1

p a>* -

Case 5

A ir Charters: T h e P ath Ahead

J t O T l N a O A N G . M A N JL S H A K a U . A S t t U B I I A M N a T X

A s the industry matures. U g h w lu e services o fyester year g et commoditized. The m arket expands b ut new segm ents often span boundaries. The low cost challenge and the convergence o f regim ents change the m arket cluiraclentics. The com petiliie policies m ust b e conilnttottsly reassessed and renew ed to m anage the inlotility.
T h e M D o f A i r O ia rter* is sitting in her office, facing the A ra b ia n Sea. thinking about the future strategic m o ve fo r her com pany. A i r O w n e r s L id ., a part o f the G o T r a v e l G cuop. provides aircraft ranging fro m helicopters to business je ts to c o m m e rc ia l sized airlin e rs f o r corporaaes. g ro u p travelers, a n d w d r i d a a li 10 the w o rld . A i r C h arters is u n m a ic h c J w it h its access to n early S O destinations m India a n d m an y m ore for im r m a tional tfc m u a tw m w ith logistics back u p from

lauch an L C C o r should it be the first m ove r in I .C I . C segment in India?

IN T R O D U C T IO N T O TH E IN D IA N A V IA TIO N INDUSTR Y
In India, fo r m an y years, air travel was p c rc e iv iil to he an elitist a ctivity. T h is v ie w arost fro m the M aharajah syndrom e w here, due to tlv* pn4nhittve cost o f a ir tra ve l, the o n ly people w h o c o u ld afto nl it w e re the ric h and the p o w e rfu l. I n recem years, h ow ever, this image o f c iv il aviation hns undrryoa.* a change a n d a v ia b o n is n o w v ie w e d in a different fight a s a n c w r s r n I lin k not o n ly fo r .aacnutioual travel a n d trade b u t also fo r p ro s id fo g connect iiy to * dtffcTcat parts o f the r n a n trj. A v ia tio n k . b y its v o y nature, a c ritica l part o f the infrastructure developm ent o f to urism and trade, the openin the up of c o u n try a n d has im portan t ram ificatio ns f. r the inaccessible areas o f the co u n try a n d f o r p n ^ t l i f stim ulus to buasnesa a ctivity a n d eco n om ic grow th U a til the 1990s. all aspects o f aviation in India w ere firm ly controlled b y the governm ent, la t b t e a i y 1930s. a ll airlines ope ra tin g in the c o u n to w ere m erged into eitlier Indian A irlin e s o r A i r In d ia . - a t by virtu e o f the A i r C o rp o ra tio n s A c t . I9 S 3 . tins m o n o p o ly w a s perpetuated fo r the next 4 0 y e a r . T h e Directorate G ene ra l o f C i v i l A v ia tio n c o n ro U a i aspect o f fly in g in c lu d in g g ra n tin g fly in g I k i m i c e rtifyin g aircrafts fo r flig h t, a n d issuing a ll r u s a *1 procedures goseraang In d ia n airports a i d air^pare F in a lly . the A irp o rts A u th o rity o f India m m e u b u a e d w ith the responsibility o f m anaging a ll n a tk w n l and im erasrio n al airports a n d n t m ian irrtn g every aaprct o f a ir transp o rt operatio n th ro u g h the A i r I r a f l c C o n tro l W i d i the opesua g u p o f the In d ia n e o w o n r - in t h r e a rly 1990s, a t ia n n u s a w som e im portant el>. n * s M o s t im p o rta n tly , the A i r C n r p o r a t k n A* i is

