Indian Economy &
Employment
Sector-wise Analysis
Aviation Sector
PGDM (Semester 1)
For class discussion at
Indian Economy
After independence economy was
controlled
Opted for Mixed Economy Socialism
overtone with Capitalism were ingredients
Ridiculed as Messed-Up economy
Business operated under License Raj
1991 economy was liberated to some extent
Now economy is open, though controls exist
Indian Economy &
Employment
GDP Nominal : USD 1.84 Trillion
Ranked 10th in the world on Nominal basis
Ranked 3rd in the world on PPP basis
GDP per Capita : USD 1500
Foreign Exchange Reserve : USD 315 million
Sector-wise Break-up : Value
Employment(m)
(a)Agriculture :
17.20 %
226
(b)Industry :
26.40 %
60
(c)Services :
56.40 %
126*
* Include Construction, Hospitality & Transport
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Service sector in India: Key
Statistics
The Service Sector in India constitutes 57% of
Indias GDP (USD 1.84 Trillion)
Key segments include:
1.Banking and Financial Services
2.Organized Retailing
3.Education Sector
4.Health Care Sector
5.Hospitality Sector accounting for 6% of
Indias GDP and this includes the
contribution of the airlines business
estimated at USD $ 6 Billion.
6.Independent Services
For class discussion at
World Aviation Sector
Duopolistic
Market
manufacturers :
Boeing; and
Airbus
with
Two
aircraft
Aircraft engines typically supplied by
Rolls Royce
General Electric; and
Pratt & Whitney
Outsourcing
of
activities
leads
rationalization and focus on key areas
For class discussion at
to
cost
Aviation in India and Rest of
the World
In terms of Air traffic, India will be the
fastest growing country for air travel for
the next 10 years.
India
2010-2018
2019-2028
World
20-Year
Growth
12.2%
6.6%
7.3%
2010-2018
Growth
4.6%
For class discussion at
2019-2028 20-Year
4.8%
4.7%
Aviation sector: Profitability
factors
Operation Costs:
1. Aviation Turbine Fuel (ATF*): 45%-50%
(* ATF : Petroleum based fuel with additives)
2. Manpower & Administration : 22 %
PLUS
3. Interests for purchase / leasing of aircrafts
4. Mandatory charges for using Airports
Note:
(a)The costs at (3) & (4) vary
(b)Depending on the choices of Airlines
Operators
For class discussion at
Aviation Sector: Profitability
factors
Profitability hinges on:(a)Seat load factor
(b) Usage of fuel efficient aircrafts
(c)Non ticket incomes
(d)Outsourcing of key services
AND
(a)Operating Cost & Maintenance
For class discussion at
Airlines Operators:
Categories
1. Full-Service Carriers ( Air India, Jet Airlines)
Provide many facilities :(a)Allotment of Seats ( Business, Economy)
(b)Refreshments ( Lunch/Dinner, Snacks)
(c)Internet connection
(d)Entertainment ( TV & Music)
&
2. Low Cost Carrier(Indigo, Spice-Jet, Jet-Lite, Go-Air)
(a)NO frills ( No entertainment facilities)
(b)Preference of Seat charged ( Window / Aisle)
(c)Strict baggage weights (Over-charge for extra weight)
(d)Refreshment against payment (Only Water Free)
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Low Cost Carriers: Low Fares &
Minimum facilities
1. No In-flight entertainment and support services
2. Hidden charges(Boarding Pass, Check-In, Meals
etc)
3. Operation of fuel efficient aircrafts
4. High utilization of aircrafts Quick Turn-Around
times
5. Short distances, High frequency
6. Avoiding overstaffing - High Seat Load Factor
7. Route Selection
8. Operate within less busy, smaller, cheaper
airports
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Southwest Airlines - Low Cost U.S.
