The Role of Emirates Airlines in Indian Economy
Introduction
This paper relates analysis of Indian civil aviation industry and examination of the role of Emirates Airlines in the national economy. The paper contains a detailed analysis of the industry and Emirates Airlines to make conclusions regarding contribution of the Company into the development of the industry. The research was conducted using both qualitative and quantitative methods. The research methodology includes telephone interviews, on-line survey, questionnaire, and analysis of primary and secondary data. The research paper contains vast statistical data offering enough information for making appropriate conclusions. Recommendations were developed with regard to practical implications of the research findings. The most valuable alternative was discussed in the conclusion part. Practical implications were considered taking into account short-term and long-term perspectives.
Background of the Problem
Sector of civil aviation is crucially important for Indian economy because it is increasingly linked to revenues obtained from tourism. Thus, Emirates Airlines brought 529,928 tourists from foreign countries in 2010-2011. Tourism sector in Indian economy becomes more and more important. The government developed National Action Plan for Tourism aiming to promote tourism as an impetus for socio-economic growth of the country. The contribution of tourism sector into the economy made up $16.16 billion in 2009. Obviously, Indian economy significantly depends on earnings from tourism (NCAER, 2012).
At the present time Emirates Airlines maintain strong presence in the Indian civil aviation market. However, some researchers are concerned about the fact that foreign airlines attempt to exclude national carriers of the market. NCAER reported that Emirates Airlines had significantly contributed into Indian economy showing another side of the problem. Thus, Emirates Airlines contributed $1,153 million to the Indian economy derived from tourism sector offering 72,323 jobs for employees from India in 2011. The same year Emirates Airlines carried more than 4.7 million passengers and injected $596 million into the economy of India (NCAER, 2012).
According to NCAER, Indian economy needs developed civil aviation that would be able to compete in the global market. It may contribute greatly into further growth of Indian economy. This is the reason why this sector should be developed.
The current paper is to answer several questions connected with the development of civil aviation in India. It aims to reveal the links between the current financial position of Emirates Airlines and the growth of Indian economy. The main task of this research is to identify the role of Emirates Airlines in the economy of India and evaluate economic implications of Emirates Airlines on the GDP of India (The Emirates Group, 2011).
Literature Review
NCAER, 2012. Emirates Airline contributes US$596 million to the Indian economy: NCAER study.
The study evaluates contribution of Emirates Airlines into civil aviation sector of Indian economy. NCAER studied four impacts, namely: the direct contribution of Emirates Airline operations to the Indian economy; multiple effects made on other sectors of Indian economy; the effect of generating jobs in India; contribution to the tourist industry. Comprehensive statistics was represented in the study as well. Statistics relates contribution of Emirates Airline into the air transport sector, petroleum and chemicals sector, manufacturing, trade, banking, and insurance sectors. The impact on employment and development of small cities in India was also described in the article.
The publication represents valuable information because NCAER is a reliable nationwide source of information. The information is relevant, clear and up-to-date helping obtain real picture. The information provided in the article offers a lot of facts for conducting in-depth analysis of the current situation in civil aviation industry of India. The article also offers vast information for analysis of the position of Emirates Airlines in the economy of India. It can be recommended to a wide range of readers, such as students, researchers, and scholars.
The Emirates Group, 2011. Annual report 2010-2011.
Annual report for the years 2010-2011 offers vast information regarding current strategy, financial position of the Company, financial statements, and strategic plans for future. It helps evaluate current position of the Company in the global market and perspectives of development of the Company business in India. The annual report also represents the information for analysis of the factors contributing to its success in India and all over the world.
The information was provided by the Company that is a reliable source of information. It can be considered relevant, comprehensive, and reliable. Analysis of financial statements and explanatory notes allow making conclusions regarding the current financials of the Company. The Company offers information regarding its branches located all over the world as well. It gives an opportunity to evaluate the contribution of the Company into the development of Indian economy.
