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Contents

INTRODUCTION 3
OBJECTIVES 4
INDUSTRY/SECTORS/COMPANY IN NEWS 4
What Akasa is all about 4
What is Akasa Air’s Model? 5
GOVERNMENT POLICIES 5
ANALYSIS (Factors affecting Demand) …….……………….……………………………………………………………...……………… 6
PROBLEM AND CHALLENGES/ISSUES OF SECTOR.………………………………………………………….…….………..9
Challenges for Indigo after Akasa.….………………………………………………………………………………….…………...………….…
9
Problems with rupee.……………………………………………………………………………………………….…….……………….……….…. 9
The Pre-Covid Era ………………………………………………………………………….………………….………………………….……….
10
SUGGESTIONS ................................................................................................................................................. 10
CONCLUSION ...................................................................................................................................................
11
REFERENCES ................................................................................................................................................... 12

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Introduction

The Aviation Industry encapsulates the development, operation and management of aircraft. While the
common perception about the sector is that it’s only about pilots and air hostesses, they are numerous other,
equally significant job options that the industry cannot function without, from in-flight trainers and aircraft
maintenance engineers to baggage handlers and reservation agents. The air industry also supported a total of
65.5 million jobs globally. Airlines service providers and airports directly employed around three and a half
million people. A further 5.6 million people worked in – airport positions. 55.3 million indirect, induced and
tourism-related jobs were supported by aviation. As Aviation Industry Is expected to witness Rs 35000 crore
investment in the next four years. The Indian Government is planning to invest US$ 1.83 Billion in the
development of airport infrastructure along with aviation navigation services by 2026. So as till now, Indigo
has the largest market share in the Indian Aviation Industry with a fleet of 250 aircraft, it’s around 55.7%
market share then follows by Spice jet consists of 13.3% market share, Tata Group consists of Air Asia, Air
India, Vistara comprises of 23.2% market share and others company have to share Minimum of 10 % - 12% in
the aviation sector.

Market share of airlines across India in the financial year 2022:

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From Business Standard Newspaper(www.business-standard.com)

Objectives

 To study the impact of Akasa Airlines on the aviation sector.

 To study the background of Akasa Airlines.
 To study government policies related to the aviation industry.
 To study the impact of Covid-19 on the aviation sector in India.
 To study how economic principles are applied in the aviation sector.

Industry/Company/ Sector in news

The arrival of a new airline player is not ordinary news, especially when it’s backed by share market bull
Rakesh Jhunjhunwala (RIP). In the past few years, we have seen many airlines going out of business, most
notably Kingfisher, we have seen some significant changes as well such as the privatization of Air India and we
have also seen how covid had punctured the aviation industry.

In this section, we will see what akasa is all about.

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On 29th October 2018, Lion Air Flight 610 departs from Jakarta for Indonesia, within 13 minutes of taking off
it crashes into the Java Sea killing all 189 passengers and crew. It was the first major accident involving the new
Boeing 737 MAX series of aircraft but not the last.

On 10th March 2019, a similar tragedy happened with Boeing 737 MAX 8 killing all 157 people on board.
Boeing lost 40 billion dollars in market value, shedding 14% in its market valuation.

These two events led to the groundings of Boeing 737 MAX around the world signaling the massive trust
erosion in the company. In 2019, Boeing recorded 2 billion dollars in operating losses down from 12 billion
dollars in profits the previous year. They rapidly lost market share giving it away to Airbus.

Mr Jhunjhunwala saw this as an opportunity and planned to capitalize on it. Possibly, Boeing offered 737MAX
at a heavily discounted price as they look to reclaim their lost market share. Boeing claims the 737MAX range
is the most fuel-efficient flight on the earth, which in turn would of course lower the per seat-mile cost. This is
the most important factor that if taken care of can give an advantage to akasa airlines in the long run.

What is Akasa Air’s Model?

