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A secondary research study on Indian Airline Industry 2013-14
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A STUDY ON
INDIAN AIRLINES INDUSTRY
SUBMITTED TO:
DR.SAMIK SHOME
SUBMITTED BY:
GROUP NUMBER: 1
MARKETING B
PILLAI AKHIL MOHAN
DEEPANJANA GHOSH
KOMAL AGARWAL
ROHIT SINHA
MBA JULY (2013-15)
1
2
MBA JULY (2013-15)
DECLARATION
This is to declare that the Report titled “Industry Analysis of Indian Airlines Industry” has been
made for the partial fulfillment of the Course Research Methodology in Semester II by Group 1
of Marketing Section B, MBA July (2013-15) under the guidance of Dr.SamikShome.
We confirm that this Report truly represents our work undertaken as a part of our Course. This
work is not a replication of work done previously by any other person/group. We also confirm
that the contents of the report and the views contained therein have been discussed and
deliberated with the faculty.
PILLAI AKHIL MOHAN ……………………….
DEEPANJANA GHOSH ……………………….
KOMAL AGARWAL
ROHIT SINHA
……………………….
……………………….
3
MBA JULY (2013-15)
CERTIFICATE
This is to certify that Group 1, of Marketing Section B, MBA July (2013-15) has completed the
report titled “Industry Analysis of Indian Airlines Industry” under my guidance for the partial
fulfillment of the Course: Research Methodology in Semester II of the Master of Business
Administration.
SIGN:
NAME:
DATE:
4
ACKNOWLEDGEMENT
It gives us great pleasure to thank Alliance University’s Alliance School of Business for
providing us with an opportunity to study this subject and to improve our understanding on the
same.
At Alliance School of Business, we would like to thank Dr. Samik Shome for his guidance
throughout the process and for his extensive support and cooperation for making this Industry
Analysis happen.
His experience, industry expertise and knowledge has helped our group greatly, he has not only
guided the entire group but has also helped us in understanding the different aspects of Research
analysis of an Industry, particularly the Aviation sector in India.
He has instilled confidence in the entire group to be able to conduct the research.
5
LIST OF TABLES
NUMBER
NAME
PAGE
1.1
Evolution of Airlines industry in INDIA
1.2
Trend of Foreign Tourist Arrivals during the
period 1995-2010
7
1.3
Estimated Gross revenue earned by sub-sectors
of Indian Civil Aviation sector
8
3.1
Market share of various airlines
16
3.2
Business Diversification
30
3.3
Fleets: Apr-07
32
3.4
Passenger/Cargo forecast till 2016-17
46
3.5
Market share of International Passengers
Carried by Scheduled Domestic Carriers from
India & Foreign Carriers (%)
47
3.6
Comparison with USA and Other Countries
49
3.7
Foreign Carrier’s Pax market shares in
International Routes (FY10 DATA)
49
3.8
Key operating indicators and valuations for the
Global Airline Industry- Full Service Carrier
50
3.9
Key operating indicators and valuations for the
Global Airline Industry- Low Cost Carrier
51
5-6
6
LIST OF FIGURES
NUMBER
NAME
PAGE
1.1
Global commercial airline profitability
3
1.2
2012 worldwide airline financial results per
departing passenger
4
3.1
Market Share representation
17
3.2
Porter’s Five Forces of Competition
20
3.3
Classification of Passengers
24
3.4
Segmentation of Indian Airline Industry
25
3.5
PESTEL Model
27
3.6
Pre and post merger profit and loss
34
3.7
Benefits of Cloud Computing
40
3.8
Benefits of Outsourcing
41
3.9
Expected Profits in 2014
47
3.10
India’s Current and expected future fleet
48
3.11
Unites States Current and expected future fleet
48
7
EXECUTIVE SUMMARY
Following report has been made on the “Indian Aviation Industry”. All the data has been
collected from the internet, research papers and surveys.
Indian aviation industry has changed to a more open and investment friendly sector. It plays a
greater role in the development of the Indian economy. The increase in the income of people,
entry of low cost carriers (LCC), FDI, new government policies, growth in other businesses,
globalization etc. are reasons for the growth of the Indian aviation industry. The aviation sector
in India is expected to have a bright future.
The report gives information on different aspects of the Indian aviation industry. For simplicity it
is divided into various parts and information. Some of the key points are:
(i)
Introduction to the Indian aviation industry and defines its importance to the
economy.
(ii)
The industry analysis. Under this the following objectives are studied.
 Market share and nature of competition
 Market segmentation
 PEST analysis
 Business diversification
 Mergers and acquisitions
 International exposure
 Technology intensity
 Marketing initiatives
 Future outlook and
 Comparison with US and other countries
The whole project gives us detail information about the Indian aviation industry.
In the end of the study we have given up certain recommendations which we think are important
from the point of view of the Indian Aviation Industry.
8
CHAPTER 1:
INTRODUCTION
9
1.1 GLOBAL SCENARIO
Recently, the International Air Transport Association (IATA) forecasted their profit to $11.7
billion1 of the airline industry, which is an 8% decrease as compared to previous estimates. They
have pointed out that there is a weak growth in Asia and a huge drop in the demand for freight.
As in July 2013, Global airline indus 2try outlook was seen as a bright scenario for the remaining
year because of North America’s recovery of the economy. IATA forecasted a profit of $12.7
billion to the airline industry and also total number of passengers to be 3.13 billion 3.
Figure 1.1 Global commercial airline profitability
From the figure 1.1 it is clear that the profitability is improving where the 2000s peaks are below
the margins and are above the peaks of 1990s.
1
http://www.businessvibes.com/blog/global-airline-market-analysis-2013
http://www.businessvibes.com/blog/global-airline-market-analysis-2013
3
http://www.businessvibes.com/blog/global-airline-market-analysis-2013
2
10
Figure 1.2 2012 worldwide airline financial results per departing passenger
From the figure 1.2 it can be seen that there is an increase in the revenue per passenger by only
$2.56. Also there is a lag in cost by $10 which excludes $12 ancillaries.
Although there was decrease in the projection of 2013, still it is estimated that the industry will
be successful with regard to the profits of the sector.
While the United States, Middle East and much of the parts of Asia have contributed to the
growth, Latin America and Europe are unstable markets.
The airline companies all over the world have done a profitable task, but the forecast for 2014
will be decided as per the fuel prices. Fuel costs are an important factor as they were responsible
for 31% of the 2013 costs of operating. A profit of $16.4 billion is forecasted by IATA in 2014
because of the oil prices situation.
1.2 INDIAN SCENARIO
The Indian Aviation is now an open, friendly to the investor, and a liberalized one which is quite
different what it was 10years ago. The entrance of LCCs has contributed to a growth of the
sector, with an improvement in the infrastructure and an increase in the operating airlines.
Following are some of the key points in reference to the Indian Airline industry:
(i)
(ii)
100% increase in the FDI limit has been given by the government for the airlines and
Greenfield airports.
Increase in the number of airlines including the LCCs, leading an increase in the
competition and reduction of the fare resulting in growth of air traffic.
11
(iii)
(iv)
(v)
There had been a number of fleet acquisitions with 300 aircrafts.
MRO facilities need to be set up because of the rise in the fleet size and also the
modernization of the airports. The expansion of fleet of India has tempted many
players across the globe such as Boeing, Airbus, SIA Engineering, ST Aerospace and
Lufthansa Technik to come up with the same services in India.
There is a big pressure on airlines because of high tax structure, fuel costs and more
user charges, which has raise the need and trend of mergers and acquisitions.
1.3 EVOLUTION OF AIRLINE INDUSTRY IN INDIA
Table 1.1: Evolution of Airlines industry in INDIA
YEAR
MAJOR 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, Spice Jet, Indigo, Go Air, Paramount start operations
2007
Industry consolidates; Jet acquired Sahara; Kingfisher acquired Air Deccan
2010
Spice Jet starts international operations
2011
Indigo starts international operations, Kingfisher exits LCC segment
12
2012
Government allows direct ATF imports, FDI proposal for allowing foreign
carriers to pick up to 49% stake under consideration
2013
Signing of the Jet Airways-Etihad Airways deal.
2013
AirAsia and the Tata Group queuing up to start two new airlines in India.
2014
(yet to
happen)
Commencement or expansion of commercial operations by four global airlines —
Etihad, AirAsia, Singapore Airlines and Tiger Airways.
Source: ICRA (2012)
1.4 ROLE OF AVIATION INDUSTRY IN THE ECONOMY
1.4.1 Major roles
Air transport is an important factor of transport infrastructure of a country, and has a significant
contribution in the development process by creating employment opportunities, improving the
productivity and more efficient transportation of goods and services. It also enhances business
growth, tourism and trade across the economy.
International trade of India has seen a boom because of the reliability and speed across long
distances by air transport. Sectors such as pharmaceuticals, office and electronic equipment,
which are relying on air transport for international trade have a great value.
Thus, aviation industry is the backbone of many services which have shown high growth. Air
transport enhances the connectivity because of its reliability and speed and countries having a
strong aviation sector have the ability to attract Foreign Direct Investment.
Aviation sector has a huge impact on the development of the Tourism Industry. 2.8 billion
Passengers were transported in 2011, which connected the cities across the world with 36,000
routes4. It is so because 2009, 90%5 of the visitors from different countries arrived to India
through air transport.
Table 1.2: Trend of Foreign Tourist Arrivals during the period 1995-2010
4
5
http://www3.weforum.org/docs/TTCR/2013/TTCR_Chapter1.4_2013.pdf
http://civilaviation.gov.in/cs/groups/public/documents/document/moca_001680.pdf
13
Source: World Bank13, Analysis: MoCA
Aviation industry is a catalyst for the growth of other industries which is in itself an important
contribution of growth 6.
Public finances are also supported by aviation sector, which include taxes paid by passengers,
airline companies, airport operators, etc. These also include income tax and MRO firms by the
employees, and also collection of the revenue. Thus, Aviation sector is a major source of tax
revenue to the Indian government of approximately 87,500 each year.
Indian Aviation sector is the 9th largest in the world, which serves approximately 120 million
domestic and 41 million international passengers every year. Indian Airlines is connected well by
over 5 Indian airlines and 86 international airlines7.