m y < lritia a w i m

k s over

40 offices

and o ve r

1000 h ig h ly

skilled

profennonats spread acraas the nation. It has offices in N e w D e lh i. M u m b a i. Kcrikata. C h e n n a i. B m g a ln re . H yde ra bad . G o a . Ja ip u r. Ja lland h ar. C h a n d ig a rh . C o c h in . T h in iv a n a a ih ip u ra m . A m r iu a r. A i r Charters provides com prehensiv e service fo r a ll charier needs: heli-sightseeing; h c li-s k iia g ; leisure ch a rie r flights; charter flights fo r p ilgrim age in India; hire a n aircraft in In d ia ; ch arter a je t; charter a helicopter , corporate je ts ; e w c u t iv c je ts ; aircraft o n rent fo r f ilm shooting; a ir am bulance; c w g o d a r t e r . T h e c o m p a n y has sound financials a n d hns been profitable since its launch in 19 8 7 . W ith a fleet o f 10 helicop ters a n d 5 c o m m ercia l jet aircrafts, it is a le a d in g co m pany i n its current business. T h e recent success o f lo w cost carriers < L C O in In d ia a n d the u p c o m in g tre n d o f co n ve rg en ce o f charier airlines w ith L C C * s in E uropean countries to fo rm L o w C o s t Leisure C a r rie r ( L C L C ) h ave sparked a n u m h e r o f ih o u g h t s in h e rm in d . S h o u ld A i r C harter

m <y

The caw was prvpawd by Jyon N am if. Maajudia Kale -*nd Shuhfcam Nam fram * r claws ot 20th M B A Mu4cni In. taa li. 4 m i technology Kanpur under the supervision loyania Chaarrjee. profcuor of Inrffactiv* Ma*a|tnicni StrM fias. 'Jn fu.i o< nr public*!loo may bo refntduocd or used whIhmi pin* permission.

at

4^0

A i r C h arters: T h e Pc*h A h e o d

repealed to end the m onopoly o f the public sector and pi i vaic airlines the w ere leintroduccd. earners Tod ay the the K'*vcrnnient o f In d ia has rc c o g n izc d the need for p iiva lizln g national although p iK c d u re fo r this is y e t to be decided. Recently, ckingeii have been m ade in tbc A irpo rts A uth ority of India A d in order to permit the privatization o f the tv m c lro airports o f D e lh i sind M u m b a i. Th e governm ent has also taken an im portant step in M in t;-iip ii h igh -po w ered comm ittee under Shri Narcsh C h a n d ra , w hose task is to exam ine the inconsistencies in the aviation sector and make recommendations fo r its rapid im provem ent. See A it/M u tlx A fo r k e y recommendations.

In A p r il 20 0 5 , domestic a ir passenger traffic showed a rise o f 17 percent (about 3.4 m illio n ) over I the corresponding |wevious period. T h e record growth o f dotncstic passenger traffic is partly because o f the new traffic generated b y n o frill A itiin es and partly because o f increased num ber o f international tourists
ih i

domestic sectors. In tlie domestic sector Srinagar |

showed un impressive rise o f 9 6 .1 percent. Hyderabad j ulso showed on impressive g ro w th rule o f 60.4 > 1 percent. Increase In n u m b e r o f destinations Since Indian .

independence the airlin e network hits expnnded to reach sm aller II-tier citics and bulk o f the domestic air \\

Present

Future

INDUSTR Y STRUCTURE Recent developm ents

Ircreas* in ( r a f l k Passenger D o w hot becn going passengers. I n t a i i y is u|> * u h agrersive new fares regim e being proposed by airlines to attract new w itnessing an impressive grow th rale. I n A p n l 2005. a ll operational airports (taken together) handled 60.31 thousand aircraft movement* (excluding defense and other non-com m ercial movem ents) , o v e r 5 m illion passengers. and about 112 thousand tonnes o f cargo. In A p r il 20 0 5 , total passenger traffic (domestic and international) showed a rise o f 15 percent over the corresponding previous period. T h e increase in passenger traffic at the m an y airports is hccnuse o f h ig h e r foreign tourist arrivals and increased number of domestic tourists. T h e introduction o f lo w cost/no f r ill airlines contributed to th is higher g ro w th o f traffic.

passengers belong here. Visakhapatnam and Hydera bad showed an impressive gain o f 85.6 percent and 55.4 percent respectively. Srinagar showed a gain of 31J percent. H ig h er g ro w th in traffic at Hyderabad. Srinagar, and V isakhapatnam is d u e to increased operation b y lo w cost airlines and increase frequency o f existing airlines. H o w e ve r, there w as a decline of aircraft m ovem ent in N agp ur and B angalore b y 3 4 6 percent and 2 7 3 p a t e n t respectively. A i r b r a s to f a l a s do m estic A T F p rice s a re I k d y to soften A T F is the m ajor cost fo r domestic carriers accounting fo r 3 0 percent o f die total input costs

