Authority is expecting
establishing
30% of Chinas jet fuel
partnerships with
to come from biofuels by regional LCCs, such as
2020. Airbus and
AirAsia and Tiger
Boeing are both working Airways, expanding their
with Chinese companies networks to international
on biofuel.
destinations.
Limited secondary
Business travel
airports
stagnating
The limited number of
2012 saw the number of
secondary airports is
business air passengers
restricting the growth of stagnating in China, with
aviation throughout
concerns growing about
China, with major
an economic slowdown
investment in
curtailing travel budgets
infrastructure required
and staff.
High speed rail
Restricted access for

LCCs
The growing network of A lack of budget
high speed rail links
terminals is hindering
between major
the expansion of LCCs,
population centres in
as are restrictions on
China provides serious
their access to airports
competition for domestic in Beijing and Shanghai,
air routes
intended to protect local
legacy airlines.
PASSPORT 29
China air transportation 2012-2016

Chinese air transportation carried over 300 million
passengers in 2012, with over 76% of these travellers
on scheduled airlines.
Chinese Air Transportation 2012-2016

300
The industry has seen significant growth over the last

decade, with a doubling of passenger numbers since
2003.
The slight slowing down of economic growth in China

is affecting business travel, with the number of
business air travellers stagnating in 2012. However,
GDP growth is predicted to rise to 8.4% in 2013
according to the World Bank, and this should restart
corporate air demand.
Domestic air travel has been at the forefront of the
growth in air transportation, and China has the second
largest domestic network globally after the US. The
domestic market is now closed to new entrants after
the expansion seen over 2000-2010, except for new
start ups, where a domestic carrier forms a joint
venture.
Passengers carried (million)
Low cost airlines have seen growing demand for long

haul flights, with ticket prices encouraging passengers
to fly rather than take high speed rail links.
250
200
150
100
50
0
2012
2013
Charter
2014
LCC
2015
2016
Schedule
PASSPORT 30
Top Chinese airline players

The top three airlines in China are all
schedule and state owned. There is great
competition between them, as they
account for 85% of total market value.
However, their focus is largely on domestic
flights, and internationally they are
restricted by a one route, one airline policy.
These legacy carriers are also struggling
to eliminate inefficiencies after mergers
with local carriers during the last decade.
Spring Airlines is the only major Chinese
low cost airline operating both domestic
and international flights, although there are
foreign LCCs such as Scoot and Air Asia
offering international connections.
Fares on the low cost airlines within China
are often not significantly lower than the
schedule airlines, and can be considered
more of a hybrid model. Additional low cost
development in China will require market
reforms.
Leading Chinese Airlines 2011

Airline
Passengers Value market % Average

share % load factor
carried 2011
Air China Co Ltd
73.5 million
31.5
82.3
China Southern
Airlines Co Ltd
79.3 million
30.4
81.0
China Eastern
Airlines Corp Ltd
53.4 million
23.1
79.7
Hainan Airlines
Co Ltd
18.5 million
7.5
83.5
Xiamen Airlines
Co Ltd
15.7 million
4.7
78.5
Spring Airlines
6.8 million
1.5
95.8
OK Airlines
1.4 million
0.4
70.0
PASSPORT 31
What happened in 2012?

The slowdown in the global economy affected the performance of the Chinese big three in 2012, with Air
China, China Southern and China Eastern all showing a big drop in profits in H1 2012 compared with H1
2011. These declines can be attributed to higher fuel costs, foreign exchange fluctuations as well as a drop
in corporate travel demand.
The currency depreciation is likely to continue, as it reduces the cost of Chinese exports, making them
more attractive during a time when world demand is declining.
The fourth quarter of 2012 saw a boost in the Chinese economy, and this was accompanied by increased
demand for air travel.
Passenger numbers rose in 2012, with domestic passenger demand up by 9.5%, according to the IATA.
This was more than matched by a capacity increase of 11.3% on domestic routes. Domestic demand has
been increasing in Chinas second and third tier cities, particularly in the fast-growing western and southwestern regions.
Performance of Chinas Top Three Airlines H1 2012
Airline
Air China
China Southern
China Eastern
Net profit for H1 2012
% growth over H1 2011
US$149 million
-77
US$67 million
-85
US$127 million
-67
PASSPORT 32
Source: Company Websites Quarterly Reports
Case study: Spring Airlines
Spring Airlines
PASSPORT 33
Spring Airlines: Chinas LCC success

Major Chinese LCC
Pan Asian expansion and strategy
Spring Airlines is Chinas only major low cost

carrier, although the business model it uses is
somewhat of a hybrid compared to traditional
LCCs.
Springs first international route was established in

