Civil Aviation industry in India is growing at an accelerating rate and the country is getting the benefits of its improved connectivity. India has become the world’s third largest domestic aviation market in term of the number of tickets sold. The Civil Aviation Industry has come in new era of expansion, driven by factor such as low cost carriers, modern airports, Foreign Direct Investment in domestic airlines, and growing emphasis on regional connectivity. The Ministry of Civil Aviation is responsible for the administration of the aviation industry in India. It plays a significant role in formulation of national policies and programmes for development and regulation of aviation industry. The following are the principal regulatory authorities functioning under the authority of the Ministry of Civil Aviation:- • Directorate General of Civil Aviation • Airport Authority of India • Airport Economic Regulatory Authority

1. ANALYSIS
OF
“CIVIL AVIATION INDUSTRY IN INDIA“
(AIRLINES)
(MICRO ECONOMICS)
SUBMITTED TO: SUBMITTED BY:
PROF. RAJKISHAN NAIR VINAYAK GUPTA
PG20183157

2. INTRODUCTION
Civil Aviation industry in India is growing at an accelerating rate and the country is getting
the benefits of its improved connectivity. India has become the world’s third largest domestic
aviation market in term of the number of tickets sold. The Civil Aviation Industry has come
in new era of expansion, driven by factor such as low cost carriers, modern airports, Foreign
Direct Investment in domestic airlines, and growing emphasis on regional connectivity.
The Ministry of Civil Aviation is responsible for the administration of the aviation industry in
India. It plays a significant role in formulation of national policies and programmes for
development and regulation of aviation industry. The following are the principal regulatory
authorities functioning under the authority of the Ministry of Civil Aviation:-
 Directorate General of Civil Aviation
 Airport Authority of India
 Airport Economic Regulatory Authority
Domestic passenger traffic1 expanded at a Compound Annual Growth Rate (CAGR) of
13.91% and CAGR for international passenger traffic is 9.36%. As on May 2018, 588
airplanes were in-service in the fleet of Indian airlines. The Government of India have
launched regional connectivity scheme named UDAN (Ude Desh Ka Aam Nagrik) to make
flying affordable for common man.
2
1
Number of passengers withincountry
2 Source: Market Share as of October’17as publishedby Directorate General ofCivil Aviation
12%
13%
2%
13%
41%
9%
10%
Major players
Spice jet Jet airways Jet lite Air india Indigo Go air others

3. NATURE OF MARKET
The Civil Aviation industry in India follows an oligopoly type structure. The market share of
top four firms in civil aviation industry is 80%, which shows majority of few firms in market.
Characteristics of civil aviation industry in India:
1. Small number of large firms.
2. Firms sell either identical or differentiated products3. (the only differentiation here
being in service quality)
3. Barriers to entry. ( Huge capital investment and Government interventions )
4. Few of the firm contributing to majority of the market share.
5. Strategy dependent on individual rival firm’s behaviour.
DEMAND AND SUPPLY
Demand
In civil Aviation Industry (Airlines), the passenger traffic is an indication of the demand.
Demand is accelerated by lower prices, both airfares and the price of tourism expenditure
(e.g. accommodation and food) at a destination, the spending capacity of customer, and other
factors including distance, safety, and health that affects the demand in civil aviation
industry. Demand is made by following types of customers that are primarily sorted into:
1. Business travellers: Business travellers are important to airlines because they travel
several times throughout the year and they tend to purchase the upgraded services that
have higher profits for the airline. The business class travellers are attracted by full
service airlines by on flight premier services, meals, luxury seats, and in-flight
entertainment.
2. Leisure travellers: These customers travel for non-business purposes, for example –
vacationing, visiting friends & family, and for personal needs. Leisure travellers are
very price sensitive. The rapid entry of new players into the civil aviation industry in
the last few years has changed its competitive and growth dynamics with the low
fares. As a result, there has been increased demand and new consumer segments have
been created. The leisure segment is growing dominant in the domestic civil aviation
industry in India.
3 Product differentiationis a tactic that companies use to distinguish theirproduct fromanother similarproduct in the market.

