G. H.

PATEL POSTGRADUATE INSTITUTE OF BUSINESS

MANAGEMENT (GHPIBM)

SARDAR PATEL UNIVERSITY (SPU)

VALLABH VIDYANAGAR,

ANAND, GUJARAT.

Comprehensive Project

on

‘Aviation Industry’

Submitted to

Dr K.S. Prasad

Submitted by

Akshay Dhaka 18M48

Ashley Raji 18F51

Nirali Rana 18M77

Shreyaben Thakkar 18F83

2018-2020
 DECLARATION

We hereby declare that this submission is our own work and that to the best of our
knowledge and belief, it contains no material previously publish or written by another
person nor accepted for the award of a degree or diploma of any university or institute
of higher learning, except due acknowledgement has been made in the text.

Akshay Dhaka

Ashley Raji

Nirali Rana

Shreya Thackker

Date :

Place :

2
 ACKNOWLEDGEMENT

The success and final outcome of this project required a lot of guidance and assistance
from many people and we are extremely privileged to have got this all along the
completion of my project. All that we have done is only due to such supervision and
assistance and we would not forget to thank them.

We respect and thank Dr. Yogesh C Joshi, Director - G.H.P.I.P.M for providing me an
opportunity to do the project work in “Aviation Industry” and giving us all support and
guidance which made us complete the project duly. We are extremely thankful to him
for providing such a nice support and guidance, although he had busy schedule
managing the corporate affairs.

We owe our deep gratitude to our project guide Dr. Kola Sai Prasad, Assistant professor
– G.H.P.I.B.M who took keen interest in our project work and guided us all along, till the
completion of our project work by providing all the necessary information for developing
a good system.

We are thankful to and fortunate enough to get constant encouragement, support and
guidance from all Teaching staffs of G.H.P.I.B.M which helped us in successfully
completing our project work. Also, we would like to extend our sincere esteems to all
non-teaching staff for their timely support.

We want to acknowledge the people who sacrificed and supported us the most – Our
Family and Our Friends, for their prayers and Encouragement.

3
 EXECUTIVE SUMMARY

During the past decades, the aviation sector grew up very fast, especially thanks to
globalization; consequently many airlines took advantage of this trend to increase its
turnover and profit even if the competition was becoming stronger and stronger. Indeed,
thanks to a good management most of them had grown faster than its competitors.
They focused on a high quality customer service strategy using the best technology
along with building of a strong brand. Also, they invested in other related companies, in
aircrafts based on technology and innovation.

Most Airlines strategy is also making all the process to control and assure a high
customer satisfaction. That is to say, more than transporting passengers, they are
providing airline catering services, ground, terminal and cargo services. At the same
time, These Airlines has also an external strategy of development because, even if the
government has the majority in the capital shares, they share the risks and the
investment with different partners. Furthermore, they tried to be first everywhere.

However, the airline market is going down because of several reasons. In a free market,
the success or failure of an individual airline is largely dictated by the quality of the
service it provides (Joseph Pillay, Chairman SIA, Harvard Business School, 1989b).
Many airlines had to face the apparent contradiction between cutting costs and prices,
on the one hand, and maintaining customer focus and delivering customer service, on
the other. Moreover, as all sectors, the financial crisis affects a lot airline companies.
Indeed, because of investors becoming reluctant and picky, airlines companies cannot
develop their activities very well. Also, we are in an environment of saving money, so,
less people is travelling, some managers begins to travel in economics’ classes.
Furthermore, the price of oil even if nowadays thanks to the crisis is relatively cheaper,
the price hit a peak of $147 per barrel in July 2008, and so had a big impact on the profit
of airlines companies. As concerned Singapore Airlines, they still have improved their
turnover this year. However, even if they are still making an operating profit, it is
decreasing since 6 months, but we can say that they are still more competitive than
their competitors in the crisis..

4
Table of Contents
INTRODUCTION ....................................................................................................................... 7
Introduction to the Industry ..................................................................................................... 8
Objectives .............................................................................................................................13
Scope ....................................................................................................................................14
Methodology ..........................................................................................................................16
Importance ............................................................................................................................17
Significance ...........................................................................................................................20
GROWTH AND EVOLUTION ...................................................................................................21
Product Profile .......................................................................................................................22
Innovation Potential ...............................................................................................................24
Economic ..............................................................................................................................27
DEMAND ANALYSIS ...............................................................................................................29
Demand Determination of the Industry ..................................................................................30
Price ......................................................................................................................................35
Income ..................................................................................................................................36
Penetration ............................................................................................................................38
Replacement Demand ...........................................................................................................42
Products ................................................................................................................................44
Technology ............................................................................................................................52
Life Cycle Stage ....................................................................................................................64
MARKETING STRATEGY ANALYSIS .....................................................................................66
Introduction of Marketing Strategy Analysis ...........................................................................67
Marketing Research ..............................................................................................................73
Key Issues And Current Trends .............................................................................................77
Segmentation And Positioning Products ................................................................................84
Quality And Technology ........................................................................................................92
Customer Service ..................................................................................................................98
Pricing and Promotion ...........................................................................................................99
Distribution Channels ..........................................................................................................100
Logistics Management.........................................................................................................101
Major Players In India ..........................................................................................................102
Market Share Of Various Firms ...........................................................................................105

5
FINANCIAL ANALYSIS ..........................................................................................................106
Profit Margin Analysis ..........................................................................................................107
Cost Structure Analysis .......................................................................................................108
Leverage Analysis ...............................................................................................................109
Profitability Analysis.............................................................................................................111
Du Pont Analysis .................................................................................................................112
EPS .....................................................................................................................................113
DPS .....................................................................................................................................114
P/E Analysis ........................................................................................................................115
Sustainable Growth Rate Analysis .......................................................................................116
INDUSTRY ANALYSIS ...........................................................................................................118
PESTEL Analysis ................................................................................................................119
Industry analysis by using Five Forces Model of Michael Porter ..........................................124
SWOT Analysis ...................................................................................................................130
FUTURISTIC SCENARIO OF THE INDUSTRY ......................................................................134
CONCLUSION ........................................................................................................................149
BIBLIOGRAPHY .....................................................................................................................150

6
 CH: 1

INTRODUCTION

7
 Introduction to the Industry

Aviation industry is the business sector that manufactures, maintains, and operates the
aircrafts and the airports. When it comes to aviation, there is a broad range of
responsibilities within. It comprises activities at the airport as well as in the aircraft. It
involves ground duties that are required to perform before the flight takes off, the
activities during the flight, and the activities after it lands. (Aviation Management
Introduction)

The term aviation, was coined by a French pioneer named Guillaume Joseph Gabriel de
La Landelle in 1863. It originates from the Latin word avis that literally means bird.
Aviation means all the activities related to flying the aircraft. Aviation management
involves managing the workflow of airline, airport, or other businesses pertaining to
aviation or aerospace industry by carrying out the day-to-day operations of an airport or
an airline.

The original idea of kite-flying from China was the first attempt of humankind to fly some
man-made object high into the air. Chinese used kites to send messages, lift humans,
measure distances, and test winds during the 5 th Century to the 7th Century AD. They
also prepared Hot Air Balloons to scare away enemies in the 3rd Century BC. Later
during the period of Renaissance, Leonardo Da Vinci studied the flying principles of
birds and anticipated that the equal amount of resistance is offered by an object to the
air, just as the resistance air offers to the object.

During the 17th century, the then experts tried to create copper spheres containing
vacuum and lift an airship as they knew by then that the objects lighter than the air can
remain up in the air. During the 18th Century, they conducted five flights using balloon
successfully in France. In 1647, the Polish King Władysław-IV invited the Italian
inventor, Tito Livio Burattini to his court in Warsaw and built a model aircraft with four
fixed glider wings. The aircraft had successfully lifted a cat with minor injuries while
landing.

8
During the 19th and the 20th centuries, the experts around the world experimented
continuously and came up with improved flying machines or aircrafts, which were
heavier than air and based on the principles of aerodynamics. Most notable names are
the Wright Brothers — Orville and Wilbur Wright. According to the Smithsonian
Institution and Federation Aéronautique Internationale (FAI), the Wright brothers made
the first sustained, controlled, powered, and heavier-than-air fight at Kill Devil Hills,
North Carolina on December 17, 1903. Orville Wright took the first flight at 120ft high for
12 seconds.

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.

During the period of independence, 9 air transport companies were carrying both air
cargo and passengers in the Indian Territory. In 1948, the Indian Government and Air

9
India set up a joint sector company, Air India International to further strengthen the
Aviation Industry of India. As part of nationalization in 1953 of Indian Airlines (IA)
brought the domestic civil aviation sector under the purview of Indian Government. Later
till the mid 1990’s government-owned airlines dominated Indian aviation industry. When
the government adopted the Open-sky policy in 1990 and other liberalization policies
the Indian Aviation Indian made underwent a rapid and dramatic transformation.

By the year 2000 several private airlines have entered into the aviation business in
succession and many more were about to enter into the arena. Indian aviation industry
today is dominated by private airlines and low-cost carriers like Deccan Airlines, GoAir,
and SpiceJet, etc. And Indian Airlines, the giant of Indian air travel industry, gradually
lost its market share to these private airlines. According to the report of CAPA, these
budget carriers are likely to double their market share by 2010 — one of the highest in
the world.

Indian Aviation Industry has been one of the fastest-growing aviation industries in the
world with private airlines accounting for more than 75 % of the sector of the domestic
aviation market. With a compound annual growth rate (CAGR) of 18 % and 454 airports
and airstrips in place in the country, of which 16 are designated as international airports,
it has been stated that the aviation sector will witness revival by 2011.

In 2009 with increase in traffic movement and increase in revenues by almost US$ 21.4
million, the Airports Authority of India seems set to accrue better margins in 2009-10, as
per the latest estimates released by the Ministry of Civil Aviation. This is being primarily
attributed because of the increase in the share of revenue from Delhi International
Airport Limited (DIAL) and Mumbai International Airport Limited (MIAL). Passengers
carried by Indian domestic airlines from January-February 2010 stood at 8,056,000 as
against 6,761,000 in the corresponding period of 2009-a growth of 19.2 %, according to
a report released by the Ministry of Civil Aviation.

Today Hyderabad International Airport has been ranked amongst the world’s top five in
the annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul,
Singapore, Hong Kong and Beijing. This airport in Hyderabad is managed by a public-

10
private joint venture consisting of the GMR Group, Malaysia Airports Holdings Berhad
and both the State Government of Andhra Pradesh and the Airports Authority of India
(AAI).

The Indian aviation sector can be broadly divided into the following main categories:

Scheduled air transport service includes domestic and international airlines.

Non-scheduled air transport service consists of charter operators and air taxi operators.

Air cargo service, which includes air transportation of cargo and mail.

Scheduled air transport service: It is an air transport service undertaken between two or
more places and operated according to a published timetable. It includes:

Domestic airlines, which provide scheduled flights within India and to select international
destinations. Air Deccan, Spice Jet, Kingfisher Airline and IndiGo are some of the
domestic players in the industry.

International airlines operate from scheduled international air services to and from India.

Non-scheduled air transport service: It is an air transport service other than the
scheduled one and may be on charter basis and/or non-scheduled basis. The operator
is not permitted to publish time schedule and issue tickets to passengers.

Air cargo services: It is an air transportation of cargo and mail. It may be on scheduled
or non-scheduled basis. These operations are to destinations within India. For operation
outside India, the operator has to take specific permission of Directorate General of Civil
Aviation demonstrating his capacity for conducting such an operation.

The Aircraft industry is the industry supporting aviation by building aircraft and
manufacturing aircraft parts for their maintenance. This includes aircraft and parts used
for civil aviation and military aviation. Most production is done pursuant to type
certificates and Defense Standards issued by a government body. This term has been
largely subsumed by the more encompassing term: "aerospace industry".

11
The industry of manufacturing airplane is a very complex industry that congregates
activities such as design engineering, manufacturing, sales, airline operations, customer
service, maintenance, finance, leasing, insurance, publicity, advertising, media, etc.

The process to development an aircraft is very complex and demands an large range
number of products such seats, flight software and hardware, wings, turbine etc. . To
develop such activity is necessary to work in a project process in a combination of fixed
layout and product layout, where the supplies are waiting to be integrated on the
structure while it slow moves in a rail; generating a unique type of product.

The manufacturing of commercial airplanes begun XX century, in Russia, With the

Sikorsky Ilya Muromets. This airplane made its first flight in February 1913, as
demonstration flight, with 16 people on board. 5 months later it made a round trip from
San Pittsburgh to Kiev in 14 hours. The aircraft was fancy, your cabin was equipped
with comfortable wicker chairs, bedroom, lounge and even bathroom, plus electricity
and internal heating. It was the beginning of the commercial flights.

During the both world wars one and two, the technology had a huge advance, with
planes flying over than 640 km/h at the end of the second war, 200km/h more than at its
beginning. Even though, these improvements was made more for the military use, when
the war was over, the commercial aircraft manufacturing developed with civilian purpose
and having made profit with its activities.

Since then the commercial airplane manufacturing industry had a huge growth, and
evolved a set of other activities having become one of the biggest industries in the
world.

12
 Objectives
Objectives of the Study

 To know the history and brief overview of the Aviation in India and to study the various
factors contributing to its growth.
 To study the aircraft and components produced in india.
 To examine the product profile of the industry and to study market structure in terms of
market shares of different players of the industry.
 To study the major players in the Aviation Industry with their product mix, marketing
strategies, distribution channels, technology used.
 To perform financial analysis of the Aviation industry for past 10 years using techniques like:
Profitability analysis, Leverage analysis, Market analysis, Du Pont and Sustainable Growth
Rate analysis.
 To carry out the industry analysis by using various techniques such as PESTEL Analysis,
SWOT Analysis and Five Forces Model of Michael Port

13
 Scope

The international aviation industry provides services to probably every corner of the
world and also proves to be an integral part of the global economy. The global aviation
industry includes air transport service providers of passenger and cargo. Industry
services are used by individuals and business,—international, domestic, and regional—
and governments around the world.

14
 o Robust demand: Rise in middle class demography will affect the demand
positively. India is expected to become 3rd largest aviation market in terms of
passengers by 2024

o Opportunities for employment: Expenditure in maintenance, repair and overhaul

sector accounts for 13-15%, it is second highest expense after fuel cost. By
2020, this sector is likely to grow over to $1.5 billion, thus creating many
employment opportunities.

o Policy support: Foreign support up to 49% is allowed under automatic route in

Scheduled air transport service and domestic schedule passenger airline.

o Increasing investment: Aviation sector is likely to witness US$15.52 billion worth

of investment in the next five years.

The Indian aviation industry is one of the fastest growing aviation industries in the world
with private airlines accounting for more than 75 percent of the sector of the domestic
aviation market. The industry is growing at a compound annual growth rate (CAGR) of
18 percent. The country has 454 airports and airstrips, of which 16 are designated as
international airports; Union Civil Aviation Minister has stated that the Indian aviation
sector will become one of the top five civil aviation markets in the world over the next
five years. Currently, India ranks ninth in the global civil aviation market.

The Hyderabad International Airport has been ranked amongst the world’s top five in
the annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul,
Singapore, Hong Kong and Beijing. The Hyderabad International Airport is being
managed by a public-private joint venture of the GMR Group, Malaysia Airports
Holdings Berhad and the State Government of Andhra Pradesh along with the Airports
Authority of India (AAI).The Indian aviation industry has shown continued growth in
recent years with key drivers being positive economic factors (including high GDP
growth), industrial performance, corporate profitability/expansion, higher disposable
incomes and growth in consumer spending as well as wider availability of low fares.

15
 Methodology

1. Type of Research and Research Design

As for the research design, exploratory research is being used as the main
purpose is to gain an insight into, and an understanding of the Aviation Industry.
2. Data Collection Methods
Data has been collected from secondary sources such as websites, magazines,
journals, Annual Reports, Capitaline database software and other industry
related books.
3. Data Analysis Tools and Techniques
Various ratios have been calculated to conduct financial analysis of Aviation
Industry. Apart from this, charts and tables have been used to present all the vital
information in an effective manner.

16
 Importance

1) Air transport provides vital economic benefits.

Aviation provides the only worldwide transportation network, which makes it essential
for global business and tourism. It plays a vital role in facilitating economic growth,
particularly in developing countries. Aviation transports close to 2 billion † passengers
annually and 40% of interregional exports of goods (by value). 40% of international
tourists now travel by air. The air transport industry generates a total of 29 million jobs
globally (through direct, indirect, induced and catalytic impacts). Aviation’s global
economic impact (direct, indirect, induced and catalytic) is estimated at US$ 2,960
billion, equivalent to 8% of world Gross Domestic Product (GDP). The world’s 900
airlines have a total fleet of nearly 22,000 aircraft1 . They serve some 1,670 airports2
through a route network of several million kilometres managed by around 160 air
navigation service providers3 .25% of all companies’ sales are dependent on air
transport. 70% of businesses report that serving a bigger market is a key benefit of
using air services.

2) Air transport is a highly efficient user of resources and infrastructure.

Aviation boasts high occupancy rates of 65 to 70% – which is more than double those of
road and rail transportation. Air transport entirely covers its infrastructure costs. Unlike
road and rail, it is a net contributor to national treasuries4 through taxation. Modern
aircraft achieve fuel efficiencies of 3.5 litres per 100 passenger-km or 67 passenger-
miles per US gallon. The next generation aircraft (A380 & B787) are targeting an
efficiency of less than 3 litres per 100 passenger-km or 78 passenger-miles per US
gallon5, which exceeds the efficiency of any modern compact car on the market.

17
 3) Air transport is a major employer.

Air transport industry generates a total of 29 million jobs globally. 5.0 million direct jobs
The airline and airport industry directly employ 4.3 million people globally. The civil
aerospace sector (manufacture of aircraft systems, frames and engines, etc.) employs
730,000 people. 5.8 million indirect jobs through purchases of goods and services from
companies in its supply chain. 2.7 million induced jobs through spending by industry
employees. 15.5 million direct and indirect jobs through air transport’s catalytic impact
on tourism. Some 6.7 million direct tourism jobs are supported by the spending of
international visitors arriving by air. As a capital-intensive business, productivity per
worker in the air transport industry is very high, at three and a half times the average for
other sectors.

4) Air transport provides significant social benefits.

Air transport improves quality of life by broadening people’s leisure and cultural
experiences. It provides a wide choice of holiday destinations around the world and an
affordable means to visit distant friends and relatives. Air transport helps to improve
living standards and alleviate poverty, for instance, through tourism. Air transport may
provide the only transportation means in remote areas, thus promoting social inclusion.
Air transport contributes to sustainable development. By facilitating tourism and trade, it
generates economic growth, provides jobs, increases revenues from taxes, and fosters
the conservation of protected areas. The air transport network facilitates the delivery of
emergency and humanitarian aid relief anywhere on earth, and ensures the swift
delivery of medical supplies and organs for transplantation.

18
5) Air transport is responsibly reducing its environmental impact.
Aircraft entering today’s fleets are 20 decibels (dB) quieter than comparable
aircraft 40 years ago. This corresponds to a reduction in noise annoyance of
75%. A further 50% reduction in noise during take-off and landing (minus 10dB)
is expected by 20206 . Aircraft entering today’s fleets are 70% more fuel-efficient
than they were 40 years ago. Carbon monoxide emissions have been
simultaneously reduced by 50%, while unburned hydrocarbon and smoke have
been cut by 90%. Research programmes aim to achieve a further 50% fuel
saving and an 80% reduction in oxides of nitrogen by 2020 . Enhancements in air
traffic management have the potential to reduce fuel burn by 6-12%, while
operational improvements can bring an additional 2-6% fuel savings.

19
 Significance

Aviation provides the only rapid worldwide transportation network, which makes it
essential for global business. It generates economic growth, creates jobs, and facilitates
international trade and tourism. aviation is one of the most “global” industries:
connecting people, cultures and businesses across continents. It is necessary for all
stakeholders and partners to work together to maximize the benefits of air transport,
and to support the sustainable growth of aviation by connecting more people and more
places, more often. (Aviation benefits for a better future)

Aviation has continued to expand. It has weathered crises and demonstrated long-term
resilience, becoming an indispensable means of transport. Historically, air transport has
doubled in size every 15 years and has grown faster than most other industries. In
2016, airlines worldwide carried around 3.8 billion passengers annually with 7.1 trillion
revenue passenger kilometres (RPKs). Every day, around 100,000 flights transport over
10 million passengers and around USD18 billion worth of goods.