6
The contribution of the Aviation industry to the UK economy, Oxford Economic Forecasting,1999
http://articles.economictimes.indiatimes.com/2013-03-07/news/37531826_1_tourism-industry-globaldownturn-global-challenges
7
14
Civil Aviation sector is reflecting value addition and employment by various activities appearing
to be much deeper, thus strengthening the economic foot-print of a country.
1.4.2 Snapshot
The importance of a particular industry is known by the income and employment generated
through it. This can be seen from the table 1.2.
Table 1.3 Estimated Gross revenue earned by sub-sectors of Indian Civil Aviation sector
AIRLINES
AIRPORTS
Maintenance Repair
Overhaul (MRO)
SUB-SECTORS
GROSS INCOME
(Rs.Crores)
Scheduled
43,352
Non-Scheduled
1,528
TOTAL
44,880
AA1
5,734
Private
3,805
TOTAL
9,539
4,000
and
19,000
Air cargo
Industry
and
Express
2,000
Ground handling
325
Aviation Academies
TOTAL
79,744
Source: Respective Annual reports, Industry Sources; Analysis: MoCA
15
It can be seen that the contribution of the scheduled airlines is about 50% of the gross income of
the total sector.
1.5 OBJECTIVES OF THE STUDY
Following are the objectives of the study on Indian Airlines Industry:
(i) To measure the market shares and nature of competition of the Indian Airline Industry.
(ii) To identify the demographics of the flyers.
(iii)To carry out the PESTEL Analysis of the Indian Airline Industry.
(iv) To determine the business diversification of the Indian Airline Industry.
(v) To determine the mergers and acquisitions in the Indian Airline Industry.
(vi) To determine the international exposure of the Indian Airline industry.
(vii)
To identify the technologies used in the Indian Airline Industry those play a
strategic role in its development.
(viii)
To identify the marketing initiatives used in the Indian Airline Industry.
(ix) To compare the Indian Airline industry with various international airline industry.
(x) To identify the trends in the civil aviation industry projecting the future scenario.
1.6 CONCLUSION
Indian Aviation industry plays an integral part in the development of the economy as a whole
and is one of the major contributors to increase the employment level in the country. Not only
through its direct flight operations but also through ground services and all other supporting
activities that are directly or indirectly related to the aviation sector.
The Ministry of Civil Aviation has taken a number of steps to bring a revival of this sector after a
period of recession in the economy. Aviation sector contributes approximately INR 33,000 Crore
to the GDP of India which is around 0.5%.
It not only brings an economic development but also contributes the up-liftment of the business
industry of the country again indirectly adding to the GDP of the country. Aviation sector acts as
a catalyst in the social up-liftment as a whole.
16
CHAPTER 2:
LITERATURE REVIEW
17
2.1 INTRODUCTION TO LITERATURE REVIEW
As a part of Industry Analysis of the Aviation Sector in India, 10 articles, reports and newspaper
articles were referred for the subject matter. A literature review involves the review of the
previous study that has been carried out in reference to the same subject.
A Literature review can help us better understand:
(i)
To learn what has been studied in the past.
(ii)
To save time on trying to conduct a primary search, when the topic may have already
been studied.
(iii)
To understand the opinion expressed by the experts and researchers.
2.2 SCOPE OF LITERATURE REVIEW
Literature review can help us identify the GAP and provide a guideline on what topic needs to be
studied and whether what type of research design can help us achieve the desired results, which
may be done using an exploratory research, descriptive research or cause and effect relationship
research which is also known as causal research.
The following points are considered while reading the literature review:
2.2.1 Growth in the Airline Industry
Shah (2008), this article extensively speaks about the period of grandeur that the aviation sector in
India has seen. This growth was an outcome of many macro-economic factors such as government
reforms and market lead dynamics. Further the articles talk about the Marketing concept of PODPoint of Differentiation which various airlines use in order to attract the customers to fly with them.
Airline companies are using techniques such a multiple pricing policies, wherein the prices of the
airline tickets change in seconds and are sold to customer at different prices based on the availability
of the seats and the date of travel. All the airlines have to adhere to some bare minimum barriers such
as minimum number of fleet size, equity, and minimum 5 years of domestic operation to be able to
fly internationally.
The article also sheds light on popular merger and acquisition that have happened recently in the
Indian Aviation Sector such as Kingfisher Airlines with Air Deccan, Jet Airways with Sahara
Airlines.
2.2.2 Major orders in the Aviation Industry
The article about the “Indian Airlines Show Vitality”, talk about how the Indian Airline
companies are not able to manage their cash flow and do not have enough cash reserves to carry
their operations, overburdened by high fuel prices which are always on rise along with heavy
airport charges and lack of sales due to expensive ticket fares as per the Indian Markets.
Indigo Airlines has placed one of the biggest order of the aviation history of 180 out of which
150 are A320 Neo Planes with Airbus. Indigo has also order and upgraded most of its planes
with SHARKLETS which is a different shaped wings that improves the fuel efficiency and thus
help save a lot on cost.
18
2.2.3 Aviation Strategy of Indian Civil Aviation
The aviation industry is growing at an exponential rate. According to Thomas “The estimated
compound annual growth rate (CAGR) of passenger traffic to be planned for, in the aggregate,
would be conservatively of the order of 15 per cent (roughly twice the GDP growth rate) and,
perhaps, even more if the stimulating effect of low fares is considered. This means a doubling of
passenger traffic in about five years. At this rate, by 2020, the nominal end point of the new
Vision, there would be a whopping six fold increase in passenger traffic.” (Thomas, 2007). To
capture this growth a strong aviation strategy is required for all the players in the market.
Thomas further discusses that there is a lack of explicit aviation strategy “In the absence of an
overarching super ordinate goal that is widely shared, the concerted and sustained efforts of the
assorted players involved in this complex, time-, space- and capital-intensive sector may not be
forthcoming and actions on the ground and over time may be at cross purposes. Instead of
affecting the desired paradigm shift in civil aviation, we would end up with a dubious non –
strategic drift.” (Thomas, 2007). Further to gain competitive advantage in the future in aviation
market Thomas suggested that “Indian aviation needs to be "democratised", which requires
moving from an elitist to a "mass transit" mode, for which cost – effectiveness is an imperative.”
(Thomas, 2007).
2.2.4 Merger and Acquisitions
Due to the development of the Aviation sector the infrastructure has also developed to a great
extent which is proving to be beneficial for the economy to a large extent due to its cyclical
effect.
All the companies are continuously engaged in innovation and are now able to attract more and
more new customers due to various pricing policies. Companies have expanded exponentially
due to merger and acquisition except Kingfisher and Air Deccan which has added to losses.
Government of India has also refined the Foreign Direct Investment (FDI) policies which are
now attracting foreign investors to invest in Indian Aviation Sector.
2.2.5 Challenges of Indian aviation industry
Deregulation of the Indian airline industry was in 1990 and due to many rules and regulations it
has become impossible for carriers to be efficient. There have seen many restrictions on foreign
ownership and labor laws which has kept the industry away from innovating. Instead of
protective measures like survival fund, bailouts, airlines have to work with government in order
to tackle long term problems.
There are few missions of the airline industry like introducing more low cost carriers for an
average Indians who dreams to travel by air once in life and also building more runways,
efficiently running the airports and reigning labor costs. There are shortage of workers and
professionals, concerns about safety, lack of accompanying capacity and infrastructure in the
airline industry this has led to stiff competition and rising of the fuel prices.
There have been high debt burden and liquidity constraints and there needs to be an
improvement in the balance sheet. Improved financial profile would help these players to focus
19
on steps to improve long term viability and improve its customer service and brand building. In
the long term the operators must focus on improving cost structure, through rationalization at all
levels which includes routes and fleets which aims at cost efficiency. It also includes return of
pricing power through better alignment of capacity to the demand growth at the industry level.
There has been a high cost of air travel due t the unnecessary government ownership and
regulations of airlines. There has been a change rapidly over the last few decades which has led
to explosive growth supported by structural reforms, modernizations of airports and
improvement in the service standards. In many parts of the world air travel has been transformed
into a major mode of mass transportation.
2.2.6 Aviation industry in India –challenges for the low cost carriers
Due to the liberalization of aviation industry in India there has been a boom for domestic and
international passenger carriers. There has been a growth rate of 44.6% and 8.7% in the domestic
passenger and cargo traffic and there has been a growth rates of 15.8% and 13.8% in the
international passenger and cargo traffic during 2006. The Airport Authority of India (AAI)
manages total 122 airports in the country including 11 international and 94 domestic airports and
28 civil enclaves. 70% of the passenger traffic in the country is handled by top 5 airports and out
of that Delhi and Mumbai together account for more than 50% of the passenger traffic.
According to the latest data compiled by Airport Authority of India (AAI) shows that all the
airports handled 90.44 million passengers during the year 2006 as compared to 67.95 million
passengers handled during the same period in the previous year. Indian Aviation Industry has
seen substantial growth due to(i) Low-cost carriers (LCC) like Spice Jet ,Go Air , etc.
(ii) Scheduled domestic air services are available now from 75 airports which was 50 earlier.
20
CHAPTER 3:
INDUSTRY ANALYSIS
21
3.1 INTRODUCTION TO INDUSTRY ANALYSIS
Industry analysis is a process of studying the industry or any specific branch of the industry like
manufacturing, trade and service etc. it helps out in understanding the business and its
environment. Industry analysis even acts like an assistance in sorting out the investment
decisions and supports in grabbing the opportunities which are forecasted by it.
Here the industry analysis which is done upon the Airline Industry is a report that tells us about
the current scenario of the industry.
The present condition of the industry, the challenges they are facing, the advantages they are
having in the future timeline can be known by observing this analysis. The main objective behind
the industry analysis is that to reveal the actual technique that industry practices to drive away
the competition in order to achieve high end profits. Some of the other objectives are like
identifying the factors behind the success of the company.
