This document provides an industry analysis of the Indian airline industry. It includes a timeline of major milestones in the industry, lists the major operational airlines in India, and discusses factors like demand, costs, regulations, and key players. It analyzes segments in the industry like low cost carriers versus full service carriers, and domestic versus international travel. Major airlines like Jet Airways, SpiceJet, and Kingfisher are discussed. The future outlook is also addressed.
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This is a presentation on Indigo Airlines, a Marketing management project how they as a company evolved overcoming and competing other companies. This presentation views about their strategies and porter's five forces.
A
Project Report
On
Aviation Industry
Submitted By
Name Roll Number
Miss. KiranBendre 05
Mr. KalidasBhandwalkar 06
Mr. SanketBharte 07
Miss. SangitaBhilare 08
Class: - MBA I, VIIT,Baramati
Under The Guidance Of
Dr. RupendraGaikwad
Subject:- Industry Analysis- Desk Research (215)
Index
Chapter No Contents Page No
1 Industry Analysis
Nature of the Industry,
Market share of the company 3
2 Promoters & Management Ethos
Background of promoters
CSR policies
3 External environment
Controlling ministry
4 Financials
Ratio analysis of financial data
5 Recent development
Margers & Acquisition
Indian Aviation Industry
Chapter 1 : Industry Analysis – the Basics
History of the Industry
The first commercial flight in India was made on February 18, 1911, when a French pilot MonsignorPiquet flew airmails from Allahabad to Nain, covering a distance of about 10 km in as many minutes.
Tata Services became Tata Airlines and then Air-India and spread its wings as Air-India International. The domestic aviation scene, however, was chaotic. When the American Tenth Air Force in India disposed of its planes at throwaway prices, 11 domestic airlines sprang up, scrambling for traffic that could sustain only two or three. In 1953, the government nationalized the airlines, merged them, and created Indian Airlines. For the next 25 years JRD Tata remained the chairman of Air-India and a director on the board of Indian Airlines. After JRD left, voracious unions mushroomed, spawned on the pork barrel jobs created by politicians. In 1999, A-I had 700 employees per plane; today it has 474 whereas other airlines have 350.
For many years in India air travel was perceived to be an elitist activity. This view arose from the “Maharajah” syndrome where, due to the prohibitive cost of air travel, the only people who could afford it were the rich and powerful.
In recent years, however, this image of Civil Aviation has undergone a change and aviation is now viewed in a different light - as an essential link not only for international travel and trade but also for providing connectivity to different parts of the country. Aviation is, by its very nature, a critical part of the infrastructure of the country and has important ramifications for the development of tourism and trade, the opening up of inaccessible areas of the country and for providing stimulus to business activity and economic growth.
Until less than a decade ago, all aspects of aviation were firmly controlled by the Government. In the early fifties, all airlines operating in the country were merged into either Indian Airlines or Air India and, by virtue of the Air Corporations Act, 1953; this monopoly was perpetuated for the next forty years. The Directorate General of Civil Aviation controlled every aspect of flying including granting flying licenses, pilots, certifying aircrafts for flight and issui
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Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
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2. AGENDA
• Timeline - Airline Industry
• Need Set
• List of Operational Airlines
• Macro Environmental Factors
• Porter’s Five Forces
• Growth in India
• Segments in Indian Airline Industry
• Capacity vs Demand
• Cost Structure
• Recent Events
• Regulations
• Critical Success Factors
• Dynamics of Industry
• Analysis of Players
– Jet Airways
– SpiceJet
– Kingfisher Airlines
• Investment Requirement
• Future Outlook
3. Timeline – Airline Industry
Year Milestones
<1953 Nine Airlines existed including Indian Airlines & Air India
1953 Nationalization of all private airlines through Air Corporations Act;
1986 Private players permitted to operate as air taxi operators
1994 Air Corporation act repealed; Private players can operate schedule services
1995 Jet, Sahara, Modiluft, Damania, East West granted scheduled carrier status
1997 4 out of 6 operators shut down; Jet & Sahara continue
2001 Aviation Turbine Fuel (ATF) prices decontrolled
2003 Air Deccan starts operations as India’s first LCC
