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Airline Industry
 

Airline Industry

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    Airline Industry Airline Industry Presentation Transcript

    • Presents
      • Industry overview
      • Value chain and Market Structure
      • Demand and Supply
      • Segments
      • Competition
      • Michael Porter’s Analysis
      • Growth Drivers
      • Regulations
      • Strategies used by airlines
      • Issues and Challenges
      • Outlook
      • Annexure 1,2 and 3
      • Commercial Aviation industry worth US$10-12 bn
      • Aviation Industry contributes less than 1% contributes to GDP
      • Passenger travelled 143 million passengers in 2010-11
      • India has 3 full service and 4 low cost carriers
      • Delhi and Mumbai accounts 40% of traffic
      • North eastern region registers highest growth of 31.2% in passenger handling
      • 80% of traffic are in domestic segment in 2010
      • 15% of the overall population only travel by air in 2010
      • 100% Highly organized industry as controlled by DGCA
      • FDI is allowed up to 49%
      • 50% of operating cost is fuel for airline company
    • Airline-Passenger/ Cargo Value chain of Airline Industry Supplier F&B Mkt/Travel Agent’s Courier cos Other airlines Corporates/ IT Cos/ Hotel Cos DGCA/ Security VAS, Interiors, Cabin crew Training Colleges Oil Cos/MRO/ Aircraft mfr
    •  
      • Expansion of cargo fleets fuels domestic cargo
      • Domestic segment achieves higher growth of 18% than in the international
      • Expansion in domestic market and new routes are major reasons
      • Cargo fleets rides 20% growth, rides higher on demand especially for food and high value items like gold
      Demand and Supply; Cargo growth outpaces all segments Source: DGCA
    •  
      • Strong growth in Foreign arrivals tourist
      • High growth in personal disposal income
      • Discounts and promotion schemes by LCC fuels traffic
      • Passenger movement has registered growth of 15.6% for 2010-11
      Source: DGCA
      • Festival season and holiday season fuels domestic traffic
      • Route expansion and additional capacities in existing routes
      • Domestic growth outpaces international segment due to lower base
      • Unrest in Middle east brings down international traffic
      • Low cost airlines focus on Metro cities to smaller cities rather flying between metro airports
      • North eastern region has high growth 31.2% due to poor connectivity of roads and railways
      Source: DGCA
      • Aircraft movement experienced CAGR of 2.19% for 3 yrs
      • Aircraft movement experienced 4.71% growth for 2010-11
      • Domestic segment outpaces intl segments due to lower base
      • New connectivity towards tier 2 cities and expansion of existing new routes
      • AAI’s airport modernization improves connectivity
      Source: DGCA
      • South dominates in region wise due to better infrastructure airports
      • Major airlines have made Hyderabad as the main hub
      • Lower ATF prices in south have fuelled aircraft movements
      Source: AAI
      • Cargo segment growth outpaces in 2010-11
      • Domestic segment grown by 23.7% higher than intl segment
      • Strong GDP growth and expansion of international cargo service to non metro cities
      • Custom airports witnessed highest growth
      • Metro airports continue to dominate in cargo handling
      • World wide cargo marginally grew by 3.1% in Jan-May 2011 due to developed countries still in recession and Japan earthquake
      Domestic segment fuels Air-cargo Source: AAI
    •  
    • Factors of Competition High/Moderate/Low Reasons Threat of Entry Low License, Capital requirement Bargaining power of buyers High Less suppliers for aircraft, oil , security Bargaining power of customers Moderate – High Lesser price difference between same routes Inter firm rivalry High More suppliers for same services Substitutes High Roadways, Railways
      • Full services carriers dominate with 52.5% share in 2011
      • Full service airlines using single class aircrafts to tap more market
      • Full services carrier leverages international JV’s
      • Low cost carriers to focus on tier 2 segment for more growth
      • Low cost carriers are flying at higher altitude