It was also very useful for the purposes of the current research because statistical data was taken from the primary source. Explanatory notes were of great help when completing overview of the Company and background of the problem. In whole, annual report are valuable source of information that can be useful for general audiences.
ICRA Ltd, 2012. Indian Aviation Industry.
The report of Associate of Moody's Investors Service described the current situation of Indian aviation industry, its problems and perspectives. The report offers a detailed analysis of the aviation industry in India paying much attention to the crisis in the industry that occurred during recent years (2008-2009). Challenges faced by the industry (high oil prices), fierce competition and constraints were described in the report. There are two key challenges in aviation: unfavorable economic conditions resulted in weak financial performance; unfavorable investment climate conditioned by the stress in aviation. The authors of the report emphasized the necessity of investments into aviation industry. The role of Indian government and dilemma between public and private sectors participating in the revival of national airlines were described. The issue of capturing a market share by foreign airlines was also raised.
The report is a valid and reliable source of information because it was represented by the Investment Information and Credit Rating Agency of India. The information is comprehensive and up-to-date allowing for making a detailed analysis of the industry. It can be useful for the researchers and those who display interest in aviation industry of India.
Research Methodology and Limitations
The research is based on the combination of quantitative and qualitative research methods. Primary and secondary data was used to ensure relevance and reliability of the research. Primary data was collected with the help of on-line interviews and questionnaire. Questionnaire contains 7 questions. Discrete data was analyzed with the help of linear regression method. There were 30 respondents participating in the survey. The majority of participants were between 20 and 50 years. The number of men and women was almost the same (16 men and 14 women). The participants live throughout India regardless of city or rural areas. The survey was conducted with the help of social networks – Twitter and Facebook. The study presents 95% confidence according to statistical requirements. Error margin made up +/-2% for the majority of questions. However, error margin made up +/-3% for several questions. The sample of questionnaire is attached in Appendix 1.
Participants were asked to give their contacts aiming to make the answer more precise. Phone calls had greatly contributed into qualitative part of the research.
The secondary data was obtained from two sources: quantitative data was derived from NCAER report; ICRA Ltd. offered both qualitative and quantitative data for analysis. NCAER report 2010-2011 mainly relates contribution of Emirates Airlines into Indian economy. ICRA Ltd. is devoted to analysis of civil aviation sector of Indian industry. Data used in the research of NCAER and ICRA Ltd. was collected using internal and external desk research. Secondary data absorbed expert interviews. Except for desk research, NCAER uses additional research techniques: secondary data placed in official sources, reports of national statistical offices, and annual reports of the Company. ICRA Ltd. used companies’ financial data, online databases, and business press releases. Official site of Emirates Airlines was used for the in-depth analysis of financial performance (Appendix 2). Indian civil aviation performance was analyzed with the help of data obtained from ICRA Ltd.
It was crucially important to answer the research questions analyzing the performance of Indian economy and Emirates Airlines. A significant attention was paid to analysis of trends. Both NCAER and ICRA and Ltd. used combination of internal expertise and knowledge of specialized industry. Civil aviation industry analysis was based on reviews of industry specialists offering relevant and up-to-date information. This method had significantly contributed into testing and finalization of data (Appendix 3).
The participants of the survey conducted were assigned numbers to comply with anonymity requirements. The filled questionnaires were analyzed and then destroyed on ethical grounds.
The research is subjected to certain limitations, namely: a sample is probably too small and may not reflect opinions of certain social stratum. A larger sample would probably describe the results of the research better.
Findings and Discussion
The following findings are based on the three sources of information: NCAER, ICRA Ltd., and survey of 30 participants.
The majority of the interviewees (73.6%) had the opportunity to compare services provided by national and foreign carriers. Approximately 72.3% of the customers surveyed specified that quality as an important factor in service sector. However, this tendency was revealed when making follow-up calls and asking leading questions. The price for the tickets was the deciding factor in the matter is price for the tickets. More than half of the respondents (56.7%) mentioned that they were not satisfied with the price and the quality of services provided by national carriers.
