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Abstract of the case study

  1. 1. Abstract of the case study This case study is about the aviation industry. In this case study all about the Air India how they are working, their introduction, and present situation of company. Performance of Air India and financial statement and what’s theirs future plans. Why, Air india company now going in debt they don’t have enough fuel for their planes. And how Air India Industries pursued aggressive growth during 2010-11 in all its business, protecting and wherever possible enhancing profit margins result in a very attractive return on capital. Objectives of the case study The case study was done with a view to enhance my knowledge base about the aviation industry, particularly air India. The case was developed with a view to compare the statistics of air India with its core competitors. To knowledge about the future plans of the company. The case study aimed at giving a brief review on the strategies adopted by the company. To learn about the competitors of the case study.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 1
  2. 2. Introduction Scheduled air services in India began in October 1932 under theAviation Department of Tata Sons Ltd, which was succeeded by Tata Airlines.This was subsequently renamed in July 1946 as Air India Ltd., andincorporated as Air India International Ltd. in March 1948. In 1953, the AirCorporations Act was passed. Air India International Ltd. was nationalized,and two corporations came into existence – Indian Airlines Corporation (asthe national domestic carrier) and Air India (as the international carrier). In 1994, the Air Corporations Act was repealed, and Air India Ltd. (AIL)and Indian Airlines Ltd. (IAL) were incorporated under the Companies Act,1956. Government-owned airlines dominated the Indian aviation industrytill the mid-1990’s, when, as part of the open sky policy, the Government ofIndia (GoI) ended the monopoly of AIL and IAL in air transport services, andallowed private operators to provide air transport services. In March 2007, National Aviation Company of India Ltd. (NACIL) wasincorporated. The scheme of amalgamation of Air India Ltd. and IndianAirlines Ltd. into NACIL was approved in August 2007, with the “appointed”date of the merger being set as 1 April 2007. Subsequently, in November2010, NACIL was renamed as Air India Ltd. (AI). The administrative Ministryfor these Government airline(s) is the Ministry of Civil Aviation (MoCA). Air India is Indias national flag carrier. Although air transport wasborn in India on February 18, 1911 when Henri Piquet, flying a Humber bi-plane, carried mail from Allahabad to Naini Junction, some six miles away,the scheduled services in India, in the real sense, began on October 15, 1932.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 2
  3. 3. It was on this day that J.R.D. Tata, the father of Civil Aviation in Indiaand founder of Air India, took off from Drigh Road Airport, Karachi, in a tiny,light single-engined de Havilland Puss Moth on his flight to Mumbai (thenknown as Bombay) via Ahmedabad. He landed with his precious load of mail on a grass strip at Juhu. AtMumbai, Neville Vintcent, a former RAF pilot who had come to India fromBritain three years earlier on a barn-storming tour, during which he hadsurveyed a number of possible air routes, took over from J.R.D.Tata and flewthe Puss Moth to Chennai (then Madras) via Bellary.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 3
  4. 4. Company’s present situation Air India strike: situation worsensDespite the hard attitude adopted by Delhi High Court against the pilotsstrike in Air India and the direction given by it to the pilots to resume duty,the dispute continues to defy a solution. The situation has come to such ahead that despite the threat of losing their jobs and contempt of courtproceedings, pilots appear to be adamant to hold on to their stand. The AirIndia administration has hinted a lock out in the organization. Resolution to issueUnder the circumstances, the reported intention of the Air Indiamanagement to declare a partial lock out does not augur well. It would befutile to expect any fruitful outcome of it. In fact, it may further deterioratethe situation. If the government does want to take a decision, it shoulddecide to remove the present CMD Arvind Jadhav who continues to be in theeye of the storm because of his way of functioning. At present, going by thestage of the strike one can only surmise that instead of a resolution to theissue, the situation is worsening with each passing day. Demands of EmployeesThe fact remains