India, w h ic h is m uch h igh e r than around 10-15 percent fo r airlines w orldw ide. T h e exorbitant sales tax on the A T F . w hich increases the price o f A T F . is the m a jo r reason for this higher share in operating cost. T h e dom estic companies have to bear 10 percent customs duty. 8 percent excise, and sales tax as high as 3 2 5 ( i n A n d h ra Pradesh). T h i s is 6 2 percent

Air Charters: The Path Alteod

(o r Rs. 13330) more lhan what airlines pay in other pans o f the world. R iel accounts for nearly 30 percent o f input costs and with t percent decrease the airlines w ill save more than Rs. 3000a kiloiher after the pricc cut. Fares are expected to fall by an average of S percem. Increasing competition Seeing the encouraging response received b y India's first no frill* carrier. Air Deccan, launched less than a year and a half ago, players like Royal Airways (ers*while ModiLuft j and Kingfisher Airlines o f U B Group have a h o launched services in India. There are a few more players who are planning to follow the suit. Jeh Wadia promoted G o ai$nes is planning to start its operation soon, with three 180-sealer airbus aircraft talcing on lease. A h o other new players like Indus Air, Yamuna Airways and A I with its subsidiary named I A express is coming in low cost carrier segment Fleet expansion T h e airlines companies have realized that significant potential exists for sustained and rofcnsc rise in air passenger traffic ad are trying lo expand in a big w ay lo acquire more market share. Th e first L C C o f the country A ir Doccan which started wlih an ATR 42-320, a 48 sealer turboprop aircraft, has now expanded to a fleet size o f 13 A TR s and 5 Airbus. T h e company has also ordered 32 A TR s and 32 Airbus, taking the delivery o f one aircraft every one month. Kingfisher, which started its operation few days ago is aho investing in flee*. The company is buying I I new Abbas A 3 2 0 b y February , as they think buying new planes w ill help in saving on their maintenance cosu.

471

country to an international airport, and rename it as D r Babasahcb Ambedkar International Airport. Th e decision to restructure existing airport*, at Deftu. Mumbai, Chennai, and Kolkaea throngfe k*gterm lease in order to make them world class is another important milestone. Also, Kochi International Airport has constructed a new aiipon at Ncdu Embassy near Kochi, Green-field international airports at Hyderabad and Bangalore are also on ilte anvil with equity participation b y the A A l (13 percent), state government (1 3 percent) and jot at venture partners (74 percent). A irline s follow ing I P O lo r expansion A t w Indian skies warm up for a dogfight, there is actun on the ground too India's aviation companies are planning to come with the initial public offering tlP O ) to raise funds. SpiceJci is already listed on the ctcck ftuffcet. Leading private sector airline Jet Airways too entered the stock market recently. Apart from these two. lo budget airline A i r Deccan is also ptannsaj to t^ d c capital market in this financial year. Besides d o domestic Indian Airlines, its international counterpart A ir India is also preparing for its IP G in fiscal 200*06.

Issues facing airline industry

O p e n Skies Policy A recurring demand often voiced by iaieresied parties is that, in order promote travel and tourism. India should adopt an Open Skie* policy. It is argued that die current policy restricts tlu* access o f foreign airlines. A s a result potential twain?; are not offered a choice o f airlines or seats whet traveling to India. Th is problem is exacerbated during the holiday season when it Is difficult. f noi impossible, to get a seat either into the country or out o f i t It is argued, therefore, that India should adoj> an Open Skies approach to nay foreign canter wanting to fly into India, which literally means allowing than unlimited service, capacity, and points o f call Privatization of airports The issue of privatization o f airports and allowing F D I hits been lingering around for a long time. T h e decision o f previous M M government to allow 74 percent F D I was rolled feck b y the current U R A government under the p r e s s r of its left allies.

