tourism 1q09 industry

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TOURISM INDUSTRY

ISSUE 1Q 2009

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1. Industry Profile 1

1.1 World and South Asia Perspective1.2 India Tourism

2. Market Trends and Outlook

2.1 Mode of Transport2.2 Port of Entry2.3 Trends Tourist Arrivals Market Performance and Share2.4 Seasonality Patterns2.5 The Indian Aviation Industry

2.5.1 Introduction2.5.2 Regulatory Overview2.5.3 Key Players in Indian Aviation Industry2.5.4 Global Scenario2.5.5 Impact of Fuel Prices on the Industry2.5.6 Low Cost Carriers2.5.7 Indias Budget Airlines: Snapshot

2.6 Summary of Key Challenges2.7 Foreign Exchange Earning From Tourism2.8 Share of India in the World Tourism Receipts2.9 Airport Statistics2.10 Domestic Tourism Statistics2.11 Hotel and Room Supply2.12 Travel Agents, Tour Operators and Tourist Transport

Operators

5

3. Leading Players

3.1 Major Players3.1.1 East India Hotels Ltd.3.1.2 Thomas Cook India Ltd.3.1.3 Jet Airways (India) Ltd.

26

Notes:1 USD = 48.4497 INR1 INR = 0.02064 USD1 crore = 10 million

Tourism




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1.2 India Tourism

"India is the cradle of the human race, thebirthplace of human speech, the mother ofhistory, the grandmother of legend and the

great grandmother of tradition. Our mostvaluable and most instructive materials in thehistory of man are treasured up in India."

Tourist arrivals remain healthyTourism is one of the third largest net earnerof foreign exchange for the country recordingearnings of USD10,729 mn in 2007, a growthof 24.3% YoY, according to the Ministry ofTourism. In 1951, international tourist arrivalsstood at around 17,000 only while the samehas now gone up to 5.08 mn in 2007.

Tourism in India has registered significantgrowth in recent years. The upward trend isexpected to remain firm in the coming years.It is also one of the sectors that provide hugeemployment opportunities.

The Indian Travel & Tourism economy isranked number:

16 in absolute size worldwide

146 in relative contribution to nationaleconomies

1 in longterm (10-year) growth, 176countries estimated by WTTC/OEF

With a historical backdrop of 5,000 years,India is one big package of cultures andlegends that never fails to captivate theimagination of the visitors. These includehistory tourism, adventure tourism, medicaltourism (ayurvede and other forms of Indianmedication), spiritual tourism, beach tourismetc. India has been a late starter in tourism.Understandably, immediately afterindependence the focus was on key areaslike agriculture, industry, irrigation,infrastructure and the social sector. Tourism

started receiving attention in the last decade.The WTTC has identified India as one of thecountries slated to become the foremostgrowth centers in the world in the comingdecade. While the growth in tourism hasbeen impressive, Indias share in total globaltourism arrivals and earning is quiteinsignificant. India 's travel and tourismeconomy in 2008 is thought to account for6.1% of GDP and 30.49 mn jobs (6.4 % of

2003 2004 2005

World 690 763 808

Europe 396.6 416.4 441.6Northern Europe 44.5 48.4 52.9Western Europe 136.1 138.7 142.7Central/ Eastern Europe 68.3 78.4 88Southern / Mediterranean Europe 147.7 150.9 158Asia and the Pacific 119.3 152.5 156.7North - East Asia 67.6 87.6 87.6South -East Asia 36.2 47.3 50.6Oceania 9 10.2 10.5South Asia 6.4 7.5 8Americas 113.1 125.8 133.6North America 77.4 85.8 90.1

Caribbean 17 18.2 18.9Central America 4.9 5.8 6.5

South America 13.7 16 18.1Africa 30.8 33.2 36.8North Africa 11.1 12.8 14.3Sub -Saharan Africa 19.7 20.4 22.4Middle East 30 35.4 39.7

* Provisional Sources: UNWTOTourism Highlights 2008; CEIC

2006

847

462.2

56.4

149.5

91.5

164.8

16794.3

53.1

10.5

9.1

135.8

90.6

19.4

7.1

18.741.415.1

26.3

40.9

2007*

903

484.4

57.6

154.9

95.6

176.2

184.3104.2

59.6

10.7

9.8

142.5

95.3

19.5

7.7

19.944.416.3

28.2

47.6

Table 1: International Tourist Arrivals (million)




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total employment). India 's travel and tourismwas expected to grow 7.9% in 2008 and by7.6% per annum over the next 10 years.Travel and tourism in India for 2008 wasexpected to generate USD73.6 bn ineconomic activity.

Over the past few years, India witnessed agrowth in foreign tourist arrivals. Internationaltourist arrivals rose 14.3% in 2007 to 5.08mn, the highest ever, and as at June 2008arrivals stood at 2.7 mn, an increase of11.1% when compared to the same period in2007. India's tourist industry is booming dueto a rush of foreign tourists and increasedtravel by Indians to domestic and overseasdestinations. The visitors are pouring in fromall over the world: Europe, USA, Japan,Canada and Australia. The boom has comeeven as global tourism dropped, due to theSeptember 11 terrorist attacks in the UnitedStates, the outbreak of Severe AcuteRespiratory Syndrome in East Asia, and theIraq war.

Tourism professionals cite several reasonsfor the buoyancy in the Indian industry. Therecent surge in the Indian economy hasraised middle class incomes, promptingmore people to spend money on vacationsabroad or at home. At the same time, India'semergence as a global informationtechnology hub and an aggressiveadvertising campaign by the government arecredited with changing India's image fromthat of a land of snake-charmers, andsparking new interest among overseastravelers. Tourism in India is also benefitingfrom the stronger economies of Indias twomajor source markets, the United Kingdom

and the United States.

In the last few years, the government hasalso made some financial reforms to facilitatethe development in the tourism sector. TheTourism Ministry allocated INR10,470 mn inthe 2008-09 budget, an increase of INR503.8mn from the previous year. The governmenthas put emphasis on the development oftourist infrastructure and has earmarked

INR4,720 mn for construction of budgetaccommodation, wayside amenities andtourist reception centres. A five-year taxholiday has been announced in the budgetfor two-, three- or four-star hotels establishedin specified districts having UNESCO-declared World Heritage Sites. The hotelshould be constructed and start functioningfrom 1 April 2008 to 31 March 2013. Theministry received a boost in the allocation forthe overseas campaignfrom INR1,650 mnto INR2,200 mn. Additionally, with open-skies, Indian private airlines can fly toASEAN countries and neighboring SAARCcapitals. The Centre has also accepted theindustrys demand that all airports not justa handful can receive charter flights.

Some of the important initiatives taken by thegovernment to improve the flow of foreigntourist into the country and thereby increasethe country share in world tourism includeslaunching of cruise tourism, adventuretourism, wellness tourism and the launchingof the Incredible India campaign calledColours of India. Domestic tourists are alsofueling the industry's revival. Many of themescape from the summer heat on the plainsto resorts in the Himalayan Mountains. Oneof the major beneficiaries being Kashmir,where a cease-fire between India andPakistan has reduced violence, if notcompletely, at least enough to help revivethe state's sagging tourism industry.

An important highlight in inbound touristsduring 2007 was an increase of 24.3%witnessed in the foreign exchange earningsin dollar terms. The revised estimated foreignexchange earnings during 2007 touched the

level of USD10,729 mn against USD8,634mn in 2006. As at June 2008, foreignexchange earnings reached USD6,385which grew 25.5% as compared to the sameperiod in 2007. As stated in Table 2,international tourism receipts globallyreached USD856 bn, while India contributedUSD10.7 bn which is approximately 1.25%.




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The foreign tourist arrivals have surgednearly 11.1% to about 2,719,410 tourists inthe period between January-June 2008. Thepeak season was between November andMarch. Improved access and convenience oftravel especially by air have aided growth inthe segment. FY2008 looks equallypromising. Foreign tourist arrivals rose from

4.45 mn in 2006 to 5.08 mn in 2007. TheUnion Ministry of Tourism has set a target of10 mn foreign tourist arrivals in a few years.

With the Indian economy slated to grow at7% over the next few years, the governmenthas started to gear up to make IndiaEverywhere its campaign to hype the India

growth story, as was done at the DavosSummit in Switzerland in 2005.

It is stepping up on infrastructuredevelopment initiatives and has launched ascheme for development of nationally andinternationally important destinations andcircuits through Mega Projects. To date, 22

projects have been identifies and of these 17projects have been sanctioned. The Ministryof Tourism is also taking initiatives with otherCentral Govt. Ministries, such as Railways,Civil Aviation, Road Transport andHighways, Food Processing and UrbanDevelopment.