One of the industries that relies most heavily on aviation is tourism. By facilitating
tourism, air transport helps generate economic growth and alleviate poverty. In 2014,
aviation supported over 36 million jobs within the tourism sector, contributing roughly
USD892 billion a year to global GDP.

Air transport is a driver of global trade and e-commerce, allowing globalization of

production. The small volumes of air cargo amount to big values in world trade. In 2014,
USD6.4 trillion worth of goods were transported internationally by air, representing 35
percent of world trade by value, despite representing only 0.5 percent by volume.

Some 87 percent of business-to-consumer (B2C) e-commerce parcels are currently

carried by air. The e-commerce share of scheduled international mail tonne kilometres
(MTKs) grew from 16 percent to 83 percent between 2010 and 2016 and is estimated to
grow to 91 percent by 2025.

20
 CH: 2

GROWTH AND
EVOLUTION

21
 Product Profile

It was March 6, 2009. A 14-seater prototype aircraft called Saras Prototype 2 crashed
during a trial flight in the outskirts of Bengaluru, killing all three crew members — two
pilots of the Indian Air Force and a flight engineer.

During the investigation, the cockpit voice recorder disclosed the commander calling
out, “aircraft has departed”, just 10 seconds before the crash, indicating that the plane
had gone out of control as soon as it took off.

The 75-page investigation report pinpointed human errors, but did not spare the
manufacturer of the plane, Bengaluru-based National Aerospace Laboratories (NAL),
for devising engine relight procedures — a midair test that involves switching off an
engine before switching it on again — without consulting the propeller manufacturer MT-
Propeller of Germany.

The plane had lost altitude and crashed, but the tragedy had a direct fallout: India’s
dream project of manufacturing a small civilian plane, the Saras — the Sanskrit word for
crane — was stuck in limbo.

By 2016, NAL, the agency that comes under the administrative control of the Council of
Scientific and Industrial Research (CSIR), announced that its Rs 300 crore fund for the
project had dried up, forcing it to suspend Saras for the time being.

India is reviving a nearly two-decade-old dream — to join the small club of nations that
make passenger aircraft.

It was a project that began in 1991. In fact, there was another prototype — the Saras
PT, which flew successfully many times since 2004. It has been modified as the 14-
seater Saras PT1N and flown again earlier this year, for a surprise trial.

Something much bigger than Saras is in the offing now. Nine years after the PT-2 crash,
the Centre is thinking of indigenously manufacturing aeroplanes for civilian use.

22
Earlier this week, a 21-member jumbo expert committee, headed by the civil aviation
secretary, was set up to look into the various aspects of manufacturing planes and
helicopters in India, apart from finding ways to upscale and diversify production of aero-
components.

Significantly, this is the second panel being set up in the last two and a half months; the
first was headed by the ministry’s economic adviser, Vandana Aggarwal, with a
mandate to give a roadmap for creating a special purpose vehicle (SPV) to develop
what it calls regional transport aircraft, or RTA.

The need for such a segment has been increasingly felt after the government rolled out
its UDAN scheme for regional connectivity a couple of years ago.

What’s being discussed is the feasibility of manufacturing aircraft of 19- to 100-seater,”

an official connected to the panel told ET Magazine, adding that its recommendations
would be ready by the end of this month. This panel, constituted on August 30, has four
members — a general manager-ranked officer from Hindustan Aeronautics Limited
(HAL), a group director of Aeronautical Development Agency (ADA) and senior
scientists Abhay Pashilkar and RV Venkatesh, both belonging to NAL, the creator of
Saras. Rs 80 crore is earmarked for the purpose of designing the regional transport
aircraft manufacturing project.

23
 Innovation Potential

Some of the most important adaptations in the history of manned flight occurred in the
back of an Ohio bicycle shop in 1896. While R&D has become somewhat more complex
since the Wright Brothers’ time, the underlying principle remains the same: innovation is
the beating heart of the aerospace industry.

With many customers now willing to look beyond the price of a ticket, particularly on
long-haul flights, airlines are investing heavily in efficiency, sustainability and cutting
edge technologies to set themselves apart. Here, The New Economy considers five of
the most important changes that could shape commercial aviation in the not-so-distant
future.

Green power

In a world where air travel makes up between four and nine percent of all man-made
greenhouse gases, it is more important than ever to find sustainable ways to propel
people through the air. One of the most exciting solutions is electric-powered flight,
which sees loud, gas-guzzling jet engines replaced with clean, quiet motors.

Photon-powered planes, such as the Solar Impulse craft that flew around the world last
year, have been promising, yet are still too rudimentary to be viable in the short term.
For now, battery-powered aircraft offer more realistic remedies. In April, a company
called Zanum Aero unveiled plans for a battery-powered commercial jet that is backed
by both Boeing and JetBlue Ventures, and should yield a working hybrid prototype by
2020.

Meanwhile, an even more conservative solution to the industry’s carbon conundrum is

biofuel, which is not limited by battery storage concerns. In 2012, Dutch airline KLM
successfully sent a bio-powered plane on a 6,000-mile journey between Amsterdam
and Rio de Janeiro. Although biofuel has not been applied to commercial air travel yet, it
certainly could be, with only a few adjustments to existing engine designs.

Smart materials

Even though new types of aeroplane are rapidly emerging, there is nothing to stop
innovation within classic models as well. One of the most exciting trends in the aviation
sector is the move towards smart materials, which have the potential to cut fuel
consumption, boost aerodynamics and make planes faster by giving them stronger,
lighter bodywork.

In the long term, graphene is the most exciting of such prospects. At just one atom
thick, this modern super metal was discovered at the University of Manchester in 2004

24
when two scientists isolated it by peeling away layers of graphite. Their Nobel Prize-
winning creation has applications everywhere, including in planes, where it can be used
to line wings and prevent them taking on water: a job heavier carbon fibre and fibre
resins are currently tasked with.

Since 2013, there have been efforts by US regulators to end the prohibition on mobile
phone use on planes

Still, graphene remains a long way off, meaning more conventional solutions may be
better in the short term. One of the best examples is Boeing’s Microlattice, which is a
light, flexible yet extremely strong material that can be used in non-structural parts of
the plane such as seats and interior environments. Rather than being a solid metal, it is
made of many strands of hollow tubes and is, Boeing says, 99 percent air. As such, the
Microlattice is capable of both protecting an egg from a 25-storey drop and sitting on top
of a dandelion without breaking the seeds.

Very high flying

In 2004, Richard Branson inaugurated the Virgin Galactic project, with the goal of
offering commercial spaceflight to wealthy customers. For the past five years, there
have been promises that ‘maybe this year’ things will finally take off. Still, numerous
setbacks, including the death of a test pilot in 2015, have given rise to an unwritten rule
that its engineers and PR staff should avoid talking about timetabling.

Obstacles aside, the concept behind Virgin Galactic could have huge implications for
commercial air travel. Aeroplanes that fly at the very top of the ozone layer can take
advantage both of unique gravitational forces and the extremely low drag afforded by
the lack of atmosphere to travel very quickly and with relatively little fuel consumption.
The result, Branson reckons, is the potential to hop from London to Sydney in two hours
flat.

While he also plans for space hotels and cruises to the moon, a more conventional
mode of ultra-high commercial flight between destinations on Earth will probably come
to fruition first.

In-flight apps

As smartphones have become more commonplace, so too have their many

applications. Today, even airlines and aeroplane manufacturers are adapting to
accommodate their use in-flight; something that was once completely off-limits.

Last year, Boeing launched trials for an app called vCabin that allows passengers to
adjust lighting levels in their immediate vicinity, as well as to call flight attendants, order
food and even check if the toilet is free. Meanwhile, phones have also been adapted to

25
interior components such as the Recaro CL6710 business-class seat, which is designed
to allow mobile apps to recline the chair back and forth.

Since 2013, there have been efforts by US regulators to end the prohibition on mobile
phone use on planes, indicating that there are fewer fears of phantom signals buzzing
around and knocking out the aeroplane’s communications system. That said, earlier this
year, the FCC’s new Chairman, Ajit Pai, launched a new campaign to cull these efforts
and safeguard the existing ban. As such, in-flight apps may not be rolled out for few
years. Whether R&D in this area will stop, though, is a different matter, as airlines may
still feel incentivised to develop services in anticipation of the prohibition eventually
being lifted.

JetSmarter
Since about 2012, various app-based start-ups have emerged with a simple business
model aimed squarely at the top end of the market: Uber for private jets. Companies
such as Airpooler, Freshjets and Ubair have all promised to ‘democratise’ a $40bn
industry that, until they came along, was propped up by just 150,000 customers
worldwide.

Some have failed, yet others have been wildly successful, opening the industry to
CEOs, businesspeople and others who may have been torn between first class and fully
private travel. JetSmarter’s app, which is one of the most popular in the industry,
enables users to book a journey on a private jet just one day in advance – quickly,
smoothly, and with striking resemblance to ride-hailing services.

With JetSmarter’s basic service, $5,000 a year will buy seats on scheduled journeys
between certain European cities. Meanwhile, Stratajet, a similar company,
has reported 32 percent of its customers are first-time jet fliers; the average was just
one percent annually before it emerged. As flights get cheaper and Uber-for-jets
companies continue to surface, this luxurious mode of travel could become just a little
less exclusive over the next few years.

26
 Economic

The Government of India is fully committed to the development of commercial

aerorelated manufacturing in India,” Minister for Civil Aviation Suresh Prabhu told ET
Magazine, adding how two committees would engage in deliberations simultaneously.
“Both the Government of India and Indian industry are serious (in manufacturing civilian
planes),” he says.

Bigger Planes

Though information on a likely road map for manufacturing aeroplanes in India is still
sketchy, two things are amply clear. First, unlike the earlier avatar Saras, which was a
small, 14-seater, this round of manufacturing may embark on building relatively bigger
aircraft, up to 100-seater and even more.

There are 1,358 aircraft in India, including private ones and those used for training
purposes, as on July 12, 2018. There are 620 aircraft of scheduled Indian operators. Of
these 79 planes have less than 100 seats. In that category, 70 aircraft have 70 seats
and above.

The smaller ones include three 50-seater CRJ-200 aircraft flown by Zoom Air, two 48-
seater ATR 42-300 of Alliance Air and four 18- seater Beechcraft 1900D planes of Air
Deccan and Air Odisha. The data, compiled by the Directorate General of Civil Aviation
(DGCA), throws up the question whether there will be any demand for a 14-seater,
Saras-type aircraft — something that was conceived back in the 1990s, even though the
government tries to revive the project.

Airlines in India, which foresee growing air connectivity to smaller cities, may prefer 50-
to-70-seater planes rather than smaller ones. However, state-owned Hindustan
Aeronautics Limited (HAL) is scouting for buyers for its 19-seater Dornier-228, hitherto
flown only for military use, saying the aircraft is cheaper and has low maintenance
costs. It was in December last year that HAL obtained licences for the use of Dornier for
civilian purposes , unlike in the past, the government may engage private players —

27
either foreign or Indian — for manufacturing aeroplanes. It’s unlikely that the aircraft will
be a pure NAL-CSIR venture like the Saras, says an official in the know.

That could propel the government into a turbulent zone. Already, the partnership of
Dassault Aviation and the novice in the field, Anil Ambani-led Reliance Defence, in the
Rafale fighter jets deal has become a political hot potato. “We will follow due diligence.
The decisions of both the expert committees will go for inter-ministerial consultations
and also the approval of the cabinet,” a civil aviation ministry official said on condition of
anomity.

Founder of Air Deccan, Captain GR Gopinath, bats for the involvement of private sector,
saying the government must not get into the manufacturing of civilian aircraft. “India
must create a global aircraft brand with great quality and at a good price point. The idea
is to tap the global market, like Brazil’s Embraer and Canada’s Bombardier have
demonstrated.

Already, pressure is mounting on India to plunge into the manufacturing of civilian

aeroplanes after China came out with models such as COMAC C919, a 168-seater,
narrow-body jet, which many aviation experts happily compare to AirBus A320neo and
Boeing 737 MAX. The aircraft is likely to be used by China Eastern Airlines by 2021,
according to various news reports. In India, sarkari hurdles are more complex.

Even after the crash of Saras PT-2 in 2009, the Government of India continued its
dream project for some time. By then, various stakeholders such as CSIR, Department
of Defence Production and the Civil Aviation Ministry were not on the same page,
resulting in a further slowdown of the project.

28
 CH: 3

DEMAND ANALYSIS

29
 Demand Determination of the Industry

India’s civil aviation market, the third-largest in the world after China and the United
States, is expected to continue to grow rapidly. Civil aviation is a $30 billion sector
making up 1.5 percent of the economy, supports 7.5 million jobs, while domestic
passenger traffic has grown at double digit rates for 50 consecutive months and was up
18.6 percent last year. Passenger demand is expected to triple to 500 million journeys
in the next 20 years (International Air Transport Association, 2018). India’s rapid
aviation growth is expected to drive demand for 2,300 aircraft worth US$320 billion over
the next 20 years, according to Boeing.

The Ministry of Civil Aviation (MoCA) is the primary regulatory authority for the aviation
sector, and it oversees the Airports Authority of India (AAI), Directorate General of Civil
Aviation (DGCA), Bureau of Civil Aviation Security (BCAS), Air India, and Pawan Hans
Helicopters Limited.

India has a 20-year roadmap to develop civil aviation and envisions a five-fold increase
in airports to handle over a billion trips a year. The “Vision 2040” document outlines
development needs for the sector.

The Ministry of Civil Aviation released the National Civil Aviation Policy (NCAP) in 2016
to promote rapid growth of the sector, improve the ease of doing business, advance
regional connectivity, and open flying opportunities to India’s largely untapped market of
300 million (and growing) middle-class citizens. A key component of the NCAP is
UDAN ('Ude Desh ka Aam Naagrik'), a new initiative including a regional connectivity
scheme (RCS) to add routes and flights to under-served locations at subsidized
fares. In the third round of RCS bidding, the Ministry of Civil Aviation awarded 279
routes including water aerodromes. In August 2018, the Ministry released a draft
International Air Connectivity (IAC) scheme/ “International UDAN” scheme to promote
international connectivity with Asian countries.

30
The NCAP aims to improve code share agreements. Designated carriers can now enter
into international and domestic codeshares with foreign carriers if the codeshares are in
accordance with existing Air Service Agreements provisions.

The FAA’s Aircraft Certification Service and DGCA maintain a “Bilateral Aviation Safety
Agreement with Implementation Procedures for Airworthiness” (BASA IPA) to facilitate
the exchange of aviation products. The FAA and India’s civil aviation authorities
continue to explore expanded cooperation.

The U.S. Transportation Security Administration (TSA) cooperates with MoCA and
BCAS through bilateral Aviation Security Working Group meetings. TSA and BCAS
share information related to risk assessment, capacity development, air marshal
training, and other security issues through a bilateral Sensitive Security Information
(SSI) Memorandum of Agreement signed in 2013.

The Airports Authority of India (AAI) owns about 125 airports and is one of the largest
airport operators in the world. Out of 449 total airports and airstrips across India, only
about 100 are considered fully operational.

India’s civil aviation sector faces challenging capacity constraints including insufficient
airports to meet current demand, unsuccessful attempts to privatize airports or attract
greenfield investment due to lack of profitability, construction delays, ambiguity in
procurement processes, lengthy environmental reviews, land acquisition issues,
etc. India tried and failed to privatize Air India and Pawan Hans, and further attempts
are expected.

Domestic airlines continue to struggle due to hyper-competitive pricing, high fuel costs,
and volatile currency rates. These market challenges led to the fall of Jet Airways in
2019, India’s largest airline less than 10 years ago.

India is working to attract Foreign Direct Investment (FDI) in the civil aviation
sector. 100 percent FDI is allowed for civil aviation infrastructure, while any airline stake
greater than 49 percent require government approval.

31
Leading Sub-Sectors

Commercial, and general and business aviation aircraft

India operates fewer than 300 civilian helicopters, compared to over 14,000 in the
United States. Similarly, India has few small fixed-wing aircraft. With increased interest
in developing regional connectivity, tourism, and emergency medical evacuation,
opportunities are expected in these sectors.

Maintenance Repair and Overhaul (MRO)

India’s growing fleet of airplanes will demand more maintenance services. 90 percent
of India’s MRO business currently occurs outside India, especially in Sri Lanka,
Singapore and Malaysia. India continues to try to develop the MRO sector.

Avionics, communications, and navigation

According to NCAP, the Airports Authority of India (AAI) is ranked as a top global air
navigation service (ANS) provider. AAI continues to upgrade and modernize air
navigation services. With the launch of the GPS Aided GEO Augmented Navigation
(GAGAN) system, India became the fourth country in the world to implement satellite-
based navigation systems.

Airplane and helicopter parts and components

India’s nascent Helicopter Emergency Medical Services (HEMS) sector holds large
potential for global service providers. The increasing urbanization of Indian cities,
marked by rapid growth and high traffic density, makes the need for HEMS even more
urgent.

Safety and security

Airport and aviation safety and security are a top Indian priority for each airport and
throughout the industry. There are many opportunities for safety and security equipment
and solutions in all aspects of the aviation industry.

32
Human resource development

Training, skilling, and human resource development is another government and industry
priority. The supply of skilled human resources has not kept pace with the aviation
industry’s rapid growth. There are opportunities for education and training service
providers in all aspects of the aviation industry.

Remotely piloted aircraft (RPA), drones

India sees great potential and aims to develop opportunities for drones and remote
aircraft. By 2021, India’s UAV market is expected to surpass $800 million, according to
BIS Research. In 2018, the DGCA released the first Drone Regulations, and these
enabled visual line-of-sight (VLOS) daytime-only operations under 400 feet. The Digital
Sky Platform is an online system rolled out to register pilots, devices, service providers
and implement a “no permission, no takeoff” (NPNT) rule. Revised drone regulations
(2.0) are expected to be released in 2019, and these may enable beyond-VLOS
operations and the delivery of payloads.

Opportunities
As India builds greenfield and brownfield airports, over next 10 years, there will be
growing opportunities in airport planning and development, sustainable airports, safety
and security, body scanners, ICT and digital systems etc. Policy reforms, such as
including aviation turbine fuel in the Goods and Services Tax (GST), would create
opportunities for U.S. investment to address India’s shortage of Maintenance Repair
Operations (MRO) facilities. The public-private U.S.-India Aviation Cooperation
Program (ACP) actively works to build cooperation on aviation issues and opportunities,
such as addressing India’s skills gap for pilots, air traffic controllers, and airport
operators. The United States and India have been discussing a potential Memorandum
of Agreement between the Federal Aviation Administration (FAA) and Ministry of Civil
Aviation that would increase opportunities for greater cooperation in developing,
modernizing, operating, and maintaining civil aviation infrastructure.

Large airport expansion projects include Delhi’s Indira Gandhi International Airport

33
which is currently undergoing an expansion to increase its cargo and passenger
handling capacity. The second airport for the National Capital Region is planned at
Jewar in Uttar Pradesh. Second airports are being planned for Mumbai, Goa, Vizag
and Pune. Work on upcoming Navi Mumbai and Mopa airport in Goa is on. The
Bhogapuram airport near Vizag is at the bidding stage and likely to commence
construction in 2019. A new international airport at Kannur in north Kerala was
commissioned in December 2018. All major airports are supplementing airside and
terminal capacity to meet demand.

Boeing, Airbus, Lockheed Martin, Bombardier, and other leading OEMs consider India
as an important global market with high demand for aircraft, having strategic geographic
location, engineering expertise and competitive labor cost. The companies are
partnering with Indian suppliers, especially with MSMEs to fulfill needs of their Tier-1
suppliers and set up an aircraft manufacturing ecosystem within the country.

The U.S-India Aviation Cooperation Program (ACP)

The U.S.-India Aviation Cooperation Program is a public-private partnership between

the U.S. and Indian governments and U.S. companies that advances aviation
cooperation and business opportunities. It was established in 2007 with the support of
the U.S. Federal Aviation Administration (FAA), the U.S. Trade and Development
Agency (USTDA), the U.S. Department of Commerce, the State Department, and other
U.S. government agencies . The ACP supports growth of Indian civil aerospace sector
by working directly with the Indian aviation authorities to identify and execute projects
that encourage collaboration between the U.S. and Indian stakeholders in aerospace
technology and best practices.

