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7 things to know about Indian aviation industry
It has been one of the most popular IPOs in recent years - InterGlobe Aviation's Rs 3,018 crore IPO was subscribed over 1.55 times by the second day of bidding. Every company has to file a prospectus with the stock exchanges when it wants to get listed. This prospectus gives details about the company's past history; its future expectations; the risks to the company as well as an in-depth idea about the industry it works in. This is done so investors would know exactly what they are getting into when they invest in the company. It can be quite a rich document when it comes to information. We fished out some interesting facts about the Indian aviation industry.
Here's a look:
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It's a tough industry:
There are multiple airlines in India, yet IndiGo is the only airline that has broken even and consistently been profitable. All the other airlines are facing huge losses. SpiceJet is the only other airline to come close. It posted a meagre profit in the last quarter. One big reason for this is that costs are high, especially for Jet Fuel. Its prices in India are one of the highest in the world.
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High competition, pricing pressure:
To survive in the Indian aviation industry, airlines have to really fight to keep costs low. This is also because passengers are very sensitive to prices. It helps to keep prices as low as possible to attract passengers. This is why Low Cost Carriers hold three-fourth of the market share. In 2014, LLCs held 64.2% market share, up from 40.5% in FY10. And this price sensitivity is expected to continue going forward.
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Fastest growing markets:
Tough or not, India is still one of the largest markets for the airline industry in the world on the basis of number of seats. In 2014, airlines sold 9.73 crore domestic seats and 15.59 crore international seats, placing India at the 6th and 9th rank respectively. “Going forward, domestic India is forecast to be the world's fastest growing airline origin-and-destination market, based on revenue passenger kilometer (RPK), growing at an average annual rate of 9.5% between 2013 and 2033,” the IPO prospectus said. RPK is a measure of airline traffic.
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Upbeat future:
The aviation industry is expected to see good days ahead. The number of passengers flying domestically is expected to jump around 12.8% every year between FY15 and FY20. To cater to this demand, airlines will expand capacity. Passenger capacity in domestic sector, measured by ASK or Available Seat Kilometers, is expected to rise an annual 10.7% on an average.
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More prefer flying over trains:
One big reason for the boom in aviation is that more people are likely to prefer taking a flight over the train. At the moment, domestic airlines only carry around 610 lakh passengers, as per FY14 data. This is just a fraction of the crores of passengers who opt for train travel. However, it is quite possible that many would prefer to fly. “Rising income levels are expected to cause the Indian middle class to increasingly prefer air travel to rail and road travel because of its convenience, shorter duration and competitive pricing,” the IPO prospectus said, quoting a report by CAPA, an industry body.
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It helps to have high population:
India's middle class is expanding in size. In fact, the number of middle class households is expected to nearly double to 10.79 crore households by 2019 from 5.36 crore in 2014. “In addition, Mumbai and New Delhi are expected to become the 25th and 30th largest cities by household disposable income globally by 2030,” the prospectus states. More money and more people mean more passengers for airlines.
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Tourism on the rise:
People are traveling more within and outside the country. As many as 114.53 crore people travelled within India in 2013 – a yearly rise of 14.4% from 2009. Similarly, more people travel abroad these days. The number of people going outside the country rose 10.7% on average every year to 1.66 crore in 2013. With more people travelling, airlines too see a rise in passengers.
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2.51
If you ever wondered why IndiGo manages to be consistently profitable, this is the reason: It keeps its costs extremely low. CASK is the key measure of cost for an airline—costs divided by ASK or Available Seat Kilometers (it reflects the flight's capacity to carry passengers). So, CASK measures the cost incurred on each passenger per flight. Excluding jet fuel prices, IndiGo's CASK stood at 2.51 US cents. This is the lowest, not just among Indian airlines, but also low cost airlines across the world.