COUNTRY USD billion

WORLD 856

France 54.2Spain 57.8

USA 96.7

Italy 42.7

China 41.9

INDIAS NEIGHBOURHOOD

Maldives 0.5

Hong Kong 13.8

Malaysia 14.0

Thailand 15.6

Singapore 8.7

Indonesia 5.3

INDIA 10.7

Source: World Tourism Organisation

Sources: Ministry of Tourism,CEIC

Table 2: International Tourism Receipts 2007

Chart 2: Foreign Tourist Arrivals from 2005 to 2008

0

100

200

300

400

500600

700

January

February

March

April

May

June

July

August

September

October

November

December

Arrivals000's

2005 2006 2007 2008




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2.1 Mode of Transport

Air continues to be the predominant mode oftravel for tourist coming to India during 2006.In 2006, this mode of transport constituted87.1% of the total traffic. Top 4 airports in thecountry handle 68% of the passenger trafficout of which Delhi and Mumbai togetheralone account for 55% traffic. Passengertraffic has growth at an average of 13% overthe last 10 years. It is estimated that thedomestic passenger segment is likely togrow at 12% per annum. Anticipated growthfor international passenger segment is 7%.Arrivals by sea were negligible 0.6% in 2006and the share of arrivals through land routesat 12.3% was the second most commonmeans of entry mainly from Bangladesh andPakistan.

Total passengers traffic at all Indian airportsis expected to total 84.7 mn during 2008-09

as against to 77.6 mn handled during 2007-08, registering a growth rate of 9.2%. Anincrease in passengers traffic is due todiscounted airfare, liberal bilateral aviationagreement between India and othercountries, increasing disposable incomesand softened dollar.

2.2 Port of Entry

Delhi and Mumbai continue to be major entryports for 2007-08 and 2008-09 with anincrease of 8.6% YoY for Delhi and 7.9%YoY for Mumbai. The arrivals at Chennai,Bangalore and Kolkata airports constitute 8.2

mn, 7.1 mn and 4.9 mn respectively. Seacruise passenger market continue to growwith the introduction of various governmentinitiatives such as streamlining systems andprocedures to facilitate seamless travel bytourists. The government also relaxedCabotage Law (this does not permit foreignflag vessels to carry coastal cargo in India)for cruise ships for five years (fromDecember 2003) and provided a rebate of upto 50% on vessel-related charges such asberth hire and pilotage. In December 2008,

the Cabotage Law was relaxed further foranother 10 years. Apart from the projectingMumbai, Mormugao, New Mangalore, Kochi,Tuticorin and Chennai ports for the cruisecircuit. Indians are generally not inclinedtowards long sailings, and a four- to five-night package is considered the ideal length,unlike abroad where a cruise lasts at leastseven nights.

2. Market Trends and Outlook

Chart 3: Mode of Transport, 2006

Sea

0.6%

Land

12.3%

Air

87.1%

Note: 2007 data unavailableSource: Ministry of Tourism

Airports 2008-09 2007-08% Change

YoY

Mumbai 23,028,031 21,333,789 7.9

Delhi 19,025,224 17,517,681 8.6

Chennai 8,206,863 7,558,014 8.6

Bangalore 7,110,558 6,445,879 10.3

Kolkata 4,852,405 4,507,291 7.7

Table 3: Total Passenger Traffic Trends

Note: Figures are forecast estimatesSource: Financing Plan for Airports Report - PlanningCommission, Govt. of India




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2.3 Trends Tourist Arrivals MarketPerformance and Share

The top ten markets that formed arrivals intoIndia are listed in Chart 4. The USA and UKform approximately 15.7% each of the totalshare. Bangladesh follows with 9.4% of totalmarket share, whilst other countries that arenot listed above make up 35.6%.

1. USA

The USA has become the largest touristmarket for India pushing down the UK thathas been the leader from 1973. In 2007,tourist arrivals from the US stood at 799,000,an increase from 696,739 foreign arrivalsfrom the previous year. The increasingnumber of arrivals from the US is significantfor the tourist industry considering the higher

spending power of the Americans, whether itis on accommodation, food or shopping,among others. On an average, the UStraveler spends at least two weeks in thecountry. The primary mode of arrival of theAmerican tourist continues to be air. As faras port of disembarkation is concernedMumbai airport continue to be the mainairport of entry followed by Delhi, Chennaiand Kolkata.

2. United Kingdom

The United Kingdom is presently the secondlargest market for India though it occupiedthe top position till 2005. Foreign arrivalsgrew from 116,684 in 1981 to 796,0000 in2007 at an average compound rate of wasaround 7.4% per annum from 1981 to 2007.In 2007, foreign arrivals grew 8.4% YoY from734,240 in 2006. As per previous years U.K.nationals came by air and a minority throughthe land route.

3. Bangladesh

Bangladesh replaced Singapore on the topten markets for arrivals in India. Foreignarrivals from the country totaled 480,000 in2007, a drop from 484,401 the year before.The compounded annual growth rate ofarrivals is around 4.5% for the period 1988 to2007.

Chart 4: Share of Top Ten Marketsfor Arrivals in India during 2007

35.6%

15.7%

15.7%

9.4%

4.1%4.0%

4.0%3.6%

2.9%

2.7%

2.2%

USA

Uk

Bangladesh

Canada

France

Sri Lanka

Germany

Japan

Australia

Malaysia

Others

Chart 5: Tourist Arrivals from USA

0

200,000

400,000

600,000

800,000

1,000,000

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

YearNo

ofTourists

Source: CEIC

Source: Ministry of Tourism Report, 2007

Chart 6: Tourist Arrivals from UK

0

200,000

400,000

600,000

800,000

1,000,000

1987

1990

1993

1996

1999

2002

2005

Year

No.ofTourist

Source: CEIC




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4. Canada

Canada has been pushed a step back fromits initial third position and now occupies thefourth position among the tourist generatingcountries for India and constituted about4.1% of the tourist arrivals in 2007. Arrivalsfrom Canada grew 8 folds over a period of27 years from 25,358 in 1981 to 208,000 in2007. The above graph shows the yearlytrends in the tourist arrival from this country.

Most Canadian tourists continue to visit Indiaby air and a small number of by land. Thistrend is expected to continue with theliberalisation of chartered flights and Indiaemerging as a safe, all round, year rounddestination. As far as port of disembarkationis concerned, maximum number, disembarkat Delhi airport followed by Mumbai, Chennaiand Kolkata.

5. France

France has moved from its initial fourthposition to being the fifth tourist generatingcountry for India, and constitutes about 4.0%of the foreign tourist arrivals in India during2007. The arrivals grew from 57,272 in 1981to 205,000 in 2007. Most French tourist usedthe air route to visit India followed by landand sea route. So far as port ofdisembarkation is concerned, Delhi airportcontinues to be the primary point of entry forFrench tourist. Followed by Chennai,Mumbai and Kolkata. The periods Octoberto December and January to March were themost popular period of visit for the Frenchtourist.

6. Sri Lanka

Sri Lanka occupied the sixth position amongthe tourist generating countries for India andconstituted 4.0% of tourist arrivals during2007. Arrivals from Sri Lanka, which were75,842 in 1981, grew up to 204,000 in 2007.The main states visited were Tamil Nadu andKarnataka . The peak period of Sri Lankan

tourist visiting India was the third quarterfrom July to September, followed by the forthquarter October to December. The mainmode of entry into India is by air via Chennaiairport followed by Delhi, Mumbai andKolkata.

Chart 7: Tourist Arrivals From

Bangladesh

0

100,000

200,000

300,000

400,000500,000

600,000

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

YearNo

ofTourist

Source: CEIC

Chart 8: Tourist Arrivals from

Canada

0

50,000

100,000

150,000

200,000

250,000

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

Year

No

ofTourists

Source: CEIC

Chart 9: Tourist Arrivals from France

0

50,000

100,000

150,000

200,000

250,000

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year

NoofTourist

Source: CEIC




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7. Germany

Germany occupies the seventh positionamong the tourist generating countries forIndia in 2007 and constituted about 3.6% offoreign tourist arrivals in India. There was anincrease in arrivals by 17.3% in 2007, fromthe prior year. The arrivals grew from 55,471in 1981 to 184,000 in 2007. The mostpreferred mode of transport for travel to Indiaby the German tourist continue to be air andit accounted for most of the arrivals, while

around 2% used sea routes. So far the mosttourist disembark in Delhi airport followed byMumbai, Chennai and Kolkata. Most Germantourist visited India for tourism & other whilethe rest of the arrivals were on business visit.

