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Economics of Low Cost Airline

In: Business and Management

Submitted By vijaypitchai007
Words 1859
Pages 8
Title: Low Cost airlines Industry in India

An overview of the Indian aircraft industry

The Indian economy has grown at an average rate of around 8% in the last decade. The rise in business and leisure travel (both domestic & international) due to this growth, India emerging as a major origin and destination for international travel have all had a significant impact on commercial aviation in India. According to the airports authority of India (AAI), the passenger traffic is expected to grow at over 20% in the next five years.

On the supply side, since 2003, when low fare travel in India was ushered in, a number of low cost carriers (LCC) have entered this fast growing market. However, all of the LCC carriers and - with rare exceptions – even the full service carriers (FSC) charging higher fares have been making losses. By and large, operating a commercial airline in India so far has not been a profitable business. In 2007, the industry witnessed a wave of consolidations primarily to stem the tide of red ink.

Boom and bust in Indian aviation industry

Air India and Indian Airlines retained a monopoly over civil aviation in India till 1992. The deregulation of the Indian economy that started in the mid-1980s, and proceeded more aggressively after the New Economic Policy in 1991, led to calls for opening up of the airline sector. Over the following years, several new airlines including Damania, EastWest, Jet, Sahara, Modiluft and NEPC started operations.
However, high fuel costs, poor infrastructure, and a regulation that required them to fly on routes to distant parts of the country as well as on non-trunk routes threatened their financial viability.

The steady growth of the Indian economy after liberalization at a CAGR exceeding 6% increased its size, and hence the demand for both business and leisure travel. Sensing opportunity, a new phase of

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