2010, connecting its home of Shanghai with Iberaki
airport in Japan. As of 2013, Spring Airlines flies to
eight destinations in Thailand, Cambodia, Hong
Kong, Japan and Macau.
It benefits greatly from its association with its

founder, Spring International Travel Service, which
is one of Chinas top travel companies. It has a
strong domestic focus, and serves over 60 routes
across China. Many of the domestic destinations
have strong tourism offerings, such as Xiamen and
Chongqing.
It carried an estimated 9.1 million passengers in
2012, up by an impressive 27% from 2011.
The airline has a fleet of 33 A320s, with a further
two on order.
The airline recently launched the value-added
service Micro-blog Seat Selection. Customers are
allowed to choose the person sitting next to him or
her in the plane based on information on Weibo,
the popular Chinese social network site,
The airline has elected to connect to second and

third tier cities in Japan, such as Ibaraki, Saga,
Takamatus and Tottori, which illustrates the
potential for new routes between Japan and China.
Following in the footsteps of other successful
Asian LCCs, Spring Airlines is establishing a
subsidiary airline in Japan, outside its home
country. This will enable Spring to work within the
more lenient regulatory frameworks outside of
China in order to serve international Chinese
routes. Bases in foreign countries will also allow
the airline to develop flights to other international
destinations. Operations are expected to start for
Spring Airlines Japan in late 2013.
PASSPORT 34
High speed rail getting faster

The value of rail transportation in China continues to exceed that of air transportation. In 2012, rail had a
value of US$53.6 billion, whereas air transportation was worth US$45.5 billion. As the main means of
transportation for many millions of Chinese, rail also has a higher level of value growth predicted for the
future.
Air and rail travel are now competing directly for domestic passengers on key routes, with airlines opting to
adjust their flight schedules by cutting short-haul routes while increasing long-haul services.
High speed trains saw increased passenger numbers in 2012, due to the opening of new lines and the
easing of safety concerns following a fatal crash in 2011. The opening of a high speed link between Beijing
and Guangzhou in December 2012 cut journey times to eight hours. Whilst the flight takes only 3.5 hours,
services are often delayed due to poor weather and airspace restrictions.
IATA estimates that there will be an additional 159 million domestic air passengers in 2016, illustrating the
continued confidence in air travel in China.
Chinas Rail and Air % Value Growth 2012-2016
% value growth
20
15
10
5
0
2012
2013
2014
Air
2015
2016
Rail
PASSPORT 35
Low cost carriers trying to expand
LCC and Schedule Airlines % Growth in

China 2012-2016
20
18
% growth in passenger numbers
Schedule airlines dominate in China, with only one

major national LCC Spring Airlines. However,
passenger growth for low cost airlines is predicted
to vastly overshadow that of schedule airlines over
the period to 2016, with actual passenger numbers
for LCCs rising to 30% of the total.
Foreign low cost airlines are trying to expand in
China, despite the government tightly controlling the
airline industry, largely to protect the major stateowned leading airlines. Government approvals are
required for new planes and routes.
AirAsia has just opened its 24th route in China,
flying to Kunming in Yunnan province from Kuala
Lumpur. Other foreign LCCs include Scoot, flying
from Singapore to Qingdao and Shenyan, and Tiger
Airways, flying from Singapore to Guangzhou and
Haikou.
It is thought that many of the restrictions for entry
into the Chinese aviation industry have been
designed by the Chinese government to allow the
market to open up slowly, so that the necessary
infrastructure can be built. China is creating 82 new
airports and improving 101 leading up to 2015.
16
14
12
10
8
6
4
2
0
2012
2013
2014
Schedule
2015
2016
LCC
PASSPORT 36
Short haul flights dominate demand

Short haul is the dominant distance in China, due to the burgeoning domestic air services. Short haul flights
will continue to expand, reaching 334 million in 2016, as the growing Chinese middle class increasingly opt
for air travel to get around their country.
China Southern is the only Chinese airline to have purchased the A380, and was finally allowed to start
long haul operation on a Guangzhou-Los Angeles connection using the super jumbos in late 2012, a year
after purchase. The airline is still having to use the planes on other short haul connections as it has not yet
finalised permission from the Chinese government, although the delays could have come from the airline
proposing overly ambitious routes. A second long haul route between Beijing and Paris is still awaiting
negotiations with partner airline Air China.
With departures from China predicted to reach over 80 million trips by 2016, long haul services are
growing, but will not catch up with short haul in the near future.
Short and Long Haul Flights in China 2012-2016
Passengers (million)
400
350
300
250
200
150
100
50
0
2012
2013
2014
Short Haul
2015
2016
Long Haul
PASSPORT 37
Competition: Jetstar HK enters the fray

China Eastern has established a low cost venture with Qantas subsidiary Jetstar, which will be based in
Hong Kong rather than mainland China, and will be known as Jetstar HK. Operations will start in 2013, with
three planes, with the fleet size growing to 18 aircraft by 2015. Flights will be to China, Japan, South Korea
and other Southeast Asian destinations.
By basing itself in Hong Kong, the airline has a foothold in the hugely sought-after Chinese domestic
market, and plans to fly to seven cities in China: Beijing, Guangzhou, Haikou, Hangzhou, Nanning, Ningbo
and Shantou/Jieyang. Secondary Chinese airports will be a major focus, with many local governments in
China eager to attract low cost airlines by means of incentives such as offsetting landing fees.
Operations are scheduled to begin in March 2013. As a point-to-point LCC, Jetstar HK will be aiming for
travellers seeking for cheap deals, who will predominantly be leisure visitors. Jetstar HK representatives
have stated that it aims to reduce fares by 50%, which will be very attractive for consumers, as Hong Kong
is reputed to have the highest air fares in all of Asia.
China Eastern will be keen to learn
about LCC operations from its Jetstar
partner, and possibly improve its own
internal efficiency. The Jetstar Group,
which is owned by Qantas, will be
looking to expand into a vibrant
market after facing increased
competition in international flights.
PASSPORT 38
Competition: Air China Cathay shareholding