Industry analysis assists in assessment of the company’s performance in terms of profits, market
share, and other future opportunities in attracting the customer base. It is also useful for the
investors in making some investing decisions. The shareholders of the company also observe the
analysis of that particular industry, so as to make some vital decisions like buying their shares,
selling them and even contributing to the company’s equity by investing for their product
developments, business expansions and growth orientations.
The objectives that are discussed in the analysis will give us the broader view of the industry in
all the aspects pertaining to it. Starting from market share they are holding to the future outlook,
forecast of the different airlines is discussed in this analysis. Airlines industry is a highly
competitive market with limited number of players. So the data given in this analysis is derived
from various written research papers and even from manual observations.
Industry analysis of the airlines industry covers the key elements like industry’s competitive
conditions, performance of the industry, attitude of the government, market penetration
capabilities of the respective airlines, and porters five force model, which gives a detail about the
market conditions prevailing in and around the industry.
The features which are discussed in the analysis part are broadly related to the structural and
operational descriptions of the industry.
22
3.2 OBJECTIVE 1
TO MEASURE THE MARKET SHARES AND
COMPETITION OF THE INDIAN AIRLINE INDUSTRY.
NATURE
OF
3.2.1 MARKET SHARE
As per DGCA data foreign carriers enjoy around 65% of the market share in international traffic
and 27% of the total passenger traffic including domestic and international. According to Market
line 2012 “The Indian airlines industry showed healthy growth over last couple of years with the
exception of 2009. The industry is expected to continue the growth with quite high grow rates in
the forthcoming years up to 2016.
Table 3.1 Market share of various airlines
AIRLINE
MARKET SHARE (%)
INDIGO
29.5
JET AIRWAYS + JETLITE
22.5
SPICEJET
19.8
AIRINDIA (DOM)
19.1
GOAIR
9.0
SOURCE: DGCA
23
Figure 3.1Market Share representation
Source: DGCA
3.2.1.1 Indigo
Indigo was launched on August 4, 2006. Interglobe Enterprises is the Parent company of Indigo,
and is owned by Mr. Rakesh Gangwal. It is a privately owned LCC and is based in Gurgaon with
its main base, Indira Gandhi International Airport. It is one of the fastest growing LCC in the
world and is amongst the best offering professional services with discounted airfares and
economical prices with great deals. It operates to all the major cities of India. 8 Its fleet is of 76
new Airbus A320 aircraft. It offers 485 daily flights connecting to 36 destinations .It’s services
are user friendly as compared to other airlines. 9
Budget airline Indigo has widened its lead over rivals, touching a 29.8% market share ,the
highest since its 2006 launch according to the data released by the Directorate General of Civil
Aviation (DGCA). Indigo has seized the opportunity with both hands once it became apparent
that kingfisher was on its way out. Passengers will continue to pay higher fares with one airline
dominating to this extent as Indigo’s share is highest than any other airlines.10
8
http://www.makemytrip.com/flights/indigo_airlines-history.html
http://en.wikipedia.org/wiki/IndiGo
10
http://www.livemint.com/Companies/rLH5i8cGefPFZswxxObSKO/IndiGo-widens-lead-to-30market-share.html
9
24
3.2.1.2 Jet airways and Jetlite
Jet Airways was founded on 1 st April 1992 and it commenced its operations from 5th May 1993.
It is the second of India’s two major Airlines after Indigo Airlines in terms of market share and
passenger carried. It operates over 3000 flights daily to 76 destinations worldwide .It is owned
by Naresh Goyal.
It’s international hub is in Brussels Airport , Belgium. It’s main hub is in Mumbai and it also has
secondary hubs in Delhi, Kolkata , Chennai and Bangalore. 11
Jetlite was established on September 20 th 1991 as Sahara Airlines .It started it’s operations on 3 rd
December 1993 with two Boeing 737-200 aircraft . It’s initial base was in Delhi. On 2 nd October
Sahara Airlines was rebranded as Air Sahara though it’s registered name remained Sahara
Airlines. It became an international carrier on 22 nd March 2004 and it’s starting flight was from
Chennai to Colombo. In 2005 the airlines suffered huge loss and so it went ahead for a takeover
deal with Jet Airways in 2006. Jet Airways first takeover deal was on January 19,2006 offering
US$500 million to Air Sahara but this deal failed. Jet Airways second takeover deal was on April
12 , 2007 with US$340 million which was successful and on April 16, 2007 Jet Airways
renamed Air Sahara as JetLite as a low-cost airline.12
.Jet Airways and JetLite together has a market share of 22.5% launch according to the data
released by the Directorate General of Civil Aviation (DGCA) which is expected to rise in the
coming years.
3.2.1.3 SpiceJet
SpiceJet is an Indian low-cost airline and is owned by the Sun Group of India. It’s registered
office is in Chennai and it’s corporate office is in Gurgaon. 13 Spicejet is a low cost Airline and is
based in New Delhi . it began it’s service in May 2005 and by 2012 became India’s third largest
Airlines in terms of market share . It was earlier known as Royal Airways and is a recarnation of
ModiLuft. It started it’s service with Rs. 99 fares for the first 99 days. In 2007 it wsa voted as the
best low-cost airline in South Asia and Central Asia by Skytrax. 14
Spice Jet is also increased it market share from 14% to 19.8% during last year and a competitor
to Jet airways. “There is no doubt that the India air market is huge, if the price is right” states
Mark Winders, CEO Spice Jet. They had a remarkable success in the last several weeks. They
have operated consistently with over a 95% seat load factor. While this overwhelming success
they have put some strain on their new operations. Remarkably their overall operating
performance has been very good.
11
http://en.wikipedia.org/wiki/Jet_Airways
http://www.makemytrip.com/flights/jetlite-history.html
13
http://en.wikipedia.org/wiki/SpiceJet
14
http://www.makemytrip.com/flights/spicejet-history.html
12
25
3.2.1.4 AirIndia (DOM)
AirIndia began it’s journey in 1932 under the aegis of Tata Airlines which is a division of Tata
Group . In 2007 AirIndia was merged with Indian Airlines and is the only state-owned airline in
the country. It’s main base is at Chhatrapati Shivaji International Airport in Mumbai and Indira
Gandhi Airport in Delhi. It connects 146 destinations around the world. 15
AirIndia’s market share is 19.1% and there’s not much difference between the market share of
spicejet and AirIndia. It grew from 18.5 % during the year 2012 to 19.1% in 2013. The Airlines
on-time performance also showed an improvement by touching 83%. 16
3.2.1.5 GoAir
GoAir is an Indian low-cost Airline and is based in Mumbai and is the aviation foray of the
wadia Group. 17 GoAir was established in June 2004 and it started it’s operations in October 2005
with a fleet of around 20 leased Airbus A320 aircrafts. In mid- January 2007 the airline planned
for it’s expansion and on January 24,2007 it announced that Florida based Airline reservation
system provider Radixx International had taken over the airlines over all reservations and
passenger management functions. 18
GoAir’s Market Share is 9.0 % and it managed to improve it’s market share due to the discounts
it offered. It also had a significant improvement in the load factor. 19 It is also evaluating their
plans to lease planes over the next two – three years and it is planning to do so to retain it’s
market share.20
3.2.2 NATURE OF COMPETITION
The Airline industry is highly competitive and is subject to rapid changes. In order to compete
effectively against
There are basically two types of markets other airlines with greater financial resources or with
low operating costs the nature of competition in the market changes is very difficult. 21 one is the
perfect competition and the other is monopoly. Airline industry comes under oligopoly market
15
http://www.makemytrip.com/flights/air_india-history.html
http://archive.indianexpress.com/news/air-indias-market-share-passenger-revenue-grow-in-q2of-201314/1187822/
17
http://en.wikipedia.org/wiki/GoAir
18
http://www.makemytrip.com/flights/goair-history.html
19
http://articles.economictimes.indiatimes.com/2013-12-18/news/45338317_1_market-sharegoair-cent-share
20
http://www.business-standard.com/article/companies/goair-mulls-leasing-planes-to-retainmarket-share-113122000781_1.html
16
21
http://mis.kent.edu/Users/weinroth/public/July%208%20Southwest%20Progress%20Report.htm
26
and it is between the two extreme ends of market types. In this type there are few suppliers
controlling a large share of market. Pricing falls between perfectly competitive market where a
player have no pricing power and a monopoly market where a single player according to the
demand can fix the highest price.
Figure 3.2: Porter’s Five Forces of Competition
Source22
3.2.2.1 Competitive Forces:
3.2.1.1 Rivalry among Sellers
Rivalry among sellers is moderate to strong . Airlines compete on price and services they
also compete on the frequency of flights , reliability of services , frequent flyer programs
and other amenities. In the recent years the airlines are concentrating more on returning
to profitability than expansion.
3.2.1.2 Potential New Entrants
The potential of new entrants is weak to moderate . It has barriers of entry due to the low
traffic levels and a lack of desirable gate access in airports. There are several other
reasons which can cause difficulties for new entrants :1.
Capital-intensive
22
https://www.google.co.in/search?q=nature+of+competition+in+the+airline+industry&source=ln
ms&tbm=isch&sa=X&ei=CRM5U6z5OIOrrAfwoYGABg&ved=0CAcQ_AUoAg&biw=1242&
bih=585#facrc=_&imgdii=_&imgrc=_JCH0mMfKAyvM%253A%3BjmlR30yW3BRONM%3Bhttp%253A%252F%252Fhbr.org%252Fhbrgmain%252Fresources%252Fimages%252Farticle_assets%252Fhbr%252F0801%252FR0801E_
A.gif%3Bhttp%253A%252F%252Fhbr.org%252F2008%252F01%252Fthe-five-competitiveforces-that-shape-strategy%252Far%252F1%3B390%3B341
27
2.
3.
Labor-intensive
Energy-intensive
3.2.1.3 Substitute Products
The substitute Products are moderate in the airline industry. There are many substitutes
that exist in relation with the airine industry like bus services, rail services and also
personal transportation. They are considered more convenient for shorter distances due
to the lower cost and is preferred only for longer distances.
3.2.1.4 Supplier Bargaining Power
Supplier bargaining power is moderate to strong .Aircrafts are costly and pieces of
equipment are also costly for an airline company. There are only two suppliers that
exist in the airline industry that is Boeing and Airbus. Due to the limited suppliers they
have greater power in setting prices. It is also an fuel-intensive industry so there is also
regular swings in fuel prices offered by fuel suppliers.
