Group- 9

Strategy for a new entrant in the Indian aviation industry

Aviation Industry :

Aviation

Airlines

Passenger

Cargo

Support Services

Group handling

Training

Catering

Aerospace

Design & Manufactu

ringMRO

Nature :

The Wright Brothers

December 17, 1903.

Indian Aviation History :

15 October 1932

25 August 1953

What happened in 1953 ?

Airways (India) Ltd;    Bharat Airways;        Himalaya Aviation Kalinga Air Lines       Deccan Airways    Air India Air Services of India Indian National AirwaysThe Air Corporations Act of 1953

LPG effect :

Open Sky Policy 1991East-West Airlines (India) Media Obsessions

1.Bollywood 2. The Indian Cricket 3. Aviation ( India)

Traffic Impact post Liberalization

Source:  Market Access for Goods and Services: Overview of the Results, GATT Secretariat, Geneva, November 2004

Paradigm shift

Low CostHigh

Service

From then to now……….

1953: NATIONALISATION OF AIRCRAFT INDUSTRYAssets of 9 existing companies transferred to two entities in the aviation sector controlled by the Government in Indian Airlines, primarily serving domestic sectors Air India, primarily serving the international sectors IMPLICATIONS Aviation became a preferred mode of transport for elite class Restricted Growth of Aviation Industry High Cost structure Underdevelopment of infrastructure

1986: Private Sector Players permitted as Air taxi operators. Jet, Air Sahara, etc started service.

1994: Private Carriers permitted to operate scheduled services. Six operators granted license, however only Jet and Air Sahara able to service.

2003: Entry of low cost carriers. Air Deccan, Spice Jet, Go Air, Indigo.

IMPLICATIONS Aviation is now affordable with check

fares and discount schemes. Various Operators with different

business model. Huge growth foreseen in Aviation

Consolidation Phase

1953- all airlines have been merged. East west airline and Modiluft have been stopped. In April 2007, Jet Airways took over Air Sahara for

Rs. 1,450 crore. on 19 December 2007, Kingfisher acquired an initial

26% stake in Air Deccan for Rs. 550 crore. 1 March 2007, The government-owned Air India and

Indian Airlines have joined to form the National Aviation Corporation of India Ltd. (NACIL).

"Low-cost carriers (LCCs) such as IndiGo and SpiceJet also have significant capital requirements and will need further flows of funding ...The next round of consolidation is therefore most likely to occur in the LCC sector."

Government Agencies :

AAI•manages 127 airports in the country, which include 13 international airports, 7 custom airports, 80 domestic airports and 28 civil enclaves. •There are over 450 airports and 1091 registered aircrafts in the country.

Ministry of Civil Aviation •"Enable the people of India to have access to safe, secure, sustainable and affordable air services with world class civil aviation".

DGCA•Endeavour to promote safe and efficient Air Transportation through regulation and proactive safety oversight system.

Key Statistics ( Nov-2011)

Source : DGCA report nov-2011

Key Statistics :

Source : DGCA Report 2010

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-04

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

0

100000

200000

300000

400000

500000

600000

AIRCRAFT DEPARTURES

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-04

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

05000000

100000001500000020000000250000003000000035000000400000004500000050000000

Passenger carried

No O

f P

assengers

Tota

l depart

ure

s

Key Statistics : ( Nov-2011)

Source : DGCA report nov-2011

Key Statistics : ( Nov-2011)

Source : DGCA report nov-2011

Key Statistics : ( Nov-2011)

Source : DGCA report nov-2011

Key Statistics : ( Nov-2011)

Source : DGCA report nov-2011

Key Statistics : ( Nov-2011)

Source : DGCA report nov-2011

Key Statistics : ( Nov-2011)

Source : DGCA report nov-2011

Cost Structure

(Source: ICRA report, Civil Aviation 2010)

Fluctuations in the price of ATF

Source: Index mundi November 2011

Competitor Analysis :

2009-10

Revenue Rs. Millions

Expense Rs Millions

P/L (Rs Million)

Jet 103672.6

101666.5

2006.1

Jetlite 16812.6

16203.2

609.2

Kingfisher

50679.2

61845.8

(11166.6)

Spicejet

21810.8

21204.8

606

GoAir 8961.2 9088 (126.8)

Indigo 26015 21548 4467

Busiest Airports by Passenger traffic

DELBOM

MAABLR

CCUHYD COK

AMDLK

OCJB

PNQ

TRV

CCJGAU JA

IGOI

NAG

0

5000000

10000000

15000000

20000000

25000000

30000000

Total Passengers

Total Passengers

2010

2009

Source : IATA

Most Competitive Routes

Source: OAG Max Online for w/c 5 December 2011

Skytrax best low cost airlines 2007,2009,2010 and 2011

Head quarter Malaysia operating cost $0.035

/seat-km First airlines for ticket

less air travel 106 routes – Flies

international

Air Asia ( Malaysia )

World no 2 low cost airlines

Subsidiary of Qantas Flight entertainment

system using i-pad Flies international Has a business class

Jet Star Airlines :

Macro Fundamentals that will driveAviation Growth…….

Market Size

Demographics

EconomicGrowth

Trade &Investment

India has a population of 1.1 billion with an estimated middle class of 300 million.

