Indian Aviation Industry
Indian Aviation Industry
Indian Aviation Industry
Submitted by:
R. Sreejith - fk-3391
Rahul. N – fk-3434
ACKNOWLEDGEMENT
First and foremost, praises and thanks to the God, the Almighty,
For the growth of Indigo Airlines this report suggests the following:
Tie-up with e-commerce travel and tourism players as they charge and
create combo deals.
Venture into international market by having tie-ups with other
international airlines.
Tie ups with companies to get the consistent business travel deals.
Since their inception in August 2006, they have grown from a carrier with one
plane to a fleet of 255 aircraft today. A uniform fleet for each type of
operation, high operational reliability and an award winning service make us
one of the most reliable airlines in the world. Indigo has a total destination
count of 87 with 63 domestic destinations and 24 International.
Being a low-cost carrier, Indigo offers only economy class seating. To keep
fares low, Indigo does not provide complimentary meals on any of its flights,
though it does have a buy-on board in-flight meal programme. No in-flight
entertainment is available. Hello 6E, the in-flight magazine published by Indigo,
is available for passengers to read. Indigo offers premium services, such as a
pre-assigned seat, multiple cancellations and priority check-in, to its
passengers who are willing to pay a higher fare. In September 2019, the
company announced its tie up with SonyLIV on demand video app for
providing its fliers with entertainment options at the airport and in flight.
Leaseback model
After purchasing an asset, the owner enters a long-term agreement by which
the property is leased back to the seller at an agreed rate. One reason for a
leaseback is to transfer ownership to a holding company while keeping proper
track of the ongoing worth and profitability of the asset. Another reason is for
the seller to raise money by offloading a valuable asset to a buyer who is
presumably interested in making a long-term secured investment.
With 143 of 169 aircraft on lease, Indigo has been the most active user of the
model. A lessor buys aircraft from an airline and leases it back. This removes
debt from the airline’s balance sheet, and allows it to invest equity for other
purposes.
1.2.3 OPERATIONS
Indigo is a no-frills carrier, a strategy which is helping the airline in keeping the
cost of operation low and passing on the benefits to end
customers. Operating to limited number of destinations has helped the carrier
to remain focused and this is one the competitive advantage that Indigo have
over peer companies. There is no frequent flyer programmes and credits for
flying miles.
The core product of indigo airlines is that they provide low cost passenger air
transportation for middle class and lower middle-class customers so that they
can also experience flight journey.
• Supplementary Product:
Along with the core product they also offer supplementary product. They are
like Check in, Food on board, connecting flight while traveling where the
service is not available, Complementary gifts along with the travel, In-flight
entertainment such as music, movies games and Frequent flier programs.
• Augmented Product:
A commodity that has both the primary physical attributes and the non-
physical attributes that are added to increase the product's value. They
Augmented product are-
• Online booking
• Mobile ticketing
1.3.2 STRATEGIES
Indigo has made sure that its average fleet age remains four years till 2032. It
was a well thought-out fleet strategy that was made 10 years back, and not
something done a couple of months ago. The last plane of the three bulk
orders of 530 aircraft that Indigo placed will come in 2026 — 100 Airbus A-320
in 2005, 180 A-320 Neos in 2011 and 250 A-320 Neos in 2015. Indigo’s bulk
buying helped negotiate better rates. Planes are purchased at a lower price
than what a seller would buy for and brings our cost down.
Once all airplanes are delivered, Indigo will not have a fleet of 530 planes —
this is due to the ‘buy, sell and lease back’ strategy. At peak we will have 330
planes. Once the order is placed the planes are sold to lessors at market price.
The planes are then leased back for the next six years — which means for the
first six years Indigo receives a plane every month.
Every month a plane goes out of Indigo’s fleet and a new aircraft joins, thus
reducing the average fleet age, and with an average fleet age that is low the
cost of maintenance is also lower. In 2011. Indigo was the first customer for
Airbus to order the new range of fuel efficient A-320 Neo planes. Neos help in
saving 10-15% of the overall fuel cost. Fuel makes up for 50% of a carrier’s
cost.
Because of the six year lease back plan, with the next two-and-half years one-
third of Indigo’s fleet will be Neos, and in the next six years it will have an all
Neo fleet. There is a straightaway positive impact of 7% on the company’s
bottom line because of the Neos.
