Evolution of Airline Industry in India Essay

2080 Words 9 Pages
Airline industry is affected by no. of factors such as fuel price fluctuations, high fixed costs, strong influence of external environment and excessive use of marginal costing by carriers. Recessions in the industry tend to last longer, while recovery periods are generally shorter. Over the past nine years, it is observed that industry has made losses for five years and during the profitable years margins were on a lower end. The airlines industry is acutely sensitive to external events such as wars, economic instability, government policies and environmental regulations.
Evolution of airline industry in India:- Civil aviation took its roots in India in December 1912 with the launch of the first domestic air route between Delhi and
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2003-04 to 2005-06: Competition intensifies:- Establishment of the Ministry of Civil Aviation, liberalization with regard to private carriers having improved access to international routes, rise in foreign direct investment caps, accompanied by modernization of airports, resulted in significant growth for the aviation sector. The airport infrastructure policy allowed 74 per cent foreign equity participation in airport infrastructure with automatic approval and 100 per cent equity on case-to-case basis. The entry of Air Deccan, which offered tickets at competitive rates compared to other carriers, intensified the degree of competition substantially. A liberalized domestic open skies policy paved the way for many new carriers such as Spice Jet, Go Air, Kingfisher and Paramount Airways to enter the sector. 2006-07 to 2007-09: Deflating revenues and inflating costs:-Carriers could not pass on the increasing costs due to intense competition in the domestic market. Margins of all carriers, including new entrants in the industry (Air Deccan, Spice Jet, Go Air, Indigo and Kingfisher), came under severe pressure on account of promotional fares, lower PLFs in initial years and high expenditure on marketing and branding. Carriers had to offer tickets below their operating costs, which brought their operating margins into the red, given increased

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