2006

Apart from the new budget carriers, the existing players are also aggressively augmenting their fleet strength to take on the competition. Jet AJiways India w ill add six Boeing 737-800 aircraft to Its fleet for domestic operation, in addition to the expected acquisition o f four Airbus planes, over the next two quarters for its domestic operations. A i r India has ordered 50 Boeing (8 Boeing 777-200LR. IS Boeing 777-300ER. 27 Boeing 787, at a total cost estimated to be about Rs. 30,000 crore). A irp o rt expansion Looking ul the potential and need o f the infrastructure the Indian government is taking some initiatives to improve the infrastructure o f Indian Airports. T h e Union Cabinet has decided to upgrade Nagpur airport, the oldest airport in the

472

A ir C h arters: T h e Path A head

E n t r y o f foreig n in ve s to rs

Equ ity fro m foreign

the travel habit o f the m iddle to high income groups . from prem ium class travel in trains to a ir traffic. This, w e believe, could turn into a w hole new segment of people, w h o currently travel b y road o r rail but who could stait flyin g (|ierhapseven frequently) if airfares arc m ore affordable. T h is is w hat could d rive the explosive grow th in the sector. G r o w t h in to u ris m : T h e Indian tourism market has

airlines is not allow ed in domestic air-transport services either directly o r indirectly. Foreign Financial Institutions aie allow ed to hold equity in the domestic air-transport sector provided they d o not have foreign airlines as their shareholders. I .nek o f a v a ila b ility o r s k ille d pilots T h e acute

hoitagc o f trained hum an resources to meet the a trrc n l bo o m in the c iv il aviation industry has been thoroughly exposed, w it h airlines offering several incentives to lure talent and initiating a num ber o f steps to protect their o w n flock. K e y d e m a n d d riv e rs B e in g a n u n d e r-p e n e tra te d m a rk e t I n d ia has tre m e n d o u s g ro w th p o te n tia l R ig h t n o w India seems an under-penetrated market w ith an average air I'-avcl o f 0.014 trips per person per ye a r as compared

been grow ing at a significant pace ove r the last few years, w ith the governm ent g iv in g a fresh impetus to the industry through various schemes and organi/xd events. Inbound tourist traffic in to India increased by 13 peicent fro m 2.4 m illion in F Y 2 0 0 2 to 2.7 million in F Y 2 0 0 3 . T ra v e l and tourism expenditure in India is expected to achieve an annualised real grow th o f

8.8

peicent ove r the ten-year period fro m F Y 2 0 0 4 to F Y 2 0 I 4 w hich w ill further boost the tourist traffic. P o licy initiatives to tr ig g e r g ro w th Government's

10 an average 2.02 trips per person in the United States

o f A m erica. H o w e ve r, grow th in this market in tlie recent past has been steady. Betw een F Y

new p o licy initiatives, the abolition o f the inland air travel tax and the foreign travel tax, and the reductionI in the excise d u ty on aviation turbine fuel from percent to

2002

and

F Y 2 0 0 4 , the domestic aviation sector saw an annual grow th o f 8 .9 percent. T i l l n o w the g ro w th in die itcmaiid lias been matched b y the grow th in the domestic capacity. B u t die potential for growth in the future looks high. B u o y a n t econ om y to fuel g r o w t h in a i r tra n s p o rt in d u s try G ro w th in the a ir transport industry (both passenger and cargo segments) is closely associated w ith the grow th in the gross domestic product (G D P ), hoth internationally and nationally. F o r a I percent increase in die Indian G D P , domestic passengers me expected to increase b y

16 .

percent w ill be huge positives for the

aviation sector. Th e LCC m odel In sim ple terms the low -cost carrier is defined as an airline that operates a po in t-to point network, pays employees below the industry average w age, and offers n o frills service. T h e lo w e r cost structure can be quantified by aggregating the cost savings o f point-to-point networks, w age savings, and savings from not' providing numerous add-on services. C o nsider the big airlines' burdens that low -cost' carriers avoid: F lig h t schedules structured predom inantly to attract h ig h vo lum es o f lo w -y ie ld connecting passengers, w hich causes congestion, long aircraft turnaround times, and poor utilization o ' physical assets and personnel Labor-intensive business processes capable o providing seamless connections to anywhere in the w o rld that accom m odate, and partly encourage, last-minute scat assignment changes,upgrades. and itinerary modifications A distribution system tailored to selling tickets across the globe and to p ro vid in g the largest:

1.1 percent. W ith an improved

econ om ic scenario, the outlook fo r the Indian econom y remains favorable w ith the Reserve B a n k of India projecting a 6 -6 .5 0 percent grow th rate in F Y 2 0 0 5 . S ince a fast g ro w in g econom y w ill mean m ore business travelers, grow th in the air transport industry could be a healthy 6 .5 -7 percent. Increasing c on su m erism a n d a ffo rd a b ility to scale u p u tiliza tio n rates T h e aviation m arket in India consists o f tw o principal groups: leisure travelers and business travelers. Leisure traffic tends to be more price-elastic. W h ile historically, business travelers have formed the m ajority o f the domestic a ir travel in India, w ith increasing incom e levels and the emergence o f flexible fare schemes a shift is lik e ly in

A ir Chortera: Th e Path A h e o d custom er base possible to m a x im ize revenue through Ihe yield management system. T l i c i r m a in thrust is o n p ro vid in g sim ple no frills** product, aggressive marketing, and lowering operating costs. F o r achieving this target, these airlines fo llo w some sim ple procedures that are g ive n below: U s in g a

473

Elim inating in-flight "frills", w hich save>n tlie

(im e and processes o f preparing fo r delivering such services, turnarounds. thereby im p ro vin g aircr.ift

A sim ple

system

InternetAelephone-based resen ation

for polnt-io-polnt bookings. T ills uvoids

single ly /* o f aircraft as all destinations

aircraft do w ntim es, and spare

the travel ugcni based distribution system tailored to selling tickets across the globe und lo p ro vid e customers the convenience of connections and changes required for a complex travel itinerary. G iv e n below is cost comparison o f Jet A u w u is w ith an L C C : .

have sim ilar travel lim es and landing facilities. T h i s results in significant savings in training* servicing , inventory liolding costs.

Flying to sm aller airports, apan from savings in

tfircct la nding and parking charges, enables faster aircraft turnarounds.

P roviding o n ly

point-to-point s tn lce,

Threats to the industry

w hich B ig players like A and Jet score over their competitors in areas like parking slots lo t tlu ir aircraft and com im init). Further the c o d b**e o f a n L C C m India i* 4 expected k> be m uch lo w e r than that o f .. fu llservice provider, unlike in the W ew to '.* tle c o d is about 5 0 -5 5 percent lower. po|Milarity w ith th r busm en

increases aircraft and personnel utilization by avoiding the slacks o f com plex (lig h t schedules structured for connecting passengers.

Reducing ike cosi o f labor-intensive p m cettet

ceded l o p ro vid e baggage h and ling. and transfer o f passengers for seamless c u m tc tio n v w h ic h are further complicated b y the need to accommodate last minute changes.

' N

'

Potential Savins' e A LCC

37 . JL 1 . [ a Ih n * in u U b r d n n m -in a d a nyrtw a N p a t e n * v *" I W K|B I I law ar powd on im lin n c . < o' N n s m u t low cosa*M puiii 1 0 t k i M t U t n g Iona Mut o > Havkqp on kv(l)|hl nu<ili. _ iinnouiMcmcnU _ _ Yo Wtlfi online booking riiK h i( I v*vmu <oti(d be rralhid oven l>cnod of lime__ _ _ V A irw a y follow* a w n w w a .IrpiKlW oiipofcCY ............

Aircraft M w M c n M ic J tM d m g . N M s a tM n 1 Otarg# P in * n (H Am >m bn ~ c m i 4 i oris

u 6 Sjt ~ o

O it w n u m IM p ria U o w

f j [ i p 5 ~

71

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n a r n m -o > i tout

174

A ir C h arters: T h e Path A h e a d

M u c h o f air travel in India is business-related mid this .set o f customers is not expected lo shift Icya lty Just because o f lo w e r fares.