The Model that Akasa Air aims to follow is the Ultra Low-Cost Carrier (ULCC) as the greenest fleet - Akasa
airline claims that it will be the greenest fleet in the Indian skies. Their 737 MAX family aircraft is known for
reducing fuel use and carbon emissions, it’s all because of CFM fuel-efficient. This will help the airline in
fulfilling its promise of being an environmentally-friendly airline.

The followers of this model would stuff as many seats as possible onto planes, fly more hours a day and keep
seat prices separate from all the related goods and services. Apart from this, ULCC would aggressively sell
advertising space, so be it luggage bins, foldable seat back trays, paper cups, food packaging everything will be
a fair game.

The main idea is to keep operating costs as low as possible. It will be interesting to see how effectively akasa air
does all this without compromising the quality of service.

Government policies

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 Foreign investment up to 49% is allowed under the automatic route in 2021.
 Under Union Budget 2021-22, the government lowered the custom duty from 2.5% to 0% on
components or parts, including engines, for the manufacturing of aircraft by public sector units of the
Ministry of Defense.
 Open Sky Policy –
The Open Sky Policy of 1990 was an attempt by the government of India to allow air-taxi operations
from any airport throughout India. The policy allowed them to run chartered or non-chartered flights
based on their schedules to the destinations of their choice or based on market trends. This policy has
become the root cause of all the current developments in the aviation sector.
The development includes the following:
 Low-cost air travel options provided by many budgets’ airlines
 The easier registration process for a civil aircraft
 Licensing the air traffic controllers
 Certifying the Indian carriers of an air operator’s certificate

 UDAN
UDAN stands for Ude Desh ka Aam Naagrik (Let the common citizens of the country fly) and is a
regional airport development program of the Government of India. Its goal is to make air travel
affordable and improve economic development in India.

The scheme has been launched in five phases -

UDAN 1.0: 36 new airports were commissioned, and 128 flight routes for 70 airports were awarded to 5
airline companies.
UDAN 2.0: It added a helipad for the first time. In 2018,73 unserved airports were announced.
UDAN 3.0: This included tourist routes, seaplanes to connect water aerodromes and routes under
‘UDAN’ in the northeast region.
UDAN 4.0: 78 new routes approved in 2020 in this phase, Kavaratti, Agatti and Minicoy islands of
Lakshadweep will also be connected by new routes.

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 UDAN 4.1: Its focus is on connecting small airports, special helicopters and seaplanes routes under
UDAN.

Analysis (Application of economic principles)

Factors affecting Demand:

Accessibility and affordability: These 2 factors are responsible for the success of Low-Cost Carriers (LCC).
When planning a trip, Many Indians focuses on affordability and accessibility. Akasa Air, as a ULCC, will be
able to meet these needs due to its point-to-point network across the country and competitively low prices.

Rising working group and widening middle-class demography: As India’s middle class expands, more
consumers have higher disposable income levels. As a result, it will be affordable to travel by plane rather than
other modes of transportation in India. In India’s expanding population, demand for LCCs may outweigh
supply. Future shortages will be met by Akasa Air, given its plan to increase the number of aircraft in its fleet
by 12-14 per year.

Passenger Growth: Passengers carried by domestic airlines during January-July 2022 were 669.54 lakhs from
393.44 lakhs during the corresponding period of the previous year thereby registering an annual growth of 70.18
% and monthly growth of 93.82 %. India is going to become the 3rd largest aviation market by 2024 in terms of
passengers all over the world, which is quite a jump.

From PDF – IBEF

Air freight in India

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As India’s economy develops, so does the demand for international trade and air freight. From FY 2016 to FY
‘22, the volume of Indian freight traffic increased at a CAGR of 2.52 per cent.

Investment and supply growth

Airports: Airports are crucial links in the air transport value chain. The number of operational airports in India
is going to be risen up to 190-200 by 2040 as aviation demand rises across the country. The airport capacity of
India is expected to grow by 1 billion trips annually by 2023, according to PRS Legislative Research.

