The Airline Industry

Presented By:
Group 12 Amrita Singh Anshuprabha Singh Jeetu Jose Manash Verma Mudit Mathur Shuvendra K Mohanty

Introduction
The history of civil aviation in India started with its first commercial flight on February 18, 1911. It was a journey from Allahabad to Naini made by a French pilot Monseigneur Piguet covering a distance of about 10 km

First domestic air route between Karachi and Delhi was opened in December 1912 by the Indian State Air Services

Statistics
The Total sales for the industry stands at 41.31 thousand crore for 2010. Net Profit is at - 3.9 thousand crore. In the present scenario around 12 domestic airlines and above 60 international airlines are operating in India The growth of airlines traffic in Aviation Industry in India is almost four times above international average Aviation Industry in India have placed the biggest orders for aircrafts globally Aviation Industry in India holds around 69% of the total share of the airlines traffic in the region of South Asia

PASSENGER STATS
Passengers carried by domestic airlines from in the year 2010 (Jan-Dec) were 520.21 lakhs as against 438.40 lakhs in the year 2009 thereby registering a growth of + 18.7%.

Industry Structure
Monopoly: During pre and post nationalization i.e. upto 1986, the only flights flying in the Indian sky were Air India and Indian Airlines both owned and controlled by the Government of India and as such the government enjoyed monopoly in the Indian Aviation Industry. Oligopoly: After the post privatization period i.e. the period after 1991 lot of private players entered the industry under the government policy of open sky, which repealed the Air Corporations Act of 1953 and came up with Air Corporations Act, 1994.

Players
Major Indian players: KINGFISHER ***** JET AIRWAYS + JETLITE AIR INDIA INDIGO SPICEJET GO AIR TOP 10 AIRLINES IN THE WORLD: ASIANA AIRLINES( South Korea) SINGAPORE AIRLINES *****(Singapore) QATAR AIRWAYS ***** (UAE) CATHAY PACIFIC AIRWAYS *****(Hong Kong) AIR NEWZEALAND ETIHAD AIRWAYS(Abu Dhabi)

Top 6 International Players

1. Emirates 2. Air New Zealand 3. Singapore Airlines 4. Cathay 5. Air France 6. Virgin Atlantic

Market Share

Differentiators
Price In flight service (food, friendliness, comfortableness, telephone, power for notebook computers) Convenience (number of flights, destinations, check-in process) Reliability (on time arrivals although for some reason, the government monitors on time departures) Safety

Barriers in Industry
Risk Slots Leases Perimeter Rules Marketing Strategies Resources Sunk Costs Investment Innovation and Research

Herfindahl Index
Herfindahl Index = 1861 Oligopolistic competition.

PEST Analysis

POLITICAL
- Liberalization of the Sector - Excise Duty and Sales Tax on Aviation Turbine Fuel - Modernization of Airports

- Interface form Other Agencies like ICAO and IATA.

Directorate General of Civil Aviation is an attached office of the Ministry of Civil Aviation. The Directorate General of Civil Aviation is the regulatory body in the field of Civil Aviation. It is responsible for regulation of air transport services in India and for enforcement of civil air regulations, air safety and airworthiness standards. It also co-ordinates all regulatory functions with ICAO.

ECONOMIC
- Contribution to Economy - Rising Fuel Costs - Investments in the Sector

SOCIAL
- Developments in Airport Cities - Employment Opportunities - Ensuring a Level Playing Field - Safety Regulation

TECHNOLOGICAL
- Growth of Electronic Ticketing - Satellite based Navigation Systems - Technical Cooperation with EU

Industry Trends
Consolidation in aviation sector The number of passengers traveling by air is on the rise For the traveling public, price is paramount in choosing a carrier Capacity is growing without much constraint Oil prices are not expected to fall Outsourcing will require 2,000 more pilots and 10,000 maintenance staff in 2011. Passenger traffic is estimated to grow at a CAGR of over 15% in the coming few years. The Ministry of Civil Aviation would handle around 280 million passengers by 2020. US$ 110 billion investment is envisaged till 2020 with US$ 80 billion solely for new aircraft and US$ 30 billion for developing the airport infrastructure.