Air China has a 29.99% stake in Hong Kongs Cathay
Pacific, and is now at a point where any further increases
would cause a takeover bid. An Air China takeover would
be extremely political, but it is very likely that it will occur at
some point in the future, as Hong Kong slowly becomes
more involved and integrated with the mainland.
Whilst it is unlikely that such a merger would occur in the
short term, the implications would be huge for Chinese
aviation in the long term. Air China is much bigger
domestically, but Cathay Pacific leads in international flights
and has a much more established global identity and brand.
A key sticking point is that Air China belongs to Star
Alliance and Cathay Pacific is with OneWorld. If there was a
merger, the airlines could continue to exist in their separate
alliances, but this goes against the membership provisions
of Star Alliance. However, in order to keep a significant
presence in Chinas lucrative market, it is likely that Star
Alliance would make an exception for Air China.
Managing the imbalance that a merger would create
between Air China/Cathay and the other state-owned
Chinese airlines would also be a key question for the Civil
Aviation Administration of China (CAAC).
PASSPORT 39
Global alliances battle for share

Global airline alliances appreciate the potential
within Chinas aviation sector, with the countrys
top airlines joining alliances in recent years. The
domestic sector is particularly attractive for alliance
members, as it could provides network connections
without competition from foreign airlines.
In 2011, the Chinese Vice Premier Zhang Dejiang
stated that the Chinese government supported
domestic airlines joining worldwide alliances, and
encouraged the countrys airlines to learn from
other airlines to improve services and management
in order to be more competitive in the global
market.
Presence of Global Airline Alliances in China and

Associated Territories
Alliance
OneWorld
Sky Team is the largest alliance in China, with two

of the leading legacy airlines, China Eastern and
China Southern, as members, along with Xiamen
Air.
Sky Team
Chinas fourth placed Hainan Airlines is not an

alliance member, but is actively investigating
joining one of the big three. Oneworld is the most
obvious choices as it does not yet have a mainland
carrier, and held talks with Hainan Airlines in 2006.
Star Alliance
Airlines
Date joined
1998
Cathay Pacific (Hong
Kong)
2007
DragonAir (Hong
Kong) member
affiliate
Has not yet
Jetstar Hong Kong
started
non-member affiliate
operations
China Eastern
2011
China Southern
2011
China Airlines
2011
(Taiwan)
Xiamen Air
2011
Shanghai Airlines
2011
affiliate
Air China
Shenzhen Airlines
2007
2012
PASSPORT 40
INTRODUCTION
MARKET BACKGROUND
India
STRENGTHS
Modern and safe fleet
WEAKNESSES
Traveller choices
Infrastructure
High taxation
Due to recent
The many offerings of
expansion, Indian airline Indian airlines and the
fleets are relatively new, healthy competition that
with high safety
exists between them,
standards. There is
offers the Indian
good operational
traveller genuine options
reliability, resulting in an and choices when
efficient service.
purchasing flight tickets.
In order to meet the

Charges at Delhi airport
predicted growth for
rose by a staggering
Indias aviation industry, 345% in May 2012, with
the infrastructure needs other airports likely to
significant investment
follow suit. This rise in
and improvement, which operating costs for
will be very costly.
airlines could decrease
demand.
OPPORTUNITIES
THREATS
Ripe for expansion
Business turning to LCC
The growth potential for Corporate flyers in India

Indians aviation
are increasingly looking
industry is enormous,
to economise, and are
with the country
opting to fly low cost,
predicted to become the particularly for domestic
worlds third largest
flights. Scheduled
aviation market globally
airlines are offering
by 2020.
lower fares to compete.
Fuel prices
Lack of long-term plan
Fuel price rises and

With key airports
increased airport taxes,
approaching saturation,
have resulted in fare
a long-term plan is vital
increases for
for aviation in India. The
passengers. This has
governments current
been exacerbated by
five year plan expires in
currency depreciation.
2017, with no certainties
as to future projects.
PASSPORT 42
Indias air transportation market

Schedule airlines are predicted to lead the growth in passengers carried over the next four years, but all air
transportation is likely to show significant growth. The number of airline passengers is predicted to reach
311 million by 2016.
Reasons for this growth include strong economic progress in India, a rapidly emerging middle class, the
open sky policy and the emergence of low cost carriers in the Indian air market. Whilst rail travel has long
been the only way for poorer travellers to get around the country, the affordable fares offered by the LCCs
are opening up air travel to the masses.
Paramount and IndiGo achieved average load factors of over 80% in 2011, illustrating the growing
popularity of cheaper flights.
Indian Air Transportation % CAGR
2012-2016
Average % Load Factor for Airlines in India