The maximum number of Germans visitedthe country during the period October toDecember and followed by January toMarch.

8. Japan

Japan is one of the most important touristmarkets of India in the East and it constitutedabout 2.9% of foreign tourist in 2007. It grewfrom 29,032 in 1981 to 146,000 in 2007.There was a 22.4% increase YoY in 2007,from 119,292 foreign arrivals during the prioryear.

During the year most of the tourist fromJapan came to India by air and minimally bythe land route. Delhi airport was the mainport of disembarkation followed by Mumbai,Chennai and Kolkata. Most tourists arrivedduring the period of January to Marchfollowed by period November to December.Majority of Japanese nationals visited Indiafor tourism & other purposes while asmaller percentage visited for business.

9. Australia

In 2007, Australia occupied the ninth positionamong the top ten tourist generating marketsfor India. The tourist traffic from Australiaduring 1981 was 20,940, which increased to

136,000 in 2007. The contribution ofAustralian tourist to the total traffic to Indiawas about 2.7% in 2007. The air waspredominant mode of transport for Australiantransport, whilst only 1.5% came by landroutes. Delhi is the main disembarkationpoint followed by Mumbai, Chennai andKolkata. Most Australian tourist visited Indiaduring the months of October to December.

Chart 10: Tourist Arrivals from Sri

Lanka

0

50,000

100,000

150,000

200,000

250,000

1987

1990

1993

1996

1999

2002

2005

Year

No

ofTourist

Source: CEIC


Germany

0

50,000

100,000

150,000

200,000

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year

No

ofTourist

Source: CEIC

Chart 12: Tourist Arrivals from Japan

0

40,000

80,000

120,000

160,000

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year

No

ofTourist

Source: CEIC




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10. Malaysia

Malaysian tourist accounted for 2.2% of thetotal tourist traffic to India in 2007. The touristtraffic from Malaysia, which during 1981 wasmerely 26,458 increased to 113,000 in 2007.The graph shows the yearly trend in thetourist arrivals from this country since 1981.

Chennai airport is the main disembarkationpoint for Malaysian tourist to India followedby Delhi, Mumbai and Kolkata. Majority ofthe tourist arrivals were on devotional andspiritual visits followed by visiting relatives.Malaysian tourists generally visited Indiaduring the months of November to January.


Australia

0

40,000

80,000

120,000

160,000

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year

No

ofTourist

Source: CEIC


Malaysia

0

30,000

60,000

90,000

120,000

1987

1990

1993

1996

1999

2002

2005

Year

No

ofTourist

Source: CEIC

Month 2006 2007 2008 *% Change

2007/06

% Change

2008/07

January 459,489 535,631 591,337 16.6% 10.4%

February 439,090 501,692 561,393 14.3% 11.9%

March 391,009 472,494 541,478 20.8% 14.6%

April 309,208 350,550 384,203 13.4% 9.6%

May 255,008 277,017 300,840 8.6% 8.6%

June 278,370 310,364 340,159 11.5% 9.6%

July 337,332 399,866 429,456 18.5% 7.4%

August 304,387 358,446 391,423 17.8% 9.2%

September 297,891 301,892 330,874 1.3% 9.6%

October 391,399 444,564 452,000 13.6% 1.7%

November 442,413 532,428 521,000 20.3% -2.1%

December 541,571 596,560 522,000 10.2% -12.5%

Total 4,447,167 5,081,504 5,366,163 14.3% 5.6%

* ProvisionalSources: Ministry of Tourism Report, 2007, CEIC

Table 4: Foreign Tourist Arrivals in India




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2.6 Seasonality Patterns

Tourist arrivals for the first half of the yearhovered around 2.45 mn mark in 2007, ascompared to 2.13 mn in 2006. For thesecond half of the year, tourist arrivalsreached 2.63 mn in 2007, whilst it was 2.31mn in 2006.

The peak and lean months of arrivals oftourists for different nationalities are givenbelow:

2.7 The Indian Aviation Industry

2.7.1 Introduction

Air India was set up by J.R.D. Tata, who ranit successfully until it was nationalised in1953. In the 1960s the Maharaja, as thenational flag-carrier was affectionatelyknown, was flying to 32 destinations (it nowflies to 130 destinations) and making profits.

For many years in India air travel wasperceived to be an elitist activity. Until lessthan a decade ago, all aspects of aviationwere firmly controlled by the government. Inthe early fifties, all airlines operating in thecountry were merged into either IndianAirlines or Air India and, by virtue of the AirCorporations Act, 1953 this monopoly wasperpetuated for the next forty years. TheDirectorate General of Civil Aviationcontrolled every aspect of flying includinggranting flying licenses, pilots, certifyingaircrafts for flight and issuing all rules andprocedures governing Indian airports andairspace. Finally, the Airports Authority ofIndia was entrusted with the responsibility ofmanaging all national and internationalairports and administering every aspect of airtransport operation through the Air trafficControl.

With the opening up of the Indian economyin the early Nineties, aviation saw someimportant changes. Most importantly, the AirCorporation Act was repealed to end themonopoly of the public sector and privateairlines were reintroduced. Domesticliberalisation took off in 1986, with the launchof scheduled services by new start-upcarriers from 1992. A number of foreigninvestors took an interest. Modiluft closedafter failing to meet financial obligations tolessors and its technical partner, Lufthansa.In 1996-1998, Tata and SIA tried to launch adomestic carrier, but the civil aviationminister had publicly stated his opposition onnumerous occasions (Airline Business 1998).

The Indian government introduced the opensky policy for domestic players in 1991 and

partial open sky policy for internationalplayers only in November 2004. Increasingliberalisation and deregulation has led to anincrease in the number of players. Theindustry comprises three types of players fullcost carriers, low cost carriers and manystart-up airlines that are making/planning anentry.

Nationality Lean Month Peak Months1 UK June December

2 USA September December

3 Canada May December

4 France May February

5 Germany June November

6 Sri Lanka May August

7 Japan May February

8 Australia May December

9 Malaysia July December

10 Nepal April September

11 Singapore July December

12 Italy May December

13 Korea (South) May January

14 China (Main) August November

15 Netherlands June July

Table 5: Lean and Peak Months of ForeignTourist Arrivals in India During 2006

Source: Bureau of Immigration




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Present Indian Scenario

It is a phase of rapid growth in the industrydue to huge build-up of capacity in the lowcost carrier space, with capacity growing atapproximately 45% annually. This hasinduced a phase of intense price competitionwith the incumbent full service carriersdiscounting up to 60-70% for certain routesto match the new entrants ticket prices. This,coupled with costs pressures (a key costelement, ATF price, went up approximately35% in recent months, while staff costs arealso rising on the back of shortage of trainedpersonnel), is exerting bottom-line pressure.

The growth in supply is overshadowed by theextremely strong demand growth, ledprimarily by the conversion of train/buspassengers to air travel, as well as by thefact that low fares have allowed passengersto fly more frequently. There has, therefore,been an increase in both the width and depthof consumption. However, the regulatoryenvironment, infrastructure and tax policyhave not kept pace with the industrysgrowth.

Enactment of the open sky policy betweenIndia and SAARC countries, increase inbilateral entitlements with the EU and theUS, and aggressive promotion of India as anattractive tourism spot helped India attract3.9 mn tourists in 2004-05. This market isgrowing at 15% per annum and India isexpected to attract 10 mn tourists by 2010.Also, increasing per capita income has led toan increase in disposable incomes, leadingto greater spend on leisure and holidays andbusiness travel has risen sharply with

increasing MNC presence. Smaller cities arealso well connected now. Passenger traffichas increased and over 21 mn seats havebeen sold, resulting in a growth of over 50%.The Indian travel market is expected to tripleto USD51 bn by 2011 from USD16.3 bn in2005-06.

2.7.2 Regulatory Overview

Indias civil aviation sector is undergoing arapid transformation these years. In 1990,the Indian government launched aprogramme of economic liberalisation of airtransport services, which resulted, inter alia,in (i) the announcement of a cargo openskies policy for international flights; (ii) thepermission of non-state owned airlines toenter the Indian market; and (iii) gradualliberalisation of bilateral air servicesagreements with third countries.