The majority of the respondents (63.5%) agreed that Emirates Airlines contribute into economy of India. However, they expressed disappointment with regard to the fact that national carriers cannot compete effectively in the market. Most of them would prefer to use national carriers if they offer same level of service at a good price. About 46% of the respondents stated that the quality of services provided by the Emirates Airlines is higher than that of national carriers during follow-up calls. Absolute majority of participants (93%) marked that the price for air tickets is a turning point in decision making.
Analysis of secondary data revealed that key success factors of Emirates Airlines are good business model and ongoing implementation of innovative technologies. It gives several competitive advantages for the Company, namely: reasonably priced tickets combined with offering high level of services provided. The financial years 2010-2011 marked out 24-th consecutive year for profit. The growth of revenue of Emirates Group made up 26% in comparison to 2009-2010 financial years (Appendix 2). Profit derived from operating activities for financial years 2010-2011 made up 57,377 million AED, operating profit was 5,941 million AED while profit margin was 10.3%. Thus, analysis of financial highlights of the Company gives an opportunity to evaluate the position of the Company in Indian market and the role it plays in the economy of the country (The Emirates Group, 2011).
Several preceding years were challenging for Indian aviation industry because of high oil prices and limited pricing power. Besides, the decreased demand for flights in 2009-2010 contributed to the difficulties faced by national carriers. The global crisis of 2008 made a negative impact on passenger traffic resulting in underperformance of national airline operators (Appendix 3). However, the operating environment improved during 2010-2011 due to stable oil prices and relatively stable demand for air tickets. Thus, passenger traffic grew by 14% in average in 2011-2012 compared to previous financial year of 2010-2011. At the same time competition from foreign carriers’ side grew together with passenger traffic resulting in decline in yields forcing national airlines into losses. Inflation and instability in the country had also contributed into the process. Indian government is concerned about the situation because allowing foreign airline operators to invest in Indian civil aviation may result in extinction of the industry while financial assistance may not produce the expected and needed results.
However, contribution of Emirates Airlines into Indian economy is not limited by offering high quality services to the customers. The Company makes indirect impact on other industries that make a significant contribution on Indian economy. Thus, it was estimated by NCAER (2012) that Emirates Airlines contributed into the air transport sector $274 million, $76 million in the chemicals and petroleum sector, $62 million in the national manufacture, $39 million in trade, insurance and banking sectors, and $145 million in other sectors of Indian economy (Appendix 4). Therefore, it is important to use a balanced approach when considering opportunities and threats to Indian economy connected with presence of foreign airline operators in the country (NCAER, 2012).
Recommendations
According to the theory of constraints, when one factor of a process is improved, another factor may lag the process. The opinions of experts regarding revival of national civil aviation vary significantly. On the one hand, bringing back civil aviation to Indian economy will lend an honorific character to India as an independent state. In addition, development of national civil aviation industry will contribute into GDP of India. On the other hand, contribution of Emirates Airlines into the economy of India is significant making an impact on several other industries, including tourism which is a current priority of Indian government.
At the present time Indian government considered four alternatives as follows: allow foreign airline operators make up to 49% investments into the sector of national civil aviation, allow direct import of fuels for jet engines (ATF), freeze international expansion in the industry, and offer financial aid to the national carriers.
Taking into account the analysis of the industry and the analysis of the current position of Emirates Airlines in India, the third alternative (freezing international expansion) cannot be considered because it could make significant negative impact on Indian economy since it is bounded to tourism activity.
The first alternative seems to be a good idea if it is supported by SEBI. Foreign carriers may wish to acquire 23% offer 26% stake for public trade. This proposal may lower pressure on national airline operators. In addition, this approach will help domestic carriers gain international experience and improve the quality of services provided in a short-term period. (ICRA Ltd, 2012).