34
 Price and Income

The civil aviation industry in India has emerged as one of the fastest growing industries
in the country during the last three years. India is currently considered the third largest
domestic civil aviation market in the world. India has become the third largest domestic
aviation market in the world and is expected to overtake UK to become the third largest
air passenger* market by 2024^.

Market Size

India’s passenger* traffic grew at 16.52 per cent year on year to reach 308.75 million in
FY18. It grew at a CAGR of 12.72 per cent during FY06-FY18.

Domestic passenger traffic grew YoY by 18.28 per cent to reach 243 million in FY18
and is expected to become 293.28 million in FY20E. International passenger grew YoY
by 10.43 per cent to reach 65.48 million in FY18 and traffic is expected to become 76
million in FY20E. In FY18, domestic freight traffic stood at 1,213.06 million tonnes, while
international freight traffic was at 2,143.97 million tonnes.

India’s domestic and international aircraft movements grew 7.93 per cent YoY and 6.36
per cent YoY to 2,153 thousand and 453.61 thousand during 2018-19, respectively.

In FY19, passenger* traffic in India stood at 344.70 million. Out of which domestic
passenger traffic stood at 275.22 million while international traffic stood at 69.48 million.
Total freight traffic handled in India stood at 3.56 million tonnes during the same time.

In FY19, domestic aircraft movement stood at 2.15 million while international aircraft
movement stood at 0.45 million.

To cater to the rising air traffic, the Government of India has been working towards
increasing the number of airports. As of March 2019, India has 103 operational airports.
India has envisaged increasing the number of operational airports to 190-200 by FY40.

Further, the rising demand in the sector has pushed the number of airplanes operating
in the sector. As of July 2018, there were nearly 620 aircraft being operated by

35
scheduled airline operators in India. The number of airplanes is expected to grow to
1,100 planes by 2027.

Investment

According to data released by the Department of Industrial Policy and Promotion

(DIPP), FDI inflows in India’s air transport sector (including air freight) reached US$
1,817.23 million between April 2000 and December 2018. The government has 100 per
cent FDI under automatic route in scheduled air transport service, regional air transport
service and domestic scheduled passenger airline. However, FDI over 49 per cent
would require government approval.

India’s aviation industry is expected to witness Rs 35,000 crore (US$ 4.99 billion)
investment in the next four years. The Indian government is planning to invest US$ 1.83
billion for development of airport infrastructure along with aviation navigation services by
2026.

Key investments and developments in India’s aviation industry include:

1. AAI is going to invest Rs 15,000 crore (US$ 2.32 billion) in 2018-19 for
expanding existing terminals and constructing 15 new ones.

2. In June 2018, India has signed an open sky agreement with Australia allowing
airlines on either side to offer unlimited seats to six Indian metro cities and
various Australian cities.

3. The AAI plans to develop Guwahati as an inter-regional hub and Agartala, Imphal
and Dibrugarh as intra-regional hubs.

4. Indian aircraft Manufacture, Repair and Overhaul (MRO) service providers are
exempted completely from customs and countervailing duties

Government Initiatives

Some major initiatives undertaken by the government are:

36
1. In February 2019, the Government of India sanctioned the development of a new
greenfield airport in Hirasar, Gujarat, with an estimated investment of Rs 1,405
crore (US$ 194.73 million).

2. As of January 2019, the Government of India is working on a blueprint to

promote domestic manufacturing of aircrafts and aircraft financing within the
country.

3. In January 2019, the government organised the Global Aviation Summit in

Mumbai which witnessed participation of over 1,200 delegates from 83 countries.

4. In January 2019, the Government of India’s released the National Air Cargo
Policy Outline 2019 which envisages making Indian air cargo and logistics the
most efficient, seamless and cost and time effective globally by the end of the
next decade.

5. In November 2018, the Government of India approved a proposal to manage six

AAI airports under public private partnership (PPP). These airports are situated in
Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru.
AAI received 32 technical bids from ten companies.

6. In February 2018, the Prime Minister of India launched the construction of Navi
Mumbai airport which is expected to be built at a cost of US$ 2.58 billion. The
first phase of the airport will be completed by end of 2019.

7. The Government of Andhra Pradesh is to develop Greenfield airports in six cities-

Nizamabad, Nellore, Kurnool, Ramagundam, Tadepalligudem and Kothagudem
under the PPP model.

8. Regional Connectivity Scheme (RCS) has been launched.

37
38
Just as the railways shaped modern India, cheap air tickets, driven by fierce competition
between carriers, are changing the way Indians travel around their country.They're also
promising to take hundreds of millions more to the skies -- most of whom have never
flown before.

But, ironically, cut-throat competition also means the very same airlines that unleashed
this revolution may be among the last to enjoy its fruits.

To better understand the current paradoxical state of India's aviation industry, we need
to go back a few years.

The Indian civil aviation industry (Air India, IndiGo, Jet Airways, SpiceJet) is likely to
report an aggregate loss of about Rs 88 billion in FY2019. And during FY2019-21, the
industry is expected to require a capital infusion of Rs 200 billion.

The domestic airlines industry, despite strong traction on growth, is facing challenging
times. The industry is facing a double whammy with the increasing aviation turbine fuel

39
(ATF) prices and the depreciation of the rupee against the dollar. Coupled with pressure
on yields, this has aggravated the turbulence in the industry.

The domestic air passenger traffic has grown at a healthy compounded annual growth
rate (CAGR) of 20.9% over FY2015-18. The growth trajectory has continued in the
current year as well, with a robust year-on-year growth of 20.3% during 4M-FY2019. A
healthy capacity addition of 16.9% during the period supported the growth to a large
extent. With relatively low penetration levels, a favourable macroeconomic environment,
support from the regulatory environment—i.e. the Regional Connectivity Scheme, or
UDAN-RCS (Ude Desh ka Aam Naagrik)—and the development of new airports, ICRA
expects that the domestic passenger traffic will continue to grow at a healthy pace (i.e.
15.5-16.5% per annum) over the medium term.

The industry’s capacity addition during FY2018 (available seat kilometres, or ASKM)
was impacted by delays in aircraft deliveries on account of technical glitches with
engines for the domestic market leader. The resolution of some of these technical
problems has boosted the domestic capacity growth during the current year. ICRA
estimates the domestic ASKM growth at about 18% in FY2019. The key drivers for the
industry capacity growth continue to be the sizeable order book of airlines, which is in
excess of 1,000 aircraft at present. Additional capacity deployment is also expected due
to start of regional operations by IndiGo, Jet Airways and SpiceJet, as well as other
regional carriers under the RCS phase I and II. The passenger load factors (PLFs) for
the domestic aviation industry have been on an uptrend, starting from FY2015, and the
same continued during FY2018, with a superlative 87%, a year-on-year improvement of
270bps, and that too on a high base. The improved PLF, however, has been
accompanied by lower yields, reflecting weak pricing power. The healthy capacity
addition and demand underscored by low yields has resulted in continued improvement
in PLF for the industry to 87.3% in 4M-FY2019.

ATF represents the single-largest cost element for airlines, accounting for 30-40% of the
total operating expenses. As such, the profitability of airlines is significantly impacted by
ATF prices, which have been subject to high volatility. Post the 10.4% increase in the
average ATF prices in FY2018, they have further witnessed a year-on-year increase of

40
33.6% during April-September 2018. This is the combined impact of an increase in the
US Gulf Coast jet fuel price and 6.3% depreciation of the rupee against the dollar during
this period. Sequentially, ATF prices have increased by 12.3% in August 2018 over
March 2018.

This has resulted in a notable increase in fuel cost per ASKM for the three listed airlines
during Q1-FY2019. IndiGo, Jet Airways and SpiceJet witnessed an increase in fuel cost
per ASKM to 1.52, 1.6 and 1.56 in Q1-FY2019, from 1.22, 1.27 and 1.25, respectively,
during FY2018. However, despite this increase in ATF prices, most airlines have
witnessed a pressure on their yields owing to increased competitive intensity fuelled by
the capacity growth. The revenue per available seat kilometre (RASK) of Jet Airways
thus declined to 4.1 during Q1-FY2019 from 4.21 during FY2018, while that of IndiGo
and SpiceJet improved only marginally to 3.7 and 4.36, respectively, in Q1-FY2019,
from 3.64 and 4.07, respectively, in FY2018.

Furthermore, 35-50% of the airlines’ operating expenses—including financial/operating

lease payments, fuel expenses and a significant portion of aircraft and engine
maintenance expenses—are denominated in the dollar. In addition, some airlines also
have foreign currency debt. While the domestic airlines have a partial natural hedge to
the extent of earnings from their international operations, overall they have net payables
in foreign currency. The recent significant plunge in the value of the rupee has resulted
in substantial increase in operating expenses, including mark-to-market losses on
foreign currency debt and other payables.

The above two factors—the sharp rise in ATF prices and the depreciation of the
rupee—have exerted significant pressure on operating profitability of airlines. As ATF
prices have increased further during Q2-FY2019 and the rupee has depreciated even
more, the RASK-CASK (cost per available seat kilometre) spread is expected to get
squeezed further. While the airlines have resorted to rationalisation of non-fuel costs,
these are not adequate to compensate the large hike in ATF prices.

41
 Replacement Demand

These are heydays for the commercial aviation industry as well as businesses
supporting it from the maintenance, repair, and overhaul (MRO) sector. Rising demand
for air travel is keeping production lines at aircraft, engine, and component
manufacturers busy and setting records. Lower oil prices, along with the willingness of
airlines to spend on upkeep, are resulting in delayed retirements of older jets, which in
turn provide more business for the MRO industry because of their additional servicing
needs.

The swelling demand continues to drive expansion of the global fleet. Where in our
2017–2027 forecast projected annual growth averaging 3.4 percent, our current outlook
ratchets up that yearly increase to 3.7 percent. Inevitably, all this spells more business
for the major aircraft manufacturers, pushing production rates to levels never seen
before for commercial aircraft.

By 2028, our forecast projects the worldwide fleet will total 37,978 aircraft, up from the
2018 total of 26,307. Narrow-body aircraft will be the biggest beneficiary of this
expansion, increasing from about 56 percent of the fleet in 2018 to 66 percent in 2028
thanks to operating costs, range, and capabilities that allow them to encroach on
territory once reserved for wide-bodies.

Oliver Wyman’s Global Fleet & MRO Market Forecast Commentary 2018–2028 marks
our firm’s 18th assessment of the 10-year outlook for the commercial airline transport
fleet and the associated maintenance, repair, and overhaul (MRO) market. We’re proud
to say that the annually produced research, along with our Airline Economic Analysis
(AEA), has become a staple resource of aviation executives—whether in companies
that build aircraft, fly them, or work in the aftermarket, as well as for those with financial
interests in the sector through private equity firms and investment banks.

This research focuses on airline fleet growth and related trends affecting aftermarket

42
demand, maintenance costs, technology, and labor supply. The outlook reveals
significant changes that are important to understand when making business decisions
and developing long-term plans.

Analytical topics covered include:

1. Economic GDP and traffic data (measured in revenue passenger kilometers or

RPKs) by geographic region and specific countries

2. Historical financial performance (load factors vs return on invested capital, jet fuel
spot prices, industry profitability)

3. In-service fleet, retirements, orders, conversions by aircraft class (wide-body,

narrow-body, regional jet, and turboprop)

4. Global aircraft fleet forecast and regional fleet growth rates

5. MRO market forecast by segment (line, component, engine, airframe) and

aircraft platform spend

43
 Products

The product line of the aerospace industry is, by necessity, broad because its primary
products—flight vehicles—require up to millions of individual parts. In addition, many
support systems are needed to operate and maintain the vehicles. In terms of
sales, military aircraft have the largest market share, followed by space systems and
civil aircraft, with missiles still a modest grouping. The industry’s customers range from
private individuals to large corporations and commercial airlines, telecommunications
companies, and military and other government agencies.

44
military aircraftU.S. Marine Corps C-12W Huron aircraft.Naval Air Systems
Command/U.S. Navy

Because of enormous financial and technological demands, the number of

manufacturers in the industry has become increasingly limited, while the average size of
aerospace firms has grown through acquisition or merger. In 2000 the world’s largest
aerospace companies (ranked in terms of total revenues) were Boeing, Lockheed
Martin, EADS, United Technologies, Honeywell, Raytheon, Textron, and BAE
Systems. Russia’s major producers included Ilyushin and Tupolev for civil
aircraft, MiG and Sukhoy for military aircraft, and Energia for space launch vehicles.

Civil aircraft

Builders of civil aircraft comprise two categories: producers of general aviation aircraft
and producers of heavy aircraft. General aviation is defined as all aircraft activities not
related to military, major airline, or air-cargo flying. It includes light planes
and helicopters used for private pleasure flying, personal transportation, corporate
travel, and short-haul commercial transportation, such as air taxis and commuter
airliners, with low takeoff weights. Also encompassed are specialized aircraft such as
agricultural sprayers, acrobatic craft, sailplanes, motor gliders, air ambulances, fire-
control aircraft, pipeline-patrol aircraft, and others with a broad variety of civil
applications. The category of heavy aircraft comprises commercial transports and cargo
planes.

45
Beechcraft BaronA Beechcraft Baron airplane coming in for a landing. The aircraft is
used mainly for private and corporate travel.© Aleksander Markin (CC BY-SA 2.0)

General aviation aircraft

By far the world’s largest market for general aviation aircraft is the United States, with
about 190,000 such aircraft (more than 70 percent single-piston-engine types) in active
use in the late 1990s. Annually, these aircraft accounted for more than 27 million flight
hours (nearly two times the flight hours of U.S. airlines) and 145 million passengers.
Private airplanes used typically for personal transportation, sport, or training represent a
market highly driven by the economy. In the United States the cost of a new aircraft—for
example, a kit for an ultralight powered plane or sailplane—can be as low as that of a
low-priced automobile.

In 1978 more than 100 American companies produced some 17,800 piston-engine and
turboprop general aviation aircraft. Due to judicial interpretation of U.S. product liability

46
laws in a landmark case that year, manufacturers were put in legal jeopardy even for
pilot-caused and weather-induced problems and regardless of maintenance or
modifications to the aircraft. As a result, the industry experienced a major downturn. In
its worst year, 1993, only 960 aircraft were sold, and only a few active producers
remained in the United States.

One response to this situation was the establishment of companies furnishing kits for
aircraft, which required only experimental certificates and for which the liability could be
limited to the individual building the airplane or glider. In 1994 the U.S. General Aviation
Revitalization Act limited the liability of general aircraft manufacturers to 18 years after a
product is placed into service. As a result, Cessna (a subsidiary of Textron since 1992),
which had stopped production of piston-engine aircraft in 1986, restarted its four-
seat monoplane lines that were popular in the 1950s, ’60s, and ’70s. Meanwhile, the
substantial general aviation aircraft industry outside the United States capitalized on the
limited American supply. Active firms include Pilatus in Switzerland, Robin in France,
Let and Zlin in the Czech Republic, Grob in Germany, Hagfors in Sweden, PZL Mielec
in Poland, and Diamond in Canada.

Among leading companies in the corporate aircraft market are the Canadian
manufacturer Bombardier; the American firms Gulfstream (part of General
Dynamics), Raytheon, and Cessna (see Textron Inc.); and France’s Dassault. In the
late 1990s the business jet market experienced an unprecedented growth due to a
combination of factors. New models coupled with new technologies, a booming
economy, and fractional ownership (time sharing) created a big market demand. In
1996 Boeing entered the high-end corporate aircraft business by forming the Boeing
Business Jets (BBJ) joint venture with General Electric and offering a long-range
business version of its 737-700 airliner. The following year, Airbus announced plans to
offer the Airbus Corporate Jet (ACJ) based on its A319 airliner.

47
Bombardier Global Express long-range business jet. The twin-engine aircraft, which
entered corporate service in 1999, has a range of more than 11,100 km (6,900 miles)
and can approach the speed of sound.© 1999 Bombardier Aerospace Inc.

Commercial heavy aircraft

The need for large-scale air transportation has been central to commercial
aircraft manufacturing. As one of the world’s most vital industries, airlines are key to
many aspects of the world economy, from international business and tourism to routine
movement of people and goods ranging from massive machinery to agricultural
products and personal items. The United States has the largest number of airlines and
purchases the most aircraft. In other countries there is one large flag carrier and, in
some cases, intraregion private airlines. New independent low-cost carriers in the
United States and Europe, particularly those flying shorter intercity routes, are also
increasingly important customers.

48
passenger jet airplaneParts of a passenger jet airplane.Encyclopædia Britannica, Inc.

The smaller civil airliners, those with 15–100 seats, are generally used as regional or
commuter transports and may be either turboprops or jets. Although the United States
has led in most aircraft-manufacturing categories, it has lacked a foothold in the regional
service aircraft market. The consortium ATR (Avions de Transport Régional), formed as
a partnership between France’s Aerospatiale and Italy’s Aeritalia, has established itself
as the market leader with its turboprops. Other firms include Bombardier, Fairchild
Dornier, Saab, and, until bankruptcy in 1996, the Dutch group Fokker, which had an
extensive line of regional turboprops and jets. Manufacturers outside the Western group
include Brazil’s Embraer, Indonesia’s IPTN (Industri Pesawat Terbang Nusantara), and
Russia’s Ilyushin, Yakovlev, and Tupolev.

In the larger commercial aircraft sector, where seat capacity ranges from about 100 to
550, competition and massive investment risks have narrowed the number of suppliers
competing for the world’s market to two—Boeing and Airbus. Together, these
companies offer some 11 distinct aircraft families with numerous variations to

49
accommodate the needs of individual users. Their customers are airlines, freight
carriers, and, increasingly, leasing companies. At the beginning of the 21st century, the
substantial industry of the former Soviet Union was in an uncertain state, but Russia’s
design bureaus Tupolev and Ilyushin and Ukraine’s Antonov looked to Western
cooperation and investments to sustain their output and to win customers outside the
former Soviet bloc.

Military aircraft

The large majority of military aircraft are fighters, followed by bombers, transporter-
tankers, early-warning and patrol aircraft, and a variety of propeller- and jet-driven
trainers. As is the case with commercial aircraft, the complexity of the technology and
the immense capital requirements have narrowed the number of suppliers. In addition,
the end of the Cold War initially resulted in a steep decrease in the demand for military
aircraft worldwide, although conflicts in the Persian Gulf and the Balkans in the 1990s
identified the need to maintain significant air forces. Some developing countries
purchase or build fighter and trainer aircraft for their own needs in order to maintain
an indigenous aerospace/defense industry. (In some cases, purchase agreements with
foreign suppliers include provisions for a measure of indigenous development and
assembly and thus the transfer of technical knowledge and skills.)

50
military aircraftU.S. Navy Lockheed S-3 Viking aircraft.U.S. Department of
Defense/National Archives, Washington, D.C.

In the United States two companies build fighters—Boeing and Lockheed Martin. In
Europe, more so than in the United States, companies share in fighter production, an
example being the Eurofighter Typhoon, developed in the mid 1980s and ’90s
by Germany’s Dasa, British Aerospace, Italy’s Alenia, and Spain’s CASA and first flown
in prototype in 1994. Companies operating independently with smaller fighter programs
include France’s Dassault and Sweden’s Saab. With the exception of providing stealth
features, European manufacturers market fighters comparable in capability to those of
the United States throughout the world. In Russia only Sukhoy and MiG actively make
fighters. Some companies have engaged in indigenous productions for national needs,
among them Mitsubishi, Kawasaki, and Fuji in Japan, Taiwan’s Aero Industry
Development Center, and India’s Hindustan Aeronautics Ltd.

51
 Technology

At Future Travel Experience, we always start the year by assessing the technologies
and trends that will shape the aviation industry over the next 12 months and beyond.
Here we highlight some of the hot topics that airports and airlines should keep an eye
on in the year to come.

Biometrics

Delta Air Lines, in partnership with U.S. Customs and Border Protection (CBP),
Hartsfield-Jackson Atlanta International Airport (ATL) and the Transportation Security
Administration (TSA), recently unveiled the first biometric terminal in the United States
at ATL Terminal F.

