India's First Low Cost Airline

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India's First Low Cost Airline

  1. 1. A Managerial Economics Presentation – Air Deccan a case study November 22, 2010 – IMT Ghaziabad
  2. 2. Air Deccan a case Study Presentation Flow • Air Deccan – IntroductionFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 2
  3. 3. Welcome to Air Deccan Introduction • Launched in August 2003 • A low cost, no frill airline • Targeted the unconventional travel routes • Covered 65 destinations across India • 365 flights per day • Flew 14 Million passengers a year (maximum) • Market share of 11%Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 3
  4. 4. Air Deccan a case Study Presentation Flow • Air Deccan – Capt. G R Gopinath – A LegendFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 4
  5. 5. Capt. G R Gopinath – A Legend Capt. G R Gopinath • Capt. G R Gopinath was born in a small village called Gorur in Hassan district of Karnataka • Managing Director of Air Deccan • Considered the father of low cost air travel in India • Started with private sector commercial helicopter rental service in 1996 Air Deccan • Launched a low cost, no frills airline • Launched: August 25, called ‘Air Deccan’ on 25 August 2003 2003 • Air Deccan had a total of 121 planes • 365 flights for 65 destinations flying to 55 destinations across India • Investment – USD 50 Million Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 5
  6. 6. Air Deccan a case Study Presentation Flow • Air Deccan – Birth of Air Deccan and Scale of OperationsFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 6
  7. 7. The Birth of Air Deccan Story of an airline that changed the way people flew • Gopinath a serial entrepreneur who after his discharge from the army took and went from farming to sericulture to aviation • Identified the potential of a low cost airline industry in India • Started a off with a ‘Heli-Charter’ service in 1997 called ‘Air Deccan’ • With time and growth in business Gopinath acquired his first turboprop in 2003 • At first ‘Air Deccan’ connect only small town to the bigger ones thus, flying on routes considered unconventional routes by other players in the industry • The idea: low cost, no frills, quick turn around, maximum outsourcing, strict cost checkFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 7
  8. 8. Scale of Operations In Numbers • Number of Planes • a – 60 (2006) • Number of destinations – 55 • Number of Flights – 236 per day • Number of passengers – 4 Million • Market Share – 11% (Dec, 2005)Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 8
  9. 9. Scale of Operations Destinations by NumberFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 9
  10. 10. Scale of Operations Flights by NumberFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 10
  11. 11. Scale of Operations Passengers by NumberFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 11
  12. 12. Scale of Operations Passengers by NumberFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 12
  13. 13. Air Deccan a case Study Presentation Flow • Air Deccan – Business PhilosophyFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 13
  14. 14. Business Philosophy We deliverVisionTo be the preferred airline in IndiaMissionTo demystify air travel in India by providing reliable, low-cost air travel to the common man by constantly driving down theairfare as an ongoing mission Beat us if you can Air Deccan Jet Airways Rail I AC Rail II ACRoute(One-way) Fares(INR) Fares(INR) Fares(INR) Fares(INR)Chennai-Bangalore 721-1500 1370-2970 990-1402 614-747Delhi-Mumbai 1999-5499 3120-5610 3303-4135 1775-2210 Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 14
  15. 15. Hammer the costs The Mantra of Success The Implications• Air Deccan stressed on: • Air Deccan’s mantras gave – Fastest aircraft turnaround – Help achieved ‘economies of time scale’ – Single class point-to-point – Customer preference as a service first choice of airline – No free meals or even water – Check costs though airline – Sale of tickets only through was criticized for this • Internet or – Cut commissions and gave a • Call centers bigger profit share, thus – Limited Staff lowering cost of operations – Outsource all non-core – Better employee satisfaction operations – Specialization in core – Third party advertisements business operationsFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 15