In addition to the listed benefits India will receive an opportunity to establish hub between several continents (US, Europe, and Asian countries). It will benefit full-service carriers helping them consolidate the position on the highly price sensitive market (ICRA Ltd., 2012).
Presence of foreign players in the domestic market will stimulate competition offering benefits to customers, contributing to tariff reduction and improving service standards. It will also provide flexibility in international flights for customers traveling both domestic and international destinations. It sounds like a good perspective for civil aviation industry of India because global airline industry is currently experiencing hard times connected with high oil prices and consequences of global recession. According to Bloomberg, World Airline Index fell down 22% while Asia-Pacific Airline Index fell 25% in 2011. The situation in aviation economics in India is unfavorable too. Except for fierce competition, the industry is suffering from high fuel taxes, underdeveloped infrastructure, and high airport charges. Currently, foreign airline operators received profitable routes capturing a significant market share on the basement of code sharing agreements (ICRA Ltd., 2012).
Thus, allowing foreign carriers to enter domestic market will give the country an opportunity to benefit from development of tourist industry and then use this potential for further development of domestic civil aviation.
Conclusions
Currently, the civil aviation industry in India experiences hard times. The government of the country proposed several alternatives of improvement of performance of domestic airline operators. However, national carriers are not able to compete with foreign operators because of poor service quality and inadequate financing.
It is difficult to overestimate the role of Emirates Airlines on the Indian economy. Obviously, the Company derives essential benefits from global presence, including India. However, the benefits obtained by the Indian economy are also significant.
Thus, proposal to allow foreign investments inflow is a good opportunity for development of domestic civil aviation in a short-term perspective. Presence of foreign carriers will help domestic airline operators gain experience and use it for development of national civil aviation industry in the long run. Besides, this is a good opportunity to support strategic industry during global and national recession. The revenues obtained from tourism and other sectors of Indian economy supported by Emirates Airlines can be used for the development of future competitive advantage of the country in the global market.
Appendix 1
Questionnaire Sample
Personal Data
Name of the participant (optional): _____________________________________________
Age: _____________________________________________________________________
Sex: ______________________________________________________________________
Occupation: ________________________________________________________________
Questions
1. Do you use Emirates Airline? If you answer is "no", please, return the questionnaire.
Yes
No
2. How often do you use services of Emirates Airlines?
Other (specify)______________________________________________
3. Which principles do you follow when choosing a carrier?
Cheap tickets
Service quality
I prefer national carriers
Comfortable seats, plane design
Other
4. If you have an option to choose between national and foreign carriers, which one would you prefer?
National
Foreign
Other (specify)______________________________________________
5. How do you think, does Emirates Airlines contribute to Indian economy?
Yes
No
Not sure
6. How do you think, what is the difference between Emirates Airlines and other carriers in India? _______________________________________________________
7. Do you have any suggestions for Emirates Airlines in India?___________________________________________________________
Appendix 2 Key Ratios of The Emirates Group for 5 years (2006-2011)
Operating margin
Profit margin
Return
on shareholders’ funds
Appendix 3 Gross Sales Growth for 3 years (2009-2011, %)
Year, Month
%
March, 2009
June, 2009
-17
September, 2009
-25
December, 2009
-3
March, 2010
June, 2010
September, 2010
December, 2010
March, 2011
June, 2011
September, 2011
December, 2011
Appendix 4 Contribution of Emirates Airlines into Sectors of Indian Economy (2011)
References
ICRA Ltd. (2012). Indian aviation industry. An Associate of Moody's Investors Service. Retrieved from http://www.icra.in/Files/ticker/Indian%20Aviation%20Industry%20(NEW).pdf
NCAER. (2012). Emirates Airline contributes US$596 million to the Indian economy: NCAER study. Emirates. Retrieved from
http://www.emirates.com/english/about/news/news_detail.aspx?article=971495
The Emirates Group. (2011, September 4). Annual report 2010-2011. Retrieved from
http://content.emirates.com/english/images/EK-AR-10-11_tcm233-750566.pdf
