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Low Cost Carrier in India - An Indepth Analysis

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Low Cost Carrier in India - An Indepth Analysis

  1. 2. History of Airline Industry in India History of Airline Industry in India Genesis on Feb 18, 1911 In 1932, JRD Tata launched TATA Airline In 1948, Air India International came into being between Indian Govt. and AIR India (TATA Airline)
  2. 3. <ul><li>1953: Nationalization of Aircraft Industry </li></ul><ul><li>Indian Airlines, primarily serving domestic sectors </li></ul><ul><li>Air-India, primarily serving the international-sectors </li></ul><ul><li>Implication </li></ul><ul><li>Aviation became a preferred mode of transport for elite class </li></ul><ul><li>Restricted Growth of Aviation Industry </li></ul><ul><li>High Cost structure </li></ul><ul><li>Underdevelopment of infrastructure </li></ul>History of Airline Industry in India
  3. 4. History of Airline Industry in India 1986: Private Sector Players permitted as Air taxi operators Players including Jet, Air Sahara, NEPC Sky liner, East West, Modiluft,etc started service 1994: Private Carriers permitted to operate scheduled services Six operators granted license however only Jet and Air Sahara able to service 2003: Entry of low cost carriers Air Deccan, Spice Jet, Go Air, Indigo
  4. 5. History of Airline Industry in India Implication -Aviation has become affordable with check fares and discount schemes -Various Operators with different business model Huge growth foreseen in the Aviation Industry
  5. 6. Airline Industry in India : Characteristics <ul><li>HUGE POTENTIAL </li></ul><ul><li>Under penetrated Market </li></ul><ul><li>- Total Passenger Traffic only 50 mn as on 31 st Dec 2005 amounting to only 0.05 trips per annum as compared to developed Nations like United States have 2.02 trips per annum </li></ul><ul><li>- High Level of potential demand with growth in Indian economy </li></ul><ul><li>Untapped Air Cargo Market </li></ul><ul><li>- Air Cargo has not yet been fully taped in the Indian markets and is expected that in the coming years large no of players would have dedicated fleets. </li></ul><ul><li>What this means… </li></ul><ul><li>- Build up of capacity by existing players and entry of new players </li></ul>
  6. 7. <ul><li>CONSTRAINTS </li></ul><ul><li>- Infrastructure Constraints, Shortage of airport facilities, parking bays, air traffic control facilities and takeoff and landing slots. </li></ul><ul><li>- Continued growth might be hampered Relatively Limited Reach Only 454 airports with less than 100 airports having more than one daily service </li></ul>Airline Industry in India – Characteristics
  7. 8. Medium Term Growth Forecast: India GDP: 9.6% p.a . Domestic Air Travel: 20% - 25% p.a . WTTC Travel & Tourism: 8.8% over next 10 years Airline Industry in India : Characteristics
  8. 9. Air Cargo Trends Passenger Traffic Trends 2010 (Projection ) : 3,360 thousand tones 2010 (Projection ) : 105-115 million (69 million domestic & 40 million international) High Growth in Passenger and Air Cargo Traffic
  9. 10. Airline Industry in India – Domestic Aviation Market Share 2.4 33 by 2008 4 GoAir 1.9 38 by 2010 6 Spice Jet 4.5 100 by 2012 11 Kingfisher 2.7 79 by 2010 29 Air Deccan 2 30 by 2012 53 Jet Airways US $Bn PLANS FLEET   INVESTMENTS ACQUISITION CURRENT AIRLINE
  10. 11. Airline Industry in India – Full Service Vs Price Graph Competitive Pressure Full Service Price Low cost Carriers changing the game Indigo
  11. 12. MACRO ENVIRONMENT ANALYSIS Refers to the factors which influence an industry but are beyond its control. Main factors are: P OLITICAL E CONOMIC S OCIO-CULTURAL T ECHNOLOGICAL Other Factors DEMOGRAPHIC NATURAL ENVIRONMENT
  12. 13. Macro Environment Analysis - POLITICAL Open Sky Policy Deregulations in different spheres Less Entry Barriers Reduction in FDI Limits : 49% for airlines 100% for airport A: B: C: D:
  13. 14. Amendments in Civil Aviation Laws - Summary NO RESTRI CTIONS NO RESTRI CTION 1997 ANY INDIAN COMPANY MAX 30 FOR NEW ENTRANT 1994 40% FOREIGN EQUITY 1993 NO RESTRI CTION NO RESTRI CTIONS CITIZENS, GOVT , NRIs CAN OWN ALL AIRPORTS MIN 15 NO LIMIT ON MAX 1990 MAX 50 1989 2hr GAP WITH NATIONAL AIRLINE NATIONAL AIRLINE REGULATED NATIONAL, NON-SCHEDULED ONLY NOTIFIED AIRPORTS MAX 10 1986 SERVICE WHEN? FARES WHO CAN SERVICE? SERVICE TO? NO. OF SEATS AMENDMENT
  14. 15. Macro Environment Analysis – Socio-Cultural Aspect GROWING MIDDLE-CLASS 1993 to 1999 : 39.5 million to 56.7m households 2005 : 300 million 2010 : 400 million estimates Increase in leisure travel by tourists by 15% in 2005 3.2 million foreign tourists visited India last year in 2006 ; tourism industry grew 8.8 per cent over 2005, the highest growth rate in the world.