Industry SWOT
Strengths Speed Comfort Geography is not a barrier.
Weaknesses

High Spoilage rate Dependence on weather conditions Not suitable for extreme short distances High Investment and high risk High Barriers Threats Global economic downturn Rising Fuel prices Terrorism Shortage of airports Infrastructural constraint

Opportunities Still in expansionary stage. Increased saturation of land transportation. Higher disposable incomes

Selling & Distribution

Airlines Website Call centres Dedicated ticket sales offices 3rd Party
GDS :Global Distribution Systems Travel agents Online & Offline

Pricing
Premium Value for Money Low-cost APEX Fares

Marketing Strategy

Group Assets

Advertising Intensity

Year

2010

2009

2008

2007

2006

Advertising Intensity(%)

12.66 11.78 6.469 1.871 2.132

Advertising Intensity(%)
14 12 10 8

6
4 2 0
2010 2009 2008 2007 2006

International Exposure
Export Intensity
Year Kingfisher Jet Airways 2010 2009 2008 2007 2006 13.79047 4.572264 3.464017 20.59761 9.00275 39.41778 42.64589 29.60495 26.59465 26.46672

Import Intensity
Year Kingfisher Jet Airways 2010 2009 2008 2007 2006 54.8663 44.78601 43.74666 49.35609 42.71191 47.47333 65.14841 140.3427 55.11861 29.68702

45 40 35 30 25

Export Intensity

Kingfisher Jet Airways

20
15 10 5 0 2010 2009 2008 2007 2006

160

Import Intensity

140
120 100 80 60 Kingfisher Jet Airways

40
20 0 2010 2009 2008 2007 2006

Leverage ratio

year

2010

2009

2008

2007

2006

2005

JET AIRWAYS

14.24

9.01

4.57

2.58

2.02

3.47

KING FISHER

0.00

0.00

3.29

2.32

3.20

11.50

16

14

12

10 JET AIRWAYS KING FISHER

2010

2009

2008

2007

2006

2005

Working Capital Ratio

year 2010 2009 2008 2007 2006 2005

JET AIRWAYS KING FISHER

1.01734

1.2573

0.9859

1.6015

2.9168

1.8402

0.7414

0.6213

0.9763

2.2088

1.2905

1.5921

3 2.5 2 1.5 1 0.5 JET AIRWAYS KING FISHER

0
2010 2009 2008 2007 2006 2005

Impact on Economy
$14bn + Almost equals Railways 4.5% of global GDP is attributed to civil aviation

Indirect industry is estimated at 1-1.5 times size of aviation industry $100 spent on air transport = $325 for the economy Creates significant employment potential Direct ~ 100,000 Indirect ~ 6 times

PERFORMANCE ANALYSIS

GROWTH ANALYSIS ( IN % )
2010 JET AIRWAYS 2009 2008 2007 2006 2005

-9.735

30.849

25.209

23.622

30.625

25.833

KINGFISHER

-3.265

263.467

-11.142

31.197

305.245

385.771

GROWTH ANALYSIS ( IN % )
450 400 350 300 250
JET AIRWAYS

200
150 100 50 0 -50 2010 2009 2008 2007 2006 2005

KINGFISHER

PROFITABILITY TREND ( IN % )

2010
JET AIRWAYS

2009

2008

2007

2006

2005

-5.03

-15.22

-7.31

-2.48

4.32

8.87

KINGFISHER

-24.65

-30.69

-16.48

-43.67

-31.62

-7.89

PROFITABILITY TREND ( IN % )
20 10 0 2010 -10 -20 -30 -40 2009 2008 2007 2006 2005 JET AIRWAYS KINGFISHER

-50

RETURN ON ASSETS

2010

2009

2008

2007

2006

2005

JET AIRWAYS

0.0899

0.0129

0.0517

0.085

0.1902

0.2598

KINGFISHER

-0.2859

-0.3512

-0.5221

-0.2604

-0.4362

-0.0254

RETURN ON ASSETS
0.3 0.2

0.1
0 2010 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 2009 2008 2007 2006 2005 JET AIRWAYS KINGFISHER