3.2.1.5 Buyer Bargaining Power
Buyer bargaining power is weak. There are many individuals and organizations for
buyers of airline tickets so as a cohesive group very little power is exerted by the
buyers.23
3.2.2.2 Key factors for competitive success
Following are some of the key factors with reference to the competitive success of
Airline Industry:
3.2.2.2.1 Locations that an airline services
The airline must focus on servicing in particular geographic markets and there is also a
need to offer routes between markets that are desired and utilized by customers.
3.2.2.2.2 Cost structure of an airline’s operations
Costs in the airline industry includes maintenance , fuel , labor , fees and lease payments
for the operation in the airports and various other costs including food , entertainment
,etc. If the airlines are successful to control costs then they can attract customers with
lower fares and can also increase its overall profitability.
3.2.2.2.3 An Airlines workforce and it’s interaction with customers
The workforce of an airline industry defines the customer’s perceptions of the airline’s
image. if the workforce is pleasant it can repeat business and it the workforce is sullen it
can drive customers away to rivals.
23
http://mis.kent.edu/Users/weinroth/public/July%208%20Southwest%20Progress%20Report.htm
28
3.2.2.2.4 Reliability of Services
Due to the reliable service of an airline it develops a positive image among customers .
Reliability can be measured by several elements:1.
Reports of mishandled baggage
2.
On-time arrival of flights
3.
Boarding denials from overbooking flights
4.
Passenger complaints
If any airlines is able to control these elements they can provide better services to the
customers.24
3.2.3 HERSFINDHAL-HIRSCHMAN INDEX
It is an indicator of the amount of competition among the individual firms to the overall industry.
Market shares of aviation industry as for August 2013 are stated as below.
Indigo: 29.5%
Jet airways: 22.5%
Air India: 19.1%
Spice jet: 19.8%
Go air: 9.0%
HHI =(29.5)^2 +(22.5)^2+(19.1)^2+(19.8)^2+(9.0)^2 = 2214.35
Rules:
If HHI index < 0.01 (or 100) – highly competitive index.
If HHI index < 0.15 (or 1,500) – un-concentrated index.
If HHI index > 0.15 (or 1,500) and < 0.25(or 2,500) -- tells moderate concentration.
If HHI index > 0.25 (above 2,500) – tells high concentration.
This indicates our industry firms are in moderate concentration.
3.2.3.1Guidelines of HHI:
A HHI index below 0.01 (or 100) indicates a highly competitive index.
A HHI index below 0.15 (or 1,500) indicates an un-concentrated index.
A HHI index between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration.
A HHI index above 0.25 (above 2,500) indicates high concentration
This indicates our industry firms are in moderate concentration.
24
http://mis.kent.edu/Users/weinroth/public/July%208%20Southwest%20Progress
%20Report.htm
29
3.3
OBJECTIVE 2
TO IDENTIFY THE DEMOGRAPHICS OF THE FLYERS.
3.3.1 Demographics of flyers-Market Segmentation
Market Segmentation is the marketing strategy that divides the broad target market into
subsets of consumers with common needs. It is designed and implemented to target
specific customer segments, addressing their needs or desires that are common in the
segments.
It is very difficult to for the companies to fulfil the needs and demands of each and every
customer but the companies try their level best to fulfil their needs and demands and for
this they follow an approach called target marketing.
Main objectives of market segmentation are –
(i)
(ii)
Markets have a variety of product needs and preferences
Markets can better define needs of the customers
Market is segmented on the basis of age , family size , gender , household income ,
occupation , education , religion ,etc.
Airlines segment the market according to the demand of services. There are mainly two
types of segments in which the airline industry has divided its customers(i)
(ii)
Segment in which the customers are willing to pay for better services offered by
the airlines. They can buy tickets even if the cost is high for better services
The second segment is the one in which the customers look for discounts and they
focus mainly on the fares rather than the services offered by the airlines. 25
3.3.2 Classification of Passengers in Indian Airline Industry
The passengers depending upon the price and time factor are broadly segmented into four
types.
http://www.researchomatic.com/Passenger-Airline-Industry45556.html#congrats
25
30
Figure 3.3 Classification of Passengers
3.3.2. 1Type 1: Sensitive to Time and insensitive to Price
(i) Business travelers who can pay high price
(ii) They need travel flexibility and last minute availability of seat is extremely important
3.3.2.2 Type 2: Sensitive to both Time and Price
(i) Few business travelers must make trip but are flexible to secure reduced fare
(ii) They cannot book far enough in advance to get the lowest fares
3.3.2.3 Type 3: Price sensitive and insensitive to Time
(i) Leisure and vacation travelers who are willing to change time and day of travel to find
seat at the lowest possible fare
(ii) Don’t care much about comfort
3.3.2.4 Type 4: Insensitive to both Time and Price
(i) Passengers who are willing to pay for high level of services
(ii) The segmentation of customers is done on the basis of their travels as leisure travelers
and business travelers. The business travelers are sensitive to time, their opportunity cost
of time is very high and leisure travelers have lot of time to choose the airline which offer
best service according to their budget.
The segmentation is also done on the level of luxury travelers want offered by different class of
airlines. This is done on the business class, economy class and premier class offered by the
airlines. Business and premier class are generally found in international airlines whereas
economy class is found in domestic airlines. Business class is the most costly and is suitable for
business travelers for whom price of ticket is not important. Premier class is cheaper than the
business class and is preferred by above middle class. Economy class is for people who belong to
the middle class and below it, who value for money and don’t care much about comfort.
31
3.3.3 Segments
The segmentation in Indian airlines majorly concentrates on the income factor of the people.
This is because there is a gradual increase in middle class people’s percentage year by year.
Figure 3.4 Segmentation of Indian Airline Industry
3.3.3.1 Low Cost Carrier (LCC):
Low cost carrier airlines have less fare and fewer comforts. They have low ticket prices and
limited services. Such airlines charge for extras like food, seat allocating, baggage, priority
boarding etc.
Ex: Spice Jet, Indigo, Jet Lite and Go Air.
3.3.3.2 Full Service Carrier (FSC):
Full service carrier airlines provide all types of facilities which make the journey comfortable.
The price of ticket is high. They provide extra in-flight services such as food and entertainment.
Ex: Jet Airways, Air India.
3.3.4 Market Segmentation of various Airlines
3.3.4.1 Market Segmentation of Indigo Airlines
Indigo’s market segment is mainly for cost conscious passengers and their target group is
lower middle class or middle class people who are conscious about the fares and are
concerned mainly about the price not services.26 It positioned it’s services on high
efficiency and nice experience, they differentiated their services in such a way that the
customers would perceive it not only as a low-cost carrier but also the one which is
affordable, hassle-free and efficient. 27
26
27
http://www.mbaskool.com/brandguide/airlines/388-indigo-airlines.html
http://pitchonnet.com/blog/2011/05/15/cover-story-indigo-flying-high/
32
3.3.4.2 Market Segmentation of Jet Airways and JetLite
They are concerned more about the services than the fares ,their segment is
mainly upper class people who are ready to pay any price for the services
provided. They have two segments business class and economy class. 28
3.3.4.3 Market Segmentation of SpiceJet
Indigo’s market segment is mainly for cost conscious passengers and their
target group is lower middle class or middle class people who are conscious
about the fares and are concerned mainly about the price not services. Their
services offered are well received by the customers. 29
3.3.4.4 Market Segmentation of AirIndia
AirIndia’s market segment is middle class people and their main aim is to
look towards the needs and demands of each and every customer and
provides them with the best fares with very good services as compared to the
other airlines.
3.3.4.5 Market Segmentation of GoAir
Indigo’s market segment is mainly for cost conscious passengers and their
target group is lower middle class or middle class people who are conscious
about the fares and are concerned mainly about the price not services. 30
3.4
OBJECTIVE 3
TO CARRY OUT THE PESTEL ANALYSIS OF THE INDIAN AIRLINE
INDUSTRY.
3.4.1 PESTEL ANALYSIS
Luxury , comfort and convenience comes in our mind when we think about airlines .The
airlines worldwide suffer due to the higher operating costs , lower profits and decreasing
margins. Radical restructuring can help the airlines revive its fortunes. PESTLE analysis
is used to analyze the current state of the airline industry.
http://www.slideshare.net/shubhraha/jet-airways-strategy
http://www.mbaskool.com/brandguide/airlines/538-spicejet.html
30
http://www.mbaskool.com/brandguide/airlines/387-go-air.html
28
29
33
Figure 3.4 Pestel Model
3.4.1.1 Political
The political environment of the airline industry is highly regulated this is because the global
aviation industry gives importance to passenger safety and so they have resorted to higher
regulations for the operation of the airlines. There is also deregulation on the supply side which
has lead to more competition among airlines and there is also regulation on the demand side
which means that the passengers and fliers can press for more amenities and low prices. 31
3.4.1.2 Economic
It is very difficult for the global airline industry to recover from the aftermath of the 911 attacks
and with this there’s also recession. The other reason is the fluctuations in the oil prices due to
the Second Iraq War and the sudden spike in the oil prices before the great recession of 2008.
Due to the global economic slowdown the airlines are struggling the main reasons being
declining passenger traffic, competition from low cost carriers , fuel prices being higher , labor
demands and high costs of maintenance and operating costs. Due to these reasons the airlines
have gone to heavy losses and have been prone to bankruptcies and closure because they could
http://managementstudyguide.com/pestle-analysis-of-global-aviationindustry.htm
31
34
not afford to profitably run their operations. This has lead to many mergers and acquisitions in
the airline industry. 32
3.4.1.3 Social
Social changes of a generation has lead to more demanding customers in terms of services so the
airlines have to balance their costs with their increasing demand. Customers are ready to pay for
the services provided and due to the Baby Boomer generation the airlines are loosing their source
of income. The profile of passengers have also changed there are more number of economic
passengers than business passengers who prefer improved communication facilities rather than
flying down to meet their business partners.