2011
18
Paramount
16
IndiGo
% CAGR
14
Jet Airways
12
SpiceJet
10
Kingfisher
Jetlite
Air India Express
Indian Airlines
10
20
30
40
50
60
70
80
90
100
Charter
LCC
Schedule
% load factor
PASSPORT 43
Top players in India

Jet Airways is Indias biggest airline, with
over 14 million passengers carried in 2011.
The demise of Kingfisher and Air India
ceasing international flights contributed to
the increased success of Jet Airways in
2012.
State-run Air India has been bailed out by
US$5.8 billion from the taxpayer, but had to
cancel flights in 2012 after being hit by a
pilots strike. The airline also had to ground
six Boeing Dreamliner planes, adding to its
ongoing woes. After merging with Indian
Airlines in 2011, the two airlines continue to
operate largely as separate entities, with
their combined market share dropping due to
ongoing financial problems.
IndiGo became Indias leading domestic
airline in 2012, with a market share of 27.0%,
ahead of Jet Group 26.6%. The low cost
airline is a classic no frills operations, with its
efficiency and on-time service very
successful with passengers.
Leading Indian Airlines 2011

Airline
Passengers
% Average % Market
carried in
share
load factor
2011
Jet Airways
14.4 million
75
18.3
Kingfisher (halted
flying in 2012)
14.2 million
78
9.0
Indian Airlines
(merged with Air
India in 2011)
10.2 million
69
6.1
IndiGo
9.7 million
85
5.1
SpiceJet
8.1 million
72
4.0
Air India
4.9 million
60
8.0
Air India Express
3.5 million
70
Paramount
1.0 million
91
1.1
PASSPORT 44
Case study: Jet Airways India Ltd
Jet Airways India Ltd
PASSPORT 45
Jet Airways Ltd: Flying high in India

2012 performance
Etihad acquiring stake
Jet Airways remains the market leader in India in

terms of revenue, although rival IndiGo overtook in
terms of passenger numbers in 2012.
February 2013 saw Etihad express an interest in

acquiring a 24% stake in Jet Airways. The Indian
government enabled foreign airlines to buy up to
49% of domestic carriers in 2012. It is hoped that
the deal will enable the airline to reduce its debt
levels and expand international operations feeding
into Etihads hub at Abu Dhabi.
In November 2012, Jet Airways and Jetlite carried

18.3% and 6.9% respectively of total passengers.
Jet Airways is the only schedule carrier operating
in India to offer full nationwide connectivity, with
customers willing to pay a premium price for its
adherence to quality.
Possible new routes
Star Alliance
Due to the demise of Kingfishers international

operations, it is expected that Jet Airways will
expand significantly in 2013.
Jet Airways has been invited to join Star Alliance,

but the Indian government has intervened, wanting
the airline to join after Air India. The subsequent
problems faced by Air India appear to have
accelerated Jet Airways progress into Star Alliance
and it officially requested permission in 2012
New routes under evaluation include Beijing and

Shanghai, Frankfurt, Munich, Paris, Rome,
Chicago, San Francisco and Washington.
International routes accounted for 56% of Jet
Airways revenues in 2012.
PASSPORT 46
Gulf investment in Indian aviation

The Middle East has long played an important role in Indian air transportation. The GCC countries are
popular outbound destinations for Indian leisure and business travellers. Airports throughout the region, but
in particular Dubai, act as hubs for travel to Europe and North America. The large non-resident Indian (NRI)
population in the GCC countries also provides a large amount of travel, as workers travel home for annual
breaks.
Almost 40% of all international traffic from India is Middle East bound. With Air Indias international
operations grounded, Gulf carriers will benefit significantly. In addition, the cessation of services by
American Airlines will feed US transit traffic into the Middle East airlines.
February 2013 saw Etihad deliberating about acquiring a 24% stake in Jet Airways. The Indian government
enabled foreign airlines to buy up to 49% of domestic carriers in 2012. It is hoped that the deal will enable
the airline to reduce its debt levels and expand international operations feeding into Etihads hub at Abu
Dhabi. However, the delay in finalising the deal has caused Jet Airways shares to fall, with concerns that
Etihad may be looking to revise the terms of the deal.
Key Indian Destinations for Middle East Airline Players 2012
Airline
Emirates Airlines
Etihad Airways
Qatar Airways
Indian destinations
Bangalore, Chennai, Delhi, Hyderabad, Kochi, Kolkata, Kozhikode, Mumbai,
Thiruvanathapuram
Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kochi, Kolkata, Kozhikode,
Mumbai, Thiruvanathapuram
Ahmedabad, Amritsar, Bangalore, Chennai, Delhi, Goa, Hyderabad, Kochi, Kolkata,
Kozhikode, Mumbai, Nagpur, Thiruvanathapuram
PASSPORT 47
Trouble in the air