The Indian government increasinglyrecognises that the aviation sector can be acatalyst of general economic developmentand in 2003 therefore set up a Committee,led by former cabinet secretary NareshChandra, to draw up a Road Map as a basisfor a new national policy for civil aviation. Itappears that the current Indian governmentcontinues to employ key recommendationsof the Committee of developing a more openand competitive aviation market in India.

The report of the Naresh ChandraCommittee declared that an integratedapproach to civil aviation is required, onewhich is based on the following fourfundamental pillars:

The introduction of a level playing field forall operators;

Increasing private participation andcompetition by reducing barriers to entry;

Adherence to stringent safety standards aswell as sound regulatory oversight of the

air transport market;

Transparent institutional mechanismswhich provide for socially desirable butuneconomical services.

The Committees investigation led to theidentification of several overall conclusionsincluding the following:




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As an immediate priority it looked for amore liberal fiscal regime, which wouldinclude a reduction of fuel taxes. Thegovernment is yet to adopt itsrecommendations in this respect.

The committee deemed that airportcharges were too high and should belowered and that the supply of aviation fuelshould be liberalised to allow additionalsuppliers at airports.

The Committees advocacy of theelimination of route dispersal rules seemsto have been taken up by the governmentin June 2004 thereby changing the oldsystem of mandatory route mix of alloperators of routes between major citiesand thin marginal routes to a new systemwith a levy on private operators allowingfunding of uneconomical routes (publicservice obligations).

Similarly, the suggestion that foreign equityinvestment (except from foreign airlines)should be permitted for up to 49% ofairlines has been acted upon.

At the end of 2004, the Indian governmentdecided to allow privately owned carriersfulfilling certain criteria (i.e. having a fleet ofat least 20 aircrafts and more than five yearsof operating experience) to operate oninternational routes. Two carriers (JetAirways and Air Sahara) qualified for this andwere granted rights from the Indiangovernment to fly to internationaldestinations. The number of airlinesproviding services on the domestic market israpidly increasing. There are currently

sixteen scheduled registered airlines in India.

2.7.3 Key Players in Indian Aviation Industry

Airlines on International Routes

Air India is the national flag carrier airline ofIndia with a network of passenger and cargoservices worldwide. It is one of the two state-owned airlines in the country, the other being

Indian Airlines. Air India flies to 130destinations. The airline has been profitablein most years since its inception. In thefinancial year ending March 31, 2006, AirIndia has made a net profit of INR97 mn;earned a revenue of INR87,480 mn -representing a growth of almost 15% overthe previous year.

Jet Airways a regular airline which offersnormal economy and business class seats.Jet Airways is an airline based in Indiaserving domestic and international routes.The airline operates over 399 daily flights to68 destinations within India and overseas. InJanuary 2006, Jet Airways announced toacquire its largest private competitor, AirSahara for approximately USD500 mn in an-all cash deal which would have given thecombined entity a market share of 50%.Unfortunately, the deal did not go throughand was concluded in April 2007 for USD340mn. Subsequently, Jet Airways renamed AirSahara as JetLite and marketed it betweenlow-cost carriers and full service airline. Thecompany controls about 31% of India'saviation market as at June 2007.

Airlines on Domestic Routes

SpiceJet is a low-cost airline based in NewDelhi. Their marketing theme "offering low'everyday spicy fares' and great guestservices to price conscious travelers". Theiraim is to compete with the Indian Railwayspassengers travelling in AC coaches.

GoAir Airlines The Smart Peoples Airline, alow cost carrier promoted by The WadiaGroup is a domestic budget airline based in

Mumbai and operating since November2005. Its a relatively small player ascompared to other low cost airlines.

Kingfisher Airlines is an airline based inBangalore, India. Services started on 9 May2005, following the lease of 4 Airbus A320aircraft. It currently operates on domesticroutes. The United Breweries Group, parentcompany of Kingfisher Airlines, acquired




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26% of Air Deccans parent Deccan Aiationin May 2007 at INR5.46 bn. Not long after, inDecember 2007, the Group increased itsstake to 46% and decided to merge but runboth airlines as two separate brands.Therefore, Kingfisher will target thecorporate and business travel segment whilstAir Deccan focuses on serving the low-faresegment.

Deccan Airlines is operated by the DeccanAviation Limited, which is Indias first no-frills,low-cost, scheduled commercial passengerairline. Deccan only operates on domesticroutes and is a no-frills operator with freeseating on flights, on the basis of first-come-first-served seating. The airlines strategy isto connect metro airports and small towns,as well as Tier II cities that are equipped withsmall airports or airfields.

IndiGo Airlines is a private domestic airlinebased in India. IndiGo targets customerswho are cost conscious and are looking foraffordability, punctuality and hassle-freeprocessing. The airline plans to serve around30 Indian cities with a fleet of 40 Airbus A-320s by 2010.

2.7.4 Global Scenario

At the macro-economic level Asia Pacificgrowth is impressive. India and China aregrowing between 8% and 10% each year.China is now the world's third largesteconomy. Global airline traffic is expected torise steadily until 2008 in line with ananticipated good performance by the worldeconomy, according to the UnitedNations (UN) aviation agency. The UN

International Civil Aviation Organisationexpected airline traffic to grow 5.6% in 2008,from 5.8% in 2007. Up to 2015, traffic wouldgrow at an annual rate of 4.4%. This isequivalent to 30 mn flights and 2.8 bnpassengers. Globally airlines lost USD5.2 bnin 2008 and expect a further USD2.5 bn tobe lost in 2009. US carriers lost USD4.5 bn.European profits will drop seven-fold toUSD300 mn from USD2.1 bn. Asia Pacific

carriers profitability will shrink from USD900mn in 2007 to USD300 mn in 2008. Evenwithin Asia it is a mixed picture. Somecarriers are among the most profitable.Others however are struggling. TheInternational Air Transport Association(IATA) has forecasted that airlines in theAsia Pacific region will probably see lossesreaching USD1.1 bn in 2009. IATA alsopredicts air traffic to fall 3% in 2009 in theregion.

2.7.5 Impact of Fuel Prices on the Industry

The high price of fuel up to August 2008 waskilling airline profitability. By the end of 2008,crude oil is over 60% less than it was inAugust 2008. Indian carriers troubled by thefinancial crisis are given till March 2009 toclear their dues of around INR25 - 28 bn tooil companies in equated monthlyinstallments. Many airlines had cut capacityand jobs to deal with the high oil prices in2008. However, in the last few months of2008, carriers also slashed their fuelssurcharges and offered fare deals inresponse to the declining fuel prices, withhopes to attract more travelers.

2.7.6 Low Cost Carriers (LCCs)

The influx of LCCs across the world hasaffected the industry. Asian LCCs areassessing the successes and failures of theirNorth American and European counterparts.LCCs deliver their superior margins primarilythrough cost advantages such as moreflexible work models, better aircraft utilisationand fewer amenities. The LCCs in India arenow controlling almost half of the market are

were expected to carry more than 20 mnpassengers in 2008. A problem faced by thissegment is the rights to fly during non-peakhours on the trunk routes due tounavailability of slots during the peak hoursof the day. As such, the development ofsecondary airports at key cities play a pivotalrole. The gloom that has descended on theworlds aviation industry has allowed Asianlow-cost airlines to explore expansion plans




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and are now looking at opportunities whereothers see losses.

Path Forward for India

The turbulence that hit the aviation sector in2008 is expected to clear up a little in 2009.A report by the Centre for Asia PacificAviation (CAPA) predicts demand for the firsthalf of 2009 will be weak but will improve bythe third quarter of the year. Internationaltraffic, especially to West and South Asia,remains strong. However, traffic to Europeand North America is likely to remain weakdue to the economic climate in the countriesand excess capacity on UK/Europe routes.

As a result of the recent Mumbai terrorattack, inbound traffic has also beenaffected. The US and Australia have advisedits citizens to reconsider travel to India. Theattack on Mumbais Taj Mahal Hotel, OberoiTrident and the Chhatrapati Shivaji Terminushas caused room rentals at most Indianhotels to fall.

Entry restrictions on new airlines maycontinue in 2009 but licenses may be issuedfor those commencing operations in 2010.Additionally, investment restrictions may be

scrapped and overseas carriers may win theright to buy into Indian airlines.

Although poor airport infrastructure remainsa concern, we need to maintain a positiveoutlook on the sector as the governmentallows private participation and FDIs inconstruction and maintenance of air-trafficinfrastructure. For now, as more and moreIndians take to the skies, the country is set toemerge as the fastest growing aviationmarket.

With the impact of the crisis, the TourismMinistry is realising that a target of more than7.5 mn for 2010 is not realistic. The onlyincentive to boost Indias tourism sector inthe two economic bailout packagesannounced by the government has been toallow external commercial borrowings in thehotel sector.