3.4.1.4 Technological
The airline industry uses technology extensively in it’s operations so they are often
recommended to make use of advanced technology for the front as well for the back office.
Mobile technologies need to be adapted for ticketing ,distribution and customer service. There’s
also a need of the social media to be leveraged by the airline industry.
3.4.1.5 Environmental
Passengers are counting their carbon footprint with climate changes entering the social
consciousness as the passengers are nowadays more environmentally conscious. This has forced
the airlines to adopt green flying and they are being more responsive to the concerns of the
environmentalists. The airlines are concentrating a lot on their CSR activities due to the social
responsibility initiatives becoming more pronounced. 33
3.4.1.6 Legal
The number of lawsuits against airlines from workers as well as the customers has gone up. The
regulations are also being strict with the airlines and they are coming out with new strategies and
they are bothered if the airlines are violating any laws. The each and every move of the airlines
are being scrutinized regarding the delays, safety issues and other fears.
http://managementstudyguide.com/pestle-analysis-of-global-aviationindustry.htm
33
http://managementstudyguide.com/pestle-analysis-of-global-aviationindustry.htm
32
35
3.5
OBJECTIVE 4
TO DETERMINE THE BUSINESS DIVERSIFICATION OF THE INDIAN
AIRLINE INDUSTRY.
3.5.1 BUSINESS DIVERSIFICATION
3.5.1.1 Introduction to Indian Companies
Business Diversification is a term, which means extension of business into disparate fields. In
this, we will have a close look on few of the companies or groups, which at present other than
running an Airlines company have any other businesses or is it a standalone company. The few
of the Airlines companies can be listed as follows:
3.5.1.1.1 Indigo Airlines:
This airline is the best Airline in the country both in terms of low cost & services. The
parent company of Indigo (InterGlobe Aviation) is InterGlobe Enterprises. InterGlobe
Enterprises was founded on September 13, 1989. Its headquarters is in Gurgaon,
Haryana. Other than Airlines its business is also diversified in other sectors such I.T.
(InterGlobe Technologies), Hospitality (InterGlobe Hotels), Travel (InterGlobe Air
Transport) etc. Indigo started its operation on 4th August 2006.
3.5.1.1.2 Spice Jet:
Spice Jet is a division of Sun Group, which is based in Chennai, Tamil Nadu. Sun Group
is one of the largest media network in the country. Other than Spice Jet, divisions, which
the company has, are Dinakaran, Sun Pictures, Sun TV, Red FM 93.5 etc. The company
also owns an Indian IPL team ‘Sun risers Hyderabad’.
3.5.1.1.3 Go Air:
Go Air is a part of Wadia Group which was founded in the year 1736 by Lovji
Nusserwanjee Wadia. The company also consists of three independent companies which
are also listed on Bombay Stock Exchange. These include: Bombay Dyeing- which
comes under textile industry, Bombay Realty- which deals with Real Estate & Britannia
Biscuits- a company which sells Biscuits.
3.5.1.1.4 Air India:
Air India is a standalone company, which is under Govt. of India. It does not have any
other business, which means it is completely into Aviation Sector. Its parent company is
Air India Ltd. The subsidiaries of the company are Air India, Air India Express (Cargo)
& Air India Regional.
3.5.1.1.5 Jet Airways:
Jet Airways is a standalone company, which commenced its operation on 5th May 1993.
It is the second largest Airlines in the country based in Mumbai. The subsidiaries of the
company are namely Jet Lite & Jet Konnect.
36
3.5.1.1.6 Kingfisher Airlines:
Kingfisher airlines is found in 2003 and commenced its operations from 9 may 2005. It
has its main hub in Bangalore International Airport and secondary hubs at Mumbai and
Delhi airports. Its parent company is United Breweries Group. Kingfisher Express is its
subsidiary. Kingfisher airlines also hold the franchise of IPL team Royal Challengers
Bangalore. So, it is a not a standalone company.
Table 3.2 Business Diversification
AIRLINES
Air India Limited
Jet Airways and JetLite
SpiceJet
Go Air
IndiGo
DIVERSIFIACTION
Standalone
Standalone
Standalone
Conglomerate
Conglomerate
37
3.6
OBJECTIVE 5
TO DETERMINE THE MERGERS AND ACQUISITIONS IN THE
INDIAN AIRLINE INDUSTRY.
3.6.1 Consolidation – Mergers and Acquisition
Since 1950s acquisition and merging has started and yet it is happening till now. It is obvious to
happen because these phenomenons always bring better competitive and technological strength
in the concerned business. Before the discussion of analysis of the Indian civil aviation it is
better to put a glimpse on the concepts of acquisition and merger.
3.6.1.1 ACQUISITION OF AIR SAHARA BY JET AIRWAYS
Air Sahara’s 100% shares were acquired by Jet Airways, on 20 th.April 2007 which was 15
months later the signing of the purchase agreement. Earlier this month, Air Sahara was taken
over for INR14.5 billion 34 by Jet Airways which was 35% lower than the initial deal. After
acquiring Air Sahara the name was changed to JetLite.
3.6.1.1.1 Minor Details of the Acquisition
Announcement Day – 20th.January, 2006
Place – New Delhi
Speaker – Mr. Naresh Goyal (CEO Jet Airways)
Closing Day – 21st. April, 2007
Place – New Delhi 35
3.6.1.1.2 Events after the Acquisition
The Jet- Sahara Acquisition posed some important challenges, with the increase in the
short
term risks of the carriers. Also, Jet had no margin for errors and had to focus on Air Sahara.
Following points are of importance in relation to the acquisition:
(i)
Fleet
The achievement of fleet efficiencies was not easy for Jet Airways. There was a mixture
of Air Sahara’s B737 classic aircrafts and also some of them were quite old. Also the
fleet operation was from different types of engine.
The first thing Jet needed to do was to fully utilize the operations of the fleet. What the
Jet Airways did was that they replaced the Sahara’s CRJs with ATRs with were common
34
http://capaindia.com/PDFs/Jet-Airways-May-07.pdf
35
http://nrao-m-a-handbook.blogspot.in/2007/09/acquisition-of-air-sahara-by-jet.html
38
for them. Also they needed to achieve efficiencies in costs through common maintenance
of both the B737 and ATRs.
Table 3.3 Fleets: Apr-07
JET AIRWAYS
B737-300
SAHARA
COMBINED
(JETLITE)
2
2
B737-400
6
3
9
B737-700
13
7
20
B737-800
28
7
35
B737-900
2
2
7
CRJ-200
7
ATR-72
8
8
A330-200
2
2
A340-300
3
3
TOTAL
62
26
88
Source: Centre for Asia Pacific Aviation
(ii)
(iii)
(iv)
36
Staff
New corporate structure was needed to be made by Jet management, rationalization of
the workforce and also to integrate a deal between both the carriers. An employee
which was not required by one was taken over by the other, as the two had made a
commitment that the employees won’t lose their jobs as a result of the deal.
Network
Jetlite was the only carrier which was given permission for operating internationally, in
spite of the condition that a carrier must be 5 years in domestic flying.
Financing
Jet Airways funded the take-over through $450 million of promoter’s equity 36. The
amount which was to be paid to Sahara was given in all cash.
http://nrao-m-a-handbook.blogspot.in/2007/09/acquisition-of-air-sahara-by-jet.html
39
Thus it can be said, that this acquisition led Jet Airways in cost reduction scope and capacity
expansion without compromising in excess expenses. This largest acquisition also led Air Sahara
in relief of debt. And all above Indian economy was looking forward in better position due to
new cash flows in airlines and purchasing new aircrafts.
3.6.1.2 MERGER OF AIR INDIA AND INDIAN AIRLINE
The merger of Air India and Indian Airlines was approved by the government of India in the year
2007. The two airlines are merged into a new company called National Aviation Company of
India ltd. The merger entity will operate its flights under the brand name ‘AIR India’. It operates
its flights on the domestic as well as international sectors. Now Air India has a combined fleet of
112 aircrafts37.
3.6.1.2.1 Aim of the Merger
Following are the reasons why the acquisition took place:
(i)
Create the largest airline in India compared with other airlines.
(ii)
Provide an integrated service of both international and domestic that will enhance
customer proposition.
(iii)
Use the resources optimally without incurring extra cost.
(iv)
Provide an opportunity to use the employees with the optimum potential.
(v)
Enable routes rationalization and eliminating of unprofitable routes by offering
more competitive price.
(vi)
Potential to launch new business that gives profit.
37
http://pib.nic.in/newsite/erelease.aspx?relid=30435
40
Fig 3.5 Pre and post merger profit and loss
3.6.1.3 MERGER BETWEEN KINGFISHER AND AIR DECCAN
Kingfisher airline was established in 2003 by the United Breweries group of Bangalore. It started
its commercial operations in 2005 from Mumbai to Delhi and also started its international
operations with London.
United Breweries Holdings Limited (UBH) took over Deccan Aviation Private Limited (DAP)
by 26% stake on May 31, 200738, owner of Air Deccan which was known as a low-cost airline in
India. 5.5 billion Was39 paid by UBH making it a largest holder of DAP.
3.6.1.3.1 Post merger situation
Following are the results after the merger(i)
(ii)
(iii)
(iv)
The combined airline was now India’s largest domestic airline with a fleet size of
71 aircrafts40.
537 flights to 69 cities41 were offer by the new airlines.
The market share was 30% for combined airline, which made them the second
largest in the country.
After the merger the Kingfisher is focusing on international routes and Air
Deccan in domestic areas.
38
http://ibef.org, December 14, 2006
39
www.centreforaviation.com, March 7, 2007
40
"Kingfisher-Air Deccan: Different, Yet Similar,"The Hindu Business Line, June 01, 2007
41
www.livemint.com, June 04, 2007
41
(v)
(vi)
The Air Deccan is continuing its operations as a low cost carrier while
Kingfisher as a full service carrier.
The Kingfisher can save a lot of operational cost. It helped them to expand its
services internationally. They can reduce their maintenance cost. If they manage
their routes which are more profitable with low fare then they can attract more
passengers.
