Group 5

History of Aviation in India 1932 - Launch of TATA airlines 1948 - Air India international 1953 - Nationalization of aircraft industry 1986 - Private sector players permitted as Air Taxi 1994 - Private carriers permitted to operate scheduled services 2003 - Entry of low cost airlines Air Deccan… Go Air… Spicejet… Indigo … More in the wings …

1932 - Launch of TATA airlines

1948 - Air India international

1953 - Nationalization of aircraft industry

1986 - Private sector players permitted as Air Taxi

1994 - Private carriers permitted to operate scheduled services

2003 - Entry of low cost airlines

Air Deccan… Go Air… Spicejet… Indigo … More in the wings …

The Air Travel Experience Top Consulting - 1 /

Safety Concerns!

PEST Analysis: Conducive Factors Political Economic Social Technological National and airport security Income for salaried class up : 14 to 16 % Increasing travelling lifestyles IT revolution FDI : 49 % in Airlines, 100 % in airports GDP growth of 8 % - 9 % in last 5 years Increasing business travelling Online Ticketing Freedom to determine fares Nil Import tariff on Aircraft Growing Middle class Best price shopping services Level playing field Seat inventory Pricing LCC as mass Transport medium Uniform aircraft types Up gradation of airport infrastructure Oligopoly structure of the market – Customer View Air travel: from luxury towards necessity. Safety Measures

PEST Analysis: Limiting Factors Political Economic Social Technological Bureaucracy Tax & Tariffs: 8 % Import duty and 25 % - 33 % state sales tax on ATF Lack of Skilled Manpower (In-flight staff Night Landing facilities International routes after 5 years Pricing Strategy dependent on individual firm’s behaviour Customer Service Operation during Winter No clear policy for state carriers International Petroleum Prices Safety Concern (9/11, Sars) Capital Intensive Technology

Threat of new entrants Entry Barriers High start up costs – capital intensive industry Over-crowded low cost airline market (too many budget airlines in the Indian skies) Dearth of aviation professionals (pilots, aviation engineers) Limited infrastructure facilities Price wars against newcomers. Exit Barriers Long gestation period Net Impact - LOW

Entry Barriers

High start up costs – capital intensive industry

Over-crowded low cost airline market (too many budget airlines in the Indian skies)

Dearth of aviation professionals (pilots, aviation engineers)

Limited infrastructure facilities

Price wars against newcomers.

Exit Barriers

Long gestation period

Net Impact - LOW

Bargaining power of buyers Price dominated short-haul market with little or no product differentiation. Low switching costs Price conscious consumers - little or no customer loyalty. Net Impact - HIGH

Price dominated short-haul market with little or no product differentiation.

Low switching costs

Price conscious consumers - little or no customer loyalty.

Net Impact - HIGH

Bargaining power of suppliers No control over ATF (Aviation Turbine fuel) prices Negotiate favourable deals with most of their suppliers ( eg., Airline operators do not have their own catering department for on-flight consumables. ) Leased aircrafts Specialized spare parts and limited number of manufacturers Net Impact - HIGH

No control over ATF (Aviation Turbine fuel) prices

Negotiate favourable deals with most of their suppliers ( eg., Airline operators do not have their own catering department for on-flight consumables. )

Leased aircrafts

Specialized spare parts and limited number of manufacturers

Net Impact - HIGH

Threat of substitutes Videoconferencing and other telecommunication technologies Super fast trains for short haul flights Net Impact - LOW

Videoconferencing and other telecommunication technologies

Super fast trains for short haul flights

Net Impact - LOW

Rivalry among existing firms Competitive and over-crowded market, Commoditized nature of product - Aggressive pricing, efficient distribution and innovative communication mixes Differentiation – eg., narrow versus wide customer base regional towns versus main cities Competition with conventional carriers - With low fares but a higher level of service (more frills and main airport servicing) they are a big threat. Consolidation in the market - Mergers, acquisitions and alliances (eg., Kingfisher Airlines acquired Air Deccan, Jet Airways acquired Air Sahara and merger of Air India with Indian Airlines) Net Impact – HIGH

Competitive and over-crowded market,

Commoditized nature of product - Aggressive pricing, efficient distribution and innovative communication mixes

Differentiation – eg., narrow versus wide customer base

regional towns versus main cities

Competition with conventional carriers - With low fares but a higher level of service (more frills and main airport servicing) they are a big threat.