  16. 16. Economic and Business Economics and Mantras The Economic Relevance• Air Deccan’s strong take on • Economies of Scale: various cost centers lead to – Refers to the cost – Economies of Scale advantages that a business obtains due to expansion – Practical relevance of law of demand • Law of Demand – Diseconomies of Scale – Lower the cost higher the demand • Diseconomies of Scale – The forces that cause larger firms to produce goods and services at increased per- unit costsFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 16
  17. 17. Air Deccan a case Study Presentation Flow • Kingfisher – IntroductionFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 17
  18. 18. Fly the Good Times Kingfisher Airlines - Introduction • Founded on May 09, 2005 as gift to Siddharth Mallya by Vijay Mallya • Is a subsidiary of the ‘UB Group’ • The airline boasts of a five star service standard and brand new airplanes among other thingsFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 18
  19. 19. Air Deccan a case Study Presentation Flow • Kingfisher – – Operations and Many FirstFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 19
  20. 20. What we do? Operations • Aircrafts – 66 (130 ordered) • Average Aircraft Age – 2.3 Years • Number of destinations – 71 • Number of flights – 375 • Pricing – Premium • Revenue – INR 272 Million • Employees – 7600Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 20
  21. 21. Many first…“This is a world class experience, all at an affordable price. We are not a low-cost carrier and we do not intend to be one,” - Dr. Vijay Mallya • Kingfisher has been associated with many first in the Indian airline industry – All new planes – Web check in – Mobile check in – Mobile ticketing – Five star airline experienceFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 21
  22. 22. Air Deccan a case Study Presentation Flow • The Merger – The Battle Begins and Birth of a new ‘King’Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 22
  23. 23. The Battle Begins “Gopi has completely over reacted” - Dr. Vijay Mallya IPO bombs and Airline Industry is facedAir Deccan, plans an barely manages with a slump and with low IPO in NSE to to scrape funds Capt. Gopinath is offload 25% stake through pushed for consolidationJanuary May 18, June, February December,25, 2006 2006 2006 27, 2007 2007 Air Deccan upgrades it IPO is floated in ticketing system to the price band ‘Radixx’. Huge of Rs 150 - 175 investment is made Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 23
  24. 24. Birth of a new ‘King’ Kingfisher Red • April, 2008 • Kingfisher bought 50% stake in Air Deccan • Not just panacea • A strategic move for an airline with its eye on the international horizon • Dr. Vijay Mallya – Chairman and CEO • Capt. Gopinath – Vice ChairmanFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 24
  25. 25. Air Deccan a case Study Presentation Flow • The Merger – Let’s talk numbersFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 25
  26. 26. Let’s talk numbersTakeover of Air Deccan has helped Kingfisher gain synergies of operation Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 26
  27. 27. Let’s talk numbers “We should have done it five years ago” - Dr. Vijay MallyaFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 27
  28. 28. Air Deccan a case Study Presentation Flow • OutcomeFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 28
  29. 29. Revamp is the word Kingfisher is busy revampingFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 29
  30. 30. Let’s talk numbers “We should have done it five years ago” - Dr. Vijay Mallya Total Income (Rs Million) • The merger helped the airlines achieve 60000 – Lower operational 50000 costs as most of the equipment used is 40000 sameIncome 30000 – Achieve ‘Economies of Scale’ in terms of 20000 operations 10000 – Better bargaining power from vendors 0 – Better market reach 2006 2007 2008 2009 2010 and higher earnings Year Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 30
  31. 31. The Future From Air Deccan to Simplifly Deccan to Kingfisher Red • Under the leadership of Vijay Mallya, Kingfisher has undertaken major rebranding of Air Deccan • Rebranding aims at: – Improving the brand image of ‘Air Deccan’ – Improving customer service standards – Improving the overall operational efficiency of the airline – Providing same service standards as Kingfisher • The rebranding has already begun the result ‘Kingfisher RED’Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 31
  32. 32. Thank you for flying with us. A Presentation By: • Alok Munjal - • Akash Jauhari - • Harsh Rautela – 10DCP-069 • Satyarth Pandey – 10DCP-090 A presentation for Managerial Economics – Semester 1, Dual • Shobit Ranjan – 10DCP-091 Country Program, IMT • Varun Sehgal – 10DCP-092 GhaziabadFriday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 32

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