MRO (Maintenance, Repair, and Overhaul): Growth in aviation accentuating demand for MRO facilities.
According to the IBEF, the MRO industry is likely to be worth over US dollars 2.4 billion by 2028 from US
dollars 800 million in 2018 which is quite a huge growth. the government announced a new policy to attract
MRO investment and eventually make India a global MRO hub. Instead of five years, the land allotment for
MRO facilities will be leased for 30 years like in previous terms.

Government’s push: Under Union Budget 2021-22, the government allocated Rs. 3.224.67 crore (US$ 440.36
million) for the Ministry of Civil Aviation. the government lowered the custom duty from 2.5% to 0% on
components or parts, including engines, for the manufacturing of aircraft by public sector units of the Ministry
of Defence. Indian aircraft Manufacture, Repair and Overhaul (MRO) service providers are exempted
completely from customs and countervailing duties.

Encouragement to FDI: Foreign investment up to 49% is allowed under the automatic route. FDI inflows in
India’s air transport sector (including air freight) reached US$ 3.54 billion between April 2000-March 2022.
Price Elasticity of Demand

Price elasticity of demand is a measure of the responsiveness of consumers to changes in the price of a product.
Akasa airline although being a low-cost carrier is relatively elastic. In the ULCC (ultra-low-cost carriers) airline
business model, the companies like IndiGo, SpiceJet and current new entrant Akasa focus on keeping operating
costs even lower. In the low-cost model, airlines unbundle certain facilities associated usually with the full-
service airline experience- like seat selection, food and beverages, etc. In the ultra-low-cost model, splitting
services like checked-in baggage, cabin baggage, etc is even more present.

However, experts have pegged that for a market like India, operating on a ULCC model is tough because of the
lack of availability of no-frill airport terminals from which the lower costs are derived. Examples of such
terminals are present all across Europe and are used by airlines such as Ryan Air, EasyJet, etc.

Market Structure of Airline Industry:

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The airline industry is an Oligopoly market. Airlines Industry is controlled by a small group of firms because
the barrier to entry is imposed by high capital investment, government regulation and existing incumbent firms.
One sees the following characteristics concerning the Indian passenger airlines market.

1. Few firms contributing to over50% of the market share.

2. Products are differentiated in terms of service quality and offerings.

3. MR=MC

4. P>MC

5. Entry barriers

26. Firm is a price setter

7. Long run profit>=0

8. Strategy dependent on individual rival firm’s behaviour

Problems/Challenges/ Issues of the sector

Challenges for Indigo after Akasa

India's aviation industry has embraced a new wave in airline travel as India’s Warren Buffet, and Rakesh
Jhunjhunwala has finally launched an Ultra-Low-Cost Carrier, Akasa Air and this giving a major challenge to
Indigo airline. The fact that the industry is an unexplored arena and yet a very risky platform makes the new
initiative of Mr Jhunjhunwala more unpredictable and yet attractive. It cannot be denied that this investment is
going to alter the airline industry for good.

Problems

Rupee depreciation affects the airline industry badly

As Rupee is getting depreciated the price of ATF is also getting expensive day by day and the main reason for
this is the current global crisis which is ongoing due to many factors like the Russia-Ukraine war & low
production of Crude oil from OPEC countries.

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Increase in fuel prices
Aviation turbine fuel (ATF) is one of the important sections of the aviation industry. The Indian government
didn’t reduce the jet fuel prices when there was a fall in international crude oil prices. But, when there is a rise
in crude oil prices, the government increase the fuel cost for the aviation sector too which impact the operations
of the airline. Jet fuel accounts for 45 per cent of an airline's cost of operation and in the past year, the ATF
price has witnessed an increase of nearly 30 per cent and 25 per cent in just the last six months.

Historical / Previous ATF / Jet fuel price in New Delhi.

