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| Current scenario |
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| Over the past 10 years, the Indian aviation has moved from a closed, poorly managed and over-regulated industry to a more open, liberalised, and investor friendly sector. Liberalization of the sector and entry of low cost carriers have been the main drivers for the growth. The sector has also witnessed growth in terms of increased airport infrastructure and increased numbers of operating airlines. |
| The key sector trends are as captured as under: |
- Earlier all airports were in AAI control, which carried out improvements by subcontracting to EPC contractors. However, over last five years, airport infrastructure has attracted private investment through the PPP route at four international airports, viz. Delhi, Mumbai, Bangalore Greenfield and Hyderabad Greenfield airports
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- The Government has increased the FDI limit to 100% in Greenfield airports and airlines. Larger private sector role in airport infrastructure and management has led the Government to introduce an Airport Economic Regulatory Authority Bill to regulate private airport and airline operators market. The Authority will have functions relating to tariff determination, amount of development fees in respect of major airports, amount of passenger service fee, and monitoring of performance standards relating to quality, continuity and reliability of service.
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- The number of airlines including low cost carriers has increased. This led to subsequent increase in competition and fare reduction which further fuelled the air traffic growth.
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- The sector has witnessed accelerated fleet acquisition activities and present fleet size of all domestic airlines has exceeded 300 aircrafts. However, present downturn may slowdown fleet expansion plans
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- Up gradation and modernization of airports and as well as the rising fleet size have raised need for support services such as setting up of MRO facilities and boosting cargo operations by setting up air cargo facilities. Significant planned expansion of India’s fleet has lured several global players such as Airbus, Boeing, SIA Engineering, ST Aerospace and Lufthansa Technik to establish MRO facilities in India. Large investments are expected in MRO (Maintenance Repairs and Overhauls) segment in India.
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- Liberalizing bilateral traffic rights with several countries has taken total seats entitlement up by 123% between 2003 and 2006. This led to 17.8% growth of international traffic in 2007-08 from last fiscal.
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- Higher fuel costs, structure of high taxes and higher user charges are leading to huge margin pressures on airlines, initiating a trend of consolidation through mergers and acquisitions of airlines.
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- The nationwide passenger demand growth is strongly exhibited in Gujarat too. Historically, Gujarat airports exhibited a growth rate of 1.2% in passenger traffic during the five year period from 1997-98 to 2002-03, lower than the all India average of 5% during the same period. After 2002–03, passenger traffic witnessed 26% compounded annual growth rates which was 5% higher than the national average. This turnaround was primarily observed at Ahmedabad airport and was driven by low cost carriers, higher price elasticity, increased disposable incomes and overall buoyancy of the economy.
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- Demand for backup and supporting industries like Maintenance Repair and Overhaul, aviation hubs, aviation manpower etc has increased due to the growth in the aviation sector.
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- Over the eleventh five year plan period, Rs. 40,880 crores of investment is envisaged in airport infrastructure. Modernization of metro airports comprise 40% of eleventh plan investment where as 35 non metro airports across the India will be upgraded at an investment of Rs 6,149 crores. This forms 15% of non metros investment. However 30% of eleventh plan’s investment is envisaged in development of several Greenfield airports across the India. Approximately 75% private sector investment is envisaged in this period indicating larger role for the private sector.
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- Growth in civil aviation is threatened by challenges such as declining volumes due to high fares, high operational costs, global economic slowdown, security and law and order issues and a traditional high cost loaded structure of the industry which is difficult to recover in a short time. These developments have put a huge strain on the airlines’ capacity to sustain volumes. The airlines are now responding through mergers, acquisitions, tie ups and cost cutting measures within leading airlines. However, downturn in oil prices, committed Government support, strong underlying fundamentals of the Indian economy may help the sector tide over the crisis.
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| The present report tries to absorb the above developments. We begin with an analysis of the passenger opportunity in Gujarat |
| Airports |
2003-04 |
2004-05 |
2005-06 |
2006-07 |
2007-08 |
| Ahmedabad |
7.24 |
9.17 |
14.39 |
20.92 |
24.62 |
| Vadodara |
3.12 |
3.62 |
3.60 |
4.04 |
5.02 |
| Rajkot |
1.27 |
1.58 |
1.40 |
1.61 |
1.54 |
| Bhuj |
0.61 |
0.65 |
0.78 |
0.85 |
0.92 |
| Bhavnagar |
0.53 |
0.64 |
0.53 |
0.65 |
0.69 |
| Jamnagar |
0.45 |
0.59 |
0.70 |
0.84 |
0.96 |
| Total |
13.22 |
16.25 |
21.4 |
28.91 |
33.75 |
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| Source: AAI |
(Nos in lakhs)
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