March 6, 2018

Aviation Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

 

Must know facts:

  • Airport Authority of India (AAI) is responsible for developing, financing, operating, and maintaining all public sector airports.
  • The civil aviation industry in India has emerged as one of the fastest growing industries in the country during the last three years. India is currently considered the third largest domestic civil aviation market in the world.
  • Growth in import and export in India will be the key driver for growth in freight traffic as 30 per cent of total trade is undertaken via airways.
  • Freight traffic on airports in India is expected to cross 11.4 million tonnes by 2032.
  • Airports across the globe are planning on increasing their spending on new technology to keep up with surging passenger traffic, which is expected to double to 370 million by 2020. The anticipated double digit growth would make India as the world’s 3rd largest aviation market by 2020.Information Source – Airport Authority of India, IBEF

 

Influencing Factors for price change:

  1. Stay updated with any news on air travel relevant regulations, approvals from Directorate General of Civil Aviation (DGCA). India plans to increase the number of operational airports to 250 by the year 2020, so any news indicating opening of new airports & its policies should be monitored.
  2. Impact of Brent crude oil prices on airlines industry is extremely significant factor, higher prices could be due to OPEC supply cuts or US administrial policy changes should be monitored. Cost per Average Seat Kilometre (CASK) is directly impacted with any change in Air traffic fuel (ATF) prices.

 

Understanding the Industry:

Indian aviation is experiencing dramatic growth which includes the emergence of Low Cost Carriers (LCC) / new carriers to a growing middle-class ready to travel by air as well as growth in business and leisure travel. Five international airports (Delhi, Mumbai, Cochin, Hyderabad, Bengaluru) have been completed and are operational under Public Private Partnership (PPP) mode.

Total passenger traffic stood at 224 million during 2016. India is one of the least penetrated air markets in the world with 0.04 trips per capita per annum as compared to 0.3 in China and more than 2 in the USA. Indian carriers plan to increase their fleet size to reach 800 aircraft by 2020.

The Civil Aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity.

Airport Authority of India (AAI) is responsible for developing, financing, operating, and maintaining all public sector airports. New airports are permitted under the Greenfield Airport Policy 2008. Investment in airports is encouraged under the PPP Policy of the Government of India. Regional Air Connectivity Policy offers attractive incentives in the form of exemption of landing, parking and navigation fees to airlines operating at designated airports in non-metro areas.

 

Estimated Market Size:

Domestic air traffic rose nearly 16 per cent in August 2017, continuing its double digit growth, according to the civil aviation regulator Directorate General of Civil Aviation (DGCA). About 9.69 million passengers flew in August, up from 8.38 million a year earlier. Passengers carried by domestic airlines during January-August 2017 were 75.411 million as against 64.468 million during the corresponding period of previous year, thereby registering a growth of 16.97 per cent, as per the DGCA.

 

Road Ahead:

According to data released by the Department of Industrial Policy and Promotion (DIPP), FDI inflows in air transport (including air freight) between April 2000 and March 2017 stood at US$ 1.01 billion.

The extant FDI policy on Airports permits 100% FDI under automatic route in Greenfield Projects and 74% FDI in Brownfield Projects under automatic route. FDI beyond 74% for Brownfield Projects is under government route. With a view to aid in modernization of the existing airports to establish a high standard and help ease the pressure on the existing airports, it has been decided to permit 100% FDI under automatic route in Brownfield Airport projects

India is estimated to see an investment of US $25 billion in the next decade in the airports sector, a demand for 935 more planes and traffic growth of 13 per cent, according to Morgan Stanley. According to them, the share of air travel in air and rail travel combined in India will grow to 15.2 per cent by 2027 from 7.9 per cent now.

The Government of India has started a new regional connectivity scheme (RCS) called Ude Desh ka Aam Nagrik (UDAN) under which fares will be capped at Rs 2,500 (US$ 37.5) for half the seats in an one-hour flight, as per Mr Jayant Sinha, Minister of State Civil Aviation. The Government of India has also received bids from 11 airlines for the same.

Indian airline companies like Air India, Air Deccan, SpiceJet, Air Odisha and Turbo Megha, have been awarded with the right to fly to 128 routes across India, requiring them to cap half the seats at nearly 50 per cent of the fare, under the Government of India’s regional aviation scheme named UDAN.  With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2026.

–    Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
Looking for an investment advice – Click here!

Top Stocks in the industry:

INDIGO, JETAIRWAYS, SPICEJET.

(Please note above stocks are not recommendations, they are purely for information purpose only)

Information Source / References: The Economic Survey 2016–17 &17-18, IBEF, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports,IBEF,AAI,DGCA.

 

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