Biometrics has become less of a buzzword and more of a reality in the past year with a
number of initiatives coming to fruition and trials taking place across the world. Among
the US airlines committed to exploring new and innovative ways to improve passenger

52
processing and the customer experience through biometrics are Delta Air Lines and
American Airlines. Delta, in partnership with U.S. Customs and Border Protection
(CBP), Hartsfield-Jackson Atlanta International Airport (ATL) and the Transportation
Security Administration (TSA), recently unveiled the first biometric terminal in the United
States at ATL Terminal F. Meanwhile, American Airlines has become the latest carrier
to trial biometrics at Los Angeles International Airport (LAX).

A number of international airports, including the likes of Changi Airport, Heathrow

Airport and Hong Kong International Airport have also launched major biometric-related
projects that will play a crucial role in shaping the passenger experience for years to
come. Considering the growth projections for Indian aviation, Bengaluru International
Airport, the third biggest airport in the country in terms of passenger numbers, has also
joined the club and is investing in biometrics to support the momentum of its growth. In
a recent interview with FTE, Satyaki Raghunath, Chief Strategy & Development Officer,
Bangalore International Airport Ltd. (BIAL), shared his vision: “In essence, your face will
become your boarding pass.”

Looking ahead, in the first half of 2019, Dallas/Fort Worth International Airport is
launching a trial of biometric technology at every stage of the passenger journey
together with World Travel & Tourism Council, American Airlines, Hilton, and MSC
Cruises. Elsewhere, Emirates is also gearing up to launch a so-called “biometric path”,
which will offer its passengers a smooth and seamless airport journey at the airline’s
Dubai International hub.

At last year’s Future Travel Experience Global conference and exhibition, British
Airways Senior Design Manager Raoul Cooper led a Jump Seat debate as part of an
ongoing effort to explore and define the future role of biometrics technology in travel.
You can see the key takeaways from the debate here.

During 2019, it will be interesting to see how biometrics will bring the industry together
to create the airport of tomorrow.

Blockchain

53
Last year, Singapore Airlines Group’s frequent flyer programme, KrisFlyer, launched
KrisPay, which it claims to be “the world’s first blockchain-based airline loyalty digital
wallet”.

According to SITA’s 2018 Air Transport IT Insights, 34% of airports are planning
blockchain research and development programmes by 2021. One area in which airports
see blockchain’s potential is the ability to help improve passenger identification
processes, in part by reducing the need for multiple ID checks.

Indeed, we saw a number of exciting initiatives exploring the potential of blockchain

emerge in 2018, including Lufthansa Innovation Hub’s Aviation Blockchain Challenge.
Last year, Singapore Airlines Group’s frequent flyer programme, KrisFlyer, launched
KrisPay, which it claims to be “the world’s first blockchain-based airline loyalty digital
wallet”.

In another initiative, which took place in late 2017, we saw Geneva Airport, British
Airways, Heathrow Airport, Miami International Airport and SITA Lab join forces in a
collaborative project to explore if and how blockchain technology can help to create a
“single source of truth” for flight data.

It is still early days for the technology, and its potential is sometimes over-hyped, but in
2019 we can expect more blockchain-related announcements and trials as airlines and
airports continue to explore how it might be able to positively impact the industry.

54
Last year, Munich Airport teamed up with Lufthansa to trial Josie Pepper, a humanoid
robot, developed by SoftBank Robotics, which provides information to passengers,
using IBM Watson Internet of Things (IoT) cloud-based artificial intelligence
technologies.

Robots are becoming a more and more common sight in airport terminals. From Seoul
to Seattle to Munich, the past few years have seen airports around the world adopting
robotics to engage with customers and optimise efficiency.

Asian airports are currently leading the way, with examples such as Incheon Airport’s
Airstar robot, Haneda Robotics Lab’s portfolio of robots, as well as Vistara’s ‘Rada’
robot, which last year became the first robot to appear in an Indian Airport. Elsewhere in
Europe, we saw Josie Pepper, Munich Airport’s humanoid robot, also come to life.
Robotics could also have a big role to play in the baggage handling sphere. In fact, at
Rotterdam The Hague Airport, autonomous baggage handling carts, or baggage robots,
are already being trialled.

55
Thanks to artificial intelligence and machine learning, many of these robots have the
ability to learn and expand their knowledge, so they can provide more relevant
information to passengers and additional operational benefits to airports and airlines.
So, as more airports adopt this trend, the technology will play a crucial part in
strengthening the relationship between passengers and airports throughout 2019.

Artificial intelligence (AI)

Working in collaboration with FieldBox.ai, a startup that focuses on industrial operations,

data science and software engineering, Groupe ADP has developed a load prediction
solution and predictive maintenance capabilities.

Artificial intelligence is about far more than robots, though. A number of airlines and
airports have already launched AI-powered products, such as chatbots and virtual
assistants. The question now lies in whether this technology can further revolutionise
customer service and optimise efficiency.

56
Groupe ADP, for instance, is one such company that is planning to further explore the
potential of AI. In a recent interview with FTE, Sébastien Couturier, Head of Innovation
& Corporate Venture, Groupe ADP, shared his views. “AI could be applied tomorrow to
every layer of the operational infrastructure, as we see with the new trend in the smart
building sector, in robotics, or in autonomous vehicle technologies,” he said.

We’re expecting to hear of more developments in this space throughout the year as AI
continues to gain further traction across the industry.

Inflight VR’s “motion sickness-free” VR inflight entertainment solution has been tested
by Iberia in its Premium Lounges at Madrid Airport and onboard select flights.

With consumers becoming more accustomed to using virtual reality (VR) products such
as Oculus, Google VR, and PlayStation VR, as well as augmented reality (AR) enabled
smartphones, some airports and airlines have taken up the task to create more
immersive experiences both in the terminal and in-flight.

57
Last year, Inflight VR claimed that it has become the first company to introduce
a “motion sickness-free” VR inflight entertainment (IFE) solution. The solution has been
tested by Iberia in its Premium Lounges at Madrid Airport and onboard select flights.
Elsewhere, Etihad and Emirates are among those to have trialled VR headsets in airport
lounges, while Alaska Airlines has partnered with SkyLights to trial VR IFE.

Clearly, a number of airlines see some potential in AR and VR, but the jury is still out as
to whether the technologies will bring about entirely new forms of inflight and in-lounge
entertainment that will stand the test of time.

Mark your diary for FTE’s 2018 conferences and expos: FTE EMEA & FTE Ancillary
(18-20 June, Istanbul), FTE Global (4-6 September, Las Vegas), FTE Asia EXPO (12-
13 November, Singapore).

58
Voice technology

Virgin Australia has become the first airline outside of North America to launch voice
check-in through Amazon Alexa, allowing passengers to check in for their flight with the
power of their voice.

Voice technology, or voice recognition technology, is becoming embedded in our

everyday lives thanks to the likes of Amazon Echo, Google Home and Apple’s Siri, and
it’s slowly becoming the norm to casually interact with the technology.

In 2018, joining this trend were Heathrow Airport, which has empowered travellers to
ask Alexa for live flight status information, gate updates and details on arrivals and
departures, as well as Virgin Australia, which became the first airline outside of North
America to launch voice check-in through Amazon Alexa. Just this week it has been
announced that United Airlines’ customers can now use Google Assistant to start the
check-in process simply by saying “Hey Google, check in to my flight”.

The potential here is huge and voice technology is likely to have a significant impact on
the relationships between businesses and their customers – ranging from the way
information is requested and shared to how payments are made. Indeed, we can expect
that voice technology will have an important role to play in creating a frictionless, more
personalised travel experience from home to gate.

59
In 2017, SITA and Airbus joined forces to develop the Security Operations Center
(SOC) – a tailored, industry-wide response to cybersecurity – to provide airlines,
airports and other air transport industry stakeholders with information about unusual
cyber activity that may impact their business.

Parallel to the ongoing digitalisation within the air transport industry, the number of
cyber attacks on companies in the community continues to grow. Among the recent
initiatives to strengthen cybersecurity include the opening of Munich Airport’s
Information Security Hub, and Airbus and SITA’s Security Operations Center Services.

“Cyber attacks are a very real threat, with the potential for huge knock-on effects in an
industry as interwoven as the air transport industry,” said Vivien Eberhardt, Director,
SITA Cybersecurity in an interview with FTE in 2018. “Layers upon layers of
infrastructure could be impacted, with the consequence on global travel reverberating

60
across the world. That is why the industry has placed such a high priority on
cybersecurity to ensure that it stays one step ahead of a potential attack.”

It is essential for the industry to adopt a shared approach to tackling cybercrime, so it is

to be expected that in the year ahead we will hear a lot more about how the sector is
developing a far more unified approach.

Onboard connectivity – more airlines will start to realise the financial benefits

Finnair’s Wi-Fi service on its wide-body fleet allows the airline to sell ancillary products
and services through the free-to-access Nordic Sky portal.

The number of airlines rolling out inflight connectivity (IFC) continues to rise. Last
year’s Wi-Fi Report by Routehappy showed that 82 airlines around the world now offer
inflight Wi-Fi – a 17% increase on 2017. This is undoubtedly good news for passengers,
who are becoming more and more dependent on connectivity. But beyond the obvious
benefits for passengers also lies the potential for a strong financial driver for airlines.

Finnair, for instance, is a leader in developing onboard ancillary offerings. The Finnish
flag carrier’s main inflight ancillary revenue streams are food and beverage, travel retail

61
and upgrade sales, however, increasingly these services are also being promoted via
the carrier’s complimentary inflight Nordic Sky Wi-Fi portal and inflight entertainment
system.

It comes as no surprise that the Asian consumer has become a big focus for the airline,
as the trend shows that ancillary revenues are higher on Asian routes. Sari Nevanlinna,
Head of Ancillary Business, Customer Experience, Finnair previously told FTE:
“Localisation is really important to catch the attention of our Asian customers.”

Improved onboard connectivity also opens new opportunities for partnerships with
online streaming services, including the likes of Netflix and Amazon Prime. While it
might take a few more years for the benefits of the fully connected aircraft to be
realised, we can expect 2019 to be a pivotal year for new partnerships in this space.

62
Houston Airports has partnered with technology company Aira to provide a more
accessible passenger experience for blind and low vision travellers.

Technological advancements are also helping to bring about a much-needed change in

the way airlines and airports assists travellers with additional needs. Airports and
technology companies around the world are already taking welcome action.

Pioneering commercial partnerships

Dubai International Airport and Deliveroo’s joint concept, named DeliverooDXB, enabled
passengers to get freshly-prepared food delivered straight to their boarding gates within
minutes of ordering.

As part of their efforts to find innovative ways to best serve passengers, airports are
increasingly investing in strategic partnerships with some of today’s leading forces in
retail and customer service.

63
 Life Cycle Stage

Build Aircraft

Ground Services
eg. baggage handling
. load passengers

. catering

Fly Aircraft In-flight Services

Ground Services
eg. baggage handling

. unload passengers

. cleaning

. engineering
Waste
eg. reusable items, recyclable paper, plastic; disposable bio waste;
disposal of plane

Activity-based costing, is the burgeoning product-focused approach to sustainability

reporting. This approach, combined with life cycle analysis, incorporates the economic,
social and environmental impacts of the direct and indirect activities that collectively
contribute to products delivered to end consumers. The information thus produced,
enables product-related decision making by management and stakeholders to reflect
sustainability considerations. Ultimately, sustainability information at the product level
provides capacity for sustainable operations to be driven by market transactions.
Information about social and environmental effects at the product level is also useful for
management decisions about the continuation or existing product lines, new product
developments or investments. This is achieved by facilitating assessment of the

64
potential impact of product-related decisions on the entity’s objectives of satisfying
stakeholders’ expectations of social and environmental performance.

A difficulty that may be encountered in the practical application of life cycle analysis with
respect to indirect activities is limited access to the information comprising the inventory
parameters of social and environmental effects. The ability of the entity and other
stakeholders, such as consumers, to analyse the sustainability dimension at the product
level is subject to the level of transparency of social and environmental effects
throughout the supply chain. Similarly, difficulties may arise in the management of social
and environmental effects where an activity is predominantly beyond the control of the
entity. While the entity, in applying its own sustainability principles, may prefer, for
example, a high level of recycling, the decisions made by downstream operators may
reflect a greater weighting on economic considerations.

65
 CH: 4

MARKETING
STRATEGY
ANALYSIS

66
 Introduction of Marketing Strategy Analysis

5 Innovative Marketing Strategies Used By Airlines

In this digital world, it has become very important to market your business innovatively
to attract more customers and for making more sales. This is the case for every industry
which is out there. (5 innovative marketing strategies used by airlines)

Innovative marketing strategies are important for most of the industries, especially
airlines. Without some unique and never seen before marketing tactics, you can’t
survive in this competitive world.

People are daily reading news about the flight delays, bad customer service and those
significant additional charges.

If any airline really wants to dominate the industry, then focusing on the right marketing
strategies is the primary thing. After knowing these strategies, executing them without
any error can take an airline company to the next level.

the five innovative marketing strategies used by airlines. So, let’s have a quick glance
at all these strategies.

1. Create your own loyalty program:

An Airline’s loyalty program can help in reaching new audiences and converting them
into potential customers.

Airlines can create a loyalty program in which they can give customers specific points
for free, which they can later use for various trips.

Due to these reward points, a customer will always travel with that airline company. This
strategy can help an airline to increase its customer base as well as to retain its existing
customers.

Along with the loyalty program, offering customers a free seat upgrade, airline meal can
enhance the reputation of an airline company.

If you talk about the other side of the above strategy, then an airline may have to face a
lot of challenges in executing this technique.

But, once you can attract more customers then, there will be cash flow in the business.
And this cash flow can help any airline to run a profitable loyalty program.

What other things that an airline should take care while creating and offering its loyalty
program?

67
 1. Be creative and unique.

2. Think about the customer and then, about the profit.

3. Your customer is your business. If an airline can give a better in-flight experience
with the reward points, then the customer is going to be with them forever.

2. Impact:

In any type of marketing, creating an impact on your targeted audience is a must. The
worst thing that airlines do is not make a unique place in the customer’s heart.

So, how should an airline create an impact on the customer?

The answer is by helping society, which then becomes your loyal customer.

American Airlines sends free food samples and packets to the people living near New
York City.

It is evident that people who have read about the work done by American Airlines in
New York are going to respect their company, and building this respect is the most
crucial part of any marketing campaign.

This respect then turns into trust.

It is a fact that customers who trust any company will always buy a ticket from it even
though that company is charging them additional money.

So, reach to the people through offline as well as online mode. Share them what you
have done and let them know that you are a good company in the business.

3. Start stunning social media campaigns:

We are living in a world where people spend most of their daily time on social media.

Facebook, Instagram, YouTube are all major social media platforms that you can use to
reach your audience.

Now, you can start paid advertising on Facebook, Instagram, and YouTube. With paid
ads, you can target people in specific locations. Through these social media platforms,
you can get intensely targeted customers.

But many companies also run paid ads to get customers but, what differentiates any
airline company from others?

68
Customer satisfaction and value for money.

The value that you offer to your customer is directly proportional to the profit you make.
So, an airline can start giving the real value to their customer via these social media
sites.

You may be thinking, what are these values in practical life?

In practice, an airline, can create content on a topic like “what are the things that you
should take care during your first flight?” An article written on this topic is helpful for all
those who are travelling vial flight for the first time. So, if people read your content then,
they are definitely going to book a ticket through you.

So, sell less and give value more.

An airline can also create videos and post them on YouTube to create brand
awareness. By posting such videos and helpful guides about air travel, the brand value
of any airline is going to skyrocket.

69
While talking about the advertising, we would like to suggest that stop any promotional
campaigns that an airline is running on TVs or radios because those old ad strategies
do not work in today’s world.

4. Focus on the existing customer:

The airline should focus on their customers first.

Existing customers of the airline are going to benefit the airline companies more than
the new customers via mouth publicity.

So, how to give a better experience to travellers?

The airline can provide entertaining in-flight experience by offering quality means,
super-fast internet connection and by allowing users to watch TV shows, movies on
flights.

For rising above all your competitors, you have to give more comfort to your existing
users.

70
There is a tremendously big market of untapped travellers who are currently travelling
via your plane. But there is no point in spending money in targeting the audience who
might travel via plane.

A $20 OFF coupon on the next flight can bring you more sales than any other marketing
techniques. So, the airline should be committed to retaining their customers.

For example, American Airlines provides discounts, coupons, loyalty programs,

and American Airlines promo code to their existing customers.

Giving more legroom and charging fewer ticket fees is another critical strategy that any
company can implement to make their user’s journey easier and comfortable.

Furthermore, if anybody is looking to book their next flight with your favourite airline that
too availing some offers on air tickets, visit Faremart which provides different deals and
special offers on flight booking, thus, helping you reduce your airfare.

5. Use the power of influencers:

Influencer marketing is currently booming. All major industries are looking at influencer
marketing as the best way of getting a better ROI.

The airlines should also implement effective influencer marketing strategies. There are
many benefits of influencer marketing strategy that can help any airline in boosting their
business.

As influencers have millions of fans, people love the things that those influencers
promote. Also, due to the extreme trust of the influencers, people are likely to trust you
as well.

You can also apply the storytelling formula to increase airlines brand awareness.

Adding transparency in the airline’s pricing structure and transportation rates is another
simple task that airline can do.

What about the hidden fees?

People get annoyed whenever airlines charge them hidden fees. So, avoid any such
fees.

Many people like to travel with their pets, but some airlines don’t allow pets while some
have stringent restrictions.

71
Due to this, many savvy travelers avoid travelling via such airlines forever. So, having
pet-friendly rules and guides can ultimately give you more potential customers.

Final Words

That ends our list of the five best innovative marketing strategies used by airlines all
over the world. The airline industry is very competitive nowadays. Anyone just can’t
implement regular strategies to reach your customers. Thinking unique and studying the
customer mindset can be better ways to survive and grow in the airline business.

72
 Marketing Research

According to marketing research Consumers increasingly seem to consider the airline

industry more of a hospitality business than simply a means of getting from one place to
the next. The history of the transportation industry marks the influence of innovation,
technology, and mechanical know-how. Consumers pay a lot of attention to airline
travel, and their satisfaction with the airline industry falls below that of banks and
mortgage lenders. Needless to say, there is considerable room for improvement in the
satisfaction ratings of airline passengers.

The global market research company J.D. Power conducts an annual study of the
satisfaction ratings of passengers on North American airlines. The 2015 North America
Airline Satisfaction Study is designed to measure consumer satisfaction for all major
carriers, examining the responses of both leisure travel and business travel
passengers. In the early days of airline market research, data was collected from a
small number of passengers who were willing to fill-in-the-bubble by hand on paper
copy satisfaction surveys distributed during flights.

The current J.D. Power satisfaction survey gathered responses from nearly 11,400
passengers who have flown during the one-year period of the survey.

Power up for an Advanced and Satisfying Customer Experience

The strength of the North America Airline Satisfaction Study is that it assesses the
passenger consumer experience across the spectrum of travel based on a recent
flight. The satisfaction survey takes the survey respondent through their experiences
with reservations, check-in, boarding, in-flight, deplaning, and baggage retrieval. The
outcome of the satisfaction survey is a competitive benchmark for the two main airline
market segments: Network carriers and low-cost carriers. Key indicators are taken
in customer advocacy, customer loyalty, effectiveness of identity improvement
initiatives, all of which are rolled up to provide an overall airline performance.

73
The people at Travelers United, an air travel advocacy organization have their own view
of passenger satisfaction and dissatisfaction. Charlie Leocha, president of Travelers
United, says:

“As the airlines have been complaining that customers are treating their seats like
commodities, the airlines themselves are treating their passengers — except frequent
flier elites and first class — like self-loading cargo.”

The market research findings on customer satisfaction point to some inexpensive and
easy ways to improve passengers' perspectives of their airlines. Air travel can be made
more pleasant for passengers by applying a few tricks of the hospitality trade: Training
gate agents and flight attendants to smile at passengers. Not enforcing the standby fee
for passengers to take an earlier flight that is showing available seats. Ensuring family
members sit together and not charging them extra to do so. These are all simple
enough to embed in the airline customer service, leaving the bigger challenge making
effective changes in the telephone and web channels that passengers often utilize.

