An overview of the Indian aviation industry

Aviation industry is one among the most important industries of any country because of its economic and social viability. The aviation industry not only contributes to the Gross Domestic Product (GDP) of the country and improves employment statistics, but also aids in domestic and international trade, and facilitates many other businesses. Socially the industry connects people to people leading to cultural exchange and enhancement. Indian aviation industry has completed a century of its existence and these 100 years have witnessed severe highs and lows. On the one hand, there has been rise in the number of companies competing in the industry along with a simultaneous growth in the number of airline passengers; on the other hand the industry players are still struggling against poor infrastructure and high operating costs.

The Evolution and Contribution of Indian Aviation Industry

The Indian civil aviation industry came into existence way back in 1912. Tata were the pioneer with the introduction of first Indian airline ‘Tata Airline’ in the year 1932.  Since beginning, the industry has witnessed ups and downs but in spite of that the Indian aviation industry is one of the world’s fastest growing aviation industries. With only 9 airline carriers at the time of independence, the industry now has numerous private operators which also include low-cost carriers making air travel possible for the so-called common man. The Government’s efforts towards liberalization of the industry along with the change in demographics of the country have supported a lot to this growth in the industry. Today, the industry contributes around 0.5% to the Gross Domestic Product (GDP) and employs some 1.7 million people. Other than this direct contribution to the economy, the aviation industry also contributes by facilitating domestic and international tourism thereby improving the performance and contribution of tourism industry.

However the air travels penetration is very low in India and there is lot of potential underlying the industry. The emergence of wide middle class with rising disposable incomes has paved the way for industry players marking a more promising future. One of the unique features of the Indian psychology where air travel is not just a means of reaching to the destination but is rather a means to portray economic superiority among peers can be interpreted as a positive sign by the operators. There is a glamour attached to air travel in addition to the benefits of saving the travel time. The labor is cheap and is available in abundance in the country. The only thing needed is training and polishing the human resource to match to the industry’s eligibility criteria.

The Challenges Underlying Indian Aviation Industry

The Indian mindset supports the industry growth but at the same time the Indian consumers are highly sensitive to price when it comes to air travel. There is low brand loyalty and the consumers easily switch over to the one offering maximum discounts. This has given birth to cut-throat competition among carriers fighting to offer the most lucrative scheme to consumers. Moreover, there is high instability in air passenger traffic in India making it difficult to balance the demand-supply continuum. Another major challenge relates to the high operating costs. The cost of fuel for Indian carriers comprises around 45% of the total costs which stands at some 34% for most countries in the world. There are high taxes on Aviation Turbine Fuel (ATF) and poor infrastructure which add to the running costs making it difficult to compete globally. The investment hurdles further complicate the situation restricting the growth potential of the industry.

The opportunities are immense in the sector and what is needs is to work out on the weaknesses.

References

  • Arora, N., Bishnoi, K. & Atray, S. (n.d.). “Indian Aviation Industry: Issues and Challenges.” Retrieved from: http://www.indianmba.com/Faculty_Column/FC1149/fc1149.html
  • Kumar, B. (2011). Mergers and Acquisitions: Text and Cases. New Delhi: Tata McGraw-Hill Education Private Limited.
  • Ray, S., Dewan, S. & Shah, S. (March 2012). “Indian Aviation Industry: Through Turbulent Times, FDI Relaxation Alone Not A Game Changer.” Retrieved from: http://www.icra.in/Files/ticker/Indian%20Aviation%20Industry%20(NEW).pdf
  • Tyler, T. (May 31, 2012). “Aviation Crisis: Common Vision to Help Fix Problems like High Taxes, Investment Curbs.” The Economic Times.

Ankita Agarwal

Analyst at Project Guru
Ankita is working with the editorial board of Project Guru as a Research Analyst and Writer. With Masters in Commerce and Business Studies, Ankita learned much of what she knows about management through experience. She has previously worked in various financial institutions like Birla Global, HDFC Ltd. and Citi Financial. She is self-motivated and writes for the Knowledge Tank section of Project Guru. She has authored more than 80 articles so far in Human Resources Management, Strategic Management, Finance and Marketing. She likes to pen her thoughts about the latest issues gripping these areas across the world.
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