that the Air India administration or the government havenever displayed any liberal attitude to the just demands of employees, norit showed any courage to hold on to its decision despite its harsh attitudewhich was displayed initially when the strike began. It remains a fact thatwhenever there was a strike in the Air India, the administration tookstrong measures to dismiss the striking pilots, but it never implementedits own decision. It was compelled to withdraw the decision of dismissal ofpilots following the discussions and talks with the striking pilots. That iswhy pilots are adamant despite dismissal of some of their colleagues andthe threat of contempt of court proceedings looming large on them.Without caring for any punitive action pilots are continuing their strike forwhich none other but the very attitude of the Air India is responsible.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 4
  5. 5. Company Background J. R. D. Tata founded Tata Airlines in 1932 as a division of Tata SonsLtd. (now Tata Group). After World War II, regular commercial service was restored in India,Tata Airlines changing its name to Air India and becoming a public limitedcompany on the 29th of July, 1946. On the 8th of June, 1948, Air Indiaintroduced a regular service from Bombay to London, and two years later, AirIndia started regular flights to Nairobi. In 1954, with the delivery of its first L-1049 Super Constellations, AirIndia inaugurated services to Tokyo, Bangkok, Hong Kong and Singapore. In1960, with the introduction of the first Boeing 707-420 aircraft, Air Indiastarted using jets, and two years later, in June 1962, it became worlds firstall-jet airline. In 1970, Air India moved its offices to downtown Bombay. In 1986,Air India took delivery of the Airbus A310-300, and now is the largestoperator of this type in passenger service. In 1988, the company started usingtwo Boeing 747-300Ms in mixed passenger-cargo configuration. In 1993, AirIndias first Boeing 747-400, named Konark, operated the first non-stop flightbetween New York City and Delhi. In 1996, Air India started using its secondUS gateway at OHare International Airport in Chicago. Three years later, the airline opened its dedicated Terminal 2-C at thenewly renamed Chhatrapati Shivaji International Airport in Mumbai. Servicesto Shanghai and to Air Indias third US gateway at Newark LibertyInternational Airport in Newark were introduced in the year 2000.Air India was invited to join Star Alliance in 2007, and is set to become a fullmember in 2010. On the 1st of March, 2009, Air India made Frankfurt Airportits European Hub for its transatlantic North American Operations. Since itsoperations were initiated, Air India managed to achieve a record of about6.82 fatal events per million flights. First such accident happened inNovember, 1950, all 48 people on board dying, and the last one, on the 23rdof June, 1985, when a a Boeing 747-237B was blown up in mid-air by asuitcase-bomb and all 307 passengers and 22 crew on board perished.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 5
  6. 6. CEO of Air India Rohit Nandan Mr. Rohit Nandan, IAS, today assumed charge as the new Chairman and Managing Director of Air India Ltd. Mr. Nandan was earlier Joint Secretary, Ministry of Civil Aviation, Govt of India. Born on January 27, 1957, Mr. Nandan did his post graduation in History and his MBA from United Kingdom. Mr. Nandan joined the Indian Administrative Service in 1982 and belongs to the Uttar Pradesh cadre. He has held posts in Ministry of Information and Broadcasting, Social Justice and Empowerment, Disabled Welfare, rural Development. Rohit Nandan, a 1982 batch IAS officer of the Uttar Pradesh cadre.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 6
  7. 7. Air India’s Strategies Air India’s new Management plans to increase efficiency by launchingmore flights and achieving higher passenger load factor (PLF) of 75 per centin the domestic market.