2005 Kingfisher, SpiceJet, Indigo, Go Air, Paramount start operations
2007 Industry consolidates; Jet acquired Sahara; Kingfisher acquired Air Deccan
4. Need Set
• Need to travel in an airline:
– Primary Need: To meet another person/group (Communication)
– Secondary Need: Transportation
– Tertiary Need: Faster means to travel
COMPETITION:
Direct Competitors:
• Railways
• Bus
• Cars
Generic Competitors:
• Video Call Services
5. List of Operational Airlines
Status : Scheduled
Airline Call Sign Commenced Operations
Air India AIRINDIA October 1932(as Tata Airlines)
Air India Express EXPRESS INDIA April 2005
Air India Regional ALLIED 1996(as Alliance Air)
Air Kerala — April 2013(Planned)
GoAir GOAIR June 2004
IndiGo IFLY August 2006
Kingfisher Airlines* KINGFISHER May 2005
Jagson Airlines JAGSON November 1991
Jet Airways JET AIRWAYS May 1993
SpiceJet SPICEJET May 2005
6. List of Operational Airlines
Status : Non-Scheduled
Airline Call Sign Commenced Operations
Air Mantra MANTRA July 2012
Air Odisha — November 2012
Club One Air — August 2005
Chhattisgarh Air Link — 2012
Deccan Charters DECCAN 1997
Deccan Shuttles DECCAN 2012
Invision Air — March 2011
TajAir — November 1993 (as Megapode)
Ventura Airconnect AIRCONNECT July 2011
7. Macro Environmental Factors
Airline Industry is highly dependent on the following factors:
Factors Outcome Impact on Airlines
Increase in crude oil Increases Aviation Turbine Fuel (ATF) • Increase in fares leads to low
prices prices (40% of the fare) demand
• If fares are fixed, then it
affects profits.
Implementation of • New Entrants (Joint Ventures) • Increases competition in LCC
FDI in Aviation • Mergers with International players segment
• Increases operational efficiency • Price War
• Reduces operating costs
Increase in fares of • Middle Class segment will prefer • Increases profits as airlines
AC and First Class airlines as it takes less time to travel will travel with full capacity
tickets in Railways
Recession: • People will reduce their frequency of • Decreases profits
Indian Airline travel or will prefer low-priced • Incurs huge expenses as
Industry Growth Rate transportation mediums like Railways the flights will be
= 1.8 times GDP etc. grounded
• Low demand
8. Porter’s Five Forces
Threat of New Entrant
Saturated Industry hence there is hardly any space for a
newcomer
High cost of entry
High State Tax levied on Airline Transport Fuel (ATF)
High cost of buying and leasing aircrafts, safety and security
measures, customer service and manpower
Strong existing player
Threat of Substitutes
No perfect substitute for International carriers
Domestic airlines can be substituted by Cars, Buses, Train and
Video call services
9. Porter’s Five Forces
Bargaining Power of Suppliers
Airline supply is dominated by Boeing and Airbus
Very less number of manufacturers of Boeing & Airbus
Aviation fuel is a commodity
Bargaining Power of Buyers
Large number of players competing for same set of
customer
Large number of players provides huge option for
buyers
10. Porter’s Five Forces
Rivalry
Many players
Intense price competition
High Fixed Cost
Low Marginal Cost
Homogeneous Product
Excess Capacity
11. Porter’s Five Forces
Bargaining
Power of
Supplier
High
Threat of Threat of
Rivalry New Entry
Substitute
High High
Low
Bargaining
Power of
Buyer
High
12. Growth in India
• Railway fares of AC tier and First class are similar to airline fares
– Over 300 million strong middle class present in India
Domestic
• FDI in Aviation Growth –
– Reduces the debt burden 25.6%
– Reduces operational costs due to availability of experts in the field of
aviation
• Tourism in India
– Increase in inbound and outbound tourists and medical tourism
• Disposable incomes expected to increase an average of 8.5% till 2015
• Airports Authority of India (AAI) announces new airports in Tier II and
Tier III cities
– Increases the demand for airline travel
– Operational costs are very low and growth rates are high when
compared to metro and Tier I cities
• Higher profits
14. Classifications of Passengers for Airline
Industry
• Type 1 – Time sensitive and insensitive to Price
– Business Travellers, who might be willing to
pay premium price for extra amenities
– Travel flexibility and last minute seat
availability extremely important
• Type 2 – Time sensitive and Price sensitive
– Some Business Travellers, must make trip,
but are flexible to secure reduced fare
– Cannot book far enough in advance for
lowest fares
• Type 3 – Price sensitive and insensitive to Time
– Classic Leisure or vacation travellers, willing
to change time and day of travel and airport
to find seat at lowest possible fare
– Willing to make connections
• Type 4 – Insensitive to both Time and Price
– Few passengers who are willing to pay for
high levels of service.