Carrier
Started operations in 1971, HQ-Dallas, Texas, USA pioneer in
low cost air travel
Easy jet & Ryan air follow Southwests strategy in Europe
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
Only one type of aircraft, helps train better and build operational
efficiencies
For class discussion at
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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
Rated among the worst in customer service almost being rude
Over 20% revenue from ancillary products (ie other than ticket sales)
example print boarding pass, inflight sales, airport baggage checkin, etc
Successful despite public opinion of being mean, uncaring &
money grabbing offers the Lowest price tickets 37% lower than
the Easy Jet (the Second best low cost European carrier)
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Air Asia - Malaysian Low Cost
Started operations in 1996,Airline
HQ-Kuala Lumpur, Malaysia
Largest Low Cost Carrier in Asia (Both in Fleet Size & No. of Passengers)
Often Awarded as Best Asian Low Cost Carrier
Air-Asia India Launch Planned for October 2013
India JV Partners Include
Air Asia
Tata Sons
Telstra
Key people in Air Asia India include
To start operations soon from Southern India and expand internationally
Innovative
Fares (Free/999/1999
on)
steep
introductory
Ratan Tata, Chief so
Advisor
to theandArun
Tony Fernandes;
Bhatia Owner
of Telstra;
Board;
Group
CEO for
Asia
Son Married to LN Mittals
discounts
atAir
the
initial stages
Chairman Emeritus -Tata
Sons
only Daughter
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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
Govt allows ATF import, FDI -49%,
For class discussion at
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Indian Aviation Sector Current
Scenario
% Market shares of Aviation players in India (By
Passenger Traffic)
Indigo has the Highest Market Share
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Indian Aviation Sector : Status
Airline
Indigo
Go Air
Spicejet
Jet Lite
Kingfisher
Net Profit (Loss) in Rs
Crore
(2012-13):787
(Not listed) : (Unknown)
(2013-14): (1003)
(2013-14) :
(4130)
(2012-13): (4310)
Air India
(2013-14) : (4500)
Indigo Indias Only Profitable Airline USP:
On Time
Air India with accumulated loss 63000 (Cr)
Losses
survives on Government funding &
support
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Indian Aviation : Current
Scenario
Cash Crunch of ALL Carriers
At the end of 2013-14 , Indian
Carriers had Rs 3,250 Crores in hand
Represents the equivalent of less
than 3 Weeks sustenance
Fare wars make Airlines more
vulnerable
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Aviation in India
Recent Govt. initiatives & Investments:
PPP mode for mega projects & operations viz
Green field airports
Operation of some selected airports
To invest Rs 20000 crores for
New international airports in Bhubaneswar &
Imphal; and
50 low cost domestic airports
For class discussion at
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Initiatives of Government
Aviation Ministers (Ashok Pusapati)
Announcements:
(a)Creating Cargo facilities in 19 major airports
(b)To cater agro-based business ( Floriculture)
(c)To de-congest busy airports
(d)Building No-Frills Airports to connect
remote areas
(e) Privatization is NOT the answer for Air India
(f)Will consider ATF taxation ( 28% to 4%)
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Indian Travel Websites
Started around 2006-07 ie a time when Indian skies were
buzzing with airlines, more were expected
Airline commissions have fallen from 5% to 2% in the last 4
years, expected to decline further
Future for these sites seems to be with Online Hotel Bookings
Airlines losing money are looking to cut costs & commissions
Airlines started to woo customers directly on their websites
Example: Online bookings for Southwest Airlines are only on its own website
5 Domestic Airlines Vs 45,000+ Premium Hotels in India itself
Only 500 Branded hotels, rest are fragmented, opportunity for a booking
website to add value to customers
Commissions with Hotels typically 5 times higher than airlines
Already 75% of hotel sales are online
60-70% of Current revenue of Yatra.com & Cleartrip.com is from
Ticket sales
Ticket & Hotel sales expected to generate 50:50 revenue in 18
months
Source: Economic Times June 30-July 06, 2013
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Aviation & Tourism
Tourism & Airlines have direct
relation
Airline commissions have fallen from
5% to 2% in the last 4 years,
expected to decline further
Air lines prices may enhance Tourism
Selection & Future of tourist sites are
dependent on the cost of air ticket
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Aviation Sector : Importance
It is IMPORTANT for its contribution
to GDP of India
Domestic & Foreign Tourism
Augmentation of Foreign Exchange
Earnings
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Aviation Industry: Key
Takeaways
Understanding the dynamics of the aviation sector
Assessing the factors determining profitability
Assessing the global and Indian market trends
Understanding the operational/ Business Models of Low
Cost carriers Vs Full Service Carriers
Identifying success stories for select airlines abroad and
in India
Examining the reasons behind failure and bankruptcy of
key airlines
Awareness of new initiatives by Government of India and
thrust on FDI
Identifying the benefits of FDI for all stakeholders and the
implications for the airline industry
For class discussion at
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THANK YOU
For class discussion at
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