The Indian government plans to aggressivelymarket India as a tourism destination bydeclaring 2009 as the year to Visit India.Packages are being made for adventuretourism, rural tourism, Buddhist sites andothers to lure tourists.

Airlines Type of AircraftCurrent Future

In Service On - Order

Deccan Airlines A320, ATR Turboprop 43 92

Air India Express B737-800 8 68

Go Air Airlines A320-200 5 20

Kingfisher AirlinesATR 72-500, A319-100, A319-100CJ, A320-200,A321-200, A330-200, A340-500HGW, A350-800XWB,A380-800

44 107

IndiGo Airlines A320-232 19 100

Paramount Airways E-170-100LR, E-175-200LR 5 22

SpiceJet Airways B737-800, B737-900ER 19 20

Note: A- Airbus, B- Boeing, E-EmbraerSource: Cygnus Civil Aviation Industry Report, June 2008

Table 6: Airline Fleet Details




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2.7.7 Indias Budget Airlines : Snapshot

2.7.7.1 Deccan Airlines

Deccan Airlines is Indias first low-costairline. It is operated by Deccan AviationPrivate Limited, India's largest private heli-charter company. Deccan Airlines wasestablished in 2003 and started operations inAugust that year with regular scheduledflights from Bangalore to Mangalore andHubli. Captain V. Gopinath, is the ExecutiveChairman of Deccan Airlines and is one ofthe founders of Deccan Airlines. DeccanAirlines is Indias first airline to follow a No-Frills, Low Cost Scheduled Passenger Airline

business. model. The company operatefrom seven bases located in the largesturban centers in India: Mumbai, Delhi,Chennai, Bangalore, Kolkata, Hyderabadand Trivandrum. In May 2007, The UnitedBreweries Group, parent company ofKingfisher Airlines, acquired 26% of DeccanAirlines and subsequently increased its staketo 46%. Both airlines are being run as twoseparate brands.

Deccan Airlines has grown rapidly since itfirst started air operations in 2003. It hasrevolutionised air travel in India and hasbrought air travel with in the reach ofcommon man. Deccan Airlines was the firstairline in India to link second rung cities likeHubli, Madurai and Visakhapatnam to metroslike Bangalore and Chennai. The airline wentpublic in May 2006. The proceeds from theIPO were planned be used to set up atraining centre in Bangalore and amaintenance facility in Chennai.

Presently, Deccan Airlines covers 59destinations in India. The Deccan Airlinesfleet consists of 43 aircrafts. These include20 Airbus A320 and 23 ATR Turboprop.Deccan Airlines has massive expansionplans. Deccan placed an order for 30 new72-seater ATR 72-500 aircraft in 2006, 32A320 jets in 2006 and 30 additional A320aircrafts with delivery beginning 2008.

2.7.7.2 SpiceJet Airways

Deccan Airlines

IATADN

ICAODKN

CallsignDECCAN

Founded 2003

Hubs Bangalore International Airport

Focus cities /secondary hubs

Chennai International Airport

Fleet size 43

Destinations 59

Parent company The United Breweries Group

Headquarters Bangolare

Key people Capt. V. Gopinath

Website: http://www.deccanairlines.in

Table 7

Source: Cygnus Civil Aviation Industry Report, June 2008

SpiceJet

IATASG

ICAOSEJ

CallsignSPICEJET

Founded May 2005

HubsChatrapati Shivaji InternationalAirport.Indira Gandhi International Airport

Focus cities /secondaryhubs

N/A

Fleet size 19

Destinations 18Parentcompany

SpiceJet

Headquarters New Delhi

Key peopleSiddharth Sharma, Ajay Singh,the Kansangra family and SanjayMalhotra

Website: http://www.spicejet.com

Table 8





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SpiceJet is a low-cost airline based in NewDelhi. Spice Jets mission is to becomeIndias preferred low cost airline, deliveringthe lowest air fares with the highestconsumer value, to price sensitiveconsumers. Its vision is to ensure that flyingis no longer confined to CEOs and businesstravelers, but is affordable for everyone.

SpiceJet airlines is promoted by Ajay Singh,the Kansangra family and Sanjay Malhotra.Spice Jet airways began its operations inMay 2005. It was earlier known as RoyalAirways, a reincarnation of Modiluft. SpiceJethas chosen a single aircraft type fleet whichallows for greater efficiency in maintenance,and supports the low-cost structure. It has afleet of 17 Boeing 737-800 and 2 Boeing737-900ER.

SpiceJet's new generation fleet of aircraft isbacked by cutting edge technology andinfrastructure to ensure the higheststandards in operating efficiency. It hasmaintenance support and state of the arttechnology from world leaders like KLM, StarNavigation, Russel Adams and Tech Log.Spice Jet currently flies to 18 destinations.These include: Ahmedabad, Bangalore,Chennai, Delhi, Goa, Hyderabad, Jammu,Kolkata, Mumbai, Pune, and Srinagar. Theairlines has ordered 5 Boeing 737-900ERand 5 Boeing 737-800 aircrafts to bedelivered between 2007 and 2009, andacquired an additional 10 options for eitherBoeing 737-800 or Boeing 737-900ER or acombination.

2.7.7.3 Kingfisher Airline

Kingfisher Airline is a private airline based inBangalore, India. Vijay Mallaya of UnitedBeverages Group owns the airline.Kingfisher Airlines started its operations onMay 9, 2005 with a fleet of 4 Airbus A320aircrafts. The airline operates on domesticroutes. The destinations covered byKingfisher Airlines are Bangalore, Mumbai,Delhi, Goa, Chennai, Hyderabad,Ahmedabad, Cochin, Guwahati, Kolkata,

Pune, Agartala, Dibrugarh, Mangalore andJaipur.

In a short span of time Kingfisher Airline hascarved a niche for itself. The airline offersseveral unique services to its customers.These include: personal valet at the airport toassist in baggage handling and boarding,exclusive lounges with private space,accompanied with refreshments and musicat the airport, audio and video on-demand,with extra-wide personalised screens in theaircraft, sleeperette seats with extendablefootrests, and three-course gourmet cuisine.

Kingfisher Airlines currently operates with abrand fleet size of 44 which include ATR72-500, A319, A320, A321 and A330. It was thefirst airline in India to operate with all new

aircrafts. Kingfisher Airlines is also the firstIndian airline to order the Airbus A380. InJune 2007, the airlines placed orders to buyanother 15 A350-800 jets worth USD3 bn.The order also includes 5 A340-500 planes,10 A330-200 and 20 A320-family jets worth atotal of USD7.2 bn.

Kingfisher Airlines

IATAIT

ICAOKFR

CallsignKINGFISHER

Founded 2004

Hubs Banglore International Airport


N/A

Fleet size 44

Destinations 71

Parent company Ub Group

Headquarters Mumbai

Key people Dr. Vijay Mallya, CMD

Website: http://www.flykingfisher.com

Table 9





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2.7.7.4 GoAir Airlines

GoAir Airlines is a low-cost budget airlinebased in Mumbai, India. The airline ispromoted by Wadia Group, which has beensynonymous with leading Indian companies,through its brands Britannia and BombayDyeing. GoAir Airlines has been showcasedas The People's Airline and is the brainchildof Jeh Wadia, who is the Managing Directorof GoAir Airways.

GoAir Airlines Director, is looking at'commoditising air travel' by offering airlineseats at marginally higher train prices to allcities in India. The airlines theme line isExperience The Difference and its objectiveis to offer its passengers a quality consistent,

quality assured and time efficient productthrough affordable fares. GoAir's businessmodel has been created on the 'punctuality,affordability and convenience' model.

GoAir's route network spans prominentbusiness and leisure destinations, acrossIndia. Currently it covers 13 destinations.These are Ahmedabad, Bangalore, Chennai,Cochin, Coimbatore, Delhi, Goa, Hyderabad,

Jaipur, Jammu, Mumbai, Pune, andSrinagar. Go Air operates with state-of-the-art Airbus A320 aircraft fleet.

2.7.7.5 Paramount Airways

Paramount Airways is a low-cost privateairline operating in India. Paramount Airwayswas launched on October 19, 2005 by theParamount Group, a leading Indian textilemanufacturer based in Madurai. Theheadquarters of Paramount Airways is inCoimbatore.

Paramount Airways aims to provideexceptional value for money, unparalleledcomfort and convenience to thepassengers. Paramount Airways offersseveral value added facilities such asvalets to assist in boarding the plane,

gourmet meals, and a range of in-flightservices and entertainment.