– Can be combined with Type 1
15. Segments
Domestic
Low Cost Carrier
(LCC)
International
Segments in
Indian Airline Passenger
Industry
Domestic
Full Service
Carrier (FSC)
International
16. Segments – Low Cost Carrier
Low Cost Carrier:
• Air Deccan was the first LCC in 2003
• Spicejet, IndiGo, JetKonnect and GoAir entered later
LCC Model:
• Have a uniform fleet of aircraft to drive cost efficiencies
• Point-to-point system instead of a hub and spoke model to increase
aircraft utilization rates
• Reduce costs by utilizing second tier airports
• Integrate online bookings and drive down their (POS) point of
sales costs
• Have best in class customer service metrics
• Single class configuration – Higher number of seats in the aircraft
17. Segments – Full Service Carrier
Full Service Carrier:
• Jet Airways, Air India and Kingfisher Airlines (Not operational)
FSC Model:
• Multiple fleet
• Multiple class configuration
• In-flight services
– Entertainment
– Food & Drinks
18. Segments – Domestic Passengers
Market Share – 2011
606 lakh passengers
Indigo
6.10% 18% 19.50% Air India
16% Spicejet
18.30% 14.40% Jet Airways
7.60%
Jet Lite Decline in domestic passengers by 2.97%
GoAir
• Increase in fares due to increase in ATF
prices
• Frequent cancellation of flights by Air
Market Share – 2012 India and Kingfisher
588 lakh passengers
1%
7% Indigo
6%
27% Air India
18% Spicejet
Jet Airways
21%
20% Jet Lite
GoAir
Kingfisher
19. Segments – Domestic Passengers
Airline Activity Reason
Kingfisher Airlines • DGCA Forced to stop its operations • High debt
• Lost 109 lakh passengers • Improper Revival plan
Air India • Managed to gain 26.52 lakh • Kingfisher’s inability to operate as a
passengers FSC
• Frequent cancellation of flights due
to pilot strike
IndiGo • Increased its capacity by 30% • Used its cash to increase its
• Entered international services capacity as it was the only airline
• Each plane had 180 seats of making profits
single class
• Gained 40.6 lakh passengers
SpiceJet • Concentrated mainly in Tier II and • Growth rate of Tier II and Tier III is
Tier III cities higher than metros
• Gained 30 lakh passengers
Jet Airways • Increased its capacity slowly • Had small planes of 70-80 seats of
• Lost 9 lakh passengers multiple classes
• Had huge debt and hence couldn’t
increase its capacity like IndiGo
21. Capacity Vs Demand
Fig: The graph shows Capacity vs. Demand chart for Domestic Airlines in India
22. CostStructure
Parameters Fare Parameters
contribution
Airline Fuel 40% • Crude oil prices
• Rupee depreciation
• Block hours (Difference between the time the
door was closed (departure) and the time the door
was opened (arrival))
Maintenance & 12% • Food and Cabin Expenses
Repair Cost • Crew accommodation, transportation and
allowances
• Landing and Navigation charges
Ownership Cost 13% • Purchase price of airplane
• Insurance, Tie down or hangar fees, Subscription
fees
Other Expenses 30% • Employee Remuneration and benefits
• Selling and Distribution costs
• Interest Expense – Interest paid for the loan taken
• Lease Rental
23. Recent Events
New Entry Mergers & Exits
Acquisitions
Kingfisher Airlines has
Air Mantra (2012) – been forced to stop
Operates between its operations due to
Amritsar and Etihad Airways in
talks with Jet Airways huge debt
Chandigarh
Joint Venture
between Tata Group Tiger Airways in talks
and Air Asia with SpicJet
• Air Asia plans to invest $60 • To create a hub at
mn Hyderabad
All Nippon Airways in
talks with SpiceJet
and GoAir
24. Regulations
• DGCA’s enforcement of standardized block times:
– All airlines should fly within the average block time fixed by DGCA for all routes across the country
and take action against carriers which "cheat“.
