Airlines Industry

Dynamics of airline industry ( domestic)

 • India is considered to be the third-
largest domestic Civil Aviation
market in the world.
• India has 464 airports and airstrips,
of which 125 airports are owned by
(AAI). These 125 AAI airports
manage close to 78% of domestic
passenger traffic and 22% of
international passenger traffic.
• the share of international cargo
traffic is much higher at 68.5% in
comparison with 31.5% of domestic
cargo traffic.
• Maintenance, Repair & Overhaul
(MRO) industry is expected to grow
to $ 1.2 bn by 2020 from $ 950 mn
Dynamics of airline industry ( currently.

domestic)
Industry trends in India
 Global Market
Overview

• As per IATA, passenger

numbers are expected to
rise from 4.1 billion
passengers in 2017 to 4.3
billion passengers in 2018
(+6% growth).
 How does an airline
make money

Major expenses
• Fuel
• Lease rentals
• Finance cost
• Whenever fuel rates up &
rupee down, the lease
rentals will also be high.
Growth drivers in India
• air transport is still expensive for majority of the country’s population, of
which nearly 40 per cent is the upwardly mobile middle class.
• Indian carriers plan to increase their fleet size to 1,100 aircraft by 2027
• Government agencies projects requirement of around 250 brownfield and
green-field airports by 2020
• India has been projected to be the second-fastest-growing country in the
world for passenger traffic by the Airports Council International (ACI) in its
traffic forecasts between 2017-40.
• India is the fastest-growing aviation market and is expected to cater to 520
mn passengers by 2037
• 11.00 %Passenger traffic growth,15.90 %Foreign Tourist Arrival
growth,3.60 MMT Total freight traffic (MMT),14.40 %Domestic aircraft
movement growth
Airline industry drivers
Externalities that affect Airlines industry
• High dependence on oil prices
• Security concerns
• Weather related delays
• High fixed cost business
• Competition
Take away
• High fixed cost business like telecom, hotels prone to price wars since
variable cost is low
• Same is the case with Airline industry
• Fixed cost is huge in case of Airlines , which is already invested before
the flight takes off
Industry structure New
entrants-
Low

Competitive
Buyer Substitutes-
Rivalry- Very
power- Low Moderate
High

Supplier
power- High
Take away
• Government and oil companies are major suppliers
• Video conferencing is a substitute to business travel
• Airlines cut price because of competitive rivalry , not because of
buyer power
• No scope of negotiating for buyers
• Competitive advantage is most significant in Airlines industry
• Handful of airlines make business
Take away
• Airlines industry Supply constraint industry
• India supply constraint market
• Indigo, Southwest airline few among those who made money
• Not enough supply due to lack of infra, demand, risk, difficult to
survive,
• Lack of finance, less demand initially
Passenger traffic devision
Forecasts – growth expected huge
• Available seat kilometers- number of passengers* number of
kilometers plane will fly
 Historic Domestic and international passenger
growth (year on year)
1. Domestic growth
double as
compared to
international
growth
2. 2009 and 2013
were years of
crisis
3. Substantial growth
in domestic travel
Infrastructure constraints
• Insufficient airports- India has 130 crores population but only 346
airports operational
• US population is 33 crores but 13513 operational airports
Financials- 4 major players

1. India is only consistently profitable airline

2. Spicejet has done well relatively
3. 30-40% of cost is fuel cost
4. This is a big challenge as fuel costs fluctuate