Aviation

For EGBT classes

PGDM (Semester 1)

For class discussion at

Aviation

Introduction

Aviation
The word "aviation" was coined by
French writer Gabriel La Landelle in
1873
From the verb "avier - derived from
the Latin word "avis" ("bird")
Legends of human flights
Puspak Rath of Ravan in Ramayan
Icarus in Greek myth
3

Aviation : History

The modern age:

1783 : Hot air balloon byMontgolfier
Innumerable vain attempts to fly like birds
Realization Birds have different constitution
Abandoned the idea to put wings like birds
Chinese "solved the problem of aerial
navigation" using balloons, hundreds of years
before the 18th century.
1903 : The Wright brothers were the first to fly
in a powered and controlled aircraft.
4

Aviation : History
During the 1920s and 1930s
(a) 1919 : Firsttransatlantic flight: Alcock & Brown
(b) 1927: Transatlantic solo flight: Charles
Lindbergh
1950s: First passenger jet Boeing 707
1960s : Concorde, GPS, Satellite communication
2004 : Spaceship One: First private spaceflight
Now : Ethanol, Electricity, Solar energy are more
common to power aircrafts

Aviation

Characteristics

Characteristics of Aviation sector

Duopolistic
Market
manufacturers :
Boeing
Airbus

with

Two

aircraft

Aircraft engines manufactrures:

Rolls Royce
General Electric
Pratt & Whitney(Miniscule)

For class discussion at

Types of Airlines
There are mainly TWO types of Passenger Airlines:
1. FSC : Full Service Carrier (AI, JET, Vistara)
2. LCC : Low Cost Carrier (Indigo, Spicejet, GoAir)

(a) Low fares and minimum facilities and NO in-flight entertainment

(b) Hidden charges, pay extra for - Printing of Boarding Pass, Check
in, Meals etc
(c) Operation of standardized fuel efficient aircrafts
(d) High utilization of aircrafts quick turn around times
(e) Short distances, high frequency
(f) Avoid overstaffing
(g) High seat load factor
(h) Operate out of less busy, smaller, cheaper airports

Aviation

Cost of Operations
&
Profitability Factors

Cost of Operations
ATF constitutes 45-50% of operation
(ATF Aviation Turbine Fuel a specialized
type of petroleum-based fuel used to power
aircraft, contains additives to reduce the risk
of icing or explosion due to high
temperature, imported in India)
Manpower and administration - 22%

10

Profitability Factors in
Aviation
Profitability hinges on (a)
Seat load factor
(b)
Usage of fuel efficient aircrafts
(c)
High turnaround rate
(d)
Other non ticket incomes
(e)
Outsourcing of key services
Note: LCC mainly address to these
factors
11

Aviation

Global LCCs

12

Southwest Airlines - Low Cost U.S. Carrier

Started operations in 1971, HQ-Dallas, Texas, USA pioneer

in LCC
Worlds largest low-cost carrier.
Reputed for innovative advertisements
FORTUNE listed it for the 10th year as among Americas top
10 most admired corporations
Peculiar features:
No Assigned Seats!
No Travel Agents, can book only on its own website,
saves $50 Million (Rs 300 Crore) annually
Turn around time 15-25 mins, US industry Average 55
minutes
One type of aircraft, better training and operational
efficiencies
For class discussion at

13

Ryan Air - European Low Cost Airline

Started operations in 1985, HQ-Dublin, Ireland
CEOs maniacal focus on being the lowest cost producer

Even encouraged staff to steal stationary from hostels & banks to save costs!
25 Minutes turn around time, to get maximum aircraft utilisation
Often operate from smaller, less congested airports with lower costs

Branded itself as the Bad Boy of the Aviation Industry

Often use provocative & Misleading ads that get the attention at a low cost
Enormous charges for small mistakes:

70 per passenger if you forget to print your Boarding Pass in Advance

100 per passenger, if you want to check in luggage at the airport and not online

Over 20% revenue from non-ticket sales print boarding pass, in flight
sales, airport baggage check in, etc

Successful despite adverse public opinion - offers the Lowest

price tickets 37% lower than the Easy Jet (the Second best low
cost European carrier)