With orders in place, Indigo is planning to increase its presence in the number
of cities it flies to — adding two to three cities to its portfolio every year. In the
next eight and half years it plans to have presence in 56 airports compared to
33, now. Regional flying is not on the radar, and neither are smaller planes.
• ATF (Air Turbine Fuel) prices have increased radically since 2005
• Foreign and private players often poach work-force of competitors.
• Like every other industry, recession has hit aviation industry as well. People
have cut down on tourism and corporate travels have also been slashed down.
• The shortage of trained pilots, co-pilots and ground staff is severely limiting
the growth prospects of all the airline companies.
1.4.2 OPPURTUNITIES
• Indigo airlines have not ventured into the huge air freight market which can
contribute a sizeable portion of the revenue. A study by Centre for Asia Pacific
Aviation or CAPA, an aviation consulting firm estimates the cargo services of
3.4million tonnes per annum.
• The huge untapped international sectors should be explored once Indigo has
a considerable presence in the domestic market.
• Indigo currently does not have too many long-haul aircrafts and as per CAPA
study by 2020, Indian Airports are expected to handle more than 100 million
passengers. Indigo airlines should focus on long haul aircrafts both for
domestic and international sectors.
• The chartered flight services still remain an area not exploited by Indian
aviation industry and Indigo airlines can play a major role in tapping the
potential in that particular market
1.5 FUTURE PROSPECTS
After consolidating Indigo’s presence in West and Southeast Asia, they plan to
add more destinations in China this year followed by a likely entry into the
Central Asian market. Moreover, the airline has also not ruled-out the
possibility to start a maiden flight service to Cambodia. Neither has it given up
on its plans for a direct air connection to the UK.
2. DESCRIPTION OF INDUSTRY
Indian Aviation Industry is one of the fastest growing airline industries in the
world. The history of Indian Aviation Industry started in December 1912 with
its first domestic air route between Karachi and Delhi. It was opened by the
Indian Air Services in collaboration with the UK based Imperial Airways as an
extension of London-Karachi flight of the Imperial Airways. Tata Sons Ltd., the
first Indian airline, started a regular airmail service between Karachi and
Madras three years later without any backing from the Indian government.
India is the third-largest civil aviation market in the world having a potential of
becoming second-largest aviation market by 2020. It recorded an air traffic of
131 million passengers in 2016, of which 100 million were domestic
passengers. The largest airline by international passenger traffic was Jet
Airways which transported over 10 million passengers in and out of India in
2016, followed by Air India and AI Express (8.8 million). In third place was
Emirates (5.46 million), which is the largest foreign airline operating in India.
Gross Income
Sub-Sectors (Rs. Crores)
Airlines
Scheduled 43,352
Non-Scheduled 1,528
Total 44,880
Airports
AAI 5,734
Private 3,805
Total 9,539
Maintenance Repair and Overhaul (MRO) 4,000
Air cargo and Express Industry 19,000
Ground handling 2,000
Aviation Academies 325
Total 79,744
Table. Estimated Gross Revenue Earned by Sub-Sectors of Indian Civil Aviation Sector
Over the past decade, as the global economy has improved, airlines have
grown in profitability, matured in terms of employing better capacity
management and cost controls, and have benefitted from the explosion in
demand for passenger air travel. Airframe and engine manufacturers have
booked orders and reported record deliveries, with plans to further push up
production to historically high levels. Leasing companies are busier than ever
as demand for lift continues, which is attracting many new entrants – backed
by new investors – into all sectors of the leasing market, from brand new
aircraft to mid-to-late-life equipment. Banks, too, are eager to lend despite
impending constraints imposed by new capital regulations; commercial debt
finance is more popular than ever despite the lower yields, while structured
capital markets transactions are becoming more standardised and tradable as
investors pile into the sector.
Analysts are broadly positive on the fundamental strength of the market. Betsy
Snyder, director of S&P Global Ratings, is optimistic regarding the growth
prospects of the airline industry pointing to the desire among millennials and
Generation Z to travel and experience the world, while the older generation
are also spending their retirement traveling. “The trends for continued traffic
growth look very good, at least for the next few years barring some unforeseen
event or a steep decline in global economic growth,” she says.