Paramount Airways has number of firsts toits credit. It is the first airline in India tolaunch the New Generation Embraer170/190 Family Series Aircrafts. It is the firstto offer full business class services but atprices that are equivalent to the economyclass fares of other carriers. Paramount

IATAGB

ICAOGOW

CallsignGOAIR

Founded 2004

HubsChhatrapati ShivajiInternational Airport


Chennai International Airport

Fleet size 5Destinations 13

Parent company Wadia Group

Headquarters Mumbai

Key people Jehangir (Jeh) Wadia

Website: http://www.goair.in

Table 10


Paramount Airways

IATA17

ICAOPMW

CallsignPARAWAY

Founded 2005

Hubs Chennai International Airport


N/A

Fleet size 5

Destinations 8

Parent company Paramount Airways

Headquarters Chennai

Key people Mr. Thiagarajan

Website: http://www.paramountairways.com

Table 11





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Airways is also the premium serviceschedule airline offering first time directservices to a number of commercial Hubs inIndia, connecting them to primary metrosacross the country.

Paramount Airways presently operates onlyin South India connecting Bangalore,Chennai, Cochin, Coimbatore, Hyderabad,Vizag, Trivandrum and Madurai. It plans toexpand operations from Bangalore to Pune &Goa. Paramounts fleet includes 2 EmbraerE-170-100LR and 3 Embraer E-175-200LR.The airline planned to introduce an additional7 aircrafts in 2008 and another 15 by the endof 2009. Paramount plans to have a largefleet of 40 aircrafts by the end of 2010,connecting the South, West and Northernmarkets.

2.7.7.6 IndiGo Airlines

IndiGo is the latest entrant to the domesticcivil aviation space in India. The low costcarrier took off its inaugural flight from Delhito Imphal on August 4, 2006. IndiGo istargeting those people who are cost

conscious and are looking for affordability,punctuality and hassle-free processing.

IndiGo presently has a fleet of 15 aircrafts,all A320s. Further orders for 100 A320s havebeen placed at USD6 bn, and IndiGoexpects to receive them by 2016.

Some of the sectors on which IndiGo isconcentrating are Delhi - Imphal, Delhi -Pune - Bangalore, Delhi - Kolkata -Guwahati, Delhi - Hyderabad, Delhi -Mumbai and Delhi - Nagpur. The airlineshopes to serve around 30 Indian cities with afleet of 40 A320s by 2010.

2.7.7.7 Jagson Airline

Jagson Airline is a private low-cost budgetairline based in Delhi, India. In 1991 whenthe aviation sector was opened for theprivate sector, Jagson Airlines, was the firstprivate airline to avail of this opportunity. Itcommenced its operations in 1992.

IndiGo Airlines

IATA

6E

ICAO

IGO

Callsign

IFLYFounded 2005

HubsIndira Gandhi InternationalAirport


Delhi - Imphal, Delhi - Pune -Bangalore, Delhi - Kolkata -Guwahati, Delhi - Hyderabad,Delhi - Mumbai, and Delhi -Nagpur

Fleet size 19

Destinations 17

Parent company Interglobe Enterprises

Headquarters New DelhiKey people Bruce Ashby

Website: http://www.goindigo.in

Table 12


Jagson Airways

IATANA

ICAONA

CallsignTBA

Founded 1992

Hubs

Chatrapati Shivaji InternationalAirport,Indra Gandhi International Airprt


Pune

Fleet size 3

Destinations 8

Parent company NA

Headquarters New Delhi

Key people JG Gupta

Website: http://www.jagsonairline.com

Table 13





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Jagson Airline presently flies to selectdestinations in Himachal Pradesh,Uttaranchal and Rajasthan. It also operatesa helicopter service between Srinagar, Baltaland Amarnath. Jagson Airlines is the onlyairlines that connects to all three airports inthe Himachal Pradesh state. Later, itexpanded to Jaipur, Jaisalmer and Jodhpurin Rajasthan, as well as the businessdistricts of Rajkot and Surat in Gujarat. It has3 Dornier-228 aircrafts and 2 MI-172helicopters. The destinations currentlycovered by Jagson Airline are:

2.7.7.8 Air-India Express

Air-India Express is a low-cost airlinesubsidiary of Air India. With flying becomingmore and more popular in India, a largegroup of customers are demanding low costinternational flights like the new low-costdomestic private airlines. To help meet thisneed and expand the airline, Air India spunoff Air India Express as its low-cost avatar.Currently, the airlines operates the Gulf andMiddle Eastern routes and some SoutheastAsian routes. It also flies domestic routesfrom Mumbai, Delhi, Kochi and Kozhikode.

The airline was established in May 2004 andstarted operations on April 28, 2005 fromThiruvananthapuram. Their first Boeing 737had been delivered in February 2005. AirIndia Express will be receiving 18 NextGeneration B737-800s, whereby 8 of theaircrafts have already been delivered.

2.8 Summary of Key Challenges

Standards of international airports:Visitors are generally not impressed bythe standard of Indias internationalairports. Most of the facilities areoutdated and in need of a total facelift toaccommodate more charters, biggeraircraft and handle the increased numberof passengers passing through.

Expensive domestic flights: Domesticflights are still too expensive, while thegovernment must be complimented onthe reduction on ATF taxes, high costdomestic aviation makes it cheaper forIndian travelers to visit other countriesrather than their own.

High level of bureaucracy: The otherend of the scale, Indias lack of decentconvention facilities means it is stillmissing out on the profitable MICEsector. Singapore, Malaysia, Hong Kong,Jakarta and Dubai are consideredattractive options, bringing in high profiletourists among the delegates, but India isnot yet on the conference map. Whilebuilding more hotels would provide an

Kullu & Manali Jodhpur

Jaipur Pant Nagar

Pondhicherry Shimla

Jaisalmer

Air India ExpressIATA

IXICAOAXB

CallsignEXPRESS INDIA

Founded 2005

HubsTrivandrum International AirportCochin International Airport


Indira Gandhi International AirportKozhikode International AirportMumbai International AirportChennai International Airport

Fleet size 8

Destinations 18

Parent company Air India Charters Ltd.

Headquarters Mumbai

Key people V. Thulasidas

Website: http://www.airindiaexpress.in/airindiaexpress/home.asp

Table 14





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answer and there is still a great deal ofland that could be developed, the highcost of land coupled with complex lawsand large amounts of bureaucracy actsas a deterrent.

Legalisation of gambling: Areas thatare still left wide open by the governmentfor the development are the legalisationof the gambling (which is the main sourceof income in some tourist destinations intourist places).

Demand and supply mismatch: Thedemand and supply mismatch in theavailability of rooms discourages thetourist to change their plans. As very fewcountries share the same demand andsupply mismatch which the Indianhoteliers face where the average touriststay is 10 to 12 days.

Cruise tourism: Cruise tourism is alsoanother area, which needs attention fromthe government. In the last six years thecruise tourism alone has generatedUSD100 mn for the Indian government.But, still not enough cruise terminals areset to facilitate the tourist or not properinformation regarding the packages ismade available to the tourists.

Terror attack: The November 2008Mumbai terror attack has affectedinbound traffic. The US and Australiahave advised its citizens to reconsidertravel to India. The government has tofind ways to lure tourists back to Indiaand aggressively market the country as asafe destination.

Poor support infrastructure: Thoughthe Indian government is taking steps,there are still many more improvementsto be done.

YearForeign Exchange

Earnings(INR Million)

PercentageChange

Foreign Exchange Earnings(USD in Million)

PercentageChange

1994 71290 7.8 2272 7.0

1995 84300 18.2 2583 13.7

1996 100460 19.2 2832 9.6

1997 105110 4.6 2889 2.0

1998 121500 15.6 2948 2.0

1999 129510 6.6 3009 2.1

2000 156260 20.7 3460 15.0

2001 150830 -3.5 3198 -7.6

2002 150640 -0.1 3103 -3.02003 207290 37.6 4463 43.8

2004 279440 34.8 6170 38.2

2005 331230 18.5 7493 21.4

Notes: * Revised Estimates, #Advance Estimates (Jan - June), @ Growth Rate over Jan - June 2007Sources: Reserve Bank of India and Ministry of Tourism

2006* 390250 17.8 8634 15.2

2007* 443600 13.7 10729 24.3

2008# 258250 18.2@ 6385 25.5@

Table 15: Foreign Exchange Earnings in INR and USD

2.9 Foreign Exchange Earning From Tourism




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2.10 Share of India in the World TourismReceipts

Indias share in the total of world tourismreceipts rose from 0.67% to 1.25% over thelast ten years. Indias contribution increased

from 1.16% in 2006 to 1.25% in 2007.Worldwide, international tourism receiptsstood at USD856 billion in 2007. The tablebelow indicates worldwide receipts andIndias share to it since 1998.