Mismanagement
One of Indias leading airlines, Kingfisher Airlines,
was grounded in October 2012, following repeated
strikes by workers over unpaid wages, and
subsequently lost its flying licence at the end of
2012.
The airline had never posted a profit since its
inception in 2005, and was facing debts of US$1.4
billion. Whilst initially successful, the airline had a
mixture of business models, with Kingfisher First,
Kingfisher Premium and Kingfisher Red (low cost),
which subsequently caused problems after regional
strategies were ignored. The mixture of aircraft in the
fleet also raised training and maintenance costs.
IndiGo has emerged as one of the biggest airlines
from the demise of Kingfisher, and is now the leading
Indian airline in terms of passenger numbers. With a
low cost strategy, the airline has a single class
configuration, and speedy turnaround times. Indigo
has been expanding its fleet of A320s, with another
19 aircraft being delivered in 2012, although it is now
facing government pressure to curtail its expansion
until Jet Airways or Air India have entered the Star
Alliance.
Additional Pressures
Airlines in India are feeling the pinch due to
a number of other factors, not just the
mismanagement that affected Kingfisher.
Fuel prices are extremely high, with the
base prices boosted by a 20-40% sales tax
depending upon the state. Airport charges
are also very high, both for airlines and in
terms of passenger taxes.
A recent move by the Indian government to
abolish an airport development fee (ADF)
for passengers at Delhi and Mumbai
airports has been welcomed, but there are
concerns that it will be merely passed onto
passengers in the form of a user
development fee (UDF). User development
fees are linked to consumer price indices,
and therefore can rise every year.
PASSPORT 48
Significant capacity increases

Whilst the growth rates for all airlines in India are predicted to be extremely positive over the period to
2016, it is the scheduled airlines which will dominate. Their total capacity in 2012 was 200 million people,
with low cost airlines offering 40.6 million and charter a mere 1.1 million.
However, many corporations are decreasing expenditure and thus starting to favour the use of LCCs. This
should result in LCC capacity increasing, as business demand shifts from scheduled airlines to the low cost
offerings.
The Indian government has rejected applications so far for foreign carriers to deploy the A380 on flights to
India. However, as lack of capacity is a growing constraint, it is likely that Emirates will be given permission
to land the A380 at Indian airports in 2013. When an Indian carrier is finally accepted into the Star Alliance,
it is likely that Lufthansa and Singapore Airlines will be permitted to start A380 flights to India as well.
Tata, one of Indias leading companies, announced it was planning a joint venture with Air Asia, the
Malaysian based LCC. The deal is awaiting government approval but would shake up the LCC market if
passed.
Growth in Airline Capacity in India 2012-2016
20
% growth
15
Charter
10
Schedule
LCC
5
0
2012
2013
2014
2015
2016
PASSPORT 49
Where are Indians flying to?
> 1 million trips

750,000 - 999,999 trips
500,000 - 749,999trips
250,000 499,999trips
< 250,000 trips
Figures: Outbound Indian trips in 2012
Indians are flying the world over, with the exception of Latin America. All
other continents receive significant numbers of Indian visitors, with
Thailand, the UAE, Singapore and Malaysia the most popular
destinations
PASSPORT 50
INTRODUCTION
MARKET BACKGROUND
Brazil
STRENGTHS
Dynamic sector
WEAKNESSES
Sporting glory
Overcapacity at airports
Domestic struggle
Brazilian aviation is a
With Brazil hosting the
dynamic industry, with a FIFA World Cup in 2014
good balance between
and the Summer
LCC and schedule.
Olympics in 2016,
Strong economic growth investment in the
is fuelling air travel
aviation industry has
demand, with viable
been fast-tracked to
options for consumers.
improve facilities for the
tourism boom.
Nearly all major airports Growth in domestic

in Brazil are operating at flights in Brazil have
overcapacity and are in
slowed, partly due to
desperate need of
Brazilian consumers
expansion. Construction opting for international
work is ongoing but is
travel due to the poor
facing delays.
tourism facilities and
services at home.
OPPORTUNITIES
THREATS
Biofuel
Airport investments
Brazil is one of the

The government is
worlds leading biofuel
looking for private
producers, and Brazilian investment in airport
airlines TAM and GOL
development in Rio and
have already run test
Belo Horizonte, with
flights using a blend of
contracts already in
biofuel and traditional
place for airports in
fuel.
Brasilia and So Paulo.
Strikes
Environmental issues
Public sector workers

