Kingfisher acquisition of air deccan

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Presentation on Kingfisher Airlines Acquisition of Air Deccan: Reasons for failure

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Kingfisher acquisition of air deccan

  1. 1.  Before 1953: 9 airlines existed  1953: Nationalization- Air Corporations Act  1994: ACA Repealed- Private Airlines can operate scheduled services  2003: Air Deccan starts as 1st LCC of India  2005: Kingfisher, Spice Jet, Indigo, etc. start operations  2007: Industry Consolidation
  2. 2.  Entry of more players  Growing Economy  Rising Disposable Incomes  Low Overall Penetration Levels  16% CAGR growth in Passenger Traffic in past decade 0% 10% 20% 30% 40% 50% 2003-04 2004-05 2005-06 2006-07 2007-08 LCC Market Share
  3. 3.  Reducing Yields  Aggressive fleet expansions: Affects Profitability and Capital Structure  High Taxes  Congestion
  4. 4. Revenues Domestic Revenues International Revenues Other Operating Income Sub-Lease of Aircrafts Cargo, Auxiliary Revenues etc. Non-Operating Income Aircraft Sale & Lease back Cost Structure Fuel Cost Employee Cost Aircraft Maintenance Expenses Landing, Navigation & Airport Charges Other Expenses Selling & Distribution Expenses General & Administrative Expenses EBITDAR Aircraft Lease Rental Depreciation Interest Expense PBT
  5. 5.  Assets  Market reports  Approvals and licenses  Financial reports  Customer profile  Break up of revenue w/ margins
  6. 6.  2 Models of Aircrafts  Operating on secondary airports  Single Class Configuration  No In-flight Services  Lower employees per aircraft  Outsourcing of ground operations
  7. 7.  Sale of food inside the aircraft  Advertisement Rights  Differential Ticket Pricing  Non Refundable Tickets  Paid Initial Training to staff
  8. 8.  Niche in short span of time  Only domestic airline offering premium 1st class domestic service  Extendable Footrests: Less number of seats  Personal Valet Assistance  Personalized in-flight assistance
  9. 9.  Market Share (2007): Kingfisher: 11%; Air Deccan: 14% Combined: 25%  EV: Rs. 2115 crore  Initially acquired 26% equity for Rs. 550 crores › Rs. 155 per share (10% premium over CMP)  Bought another 20% stake for Rs. 418 crores (Open Offer)
  10. 10.  Increasing Costs  Difficulty in maintaining brand image  Competition from LCC  5yr Ceiling of International Operations  Access to new routes
  11. 11.  Increasing costs  Brand not synonymous with quality  Prices too low to be profitable  Competition from emerging LCC  Reprieve from cash crunch  Better utilization of existing resources
  12. 12.  Largest fleet of aircrafts- 71  41 Airbus + 30 ATR  Maximum number of flights and connections  Low Fare Segment + Business Segment  Common Fleet  High market share  Engineering costs to come down
  13. 13.  Airport Infrastructure sharing  Airline spares sharing  Manpower utilization
  14. 14.  Style: Friendly  Company Status: Public  Intention: Opportunistic  Purpose: Defensive  Predictability of Value: Calculative
  15. 15.  Mars vs. Venus  Dilution of the ‘Air Deccan’ Brand  Both entities highly leveraged  Both loss making entities Losses 06-07 Kingfisher Airlines Rs. 577 Crores Air Deccan Rs. 418 Crores
  16. 16.  LCC Customers – High price elasticity  Rise in fares  Other LCC picked up the market share lost by Air Deccan  High gestation of overseas routes  High service expectation  Wrong signals to lenders, investors and employees

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