• Information about Flights and Reservations
– Each passenger shall be provided neutral and accurate information on the
flight details and reservation status by the airline company
– The airline or its designated travel agent must pass on to the passengers the
following information in the form of a computer print-out:
• The identity of the airline which will actually provide the service, as
opposed to the airline mentioned on the ticket;
• Changes of aircraft during the journey;
• Stops en-route during the journey;
• Transfer between the airports during the journey
25. Regulations
• Cancellation of Flight
– Airlines should inform the passengers of cancellations of their flights as far in
advance as possible of the scheduled time of departure provided at the time
of effecting his/her reservation
– Passengers who have not been informed at least three hours in advance about
the cancellation of the flight on which they were scheduled to travel,
• Airlines shall provide compensation for the inconvenience caused
• Airlines shall refund the ticket prices in the event they do not wish to
travel instead on an alternate or subsequent flight of the carrier
concerned or on another carrier’s flight
• Airline shall provide customers with facilities at the airport in the event
they have already reported for their original flight and whilst they are
waiting for the alternate flight
26. Regulations
• Denied Boarding
– Airlines shall be liable to pay compensation to passengers who are denied boarding
• Delays in Flight
• The airlines shall provide facilities if the passenger has checked in on time, and if the airline
expects a delay beyond its original announced scheduled time of departure or a revised time
of departure of:
– 2 hours or more in case of flights having a block time of up to 2 ½ hrs; or
– 3 hours or more in case of flights having a block time of more than 2 ½ hrs and up to 5
hours; or
– 4 hours or more in case of flights not falling under above two
• ICAO’s Policies on Charges for Airports and Air navigation Services
27. Regulations
• DGCA’s minimum capital requirement policy:
As per the rules issued by the Director General of Civil Aviation (DGCA),
– Applicants for scheduled airline permit must have a minimum paid-up capital
of Rs50 crores and a fleet of five large aircraft, with a carrying capacity of over
40,000 kg each to begin operations. These airlines companies will have to put
in additional Rs20 crores equity for each additional aircraft beyond the
minimum five required to start operations.
– Airlines that plan to fly smaller planes should have a minimum fleet of five and
a minimum equity of Rs20 crores. They should add Rs10 crores to its equity for
each addition of small aircraft.
• FAA rules : It limits the number of hourly takeoffs and landings—called “slot”
controls
28. Critical Success Factors
• Route System
– Access to terminals in the airports that are visited the most
– Customer demand of route vs maximum aircraft utilization
• Revenue /Cost Control
– Ability to handle transaction cost
• Handling the high transaction cost due to uncertainties from the supply
side by combining the operations under one corporate name :
Internalisation
– Having competitive and innovative pricing schemes to attract and maintain a
customer base
– Better fuel procurement process and price hedging during volatile periods
• Service Product/Promotions
– Aircraft seating space
– Aircraft type
– Class of service offering
– Ease of booking
29. Critical Success Factors
• People (Service Oriented Industry)
– High-caliber staff
– Training programs focusing on front-line communicative skills
• Ability of the Carrier to benefit from economies of scale and economies of scope by
operating the carriers in hub or base in the airport
– Acts as a structural entry barrier to other players and new entrants
– Reduction of sales and marketing costs, customer service facilities, and flight
cancellation costs
– Benefits from increase in size of the base:
• Flexibility to switch slots
• Flexibility to switch crew staff from one route to another
• Flexibility to adjust the connections with the fluctuation in demand
– Better negotiation power to get attractive time slots and other services from the
airport
30. Critical Success Factors
• Available Capacity
– Number of aircrafts and the seating capacity in case of busy routes (where fixed cost is high)
• Ability to diversify
– Related Diversification:
• Diversify into Air-freight industry
• Diversify into Hospitality Industry
– Joint Ventures:
• JVs with Hotels, Shops in Airports, restaurants etc.