C a rry advertisements o f olher companies on its flights to generate additional revenue B y Ihe end o f 200 S -0 6. the airline is planning to have a f le d o f 11 A irb u s and 18 A T R s . A i r Deccan proposes to induct around 32 A irb u s aircrafts over the next fiv e years. A i r D eccan's com m ercial success helped to raise $ 5 0 m illio n fro m investors. The com pany is n o w planing to go public w ith in the next

Com petition w ith in th e industry

llie c<*mpetition is intensifying w ith a plethora o f (w-ccst carriers, but there seems to be room for many. G iv e n the diverse business and marketing plans In d ia n c iv il aviation sector is clocking impressive liuble-digit grow th in passenger travel b y air. Th e m d u so y is busy firm in g up plans for augm cnling seal capacity to capitalize o n sustained grow th in demand. The change in c i v i l aviation p o licy and (axes g overning the industry has g ive n im petus lo the industry coupled w ith the bo om ing econom y in general and grow th in tourism sector in particular

12 months.

A s India's first lo w cost no frill airline. A ir D eccan has tru ly revolutionized air travel in India by not on ly making it affordable but has also leveraged the pow er o f the Internet to s im p lify the entire process. S p ic e je t S piceJet's mission is to become India's-

preferred lo w -co s t airlin e, delivering the lowest airfares w ith the highest consum er value, to price sensitive consumers. SpiceJet has n e w generation fleet o f ai w h ic h is backed b y cutting edge technology infrastructure to ensure the highest standards operating efficiency. W ith maintenance support by K L M and state o f the art technology from world leaders like Star Navigation. Russel Adam s, and L o g there is n o com prom ise on safety, reliability, on -tim e travel. T h e com p any has tied up with. Navitaire, the w orlds renowned low-cost support for reservations and revenue management. E-booki* and e-ticketing facilities are available online alo w ith tele-booking. D e stinations: D e lh i, M u m b a i. Banglore, G o a . Pune,* Ahmedabad F le e t size : F iv e B o e in g 737 -8 00 (Scats available 189)! K in g fis h e r A irlin e s Lim ite d , the U B Kingfisher A irline s is a G ro u p 's investments hold

M ajor players an d m arket share

A i r D e cca n A i r Deccan is the pioneer o f lo w cost airlines in India, and its fares are lo w e r than t im e 'ffcred b y other m ajor airlines. T h e com pany has a m odern fleet o f A T R -4 2 -3 2 0 aircraft, one o f the finest and m ost efficient Tuibo* I rop aircraft fly in g . A T R is an European jo in t venture between A le n ia Aeronaudca and E A D S . T h e A T R 42 has become a reference aircraft amongst airlines around (he w orld, b y offering a safe, easy lo maintain, and comfortable aircraft operating on the regionul market w ith the best economics on short haul sectors. T h e c om p any has adopted a Mean-and-m can' pproach to staffing and aim s at m aintaining a low aircraft-to-em ployce ratio. W ith grow th in air traffic, die com pany is aggressively playing volum e and price game to increase the overall a ir traffic and to garner greater share o f the pie. 1 b keep the fares lo w . A i r Deccan to o k the follow in g measures: N o t p ro vid in g an y food on board. H ow e ve r, it sold snacks and water bottles on its flights for a price. H ig h seat occupancy b y adding extra sealing capacity (alm ost

ow n e d subsidiary o f U n ite d B rew eries (H o k lin com pany. T h e U B G ro u p is one o f India's lar^ conglomerates w ith a turnover o f U S S 2 billion and the largest Indian manufacturer o f beverage alcoh beer, and liquor. T h e com p any's vision is, ' T Kingfisher A irline s fam ily w ill consistently deliver safe, value-based and enjoyable travel experience to all o u r guests. Kingfisher A irline s is India's first private airli to com m ence operations w ith a brand new fleet o aircraft and to have the youngest fleet. Kingfisher A irlin e s is the first to offer the tele-check-in facility; fo r all its guests, free individual in-flight entertainquicker crew

20

percent as com pared to

traditional carriers) Sm all sized planes, lo w maintenance Faster turnaround tim es ad movement Sale o f tickets through w e b sites and call centers, avoiding agent commissions