RETURN ON SALES

2010 JET AIRWAYS

2009

2008

2007

2006

2005

0.1435

0.02197

0.0978

0.1007

0.2418

0.29801

KINGFISHER

-0.2286

-0.2373

-0.4068

-0.2072

-0.2357

-0.0248

RETURN ON SALES
0.4 0.3

0.2
0.1 0 2010 -0.1 -0.2 -0.3 -0.4 -0.5 2009 2008 2007 2006 2005 JET AIRWAYS KINGFISHER

PORTERS 5 FACTORS MODEL

Threat of substitution

Bargaing power of customers

Competition rivalry within an industry

Threat of new entrants

Bargaing power of suppliers

PORTERS MODEL FOR AIRLINES INDUSTRY

Threat of substitution: 1.Roadways 2.Railways 3.Private Transport

Bargaining power of customers:

Rivalry within an industry: Spicejet Jetairways Indigo Go Air Air India

Threat of new entrants: Liberal Policies Easy loans Untapped Market

Substitutes
Increased income No. of players

Bargaining power of suppliers:

Very few manufacturers No substitutes

Availability of Substitutes
Purchasing power of customers have increased.

Roadways , Railways , Private Transport.

Competition rivalry within an industry

Many players of about the same size; there is no dominant firm. Little differentiation between competitors products and services. A mature industry with very little growth; companies can only grow by stealing customers away from competitors.

Threat of new entrants

Existing loyalty to major brands.

Incentives for using a particular buyer (such as frequent shopper programs).

High fixed cost. Scarcity of resources. High costs of switching companies. Government restrictions or legislation. Indian airlines market is not not fully trapped , its underdeveloped.

Bargaining Power of Suppliers

There are very few suppliers of a particular product. There are no substitutes. Switching to another (competitive) product is very costly. The product is extremely important to buyers - can't do without it. The supplying industry has a higher profitability than the buying industry.

Bargaining power of customers

Small number of buyers. Purchases large volumes. Switching to another (competitive) product is simple. The product is not extremely important to buyers; they can do without the product for a period of time. Customers are price sensitive.

Future outlook
Passenger traffic is estimated to grow at a CAGR of over 15% in the coming few years. The Ministry of Civil Aviation would handle around 280 million passengers by 2020. US$ 110 billion investment is envisaged till 2020 with US$ 80 billion solely for new aircraft and US$ 30 billion for developing the airport infrastructure.

 LCCs and other entrants together now command a market share of around 46%. Legacy carriers are being forced to match LCC fares, during a time of escalating costs. Increasing growth prospects have attracted & are likely to attract more players, which will lead to more competition.

Airport and air traffic control (ATC) infrastructure is inadequate to support growth. While a start has been made to upgrade the infrastructure, the results will be visible only after 2 - 3 years.

Modernization of airports
The Airports Authority of India (AAI) is undertaking the development and modernization of all 35 nonmetro airports in the country. The other two metro airports - Chennai, Kolkata -may soon be on the modernization path.

Augmentation of fleets
Kingfisher has also ordered five Airbus A380 aircraft. India is expecting to add aircraft worth about US$80 billion by 2020.

Growth in MRO Segment

Growth in the MRO segment in India is estimated at 10.2 per cent, and is expected to outpace growth in Asian and global markets.

The total MRO market in the country is around $405 million and is likely to touch $1.06 billion by 2014. By then, India's contribution to Asia's MRO market is expected to grow to seven per cent.

Job opportunities
The aviation sector in india is likely to create more jobs in future as the sector is growing rapidly. The demands of more aircrafts leads to the demand of more manpower. The industry would create 2,00,000 jobs by 2017.