4. 4
The above graph shows the total passenger traffic (domestic + international) in India from
the fiscal year 2008 to 2018*.
 Factors that affect the demand in civil aviation industry in India are as follows:
1. Price of Air Tickets
2. Geographical boundary of country
3. Income of the consumers.
4. Price of related goods (fuel)
5. Standard of living
6. Government regulations
7. Economic development of country
8. Weather conditions
9. Services (food availability,safety,comforts,punctuality of the flights )
10. Governance of aviation industry
Supply:
In civil aviation industry, supply refers to total number of seats that are available in each
flight, which is known as Capacity. ASK5 (available seat kilometre) is the unit in which
supply is measured in aviation industry.
4 Source: Airports Authorityof India
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
domestic 87 77 89 106 122 117 122 139 169 206 138
international 30 32 34 38 41 43 47 51 55 59 59
total 117 109 123 144 163 160 169 190 224 265 197
0
50
100
150
200
250
300
inmillions
PassengerTraffic

5. 6
 Factors that affect the supply in civil aviation industry in India are:
1. Availability of the capital
2. Tax structure
3. Demographic conditions
4. Technological development
5. Infrastructure development
6. Marketing strategies
ELASTICITY7
Price elasticity: Price elasticity measures the degree of responsiveness of demand due to
change in prices. Aviation Industry is Price elastic in nature as there was reduction in the
prices over the years, the passenger traffic has increased. Passengers are becoming
increasingly sensitive to price, led by the boom in low cost travel, the transparency brought
by the Internet and the intense competition on deregulated markets.
Income elasticity: Income elasticity measures the change in demand due to change in
income. Income elasticity in aviation industry is Positive and greater than 1. This suggests
that households and individuals get more prosperous, they are likely to devote an increasing
share of their incomes to discretionary Spending8 such as air travel.
Cross elasticity: Cross elasticity measure the change in demand of a particular good due to
change in price of another goods. In airline industry there is a cross elasticity between air
5
ASKis calculatedas the sum of products obtainedby multiplyingthetotal numberof seats that are available in eachflight by t he flight
stage distance.
6 Source: Airport AuthorityofIndia
7
Elasticityis a measure of a variable's sensitivitytoa change in another variable.
8 Money spent by customers onnon-essential items such as vacations or luxury items.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
ASK 60590 59160 61091 68216 78639 75843 80716 84805 97728 116945
0
50000
100000
150000
inmillions
ASK (Capacity)

6. travel and other leisure or consumption activities. In the case of fare of class level, an
increase in the price of the full economy fare could increase the demand for both business
class tickets and discount tickets.
GOVERNMENT RULES AND REGULATIONS
1. The Airports Authority of India Act, 1994;
2. The Air Corporation Act, 1953;
3. The Airport Economic Regulatory Authority of India Act, 2008;
4. The Aircraft (Security) Rules, 2011;
5. The Aircraft (Investigation of Accidents and Incidents) Rules, 2012 and;
6. The National Civil Aviation Policy, 2016.
Investments: FDI9 inflows in air transport (including air freight) between April 2000 and
December 2017 stood at US$ 1,608.51 million. The government has 100% FDI under
automatic route in scheduled air transport service, regional air transport service and domestic
scheduled passenger airline. However, FDI over 49% would require government approval.
PRICE – QUANTITY DETERMINATION
Price and quantity are determined where demand and supply intersect each other in market.
However, given the large number of buyers airline firms can decide prices at which they will
sell tickets. The Airline Industry follows ‘Discriminatory Pricing’ (the practice of charging
different prices to different consumers for similar products). Even customers buy similar
seats on an aircraft they essentially are buying different products, because of the associated
restrictions on ticket. For the airline industry, it is crucial to be profitable; the focus is to
maximize the cost of the flight revenue. Airlines focus on Yield management, also known as
revenue management to understand, anticipate and influence customer behaviour in order to
maximize revenue from a fixed, perishable resource (the unit seat that needs to be sold).
Airlines mostly practice the Third Degree of Price Discrimination that involves dividing
customers into segments based on some distinguishing characteristic, thereby allowing the
charging of different rates to different groups.
9Foreign direct investment (FDI) is an investment made by a firm or individual of onecountry into another country.

7. REFERENCES
 https://www.iata.org/policy
 https://www.ibef.org/industry/indian-aviation.aspx
 http://www.civilaviation.gov.in
 https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/
 http://www.makeinindia.com/sector/aviation
 https://www.researchgate.net
 http://www.ncdrc.nic.in/Airport%20Authority.pdf