(Assumption: An aircraft breaks even at a PLF of 62%)The company aims to achieve a positive balance sheet by 2014-15. The focusof the plan is on reducing the cost of debt to the company and replacing high-cost debt with low-cost ones. The government will also infuse equity to the tune of Rs 1,200 crore inthe coming month subject to the performance of the company. Air Indiacurrently has a working capital debt of nearly Rs 18,000 crore and the airlinehad appointed SBI Capital to assess and plan its financial restructuring. The company will consider launching its domestic low-cost carrier inthe coming months to take on the existing low-cost carriers that have beenabsorbing its market share. A plan to start a low-cost carrier (LCC) is beingimplemented again, though the airline was unable to do this by Septemberlast year as had been planned. Jadhavs plan is to have 27 pairs of dailydomestic flights by moving 10 aircraft to the new Air India Express low-costcarrier. Civil Aviation Minister Praful Patel has already justified the newthrust on expansion, and on not touching the unions, by arguing that themarket has improved and that AI will now need the staff as well as extraplanes. The passenger growth in the years first quarter was up by 18 percent. Apart from the fact that smarter managements try to control costs in anupturn, the point worth keeping in mind is that Air Indias performancecontinues to plummet and there is nothing concrete that it has done to takeon the competition.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 7
  8. 8. Air India’s Performance in current year Bankers will meet later in the week to work out a debt restructuring planfor Air India and the ailing civil aviation industry, State Bank of India (SBI)Chairman Pratip Chaudhuri said here today. The flagship air-carrier is sitting on a mountain of debt running into Rs69,000 crore, out of which Rs 42,000 crore was for fleet acquisition and therest was working capital loans taken from 14 lenders led by SBI. Under the financial restructuring plan, Rs 11,000 crore out of theworking capital loans of around Rs 27,000 crore would be converted intolong-term debt and Rs 7,000 crore would be converted into cumulativeredeemable preferential shares. Air India’s Performance in current year The official did not divulge details of the equity to be granted to theairline but said the grant would be substantial."The GoM would also considerour proposal of converting some of our short-term loans into long-termloans, thereby allowing us to save Rs.900-1,000 crore in interest paymentsper annum. The GOM would also discuss the airlines order of 27 Boeing Dream linersit placed in 2005-06. "We expect some direction on this issue," the officialsaid. Recently, Civil Aviation Minister Vayalar Ravi said the government wasnot considering selling its stake in Air India. My first priority as a civil aviation minister is to bring Air India in no-profit,no-loss (situation)," he had said. The last GoM meeting took place Aug 18when the airlines credit limit by the state-run oil marketing companies(OMCs) was extended by two-three months. Earlier the state-run OMCs had put the flag carrier on a cash and carrybasis -- which basically meant that the airline would have to pay every time itbought fuel from these companies. Currently the airline owes Rs.2,300 croreto the OMCs, from whom it buys Rs.17 crore of fuel daily. The GoM wasformed to look into the airlines turnaround and financial restructuring plan(TAP), which is currently under a review process by a sub-committee ofsecretaries. According to official figures, Air Indias cumulative losses amounted toRs.22,165 crore apart from a Rs.22,000 crore debt burden to buy newaircraft. The debt-ridden carrier has to pay almost Rs.3,200 crore as interestto its lenders.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 8
  9. 9. Current scenario of aviation Industry The liberalization of aviation industry in India has precipitated theboom for domestic and international passenger carriers. The domesticpassenger and cargo traffic recorded a growth rate of 44.6% and 8.7%, andthe international passenger and cargo traffic recorded growth rates of 15.8%and 13.8% respectively during 2006-071. The Airport Authority of India (AAI)manages total 122 airports in the country, which include 11 internationalairports, 94 domestic airports and 28 civil enclaves. Top 5 airports in the country handle 70% of the passenger traffic ofwhich Delhi and Mumbai together account for more than 50%. The latestdata compiled by Airports Authority of India (AAI) shows that all the airportshandled 90.44 million passengers during the calendar year 2006 comparedwith 67.95 million handled during the same period in the previous year. Thesubstantial growth of Indian aviation industry is mostly due to: (i) low faresoffered by The liberalization of aviation industry in India has precipitated theboom for domestic and international passenger carriers. The domesticpassenger and cargo traffic recorded a growth rate of 44.6% and 8.7%, andthe international passenger and cargo traffic recorded growth rates of 15.8%and 13.8% respectively during 2006-071. The Airport Authority of India (AAI) manages total 122 airports in thecountry, which include 11 international airports, 94 domestic airports and 28civil enclaves. Top 5 airports in the country handle 70% of the passengertraffic of which Delhi and Mumbai together account for more than 50%.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 9