3.6.1.4 TATA JOINT VENTURE WITH SINGAPORE AIRLINES
Tata sons are a holding company of Tata groups. As FDI in aviation industry is up to 49% so the
Singapore airlines ventured with Tata with 49% share and Tata with 51% in full services carrier
groups in Air Asia 42.
Indian conglomerate Tata group and Singapore Airline planned to set up a new full service
airline in India. The two companies plan is to invest 100 million initially in the new airline. Tata
own 51%and Singapore airline owns 49%. Due to the losses in Indian Aviation industry it
opened to foreign investments last year.
Singapore airline is Asia’s 2nd biggest carrier by market capitalization. The FDI of 49% allowed
is to provide an opportunity for the foreign investor to invest in domestic carriers. It will increase
the growth of aviation industry.
The investment is happening in India at appropriate time. By this the investors will show interest
in investing in Indian market. This should be approved by different agencies like DGCA, tax
department etc. to commence their operation.
3.6.1.5 TATA JOINT VENTURE WITH MALAYSIAN CARRIER AIR ASIA
Malaysian low cost carrier Air Asia entered into the aviation sector of India. As FDI increased
from 26% to 49% Malaysian’s Air Asia decided to take a venture with Tata son’s ltd and Arun
Bhatia’s Telstra Trade Place Pvt Ltd. Tata sons will hold 30% in the joint venture and Hindustan
aviation of the Bhatia will hold 21% stake 43.
It is the first investment in the airline industry after the FDI is allowed Air Asia said that it
should start its operations from Chennai and focus on connecting to Tier-2 and Tier-3 cities.
The three partners signed the agreement and gave the proposal to the Indian government. It
should evaluate this agreement and believe that the investment will produce better results. The
government strongly believes in introducing low cost carriers that will stimulate the growth in
the market. They are trying to focus on the cost structure which will benefit the Indian consumer.
42
http://www.livemint.com/Companies/PA3J9VHjGRWPNYKT3mlV2K/Tata-Group-Singapore-Airlines-incorporateairline-venture.html
43
http://www.thehindu.com/business/Industry/airasia-ties-up-with-tatas-to-start-airline-inindia/article4435684.ece
42
3.6.1.6 JET AIRWAYS AND ETIHAD AIRWAYS DEAL
Etihad airways took 24% stake of Indian Carrier Jet airways for $379 million44. Etihad airways
currently operated to 9 Indian destinations with a total of 59 flights per week.
Following are some of the important points related to the deal(i)
The deal will create a network of 140 destinations.
(ii)
The passengers of Jet Airways will gain a direct access to global network from 23 cities.
(iii)
New fights will be introduced by Jet Airways from Hyderabad and Bangalore.
(iv)
Jet Airways position will be strengthened by the investment of US$600 million 45.
3.7
OBJECTIVE 6
TO DETERMINE THE INTERNATIONAL EXPOSURE OF THE INDIAN
AIRLINE INDUSTRY.
3.7.1 INTERNATIONAL EXPOSURE
In recent times we can see there is a great expansion on international operations by the domestic
players. We even have many transactions related to imports like mainly the fuel and spare parts
of aircrafts.
3.7.1.1 Airports Authority of India
The Airports Authority of India (AAI) has been involved in various consultancy projects with
countries like Afghanistan, Libya, Algeria, Maldives, Yemen, Nauru, Mauritius, Tanzania etc. It
also provides trained personnel for operation, management and maintenance of airports in these
countries.
3.7.1.2 Aviation Turbine Fuel
Direct import of Aviation Turbine Fuel (ATF) was permitted by the union budget 2012-13 for
Indian carriers as actual users. At present the airlines buy ATF from oil marketing companies
which is subjected to sales tax varying from 5% - 30% depending upon the state. On average
airlines pay 22-26% sales tax on ATF for domestic operations. With the option to import directly
the taxes on ATF will reduce as they will have to pay only import duties and they can exempt
from paying sales tax. Thus it will result in large savings for them.
44
http://www.jetairways.com/EN/JP/PressReleases/JetAirwaysEtihad.aspx
45
http://www.jetairways.com/EN/JP/PressReleases/JetAirwaysEtihad.aspx
43
3.7.1.3 Leasing of Aircraft
Airlines lease aircraft from the leasing companies for the following reasons:
(i)
To reduce the financial burden of buying the aircraft
(ii)
To provide temporary increase in capacity
There are three types of leasing:
3.7.3.1 Wet Lease:
In wet lease one airline (lessor) provides aircraft, crew, maintenance, and insurance
(ACMI) to other airline (lessee), which pays by hours operated. The lessee pays for the
fuel, airport charges and other duties, taxes etc. It lasts for one month to two years. It is
normally used for short term leasing.
3.7.3.2 Damp Lease:
It is a wet lease in which the lessor provides aircraft, maintenance and insurance of the
aircraft but does not provide the aircraft crew.
3.7.3.3 Dry Lease:
In dry lease the lessor provides only the aircraft and does not include crew, maintenance
or insurance. It requires the lessee to put the aircraft on its own Air Operator Certificate
(AOC) and also provide registration for the aircraft. Its average tenure is more than two
years. It is normally used for long term leases.
3.7.4 Leasing Foreign Registered Aircraft to Indian Operator
If an Indian operator wants to take a foreign registered aircraft on lease for a person holding Air
Operator Certificate (AOC) issued by another state, then it should provide following information
to DGCA at least 45 days before the proposed date of operation with the aircraft:
(i)
Name and contact information of the Indian operator
(ii)
Name and contact information of lessor
(iii)
Aircraft details
(iv)
AOC of the lessor
(v)
Contact information of the state of registry
(vi)
Proposed date of import in India
3.7.5 Leasing Indian Registered Aircraft to Foreign Operator
If an Indian operator wants to give an Indian registered aircraft on lease to a foreign operator
then it should provide following information to DGCA at least 45 days before the proposed date
of operation with the aircraft:
(i)
Name and contact information of the Indian operator
(ii)
Name and contact information of lessee
(iii)
AOC details of lessee
(iv)
Aircraft details
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(v)
(vi)
A copy of letter of intent
Proposed date of export from India
3.7.6 Import of Spares & Tools/Equipment’s
Imports are made under the specifications provided by the regulatory body DGCA, which are
listed below.
(i)
The new spare parts for aero planes and helicopters can be imported freely
without recommendation of DGCA
(ii)
Repaired / overhauled / reconditioned second hand components may be imported
by organizations approved by DGCA under and on the recommendation of DGCA with
valid documents
(iii)
For importing tools / equipment required for maintenance of aircraft the importer
should obtain a no objection certificate from DGCA
(iv)
According to the union budget 2012-13 the government has granted full
exemption of basic custom duty and countervailing duties (CVD) on aircraft spares, tools
etc.
3.8
OBJECTIVE 7
TO IDENTIFY THE TECHNOLOGIES USED IN THE INDIAN AIRLINE
INDUSTRY THOSE PLAY A STRATEGIC ROLE IN ITS
DEVELOPMENT.
In the last decade Indian aviation has achieved tremendous growth, but many things which are
important for passenger travel were unchanged. To remove these new efficient technologies had
the ability to transform travel satisfaction to consumers in three years. There are new
technologies like:
1. RFID tracking of bags as well as flights which are tracked through GPS.
2. Self-service kiosks,
3. Social media for increasing sales,
4. Using mobile as medium to book tickets, check flight status, etc.
5. Using biometrics for employees for proper quality as it will help the customers to have a
hassle free travel experience by giving custom options depending on the customer’s
choices.
Environment in the airline industry needs to be secure loyal consumers and make more sales by
being more efficient. Such technologies are being implemented to promote vibrant and consumer
friendly airline industry. New technologies in the industry are strategies have a high weight age
which brings different engagements for passengers form consumers and company’s point of
45
view. Reducing pollution through cutting edge technology to create new engines for the aircraft
will also help the planet and reduce the CO2 emissions.
In the past 50 years many technological developments have been done to convert natural gas &
coal to generate liquid fuels. Technologies like CTL have been long gone, now new
technological developments have been made but they are more expensive presently, it converts
crude oil in to jet fuel i.e. kerosene, it gives a future possibility to continue utilizing now
renewable resources in the aviation industry. Numerous companies in this industry are trying to
perfect this conversion technology to optimize the resources available to generate jet fuel.
Air traffic management programs are very sophisticated computer systems which does the job of
managing huge sets of flight data.
Programmes like NextGen in US and SESAR in European continent are still being developed
for air traffic management for better control in the flight traffic to make it more efficient.
NextGen system will start and will be fully functional from 2012 to 2025 whereas SESAR will
be functional in between 2014 and 2020.
Many technical improvements are being done by the airline companies to their aircrafts to utilize
the carbon abatement. They are using lightweight materials during manufacturing the parts of the
aircraft like seats, frame of the plane, manufacturing fuel efficient engines. Due to lack of crude
oil due less supply and huge demand for oil the price of the fuels are on the rise all the suppliers
in the industry are trying to exploit all the possible technological improvements to improvise the
aircraft performance as it will help in reducing the cost for their target consumers which will help
the companies to have an edge in the competitive market.
Implementing more lightweight materials fuel efficient engines for the jet have been taken as an
opportunity through technical improvisations. Usage of light composite materials in the plane
has given us an opportunity to retrofit the existing aircraft and also build a new one to, but it has
a downside of being more expensive and very few places the composite parts can be fitted but it
gives a very low gas of greenhouse emissions. This new technology is the promising future for
the aviation industry as new Boeings can be building.
Engine manufacturers of jet plane are constantly developing efficiency in fuel usage for the
aircraft. As the emission are directly connected to the engines of the plane new ways for
improving this engines is been developed like advance designs of turbofan and a new material
called ceramics are used as its light in weight.
In many instances the NextGen customers prefers technology over human interface and is more
comfortablewith new technologies. But human touch points for interaction with customers need
to kept available in the future too as many new customers would prefer both. As most of the
people have android or smart phones with them the scope of using these phones for core services
shows a huge potential if the airline companies have dedicated apps for the same, but this
initiative is at the beginning stage and has a long way to go in the future. The younger
46
generations who are the tech savvy customers of the future are attracted through social sites, so
the companies have capitalize this opportunity and engage more advertisements in the social
platform media. Social media platforms bring out the best and the worst influence which will
directly impact the brand image of the company. Customers want to enhance their travel
experiences by having Wi Fi feature while travelling, on time streaming of videos to their mobile
devicesthere will be considerable shift in accordance with the relationship with customers by the
year end on 2015 which brings out the need to implement improves BI systems.