      • Low cost carriers maintain thin cost to for higher profitability
      Source: DGCA
    • Category Airlines Company Strategy Full service Airlines Air India Focus on International Market India Airlines Focus on Premium class for Domestic market and some International markets. Tie up and alliances with foreign airlines through code sharing Kingfisher Jet Airways, Jet lite Low cost Airlines Indigo Low cost service, no frill service provider. Connecting tier 2 cities to metro cities Go Air Spice Jet Jet Konnect Kingfisher Red Air India Express Low cost international service provider focus on middle east and South east asia
    • Airline co Country Type Cites Americas Continental USA Full service All major Metro Cities Delta Virgin Atlantic Europe British Airlines UK Full service All major Metro Cities Lufthansa Germany Air France France KLM Germany Austria Austria Source: Cygnus Research
    • Middle East Air Emirates UAE Low cost Carrier Metro cities and all airports in Kerala Saudi Airlines Saudi Airlines Full service Emirates UAE Air Arabia UAE Low cost Carrier Kuwait Airways Kuwait Full service Qatar Airlines Qatar Airlines Full service Ethihad UAE Low cost Carrier Oman air Oman Full service Source: Cygnus Research
    • Airline co Country Type Cites South East Asia Cathay Pacific Hon-kong Full service Metro cities and all capital cities in south Sri lanka Airways Sri lanka Garuda Thailand Metro cities only Malaysia Airlines Malaysia Singapore Singapore Silk Airlines LCC All capital cities in south Dragon Airline Hong-kong Metro cities only Air Asia Malaysia Source: Cygnus Research
      • High GDP Growth and economy prosperity
      • Lower Oil prices
      • Untapped domestic market
      • Rise in tourist travelers fuels demand for more aviation
      • Rise in high value exports and imports
      • Entry of MNC’s airlines to bring more standards
      • Opening of more training schools to meet rising skilled pilots demand
      • Air Transport Services
      • Aircraft Rules, 1937 - Operate an air transport service-passenger /Cargo/Charter National /international
      • Commencement of Scheduled International Air Services by a Foreign Airline
      • Import of Aircraft on Short term on wet lease basis
      • Foreign Equity Participation in the Domestic Air Transport Sector
      • Open Sky Policy for Cargo Flights to India
      • Cap on FDI limit @ 49%
      • Airlines can raise up to US$500mn; bring up to US$50 mn through ECB
      • Ratio of cabin crew to passenger is 1:50.
      • Narrow body aircraft such as Boeing 737/A320 require minimum 4
      • Minimum flying years for international permission 5 years
      • Permission from HC for import of aircraft
      • Aircraft Act 1934
      • Aircraft rules 1937
      • Aircraft (Carriage of Dangerous Goods) Rules, 2003
      • Demolition of obstruction caused by buildings and trees 1994
      • Any Greenfield project shall be taken after approval by government of India and other cases approval of the DGCA would be enough.
      • Green field project may be permitted where an existing airport is unable to meet the projected requirements of traffic
      • Minimum distance between 2 Greenfield airport shall be will be allowed 150 kilometers of an existing airport. In case a second airport in the same city or close vicinity, distribution of traffic between airports will be clearly spelt out.
      • All new Greenfield project taken up as a joint venture.
      • Greenfield project will eligible for financial aid from AAI to cover both the initial capital cost as well as the recurring losses
      • Airport developers can charge non airline operators in order increase the revenue from Non Aeronautical sources to make many airports not only viable but capable of generating surpluses for further expansion and development
      • Reducing dwell time of exports from the present level of 4 days to 12 hrs, and of imports for the present level of 4 weeks to 24 hours
      • Cargo clearance will be on 24-hour basis.
      • Infrastructure relating to cargo handling like satellite freight cities with multi-modal transport, cargo terminals, cold storage , automatic storage and retrieval systems , mechanised transportation of cargo, computerisation and automation , etc., will be set up on top priority basis.