J.D. Power Branches out to Measure and Certify Call Centers

In 2004, J.D. Power launched a new component of their business solutions that was
aimed at direct contact with consumers via call centers. The Certified Contact Center
Program is designed to assess the quality of live phone channels in the call centers of
businesses, as well as any interactive voice response (IVR) automated telephony self-
service systems that route calls, and web-based self-service channels the businesses
may operate. By identifying and updating the preferences that consumers have for call
handling service calls, J.D.

Power is able to assist organizations in a variety of industries to improve customer

satisfaction through effective and efficient handling of service channels.

The recent turbulent history in the airline industry has presented industry operators with
opportunities and challenges across their business landscape. With Open Skies,
privatization of carriers and removal of state support, consolidation of airlines has
gained some momentum within Europe and North America.

74
New business models have emerged, not only in terms of low-cost operations but also
in the form of truly “multi-national” carriers operating across the EU and beyond. Middle
Eastern carriers such as Emirates and Qatar Airways on the rise, and are expanding
globally.

The rise of low cost airlines such as Norwegian Airlines is seeing airlines expanding far
beyond the traditional transatlantic routes. These carriers ‘unbundle’ their product
offering allowing lower fares for all passengers, and the benefit of customization of the
travel experience for others. Passengers can choose exactly which products and
services they need and pay for.

Challenges do exist. Oil prices can cause major changes to profitability. Labor strikes
continue to afflict the European Carriers. Supply chain disruptions can impact aircraft
manufacturing and daily flight operations. Increasingly, disgruntled passengers are
posting their dissatisfaction online, providing numerous challenges to airlines.

According to Global Airline Catering Market (by Food Type, Flight Type & Aircraft
Class): Insights, Trends & Forecast (2019-2023) The global airline catering market is
estimated to reach US$23.90 billion in 2023, growing at a CAGR of 6% for the period
spanning 2019-2023. The growth of the market has been driven by accelerating
economic growth, expanding urbanization, increasing airline passengers, upsurge in
tourism activities, growing aircraft production and increasing low cost carriers. Some of
the noteworthy trends of the market include surging millennial spending, rising adoption
of online meal ordering platforms and devices. However, growth of the market would be
challenged by fluctuating fuel prices, food safety concerns and airline mishaps.

The global airline catering market is categorized on the basis of flight type, food type
and aircraft class type. On the basis of flight type, the global airline catering market can
broadly be divided as, full service, low cost and hybrid & others. In terms of food type,
the global market can be categorized into Meals, Bakery & Confectionery, Beverages
and others. On the basis of aircraft class type, the global airline catering market can
segmented into Business class, Economy class, First class and others.

75
The fastest growing regional market is North America due to expanding urbanization,
rising disposable income, increasing investment in the aviation sector and upsurge in
the millennial spending over travelling. Europe represents one of the largest airline
catering market and is already well-penetrated at developed market levels. Asia Pacific
is an emerging market where growth lies in increased national and international tourism
in the region, wide economic growth and rising emphasis on customer-centric food
menus.

According to Commercial Aircraft Landing Gear Market - Growth, Trends, and Forecast
(2019 - 2024)The commercial aircraft landing gear market is anticipated to register a
CAGR of 3.53% during the forecast period.An increase in the number of orders for new
aircraft is primarily driving the market.Growing demand for lightweight landing gear is
forcing manufacturers to adopt new techniques and materials for the parts and
components of the landing gear.New aircraft programs in the Asia-Pacific region will
offer new opportunities for the landing gear manufacturers to expand in this region.

76
 Key Issues And Current Trends
Key issues

These days no one can make money on the goddamn airline business. The economics
represent sheer hell'. These are the words from one of the top executives of an airline
company and they match quite comfortably with Indian Aviation sector. Despite the fact
that the Indian civil aviation industry in currently considered the third largest domestic
civil aviation market in the world, the industry is suffering from several problems.

India’s passenger traffic grew at 16.52 per cent year on year to reach 308.75 million
(12.72 per cent). Domestic passenger traffic grew around 18.28 per cent to reach 243
million in 2018-19 and is expected to become 293 million in 2020. When it comes to
International passengers, it grew by 10.43 per cent to reach 65 million in 2018 and
traffic is expected to become 76 million in 2020. In 2018-19, domestic freight traffic
stood at 1,213.06 million tonnes, while international freight traffic was at 2,143.97 million
tonnes. India’s domestic and international aircraft movements grew 14.40 per cent and
9.40 per cent to 1,886.63 thousand and 437.93 thousand during 2017-18. Number of
commercial aircraft in India is around 550.

Aviation turbine fuel (ATF) is one of the important sections of the industry. Indian
government didn’t not reduce the jet fuel prices in proportion to the fall in international
crude oil prices. But, when there is a rise in crude prices, it increases in the fuel cost
would eventually increase the operation of the airline. Besides, it could compel airlines
to go for an upward fare revision to offset the increased cost of operations. Why, the jet
fuel accounts for 45 percent of an airline's cost of operation. For the past one year, the
ATF price has witnessed an increase of nearly 30 percent and around 25 percent in just
last six months.

Frequent government intervention is proving to a great obstacle for the growth of

Aviation industry. Several aviation experts have pointed out that India government
should follows aviation industry free from policy hurdles like regulating airfares and
slash taxes, including jet fuel. Besides, they advise the government to focus on building
infrastructure and the air navigation system. The Indian aviation industry which

77
contributed five per cent of GDP, offers four million jobs and another seven million jobs
through tourism and related activities. So more efforts are needed, on creating
infrastructure which will enable further growth.

High Airport (aeronautical) Charges levied by Airport Authority of India are higher.
These charges payable at the International airports are higher than those payable at the
airports designated as Domestic airports. As a result, the domestic airlines in India are
incurring additional costs at the international designated airports without deriving any
extra facilities. According to a latest survey, the airport charges levied by the Indian
airports (Domestic and International Terminal) are amongst the highest in the Asian and
the Gulf countries. This adds more burden to aviation companies.

There is a cut throat competition faced by the top airline due to ticket pricing.
Established Airlines are threatened by low cost carriers, which are eating up their
market share. In order to consolidate their market share, top premium airlines were
forced to reduce their ticket fares to around 15- 20 per cent. Such a slash down in price
will lead to a price war in the long run amongst the airlines with the only goal of
increasing their market share.

Foreign Direct Investment (FDI) inflows in air transport between 2000-17 was around
US$ 1,608.51 million. The government has announced around 100 per cent FDI under
automatic route in scheduled air transport service, regional air transport service and
domestic scheduled passenger airline. Currently, the Indian aviation industry is
expected to witness Rs 1 lakh crore (US$ 15.52 billion) worth of investments in a few
years.

Rs 15,000 crore (US$ 2.32 billion) have allotted for expanding existing terminals and
constructing 15 new ones will be made through the Airport Authority of India (AAI).
Government of India has signed an agreement with Australia allowing airlines on either
side to offer unlimited seats to six Indian metro cities and various Australian cities.
Guwahati Airport will be designated as an inter-regional hub and Agartala, Imphal and
Dibrugarh as intra-regional hubs.

78
Allocation to Civil Aviation Ministry has been increased to Rs 6,602.86 crore (US$
1,019.9 million) under Union Budget 2018-19. The government has launched the
construction of Navi Mumbai airport which is expected to be built at a cost of US$ 2.58
billion. The first phase of the airport will be completed by the end of 2019. The
Government of Andhra Pradesh is planning to develop Greenfield airports in six cities-
Nizamabad, Nellore, Kurnool, Ramagundam, Tadepalligudem and Kothagudem under
the PPP model. Rs 15,000 crore (US $ 2.32 billion) will be invested in 2018-19 for
expanding existing terminals and constructing 15 new ones.

India’s aviation industry has a huge potential and offers huge growth opportunities. One
of the key factors which favours such a expectation is that 40 per cent is the upwardly
mobile middle class are starting to prefer air travel as the prefect mode of transport. So
government must engage and collaborate with industry stakeholders to implement
efficient and rational decisions that would enable the growth of India’s civil aviation
industry. With the right kind of infrastructure and policies with thorough focus on quality,
cost and passenger interest, India would surely achieve the third-largest aviation market
by 2025.

Current Trends in Aviation Industry

The trajectory of the global airline industry is pretty much like that of an aircraft. At times
it takes off for the high skies and at times, it dips to ground levels. In between these
highs and lows, lies the story of the industry – of its survival, of the new and emerging
trends that fuel its growth. What are the 5 trends that are driving and will continue to
drive the airlines story in the future?

Trend 1: It's a New Passenger Out There; Airlines will need to build 'Social' Pace
to Create Brand Equity

A number of leading global airlines have taken off on their 'social' flight and some are
indulging in novel ways to engage with customers to build lasting relationships with
them. Yes, it does mean stepping out of the corporate comfort zone and engaging real-
time with the customer, but that's a feat airlines will have to achieve if they want to
enhance brand equity and get a mind share of today's customer.

79
While some airlines have taken a lead in engaging with customers on social media and
social media management, others are still wetting their feet. Among the recent
innovative airline social media campaigns and initiatives are Virgin Atlantic's (VA)
'Looking for Linda', an interactive contest that got customers hooked with its unique
concept; KLM's 'Meet & Seat' service where fliers can select seats alongside fellow
passengers based on mutual interests in their social media profiles; and British Airways'
Facebook application called 'Perfect Days' that encourages travelers to share a travel
wish list and itinerary via a Facebook.

As social media takes precedence in the overall customer relationship management pie,
airlines will need to look at building a large and robust resource pool that can respond to
customer queries, complaints, posts and tweets round the clock.

As studies indicate, today the volume of social media communication for some of the
world's leading airlines, ranges between 15,000 – 200,000 tweets and between 60,000
– 1,000,000 Facebook fans, but in the near future, the numbers will increase
phenomenally. And as BBC presenter Nik Gowing observes in his study, 'Skyful of Lies
and Black Swans', there is still a long way to go before airlines can actually become
competent in the social media management.

It will thus, make strategic sense for airlines to partner with providers that can provide
them with a readymade resource pool of social media experts and technology platforms
that help enhance brand equity on social media.

Trend 2: The Customer's World is Online and Offline – Maneuvering between both
Holds the Key to Success

The online medium – the Internet, represented by online travel agencies and Websites
in the airline business, is today a powerful revenue generator for airlines. As indicated
by market research data, almost 75 percent of air tickets today are bought online. e-
Commerce and automation of business processes such as web check-in have largely
enhanced the convenience of air travel. Added to that is the increasing popularity of the
smart phone, which is expected to play an active role in customer relationship
management and revenue generation in the time to come.

80
No matter how strong the online channel becomes, the offline channel or the airline
customer service contact center will still continue to be a critical touch point between the
airlines and its passengers, thanks to the 'personal' touch it brings. For many service-
related complaints and challenges, passengers still prefer to 'speak' with a customer
service agent. In many instances, customers often drop off from making an online
purchase of air tickets or travel packages because of technical errors, slow Website
speed, or during the billing process using debit / credit cards. Such customers can be
retained by the intelligent convergence of the online and offline channels, either by the
smart placement of the customer service contact center number or by activating a click-
to-call feature either on the airlines’ Website or on the travel agencies' Websites. Where
the online channel fails, the offline channel – the customer service contact center can
take over smoothly to solve customer queries or problems.

Trend 3: Analytics – An 'Altimeter' for the Airline Business

With the proliferation of channels, the data generated in each channel is multiplying by
the minute. This huge pile of data is a gold mine that contains very crucial information
on passenger profiles, choices and preferences that can be leveraged by airlines to
develop product offerings, strike away product / service offerings that do not appeal to
customers, monitor challenges faced by customers and provide customized solutions,
predict customer needs and preferences by the analysis of historical data and
effectively cross- and / or up-sell additional products or services.

All this and much more in terms of sales, marketing and customer service can be
achieved with the help of analytics. With its ability to extract crucial information from a
huge pile of data that helps businesses make sound business decisions, analytics is
emerging as a strategic enabler for the airlines business. For the airline industry
analytics assumes importance in the form of social media analytics,contact center and
speech analytics and revenue model analytics (particularly in the proration process).

An altimeter measures the height of an aircraft above sea level – a crucial piece of
information for the aircraft to remain aloft. Analytics equips the airlines business with

81
crucial insights, in that sense, analytics is emerging as an 'altimeter' that will help the
airline business stay aloft.

Trend 4: Changing the Course in Revenue Generation

Inadvertently rising fuel prices, dull economic conditions and increasing competition are
realities that are biting into the revenue generating potential of the global airlines
business today. Airline companies are thus exploring newer ways of changing the
course in revenue generation. Some of these strategies include tapping alternate
revenue generating streams such as selling ancillary products and services across the
value chain or stopping revenue leakage via the total revenue integrity route.

The ancillary route is an important revenue generator for airlines today. According to a
PwC report, the top five U.S. carriers generated more than US$ 12 billion in ancillary
revenue during 2011. Services that are emerging as hot favorites in the ancillary
services menu include paying for checked baggage, booking a preferred seat and wi-fi
connectivity. Most airlines are faced with the problem of revenue leakage at various
levels of the business and are now actively looking at reining in this challenge by
initiating a total revenue integrity program. Airlines must look at total revenue integrity
program that cuts across multiple processes including ticketing processes, e-ticketing,
departure control and customer relationship management.

Trend 5: Increased Focus on the Regulatory and Standardization Route

Regulations and directives on standardization will continue to dominate the airline

business environment now and in the future. Most of these regulations are related to
finance and accounting, environment and consumer rights. For instance, while airlines
in the European Union are penalized for emissions above the limit specified by
regulatory authorities, American airlines are adapting to the new pricing rules set by the
U.S. Department of Transportation, wherein airline companies will have to include all
taxes and fees while advertising fares for their flights.

While regulation envisages increased safety of passengers and improved sustainability

of the business, compliance adds to the total cost of operations. It is a cost that airlines

82
must bear on their own - without passing on to passengers. Since new regulations are a
given for the global airlines industry, airlines must engage in a compliance program that
can optimize business processes and transform operations.

In a bid to ease the effect on various environmental factors on the revenue of the global
airlines, the International Air Transport Association (IATA) has introduced a directive –
the Simplified Interline Settlement (SIS) that aims to standardize and speed up the
interline billing and settlement in the industry. Here again, as airlines take the plunge
towards standardization of the interline billing and settlement process, they will need to
carefully look for a partner and a program that will be cost-effective and help process
optimization.

83
 Segmentation And Positioning Products
Segmentation

Market segmentation is the actual process of identifying segments of the market and the
process of dividing a broad customer base into sub-groups of consumers consisting of
existing and prospective customers. Market segmentation is a consumer-oriented
process and can be applied to almost any type of market. In dividing or segmenting
markets, researchers typically look for shared characteristics such as common needs,
common interests, similar lifestyles or even similar demographic profiles. So, market
segmentation assumes that different segments require different marketing programmes,
as diverse customers are usually targeted through different offers, prices, promotions,
distributions or some combination of marketing variables. For example, Southwest
Airlines’ single-minded focus on the short-haul, point-to-point, major-city routes, allowed
them to prosper as their competitors floundered. The airline’s focus on specific
segments allowed them to do a better job of deciding what their target segment really
valued (for example, convenience, low price, on-time departures and arrivals, among
other things) (Mark, 2017).

Once the customer segments have been identified and profiled, the marketer must
decide which segment to target. Diverse customers will have different expectations. For
instance, there may be customers who will value a differentiated, high quality service,
whilst others may be more price-sensitive. Notwithstanding, not all firms have the
resources to serve all customers in an adequate manner. Trying to serve the entire
market could be a recipe for disaster. The overall aim of segmentation is to identify
high-yield segments. These are likely to be the most profitable groups of customers, or
may hold potential for growth. Hence, the most lucrative segments will usually become
target markets. In the tourism industry, the business traveller is usually considered as
an attractive segment. However, there are different types of business travellers:

 The Hard Money Travellers (or the independent business travellers), these
include the business individuals travelling at their own expense;

84
 1. The Soft Money Travelers (or corporate business travellers), these include
business individuals travelling on an expense account;

2. The Medium Money Travellers (or the conference or incentive business

travellers), these include business individuals travelling within a group;

3. The Interim Travellers, these include business travellers who are combining
personal travel with a business trip;

4. The Frequent Short Travellers, these include business travellers who consistently
fly a short-haul route;

5. The Periodic Travellers, these include sales persons who make a round of stops
on a steady itinerary.

However, these six groups are said to be only part of some other travel groupings which
have often been identified as principal sources of revenue for the tourism industry.
Travel and tourism marketers must analyse these various segments. They must then
select at least one segment and decide how to service them, in terms of fare prices,
facilities, frequencies and special features.

The Benefits of Segmentation

By dividing the market into segments, marketing managers can acquire a better
understanding of the needs and wants of customers. This enables them to customise or
to ‘tailor’ the company’s marketing activities more accurately and responsibly to the
individual customers’ likings. Segmentation marketing supports businesses in meeting
and exceeding their customers’ requirements. It may also allow them to evaluate the
competitors’ strengths and weaknesses. This way, they could discover business
opportunities in markets which were not served well.

Customer segmentation enables marketers to adopt a more systematic approach when

planning ahead for the future. This leads to better exploitation of marketing resources,
resulting in the development of a more finely-tuned marketing programme. For example,
the businesses’ integrated marketing communications can be better organised, as

85
targeted advertising (for example native advertising) and promotional activities can be
directed at individual customers. For example, the emergence of data-driven, digital
technologies such as sensor analytics, geo-location and social data-capture could track
the users’ movements and other real-time phenomena. These disruptive technologies
are increasingly being used by tourism businesses as they add value to customer-
centric marketing endeavours (Schegg & Stangl, 2017; Camilleri, 2016).

Segmentation Variables

Having defined segmentation and discussed about its benefits, the next question to
address is; how could businesses segment their markets? The traditional variables that
may be used for market segmentation can be grouped into five main categories: (i)
Demographic; (ii) Geographic (iii) Psychographic; (iv) Behavioural and / or (v) Product-
Related Factors.

Demographic Segmentation

Demographic segmentation involves dividing the market into groups that are identifiable
in terms of physical and factual data. The demographic variables may include; age,
gender, income, occupation, marital status, family size, race, religion and nationality.
These segmentation methods are a popular way of segmenting the customer markets,
as the demographic variables are relatively easy to measure.

For example, the age range for business travellers may usually span from their late
twenties to their mid-fifties. According to Skift (2017), younger employees are travelling
for business purposes and their buying habits are completely different than their older
counterparts. On average, millennials took 7.4 business trips in the last year, compared
to 6.4 for Generation Xers and 6.3 for baby boomers. Younger travellers are less likely
to book air travel based on loyalty programme perks. They are more likely to book their
flight according to the airline service and the customer experience they offer. Moreover,
young travellers are more likely to use room share services like Airbnb, than other
segments (Skift, 2017). However, for the time being, major hotel brands are not under
any serious threat.

86
At the same time, Uber and other ridesharing services are becoming mainstream across
all age groups, as they may be cheaper than taxis (Pew Research, 2016). The age
range in the leisure market is a very broad one and quite different to that in the business
market. Children particularly can play an important role in leisure travel, as they travel
abroad on holidays with their families. Young people in their early to mid-twenties too
are prepared to spend their disposable income on travel before they take on the
responsibilities of family life. At the other end of the scale, we have those who are
retired from work, are in a relatively good health and in good financial position which
allows them to travel.

In the past, middle-aged males dominated the business travel market. However,
recently, the advertising and promotion of airline services have increasingly targeted
female business travellers. This market controls 60% of U.S. wealth and influences 85%
of purchasing decisions (Skift, 2014). The female gender is high-tech, connected, and
social. They represent 58% of online sales (Skift, 2014). To get maintain their
competitive edge, travel brands must start focusing their campaigns to better target
women. The leisure travel market is far more balanced in terms of gender. In fact, in
older categories of leisure travellers, that is over the age of sixty, women outnumber
men due to their longer life expectancy (Boston Globe, 2016).

The ability to travel for leisure purposes greatly depends on an individual’s income.
Leisure travel is a luxury which may be foregone when times are financially difficult.
Generally, as personal income rises, the demand for air travel increases. However,
should there be a recession, money belts are tightened, and less leisure trips may be
taken. This is an example of a concept known as income elasticity (this topic will be
discussed in Chapter 8). Income elasticity can be defined as the relationship between
changes in consumers’ income level and the demand for a particular item.

Geographic Segmentation

Geographic segmentation involves selecting potential markets according to where they

are located. This segmentation approach may consider variables such as climate,
terrain, natural resources and population density, among other geographic variables.