It is now plays a strategic role in the airline industry Airlines shouldfocus on how they can turn
such features not simply into a point of competitive differentiation but to generate ancillary
revenue.
3.8.1 Technologies Used
They planning to include automation in the service delivery by technology like automatic
3boarding, kiosks, self-bag drop, mobile applications, etc. as self-service is the new best
initiative which will grow tremendously if they are coordinated well.
3.8.1.1 Cloud Computing: Today the Indian aviation members is not fully using Cloud
computing, but they know they need to adopt as the aviation industry players are going global
and every member is adopting it slowly, benefits of this cloud computing is it will reduce the
cost and managing backups will be easy which will help in creating better solutions
Figure 3.6: Benefits of Cloud Computing
Source: CAPA SITA Report 2013
47
3.8.1.2 Out sourcing
Outsourcing the activities which are not core ones should be offloaded by the Indian
airliners.
Most airlines stated that cost cutting has given many benefits as it was refers.
Figure 3.7: Benefits of Outsourcing
Source: CAPA SITA Report 2013
3.9
OBJECTIVE 8
TO IDENTIFY THE MARKETING INITIATIVES USED IN THE INDIAN
AIRLINE INDUSTRY.
3.9.1 Growing LCC Market Share
(Marketing Strategies & Service Excellence For Low-cost Airline in India)
In the year 2013 January, spice jet came with unimaginable marketing strategy to sell its seats at
a very low price. The seats which were offered are as many as 1 million. The cost of each ticket
one way was Rs. 2013. Incidentally the cost which they offered was same as the year. Jet airways
released almost 2 million seats with a low cost. They have divided these one way travels into
four slabs basing on the distance it is covering. The offered is valid for both jet airways and its
subsidiary no frills of Jet Konnect. Tickets which are being purchased during this period of these
6 days will be valid till December 31 st and the passengers who bought these tickets can fly any
day during the valid period. Jet airways has generated a massive response .Most of the customers
couldn’t access the site for most of the day. Because of this the visitors were unable to book the
tickets. Expecting low price seats with necessary quality of service are one of the expectations of
the customers. Customers expect the service encounters to be simple and easy like procedure to
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book tickets, timely departures, no unnecessary problems while check in. Hassle free delivery of
belongings like bags. This nationwide low fare service is considered as a goodwill gesture to
their loyal customers as they book their tickets in advance before the holiday season. Popular
website called Makemytrip.com came to decision by observing that the discount fares will make
people travel even they haven’t planned a trip by then. So these offers will boost their revenues.
This strategy has brought in different comments from different quarters. The CEO of CAPA,
Kapilkaul said that there is lot of appetite for Indian low fare airline market and other airlines
will follow suit. This strategy of giving low fares to its customers are not given to the entire
passengers on the flight. Itsbeen given to very few seats on the flight mostly during off season.
This is like a boost to the airline industry. spicejet did a very good move as it will help in
stimulating the market because generally February to April is a lean period and you want to
stimulate the market and by selling seats at this lean period they could earn more profits and the
actual season starts in may
Indian airlines came with the same marketing offer called ‘jaldejalde’. This offer was in
November 2012, this also improved the revenues of Air India and Indigo cut its fares at that
time.
Experts claim domestic budget carriers will not be able to recover the money or cost incurred on
each seat, As Spice jet and Jet airways has slashed away prices, Indigo and Indian airlines had no
other options but to reduce the prices to similar destinations routes. The DGCA official has less
say on the changes of fares asit’s not their job to tell them and they are not interested in
interfering with the offers which the airline companies but they are concerned about the long
term side effects of keeping the fares low as it might affect the airline companies
Aviation ministry is now concentrating on fixing a limit to these low line air fares. Yatra.com has
multiplied five times because of this reduction in air fares.
Low fares will boost the airline industry as it will increase the sales as well as the profits in the
long term which shows a lot of scope for making big money for the airlines. There is one more
reason for these discount offers because these airlines are not making profit for the last 2 years
and there is increase of 50 percent in the aviation fuel. There will be a definite increase in
passenger traffic because of this and there was a drastic decrease in passenger traffic in the year
2013 made these airlines to take this decision. Some customers need to opt for only those airlines
irrespective of the fares charged as they don’t have a choice to select other airlines due
emergency factors. The other strategy which the airlines used is to fill the seats which come
under the weaker routes where it is tough to fill the seats.It is an excellent strategy and it is time
when airline companies are going into smaller cities and these type of offers will promote the
airlines and will increase the loyal customers which is very important for these airlines and there
is no better way for promoting for these airlines.
49
This marketing initiative will boost the airline industry as there will more increase in the airline
traffic and this will help airline companies with having instant cash which is very important for
any industry. The future of these airlines industries looks promising as there will be increase in
loyal customers for these airline industries. In the year 2014 Indigo airlines are leading the
largest market share among the LLC in India, they provide value for money services towards its
consumers. Indigo Airlines is equipped with aggressive airline fleet and plans for expanding their
reach to its customers. They follow the marketing strategy by utilizing several channels of
communication like social networking sites, internet, and travel sites to generate awareness about
their brand in the market. They also connect with their customers through mobile applications by
giving flight information, many airliners have now also started with M- ticket too Customers
agree that the company has earned the distinction of on-time performance and consistent basic
and desirable services. special efforts of the staff to address minute details and keep the customer
satisfied, innovative modes of communication with the customers and attractive fares – all have
made Indigo a LCC of choice for thousands of travelers each day. Indigo airlines became the
market leader due to their constant increase in size of their fleet and connection of more routes in
domestic as well as international routes .Its success lies in its “on-time hassle-free” service motto
together with its clear business strategy.
3.9.2 Marketing Communication
Differentiating with other competitors in the industry can be done through different ways, first is
by creating a brand and developing it and it can be done by implementing new services which
are specialized in nature but they have to make sure that this service offerings are informed to its
target customers. Generating this services and showcasing them through constant marketing
strategies towards its customers will create awareness and positive word of mouth will be
channeled properly creating loyalty to its brand. Creative interface on the airline company’s
website which will show all the service provided by the airliner and giving the customers the
opportunity to use technologies like mobile applications and tablets. Social networking sites
generate a lot of traffic of users which makes it one of the main places for promoting one’s brand
through advertisements, campaigns, etc. which will create a buzz around the internet as the
information travels fast even though its good or bad information. Marketing one’s product and
service should be done through various channels and make sure the promotional activities are
kept on going at regular intervals so that the customers retain the information. One can do this by
print media hoardings ate prominent locations.by participating in shows, sponsoring the shows,
etc. Customer delight can be achieved by using low promotional fares by focusing on customers
using direct mail, Email’s, mobile communication. The core values of the company shows their
exact marketing style as it shows their offerings to their customers.
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3.10 OBJECTIVE 9
TO IDENTIFY THE TRENDS IN THE CIVIL AVIATION INDUSTRY PROJECTING
THE FUTURE SCENARIO.
3.10.1
Introduction
In this report we excel about the opportunities of India's aviation, and present its future blueprint.
The present situation of Indian airlines reflects some facts about their future environmental
conditions. Here we can predict some cases where the airlines are going to face some tough
challenge in running their operations.
The CAPA (Centre for Aviation and Air Transport) forecasts that Indian aviation will be the
third largest industry by 2020.evary year 452 million passengers will travel and 1030 aircra fts
will be on the fleet. The aggregate value of investments will be of $120 billion by 2020, from
which $80 million will be spent on new crafts. Investments would be the key factor to
accomplish the challenges of growth. Technology, innovation may be helpful to meet the
expected growth, but it is strategically unimportant.
They contribute in increasing the speed of the sector. Operational efficiency, cost reductions,
customer experience enhancement are the key drivers for investments. Investment in skills and
infrastructure are necessary to meet the growth challenges.
Maneesh Jaikrishna, Country Director - India and Subcontinent SITA, said: "SITA is acting like
a catalyst in the innovations of aviation since 60 years. As the world's leading specialist in IT
solutions and air transport communications, we look forward to continue to work with the Indian
aviation industry and the Government to motivate innovation during this tremendous period of
change and transformation."
Kapil Kaul, CEO CAPA India, said: “Today technology has the enough potential to become
more pervasive and transform the airline’s operations, border control, service providers and
airports. The industry can utilize technology not only for cost efficiencies and functionality
purposes, but to enhance customer’s experiences, security improvement and develop a new
stream of commercial revenue."
3.10.2 Prevail of critical uncertainty
Indian aviation is in its great uncertain phase since a decade. An estimated loss of US$2 billion
by the end of 31st March 2012. Indian aviation is going to face an equally challenging years
ahead. Increase in operating costs, uncertainty in regulation, Indian economic conditions and a
typical global environment will pile the burden on airlines, mainly the poor performing airlines.
Anyhow, this may even create some market opportunities to the other players to exploit as they
are better positioned.
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3.10.3 Jet Airways to Be Primary Beneficiary of Market Dynamics
Jet Airways is the largest and most beneficiary among all the airlines, despite of the troubles
faced by the kingfisher and Air India. The kingfisher’s contraction from 66 to16 operational
aircraft, in which regional ATR aircraft, has given the opportunity to Jet to expand its market in
domestic field. In addition the industrial action taken on international routes (long haul) has
surrendered North American and other traffic to Jet Airways.
The increase in yield (10‐12%) in Q4 of FY12 is quite substantial evidence to claim that, the flying
capacity of Air India and kingfisher is declined to a great extent; it is estimated to12‐15% in Q1 of
FY13 i.e., current year.
3.10.4 Industry is ready to face a Cost Environment:
(i)
Fuel prices
Rising fuel costs have a direct impact on the airfares of the airlines industry. The passengers
ultimately have to face the impact as and when the fuel costs rises, it leads to increase in the
airfares of the flights, which the passengers pay. When the prices of the fares increases
people may tend to take alternate transportation rather than flying through Airplanes.