2012 saw a volcano
went on strike in 2012
erupt in Chile and cause
affecting airline customs the cancellation of
and cargo for over three numerous flights in the
months. These
region. These type of
inconsistent strikes are
events are unavoidable,
relatively common and
and could happen again
impact aviation.
in the near future.
PASSPORT 52
Market consolidation
Air transportation in Brazil has shown solid growth in recent years, and is predicted to continue increasing
to reach a total of 129.5 million passengers in 2016.
The market is dynamic, and has been characterised recently by numerous mergers and acquisitions. TAM
acquired Pantanal in 2010; GOL Linhas Areas acquired Webjet in October 2011; and in 2012, TAM
conclude its merger with LAN, and Azul Linhas Areas announced the acquisition of Trip.
These mergers are leading to a domestic market dominated by just four airlines. However, the business
synergies mean that TAM and Avianca offer a full service business model, whereas GOL and Azul/Trip are
focusing on the low cost model with no frills. Competition between two players offering similar business
models will hopefully be beneficial for consumers.
International routes are ruled by TAM, boosted by its merger with LAN Airlines, which brought additional
routes throughout Latin America. However, with Avianca Brazil and GOL both exploring destinations
outside Brazil, TAM will continue to face competition on international flights.
Air Passenger Numbers in Brazil 2007-2016
140
120
100
80
60
40
20
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
PASSPORT 53
TAM is the leading airline

TAM is the market leader in Brazilian air transportation,
although its share has fallen by almost 6 percentage points
since 2009. This decline is largely due to more airlines
entering the industry and grabbing market share.
GOL is the second placed airline in Brazil in terms of
market share, and this position will be maintained after the
full integration with Webjet. GOL aims to cut Webjets older
aircraft from its fleet and to discontinue the Webjet brand.
The merger has given GOL important slots at Brazils main
airports, and the airline hopes these will help in making
2013 profitable, after the losses seen in 2011 and 2012.
Azul and Trip, which merged in 2012, serve over 100 cities
throughout Brazil. These airlines use smaller planes, and
have a competitive advantage over rivals TAM and GOL,
as many of the destinations runways cannot handle A320s
and B737s. The merger will boost the new airline into third
position in Brazil.
Fourth-placed Avianca is looking to slow down expansion
after a dynamic couple of years, when the airline doubled
in size due to its parent company merging with TACA. The
airline should benefit from its likely integration into Star
Alliance, as well as the potential acquisition of TAP
Portugal by its owner, Synergy.
Brazil: Airlines by Share of Value

2011
100%
90%
80%
Others
70%
Pantanal
Avianca
60%
Webjet
Trip
50%
Azul
GOL
40%
TAM
30%
20%
10%
0%
PASSPORT 54
Equal footing for LCC and schedule

Charter airlines are predicted to show higher growth in capacity than schedule and LCC airlines in Brazil
between 2012 and 2016, as increasing numbers of Brazilian consumers go on holiday. However,
passenger numbers for charter airlines are significantly lower, accounting for only 7% of the total.
Schedule airlines and LCCs had approximately the same capacity in 2012, at around 67 million
passengers. This is predicted to rise to 80 million for both by 2016. However, in the near future, domestic
capacity will be trimmed due to a drop in demand, as well as cost pressures caused by high fuel prices. The
recent depreciation of the real against the dollar has exacerbated the fuel price rises.
Brazil is the only country among the BRICs where LCCs and schedule are showing a similar performance
in terms of passenger numbers, capacity growth and retail value. The market is much less restrictive than in
other BRIC countries, and low cost airlines have been actively targeting the often forgotten but important
secondary cities and regions throughout the country.
Growth in Airline Capacity in Brazil 2012-2016
2016
2015
Schedule
2014
LCC
Charter
2013
2012
0
10
12
14
16
18
20
% increase
PASSPORT 55
Big losses in 2012

2012 was a difficult year for Brazilian airlines financially. Prolonged weakness in the Brazilian domestic
market resulted in a depressed Q2 2012 financial performance for the countrys major airlines.
The majority of airlines cut domestic capacity during the year, in order to balance the out of step supply and
demand. Whilst passenger traffic was up, TAM and GOL posted losses for Q2 2012, which were
attributable to increased fuel prices, currency depreciation, rising airport fees and the relatively sluggish
Brazilian economy.
GOL is also looking to save money by switching to a low cost-best fare business model. Under this new
plan, passengers buy a ticket and customise their trip to include a number of add-on services. There will
be changes to in-flight sales by extending the option to buy food and drink on board on all flights.
Both TAM and GOL announced significant investment in their fleets in 2012, indicating that the expectation
is of a return to profitable operations in the near future. TAM has purchased four new Boeing 777s at a cost
of US$1 billion, whereas GOL has announced the biggest deal in South American aviation with the
purchase of 60 Boeing 737 Maxs, priced at US$6 billion. GOL has justified this spend by a need to
modernise its fleet with new, more efficient aircraft.
TAM and GOL Airlines Performance 2011-2012
Airline
Net income Q1 2012
Net income Q2 2012
Net income Q3 2012
TAM
n/a
US$14 million loss
US$21 million profit
GOL
US$20 million loss
US$174 million loss
US$149 million loss
Source: Company websites and quarterly reports
PASSPORT 56
Looking to 2016
Growth in air transportation in Brazil is predicted to
continue, although it is unlikely to be as dynamic as
previously seen. The ongoing improvements in
infrastructure will take time to realise the capacity
increases, but there should be much more room for
growth once they are completed.
Charter flights are predicted to show the greatest
increase in retail value between 2012 and 2016, as
more Brazilians take holidays. Charter passenger
numbers are predicted to reach 10.8 million by 2016.
Low cost and scheduled airlines will handle 59 million
passengers each in the same year, with low cost likely
to jump ahead by 2017.
According to the IATA, 38% of Brazils online leisure
air passengers belong to Generation Y, illustrating the
growing importance that this group of young travellers
will have on air transportation in the coming years.
With the internet a constant presence in the lives of
Generation Y, airlines with a good internet and social
media presence will be the first choice for these
consumers.
Passengers Carried and Retail Value