87
Markets can be divided into regions because one or more of these variables could
differentiate customers from one region to the next. For example, those individuals who
are living in wet and cold climates will favour warm, sunny destinations for their
holidays. This issue could greatly affect competition among airlines for certain
destinations, particularly during the peak holiday seasons.

The culture or country of origin of all travellers is also an important factor which must be
taken into consideration, particularly when targeting corporate segments. Not all
business travellers belong to the same stereotypical image of the sophisticated, affluent
middle-aged business man hailing from specific regions such as the north-west of
Europe, North America or Japan. Today, business travellers may include traders who
are travelling to different locations in the world, including developing countries, where
there are growth prospects. In this case, convenient schedules and inflight frills are
relatively unimportant when compared to excess baggage policies and low fares.

Psychographic Segmentation

Psychographic segmentation could be used to segment markets according to

personality traits, values, motives, interests and lifestyles. A psychographic dimension
can be used by itself to segment a market, or it can be combined with other
segmentation variables. The psychographic variables are used when purchasing
behaviours correlate with the personality or lifestyles of consumers. Diverse consumers
may respond differently to the businesses’ marketing efforts. For example, affluent
business travellers who are used to high standards of living will expect an airline’s
service to complement such a lifestyle (Swarbrooke, & Horner, 2001). The lifestyle one
leads and expects to lead greatly depends on an individual’s social status which is
generally influenced by occupation. Social grades (grades in status) may be broken
down as follows:

A. Higher managerial, administrative or professional;

B. Intermediate managerial, administrative or professional;
C. Supervisory, clerical and junior managerial, administrative or professional;
D. Skilled manual workers;
E. Semi or unskilled manual workers;
F. State pensioners or widows, casual or lowest grade workers.

88
Most business class passengers come from the A, B and C1 social grades. These
people have high occupational status. They may earn high incomes and are usually
accustomed to a good lifestyle. Therefore, they may demand a very high standard of
service. Marketing managers must carefully consider additional facilities for these
passengers, as they should ensure their comfort, at all times. Examples of additional
facilities that could be provided to these individuals (particularly those who are in Class
A) could include; separate cabin for business class, separate check-in desks, the use of
private lounge, and so on. Air travel is no longer an elitist luxury. Although members of
the A and B social grades form a substantial number of leisure travellers, many airlines,
particularly low-cost carriers are increasingly targeting lower social grades, namely, C2,
D and E, as a means of exploiting the market.

Behavioural Segmentation

Behavioural segmentation is defined as the segmentation of the market according to

individual purchase behaviours. Behaviour-based segmentation is conspicuous with the
benefits sought from the product, with the identification of specific buying behaviours, in
terms of shopping frequency and volumes of purchase, et cetera. For example, a
customer relationship management system could include customer profiles of frequent-
flyer travellers, and could reveal valuable information on their past transactions. The
frequency with which individuals travel often depends on their occupation. The higher
the standard of living of individuals will enable them to travel more frequently. These
issues ought to be considered by the airlines’ marketers. A poorly run airline could lose
the return custom of its business travellers. Moreover, it may lose credibility among
potential prospects who may have come in contact with disappointed travellers.

Product-related Segmentation

These variables depend on the product or service to be marketed. In the airline industry
such variables include, journey purpose, the length of the journey, the passengers’
country of origin, and the like. For instance, passengers could be travelling for business
reasons, therefore they may need to book for their short itinerary in the last minute.
When discussing about business travellers it is necessary to break them into segments,

89
namely, corporate, independent, incentive or conference travellers. As mentioned
earlier, there are quite a large number of market segments which provide good sources
of revenue for the airline industry. However, the business passengers (as mentioned
above), may differ from each other, in terms of their spending power.

The independent travellers are usually travelling on their own expense, so they would
expect value for money. The corporate travellers are subsidised by their company, so
they may be more interested in the standard of service, as well as on other frills being
made available to them. The conference and incentive segments have other
requirements. This latter segment consists of individuals who travel in groups. Their
arrangements are usually made well in advance by either corporate businesses or by
specialised travel agencies. As a means of offering cheap group rates, airlines could
possibly organise group travel at unsociable hours.

The length of the travel journeys may also dictate the customers’ needs, wants and
expectations. For example, the needs of the customers who are travelling on a long-
haul flight from London to Singapore, would be different from those of other travellers on
a short-haul flight from London to Paris. Long-haul travellers will need very comfortable
seats, inflight entertainment, inflight meals and so on. On the other hand, the short-haul
travellers may only require a drink and some literature (inflight magazine) to peruse.
Then, there are other journeys which may be categorised as medium-haul flights. An
example would be a flight from London to Rome. These passengers will have different
requirements to those mentioned above. In this case, they may expect comfortable
seating and a light snack. Other services such as priority boarding and a welcome drink
may also be expected by business travellers.

Product Positioning

The final stage in target marketing is product positioning. Firms formalise “positioning
statements” which specify the position they wish to occupy in their target customers’
minds, relative to other competitors’ products or services. Customers continuously
compare products or services. Therefore, marketers must build their positioning
strategies to improve the customers’ (and prospects’) perceptions of their products.

90
Effective product positions have four important characteristics. Firstly, they are built
around benefits for prospective customers. Secondly, they differentiate the specific
firms’ products or service from those of key competitors. Thirdly, the respective firms
need to possess relevant skills, resources, and the credibility to deliver on their implied
statements and promises. Finally, an effective position is defensible, which means that
an aggressive competitor cannot act quickly to neutralise or preempt another positioning
strategy. For example, a full-service, national carrier could differentiate itself among
other competitors as the only airline offering a superior service in its chosen markets.
The tourism businesses should stand out from their rivals whether they decide to
position themselves alongside competitors, or to position themselves in untapped
niches. They may position themselves for their high standards of service, additional
amenities and so on.

Alternatively, low-cost carriers like Southwest Airlines could position themselves as a

punctual airline, as a no-frills airline, as a low-cost airline, as a safety-conscious airline,
as a friendly airline, and as the airline serving the western part of the U.S. Recently,
they used TV advertising to counter an unpleasant customer perception about the
airline’s ‘free-for-all’ seating policy. The rationale behind this spot was to build an image
in their consumers’ minds.

91
 Quality And Technology

From initial concept, engineers are working out how to make new aircraft more efficient.
In fact, aviation is one of the most technologically advanced and innovative sectors in
the world.

Unlike ground vehicles, which don’t need to be as fuel efficient because they can refuel
often, long-distance aircraft must carry all their fuel on board. It is expensive, heavy and
takes up significant storage. Its weight limits the range of an aircraft and it needs to be
stored in tanks which affect the wing size and reduce the maximum load.

Each new generation of aircraft has double-digit fuel efficiency improvements, up to

20% more fuel efficient than the previous one. This has led to today’s modern aircraft
producing 80% less CO2 per seat than the first jets in the 1950s. But there is more work
to do.

New technologies on the horizon have the potential to decrease greenhouse gas
emissions from aviation significantly, and solutions being implemented today promise
further savings. Even incremental savings offer significant benefits overall.

Fuel efficiency is critical to the future of the aviation industry, not just for environmental
reasons but also financial ones. Fuel makes up over 30% of airline operating costs.

To formalise and complement the market-driven improvement in fuel efficiency, the

International Civil Aviation Organization (ICAO) agreed on a CO2 emissions standard in
February 2016, which will apply to all new aircraft designs from 2020 and newly-built
existing models from 2023.

Before the Wright Brothers, few people believed powered flight was possible. This spirit
of innovation has continued, and it is driving the industry’s response to its environmental
challenges. For example:

92
 1. Aviation has been successful at decoupling emissions growth from actual growth.
While air traffic is increasing at an average of 5% annually, CO2 emissions
growth is now lower at around 3%

2. Newer aircraft, like the Airbus A350 and Boeing 737MAX, consume on average
less than three litres per 100 passenger kilometres. This fuel is comparable to
that of compact cars, although aircraft travel much further and faster

3. The next generation of aircraft will offer further improvements in fuel efficiency
and emissions

4. Turboprop aircraft like the Q400 and ATR series can provide a more fuel-efficient
alternative to jet aircraft over shorter distances

Today, engineers and researchers are making incremental and frequent improvements
that offer large savings overall. For instance, the wingtip devices airlines and
manufacturers install on new aircraft increase aerodynamic efficiency and reduce fuel
usage.

Manufacturers are increasingly using light-weight materials such as carbon composites

to build aircraft and components. The Boeing 787 and 777X, Airbus A380, A220 and
A350XWB aircraft all use these cutting-edge materials and technologies to deliver
exceptional gains in environmental performance. Manufacturers of engines are also

93
using highly advanced materials and processes such as additive layer manufacturing to
develop new engines.

Technology on new aircraft can either improve fuel burn through aerodynamic efficiency
(mainly airframe), or to reduce actual combustion use (mainly engine-related).
Combined, these elements create a new aircraft with a reduced environmental impact.

Aircraft have a useful life of around 25-30 years, during which they will cover many
millions of miles and carry millions of passengers or tonnes of cargo. Because of the
long lead times for developing, designing and manufacturing modern aircraft, there tend
to be ‘waves’ of new aircraft entering the fleet. We are currently in the middle of such a
wave, with a number of new aircraft models coming into the system and replacing older,
less fuel-efficient ones.

Electric aircraft

Although currently in the very early stages of research and development, aerospace
manufacturers are investigating the introduction of fully electric and hybrid-electric
aircraft.

As battery technology develops, increased energy storage may make electrically-

powered commercial flight a reality. Already, several small-scale demonstrators are
showing how it can be used for training flights and two-person operations.

In the short-term, electric propulsion is likely to be restricted to so-called ‘air taxi’

operations which are expected to start service in a small number of cities from around
2023-2025. These will provide 2-4 person commuter flights to avoid ground traffic
congestion.

Longer term, several companies including Zunum and Wright Electric are developing
more familiar commercial aircraft concepts. These would be regional jet sized, short-
haul aircraft and could potentially be in service by around 2035, although more research
is needed.

94
The quest to maximise range and payload (passengers or freight) while reducing the
weight of the batteries and the energy density of stored electricity is a challenge. There
is also a lot of research into hybrid options – combining the performance of liquid
sustainable aviation fuel with the efficiency of electric propulsion. This may be an option
for mid to long-range flights in future.

There is no airport is the same and accordingly, airports will have different needs and
priorities when it comes to implementing digital technologies.

Secondly, airports are at various stages when it comes to implementation. While most
airports are transitioning away from Airport 2.0 (self-service and process efficiency) to
Airport 3.0 (using digital to optimise flow monitoring and passenger processing) this
masks a number of differences in airports’ understanding, freedom of action and overall
strategy.

That said, some key aspects of digital technology the majority of airports interviewed
wish to see implemented. Cloud computing and big data and analytics were highlighted
most frequently, but also other technologies such as smart machines and robots, virtual
modelling and simulation and the Internet of Things (IoT). Cloud computing can enable
airports to be more agile and deploy new solutions with greater ease for instance and
analytics and virtual modelling can assist in monitoring passenger flows.

An uptake in digital technology will be beneficial to airports and their passengers. Digital
improves efficiency, which reduces costs and in turn improves passenger experience.
There’s a direct correlation between experience at security and propensity to spend
money. Airports are first and foremost commercial entities and they have a vested
interest in keeping their passengers happy.

There’s an opportunity for digital technology to deliver real and tangible benefits to
passengers. With improvements to flight management processing they are likely to see
fewer delays and rates of baggage reconciliation are likely to improve. With end-to-
end biometrics, transitioning through the airport is likely to become a much better
experience for the passenger, where you effectively just walk into the airport and it’s a
seamless and touch-free process all the way onto the aircraft.

95
Uptake of digital technology will be a valuable tool for airports when it comes to handling
increasing volumes of passengers, hence why airports with the greatest capacity
constraints are using digital for greater optimisation and operational resilience and
agility.

If airports are to handle increasingly larger numbers of passengers, then they are going
to have to be more efficient and more adaptable.

Virtual modelling and simulation will allow airports to better allocate resources to
respond to peak times. It will also allow them to foresee the impact of flight delays and
make optimal use of the runway.
Big data and analytics will also help airports to optimise passenger flows, allowing them
to process larger numbers and also provides information for effective decision-making.

While it is evident from the report that airports recognise the immense benefits of
implementing digital technologies, this does not mean to say there aren’t a number of
barriers and risks associated with change.

Airports recognise the uptake of digital requires a clarity of purpose and sustained
commitment, but at the same time recognise a need to maintain business continuity.
They’re wary of resilience and connectivity issues for instance, especially when
transitioning from pilot schemes to full-scale implementation and also the impact this
may have on their financial returns and image.
In addition to these business-driven barriers, the report lays out a number of soft,
cultural barriers to change. Airports are aware of a lack of understanding of digital within
the airport microsystem, especially when there is such a complexity of technologies
available and also the difficulties of ‘transplanting’ digital concepts into people’s day-to-
day roles.

On top of this, airports must contend with lengthy and complicated RFP and
procurement processes in order to implement any new IT product or solution, meaning it
can often be a daunting prospect and can hinder them in making agile decisions.

96
While the costs of implementation are accepted by the hub airports who are adopting a
‘spend to save’ attitude, smaller airports don’t share the luxury of resources. They know
that technology that better optimises the runway will help to attract airlines, but which
technologies to prioritise remains a problem and comes with inherent risks.

Airports are contending with increasing passenger numbers and digital technology
should help in terms of airports’ ability to handle enhanced capacity and in terms of
operational flexibility. These factors should help to improve passenger experience as
the process becomes much more seamless, which will in turn help to drive revenue
generation for airports. This will involve airports investing in digital technology in the
short term, but the longer-term benefits as the report outlines, are manifest.

97
 Customer Service

Customer satisfaction is given top priority by all service-oriented industries. The civil
aviation industry is no exception. The highly competitive global aviation arena causes
various airlines to vie for the top position with lot of importance being given to the
customer service. Drive outstanding customer service with the winning combination of
knowledge, skills, and attitude. Frontline airline customer service professionals, such as
ticket reservation staff, check-in and gate agents, and cabin crew, work in one of the
most dynamic industries.

When providing products, services and standard operating procedures need to be

considered including:

1) Aircraft fueling and location based services

2) Aircraft, vehicle and equipment operations

3) Safety, security, quality controls

4) Processing payments at the point of sales

98
 Pricing and Promotion

Price is one of the major marketing mix for any industry. To be simple Indigo airlines
succeeded because of the cheap fares which opened the gates for the middle income
group. In fact, that happens to be its competitive advantage when travellers are
comparing prices. This makes it one of the most sought airline services in India because
of its quality services as well. The control department plays a major role in maintaining
the cost by the company. With decrease in prices and increase in the number of
passengers every day, Indigo faces a tough competition from SpiceJet and Air India.
There are also constant discounts that keep customers coming back.

No airline has worked harder at capturing the local market better than IndiGo Airlines.
The airline relies on its cost and availability to promote its brand across the market. This
investments in advertisements are low because it affects the cost. However, Indigo did
come out with a few TVC’s of its own as well as does good advertising online. The
airline has adopted a strategy of connecting flights to other destinations from one
destination such that customers will not have to book another airline to arrive to their
destination. For instance, it has connected four flights from Ranchi to Delhi, Mumbai,
Patna and Bangalore and plans are underway for it to add Kolkata and Raipur. Although
not a direct marketing strategy, this strategy has seen it gain more customer base
because customers would want to cut costs by using just one aircraft to reach their
destination. Other promotion methods used by Indigo aircraft include media vehicles like
billboards, print media advertising and advertising on travel portals.

99
 Distribution Channels

Airline Reservation System is one of the intermediaries of the distribution channel in the
aviation industry. An airline reservation system is part of the so-called passenger
service systems (PSS), which are applications supporting the direct contact with the
passenger.

Airline reservations systems contain airline schedules, fare tariffs, passenger

reservations and ticket records. An airline’s direct distribution works within their own
reservation system, as well as pushing out information to the GDS. A second type of
direct distribution channel is consumers who use the internet or mobile applications to
make their own reservations. Travel agencies and other indirect distribution channels
access the same GDS as those accessed by the airlines’ reservation systems, and all
messaging is transmitted by a standardized messaging system that functions on two
types of messaging that transmit on SITA’s HLN [high level network]. These message
types are called Type B [TTY] for remarks-like communications and Type A [EDIFACT]
for secured information. Message construction standards are set by IATA and ICAO,
are global, and apply to more than air transportation. Since airline reservation systems
are business critical applications, and their functionally quite complex, the operation of
an in-house airline reservation system is relatively expensive.

Prior to deregulation, airlines owned their own reservation systems with travel agents
subscribing to them. Today, the GDS are run by independent companies with airlines
and travel agencies as major subscribers.

As of February 2019, there are only three major GDS providers in the market space:
Amadeus, Travel port (the merged World span and Galileo systems), Sabre and
Shares. There is one major Regional GDS, Abacus, serving the Asian marketplace and
a number of regional players serving single countries, including Travel sky (China), Infini
and Axess (both Japan) and Topas (South Korea).

100
 Logistics Management

Air cargo has been one of the fastest growing sector in the world economy for the last
four decades and plays a vital role in the economic development of a nation 23. Air cargo
logistics means using aircraft and warehousing services for the transport of goods
quickly from point of origin to point of consumption for satisfying the requirements of
customers. Air cargo is used mostly for shipping goods that are highly valuable, time-
sensitive and perishable. Globally, more than one third of the value of goods traded
internationally is transported by air and therefore air cargo industry is considered as a
barometer of global economic health. It is the fastest mode of transport and offers
benefits of secure handling, speed and geographical and temporal flexibility. But it is
relatively expensive. One kilogram costs average six times than ocean container freight.
That high cost is compensated by reduced inventory and warehousing costs. Air cargo
logistics process is a time- definite endeavour that requires the coordination of multiple
parties, namely shippers, freight forwarders, carriers, customs, warehousing agents,
ground handlers and consignees. The processes of moving cargo from its origin to
destination are given below:-

101
 Major Players In India

Air Charter Services Pvt Ltd

Air Charter Services Pvt. Ltd. performs its business operations with private business
aircrafts, executive and corporate air charters, helicopter tours, VIP charter flights, and
photo and video flights. Its client list incorporates VIPs, corporate firms, tour co-
ordinators, travel agents and air medical evacuation professionals. It provides services
such as relief, VIP, air ambulance and privacy services. (Top aviation companies)

Air Charters India

Air Charter India is owned by the STIC Travel Group and has around 100 airplanes in
India. It covers several international destinations with an unmatchable logistics support.
The aviation company has 40 offices with a highly skilled manpower of above 1000
people. It offers services like heli-skiing, charter flights for pilgrimage in India, heli-
sightseeing, corporate jets, executive jets, etc. Air Charter India provides airplanes such
as helicopters, business aircrafts, aircrafts for corporates, individuals and group
travelers.

Air India

National Aviation Company of India Limited (NACIL) was the first Indian aviation
company which led the way for other companies in the aviation sector. It was initiated
before the India gained its independence. Later it collaborated with Indian Airlines and
gained the reputation of being the largest airline in South Asian airline. Air India Cargo,
Air India Express and Air India Regional are its subordinates in aviation market. It offers
First class, Executive class and Economy class services and has codesharing pacts
with companies like Air France, Austrian Airlines, Aeroflot, Air Astana, Emirates Airline,
Air Mauritius, Kuwait Airways, etc.

Aviation India

102
Aviation India provides services like cargo services, flight operation, air charter services,
passenger services, freight control, advisory and consultancy, aircraft preservation and
renovation, international flight operation, air supervision and helipad engineering, etc.
The airlines has skilled workforce and offers total control and functional back-up to
several international schedule / non-schedule operations.

Indian Airlines

Indian Airlines was inaugurated on 1st August, 1953 and in collaboration with its fully
governed subordinate in aviation market Alliance Air, it takes pride in being recognized
as one of the biggest regional airline systems in Asia. It has a fleet of 70 airplanes and
covers 76 destinations, 58 Indian destinations and 18 foreign destinations. Globally it
covers Oman, UAE, Kuwait, Qatar, Singapore, Yangon, Pakistan, Maldives,
Bangladesh, Sri Lanka, etc.

Deccan Aviation Ltd.