50% of the population is <25 years old. Therefore, the size of the economically active segment will continue to grow for a number of decades (unlike the developed countries and even China).

Average GDP growth of 6% p.a. sustained since 1991 and accelerating thereon.

India has an increasingly open economy, with strong growth in international trade, healthy foreign exchange reserves and increasing foreign direct investment.

Macroeconomic Factors

India Growth Story :

India's domestic aviation market expansion has been the strongest in the world – IATA report

India is currently the ninth largest aviation market in the world, according to a RNCOS report “

it is expected that the civil aviation market will register a compound annual growth rate (CAGR) of more than 16 per cent during 2010-2013.

Passenger traffic has grown at 18 per cent year on year (y-o-y) basis and the year 2010 closed at 90 million passengers both domestic and international.

India is the fastest growing aviation market and expected to be within 4-5 big aviation markets by 2020 and 3rd in terms of domestic market after US and China.

During the last two decades from a fleet of only about 100, the scheduled operators now have reached 435 aircrafts connecting the nation and the world.

Forecast :

Traveler Segmentation :

Source : IATA projections based on goldman sachs projection

Million

Capacity Expansion plan :

On December 9, 2010, SpiceJet made a firm order for 15 Bombardier Dash 8 Q400 and took options to purchase a further 15.[

20th, Nov 2005

Kingfisher Airlines orders 20 new ATR72-500 Aircraft worth US$350 Million       

On 30th Dec-2005, Air India's purchase order for 111 aircraft involvingRs67,000 crore.

On 12th Jan-2011, Indian budget airline IndiGo has signed an agreement to buy 180 Airbus A320 aircraft, the European plane maker said, in a record sale worth USD 16.4 billion.

Go Air places order for 72 aircraft worth Rs. 32,400 crore

Jet Airways has entered into a purchase agreement with Boeing to acquire 30 737-800s to be delivered by 2015 and 10 Boeing 787-8s to be delivered by 2014.

FDI Policy The Reserve Bank of India (RBI) announced that foreign institutional

investors might have shareholdings more than the limited 49% in the domestic sector.

Airports Foreign equity up to 100% is allowed by the means of automatic

approvals pertaining to establishment of Greenfield airports Foreign equity up to 74% is allowed by the means of automatic

approvals pertaining to the existing airports Foreign equity up to 100% is allowed by the means of special

permission from Foreign Investment Promotion Board, Ministry of Finance, pertaining to the existing airports

100 per cent tax exemption for airport projects for a period of 10 years.

Air Transport Services Up to 49% of foreign equity is allowed by the means of automatic

approvals pertaining to the domestic air transport services Up to 100% of NRI investment is allowed by the means of automatic

approvals pertaining to the domestic air transport services 74 per cent FDI is permissible in cargo and non-scheduled airlines.

New government initiatives to develop India’s potential as the world’s fastest growing aviation market……

Changing regulation policies

Increased privatization of airports

The government is planning to raise the foreign direct investment (FDI) limit to 74% for non-scheduled airline operations, helicopter services and regional airlines using small aircraft. The current FDI ceiling for airline services is 49%.

In 1997 the Government of India published a policy document to open up existing airports to domestic and foreign private investors in order to meet the significant costs involved in developing India’s airports to keep pace with the growth in air traffic. In Sep 2003, Govt leased out Delhi and Mumbai airports to the private sector as part of its extensive modernisation and growth plan for the sector.

CONTINUED………

Growing Infrastructure developments

Mumbai Airport - Planned investment of US$1.6 billion by 2020, of which US$1.3 bn will take place by 2014  

Delhi Airport - Planned investment of US$764 million by 2014 and USD$.7 billion by 2020

Kolkata Airport - Modernisation will be led by the Airports Authority of India. Total project cost is estimated at US$360 million. 

Hyderabad & Bengaluru Airports - Total investment of US$1.1 billion dollars. Both airports have commenced commercial operations in April 2008.

35Non-Metro Airports - Development of 35 non-metro airports will proceed at an estimated cost of US $ 1.2 billion. City side development will require a further US$350 million, with the modernisation process to be completed by 2009.

North East Region - Development of following airports :• Pakyong Airport, Gangtok, Sikkim• Cheithu Airport, Kohima, Nagaland• Itanagar

Other Greenfield Airports –• Mopa, Goa• Navi Mumbai. Planning Commission discussing 3rd Mumbai Airport.• Chakan/Rajguru, Pune, Maharashtra; Halwara, Punjab• Kannur, Kerala.• Hassan & Gulbaraga, Karnataka.

Growing Infrastructure developments

Drivers and Challenges :

Which Airline Model must be Adopted in India?

It Certainly is NOT…

Pure Low Cost: Air travellers want more value for their money

North American Hub and Spoke: Not enough distance between airports

Point to Point only: Inefficient Regional Jet Feeder: Not enough critical

mass

Therefore , a unique model needs to be developed.

Our Strategy :

Marketing

• Proper STP• Frequent flyer programs• Tie ups with corporate• Holiday packages• Dynamic pricing•Focus on Branding

Operations

• Operate on routes with high seat factor•Quick Turn around time •Red eye operations• Optimal mix of ATR & jet aircrafts•Leasing of Aircraft

Finance

• More equity •Use of FCCBs• Low interest – long term loans.

Thank You