% CAGR 2012-2106 in Brazil
Schedule
LCC
Charter
10
12
14
16
% CAGR
Retail value
Passengers carried
PASSPORT 57
Business travel driving short haul flights

Whilst growth patterns for short haul and long haul leading up to 2016 are expected to be similar, short haul
flights are far more popular than long haul flights amongst Brazilian travellers. There were over 67 million
passengers flying short haul in 2012, compared to 34 million long haul.
Strong demand for short haul flights in Brazil can be explained by the fact that nearly 70% of Brazilians
travelling by air are business travellers, and these business travellers often take short haul flights such as
the popular Ponte Area commuter flight, operating between Rio de Janeiro to So Paulo.
The Brazilian National Civil Aviation Agency is engaged in enhancing connectivity across the country by
encouraging airlines to establish new domestic routes to an increasing number of cities. This will reduce the
travel time for those heading to the interior of the country, and continue to boost the prevalence of short
haul flights.
Short and Long Haul Flights in Brazil 2012-2016
100
80
60
40
20
0
2012
2013
2014
Short Haul
2015
2016
Long Haul
PASSPORT 58
Gearing up for the FIFA World Cup and the Olympics

In common with many previous hosts of major international sporting events,
Brazil has fast-tracked airport infrastructure improvements in order to cope
with the expected visitor influx. Over half a million international visitors are
predicted for the FIFA World Cup in 2014, and a million for the Olympics in
2016.
An estimated US$4 billion has been pledged for investment by state-owned
operator Infraero to modernise and expand the airport capacity of 12 cities.
Improving the airports was a key promise made by the government as part
of its winning bid for the World Cup, although airport expansion is
desperately needed regardless of the mega events. Most of Brazils major
airports are congested and way behind the curve in responding to the
growth of the last decade and preparing for the anticipated growth of the
next decade.
However, of the 13 airports receiving investment, the Institute for Applied
Economic Research (IPEA) believes up to 10 of them will not be ready in
time for the start of the FIFA World Cup in June 2014.
The government has taken some of the responsibility off the operator's
shoulders and privatised three of the countrys biggest airports in an auction
in February 2012.
Another serious issue which continues to hamper expansion work is the
existence of airport graveyards, where planes belonging to now grounded
and redundant airlines have been left to rot on tarmac and hangers.
PASSPORT 59
Regional focus: Brazils busiest airports

The busiest airports in Brazil in 2012 were in So Paulo and Rio de Janeiro, and are operating at or above
capacity levels. However, even airports in second tier cities, such as Salvador, Belo Horizonte and
Campinas, are very busy, with the latter operating at 253% capacity, highlighting the urgent need for
expansion.
Leading Airports in Brazil by Passenger Numbers in 2012
Airport
City
Passengers
% growth
% capacity
So Paulo Guarulhos International
So Paulo
32,777,330
9.2
126
Rio de Janeiro Galeao International
Rio de Janeiro
17,495,737
17.0
97
Congonhas So Paulo
So Paulo
16,775,770
0.1
140
Brasilia International
Brasilia
15,891,530
3.2
159
Tancredo Neves International
Belo Horizonte
10,398,296
9.1
208
Santos Dumont
Rio de Janeiro
9,002,863
5.7
150
Viracopos International
Campinas
8,858,380
17.0
253
Salvador International
Salvador
8,811,540
5.0
147
Salgado Filho International
Porto Alegre
8,261,355
5.5
135
Afonso Pena International
Curitiba
6,828,334
2.0
114
Source: Infraero Brazil Movimento Operacional Jan Dec 2012
PASSPORT 60
Growing online segment