Moreover, airline profitability has improved to such an extent that analysts see
many airlines being cushioned from some of the sharper shocks to operations,
such as fuel cost increases and fluctuations in the value of the US dollar. “The
profitability of airlines in the past few years has really improved,” says Marjan
Riggi, senior managing director, Kroll Bond Rating Agency. “It’s almost like
there’s been a little bit of a structural shift in their cost management. Many of
them have delivered. Their costs have gone down. The load factors are up
because that affects revenue. In general, airlines are healthier. This year,
however, the cost of running an airline has risen due to fuel. All that said,
airline profitability, as a whole, was very strong last year and although lower
this year, will still be profitable.”
Craig Fraser, managing director, Fitch Ratings, agrees that on the surface the
industry looks healthy but when you dig deeper, there are many reasons to be
cautious. “One of the biggest risks in the industry right now is actually
complacency,” he says. “Things have been going so well for a long time. By
some measures, this is the longest upturn we’ve had in the aviation sector, but
we need to keep in mind that this is a sector with a high structural risk profile.
Performance can turn very quickly, and there are a lot of signs of complacency
if you look around, whether it is executive commentary about cyclicality,
discussions about future production rates, or cash deployment choices.”
Fraser also highlights the dampening global GDP forecast, volatile oil prices and
rising interest rates, along with the continued increase in capacity. “We still see
a lot of capacity coming in to the market, with production rates going up,” he
adds. “From a rating agency perspective, one of the biggest suppliers to the
aviation sector is the credit markets, and our firm’s view is that we’re late in
the credit cycle, with the overall market starting to turn, and I think we’re
seeing some indication of that, in the aviation credit markets as well.”
Indigo remains the largest airline with a market share of 49 percent. Spice
Jet attained its highest-ever market share of 14.8 percent, a sharp jump
from its April figure of 13.1 percent, in sync with the rapid expansion of
fleet undertaken by the airline. The airline added one plane every day for
three weeks of May and now has over 100 aircraft in its fleet. Air India
occupied 13.5 percent domestic market share. For Go Air, it was again a
record figure of 11.1 percent, its highest ever share. Air Asia remained the
fourth largest with 6.3 percent share, followed by its sister company
Vistara at 4.7 percent share.
In 1994, The Air Corporation Act, 1953 was repealed which led to
Indigo remains the largest airline with a market share of 49 percent. Spice
Jet attained its highest-ever market share of 14.8 percent, a sharp jump
from its April figure of 13.1 percent, in sync with the rapid expansion of
fleet undertaken by the airline. The airline added one plane every day for
three weeks of May and now has over 100 aircraft in its fleet. Air India
occupied 13.5 percent domestic market share. For Go Air, it was again a
record figure of 11.1 percent, its highest ever share. Air Asia remained the
fourth largest with 6.3 percent share, followed by its sister company
Vistara at 4.7 percent share.
Air India is one of the oldest airline companies in India with presence in all the
major as well as small cities of India. It was founded in July, 1930 as the Tata
Airlines and started operations on 15th October, 1932. The airline was founded
by one of the great industrialists JRD Tata. Air India has a market share of more
than 13%. They serves major, short as well as medium level destinations in
India and across the world.
The Jet Airways is the second largest airline in India with a market share of 15.4
percent. It was established on 1st April, 1992 and started operations on 5th
May, 1993. Chhatrapati Shivaji International Airport, Mumbai is the main hub
of Jet Airways. The revenue of Jet Airways is US$3.7 billion and profit US$ -92
million as of 2017-2018. It is one of the largest employers in India in airline
sector with more than 16015 employees. The fleet size of Jet Airways is 121
aircraft and ordered another 233 new fleet to expand the network.
Spice Jet is another budget airline company in India with a market share of
13.2 percent. It was founded in 1993 as ModiLuft and started operations on
5th May, 1993. The Spice Jet Airlines serves in key cities of India such as Pune,
Chennai, Ahmedabad, and Goa and so on. Previously, it was owned by the NRI
group and it was acquired by the media king Kalanithi Maran. However, Maran
sold his shares back to Ajay Singh in 2015.
2.5.4 Go Air
Go Air is the one of the most popular budget airlines in India. Go Air is
promoted by the Wadia Group. It was founded in 2005 and started operations
in November, 2005. The fleet size of the Go Air is 38 aircraft and serves in more
than 23 destinations. The Go Air is headquartered in Worli, Mumbai, and
Maharashtra with the slogan of “Fly Smart”.
Air Asia India is a new player in the aviation market of India. It was established
on March 28, 2013 and the company started its operations from June 12, 2014.