• Ability to introduce more routes that are congestion free and less of bottlenecks
• Investment in Technology
– Helps in mitigating risks due to increase in capacity by opening new routes by competition
and hence, to redeploy aircraft and secure gates and ground personnel immediately to react
to the competition
– Reacting immediately to price war
– Better user friendly online booking facility
– Ensuring fleet reliability and safety monitoring
32. Basic Terminology
• Flight Leg (or “flight sector” or “flight segment”)
– Non‐stop operation of an aircraft between A and B, with associated departure and arrival times
• Flight
– One or more flight legs operated consecutively by a single aircraft (usually) and labelled with a single
flight number (usually)
• Route
– Consecutive links in a network served by single flight numbers
• Passenger Paths or Itineraries
– Combination of flight legs chosen by passengers in a O‐D market to complete a journey
• Enplanement
i. Purchasing Tickets
ii. Boarding Pass
iii. Checking Baggage
iv. Undergoing Security Inspections
v. Boarding Airplane
• Deplanement
i. Exiting Airplane
ii. Exiting Terminal
iii. Baggage Retrieval
iv. Immigration and Customs Inspections
33. Measures for Airlines Economics
• Air Traffic: Amount of airline output that is actually consumed/sold or enplaned passengers
– RPM = Revenue Passenger Mile = (No. of revenue-paying passenger ) X (No. of mile flown during the
period)
• One paying passenger transported 1 mile
– Yield = Revenue per RPM
• Average fare paid by passengers, per mile flown
– PDEW = Passenger trips per day each way
• A common way to measure market demand
• Airline Demand: Air traffic + “Rejected demand”
– Rejected Demand or Spill are the passengers unable to find seats to fly
• Airline Supply:
– ASM = Available Seat Mile = (total no. of seats available for transporting passengers) X ( No. of miles
flown during period)
– Unit Cost = Operating Expense per ASM (“CASM”)
• Average operating cost per unit of output
• Airline Performance
– Average Load Factor (LF)= RPM/ASM
• Average Leg Load Factor (ALLF) = Sum of load factors/No. of flights
– Average Network or System Load Factor (ALF) = ΣRPM/ΣASM
– Unit Revenue = Revenue/ASM
– Total Passenger Trip Time
34. Measures for Airlines Economics
• Average Stage Length
– Average non‐stop flight distance
– Aircraft Miles Flown/ Aircraft Departures
– Longer average stage lengths associated with lower yields and lower unit
costs
• Average Passenger Trip Length
– Average distance flown from origin to destination
– Revenue Passenger Miles (RPM)/ Passengers
– Typically it is greater than average stage length, since some proportion
of passengers will take more than one flight (connections)
• Average Number of Seats per Flight Departure
– Available Seat Miles (ASM)/ Aircraft Miles Flown
– Higher average seats per flight associated with lower unit costs
35. Airline Profit Maximizing Strategies
Strategy Intended Benefit Pitfalls
Cutting Fares/ Yields Stimulated demand The price cut might generate a
disproportional
increase in total demand,
“elastic demand”
Increasing Fares/ Yields Increase in revenue The price increase can be
revenue positive if
demand is “inelastic”
Increasing Flights (ASM) Stimulated demand Increases Operational Costs
Decrease Flights (ASM) Reduce Operational Lower Frequencies may lead
Costs to market share
losses and lost demand
Improve Passenger Stimulated demand Increases Operational Costs
Service Quality
Reduce Passenger Reduce Operational Excessive cuts can reduce
Service Quality Costs market share and
demand
36. Challenges Faced
• Inability of the Indian airlines to achieve cost parity
with their global peers
– High aviation fuel cost
– Infrastructural bottlenecks
• Imbalance between the supply and demand for aircraft
in India
• Lack of differentiation within the domestic carriers
leading to intense competition
• Price wars among the various players including India’s
flag carrier
• High levels of leverage of the carriers
37. Players
2012
Airline Revenue Exoenses Gross Margin PAT
(in Rs. bn) (in Rs. bn) (in Rs. bn) (in Rs. bn)
Jet Airways 169.7 164.55 5.15 (2.87)
SpiceJet 53.89 55.72 (1.83) (2.54)
Kingfisher 12.63 26.54 (13.91) (32.89)
2011
Airline Revenue Exoenses Gross Margin PAT
(in Rs. bn) (in Rs. bn) (in Rs. bn) (in Rs. bn)
Jet Airways 140.16 145.19 (5.03) (10.61)
SpiceJet 36.43 40.46 (4.03) (2.93)
Kingfisher 64.52 84.08 (19.56) (15.2)
39. Jet Airways
Passenger Segment Market Size (2012) Market Share Company’s
