Aviation Scenario in the Region

1
Aviation Scenario in the Region

• Presentation By
• Pankaj Srivastava
• Regional Manager-Gulf
• Indian Airlines, Dubai
• 
  19.9.2004

2
Aviation Scenario

• Global Industry
• Scenario in the Region
• Indian Context
• Major Issues

3
Global Industry

• Industry Today
• 100 years of flight in 2003
• From 10 m passengers in 1944 to 1.6 b today
• Estimated annual growth _at_ 4.5 approx 2.2 b by
  2010
• Important driver of economic growth Among the
  largest industries globally
• Highly vulnerable to external shocks

4
Global Industry

• Recent Past
• World Airline Industry severely tested in recent
  years
• Global economic slowdown
• September 11
• Iraq conflict
• SARS
• 50 years of profits wiped out in 2002 itself
  Global airlines lost USD 30b between 2001 to 2003
  
• Additional security measures cost airlines over
  USD 5b annually

5
Global Industry

• Recent Past
• Many renowned airlines closed many on verge of
  bankruptcy
• Industry recovery initiatives include ruthless
  cost reduction 400,000 jobs slashed
  restructuring of routes other cost-cutting
  measures
• Even in their best year, airlines made an average
  net profit of 2.9 only

6
Global Industry

• Signs of Recovery
• 20.1 growth during 2004 first half
• 8.2 over same period in 2000 Thus three years
  growth is lost
• Industry not out of the woods as yet

7
Global Industry

• Major issues before the industry today
• Cost structure fuel, security, etc
• In 2004 Rising Fuel prices Every dollar per
  barrel adds USD 1b to industry costs
• Safety
• Security Over USD 5 b annual costs
• User charges

8
Middle East RegionThe Star Performer

• In spite of decline of aviation industry all over
  the world, ME region has been able to maintain
  growth.
• 33.5 growth during Jan-Jul 2004 over previous
  year 47.8 in comparison with 2000
• Two new airlines formed Etihad and Air Arabia
• Less impact of the factors that affected the
  industry all over the world

9
Middle East Region

• Growth Stimulators Economy
• Emergence as major tourism destination ( Dubai
  Qatar making aggressive bids for tourism hub)
• Booming construction business
• Restructuring of key sectors finance, real
  estate, IT
• Creation of hassle free business environment
  Adoption of free market principles

10
Middle East Region

• Growth Stimulators Expansion
• Aggressive capacity addition
• Route expansion by airlines in the region
• Formation of new airlines
• Concentration of world class hub airports
• Augmentation of handling capacity at airports
• Development of Airport free zones

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Middle East Region

• Growth Stimulators Industry Resilience
• Relative insulation of air transport industry
  despite 9/11, SARS, Iraq
• Growth in intra-regional tourism offset the
  decline in the tourism to US/Europe
• Government backed initiatives like short term
  reduction in airport user charges

12
Middle East Region

• Growth Stimulators Role of government
• Development of infrastructure
• Investment in airlines, airports
• Thrust to tourism
• Support to tourism related industries such as
  hotels, world class malls, DSF, DSS, etc
• Recognition - Role of airlines in economic
  development

13
Middle East India routes

• India a major component of ME routes More than 4
  m ex-pat population in ME region belongs to
  India.
• Feeds 6th freedom traffic of all major players in
  the region
• Almost all Indian international airports are now
  accessible to airlines of the region.
• Open Sky during November to March
• India Emerging as preferred tourist destination

14
Middle East India routes

• Growing trade links Middle-east is one of the
  largest trading region of India
• Increased corporate India presence in the region
• Growing economic cooperation
• - Health care
• - Education
• - IT/Communication
• - Entertainment
• Resulting in increased opportunities in air
  transport

15
Indian Airlines in Gulf Region - Consistent growth

• Major role in fostering air transport links
• From 2 flights/week during 1992 to present 83
  flights a week
• Seats offered From 300/week during 1992 to
  present 10,500/week
• Annual Passengers From 50,000 in the beginning
  to present 800,000
• Gulf Airports - Eight airports in five countries
• Indian Destinations - 14
• Present Earnings - USD 200 million

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IAs Gulf Market Strategy

• Direct interior connectivity Flight to home
  town
• Appropriate aircraft
• Low prices
• Strong schedules Uniform market preferred
  timings, frequencies
• Relationship -Trade, Customers
• Strength of domestic network in India

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Indian Airlines Future Gulf Plans

• More destinations frequencies
• Consolidation of existing routes
• Development of Sharjah as hub
• Increase in capacity deployment
• Possibility of intra-gulf beyond
  routes

18
Indian Market Emerging Scenario

• Deregulation major beneficiaries are regional
  airlines enjoying virtually unrestricted access
• Trend expected to continue
• Rapid increase in international market 14
  million during 2003 showing growth of 10
• Growing Indian outbound tourism Dubai - an
  attractive affordable destination
• Private domestic airlines - permitted
  international routes
• Opportunities and challenges ahead

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Indian Aviation Scenario Major Issues

• Basic issues are same as those confronting global
  industry
• However, in the Indian context more profound in
  some areas such as
• Fuel prices 100 higher than internationally
• User charges 100 higher than internationally
• Taxation
• Compulsion to operate un-economical routes no
  subsidy
• Spurt in capacity in domestic market, impacting
  viability

20
Aviation Industry Way Forward

• No magic formula for turnaround Needs
  series of measures to reduce costs
• Holistic approach to fuel management, integrating
  conservation efforts, efficiencies, initiatives
  to reduce taxation, hedging, etc
• Technology to help reduce costs, bring in
  efficiencies, simplify business processes, etc.

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Aviation Industry Way Forward

• No magic formula for turnaround
  Participation by all stakeholders
• Partners in value chain Airport service
  providers can not be making net margins of 20
  when airlines are ailing
• Restructuring To run more on business principles
  and less on politics
• Govt role in areas such as security and safety

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Thank you