      • Electronic Data Interchange systems will be developed and linked amongst all stake-holders in the trade
      • Value drivers (Focus on bottom-line or cost cutting)
      • Redesigning and food plates
      • Doing away with blankets
      • Using latest and new aircraft ; easy for maintenance
      • Single type aircraft: easy for maintenance
      • Aircraft with folded wings
      • Single class aircraft ; full economy
      • Better utilization of Aircraft;15 hours per aircraft per day
      • Reaching greater heights with faster speed
      • Lightweight body paints , seats reduces oil consumption
      • Shutting down 2 nd engine and moderating air speed
      • Using small aircraft for short distances and small airports
      • Return flights to place of origin; saves lodging charges
      • Fuelling from less taxed airports
      • On-time/before payment to Oil cos and airports to get discount
      • Passenger embarking within 10 mins and disembarking within 6 mins
      • More time in air; less time on ground
      • Hiring from rural areas and North east to have low cost employees
      • Better utilization of employees ; lesser employee per aircraft
      • Doing away with traveling agents
      • More Indian pilots than expat pilots
      • Growth drivers (Focus on Top-line)
      • Non aero nautical revenue like value added products on board
      • High charges for food on abroad
      • High charges for Post-poning of flight to nearer dates
      • High charges for current booking of seats
      • Entering code sharing for international routes
      • No refund for ticket cancellation by passengers
      • Tie-ups with cargo companies
      • High charges for Tier 2 cities than Tier 1 cities
      • More services to North east due to poor road infrastructure
      • Huge Extra charges for additional cargo
      Strategies used by Airlines
      • High or volatile ATF prices
      • Different state govt taxes on ATF
      • Lack of infrastructure (Airports, MRO)
      • Lack of skilled trained pilots and ATC’s
      • High dependency on Expat pilots
      • Slowdown in Global GDP due to recession
      • Rising terrorism threat
      • Over capacity in supply creates pressure on pricing
      • Old Technology for navigation and routing
      • High Passenger development fees being levied
      • High rentals and parking charges at Airports
      • Political unrest in Middle east
      • High cost of funding
      • Recovery of global GDP growth to 2-3% likely to help global traffic
      • Global air traffic to surpass 1 mn and 5 bn by 2015
      • IATA forecast world traffic to increase by 800 mn to 3.6 bn
      • Air cargo set to rise more in Asia pacific by 7-8% till 2014
      • US will continue to remain top slot of 886mn
      • China expected to grow 11% to 450 mn by 2015
      • Asia-Pacific region: international air passenger demand is expected to grow by 7.6%
      • India to have 178-180 mn passenger traffic by 2012-13
      • India’s Traffic expected to rise on account of strong 8.5% GDP growth
      • Rising foreign tourist arrivals likely to fuel traffic
      • Improved connectivity to tier 2 cities to fuel traffic
      Source: Boeing
      • Better infrastructure like development 35 Non Metro Airports to reduce operational losses of airlines
      • High growth leads high demand for cabin crew
      • India needs 700-800 pilots in next 5 yrs ending 2015