Kempegowda International Airport, Bengaluru is the operating base for the
airline company. Air Asia India has a fleet size of 18 aircrafts and operates at 21
destinations.
2.5.6 Vistara
India’s exports expanded at a CAGR of 5.61 per cent to US$ 302.84 billion in
FY18.
Imports registered a CAGR of 4.71 per cent which reached to US$ 459.87
billion in FY18.
Growing trade augurs well for airports as they handle about 30 per cent of
India’s total trade (by value)
During April – June 2018, India’s merchandise exports and imports stood at
US$ 82.47 billion and US$ 127.41 billion, respectively.
During FY06-18, domestic freight traffic increased at a CAGR of 7.96 per
cent, while international freight traffic grew at a CAGR of 7.30 per cent
during the same period.
In FY18, domestic freight traffic stood at 1,213.06 tonnes, while
international freight traffic was at 2,143.97 tonnes.
In the month of Apr-May 2018, domestic freight traffic stood at 215,000
tonnes while international freight stood at 374,000 tonnes.
By 2023, total freight traffic is expected to touch 4.14 million tonnes
exhibiting growth at a CAGR of 7.27 per cent between FY2016 and FY23. In
addition, international freight traffic is expected to grow at a CAGR of 7.13
per cent while domestic freight traffic is expected to grow at a CAGR 7.50
per cent between FY2016 and FY23.
Freight traffic grew at a CAGR of 7.56 per cent during FY06-FY18 to from
1.40 million MT to 3.36 million MT. During Apr-May 2018, total freight
traffic handled stood at 0.59 million tonnes. Freight traffic on airports in
India is expected to cross 11.4 million tonnes by 2032.
Growth in import and export in India will be the key driver for growth in
freight traffic as 30 per cent of total trade is undertaken via airways.
Airports across the globe are planning on increasing their spending on new
technology to keep up with surging passenger traffic, which is expected to
double to 370 million by 2020. The anticipated double digit growth would
make India as the world’s third largest aviation market by 2020.
2.7.1 SUPPLIER
2.7.2 CUSTOMERS
Buyers in airlines industry are large in number and highly fragmented thus
lowering their power
The switching cost is minimal since there are multiple alternatives available.
It is not difficult to move from one airline to another or to switch to a
substitute
Constantly enhancing engagement with the passengers to augment their
travel experience through different social media platforms, especially
through Twitter and Facebook.
Committed to customer service and satisfaction. Quality and detail to key
service makes them apart from their competitors. Airlines offer e-alerts,
messages, promos, tips and the most current flight information to its
travelers.
2.7.3 RESOURCES
2.7.4 EMPLOYEES
2.7.5 SHAREHOLDERS
Capacity expansion, market share make IndiGo owner top pick among
airlines Investors may also consider SpiceJet as it has managed costs well
and has placed a bulk order for 205 planes.
The stocks of InterGlobe Aviation, SpiceJet and Jet Airways have gained 20-
50% in the past three months. Factors such as falling crude oil prices, which
reduces the cost of fuel for airlines, and buoyant passenger traffic are
attracting investors towards aviation stocks. In the coming quarters, crude
oil prices are least expected to increase given the oversupply from oil
producing nations. Fuel costs contribute 3540% to total cost of airlines. A
weak trend in crude oil price, therefore, augurs well for aviation stocks.
On the demand side, India's air passenger traffic is estimated to grow five
times in the next 20 years. In such a situation in which costs are under
control and demand is favorable for all airlines, a crucial question for
investors is which stock to buy . Key factors that determine investors'
choice are market share, ability to fund capacity expansion and strong cash
flow generation that will fund working capital requirements.
Based on these factors, InterGlobe Aviation (Indigo Airline's holding
company) looks well placed to take advantage of the future opportunities.
It currently has 39% market share. It ordered 430 aircraft in 2011, of which
every year a few new aircraft replace the old ones. It had a cash flow of Rs
3,000 crore in FY16.
Investors may also consider SpiceJet, which has managed costs, placed a
bulk order for 205 planes. It has keenly followed the strategy of one brand
aircraft fleet and replacing old fleet with new fuel-efficient planes. With
close to 13% market share, most analysts believe SpiceJet is fit to grow
amid intense competition.
Jet Airways, on the other hand, has shown relatively lower aggression in
capacity addition with an order of 75 planes. Also, it has lost market share
domestically, which at present is 18.1%. However, in relative terms,
investors may keep a watch on valuations of aviation stocks. Investors may
want to consider Jet if valuations of SpiceJet and Indigo seem to be
stretched in the current uptrend.