The aviation company has its presence in 8 places namely, Mumbai, Ranchi, Surat,
Hyderabad, Bangalore, Katra, Colombo (Sri Lanka) and Delhi. It has 350 daily
departures and covers 65 destinations in India. It offers the benefit of no-cost travel to
infants, ticketing counters, lavish aircraft interiors and ticketing flexibility.

Indigo

Indigo is a utilitarian low-price domestic airline which offers feasible flying alternatives
for millions. The airline was facilitated by the Air Passengers Association of India (APAI)
as the “Best Low-Fare Carrier in India for the year 2007”. Indigo has 120 daily
departures and a fleet of 19 Airbus A320. Paramount Airways is a business class airline
which has its base in India and headquarters at Chennai. Endorsed by Madurai-based
Paramount Group and Paramount Railways was inaugurated in 19th October 2005. Its
fleet comprises 5 aircrafts and it operates in 8 destinations.

Go Air Airlines

103
Like SpiceJet, a Go Air airline is also a low price airline endorsed by the Wadia group. It
was inaugurated in Mumbai in June 2004. It operates in 11 cities with 61 daily
departures. It has started its functions in Ahmedabad, Chennai, Bangalore, Coimbatore,
Goa, Cochin, Jaipur, Mumbai, Pune, Delhi, Srinagar, etc.

Kingfisher Airlines

It is the one and only 5-star airline in India which offers excellent first class service on
domestic itineraries also. A part of UB group, Kingfisher Airlines has received 30 awards
for its novelty and customer satisfaction. After its tie-up with Deccan, the airline covers
64 cities and has 484 daily departures.

Spice Jet

Spice Jet is basically a low cost airline which incorporates many Boeing 737-800
airplanes in its fleet. It covers 14 destinations in India.

Air Sahara

Air Sahara was inaugurated on December 3, 1993 with a fleet of only two Boeing 737-
200s. Now it comprise of 27 aircrafts, 135 daily departures and availability of 16500
seats on regular basis. It reaches various Indian destinations like Bangalore, Kolkata,
Delhi, Lucknow, Mumbai, Chennai, etc.

Jet Airways

Jet Airways was established on May 5, 1993. It earns yearly revenue of Rs 2502.89 and
total income of approx ₹ 117868.8 Million. At present it id India's biggest private
domestic airline with 62 aircrafts and a market share of 25%. It covers 50 destinations
with 340 regular departures. Jet Airways has pacts with foreign airlines, such as
Lufthansa, Swiss, Gulf Air, Austrian Airlines, Qantas and Thai.

104
 Market Share Of Various Firms
India is the world's third-largest domestic and overall civil aviation market (c. January
2019). The number of air passengers grew 16.3% annually from 14 million (14 million in
2000–01) to 135 million (135 million in 2018-19, both domestic and international).

105
 CH: 5

FINANCIAL
ANALYSIS

106
 Profit Margin Analysis

The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a
profitability ratio that measures the amount of net income earned with each dollar of
sales generated by comparing the net income and net sales of a company. In other
words, the profit margin ratio shows what percentage of sales are left over after all
expenses are paid by the business.

Creditors and investors use this ratio to measure how effectively a company can convert
sales into net income. Investors want to make sure profits are high enough to distribute
dividends while creditors want to make sure the company has enough profits to pay
back its loans. In other words, outside users want to know that the company is running
efficiently. An extremely low profit margin formula would indicate the expenses are too
high and the management needs to budget and cut expenses

The formula for profit margin ratio is net income / net sales

In our studies1 net income is 1,197 Million Euro (9,447 Cr INR)

And our net sales is 30,866 Million Euro (2, 43,625 Cr INR)

Hence our Profit Margin Ratio = 3.87

1
Taking Airbus as our case study

107
 Cost Structure Analysis

Cost Structure is the relative proportion of each type of cost within an organization. Cost
structure not only refers to the breakdown of costs required to manufacture a product
(or provide a service) but also takes into consideration the use of all types of resources
along the way. This can include costs such as labor and utilities, as well as back end
costs like sales and marketing expenses.

After the analysis of the cost structure of one of the major commercial aircraft
manufacture2 we found this rough cost structure

Employees/ Quantity Fixed Variable Total Marginal Marginal

Manufacturing Produced(Q) Costs Costs Costs Costs Revenue(
units (FC)( Cr (VC)( Cr (TC)( Cr (MC)( Cr MR)( Cr
INR ) INR ) INR ) INR ) INR )
0 0 1000 0 1000 - 10
1 100 1000 800 1800 8.00 10
2 280 1000 1600 2600 4.44 10
3 440 1000 2400 3400 5.00 10
4 580 1000 3200 4200 5.71 10
5 700 1000 4000 5000 6.67 10
6 800 1000 4800 5800 8.00 10
7 880 1000 5600 6600 10.00 10
8 940 1000 6400 7400 13.33 10

2
Airbus cost structure was taken into consideration

108
 Leverage Analysis

In financial management leverage analysis means arranging fixed assets in such a way
that fixed return is ensured. The types of leverage analysis are:

1.) Operating leverage: firm generally purchases the assets, that its operation will
produce revenue. When sale increases the fixed cost remains the same and operating
revenue will increases. As fixed cost is constant, the % change in operating revenue is
more than % change in sale. Hence there is a positive relation between operating
leverage and break even point.
Operating leverage= % change in operating profit/ % change in sales

In our case operating profit of F.Y is 3,421

The operating profit of P.Y is 2,258

Total sales F.Y is 66,767

Total sales P.Y is 66,581

Hence,

Operating Leverage = 50.51/0.27=187.07

2.) Financial leverage: it is also called trading on equity. Financial leverage means the
use of preference share capital, equity share capital along with fixed interest bearing
securities or debentures.

Financial leverage= % change in earning per share/ % change in earning before

interest and tax

For Aviation

EPS for F.Y is €3.71

EPS for P.Y is € 1.29

EBIT for F.Y is 3,421

109
EBIT for P.Y is 2,258

Financial Leverage = 187.59/51.50=3.64

Financial leverage assumes that the firm is capable of earning more on assets than
that acquired by use of funds, on which fixed rate of dividend is paid.

Figure 15 Leverage

3.) Combined leverage: it measures the total leverage due to the both operating and
financial leverage.

Combined leverage= % change in earning per share/ % change in sales

In our Case

EPS for F.Y is €3.71

EPS for P.Y is € 1.29

Total sales F.Y is 66,767

Total sales P.Y is 66,581

Combined leverage = 187.59/0.27=-694.77

110
 Profitability Analysis

Every firm is most concerned with its profitability. One of the most frequently used tools
of financial ratio analysis is profitability ratios, which are used to determine the
company's bottom line and its return to its investors. Profitability measures are important
to company managers and owners alike. If a small business has outside investors who
have put their own money into the company, the primary owner certainly has to show
profitability to those equity investors.

Profitability ratios show a company's overall efficiency and performance. Profitability

ratios are divided into two types: margins and returns. Ratios that show margins
represent the firm's ability to translate sales dollars into profits at various stages of
measurement. Ratios that show returns represent the firm's ability to measure the
overall efficiency of the firm in generating returns for its shareholders.

Gross profit margin ratio = (Gross profit/sales) x 100

GP Ratio = (7,607/ 66,767)*100 = 11.39

Operating Profit Margin = (Operating Income/Sales) x 100

OP Ratio = (5,768/66,767)*100 = 8.63

Net Profit Margin Ratio = (Net Income/Sales) x 100

NP ratio = (2,877/66,767)*100 = 4.30

Return on assets = (Net income before taxes/Total assets) x 100

ROA = (3093/113,937)*100=2.71

Return on investment = (Net profit before Tax/Net worth)

ROI = (3093/11,444)*100=27.02

111
 Du Pont Analysis

The DuPont analysis (also known as the DuPont identity or DuPont model) is a
framework for analyzing fundamental performance popularized by the DuPont
Corporation. DuPont analysis is a useful technique used to decompose the different
drivers of return on equity (ROE). Decomposition of ROE allows investors to focus on
the key metrics of financial performance individually to identify strengths and
weaknesses.

There are three major financial metrics that drive return on equity (ROE): operating
efficiency, asset use efficiency and financial leverage. Operating efficiency is
represented by net profit margin or net income divided by total sales or revenue. Asset
use efficiency is measured by the asset turnover ratio. Leverage is measured by the
equity multiplier, which is equal to average assets divided by average equity.

Return on Equity= Net Profit Margin x Asset Turnover Ratio x Financial Leverage

= (Net Income / Sales) x (Sales / Total Assets) x (Total Assets / Total Equity)

In Our Case

Net Profit Margin = (2,877/66,767) = 0.043

Asset Turnover Ratio = (66,767/113,937) = 0.585

Financial Leverage = (113,937/11,444) = 9.956

Return on equity = 0.25

112
 EPS

Earning per share (EPS), also called net income per share, is a market prospect
ratio that measures the amount of net income earned per share of stock outstanding. In
other words, this is the amount of money each share of stock would receive if all of the
profits were distributed to the outstanding shares at the end of the year.

Earnings per share is also a calculation that shows how profitable a company is on a
shareholder basis. So a larger company’s profits per share can be compared to smaller
company’s profits per share. Obviously, this calculation is heavily influenced on how
many shares are outstanding. Thus, a larger company will have to split its earning
amongst many more shares of stock compared to a smaller company.

Earnings per Share= Net Income − Preferred Dividends/ End-of-

Period Common Shares Outstanding
In our case

EPS = 3.70

113
 DPS

Dividend per share (DPS) is the sum of declared dividends issued by a company for
every ordinary share outstanding. The figure is calculated by dividing the total dividends
paid out by a business, including interim dividends, over a period of time by the number
of outstanding ordinary shares issued. A company's DPS is often derived using the
dividend paid in the most recent quarter, which is also used to calculate the dividend
yield. (Dividend Per Share)

DPS is an important metric to investors because the amount a firm pays out in
dividends directly translates to income for the shareholder, and the DPS is the most
straightforward figure an investor can use to calculate his or her dividend
payments from owning shares of a stock over time. Meanwhile, a growing DPS over
time can also be a sign that a company's management believes that its earnings growth
can be sustained.

In Our case the DPS is 1.5€ Per Share

114
 P/E Analysis

The price earnings ratio, often called the P/E ratio or price to earnings ratio, is a market
prospect ratio that calculates the market value of a stock relative to its earnings by
comparing the market price per share by the earnings per share. In other words, the
price earnings ratio shows what the market is willing to pay for a stock based on its
current earnings.

Investors often use this ratio to evaluate what a stock’s fair market value should be by
predicting future earnings per share. Companies with higher future earnings are usually
expected to issue higher dividends or have appreciating stock in the future.

Obviously, fair market value of a stock is based on more than just predicted future
earnings. Investor speculation and demand also help increase a share’s price over time.

The PE ratio helps investors analyze how much they should pay for a stock based on its
current earnings. This is why the price to earnings ratio is often called a price multiple or
earnings multiple. Investors use this ratio to decide what multiple of earnings a share is
worth. In other words, how many times earnings they are willing to pay.

P/E=Share Price / EPS

where:

P/E=Price-to earnings ratio

Share Price=Market value per share

EPS=Earnings per share

In our Study

P/E = 83.10/3.70 = 22.44

115
 Sustainable Growth Rate Analysis

The sustainable growth rate is the rate of growth that a company can expect to see in
the long term. Often referred to as G, the sustainable growth rate can be calculated by
multiplying a company’s earnings retention rate by its return on equity. The growth rate
can be calculated on a historical basis and averaged in order to determine the
company’s average growth rate since its inception.

The sustainable growth rate is an indicator of what stage a company is in, in its life
cycle. Understanding where a company is in its life cycle is important. The position often
determines corporate finance objectives such as what sources of financing to use,
dividend payout policies, or overall competitive strategy.

The growth ratio can also be used by creditors to determine the likelihood of a company
defaulting on its loans. A high growth rate may indicate the company is focusing on
investing in R&D and NPV-positive projects, which may delay the repayment of debt. A
high growth rate company is generally considered riskier, as it likely sees greater
earnings volatility from period to period.

Figure 16 Sustainable Growth Rate

116
SGR=Return on Equity×(1−Dividend Payout Ratio)

In or study

Return on equity = 0.25

Dividend Payout ratio = DPS / EPS

= 1.5/3.70

= 0.40

SGR = 0.25(1-0.40)

=0.25(0.60)

= 0.15

117
 CH: 6

INDUSTRY
ANALYSIS

118
 PESTEL Analysis

The recent economic recession shook the entire industry. There were very few sectors
that could perform well in the face of the economic turbulence. Even the airlines industry
was deeply affected. Except for these economic fluctuations, both the world economy
and the global airlines industry have done well. Since 1980, this industry has grown at
an average rate of around 5%. This growth rate is expected to sustain. Globally, it is
predicted that the aviation industry will grow consistently at a rate of 4.5 to 5%. Apart
from the recession, the Asian and European economies have been affected by other
harsh and mild economic declines too. Still, the industry has continued to perform
relatively well. The global forecast by Airbus for 2016-2035 highlights that the demand is
going to increase in the coming years. It forecasts that the demand for passenger and
freighter air-crafts will rise.

As per an IATA report, there has been a 7.1% increase in passenger demand from
2015 to 2016. This is higher than 2014-15. This growth is also expected to continue. Air
traffic itself is expected to grow at a rate of 4.5% annually. At this rate, at least 33000
new air-crafts will be needed in the next 20 years. Not just this, the number of pilots
needed in next 20 years exceeds 500,000. Economic factors are a major influence on
the airlines industry. However, there are several other factors of importance as well.
These factors can be social, technological, political and even legal in nature. Their effect
on the industry can be deep. A PESTEL analysis of the aviation industry will show how
deeply they influence it.

119
Political:

Political factors can generally vary between nations. However, the aviation industry is
global and spans the entire globe. As per an industry report, it globally generated $709
billion in 2016. The government regulations address concerns like safety, passenger
security, and several other issues. In US, the deregulation took place in 1978 which
reduced the restrictions. With it, the popularity of air travel rose, boosting revenue.
Deregulation eliminated the regulations related to prices and entry into domestic
markets. However, the situation is not the same in all the markets. Some of them are
still heavily regulated. In several of them, the bilateral agreements are still highly
restrictive. This limits competition and revenue. Moreover, international flights are more
heavily regulated than the domestic flights.

Air transport provides several important benefits both socially and economically. As
such, a large number of governments have focused on generating value by partnering
with the airlines companies. The regulatory environment has been relaxed in several
markets leading to increased partnership. It can be beneficial for both governments and
companies as well as passengers. However, globally the businesses and corporate
travelers are also enjoying the benefits. Industrial regulation in a harmonized manner

120
profits the entire world. Increased government regulation affects the industry negatively.
It is obvious that government regulation or political factors play an important role in
determining the growth and proliferation of the airlines industry. Over time one thing has
gotten absolutely clear; growth of the airlines has benefited governments, businesses
and individual passengers. Airlines add speed to trade. This produces
economic benefits and in turn benefits the entire society. So, there is a need to
strengthen the partnership between the government and the industry. Organizations like
International Civil Aviation Organization are working to deepen this relationship.

Economic:

Economic factors are also an important influence on the airlines industry. The industry
has seen several downturns. Airlines companies were impacted deeply by the recent
recession and slow economic growth thereafter. Since the 1930s, it was the recent
downturn that hurt the airlines industry most deeply. The air travel markets saw a low in
the early 2009. Both premium and economy travel saw a decline. However, it was
premium travel that was more badly affected. Both travelers and the industry were
forced to adopt cost cutting measures. The recession did not just influence the profits;
but also employment. Most airlines were forced to reduce prices and to retrench. Many
thousands of jobs were lost.

The economic recession left behind a few positive effects also. The crisis changed the
companies’ style of business. Prices were reduced and service standards raised. The
boom in low cost carriers has made air travel cheaper for the masses. Overall, the
impact has been positive. Now that the economic recession is past, the industry
must grow consistently. The aviation industry is not immune to economic pressures. It
has from time to time been forced to adjust per changing economic conditions.
However, a lot of growth is expected in the coming years from maturing economies like
Asia. The latent demand for air travel in Chinese markets has increased. This provides
opportunities as well as challenges. Obviously, the importance of economic factors in
case of the airlines industry cannot be overlooked.

121
Social:

Airlines create social value just as the other businesses do. There are several industries
that profit from the airlines industry. In particular, it is the hospitality industry globally
which depends heavily on transports. The industry impacts and is impacted by social
forces. Airlines companies stimulated the demand for air travel by reducing prices. They
created employment. The result has been an improvement in their social image. The
mutually beneficial relationship between the airlines industry and the society should be
seen in this context. However, social trends have a major impact on the aviation
industry in other ways too. People are seeing the industry in a new light. It is now seen
as a carrier for the masses. The social perception of air travel has changed. It is being
seen as safer and convenient. Moreover, as the people’s awareness of technology
increased they were drawn towards air travel in larger numbers. The number of
professional travelers also increased. There are a large number of social changes that
have proved positive for the airlines industry. This explains the relationship between the
society and the industry. Social factors as a result acquire a major value in the context
of the aviation industry. Events like disasters and wars also have an impact on the
airlines industry. Whether it was the 9/11 terrorist attacks or other disasters, the impact
has been severe for the airlines industry. Not just this, the travel preferences of the
millenial generation are also favorable for it.

Technological:

Technological factors’ importance can be understood from the heavy use of technology
in aviation. Both the travelers and the companies know how great a role it plays.
Technology means speed but also convenience and safety. Whether it is air traffic or
passenger safety, the role of technology is critical. The world wide web has also
brought higher profits and revenues. Most of the bookings take place online. Even the
aircrafts are enabled by best in class technology. Best in class technology means lighter
aircrafts that provide both fuel economy and speed. However, it also means convenient
interiors and a safer journey. In terms of safety too, they are more reliable and efficient.
Whether it is a commercial passenger carrier or a freights carrier, technology
affects profits. As technological changes continue, airlines continue to gain by increased

122
safety of air travel. Both Boeing and Airbus are focused on the use of innovative
technology to make air travel safer and economic.

Ecological:

The effect of ecological factors on the airlines industry might be higher than most
industries. Fuel is a major expenditure for it. As a result, these companies invest more
in fuel efficient and environment friendly carriers. The efforts to reduce emissions had
started back in the 1960s. The earliest efforts were focused at reducing the smoke from
the engines. The earlier air-crafts emitted visible smoke that was dangerous. The
industry invests in research and development so as to bring more efficient and
environment friendly air-crafts. It is focused on reducing its emissions and carbon
footprint. Billions are spent by these companies on R&D.

Legal:

Just like the political or economic factors, the legal factors are of special importance in
the context of airlines industry. There are several laws related to air traffic and
passenger safety. Particularly passenger safety is an important area. In this regard, the
airlines are held liable for air crashes or any other kind of disaster. Air transport is also
regulated by several acts that are of importance. New laws have been enforced
regarding how the airlines treat their passengers. Particularly, in US the laws related to
the convenience of the travelers are quiet strict.

123
 Industry analysis by using Five Forces Model of Michael Porter

The Airline industry provides a very unique service to its customers. It transports people
with a high level of convenience and efficiency that cannot not be provided by any other
industry or substitute. Airline companies pride themselves on the way they treat their
customer during the flight. They have things such as food, drinks, entertainment, and a
welcoming staff. The service of transportation is provided in other industries but the
airline surpasses all of them when it comes to timeliness. The geographic scope of the
airline industry is at a global level. Some firms are able to fly their planes all over the
world while others focus on smaller geographic areas.

The five forces model is one way to answer the first basic question in strategic
management; “Why are some industries more attractive than others?” This model
shows the five forces that shape industry competition; threat of new entrants, bargaining
power of buyers, threat of substitutes, bargaining power of suppliers, and competitors.
In order to analyze the airline industry we have look at each of these forces.

124
Bargaining power of Buyers

The airline industry is made up of two groups of buyers. First, there are individual flyers.
They buy plane tickets for a number of reasons that can be personal or business
related. This group is extremely diverse; most people in developed countries have
purchased a plane ticket. They can do this through the specific airline or through the
second group of buyers; travel agencies and online portals. This buyer group works as
a middle man between the airlines and the flyers. They work with multiple airline firms in
order to give customers the best flight possible. Between these two groups there is
definitely a large amount of buyers compared to the number of firms.