14

Air Asia - Malaysian Low Cost Airline

Started operations in 1996, HQ-Kuala Lumpur, Malaysia

Largest Low Cost Carrier in Asia (Both in Fleet Size & No. of
Passengers)
Recently started operations in South India
Innovative Fares (Free/999/1999 so on) and steep
Telstra; 21%
introductory discounts
Air Asia; 49%

India JV Partners Include

Air Asia
Tata Sons
Telstra

Tony Fernandes;
Group CEO for Air Asia

Tata Sons; 30%

Ratan Tata, Chief Advisor to the

Board;
Chairman Emeritus -Tata
Sons

Arun Bhatia Owner of Telstra;

Son Married to LN Mittals
only Daughter

15

Aviation

Indian Aviation Sector

16

Aviation in India
Importance
Service sector constitutes 57% of National Wealth (USD 1.1 Trillion)
Key segments :
1. Banking and Financial Services
2. Organized Retailing
3. Education Sector
4. Health Care Sector
5. Hospitality Sector 6% of Indias GDP
Contribution of the airlines business estimated at USD
$ 6 Billion.
6. Independent Services

17

Indian Aviation Sector

Poised for huge growth due to 1. Low-Cost Carriers (LCC)
2. Modern airports & Infra-Structure
3 FDI in domestic airlines
4. IT facilitations & interventions
5. Growing emphasis on regional
connectivity
6. Government initiatives

18

Evolution of Aviation in India

1953
1953
1994
1995
West
2003
2005
2011
2012

:
:
:
:

9 Airlines including IA & AI

Nationalization of private airlines
Private airlines allowed to operate
Jet, Sahara, Modiluft, Damania, East

:
:
:
:

Air Deccan as Indias first LCC

KF, Spicejet, IndiGo, Go Air, Paramount
IndiGo international ; KF exits
GOI allows ATF import, FDI -49%,
For class discussion at

19

Indian Aviation Sector

Some facts:
To become 3rd largest in the world by
2020
Amongst the Top 10 in the world :
USD 16 bn
Carried 67.73 million in 2014 (61
million 13)
Airlines to record operative profit
USD 1.29 bn
FDI Inflows : USD 563 million (2000-

20

Indian Aviation Sector Current

Scenario

% Market shares of Aviation players in India (By

Passenger Traffic)

% Market Share

Go Air; 9%
Air India ; 19%

Spice Jet ; 20%

Indigo ; 30%

Jet _ Jet Lite; 23%

Indigo has the Highest Market Share

21

Profit/Losses of Indian
Airlines
Indigo
(a) Netprofitat Rs 317 crore for 2014.
(The sixth year in continuity)
(b) Revenue to Rs 11,117 crore.
The two listed carriers
1. SpiceJet - Losses Rs 1,003 crore
2. Jet Airways Losses Rs 3,667 crore
. Air India bleeding Losses Rs 5,388
crore
22

The Kingfisher Story

Established in 2003
May 2005: Indian Commercial operations commence. Losses since 2005 itself
USP:
Best in class, luxury airline, fancy meals, top domestic in flight
entertainment, focus on quality flying experience
Sep 2008:International operations also started
Nov 2010:
Largely due to KF losses, UB Group shares at Rs 82 down from
52 week high of Rs 315
Mar 2011:Banks convert Rs 1300 crore of debt to equity at 61% premium,
give little breather to KF, which continues to lose money
Sep 2011:KF Discloses substantial losses to the BSE
Nov 2011:
Financial results disclose the company is drowning in high
interest debt and losing money
Nov-Dec 2011: Bank accounts frozen twice
Sep 2012:Market share shrinks to 3% from 15% in 2009
Oct 2012: Flying License suspended
Feb 2013: Government withdraws domestic & International flying
entitlements

For class discussion at

23

Aviation

Airlines in India

24

Airlines in India
Air India
(a) Founded July 1930 as Tata Airlines
(b) Commenced
operations15October1932
(c) Revenue : US$2.3billion(FY 2013/14)
(d) Net income:US$330million
(e) After a long spell of lossesrecorded a
net profit of Rs 14.6 crore in December
last
25