At present, InterGlobe's stock attracts a higher valuation among aviation
stocks. Its enterprise value (EV) is 7.5 times it operating profit before
depreciation (EBITDA). The stocks of SpiceJet and Jet Airways trade at EV
EBIDTAR of 6.1 and 6.7, respectively.
3. THE MACRO ECONOMIC SITUATION IN INDIA SINCE 1991
India has come a long way since the liberalization process started in early
1990s. At $2.3 trillion, the Indian economy has grown nearly 9 times since
1991. In 1991, India’s GDP stood at $266 billion. Agriculture, which
accounted for nearly 30 per cent of the total GDP in 1991, now accounts for
17.4 percent of the economy. The services sector contributes nearly 54 per
cent to domestic GDP (from 39 per cent in 1991), while the industry sector's
contribution to GDP stands at 29 per cent now against 30 in 1991. By 2007,
the contribution of industry to GDP had risen to 34 per cent before falling in
the subsequent years. Since 1991, Budget size grew 19 times, economy 9
times; your income 5 times
India was one of the fastest growing domestic aviation markets in the world
but growth turned negative in April 2019 mainly on account of the Jet
Airways crisis. In India, there are 454 airports and airstrips which includes
Operational, Non Operational, Abandoned and Disused Airports. From
which 127 are owned & operated by AAI. India also have 16 international, 7
custom airports and 28 civil enclaves.
Open sky policy: it means to liberalize the rules for international aviation
markets and minimizes government intervention.
FDI limits: 100% for green field operations and 74% for existing airports and
100% with special permissions and 49% for airlines.
FDI limits
Bilateral treaties
Airlines acquisitions and the leasing cost.
Fiscal situation remained close to the consolidation path and consumer price
inflation was within the targeted limits set by the monetary policy committee
of Reserve Bank of India (RBI). Despite continuing sluggishness in global
demand the Current Account Deficit (CAD) narrowed to 1.5 percent of GDP in
first half (H1) of 2019-20 from 2.1 percent in 2018-19.
India has come a long way since the liberalisation process started in early
1990s. The external payment crisis at that time had dragged India to IMF door.
Inflation was hovering at a peak of 16.7 per cent in August 1991, while foreign
currency assets were barely enough for two weeks of imports and Gulf crisis
had just 1990 exacerbated the fiscal situation.
3.3 GLOBAL ECONOMIC SCENARIO AND INDIAN OUTLOOK
3.3.1 GLOBAL ECONOMIC SCENARIO
Global growth is projected to rise from an estimated 2.9 percent in 2019 to 3.3
percent in 2020 and 3.4 percent for 2021—a downward revision of 0.1
percentage point for 2019 and 2020 and 0.2 for 2021 The downward revision
primarily reflects negative surprises to economic activity in a few emerging
market economies, notably India, which led to a reassessment of growth
prospects over the next two years. In a few cases, this reassessment also
reflects the impact of increased social unrest.
India’s GDP grew below 6 percent year over year for two consecutive quarters,
forcing policymakers and markets to rethink India’s outlook. The first quarter
1
many decades—over 1.3 million houses worth about 5 percent of GDP are
lying unsold across India On the supply side, excess idle production capacity,
weakening corporate profits, and infrastructure bottlenecks have slowed down
investment in production facilities and hiring.
In the past four months, the government has already spent 77percent of the
budgeted amount of the fiscal deficit of FY2019–20. The security yield curve
has moved up higher because of the increasing downside risks of a possible
sovereign rate cut and crowding out of private investments in the economy.
Credit growth has suffered as credit to consumer durables and the industry at
large has shrunk. Weakening bank balance sheets, rising nonperforming assets,
and slowing informal sector lending have impacted the ability and willingness
of financial institutions to lend. This has adversely affected consumer demand.
On the external front, the fall in domestic demand and low international crude
oil have kept the current account deficit under control. However, significant
risks loom due to geopolitical tensions in the Middle East and a possible rise in
oil prices. Given that India is a net oil importer, higher oil prices could have
negative implications on the external account. Nonetheless, lower domestic
and global demand will likely cap this risk. Foreign direct investment (FDI) has
picked up over the past few quarters as India remains an attractive investment
destination, while return prospects in advanced nations are poor. However,
foreign institutional investment has been volatile and will likely remain so
because of heightened uncertainties and poor investment sentiment. Factors
concerning growth, capital outflows, and global trade disputes as well as
uncertainty have weighed on the Indian rupee. It dropped to an all-time low
and has stayed above the psychologically important 70-rupee mark against the
US dollar over the past few months. Figure 2 summarizes the health of the
overall economy and the outlook.