      • More demand for single aisle aircraft
      • Demand for small aircrafts like 6-10 seater’s are in demand from Corporate
      Source: IATA and Industry
    •  
    • Sl No Airport City Owner State 1 Indira Gandhi Delhi GMR Delhi 2 Rajiv Gandhi Hyderabad Andhra Pradesh 3 BIAL Bangalore BIAL Karnataka 4 Chatrapati Shivaji Mumbai GVK Maharashtra 5 Netaji Subhash Chandra Bose Kolkata AAI West Bengal 6 Chennai Chennai Tamil Nadu 7 Kochi Kochi Kerala 8 Trivandrum Trivandrum 9 Calicut Calicut 10 Sardar Vallabhai Patel Ahemdabad Gujarat
    • Notes of international Airports 6 JV airports , 11 Airports owned by AAI, 2 enclaves Source: AAI Sl No Airport City Owner State 11 Goa Panaji AAI Goa 12 Lokpriya Gopinath Bordoloi Ghuwahati Assam 13 Veer Savarkar* Portblair Andaman Andaman Nicobar Islands 14 Sri Guru Ram Dass Jee Amritsar Punjab 15 Srinagar* Srinagar J&K 16 Babasahed Ambedkar International Airport Nagpur MIHAN Maharashtra 17 Jaipur Int Airport Jaipur AAI Rajasthan
    • Sl no Name of Company Fleet Size Boeing (737/747/777) Airbus (A 319/ 320 /321/330) ATR/CRJ 1 Air India 34 777/200-8 777/300-12 747/400-5 310-300-3 737-200-6 2 Indian Airlines 78 310/300-4 330/200-2 320-28 319-24 321-20 7 CRJ-4 3 Air India Express 21 737/800-21 4 Jet Airways 97 737/700-11 737/800-42 737/900-2 777/300ER 10 330/200-12 20 5 Go Air 10 320/200 - 10
      • Air India + Indian Airlines = National Aviation Company Of India ltd, Spice Jet is owned by Sun Network, Indigo – Inter globe Aviation, GoAir – Wadia Group , Kingfisher – UB Group
      Source: Compiled By Cygnus from Company website Sl no Name of Company Fleet Size Boeing (737/747/777) Airbus (A 319/ 320 /321/330) ATR/CRJ/Bomb 6 Kingfisher 59 321(Dual cabin)- 6 321(Single cabin)- 2 320 (Dual cabin) -10 320 (Single cabin)- 13 319-3 330-5 25 7 Indigo 42 321 -42 8 Spice Jet 30 737/800-21 737/300 ER-5 4 9 Jetlite 18 737/700-9 737/800-5 737/800W-4 Total 393 154 180 60
      • Airlines from Europe and USA focuses on IT based cities like Chennai, Hyderabad and Bangalore apart from Delhi and Mumbai
      Name of Airline Co DEL MUM KOL CHN HYD BLR European Airlines 1 British Airlines Y Y N Y Y Y 2 Lufthansa Y Y Y Y Y Y 3 Air France Y Y N N N Y 4 KLM Y Y N N N Y 5 Austria Y Y N N N N US Airlines 6 Continental Y Y N Y N Y 7 Delta Y Y N N Y N 8 Virgin Atlantic Y Y N N N N Source: Cygnus Research
      • Airlines based in Middle east focuses on Kerala state as 60% of traffic is from the state
      • Only 2 service providers on major routes from Indian side- Air India or Indian Airlines and Jet Airways
      Name of Airline Co DEL MUM KOL CHN HYD BLR AMD Kerala Middle East 9 Air Emirates Y Y Y Y Y Y N Y 10 Bahrain N Y N N N N N Y 11 Saudi Airlines Y Y N Y Y N N Y 12 Emirates Y Y Y Y Y Y Y Y 13 Kuwait Airways Y Y N Y Y Y Y Y 14 Qatar Airlines Y Y Y Y Y Y Y Y 15 Ethihad Y Y N Y Y y Y y 16 Oman Y Y N Y Y Y N Y
      • Notes –
      • Silk Air – Subsidiary of Singapore Airlines
      • DEL – New Delhi, MUM-Mumbai, KOL-Kolkata, HYD-Hyderabad, BLR- Bangalore, CHN-Chennai and KERALA – Trivandrum, Kochi and Calicut
      • South East Airlines focuses on cities in eastern region like Chennai, Kolkata and cosmopolitan city Bangalore
      Name of Airline Co DEL MUM KOL CHN HYD BLR South East Asia 17 Cathay Pacific Y Y N N N Y 18 Sri lanka Airways Y Y Y Y Y Y 19 Garuda Y Y Y Y Y Y 20 Malaysia Airlines Y Y Y Y Y Y 21 Singapore and Silk Air Y Y Y Y Y Y 22 Air Asia Y Y Y Y N Y Source: Cygnus Research