Chart 15: Foreign Exchange

Earnings Through Tourism

0

50,

000

100,

000

150,

000

200,

000

250,

000

300,

000

350,

000

400,

000

450,

000

1994

1996

1998

2000

2002

2004

*2006

#2008 (Jan - June)

Years

Earnings (Rs mn)

Chart 16: Foreign Exchange

Earnings Through Tourism

0

2

000

4

000

6

000

8

000

10

000

12

000

1994

1996

1998

2000

2002

2004

*2006

#2008 (Jan - June)

Years

Earnings (USD mn)

Sources: Reserve Bank of India and Ministry of Tourism

YearWorld Travel Receipts

(USD Bn)Travel Receipts In

India (USD Mn)Percentage Share of

India

1998 442.6 2,948 0.67

1999 457.2 3,009 0.66

2000 477.0 3,460 0.73

2001 463.6 3,198 0.69

2002 474.2 3,103 0.65

2003 525.0 4,463 0.85

2004 622.0 6,170 0.99

2005 680.0 7,493 1.10

Notes: * Revised Estimates, #Advance Estimates (Jan - June)Sources: Reserve Bank of India, Ministry of Tourism and WTO

2006 742.0 8,634* 1.16

2007 856.0 10,729* 1.25

2008 N/A 6,385# N/A

Table 16: World Travel Receipts and Indias Share




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2.11 Airport Statistics

The total count of international passengersarriving at all airports in India have increasedover the year. Domestic passengers on theother hand decreased, however in 21domestic airports there was a slight increasein passengers of 0.5%.

The governments Open Skies policy,granting permission for domestic airlines tocommence international flights, start up ofvarious low-cost carriers, and fleet expansion

by domestic players has created a hugeincentive for domestic travelers to exploredistant countries.

The increase in international passengertraffic can be attributed to the introduction of

operation by Air Arabia, Silk Air and Sri

Lankan Airlines since October 2007.Domestic passenger traffic experienced adecrease due to the withdrawal of operationsby many airlines in the domestic sector sinceJune 2008.

Travelers by air have decreased by 7.67%between the period October 2007 andOctober 2008. However, from the monthSeptember 2008, total travelers increased by14.85% MoM. International travelers grew by9.06% MoM in October 2008, whilst

domestic travelers rose 17.47% MoM.International passengers stood at 2,288,596in October 2007, but grew to 2,566,593 ayear later. On the other hand, domesticpassengers totaled 7,108,392 in October2007 and declined to 6,110,047 a year after.

Airports International Passengers Domestic Passengers

Oct 2008 Oct 2007 Change (%) Oct 2008 Oct 2007 Change (%)

12 International 746,317 646,584 15.4 1,741,685 1,982,991 -12.2

5 JV International 1,744,501 1,576,496 10.7 3,337,886 4,095,968 -18.5

8 Custom 75,463 65,386 15.4 360,877 360,776 0.0

21 Domestic - - - 564,688 562,108 0.5

Other Airports 312 38 721.1 104,911 106,549 -1.5

Table 17: Passengers Trend

Source: Airports Authority of IndiaTraffic Statistics, Oct 2008

Chart 17: Travelers by Air

0

2

46

8

10

12

Oct-07

Nov-

07

Dec-

07

Jan-08

Feb-

08

Mar-

08

Apr-

08

M

ay-

08

Jun-08

Jul-08

Aug-

08

Sep-

08

Oct-08

Millions

International Domestic

Source: Airports Authority of IndiaTraffic Statistics




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2.12 Domestic Tourism Statistics

The travel bug that's bitten Indians as seenin the table above, has caused a continuousincrease in domestic tourist visits, with theyear 2007 witnessing a growth of 14% YoYand a growth of 17.8% YoY for the year2006.

Domestic tourist growth rates have dippedslightly due to the tough economic timesfaced in 2007, which will most likely continuefor the next two years or so. Competitive airfares and improved access and convenienceof travel, especially by air, have aided growthin the segment. Thomas Cook India is said tobe strengthening its focus on the domestictravel segment. The company is expectingthe segment to grow five to ten times in thenext five years. Currently, many travelagents are preparing domestic holiday

packages that are affordable and allowcustomers to customise the package.Variations of packages include mid-term,short-term and weekend breaks.

The top two states that were most commonlyvisited by domestic tourist were AndhraPradesh and Uttar Pradesh, accounting for24.3% and 22.1% of total domestic visitsrespectively. Following on was Tamil Nadu

(13.5%), Karnataka (7.2%) and Rajasthan(4.9%) in 2007.

2.13 Hotel And Room Supply

The booming tourism industry had acascading effect on the hospitality sectorwith an increase in occupancy ratios andaverage room rates (ARR). With increasingdisposable income, more people can affordto travel to different pilgrimage and touristspots domestically. The government isactively promoting tourism. With growingbusiness, domestic and international leisuretravel, room demand is going to rise further.

With the arrival of low cost airlines and thecompetitive prices on offer, domestic touristsare provided with a host of options. Theopening up of the aviation industry in Indiahas paved the way for exciting opportunitiesfor the hotel industry as it relies on airlines totransport 80% of international arrivals.

An increasing number of foreign tourists arearriving in India, and boosted foreignexchange earnings at around 26.5% from2006 to 2008. This has assisted with thegrowth of ARR and occupancy rates of thehotel industry. The upcomingCommonwealth Games in 2010 will alsodrive demand for quality accommodation.

More than 50% of the occupancy of majorityof the budget hotels comes from businesstravelers. The ARR realised from businesstravelers is usually higher than leisuretravelers. Furthermore, growing demand androbust occupancy in the budget hotel sectorhas resulted in an increasing number of

budget hotels.

Service apartments, offering comfort andconvenience of a home, are becoming aglobally successful concept. This range is ausual choice for corporate employees orexpatriates relocating, or visitors staying onfor a longer duration.

Table 18: Domestic Tourist Visit

YearsNumber of Domestic

Tourist Visits% ChangeYon -Y

1999 190.67 -

2000 220.11 15.4

2001 236.47 7.4

2002 269.60 14.0

2003 309.04 14.6

2004 366.27 18.5

Source: Ministry of Tourism - At a Glance 2007 Report

2005 391.95 7.0

2006 461.76 17.8

2007 526.57 14.0




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3.1 Major Players

3.1.1 East India Hotels Ltd. (EIH)

East India Hotels Ltd. was incorporated on26th May, 1949 in Calcutta and waspromoted by Rai Bahadur M.S. Oberoi andOberoi Hotels (India) Ltd. The company wasbuilt in collaboration with IntercontinentalHotels Corporation, a wholly ownedsubsidiary of Pan American World Airways.In 1966 the company entered into acollaboration agreement with SheratonInternational Inc., Boston. In 1968 theAssociated Hotels of India Ltd., and HotelsPvt. Ltd., were amalgamated with thecompany. In 1988 the company entered intoa joint venture agreement with Accor ofFrance for construction and development ofmedium priced hotels. In 1996 the name ofthe company was changed to EIH Ltd. fromEast India Hotels Ltd. In 2004 the companyentered into a strategic alliance with HiltonInternational. At present the company owns

the second largest chain of hotels in India. Ithas 30 hotels and resorts in addition to 5luxury cruisers under its various groupcompanies located in India and abroad.

EIH operates hotel under The Oberoi andTrident brands. Oberoi properties are luxuryhotels in the premium segment, addressingthe needs of foreign and domestic business.Trident hotels are high quality medium pricedhotels, accorded 3,4 and 5 star ratings. EIHalso operates hotels at various international

destinations like Egypt, Indonesia andMauritius. A tie-up with Hilton international,continuous increase in tourist inflow coupledwith increased room demand and increasedARRs and occupancy rates have been keytriggers for performance.

The company currently has 1,069 rooms inTrident Hotels under management contracts,and plans to add 775 rooms through

contracts of EIH Associate-owned TridentHotels in Bangalore, Hyderabad, Manesarand Gurgaon. Under Oberoi Hotels, EIH has1,832 rooms.