Figure-1
In addition to these factors, the slump in the economy is also affected by the
various exogenous factors. A leading dampener is the US-China trade war,
which has intensified over time and has contracted world trade and, in turn,
Indian exports. Also, high rates of GST, liquidity crisis in NBFCs, and shift in the
behavioural pattern of the workforce due to the entry of young people has
discouraged savings. When people save less in the economy, it leaves less
money for investments.
India’s first budget was presented on April 7, 1860, when India was still
under the British colonial rule. It was introduced by the then Finance
Minister of India, James Wilson.
The first Union Budget of Independent India was presented by the first
Finance Minister of Independent India, Sir R.K. Shanmugham Chetty, on
November 26, 1947. It is noteworthy that the first Union Budget was
presented amidst widespread riots due to the partition of India. This budget
was meant for seven and a half months, following which the next budget was
to be implemented from April 1, 1948. It was the first Union Budget wherein
it was decided that both India and Pakistan would share the same currency
till September 1948.
The Union Budget documents are treated with utmost secrecy, because any
leak in official figures can have catastrophic effects. These documents are
treated with so much secrecy that even the Finance Minister is not
authorized to keep the Blue Sheet. The Union Budget is prepared on the
basis of data and key numbers in the Blue Sheet. Only the Joint Secretary
(Budget) is allowed to keep this important sheet.
Until 1950, all important budget papers were printed inside the Rashtrapati
Bhavan premises. However, an imminent data leak left the government with
no option but to shift the process to a government-operated press in Minto
Road till 1980. Post 1980, the printing of budget papers is done in a
basement in the North Block, where the Finance Ministry is located.
The Halwa Ceremony is a famous ritual, which marks the start of the printing
of the budget documents. Understandably, officials who are directly in
contact with the budget papers and data are locked down in the basement of
the North Block. The Halwa ceremony marks the lockdown of the Finance
Ministry. In this premise, even the Finance Minister is not allowed to carry a
mobile phone
The Railway Budget of the country has always been introduced as a separate
budget for the past 92 years till the year 2017, which saw the merger of the
railway budget into the Union budget.
Indira Gandhi was the only woman Finance Minister who was also the Prime
Minister while presenting the budget.
The present government has shifted the budget announcement from the last
working day of February to the first working day of February.
Indian Media termed the Union Budget of India for the year 1997-98, as the
"Dream Budget" because it was the road map for economic reforms in India
including dropping of income tax rates, removal of the surcharge on
corporate taxes, and reduced corporate tax rates.
The Budget of the financial year 1973-74 is known as the "Black Budget" as
the nation had a deficit of Rs550cr.
The one Union Budget that changed India’s future and was responsible for
putting India on the road to accelerated growth was the Budget of 1991-92,
presented by the then Finance Minister, Dr. Manmohan Singh. Under the
leadership of P.V. Narasimha Rao, Dr. Manmohan Singh opened up India’s
economy to foreign investors and eased up trade blockages.
The Union Budget of 1997-98, presented by P. Chidambaram is also regarded
as one of the turning points of the economy. This budget saw easing up of
income tax rates and lowering of customs duties. Chidambaram presented
the Voluntary Disclosure of Income Scheme in this budget. The scheme was
aimed to curb black money in the economy and widen the tax net.
The Millennium Budget, i.e., the Union Budget of 2000-01, is touted to have
transformed the Indian economy into a tech-hub. Yashwant Sinha, who
presented the budget, announced a reduction in customs duties for a few
raw materials required for the production of the optical fiber by almost 10%,
and by 20% in case of mobile phones.
Also again in 2016, departing from the colonial-era tradition of presenting the
Union Budget on the last working day of February, Minister of Finance Arun
Jaitley, announced that it will now be presented on 1 February.
Until 2018, as a part of tradition, Finance ministers carried the budget in a
leather briefcase. The tradition was established by the first Finance minister of
India, Mr. RK Shanmukham Chetty. On 5 July 2019, Normal Sitharaman, broke
this tradition by carrying the budget in a Bahi-Khata
INFLATION RATES
Table.2
The entire regulatory legislation and policies stand covered under this
segment. On the one hand, there is a very large indirect area of government
control over the functioning of private sector business through budgetary and
monetary policies.