  15. 16. Macro Environment Analysis - Technological Modernization of Airports -Induction of modern technology for efficient handling of Aircraft, Passenger and Cargo at airports. -Example: Installing ILS-Instrument Landing System and CAT-3 System at Airports and in Aircrafts respectively . Developing the Greenfield Airports with Private Sector -Example: Bangalore International Airport Ltd
  16. 17. Macro Environment Analysis - Demographic <ul><li>Changing structure of consumers </li></ul><ul><li>Highest % people of Age Group 20-25 </li></ul><ul><li>Educational Environment </li></ul><ul><li>Shift towards nuclear family concept </li></ul><ul><li>Source NCAER: Middle class income over Rs. 90,000 p.a </li></ul>
  17. 18. Macro Environment Analysis – Natural Environment <ul><li>HIGH ENERGY COSTS </li></ul><ul><li>The cost of aviation turbine fuel ATF in India for domestic airlines is almost double for international market. </li></ul><ul><li>Govt. increased prices by 7.5%. From 32.56 to 35/litre. </li></ul><ul><li>ATF price in Feb soared by 3.5% to the price in Jan 06. </li></ul>
  18. 19. Why a LCC is needed? <ul><li>The world’s largest democracy, India has a population of 1.1 billion, </li></ul><ul><li>With a middle class (income over IDR90,000 per annum) </li></ul><ul><li>estimated at 300 million in 2005 and projected to hit 400 million in 2010. That would be equal to the enlarged </li></ul><ul><li>European Union and larger than the USA. </li></ul><ul><li>15 Million People Travel by Train Daily 700,000 people a day </li></ul><ul><li>travel by AC.If just 5 % of this segment Switches to Air travel, </li></ul><ul><li>it will result in 40,000 seats a day being added Further more it </li></ul><ul><li>is easier to create air capacity then rail or road capacity. </li></ul>
  19. 20. <ul><li>Low Price Tags </li></ul><ul><li>Apex Fares </li></ul><ul><li>Internet Auctions </li></ul><ul><li>Bulk Purchases </li></ul><ul><li>Last Day Fares </li></ul>Start of the BOOM
  20. 21. S.W.O.T Analysis of the Industry <ul><li>Key Attractions: </li></ul><ul><li>Low entry barrier </li></ul><ul><li>Attraction of foreign shores </li></ul><ul><li>Foreign equity allowed </li></ul><ul><li>Rising income levels and demographic profile </li></ul><ul><li>Key Problems: </li></ul><ul><li>Crippling “Oil Shock” </li></ul><ul><li>Absence to Institutionalized Funding </li></ul><ul><li>Acute shortage of trained Pilots, severely limiting growth prospects. </li></ul><ul><li>Unplanned location of Airports. </li></ul>
  21. 22. S.W.O.T Analysis of the Industry Cont’d… <ul><li>Key Developments that may Influence the future: </li></ul><ul><li>Average growth of about 25%-30% </li></ul><ul><li>Air Freight segment is growing faster than the Passengers segment. </li></ul><ul><li>Duties slashed on ATF and IATT. </li></ul><ul><li>Pilot license applications have tripled. </li></ul><ul><li>Expecting investments - US $30 billion by 2012 and about US $50 billion by 2015. </li></ul><ul><li>Expected Market Size is projected to be about 50 million by 2010. </li></ul>
  22. 23. Air Deccan – S.W.O.T Analysis <ul><li>Market Share:21.2% </li></ul><ul><li>Strengths </li></ul><ul><li>Highest load efficiency. </li></ul><ul><li>Flies to destinations in the Hinterland </li></ul><ul><li>A 'Lean-and-Mean' approach to staffing </li></ul><ul><li>Expanded operations into Sri Lanka </li></ul><ul><li>Leader in LCC segment, first to target the Middle Class </li></ul><ul><li>Weaknesses </li></ul><ul><li>Focuses almost exclusive on south Indian markets. </li></ul><ul><li>Image plagued by frequent breakdowns and near misses </li></ul><ul><li>Very limited advertising </li></ul><ul><li>Already reached the threshold of cost efficiency </li></ul>