There are low switching costs between firms because many people choose the flight
based on where they are going and the cost at the time. This is some loyalty to firms but
not enough for high switching costs. Each customer needs a lot of important
information. They need to know the details of what is provided during the flight. Buyers
need to understand the timing of the flight and the safety aspects of flying in general.
The service provided is unique. Each airline has a niche. Some airlines focus on cost,
while others focus on having the best amenities, etc. Overall the bargaining power of
buyers has an extremely low threat in this industry.

Bargaining Power of Suppliers

Next we look at the bargaining power of the suppliers. In this case the major suppliers
are the airplane manufacturers. The top two manufacturers in the world currently are
Boeing and Airbus(Odell,Mark). In this industry the inputs are extremely standardized.
Airline companies only seem to differentiate with amenities. The planes are very similar.
Currently some manufacturers are trying to make their plans more ecofriendly.

Airline companies cannot easily switch suppliers. Most firms have long term contracts
with their suppliers. Planes are such high capital products that firms probably make long
term loan agreements and have more favorable credit terms when they don’t switch
companies. It is difficult to enter into the plane manufacturing industry because of the

125
capital needed to enter. The amount of money and expertise needed to make even one
plane is around 200 million dollars. For this reason there are very few suppliers in the
airline industry. Airline firms are the only source of income for these manufacturers so
their business is extremely important. Based on these things the bargaining power of
suppliers has a low threat as well.

Threat of New Entrants

Threat of new entrants is another major aspect of the five forces. This aspect has a low
threat for the airline industry. There are two aspects that do however raise the threat
level. First, there are extremely low switching costs. Second, there are no proprietary
products or services involved.

Even with these two aspects the industry still has a very low threat overall. Existing
firms have a large cost advantage. This industry requires a large amount of capital and
without a strong customer base there will be little to no profit in the first few years.
Existing firms can and will use their high capital to retaliate against newer firms with
whatever means necessary such as lowering prices and taking a loss.

Although there are low switching costs between brands, consumers tend to only chose
well-known names. Airline tickets are expensive so people don’t want to give that
money to firms they don’t trust. There is also a huge safety aspect involved and most
consumers feel safer with firms that have been around for a long period of time. This
industry requires plane and flying experience which also lowers the threat of entry.
When firms decide to enter the market they first have to become licensed which can
take about a year. After that they are constantly being regulated by several
organizations such as the Federal Aviation Administration and the Department of
Transportation. The time and money spend to solely open an airline company is enough
to prevent most people from entering the industry.

Threat of Substitutes

After looking at the threat of entry it is important to also consider the threat of
substitutes. This industry has a medium substitute risk level. There are substitutes in the

126
airline industry. Consumers can choose other form of transportation such as a car, bus,
train, or boat to get to their destination. There is however a cost to switch. Some means
of transportation can be more costly than a plane ticket. The main cost is time. Planes
are by far the fastest form of transportation available. Airlines surpass all other forms of
transportation when it comes to cost, convenience, and sometimes service. Consumers
do sometimes choose other methods for various reasons such as cost if they are not
traveling very far which raises the risk.

Rivalry among Existing Players

The last area of the five forces is the rivalry among existing players. The rivalry in the
airline industry is very intense for many reasons. The industry is currently very stagnant.
It seems to be in the mature stage of the business cycle. The number of competitors
stays the same in the long run and it doesn’t seem to be under or over capacitated. The
fixed costs are extremely high in this industry. This makes it hard to leave the industry
because they are probably in long term loan agreements in order to stay in business.
The products involved or the planes are highly complex which also heightens the
competition.

The competition is lessened by the brand identities of different firms. For example,
Jetblue is known for its amenities and Southwest is known for its low prices. The market
share seemed to be equally distributed because each company has its own part of the
market and because switching costs are low none of the firms can really hold a large
percentage of the market.

The strongest forces in this industry are the competition of existing firms and the power
of suppliers. The rivalry of existing players is high and will push out any firm
that doesn't have enough capital. Suppliers are strong forces because planes are so
costly to make. If the suppliers changed the credit terms by even a small amount it
could mean a significant loss for the firm. On the other hand the other forces involved
seem to have a weak threat. It is costly and time consuming to enter the market which
lowers the risk of entry. Buyers have a weak force because of the low switching costs
and substitutes are weak because they are usually too costly.

127
The profit in this industry is high because for most people flying in necessary. It is not a
trend which makes this industry profitable for the long term. Airlines that are more
profitable are in a better position because they usually have more planes and a larger
variety of flights which provides further convenience for the consumer.

Recently there have been some changes in some of the forces. Some airplane
manufacturers have been making ecofriendly planes, which is a change in the
bargaining power of suppliers. This would differentiate the products, raising the threat of
suppliers. Another recent change is the use of web portals such as Expedia to book
flights. This positive change creates a whole new group of buyers and makes
purchasing flights faster and easier. The increase in gas prices has also been a positive
change for the industry because it lessens the power of substitutes. People are more
willing to fly to their destination if driving would be more expensive.

128
 SWOT Analysis

Aviation industry means the entire aviation in India. Here, the industry can be divided
into two major parts- civil aviation and military aviation. Among lots of other industries,
the aviation industry is the fastest growing industry in India. The aviation manufacturing
hub in India is located at Bangalore, and it constitutes around 65% share of
manufacturing. (Indian Aviation)

As the number of people, traveling by air, is increasing a lot, the prospect of the aviation
industry is getting hiked. The amount of tax, paid by the Indian aviation sector, is more
than INR 87.5 billion. The huge range of services, offered by the aviation industry in
India includes cargo airlines, airport management, private jets and helicopters,
maintenance, repair and overhaul, in-flight catering, ground handling and lots more.

129
Strengths in the SWOT analysis of Aviation Industry in India

The strengths of an industry or the businesses are mainly those things which make
them unique in the market and also keep them far ahead of their competitors. The
strong areas of the Indian Aviation Industry are as follows-

1. The strength of the Product– For every successful business, this is one of the
most common objects that play a huge role in increasing the strength of the
business. To the aviation industry in India, the product is air travel which is
growing every day. The increased propensity to fly has provided immense growth
to the industry while the huge population of the country plays the rest of the part.

2. Consolidation in Aviation Sector– the Indian aviation industry is growing

because of the alliance it has got to promote its substantial growth.

130
 3. Low-Cost Service– There are lots of airline services which are bringing
the opportunity of flying at comparatively low cost than other plush airline
services. Due to that, people try to fulfill their dream to fly.

4. Changing Lifestyle of People– Lifestyle of people is regularly changing, and the

disposable income has also increased. This gives the opportunity of the enjoying
the lavish way of traveling, flying.

5. The Labor Cost Is Low– in India, the labor cost is quite low, that is $30-35 per
man for an hour. This is $55-60 in the Middle East and South-East Asia and even
more in the USA and Europe.

6. When Safety Is Concerned– This is one of the safest modes to travel in

comparison to others and also the quickest. People will prefer it more.

7. Highly Trained Staff– No matter the ground staff or the flight attendants, the
Indian Aviation Industry is getting hyped because of the crew members of the
industry.

8. Dealing with Advanced Technology– From fuel-efficient transport to the

advanced and automated ground process, technological advancement has made
this industry one of the fastest growing industries in the world.

Weaknesses in the SWOT analysis of Aviation Industry in India

Weaknesses mean these are the areas where the industry has scopes to do better than
before. The places of improvement in this industry are-

1. Personal importance Gets More Importance– Each Airline Company deals

with their own problems and concentrates only on their own issues instead of
thinking about the entire industry of India.

131
 2. Lack of Infrastructure– It is true that the Government is trying their best to get
better-planned airports and top class infrastructure, still there are certain
loopholes.

3. Fixed Revenue– This is a weakness of aviation industry in comparison to other

transport industries. Actually, once the flight goes, the empty seat will remain
empty.

4. Still Quite Expensive– No matter how the airline companies are providing
cheap offers, still flight tickets are expensive and also require pricy
disbursements.

Opportunities in the SWOT analysis of Aviation Industry in India

These are the areas which can be used to gain more revenues for the business. Some
essential opportunities of this industry are as follows-

1. Improvement in Investment– For the green field airport the Government has
approved 100% FDI of which 49% is for domestic airlines. Foreign investments
up to 74% are permissible for direct investment.

2. Technological Advancement– The more technology will keep on blessing, the

facilities like automated ground processes, fuel-efficient aircrafts, etc. are
booming around.

3. Increased Revenue– The in-flight customer-friendly services have been

increased, and the other value-added products will also raise the revenue as
customers have to pay for those separately.

Threats in the SWOT analysis of Aviation Industry in India

These are the factors for a business which bring jeopardies for the industry and decline
the growth of it. Some of the threats to aviation industry in India are-

132
1. Economic Downturn– A global economic slump can affect the growth of the
aviation industry as it will disturb the leisure traveling along with business
traveling.

2. The threat of Terrorist Attack– Seeing the situation of the world; this is always
a great risk for the flights and overall aviation industry.

3. Increasing Cost of Fuel- Though fuel-efficient airlines are emerging, still

maximum airlines are dependent on fuel. The cost is increasing which will
inevitably make the flights more expensive.

4. Shortage of Skilled Manpower– This is a real trouble as skilled manpower like

professional ground staffs, cabin crew, flight attendants, and pilots are not highly
available.

133
 FUTURISTIC SCENARIO OF THE INDUSTRY

International Airport Review‘s guide to the 20 defining factors that will change airport
and aviation over the next two decades does not necessarily look at each aspect in
order of importance but crucially includes those we firmly believe to be the 20
innovations, challenges and general phenomena that hold a valid claim to their inclusion
in our list.

#1 Drones

Drones are most definitely entering the conversation and are being discussed in greater
detail than ever before. Certain parties (NATS are an example) are already offering
consumer guidance on how to operate drones safely and responsibly. However, it is
widely considered that drones have the potential to destabilise the safety of operations
at airports around the world. Like with many emerging technologies and phenomena,
the impetus is on the industry and regulators to anticipate and not react to potential
threats.

134
#2 AI & robotics

Breakthroughs such as SITA’s innovative automated check-in kiosk that senses which
areas of the airport are busy before moving itself to these areas to alleviate check-in
queues, and Schiphol’s (among others’) concierge robots that greet passengers with a
fixed smile upon entry into the Dutch airport, are just some of the wide range of different
robotic disrupters that we are seeing enter some of the world’s largest airports.

#3 Cyber security

If you’ve been listening to the news over the past twelve months, you’ll be well aware of
the nature of the threat that cyber attacks pose to all aspects of society. In the politically
unstable world we are currently faced with, conflict is increasingly occurring online.

135
#4 Environmental change

Aviation and the airport industry needs to continue its excellent work in the face of rising
demand and volumes of passengers in ensuring that its emissions growth does not
correlate with this trend.

#5 Big data

With this passenger data, if analysed and implemented intelligently, the airport or airline
can tailor experience according to the individual. This might happen in a variety of ways
and these ways are themselves in the process of being explored as we speak.
However, one example might be that of using an airport app. In light of the passenger
knowledge acquired, the airport might send a push notification to a passenger who has
in the past particularly enjoyed the duty free section of an airport, promoting a special
offer for them. A personal offer perhaps. Equally, the airport would avoid sponsoring
retail opportunities to business travellers who wish to get from A to B as rapidly as

136
possible. The airport can find this out via data collection and analysis. This ensures that
those that might wish to spend money on luxury chocolates, currently at a 2 for 1 price,
know precisely where to get them, and avoids annoying those who are not going to
spend. Subsequently, the passenger has a more tailored, personalised experience and
in some cases the airport and airline can maximise its revenue intake. It’s a win-win.

#6 In-flight services

In-flight Wi-Fi we imagine will become an expectation from the passenger and several
airlines are taking steps as we speak to offer connectivity.

Furthermore, we have already seen Royal Brunei Airlines among others offer in-flight
streaming of the latest TV and music options on mobile devices using cloud streaming
technology on-board Royal Brunei Airlines‘ Airbus A320.

137
#7 Real-time updates

What happens when a passenger requiring disability assistance shows up for a

connecting flight unexpectedly because the departure station did not-or was not able to-
pass on the information? The theory is that a real-time updates integrated within an
efficient management system will enable reaction methods to real-time challenges to be
drastically improved upon.

#8 Simplified airspace

It all stems back to the notion of greater communication between the various parties
within the aviation sector and their need to communicate to better ensure that a
simplified airspace – essentially what we all desire – can be enacted in the interests of
all regions, airlines, airports etc.

#9 Single token

138
Airports, governments and airlines are increasingly looking to create synergy between
the airport stakeholders responsible for passenger facilitation through a seamless
process. The number of passengers over the next 20 years is predicted to double and
as such airports and airlines must prepare for this growth while attending to more
demanding passengers in a competitive environment.

#10 Self-service

Efficient, time-saving and resource friendly, self-service benefits all. Be it the capacity to
print ones own baggage tags and sort out baggage drop without queuing and relying on
a member of staff to complete the process, to simply checking oneself in, self-service is
already widespread and is only expected (we think) to become more and more
entrenched in our passenger expectations when travelling by air. The age of autonomy
has arrived!

139
#11 Apps & beacons

Apps are omnipresent. Anyone with a smartphone by definition uses an app in some
shape or form. We are beginning to see a shift in the airport and aviation industry
towards an increasingly number of airport and airlines offering an app. For
example, London Heathrow offers a concierge app named Heathrow Airport Guide that
offers consistent support to the passenger travelling through an airport. Be it real-time
flight information, maps and useful information or easier booking possibilities for say
parking or special assistance, in our opinion, the global shift to mobile and airport and
aviation’s embrace of this fits International Airport Review‘s belief that we are witnessing
the supremacy of ‘seamless travel’ in the modern airport world. Apps can offer a
personal touch, increased efficiency and a technologically-current means of easily
transmitting information.

140
Not only do apps empirically benefit the passenger’s experience when travelling by air,
they also have the capacity to encourage revenue generation through push notifications
of special tailored offers or by simply promoting the idea of brand loyalty be it for an
airport or airline by the very fact that the passenger has their specific app downloaded
onto a device.

141
#12 Airport cities

Having discussed Chinese airport expansion in the first instalment of our

countdown, the world’s most populous country further demonstrates the emergence and
proliferation of the airport city model. The aforementioned Zhengzhou is an east-central
provincial capital barely known outside of China. By the year 2030, it is predicted that its
airport’s two terminals and five runways that are to be built will be able to handle 70m
passengers yearly. The city has plans to become an aerotropolis seven times the size
of Manhattan but unlike JFK which lies over ten miles south east of Manhattan, Chinese
planners aim for the city of Zhengzhou to be built around its airport.

#13 Cargo

142
.An intelligent cargo ecosystem of agile applications can bring together data insight,
automation and connectivity to discover more intelligent ways of moving cargo around
the world.

We most certainly will see the increasing integration and digitisation of the air cargo
industry over the next 20 years.

#14 Augmented reality

“Virtual Reality (VR) is often associated with glasses that take you to a virtual world
where your actual real movements are translated to the virtual world. On the other hand,
perhaps even more relevant, Augmented Reality (AR) is more likely to penetrate the
airline and airport space

The above image shows a hypothetical AR view of a passenger, where the view is
enhanced with information (sensory input, static and dynamic information sources,
location, object and context awareness) and functionalities (e.g. buying lounge access

143
by looking at the lounge access button at the top right corner of the view, and blinking
twice, which would act as a click of a mouse).

#15 More accurate meteorological predictions

WSI Fusion, the global flight operations management solution for commercial airlines
from The Weather Company, an IBM Business, provides early insight into changing
flight, airport, and airspace conditions, which offers a highly accurate glimpse into the
future to better anticipate planning and staffing shifts. Fusion enables customers to
optimise operations and mitigate the impacts of disruptive events – weather, outages,
etc. – by fusing global public and proprietary weather information, airspace constraints,
flight tracking information, and navigation data into a unified and clear operational
picture to take the guesswork out of situational decisions.

144
#16 The rise of Chinese airport infrastructure

China has undergone a frenzied period of airport construction over the past few
decades. Between 2011 and 2015, over 100 airports were constructed in China on a
governmental push to expand its airport infrastructure and capacity. This reflects what
the government calls ‘airport economics’ – based around the notion that the building of
an airport in a given area is directly conducive to regional economic growth.

There are obvious concerns for the environmental impact of the blistering pace of
Chinese airport construction and there are debates as to whether the level of spending
really is a sensible economic investment due to the increasing power of its railway
network and rising debt. Either way, the impact of the 100 airports completed in this four
year period on the global aviation balance cannot be denied. This however, along with
much of the changes in China’s economic environment, remain almost impossible to
accurately predict on a global scale.

145
#17 The low-cost take over

It is thought that this reflects the idea that the Irish airline is taking steps to tackle the
online travel agency market and convince other airlines to allow their flights to be sold
on Ryanair sites. This is where the Amazon analogy enters into the fray as this model is
similar to that of the online giant.

Nevertheless, the gap between the low-cost carrier’s capacity and the long-haul model
is becoming smaller and smaller as illustrated in the diagram below:

Norwegian’s latest long-haul venture to the US represents a prime example of the

incremental encroachment of the low-cost carrier onto the legacy airline’s territory.

#18 Block chain

146
Blockchain technology has been intensely in the spotlight across 2016, and will continue
riding the wave in 2017. It would be harsh to call it a hype as it’s a genuinely disruptive
force to be reckoned with in aviation and any other industry, in particular by
intermediaries. Above all, it offers amazing opportunities which go well beyond financial
transactions, albeit most of the popularity has been gained through Bitcoin and projects
initiated by major international banks.

#19 Capacity issues and expansion

The International Air Transport Association (IATA) expects 7.2 billion passengers to
travel in 2035, a near doubling of the 3.8 billion air travellers in 2016. The prediction is
based on a 3.7% annual Compound Average Growth Rate (CAGR) noted in the release
of the latest update to the association’s 20-Year Air Passenger Forecast.

147
“People want to fly. Demand for air travel over the next two decades is set to double.
Enabling people and nations to trade, explore, and share the benefits of innovation and
economic prosperity makes our world a better place,” said Alexandre de Juniac, IATA’s
Director General and CEO.

We predict that through discussion at events such as these and similar platforms for
dialogue such as the upcoming Airport 2017 event in Vienna later this year in
September, noticeable collective progress will be made.

148
 CONCLUSION

 India’s aviation industry is largely untapped with huge growth opportunities,

considering that air transport is still expensive for majority of the country’s

population, of which nearly 40 per cent is the upwardly mobile middle class.

 The industry stakeholders should engage and collaborate with policy makers to

implement efficient and rational decisions that would boost India’s civil aviation

industry.

 With the right policies and relentless focus on quality, cost and passenger

interest, India would be well placed to achieve its vision of becoming the third-

largest aviation market by 2020.

 One of the fastest-growing industries in India, the Aviation sector is poised to be

the growth engine for future progress.

 It is a vital sector for linking businesses, bringing people together and promoting

tourism worldwide.

 In the next two decades, the growth of air passenger traffic in India will open up

tremendous opportunities AVIATION for investment in infrastructure development

& upgradation and manpower.

 With its large pool of engineering talent and low labour costs, India also has the

potential to become a global aviation hub for MRO (Maintenance Repair and

Overhaul).

 To conclude Indian aviation industry is on the path of steady and stable

development.

149
 BIBLIOGRAPHY

5 innovative marketing strategies used by airlines. (n.d.). Retrieved from Hotel Speak:
https://www.hotelspeak.com/2019/07/5-innovative-marketing-strategies-used-by-
airlines/

Aviation benefits for a better future. (n.d.). Retrieved from Uniting Avition:
https://www.unitingaviation.com/strategic-objective/economic-development/aviation-
benefits-for-a-better-future/

Aviation Management Introduction. (n.d.). Retrieved from Tutorialspoint:

https://www.tutorialspoint.com/aviation_management/aviation_management_introductio
n.htm

Dividend Per Share. (n.d.). Retrieved from Investopedia:

https://www.investopedia.com/terms/d/dividend-per-share.asp

Indian Aviation. (n.d.). Retrieved from IBEF: https://www.ibef.org/industry/indian-

aviation.aspx

Mark, C. (2017). Market segmentation , Targeting and Positioning.

Top aviation companies. (n.d.). Retrieved from business maps of india :

https://business.mapsofindia.com/aviation/top-aviation-companies.html

150