But against this there is also a fast expanding area of direct administrative or
physical controls through which the government seeks to ensure that private
investment and production in industry and the use of scarce resources
conform to government’s basic socio-economic objectives.
There are a huge variety of instruments available with the government with
which it regulates the Business Environment. Some of which are :
3. Government as an Entrepreneur:
The impressive growth of the public sector in India from a small beginning
bears testimony to the role of the government as an entrepreneur.Private
investors are solely guided by private profit motive and hence they are not
interested in developing products of common public use and social services
which yield relatively lower returns. But as a “social entrepreneur” the
government does not hesitate to take them up.
In its role as a planner, the government indicates various priorities in the Five
Year Plans and also the sectorial allocation of resources. Mixed economies are
democratically planned economies.
The government tries to manage the economy and its business activities
through the exercise of planning. Planning is the most important activity in a
modern mixed economy. The idea of economic planning can be traced to three
different sources: Rationalism, Socialism and Nationalism.
Planning operation involves a number of steps. The first stage in planning is the
formulation of socio-economic objectives of the plan and their definition in
quantitative terms. Such objectives include growth, justice, eradication of
poverty, price stability etc. In the second stage, the plan lays down the physical
and financial targets. The third stage is concerned with execution. The Planning
Commission is only an advisory body and it has no power to execute the plan.
Social: With the development of Asian countries in particular China, there are
more and more people deciding to study or travel in Europe. In recent years,
the lifestyle of local people has also changed. They tend to travel abroad to
enjoy their lives. Most of these people are not wealthy such as student. The
budget airlines therefore, will be their best choice to reduce the travel costs.
Legal: Some legal actions such as preferential airport rights are directed against
the specific airlines. As budget airlines, which have higher competitive power,
they should pay more attention to the legal forces to prevent loss. On the
contrary, they can also take the initiative over illegal aid to rivals.
Stage 3 – Determine industry specific factors.
There are many potential opportunities for the airline companies. For instance,
the recession may lead to more people choosing the budget airline rather than
the expensive ones; new technology which helps to reduce the usage of fuel;
government set the tax at a lower percentage.
On the other hand, the increasing cost of fuel may be the most significant issue
most budget airlines face. What’s more, the compensation to passengers,
terrorism and security, and customers’ satisfactions will all have potential
negative impacts on the airline. In order to achieve lower costs, budget airlines
will have to reduce costs from many departments and operations. That’s why
lots of customers are not satisfied with the budget airlines except for the price.
CONCLUSION
Indigo dominates the Indian skies with over 40 percent domestic market share.
Passenger traffic saw a compounded growth of 27.7 percent over FY15-18, as
against industry growth of 20 percent, on the back of its competitively priced
no-frill products, reach and on-time performance. Since Indigo cannot control
fuel prices, they need to manage costs. They can explore more in the cargo
transportation which may help them to manage costs and improve its
economies of scope.
They can tie-up with e-commerce travel and tourism players as they charge
and create combo deals. These deals are at a discounted price which are borne
by the e-commerce companies. This helps Indigo as they achieve higher
occupancy at sustainable costs. Indigo can also venture into luxury segment of
airline, which will attract the rich customer base and would help to increase
profit and get better revenue.
Indigo may also venture into international market by having tie-ups with other
international airlines. The initial flights can be to Asian regions or to the key
countries airports like London, New York, Dubai, etc. This will support in
expanding the market while having limited capital investment because of joint
ventures.
Implementing loyalty program for its existing clientele can help reduce the
elasticity and ensure sustainable customers. They can also have tie ups with
companies to get the consistent business travel deals. The company has also
started adding fuel-efficient A320neo aircraft in its fleet, which would help it
reduce fuel cost by close to 15 percent.
In conclusion, due to Indigo’s business model, we can consider Indigo’s
opportunities as listed here: Increased domestic air traffic, international
markets, Chartered services, Regional connectivity. Also aim at cost reduction
by using more fuel-efficient flights and sustaining their client base through
loyalty programs. The diversification in to other markets can help achieve
economies of scope.
Bibliography
Science and technology council, IIT KANPUR. (2020, February). Retrieved from
http://students.iitk.ac.in/projects/bclub_2012_aviation