  23. 24. Air Deccan – S.W.O.T Analysis Cont’d… <ul><li>Opportunities </li></ul><ul><li>Extensive network to exploit the booming Air cargo business. </li></ul><ul><li>Plenty of scope for expansion of operations </li></ul><ul><li>Could start “Contractual Employment” </li></ul><ul><li>Strengthen its position in the Chartered Flight segment. </li></ul><ul><li>Threats </li></ul><ul><li>High Attrition rate </li></ul><ul><li>The Threat of New Entrants into (LCC) segment esp GoAir, </li></ul><ul><li>Spice Jet, Indigo and Jagson Airlines </li></ul><ul><li>High Risk Perception </li></ul>
  24. 25. Spice Jet – S.W.O.T Analysis <ul><li>Market Share: 6% </li></ul><ul><li>Strengths </li></ul><ul><li>Entered with Rs. 99 fares for first 99 days </li></ul><ul><li>“ Offering low everyday spicey fares” </li></ul><ul><li>Aim: Compete with Indian Railways AC sgment </li></ul><ul><li>Fleet of 6 Boeing 737-800 with 189 seats. </li></ul><ul><li>Weaknesses </li></ul><ul><li>Small fleet structure </li></ul><ul><li>Concentrating at only North-West-South Indian Sectors </li></ul><ul><li>Small Load Efficiency compared to Air Deccan </li></ul>
  25. 26. Spice Jet – S.W.O.T Analysis Cont’d… <ul><li>Opportunities </li></ul><ul><li>Future Fleet expansion will increase its Market Share. </li></ul><ul><li>Attractive fares and up to date quality service will generate a huge customer base comprising Frequent Flyers. </li></ul><ul><li>Threats </li></ul><ul><li>High Attrition rate </li></ul><ul><li>The Threat of New Entrants into (LCC) segment esp. </li></ul><ul><li>GoAir, Indigo and Jagson Airlines </li></ul><ul><li>High Risk Perception </li></ul>
  26. 27. Go Air – S.W.O.T Analysis <ul><li>Market Share: 2% </li></ul><ul><li>Strengths </li></ul><ul><li>LCC promoted by The Wadia Group </li></ul><ul><li>GoAir FreeFares </li></ul><ul><li>Weaknesses </li></ul><ul><li>Small network : flights in southern & western India with the first nine A320s </li></ul><ul><li>Small Fleet Structure </li></ul><ul><li>Small Load Efficiency compared to Air Deccan & Spice Jet </li></ul>
  27. 28. Go Air – S.W.O.T Analysis Cont’d… <ul><li>Opportunities </li></ul><ul><li>Future Fleet expansion will increase its Market Share. </li></ul><ul><li>Flight network extension </li></ul><ul><li>Attractive fares and up to date quality service will generate a huge customer base comprising Frequent Flyers. </li></ul><ul><li>Threats </li></ul><ul><li>High Attrition rate </li></ul><ul><li>The Threat of New Entrants into (LCC) segment esp. </li></ul><ul><li>GoAir, Indigo and Jagson Airlines </li></ul><ul><li>High Risk Perception </li></ul>
  28. 29. • Greenfield airports –Bangalore/Hyderabad • J/Vs for Ground Handling and MRO facilities • Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this year. • AAI set up more radar stations – to bring entire Indian airspace under radar monitoring. • Training more Pilots and Air Traffic Controllers. • Raising retirement age of pilots to 65 from 61. The Positive Steps
  29. 30. <ul><li>Allow al Indian Careers, Public or Private-to operate International roots. </li></ul><ul><li>Lower the cost of aviation turbine fuel. </li></ul><ul><li>Lower the Landing and airport charges. </li></ul><ul><li>Strengthen and promote short haul tourism for business development, trade and tourism. </li></ul><ul><li>Encourage of Proactive involvement of overseas investors and technical managers in the privatization of airports. </li></ul><ul><li>Encourage commercial activities within airports such as hotel, restaurants etc. </li></ul><ul><li>Ensure a healthy growth in traffic to the private airports. </li></ul>Some Recommendations
  30. 31. Thank You

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