Executive Summary
India is one of the fastest growing aviation
markets in the world. With the liberalization of the Indian
aviation sector, the industry had witnessed a transformation
with the entry of the privately owned full service airlines
and low cost carriers. As of May 2006, private carriers
accounted for around 75% share of the domestic aviation
market.
The sector has also seen a significant increase in number of
domestic air travel passengers. Some of the factors that
have resulted in higher demand for air transport in India
include the growing middle class and its purchasing power,
low airfares offered by low cost carriers, the growth of the
tourism industry in India, increasing outbound travel from
India, and the overall economic growth of India. |
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In addition to these factors, the emphasis on modernization
of non-metro airports, fleet expansion by airlines, service
expansion by state owned carriers, development of the
maintenance, repair and overhaul (MRO) industry in India,
opening up of new international routes by the Indian government,
establishment of new airports and renovation and restructuring
of the existing airports have added to the growth of the
industry.
However, in mid-2006, many airline operators announced large
losses. Analysts opined that a combination of factors such as
high aviation turbine fuel (ATF) prices, rising labor costs and
shortage of skilled labor, rapid fleet expansion, and intense
price competition among the players were responsible for the
losses in this sector.
The problem was also compounded by new players entering the
industry even before the existing players could stabilize their
operations. It was estimated that the industry as a whole could
face losses of over Rs. 22 billion in 2006-07. Some experts
expect the industry to consolidate in the near future. The
government also was keen to restrict the losses in this sector
by closer scrutiny of the business plans of new entrants,
conducting quarterly financial audits, etc.
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