Raising the FDI limit to 49%; allowing private players on international route and the entry of low-cost players has marked the transformation of the Indian aviation industry. Has the domestic market for aviation come of age in India?

Traveling in a plane used to be a distant dream for most Indians, but, not any longer. Indians, who predominantly travel by road or rail, can now feel what it is like to travel by air thanks to the entry of low-cost airlines such as Air Deccan. A slew of reforms in the civil aviation sector foretell a change in the fortunes of the industry. The Indian air travel market remains relatively small due to the heavy tax rates and charges levied on the aviation industry, which in turn reflect in the air-fares. As a result of this, a major portion of the Indian population chooses to travel by rail. However, in recent times, the number of passengers traveling on domestic airlines has increased by 26.5% in the first half of 2004-05 and international passengers increased by 19.2% in the same period. It is estimated that the industry will grow by 9% annually for the next 20 years. The credit goes to the enhanced income levels, change in the lifestyle of people and the availability of low-cost airlines.

The state-owned domestic and international carriers, Indian Airlines (IA) and Air India (AI) dominated the marketplace until recently. From their position of strength, they pressurized the state machinery to obstruct foreign airlines from expanding flights to India and also to restrain the growth of private sector players. As a retaliatory measure foreign players hindered the growth of Indian airlines by not accommodating any deals with them. However, giving in to the pressures of liberalization private airlines were allowed to operate in domestic routes. Players such as Jet Airways and Air Sahara began their operations in India during 1993, while Air Deccan started in 1995. Kingfisher Airlines, an airlines promoted by the United Breweries Group is also set to fly by April 2005. Due to the new entrants, the state-owned airlines started losing their market share as they lacked infrastructure, technology upgradation and product offerings.

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