MONTH RUPEES ₹ DOLLARS $

₹ / KL ₹ / LIT. $ / KL $ / LIT.
1-Aug-22 121915 121.915 1161.28 1.16128
1-Jul-22 141233 141.233 1373 1.373
1-Jun-22 121475 121.475 1181.86 1.18186
1-Apr-22 112924 112.924 1125.25 1.12525
1-Mar-22 93530 93.53 930.77 0.93077
1-Jan-22 76062 76.062 756.23 0.75623
1-Dec-21 77532 77.532 817.37 0.81737
1-Oct-21 72582 72.582 738.28 0.73828
Source – (www.petroldieselprice.com)
The Pre-Covid Era

Fuel Efficiency

Aviation fuel availability and cost of fuel have remained one of the most important economic factors affecting
the airline industry for nearly three decades. Alternative fuels didn’t have that much impact, therefore
maintaining fuel efficiency is a key challenge in the aviation industry for the new entrant in aviation.

Global Economy

The planet economy is one of the first challenges for the airline market. The impact of the recession/Covid-19
on the tourism sector is one of the key economic factors that affected the airline industry. As travelling
companies also want expansion in other nations and explore new routes, they also need to detain mind the
market conditions and volatility within the nation.

Global Congestion

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A couple of decades back, the air had been expensive for normal people, especially in a developing country
like India. But the scenario has changed quite a lot, today, airports in India are so crowded that it's led to
unnecessary flight delays. Most flights seem full, terminals are always congested, and not only that, the skies
are overcrowded with the excessive number of aircraft.

Global Climate Change

Global climate change and environmental issues like global warming & rise of global average temperature have
remained among the key challenges faced by the aviation sector in India. If you look at top air polluted cities
most of them are from India.

Suggestions

 Akasa should be priced at competitive fares to not lose passengers who are cost sensitive
 Akasa should make sure that their flights will be available with prime slots at metro airports.
 Akasa should make sure in delivering consistent services.
 Airline companies in India should make Air Cargo Infrastructure a national priority.

Conclusion
Consequently, there has been an increase in air fares across the existing carriers, with yields reaching historical
highs. With the entry of new carriers like Akasa, the revival of Jet Airways and the consolidation of the Tata
group-owned carriers Air India, Air India Express, Vistara and AirAsia India, passengers may get some relief in
airfares amid increased competition. This will also help them leverage the benefits of scale, amortise costs and
set up operations to fly internationally. However, success also depends on demand patterns and geopolitical
dynamics,

Akasa is flying into an intensely competitive market with razor-thin margins. It is also a market where the top
two players, namely IndiGo and the Tata group airlines, command more than 80 per cent market share
Managing Partner at aviation advisory AT-TV.

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References
https://www.youtube.com/watch?v=Mj8WZLtqo7Q
https://swarajyamag.com/news-brief/what-is-akasa-air-doing-differently
https://www.ibef.org/industry/indian-aviation#:~:text=Introduction,passenger*%20market%20by%202024%5E
https://www.livemint.com/news/india/rakeshjhunjhunwala-backed-akasa-air-plans-to-operate-over-150-weekly-
flights-by-septemberend-11660921065898.html
https://www.ibef.org/industry/indian-airports-analysis-presentation
https://www.civilserviceindia.com/current-affairs/articles/problems-in-indian-aviation-industry.html
https://www.researchgate.net/publication/
329072361_ISSUES_AND_CHALLENGES_OF_INDIAN_AVIATION_INDUSTRY_A_CASE_STUDY
https://www.petroldieselprice.com/atf-aviation-jet-turbine-fuel-oil-price/New Delhi#:~:text=Jet%20fuel%20oil
%20price%20in,Per%20litre%20in%20New%20Delhi.
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https://centreforaviation.com/analysis/reports/upcoming-aircraft-orders-and-new-entrants-further-underline-
indias-growth-potential-615798
https://www.india-briefing.com/news/opportunities-and-headwinds-in-indias-domestic-aviation-industry-
25650.html/
https://ijclp.com/developments-post-implementation-of-open-sky-policy-1990-and-air-corporations-transfer-of-
undertakings-and-repeal-act-1994/#:~:text=Therefore%2C%20the%20Open%20Sky%20Policy,or%20based
%20on%20market%20trends
https://en.wikipedia.org/wiki/UDAN
https://www.ibef.org/industry/indian-aviation/infographic

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