Consolidation in the market - Mergers, acquisitions and alliances (eg., Kingfisher Airlines acquired Air Deccan, Jet Airways acquired Air Sahara and merger of Air India with Indian Airlines)

Net Impact – HIGH

Threat of New Entrants Buyer power Supplier power Substitutes Internal Rivalry Capital intensive industry - Long gestation period Little differentiation between LCCs No control over ATF (Aviation Turbine fuel) prices Videoconferencing and other telecommunication technologies Competitive and over-crowded market Over-crowded low cost airline market Price conscious -little or no customer loyalty. Favourable deals with most of their suppliers Super fast trains for short haul flights Commoditized nature of product Dearth of aviation professionals Low switching costs Leased aircrafts Competition with conventional carriers Limited infrastructure facilities Limited number of manufacturers Consolidation in the market Price wars against newcomers. High fuel costs (contributes to 30% of the operating cost) Aggressive pricing strategies

Airline Industry analysis

Market Share as on 31st March 2008 Source: Ministry of Civil Aviation, India - http://civilaviation.nic.in/

Market Trends – Existing Market India - Fastest growing tourism destinations Robust economic growth, higher disposable incomes, and growth in tourism & business travel, are the major demand drivers. Low-cost carriers (LCCs) Resulted in middle-income people and self-employed shifting from premium class travel in trains to air travel. Domestic air passengers grew at a 38.5% with 35.3 million passengers flying in FY07 against 25.5 million in FY06. The Centre for Asia Pacific Aviation (CAPA) predicts that the domestic traffic would grow at 25%-30% annually until 2010* *Recent slump due to high ATF prices

India - Fastest growing tourism destinations

Robust economic growth, higher disposable incomes, and growth in tourism & business travel, are the major demand drivers.

Low-cost carriers (LCCs)

Market Trends – Emerging Market Well-suited to emerging markets of Asia - many first time travelers as well as budget conscious short-stay holiday takers. Different Traveler tribes which may emerge in the next 10-15 years, and that have the potential to transform how the airline industry delivers products and services Global Executives Elite business travelers that want a private jet type experience, predominantly from emerging economic markets such as Brazil, Russia, India and China. Active Seniors: The wealthy, healthy older travelers, aged between 50 and 75, that will continue to travel for cultural and leisure pursuits. Cosmopolitan Commuters: Those that live in one city but work in another and will use air travel to commute.

Well-suited to emerging markets of Asia - many first time travelers as well as budget conscious short-stay holiday takers.

Different Traveler tribes which may emerge in the next 10-15 years, and that have the potential to transform how the airline industry delivers products and services

Global Executives

Elite business travelers that want a private jet type experience, predominantly from emerging economic markets such as Brazil, Russia, India and China.

Active Seniors:

The wealthy, healthy older travelers, aged between 50 and 75, that will continue to travel for cultural and leisure pursuits.

Cosmopolitan Commuters:

Those that live in one city but work in another and will use air travel to commute.

Market Drivers ATF prices Rising global crude prices result in higher ATF prices. Infrastructure Currently there is a huge Infrastructure constraints in terms of Airport facilities. Though the government has initiated plans for infrastructural developments, any delay in infrastructure development would aggravate the problem. Availability of skilled personnel Shortage of Pilots due to the growth in the Industry. Gestation period of 3 years for getting a commercial pilot license. Training of Cabin crew Ground and Maintenance staff availability

ATF prices

Rising global crude prices result in higher ATF prices.

Infrastructure

Currently there is a huge Infrastructure constraints in terms of Airport facilities. Though the government has initiated plans for infrastructural developments, any delay in infrastructure development would aggravate the problem.

Availability of skilled personnel

Shortage of Pilots due to the growth in the Industry. Gestation period of 3 years for getting a commercial pilot license.

Training of Cabin crew

Ground and Maintenance staff availability

Competitive Analysis Consolidation to result in increase in fares and yields Consolidation in the domestic aviation sector. From a fragmented sector with more than 10 players, today there are 3 major players, and a couple of other smaller players in the LCC space. The top three players together have a combined market share of around 80% Government plans to invest Rs 40,000 crore during the 11 th five-year plan to improve airport infrastructure in India

Consolidation to result in increase in fares and yields

Consolidation in the domestic aviation sector. From a fragmented sector with more than 10 players, today there are 3 major players, and a couple of other smaller players in the LCC space.

The top three players together have a combined market share of around 80% Government plans to invest Rs 40,000 crore during the 11 th five-year plan to improve airport infrastructure in India

Cost Comparison : Domestic Peers Cost leadership gives Spicejet an edge over peers Available Seat Kilometres (ASKM) : Represents the aircraft seating capacity multiplied by the number of kilometres the seats are flown

Cost and Value Drivers High seat density Single economy class having 189 seats. Focuses on maximum space utilization for generating more revenue per aircraft.

High seat density

Single economy class having 189 seats.

Focuses on maximum space utilization for generating more revenue per aircraft.

Cost and Value Drivers Direct Distribution of Tickets Sells its tickets via the Internet or call centre route. Bypasses travel agents commissions, and expensive GDS (global distribution system). High aircraft utilization Consistently reporting high aircraft utilization (around 12 hours a day), in line with international benchmarks. Because of its high on-time performance (82% within 15 minutes) and a low turnaround time of 20-25 minutes No loading of meals or complex cargo and faster check-in system helps in reducing turn around time.

Direct Distribution of Tickets

Sells its tickets via the Internet or call centre route.

Bypasses travel agents commissions, and expensive GDS (global distribution system).

High aircraft utilization

Consistently reporting high aircraft utilization (around 12 hours a day), in line with international benchmarks.

Because of its high on-time performance (82% within 15 minutes) and a low turnaround time of 20-25 minutes No loading of meals or complex cargo and faster check-in system helps in reducing turn around time.