  10. 10. The latest data compiled by Airports Authority of India (AAI) showsthat all the airports handled 90.44 million passengers during the calendaryear 2006 compared with 67.95 million handled during the same period inthe previous year. The substantial growth of Indian aviation industry is mostly due to:low fares offered by Low Cost Carriers (LCC) like Deccan, Spice jet, Go Air etc;and (ii) Scheduled domestic air services are now available from 75 airports asagainst just 50 earlier.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 10
  11. 11. Air India Competitors Jet Airways (India) Limited is an India-based company. The Companyoperates in two segments: Air Transportation and Leasing of Aircraft. It alsohas two geographic segments: domestic (air transportation within India) andinternational (air transportation outside India). As of March 31, 2010, theCompany operates flights to 23 international destinations. The Company has a frequent flyer program named Jet Privilegewherein the passengers who frequently use the services of the airlinebecome services of the airline become members of Jet Privilege andaccumulates miles to their credit. Jet Lite (India) Limited operates a fleet of 25 aircraft, which consists18 Boeing 737 series and seven Canadian Regional Jets (CRJ) 200 series. Theairline flies to 28 domestic destinations and two international destinations(Kathmandu and Colombo), operating over 110 flights a day, on an average.The Company’s subsidiary includes Jet Lite (India) Limited.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 11
  12. 12. Kingfisher Airlines Limited is engaged in rendering scheduled andunscheduled aircraft passenger and cargo services, including charter services.The Company offers three classes of service: Kingfisher First (premiumbusiness class of service), Kingfisher Class (premium economy class of service)and Kingfisher Red (low fare basic class of service). As of March 31, 2010, the Company had a fleet of 68 aircraft, havingan average schedule of 366 domestic and 12 international flights daily and aroute network covering 63 domestic and seven international destinations. The Company’s wholly owned subsidiary is Vitae India Spirits Limited.During the fiscal year ended March 31, 2010 (fiscal 2010), the Companyreturned five Airbus A320 aircraft, 4 ATR-42 aircraft and 1 ATR-72 aircraft.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 12
  13. 13. Jet Lite, formerly Air Sahara, is an airline basedin Mumbai, India. Owned by Jet Airways, the airline operates scheduledservices connecting metropolitan centres in India, it operates 110 flightsdaily. The airline also provides helicopters which are available for charterservices and aerial photography. The airlines were established on 20September 1991 and began operations on 3 December 1993 with two Boeing737-200 aircraft as Sahara Airlines. Initially services were primarily concentrated in the northern sectorsof India, keeping Delhi as its base, and then operations were extended tocover all the country. Sahara Airlines was rebranded as Air Sahara on 2 October 2000,although Sahara Airlines remains the carriers registered name. On 22 March2004 it became an international carrier with the start of flightsfrom Chennai to Colombo. It is part of the major Sahara India Pariwar business conglomerate.The uncertainty over the airlines fate has caused its share of the domesticIndian air transport market go down from approximately 11% in January 2006to a reported 8.5% in April.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 13
  14. 14. Cathay Pacific’s new Business Class product is the result of anintensive and iterative design process involving input from the airline’s MarcoPolo Club members to refine comfort, versatility and function. This effort has culminated in a product where every aspect has beenthoughtfully designed around passengers’ needs, providing a space in whichto sleep, dine, work, read, watch TV or simply relax. The new Business Class product will be installed on all of CathayPacific’s new long haul A330-300 and Boeing 777-300ER deliveries. The firstA330 is due to enter service by March 2011, while the first Boeing 777-300ERis due to enter service in April 2011. The new Business Class product will also be progressively installed onall existing long-haul A330-300 and Boeing 777-300ER aircraft. By February2013, the airline will have all 30 of its Boeing 777-300ERs and 20 long-haulA330-300s with the product.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 14