A ir C h orfe rs: T h e Path A h e a d

475

m eni o n e v e ry seal through F U N T V (f iv e vid eo channels) and Kingfisher R adio (ten audio channels), a m o v in g m ap, free headsets, extra-w ide seats, spacious leg room , large overhead storage, adjustable headrest w in g s, free delicious hoc m eals, designer interiors, free am e nity kits fo r a ll guests, and the good times*, all this at no extra cost. T h e K in g fish e r Punliners w ill have in-flig ht silent auctions fo r lifestyle products and sales of packaged food and beverages. Fleet size: 16 strong A irb u s A -3 2 0 fleet (fo u r have been ordered from A irb u s , w ith operations to buy eight more, and operating another four o n lease basis.) T r a d itio n a l c h a r te r a irlin e R u e s decrease towards departure day Focus o n B B business F lig h t schedule is determined b y tour operator demand Y ie ld management from tour operator and airline perspective C o m p le x distribution model, variety o f ticket types and several service reservation options

D e stin ation s: M u m b a i. Bangalore

The LCLC m odel

Charter A irlin e s and L C C a rc converging rapidly to new . sem i-com plex L o w Cost Leisure C a rrie r ( L C L C ) business models in m any European countries T h o u g h en tiy into L C L C segment w ill carve a niche fo r A i r Charter, a plethora o f questions need to be answered. W h at w o u ld be the market potential, what additional technological and other capabilities w o u ld be needed, what w o u ld be the cost and revenue structure, and h o w A i r C harter can raise these resources? P u re lo w cost c a rrie r * Fares increase towards departure day * Focus on B C business * R egular flight schedule Y ie ld management o n ly from A irlin e (single seat) perspective * S im ple distribution m odel, ticket-less, m inim al service reservation options * A d d -o n revenue through licensing, etc.

Single seat(B2C)

C o n v e rg e d C h a r t e r A i r li n e / L C C re q u ire s a set o f n e w capabilities n o t ava ila b le to day

L C C la c m M pretsare o a a irla e

-M

^ m

n
N e w cn p a M llllv t required b y K n tix e c o il for distribution and a iip ic l procedure, Iche ck -i i lo t o r i o f L C C C reveaue a r m iM M in e bmovarivc M C I B 2 B servlcc model*

- LeM I p N M A

- V M l M b c d (M VCttl. a ipp lln a

- S tp u A n iM r tv tn u c B o o t

s rn k e le d Berne fces

'T b o t o W l W 'u f t t a v f l n

fo*charter a ny m ow ."

D e liv e r w iv io cs in delined q tu lliy a i lo w u i DOR Q p iiin M c i b k d r o n e (hrou fh deaacd : i k a a b and adrq e revw rnc n w i y i m S U ik t m t iK U 'U -in le t lic e t f<j| booking o f teats and servio*

fc e a e

PKtoaMf
I X m m l e l M W OfKfahM n o w f i i c d a llo t in tfW 10 f ro

n t* - D ym m ic p m iin f iiroiu
t n u le w i i iip iln lilU '

I7<*

A ir C h a r t e r s : T h e P a t h A h e a d

S u m m a ry o f new capabillliex/riiahlor R - Inciioii o f c o m foe sales/ distribution. r e t e n t i o n , and aii|i>ii handling to the level o f L C C through lean pm ceues m - l integrated I T sappon It <ir a u .il service q ua lity a n d additional com petitive n i c e offerings as ba a s fo r new revenue stream* in U K ' a i - l B 2 B business models
m

C o v e ra g e today

B c n n i"

Q u a lity J l Revenue

H .itdes fixed allotm ents, m ore flexible a n d d yn a m ic u lliitn ic ii contracts w ith tour operator to o p tim ize risk vl .niiitf w ith appropriate y ie ld management Standardized a n d automated interfaces between airline
him l