The bulk of online sales in travel and tourism in Brazil are generated by airlines acting as direct suppliers.
GOL was the initial driver, with its formula of marketing cheap air tickets via the web and insisting that
customers use this system to book their tickets. As a result, other airlines were forced to rebuild their
websites and review their online strategies.
Low cost airlines continue to account for the bulk of online sales, with 90% of GOLs tickets sold online.
However, schedule Brazilian airlines are also promoting online sales intensively, as selling tickets directly
via the internet is a lot cheaper in terms of staffing, and avoids the necessity to pay commission to travel
agencies.
Direct sales from airline websites, and special offers and promotions available exclusively online will
continue to drive internet sales for all Brazilian airlines. Nonetheless, offline sales will also continue to show
good growth, as there remains a large sector of the Brazilian population who do not have internet access.
Both GOL and TAM have had great success selling air tickets in subway stations in So Paulo.
Offline and Online % Value Growth Sales in Brazil Air Transportation 2012-2016
% growth
20
15
10
5
0
2012
2013
2014
Offline
2015
2016
Online
PASSPORT 61
REPORT DEFINITIONS
Category definitions
Air: Includes schedule, charter and low cost carriers; national flag carriers as well as budget airlines. Air
transportation is primarily defined as air ticket sales for the purpose of outgoing air travel by country
residents and internal air travel by international tourists and domestic tourists. Excludes transit.
Airline passengers carried: Euromonitor International considers airline capacity and passengers carried in
terms of enplanement over origin-destination, whereby the number of enplanements are based on
scheduled flights, as defined by the airlines and assigned flight numbers. For example, a passenger whose
flight stops mid-route to pick up more passengers but continues with the same aircraft/flight number would
be counted as one enplanement. A passenger who switches flights to another airline or aircraft with a new
flight number mid-journey would be considered as two enplanements. If an airline operates charter or nonscheduled flights, in addition to scheduled flights, then technically passengers carried could be in excess of
enplanements.
Enplanements are not the same as number of seats sold or seat bookings as the latter both include all
bookings and do not exclude no-shows and cancellations. The enplanement data are not restricted by
airline domicile or point of sale.
Direct transit passengers are excluded eg those who continue on the same flight, whereas other transit
passengers are included, seeing as passengers change plane with a different flight number.
Bus/coach: Encompasses overland travel by bus or coach. Include sales to residents and incoming
Rail: Travel by passenger train, excluding freight and car transport. Includes cable-cars. Covers what is
spent on rail in that country by tourists travelling domestically (both international and domestic).
PASSPORT 62
Experience more...
This research from Euromonitor International is part of a global
strategic intelligence system that offers a complete picture of the
commercial environment. Also available from Euromonitor
International:
Global Briefings
Timely, relevant insight published every month on the state of the
market, emerging trends and pressing industry issues.
Interactive Statistical Database
Complete market analysis at a level of detail beyond any other source.
Market sizes, market shares, distribution channels and forecasts.
Learn More
To find out more about
Euromonitor International's
complete range of business
intelligence on industries,
countries and consumers please
visit www.euromonitor.com or
contact your local Euromonitor
International office:
Bangalore +91 80 4904 0500
Cape Town +27 21 524 3000
Strategy Briefings
Executive debate on the global trends changing the consumer markets
of the future.
Chicago +1 312 922 1115
Global Company Profiles

The competitive positioning and strategic direction of leading
companies including uniquely sector-specific sales and share data.
Santiago +56 22 915 7200
Country Market Insight Reports

The key drivers influencing the industry in each country;
comprehensive coverage of supply-side and demand trends and how
they shape future outlook.
Singapore +65 6429 0590
Dubai +971 4 372 4363

London +44 0 20 7251 8024
Shanghai +86 21 6032 1088
Sydney +61 0 2 9581 9200
Tokyo +81 3 3436 2100
Vilnius +370 5 243 1577
PASSPORT 63

Airlines in The BRICS

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Airlines in The BRICS

Transféré par

Droits d'auteur :

Formats disponibles

AIRLINES IN THE BRICS

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

Much of the information in this

Air transportation in the BRIC

Oil prices and currency

Russias legislation limiting

Russias aviation growth has been hindered by restrictive legislation and

Chinas domestic market

Indias financial troubles

Many of Indias schedule airlines are struggling to show profits, despite

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

Air performance in the BRICs

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

The overheating of the BRICs economies

As China, India, Brazil and Russia mature from rapid,

Taxation remains a complex issue in the BRICs, with investors

The four BRIC nations all faced currency depreciation in 2012,

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

Visa restrictions and their impact

Countries Offering Visa-Free or Visa

Recent developments have eased the process for US visas for

Key countries offering

Hong Kong, Indonesia,

Travel throughout Europe for Chinese, Indian and Russian

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

Currency fluctuations and oil prices

World Oil Prices 2003-2013 (Crude Oil (Europe Brent

China, which still uses a semi-fixed

US$ per barrel

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

Importance of outbound tourist flows

Annual disposable income

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

Airport numbers in the BRICs

Number of airports with

Total country area (km2)

8.5 million km2

9.7 million km2

3.2 million km2

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

Business and leisure divide

Breakdown of Business and Leisure % Split for

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

Fleet orders and fleet production

Snapshot of Airline Orders for Four BRIC

China Southern Airlines is the only BRIC airline currently

47 Airbus, 163 Boeing, 20

33 Airbus, 87 Boeing, 50 Irkut,

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

Intra-regional travel a major driver

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

AIR TRANSPORTATION IN RUSSIA

Air safety issues

Whilst global aviation

Russia signed a joint

Easyjet will enter Russia

Russian aviation is very The Russian

TRAVEL AND TOURISM: AIRLINES IN THE BRICS

AIR TRANSPORTATION IN RUSSIA

What is happening in Russia?

There are a number of factors influencing the

International traffic rose by 22.2% to 29.9 million