(in passengers) Growth Rate
Domestic 588 lakh 25% (147lakh) 17.9%
International 434 lakh 40% (173.05lakh) 18.1%
PassengerSegment No. of Destinations Revenue Total Revenue
(InRs. bn) Contribution
Domestic 52 69.24 40.8%
International 21 75 44.2%
40. Jet Airways
Codeshare Agreements for International services:
Jet Airways’ Services:
1. International Long Haul
• First Class
• Premiere
• Economy Class
2. International Short Haul & Domestic
• Premiere
• Economy Class
3. In-Flight Entertainment
4. Jet Lounges
41. Strengths Weaknesses
• Public Listed company and promoters have credible • Jet Airways operates as a FSC in one way and as a LCC in
sources to back the airline operation the return
• Has wide international presence • Increases operational costs
• Improper positioning of Jet Airways and improper
merging of Jet Lite and Jet Konnect
• Presence of multiple fleet operation
SWOT – Jet Airways
Opportunities Threats
• Expanding operations in Tier -2 and Tier 3 cities of India • Rupee Depreciation
• Merging with Etihad Airways • Increase in crude oil prices
• Increases operational efficiency and reduces debt • FDI in Aviation
• Increases the access to international destinations • New entrants like Air Mantra, Tata-AirAsia in LCC
• Increase in AC and First Class fares of Indian Railways Segment
• Most of the 300 million Middle class people will prefer • Mergers like All Nippon Airways with SpiceJet or GoAir
airlines
42. SpiceJet
Passenger Segment Market Size (2012) Market Share Company’s
(in passengers) Growth Rate
Domestic 588 lakh 20% (117.6lakh) 27%
PassengerSegment No. of Destinations Revenue
(InRs. bn)
Domestic 39 52.87
SpicJet’ Services:
International Short Haul & Domestic:
• In-flight Entertainment
• SpiceJet MAX
43. Strengths Weaknesses
• Public listed company and promoters have credible • Small international presence
sources to back the airline operation • Dependency on leased assets
• Reaches 35 destinations in India
• Strong regional connectivity
• Imports ATF and hence has less fuel cost
• Presence of single fleet of operation
SWOT – SpiceJet
Opportunities Threats
• Merging with All Nippon Airways/Tiger Airways • Rupee Depreciation
• Increases operational efficiency and reduces debt • Increase in crude oil prices
burden • FDI in Aviation
• Increases international presence • New entrants like Air Mantra, Tata-AirAsia JV in LCC
• Increase in AC and First Class fares of Indian Railways Segment
• Most of the 300 million Middle class people will prefer • Mergers like Etihad Airways with Jet Airways
airlines
• Promotion of tourism by the Indian Government
44. Kingfisher Airlines
Passenger Segment Market Size (2012) Market Share Company’s
(in passengers) Growth Rate
Domestic 588 lakh 1% (5.88lakh) Nil
PassengerSegment No. of Destinations Revenue
(InRs. bn)
Domestic 25 11.29
Codeshare Agreement (Prior to suspension from IATA in April ‘12):
• American Airlines (Oneworld)
•Asiana Airlines (Star Alliance)
•Phillippine Airlines
45. Kingfisher Airlines
Kingfisher Airlines’ Services:
1. International (Prior to suspension – April’ 12)
• Kingfisher First
• Kingfisher Class
2. Domestic (Prior to suspension – Oct’12)
• Kingfisher First
• Kingfisher Class
• Kingfisher Red
3. In-Flight Entertainment
4. King Club
46. Strengths Weaknesses
• Provided the best services as a FSC carrier • Unable to generate expected return on investment
• Targeted the domestic luxury segment in India • Has huge debt
• Overspending of funds
• Load factor is very low
SWOT - Kingfisher
Opportunities Threats
• Merging(or acquiring) with(or by) an International airline • Presence of LCC carriers
• Increases operational efficiency and reduces debt burden • Rupee Depreciation
• Increases international presence • Increase in crude oil prices
• Expanding the network within India such as Tier II and Tier III • FDI in Aviation
cities • New entrants like Air Mantra, Tata-AirAsia JV in LCC Segment
• Disposable incomes are increasing • Mergers like Etihad Airways with Jet Airways
48. Cost Analysis
Expenses Jet Airways SpiceJet Kingfisher Airlines
ATF 40.18% 47.48% 31.78%
Reasons:
•Kingfisher was able to reduce ATF expenses by
• Route Rationalisation: Cut capacity in unprofitable routes
• Fuel Consumption Saving Program
•SpiceJet has high ATF fuel prices due to increase in block hours
49. Cost Analysis
Expenses Jet Airways SpiceJet Kingfisher Airlines
Selling and 8.25% 5.85% 4.49%
Distribution
Reasons:
•Jet Airways: 57% of the Selling and Distribution expense comes from commission to
selling agents.