EIH have entered into a strategic alliancewith Hilton International Co. for co-brandinghotels in India under the Trident Hilton brand,which brings together the global brand equityand extensive worldwide marketingresources of the Hilton Group. To supportthe ongoing demand expansion is on thecards. Hoteliers are expanding their capacity.Due to the tremendous shortfall of rooms inIndia it is expected that the hotel companiesto expand their present capacity to takeadvantage of the ongoing demand. Not onlythe Indian companies but also foreign brandsare launching their hospitality arms foropening premium hotels. Many internationalbrands are putting lot of money, giving Indianplayers a real good competition.

The company has a INR850-capex brand

new hotel at Bandra-Kurla Complex (BKC)and it is expected to be the only five-starhotel at BKC. The 440 room hotel isexpected to open by the last quarter ofFY2009. It is suppose to start of with a roombase of 220 during its soft launch in January2009, and later extend to 440.

The government of India has ranked Traveland Tourism as an economic priority havingrecognised and acknowledged thesignificance of the industry for the countrys

economy. The Tourism Department's'Incredible India' campaign has been widelyacclaimed. The growth in tourist arrivals isencouraging and higher paying tourists arevisiting the country. Foreign tourist arrivalsinto India are expected to grow to 10 mn by2010, in anticipation of the CommonwealthGames during the year.

3. Leading Players




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Period to FY06 FY07

(INR mn)Net profit before tax and extraordinary items 1,647 2,572

Depreciation 409 427

Interest expense 868 981

Interest income (89) (92)

Dividend income (4) (2)

Operating profit before working capital changes 2,887 3,893

Adjustments for:

Trade & other receivables (236) (457)

Inventories (61) 111

Trade payables 196 220

Cash from operating activities 2,786 3,767

Interest paid (858) (985)

Income tax (842) (1,106)

Cash flow before extraordinary item 1,086 1,676

Extraordinary items:

Unrecovered advance pursuant to a settlement made atHigh Court of Calcutta

(20) -

Sale of land 1,098 144

Repayments of Finance Lease Liabilities 0.20 -

Net cash from operating activities 2,164 1,820

Cash flows from investing activities

(Inc)/Dec in fixed assets (759) (2,324)

(Inc)/Dec in Investments (8) (269.17)

Interest received 73 68

Dividends received 4 2

Net cash from investing activities (691) (2,523)

Cash flows from financing activities

Proceeds from borrowings 1,500 1,200

Repayment of loans / liabilities (2,477) (376)

Dividend paid (472) (259)

Net cash used in financing activities (1,450) 564

Net increase in cash and cash equivalents (24) (139)

Cash at start of the year 640 664

Cash at end of the year 664 506

Table 23: Financial Years SnapshotCash Flow Statement

Source: Company Annual Reports




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Period FY06 FY07 FY08

(12) (12) (12)

Per share ratios

Reported EPS (INR) 36.04 5.10 5.53

Div per Share 10.00 1.40 1.80

Book Value per Share 196.65 29.66 33.17

Valuation ratios

P/E 19.80 18.43 24.78

P/BV 3.58 3.15 4.12

EV / Sales 5.79 4.72 5.71

EV / EBIT 16.82 12.38 14.13EV / Core EBITDA 14.54 11.06 12.80

Profitability ratios

Operating Margin (%) 33.66 36.72 38.14

Net Profit Margin (%) 23.50 20.14 18.89

Reported Return on Net Worth (%) 24.14 21.75 20.44

EBIT Margin (%) 32.43 36.00 37.97

Liquidity ratios

Current Ratio 1.17 1.07 0.99

Quick Ratio 1.05 1.01 0.88Inventory Turnover Ratio 34.42 5,589.10 32.47

Leverage ratios

Debt / Total Equity 0.89 0.85 0.76

Component ratios

Selling Cost Component 4.76 4.23 4.42

Exports as a Percent of Total Sales 59.41 56.05 55.31

Long Term Assets / Total Assets 0.75 0.74 0.82

Payout ratios

Dividend Payout Ratio 31.64 32.10 38.09

Earnings Retention Ratio 41.90 59.61 62.77

Performance ratios

ROA (%) 8.79 7.97 8.60

ROE (%) 18.06 17.07 16.64

Sales to Fixed Assets 0.87 1.07 0.99

Table 24: Financial Years SnapshotRatios

Source: EMIS




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3.1.2 Thomas Cook India Ltd (TCIL)

Thomas Cook began its Indian operations in1881, with its first office in Mumbai.Subsequently, it expanded to the cities ofKolkata, Bangalore, Delhi and Chennai,under the aegis of Thomas Cook OverseasLimited. The current company, TCIL cameinto existence with effect from November 1,1978. TCIL made its public issue in February1983. TCIL activities include CorporateTravel, Leisure Holidays, Foreign Exchangeand Travel related Insurance.

Major shareholders of the company areTCIM Ltd (54.42%), Thomas Cook UK Ltd(20.48%) and Dubai Financial LLC (5.96%).The company is represented in 55 citiesacross 200 location in India with over 3,000employees.Thomas Cook is quoted in BSEand NSE Stock Exchanges.

Thomas Cook (India) Ltd. has been arecipient of a number of highly prestigiousawards, listed in the table below.

2005 2006

1.Golden Peacock Award for Excellence in Corporate Governance 2006 (Finalist Certificate)by Institute of Directors for ethical business practices

1. Best Travel Agency Award, 2005 by The Pacific Asia Travel Writers Association (PATWA)

2.PATA Gold Award, 2005 by Pacific Asia Travel Association (PATA) for marketing in thecategory of Industry Tour Operator / Travel Agent.

3.Best Website Awardby the Association of Business Communications of India (ABCI), wherethe company won the first prize for its website www.thomascook.co.in (3 years in a row).

4.Best Technology Award, 2005 by Galileo Express Travel & Tourism Award for BestTechnology Programmes.

5.Excellence in Financial Reporting in Service Sector by The Institute of CharteredAccountants of India.

6.Top CFO, Mr. Robin Banerjee, Executive Director Finance by Business Today Magazine,listed amongst the top 13 of Indias Best CFOs.

7.Galileo India Express Travel and Tourism Awards Best Technology Programmes(2004-

05).

8.Best Travel Agency for Tourism Related Services by PATWA (Pacific Area Travel WritersAssociation) ITB Berlin Germany- March 2005.

9.Malaysia Airlines Gold Award presented to Thomas Cook (I) Ltd. for Outstanding SalesAchievement 2004-05.

10. Qantas High Flyer Award 2004-05 to Thomas Cook (I) Ltd.

2004 2005

Table 25: Awards Received

Source: Companys Website




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3.1.3 Jet Airways (India) Ltd

Jet Airways, which commenced operationson May 5, 1993, has within a short span of13 years established its position as a marketleader. The airline has had the distinction ofbeing repeatedly adjudged Indias BestDomestic Airline and has won severalnational and international awards. For theyear 2007, the airlines won the ExcellenceAward for the Best Full Service Airline inIndia by the Air Passengers Association ofIndia.

The airline is owned by Tailwinds Ltd.(owned 80% by Naresh Goyal) and theremaining 20% is public shares. Jet Airways'shares are listed on the National StockExchange (NSE) and Bombay StockExchange (BSE).

Jet Airways current fleet consists of 54 B737New and Next-Generation aircraft, 10 Airbus330-200, 10 ATR 72-500 and 10 B777-300ER aircrafts.

The average age of the fleet is 4.1 yearsmaking it the operator of the youngestaircraft fleet in Asia. Jet Airways flies to 63destinations within India and internationally.More aircrafts have been ordered to bedeployed in far Eastern routes to serve HongKong and to expand services to Europe andthe Middle East.

The airlines primary hub and maintenancebase is located in Mumbai; whilst Delhi,Kolkata, Chennai, Pune and Bangalore areSecondary Hubs. In April 2007, Jet Airwarysacquired Air Sahara for USD340 mn,renaming it as JetLite and marketed itbetween LCCs and full service airlines.

Table 27: Profit & Loss StatementFY 2008

Note: ROE used for conversion: USD1 = INR40.12 for FY2008 and USD1 = INR43.47 for FY2007Source: Companys Annual Presentation




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Table 28: Summary Balance Sheet

Table 29: Company Operating Parameters






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The research report is based on material compiled from data considered to be reliable at the time of

writing. However, information and opinions expressed will be subject to change without notice. We donot accept any liability directly or indirectly that may arise from investment decision-making based on

this report

Chart 20: Fleet Plan

Note: Jet has also firm orders for 20 B737, 10 B787 and 10 B737 option aircraft between FY2012-2014Source: Companys Annual Presentation


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