Airlines in India
Indigo
(a)Indias biggest airline
(b) One of the two domestic carriers that
makes a profit, the other being GoAir.
(c)Plans to expand aggressively
(d)Aims to raise Rs 3,200 crore for a 15% stake
(e)Signed an agreement to buy 250 A320neo
planes from Airbus (worth $26 billion)
(f) The largest single order of jets
26

Airlines in India
Vistara
(i)
JV between Tata Sons & Singapore Airlines
(ii) Commenced operations in 2015 between Delhi and Mumbai
(iii) Carried a total of 100,000 passenger by 31 March 2015.
(iv) Operates 253 weekly passenger service across 10 domestic
destinations within India
(v) A fleet of 6Airbus A320-232aircraft.
(vi) Vistara is the first airline to introduce premium economy seats on
domestic routes in India.
27

Airlines in India
AirAsia India
(a)A joint venture withAir AsiaBerhad holding 49% of the
airline,TataSons holding 30% and Telestra Tradeplace 21%
(b)Mark Tata's return to aviation industry after 60 years.
(c)Air Asia India commenced operations on 12 June 2014.
(e) AirAsia is the first foreign airline to set up a subsidiary in
India.
(f) Will operate with the world's lowest unit cost
of1.25(2.0US)/available seat kilometre
(g) A passenger break-even load factor of 52%.
(h) Willhedge100% of its fuel requirements for the next three
years
(i) Plans to achieve an aircraftturnaround time of 25 minutes.
28

Airlines in India
Jet Etihad
(a)Abu Dhabi-based Etihad is the national airlines of the
United Arab Emirates
(b)Operates to over 85 destinations in over 50 countries.
(c)Jet is a leading airline in India operating to over 50
domestic and 20 international destinations.
(d)The deal involves purchase of a 24 per cent stake in
Naresh Goyal-led Jet for about Rs 2,060 crore by Etihad
(e) Clearance last year by CCI & Sebi.
(f) However, the deal has now come under the scanner of
the Competition Commission of Singapore (CCS),

29

Aviation in India

Government Policies

30

Current Policies in Indian Aviation

FDI upto 49% is allowed in Indian Airlines
In July 2013 a proposal to raise the FDI limit from
49% to 74% was rejected
Up to 100% of NRI investment is allowed by the
means of automatic approvals pertaining to the
domestic air transport services
Proposal to allow airlines to directly import ATF
Discussion on Lifting the freeze on international
expansions of private airlines
Current you can not fly internationally unless
you operate for 5 years and have 20 aircrafts

For class discussion at

31

Aviation in India

For class discussion at

32

Aviation in India

For class discussion at

33

Aviation in India

Recent Developments &

Initiatives

34

Aviation in India
Recent Investments & Developments
1. Google Inc. has launched flight searches in India. : google.co.in/flights
2.Air Costa plans to add 8 aircrafts by 2016 to its fleet of 4 aircrafts.
3. Boeing is to set up an aircraft manufacturing base in India ('Make in India)
4. Vistara has signed inter-line agreements with Singapore Airlines and SilkAir.
5. Air Works India Engineering has formed a JV with Yaksa Investment to
provide aviation maintenance services to international airlines and domestic
operators.
6.US Federal Aviation Administration (FAA) has approved a product developed
and produced by the firm in India
UTC Aerospace Systems, Bengaluru
To indigenously produce and directly ship an aviation product to aircraft
manufacturers in the US.

For class discussion at

35

Aviation in India
Government initiatives:
Gujarat may get a second international airport at Dholera.
DGCA has given its approval to Air Indias maintenance,
repair and overhaul (MRO) unit.
GOI has decided to award airports in Kolkata, Chennai,
Jaipur and Ahmedabad on management contract basis
GOI plans to form a committee to turn around and look at
privatising Air India.
The Ministry of Civil Aviation plans to list Airports Authority
of India and Pawan Hans Ltd on the stock exchanges.
GOI has approved the construction of five budget airports
for regional connectivity, work to start from FY15.

36

THANK YOU

For class discussion at

37