Revenue

tour operator for booking, o f seats and services

A P P E N D IX A

HOPE
Key Recomm endations O f T h e Naresh Chandra Com m ittee'
T u n , D uties, C h a r g e s : Replace m ultiple air travel l a m w t h specific reasonable c m Reduce ro u te n a v ig a tio n a n d la n d in g c h a rg e s fu e l C o st M M i i g w c n t Reduce c*ase d u ty a n d s a fe s ta x o n A T F A i o w a rtn e s to source A TT Iro m t e u p p l* of their choice k n p e t m T o frW a te A k V n e t: Rem ove restrictions o n travol o f fo w l employees o n private airlines A l o w dom estic private carriers to operate international services C o m p e titio n : Lo w e r e ntry barriers for n e w airlines A llo w u p to 4 9 % investment b y foreign airlines A irlin e s O p e ra tio n s: Abolish route dispersal guidelines for a H n e s Create to nd to provide subsidy lo r n n > a i. b u t uate on o m ic services A irp o rts : Privatise M u m b a i and D d h i airports, f o i l e d b y other profitable airports Encourage ventures to set u p s i n a l n o H I a irports fa r d M rte ra d B ^ its M ioim uru subsidy bidding lo r p r tv U iu o o n o i u n c a n c m ic a l airpods G f e A e ld airports t o b e based on econom ic considerations R e g u la to ry S tructure: Establish a n independent Aviation Econom ic ReguJatoiy Authority A ir traffic service* to b e separated fro m the A Al Bureau o f Civil Aviation to be the nodal agency fo r security D G C A to b e the nodal agency fo r safety Im p r o v e d c o u n t r y w i d e a i p o n in fra stru c tu re P r o p e r f r a m e w o r k f o r p riva te p a rtic ip a tio n i n t h e a ir p o rt u c k o i B e tte r o p e ra t io n a l flexibility S p u rs c o m p e titio n le v e l p la y in g fie ld fo r p riv a te a r f n e s G re a te r a t io rria b iity T ra n s p a re n c y i n f u d p ric in g G re a te r a f f o r d a N f t y

W e ll-d e fin e d re g u la to ry s tru c tu re , le v e l p la y in g A d d R e stricte d u n f a ir tra d e p ractice s a n d a b u s e o f m o n o p o ly p o w u r 8 k M lb 6 tiip * A - -V - ' m i n

A P P E N D IX B

D o ta s h o w in g in c re a s e in a i r traffic in In d ia C a te g o ry A iix n if l M ov em ent (in International Domestic To*al Passenger ( i n m illio n ) International Dom estic Total C a rg o (in 1.7 3-32 1.56 2.96 4.52 59.61 31.95 9 1 .56 8.3 12.4 F e b ru a ry 2005 F e b ru a ry 2004 % C h a n ge

000)

14.56 43.49 58.05

12.16 43.8 55.96

19.7 -0.7 3.7

'000 tonnes)

5.02

11

International Dom estic Total

65.74 36.44 102.18

10.3 14.1

11.6

A P P E N D IX C

Fuel p ric e s Stations Singapore K u a la L u m p u r Bangkok Sharjah Dubai N e w Y o ik M uscat K u w a it London To k y o A verage In d ia Domestic International 31600 26300 . P ric e 20500 20300

21000 22200
21800

20600

22200
21500 22600 22900 21560

A P P E N D IX D

C o m p a r is o n o f In d ia n lo w cost a irlin a s A irlin e s A ir Deccan R o ute Domestic >-ond F a c to r 9 2 % for metro 9 0 % fo r non-metro Spice Jet Kingfisher A i r India Express A i r A rabia Domeatic Domestic International Inicmutionul 90% 95% 90% 90% 23 M a y 05 9 M a y 05 29 A p r il 05 27 M a rch 05 189 174 182 150 Launch Sep. 03 Seat C a p a c ity IS O

A P P E N D IX E

F a re c o m p a r is o n c h a rt R outes B a n g a lo re -H y d e ra b a d M u m b a i-G o a C h e n n a l-B a n g a lo re M u m b a l-D e lh i J e t A irw a y s 4700 3405 3405 3375 In d ia n A irlin e s 4705 3410 2905 3380 A i r D e cca n 700 700 700 700 R a il I I A C

1211
1232 747 1525

R a il I A C

2345 1403 2175