Ready for take-off

The global backdrop

Over most of the last two and a half decades, the aviation sector world-wide, has substantially moved away from government control and ownership towards deregulation and private ownership.

The origins of this trend can be traced back to the deregulation of the U.S. airline industry in the late 1970s, which led to lower fares and higher improved productivity of assets and capital.

This transformation also subsumed another trend of privatization of government owned airlines designated by a country's government to operate international air services to and from that country as evidenced in Australia (Qantas Airways), U.K. (British Airways), Germany (Lufthansa) and Japan (Japan Airlines).

The Indian backdrop

The Indian aviation sector was also characterised by a high degree of Government control prior to 1990. The Government of India nationalised the airline industry in 1953 through the enactment of the Air Corporations Act. Pursuant to this Act, there were only two players left in the Indian aviation sector, both of which were owned and controlled by the Indian Government.

Indian Airlines was earmarked to primarily serve the domestic sector alongside operations to a few select international destinations while Air India served the international sectors.

Winds of change

The liberalisation of the Indian aviation sector commenced in 1990 with private sector players being allowed to operate as air taxi operators. However, they were not permitted to operate scheduled services. A number of private players commenced domestic operations as air taxi operators including Jet Airways, Air Sahara, Modiluft, Damania Airways, NEPC Airlines and East West Airlines.

In 1994, following the repeal of the Air Corporations Act, private carriers were permitted to operate scheduled services and granted scheduled carrier status upon fulfillment of certain applicable criteria.

However, many of these operators could not sustain their businesses and closed operations by 1997. Among the many private airlines which started operations with the deregulation of the Indian civil aviation sector, only two continue to have operations in the country "� Jet Airways and Air Sahara.

Emergence of 'no-frills' airlines

Following the emergence of no-frills airlines in the United States and Europe and the resultant revolution witnessed therein in the aviation sector, the concept of no frills airlines started generating interest in Asia and a number of no-frills airlines have emerged in the Asian continent. India's first no-frills airline, Air Deccan, commenced operations in August 2003.

As recently as May 2005, Kingfisher Air too commenced operations taking the total number of private carriers providing scheduled services to four. In addition to Indian Airlines and these four players, Air India also carries domestic passengers on domestic legs of its international flights, offering both, full and discounted fares.

Given the feeling that there is vast untapped potential in the Indian aviation segment, there is no dearth of players who are contemplating entering the Indian domestic aviation market.

Categorisation of the Indian aviation sector

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

Domestic airlines, which provide scheduled flights within India and to select international destinations;

International airlines, which operate scheduled international air services to and from India;

Non-scheduled operators, which includes charter operators and air taxi operators; and

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

Flying away

The Indian Union Cabinet changed the aviation policy on December 29, 2004 and permitted Indian scheduled carriers with a minimum of five years of continuous operations and with a minimum of 20 aircraft in its fleet, to operate scheduled services to other international destinations.

On January 11, 2005, it designated four scheduled Indian carriers (Air India, Indian Airlines, Jet Airways and Air Sahara) to operate international services to and from Singapore, Malaysia, Thailand, Hong Kong, the United Kingdom and the United States of America.

It thus becomes evident that with the opening up of the Indian aviation sector, there are opportunities for the taking. In the next column, the concluding part of this two-part series, we will turn the Torchlight on the factors that can fuel as also hamper future growth in this segment.

(Ashok Kumar heads Lotus Knowlwealth in Mumbai, India and can be contacted at ceolotus@hotmail.com )