• Very few consumers buy tickets from Jet Airways website/offices
• Many prefer buying from Makemytrip.com, Yaatra.com etc.
50. Cost Analysis
Expenses Jet Airways SpiceJet Kingfisher Airlines
Aircraft Lease 5.49% 13.01% 9.37%
Rentals
Depreciation and 5.7% 0.67% 3.69%
Amortisation
Reason:
Jet Airways:
•It has a fleet of 102 owned aircraft
• It has taken a lease on engines and less number of aircrafts
SpiceJet:
• It has a fleet of 47 leased aircraft and hence high lease rentals and less
depreciation and amortisation expenses
51. Cost Analysis
Expenses Jet Airways SpiceJet Kingfisher Airlines
Finance Cost 5.89% 1.13% 13.77%
Reasons:
•Kingfisher: Has taken loan of Rs.91.33 bn
•SpiceJet: Has taken loan of Rs. 9bn
52. Cost Analysis
Expenses Jet Airways SpiceJet Kingfisher Airlines
Other Expenses 24.8% 23.14% 29.68%
Reasons:
•Kingfisher: 11% of the total expenses is due to
•Due to premature termination of lease/contracts
•Restructuring/idle cost
54. Investment Requirement –
New Entrant
Investments required to start a airlines business
• Airplane leases
• Route structure/Marketing
• Stations/ground handling agreements
• Maintenance agreements
• Accounting, HR and IT set-up
• Company manuals, procedures and training for all FAA mandated departments (pilots, flight attendants,
dispatchers, mechanics, customer service, ramp, security)
• DOT approval - Financial fitness
• FAA approval - Operational fitness
• Hiring of pilots, flight attendants, dispatchers, mechanics, stations and administration folks
• Training of all of the above
• Proving runs with the FAA
As per the rules issued by the Director General of Civil Aviation (DGCA),
• Applicants for scheduled airline permit must have a minimum paid-up capital of Rs50 crores and a fleet of
five large aircraft, with a carrying capacity of over 40,000 kg each to begin operations. These airlines
companies will have to put in additional Rs20 crores equity for each additional aircraft beyond the
minimum five required to start operations.
• Airlines that plan to fly smaller planes should have a minimum fleet of five and a minimum equity of Rs20
crores. They should add Rs10 crores to its equity for each addition of small aircraft.
55. Investment Required –
Existing Airline
• Investments required to expand a airlines
business
– Investment in new aircraft lease
– Route structure/Marketing
– Hiring of new crew member
56. Future Outlook
• India will have the second highest growth rate at 13.1 percent CAGR
(compounded annual growth rate), adding 49.3 million new
passengers," IATA said in its Airline Industry Forecast 2012-2016.
• By 2016, the five largest markets for domestic passengers would be
the United States (710.2 million), China (415 million), Brazil (118.9
million), India (107.2 million) and Japan (93.2 million).
• The compound annual growth rate of the air cargo sector would be
the highest for Sri Lanka at 8.7 per cent, followed by Vietnam (7.4
per cent), Brazil (6.3), India (6.0) and Egypt (5.9), the IATA said
• India will be the fourth biggest market in terms of value for all new
aircraft deliveries after China, the US and the UAE during the next
20 years, according to aircraft maker Airbus