(ii)
Weak currency
Rupee depreciation, which has declined by more than 20% in the last 12 months, resulting in
pushing the prices and costs of mandatory requirements such as Aircraft leases, fuel, offshore
interest obligations ,maintenance etc.
(iii)
Airport charges:
A 334% raise in charges has been approved by the regulatory at Delhi Airport, with even a
higher rate of up to 500% is expected at Mumbai airport. Combination of these it is most
likely to have an impact of increment (15-20%) of Delhi‐ Mumbai fares. which can show a
negative impact over the air traffic. Rise on airport fares can be expected to get introduced at
other airports such as Kolkata and Chennai to fund the modernization programs.
(iv)
Service tax
The service tax extension on the fares of economy class to a certain amount adding of
percentage causes rise in all the levels of impost in most of the sectors.
3.10.5 Motto for Greenfield Airport Development
There is a need for the new airport constructions in India so as to meet the demand of the traffic,
which is growing day by day exponentially. Infrastructure should be an unabated in case of India
to achieve the potential in long term perspective. Here comes the question of appropriate sources
of funding large scale CAPEX is required in order to fulfill these requirements.
The present model public and private combination or partnership which has been adopted for
modernizing of Hyderabad, Mumbai, Delhi, and Bangalore resulted in good improvement of the
infrastructure. But there is a political backlash behind every projects held by the government.
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3.10.6 Jet Airways to lead long haul expansion by Indian carriers
The suspension of the kingfisher’s operations has given an opportunity to the other airlines like
Jet Airways to fill the gap with its functions. The ongoing industry action of Air India also
helped jet to take over their market. Apart from increase in frequencies of the existed destination
in Southeast Asia and Gulf there is other routes which are considered under evaluation.
(i)
Asia: Beijing, Shanghai, Ho Chi Minh City.
(ii)
Europe: Frankfurt, Amsterdam, Paris, Munich and Rome. Frankfurt and Amsterdam
are main routes that to be considered.
(iii)
USA: Washington, Chicago, and San Francisco
(iv)
Pacific: Sydney is also considered.
3.10.7 Expected Increase In Passenger Number in FY2014
In FY2014 there would be an expected expansion of 4-6% in domestic traffic, which contributes
to cross the 60 million numbers. The movement of people due to the state elections and general
elections also can be a factor in this growth or expansion. The possible entry of Air Asia during
this financial year will also reflect its effect in terms of growth in air traffic .
Table 3.4: Passenger/Cargo forecast till 2016-17
Source: Airport Authority of India
53
3.10.8 The pace of International Traffic Growth is twice that of Domestic
There is an expected rise in international traffic by 10-12% which is twice when compared to
domestic. This can be due to expansion of Indian carriers and an expected grant for some foreign
carriers as bilateral entitlements. Low Cost Carriers are majorly driving this growth. Spice Jet
and indigo are playing merely near and almost closer to the breakeven point on their overseas
operations.
Table 3.5: Market share of International Passengers Carried by Scheduled Domestic
Carriers from India & Foreign Carriers (%)
Source: DGCA; Analysis: MoCA
3.10.9 Outlook of Profitability by FY2014
Below is the chart which gives the figures of expected profit of 250-300 million USD by
FY2014.
Figure 3.8: Expected Profits in 2014
Source: CAPA FY2014
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3.11 OBJECTIVE 10
TO COMPARE THE INDIAN AIRLINE INDUSTRY WITH VARIOUS
INTERNATIONAL AIRLINE INDUSTRY.
3.11.1 Comparison of Indian Airlines with Other airlines
The below mentioned comparison is made based on Fleet Size.
Figure 3.9: India’s Current and expected future fleet
Source: CAPA - Centre for Aviation | Week starting 31-Mar-2013
Figure 3.10: Unites States Current and expected future fleet
Source: CAPA - Centre for Aviation | Week starting 31-Mar-2013
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Table 3.6: Comparison with USA and Other Countries
3.11.2 Comparison of Airlines based on PAX (Passengers):
The below mentioned table provides information on the market share of major airlines
across the globe based on the number of passengers that travel with these airlines.
Table 3.7: Foreign Carrier’s Pax market shares in International Routes (FY10 DATA):
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3.11.3 Comparison of Major Airlines across the GLOBE
Foreign airlines enjoy 65% share of the world air travellers.
Table 3.8: Key operating indicators and valuations for the Global Airline Industry- Full
Service Carrier
57
3.11.4 Comparison on some Key Indicators
The below mentioned table provides information based on comparison made on the basis of
some key indicators such as:
(i)
Market Capital
(ii)
Sales
(iii)
Net Profit
(iv)
Return on Equity (ROE)
Table 3.9: Key operating indicators and valuations for the Global Airline Industry- Low
Cost Carrier
3.11.5 Conclusion
In aviation industry segmentation is done mainly as low cost carrier (LCC) and full service
carrier (FSC) airline. LCC has less fare compared to FSC. LCC provides fewer comforts whereas
FSC provides all types of comforts. FSC is preferred by business travelers and LCC is preferred
by leisure travelers, middle class etc.
To analyze both internal and external factors this is very important. The performance of a
company should depend on the internal environment that is inside the company. We cannot
control the external factors but it will influence the company performance. To evaluate the
strengths and weakness of the business through external environment this is done. For every
business these factors will vary.
Diversification in business not only acts as a key tool for survival but also like an option to
enhance a rapid growth. Airlines are using many ways of diversifying their business. Some of
them are adding some product lines and some are even trading under different brand names apart
from parent brand.
The main thing to remember in diversifying the business is that the main business should do well
and should be seen it sustains and supports further extensions. Planning is very much important
in this case because launching something outside the existing customer base is always a riskier
part to practice.
For the growth of Indian aviation sector this mergers and acquisitions take place. But the airlines
of India are not successful of these mergers they want to be competitive with others and want to
fly internationally. For these reasons they are going with this. The competition among the full
58
service carriers and low cost carriers give problems on cost and maintenance etc. The companies
should think before going to this decisions that will give profit to the company’s or not.
The government is also working towards the welfare of aviation industry in India. According to
the union budget 2012-13 the government has permitted direct import of Aviation Turbine Fuel
(ATF) and has also exempted custom duty on aircraft spare parts. Also the Airports Authority of
India is involved in some doing international projects in other countries. So overall it is a good
sign for the Indian aviation industry.
All the players of airline industry are coming up with their own techniques of branding,
marketing, and advertising. The target is to maintain their customer base and even attract more to
increase their market share. Sustainability is the main motto of any business particularly in a
competitive market and to support it they need to constantly innovating and marketing
themselves in an absolutely effective manner.
The above forecasts will help the airlines industry in directing them towards achieving their
positive opportunities and to be aware of the future consequences due to their present actions,
which may make them to run them into losses.
The profitability opportunities and growth orientation in air traffic is forecasting a positive
environment to the private players mainly until they are capable of grabbing these unused
opportunities.
There are many parameters on which the aviation sector can be compared to other companies in
the world, it is visible that the Indian industry has a huge potential to grow and the government
needs to be broad-minded while making the policies for the aviation industry in India. Also
Indian aviation companies are becoming almost competitive to the foreign companies and are
getting geared up for the extensive international competition.
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CHAPTER 4:
CONCLUSION
60
4.1 OBSERVATIONS
This report has been extracted from the keen observations of the industry. To brief the report, we
have some observations that tell about the industry situation and its necessities. Some of the
observations are as follows:
(i)
There is a demand to increase the FDI flow into the country, to run the operations.
(ii)
The readymade future for acquisitions and mergers.
(iii)
Due to the reason increase in travel expenses the tourism and the hospitality sector is
undergoing huge pressure.
(iv)
The business people and delegates opt for other source of communication like video
conference in order to escape the travel alliance burden.
(v)
In the domain of competition the air traffic is not at all considered by the airlines.
(vi)
There is a huge rise in expectations due to the rapid growth.
(vii) The variation between profit and the revenue is large.
(viii) Uneven allocation of routes and illogical pricing of fares.
4.2 RECOMMENDATIONS
There are some recommendations which can be followed in order to rule out the cons in the
industry. These recommendations are meant for the improvement of the industry in retrospective
approach.
(i)
Should concentrate on reducing the ticketing costs by implementing the front
operations effectively.
(ii)
The routes must be optimized to the possible extent and the logistics as well.
(iii)
Upgrading of airports is already in a process and must be observed it will be a
continuous process.
(iv)
The air traffic must be handled effectively.
(v)
Packages with value added services must be rendered to the customers.
(vi)
The turnaround times must be improved for maintenance purpose.
(vii) Baggage clearance charges should be checked so as to increase the efficiency of the
fuel.
(viii) The lean organization approach is advised to follow for the operational advantage
(ix)
Liberalization should be still increased and generalizing the budget model is
advisable.
The above are the observations and the recommendations that are made to diagnose them. We
expect the Airline industry to come across the barriers and fly high.
61
REFERENCES
(i)
Retrieved from http://www.ibef.org/industry/indian-aviation.aspx, last accessed on
March 16, 2014 at 01:00 AM IST.
(ii)
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88886&_afrWindowMode=0&_adf.ctrl-state=55558d2lz_89,.Retrieved from
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88886&_afrWindowMode=0&_adf.ctrl-state=55558d2lz_89.
(iii)
ICRA (2012) INDIAN AVIATION INDUSTRY: Through turbulent times, FDI
relaxation alone not a game changer, Report March
(iv)
DGCA (2013) http://www.dgca.nic.in/reports/rep-ind.htm
(v)
FICCI (2013) Indian aviation: Spreading its wings, Report February 2013
(vi)
www.aai.aero
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(ix)
Prabhakar B. (2013), http://articles.economictimes.indiatimes.com/2013-0310/news/37581684_1_low-cost-airline-low-cost-carriers-airasia- s-india, Retrieved
from Published on 10th March 2013
(x)
Economic Benefits from Air Transport in India (2011), Retrieved from
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(xi)
Sanjai P.R. (2013), Tata-Singapore Airlines deal to help aviation sector in long run,
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