  15. 15. A Singapore airline has come a long way since our founding in 1972.Evolving from a regional airline to one of the most respected travel brandsaround the world. We one of the youngest aircraft fleets in the world to destinationsspanning a network spread over six continents. With our Singapore girls asour internationally-recognizable icon providing the high standards of care andservices that customers have come to expect of us. We have made a habit of leading the way, and along the waydeveloped a reputation for being an industry trendsetter.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 15
  16. 16. Prospects & Challenges for Company Prospects for air india Challenges for air india o Increased Oil Prices Skyrocketing oil prices during 2004 -08 were offset byefficiency gains and rising consumer confidence.” Thebroadening impact of the U.S. credit crunch has broughtbuoyant consumer confidence to an abrupt end. Oil pricescontinue to rise. Now oil price is almost US$140 per barrel. o Aircraft Delivery Cycle The downturn in demand coincides with a stepping -up ofaircraft deliveries from 1041 new aircraft in 2007 to an expected1231 in 2008.while some of this will be offset by retiring lessfuel-efficient aircraft, real yields are expected to drop 4.1% in2008 as compared to 3.2% drop in 2007. o Increased Competition There is increase in competition with private airlinesentering this field. o Overstaffing As mentioned earlier the total staff strength of IndianAirlines Limited is 18715 as on date. On the average 19300 -19500 people travel on Indian Airlines Limited on its 112 flightsdaily. It records three hundred departures per day (includingAlliance Air). This means that there is roughly about one staffrecruited against every passenger traveling. This is no doubt abad sign. Indian Airlines Limited has understood this weaknessnow and hence has not made any major recruitment for last fewyears. Moreover, there are around two thousand employeesretiring within nex t two years which will trim work forceautomatically. o Lack of personalized and customer friendly services This is one of the major findings of our study. Almost allpassengers feel that Indian Airlines Limited staff needs to bemore customers friendly and professional in its approach. InLN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 16
  17. 17. services industry, it is the kind of services that one providesmatters and leaves its impression in the mind of passengers. Itin fact is a measure of quality of the product. Indian AirlinesLimited needs to take immediate steps in this regard to changethe public opinion. o Under utilization of capacity Indian Airlines Limited sells space, which is highly perishable.This is because idle capacity would imply opportunity lost.Capacity means the total number of seats offered by IndianAirlines Limited daily to its passengers. It has been observedthat Indian Airlines Limited offe rs around 32000 seats dailywhere as on average 19300 seats are utilized meaning anaverage seat factor of about 60%. It is imperative to improveupon the situation before it is too late. More marketing effortsare required to attract larger passenger.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 17
  18. 18. 11. Road ahead Invite first and executive class passenger to participate in theforthcoming food presentation, prior to menu change;Plan to observe customer care week in the beginning of 2001;Introduction of grooming checks for cabin crew; Greater efforts to reduce distribution cost and augment revenue;reviewing relevance of GASs w.r.t. today’s global alliance; market tie upsinter-carrier arrangements such as code share etc. To cater to Haj traffic demand, all is planning to re-rout 33 flights ineach phase-land phase-2 to Jeddah. Keeping check and control on repetitive complaints and radicallyimproving passenger’s service.LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 18
  20. 20. Bibliography http://www.airindia.in/SBCMS/Webpages/JRD.aspx?MID=196 http://www.airindia.in/SBCMS/Webpages/JRD.aspx?MID=196# http://www.airindia.in/SBCMS/Webpages/Logo-Livery.aspx?MID=196 http://www.airindia.in/SBCMS/Webpages/Logo-Livery.aspx?MID=196# http://www.airindia.in/SBCMS/Webpages/Backgrounder-Note.aspx?MID=196 http://www.airindia.co.in./yatrik/vigmain.jsp?MID=196 http://www.airindia.in/SBCMS/Webpages/Magic-Carpet1.aspx?MID=196 http://www.airindia.in/SBCMS/Webpages/Explore-India.aspx?MID=198 http://www.airindia.in/SBCMS/Webpages/Citizens-Charter.aspx?MID=367http://www.airindia.in/SBCMS/Webpages/Citizens-Charter.aspx?MID=367#LN GROUP OF INSTITUTE (SURAT) B HUMI MISTRY 20