INDUSTRY ANALYSISSTUDY ABOUT THE AVIATION INDUSTRY

ABOUT THE INDUSTRY• Indian aviation Industry is highly growing industry and will become 3rd largest aviation market by 2020.

Civil aviation industry entering into the new technology era with various driving factors like low-cost carriers, modern airport, FDI, advanced information technology.

Aviation Industry is Divided into:-

International Carriers Regional Carriers Cargo Carriers

Market Size:-

The market size of Indian aviation Industry is US$16 billion and it is 9 th largest civil aviation market in the world expected to become 3rd largest aviation market by 2020.

Total aircraft movement at all India airport increased by 14.3%

According to Crisil India is among the five fastest growing aviation market

Indian aviation Industry is highly growing market and it is largely untapped thus having huge growth opportunity

Total domestic passenger growth during Jan-Nov 2016 903.36lak against 933.82lak during the corresponding period of previous year there by registering a growth of 23.10%

GROWTH RATE

Reasons for Growth rate:

• Increase in the Business Class booking upto75% YOY(2015-2016) comparison for every month increase in corporate activity

• Increase in tourism:

• International from 2014-2015 4.44%

• Domestic from 2014-2015 11.63%

• PPP increased to 5730 USD

MAJOR COMPETITOR

• Indigo:

Indigo is a utilitarian low-price domestic airline which offers feasible flying alternatives for millions. The airline was facilitated by the Air Passengers Association of India (APAI) as the “Best Low-Fare Carrier in India for the year 2007”. Indigo has 731 daily departures and a fleet of 107. planning to order 100 Airbus A320

• Go Air Airlines:

Like Spice Jet, a Go Air airline is also a low price airline endorsed by the Wadia group. It was inaugurated in Mumbai in June 2004. It operates in 11 cities with 61 daily departures.

• Spice Jet:

Spice Jet is basically a low cost airline which incorporates many Boeing 737-800 airplanes in its fleet. It covers 14 destinations in India

• Jet Airways:

Jet Airways was established on May 5, 1993. It earns yearly revenue of Rs 2502.89 and total income of approx 117868.8 Million. At present it id India's biggest private domestic airline with 62 aircrafts and a market share ₹

of 25%. It covers 50 destinations with 340 regular departures

INDUSTRY LIFE CYCLE

Introductory Stage:-

• 1910: The first Indian, or maybe even Asian, to have an airplane is the young Maharaja of Patiala, Bhupinder Singh. Commercial aviation came in the year 1911.

•  JRD Tata launches India’s first scheduled airline in 1932. Tata Airlines flies 160,000 miles, carries 155 passengers and 10.71 tones of mail.

• 1946: Tata Airlines changes its name to Air India.

Growth Phase:-

• Legislation comes into force to nationalize the entire airline industry in India in 1953.

• East West Airlines becomes the first national level private airline to operate in the country after 37 years in 1990. Domestic Passenger traffic Compound Annual Growth Rate (CAGR) – 10.1% (FY 2006-16).

• International Passenger traffic CAGR – 8.8% (FY 2006-16).

• Total freight compared to International air freight traffic CAGR in Domestic Sector – 7.6% (FY 2006-16) and in International Sector 4.8% (FY 2006-16)

• India has more than 86 scheduled international airlines constituted of 5 Indian carriers and 81 Foreign carriers. Currently India has air connectivity with 55 countries through more than 300 routes.

• Passenger traffic is growing at 20% per annum in the last 2 years.

PORTER 5 FORCE• New entrants’ threat- Moderate

• This industry requires a huge capital and without a strong customer base there will be little to no profit in the first few years.

• 100% FDI is one of the attraction factor.

• 40 per cent is the upwardly mobile middle class.

• Threat remains low because of the nature of the industry (Regulatory hurdles, Capital-intensive)

• Air Asia India has been granted DGCA approval (Price War)

Customers/buyers bargaining power- Low

The Customer bargaining power is higher because there is Low switching cost.

And there are various online portal for flight ticket booking and price comparison.

Privilege programs also plays a major factor to provide additional benefit for its customer.

Bargaining power held by suppliers-High

• Bargaining power of suppliers remain high as there are only few fuel and aircraft suppliers

• Talent pool of pilots, engineers and other staff is also limited

Threat of substitute products- high

• Threat remains low in this sector also as no other means of transport is as swift, and convenient as airlines

• It saves time

• Over this the main competitor for this industry as revolutionary communication system development by IT industry.

Industry Rivalry- Moderate

• Existing firms can and will use their high capital to retaliate against newer firms with whatever means necessary such as skimming pricing technique , better services, low or no cancellation charges, etc.

• The fixed costs are extremely high in this industry. This makes it hard to leave the industry because they are probably in long term loan agreements in order to stay in business. The products involved or the planes are highly complex which also heightens the competition.

ABOUT INDIGO• IndiGo is India’s largest passenger airline with a market share of 40.3% as of December,

2016. They primarily operate in India’s domestic air travel market as a low-cost carrier with focus on our three pillars – offering low fares, being on-time and delivering a courteous and hassle-free experience. IndiGo has become synonymous with being on-time.

• Since our inception in August 2006, they have grown from a carrier with one plane to a fleet of 126 aircraft today. A single aircraft type, high operational reliability and an award winning service make us one of the most reliable airlines in the world. We currently operate flights connecting to 43 destinations – 37 domestic and 6 international.

GEOGRAPHICAL SCOPE

As of February 2017, IndiGo flies to a total of 44 destinations including 38 domestic destination within India and 6 international destinations within the extended neighborhood in Asia.

BLUE PRINT

Customer

AgentAircraft

Maintenance

Spares and services

OEMS

Online Booking Shuttle Service

Fuel Supply

Security Check

Cargo Logistics

Conveyor System

Jet Fuel Supplier

Boarding Pass

Check

Online Boarding

Pass

Airline Customer service

Airline Information System

Check Out

Shuttle Service

Cargo Logistics

Conveyor System

Security Check

Supply Chain Management

MARKET VALUE

• MARKET CAP (RS CR)-30,868.65

• BOOK VALUE (RS)-50.43

• PROFIT/EARNINGS- 17.17 INDUSTRY P/E- 11.04

• EPS (TTM) – 58.17

• FACE VALUE (RS) -10.00

• PRICE/BOOK- 16.79

• DIV YIELD.(%)- 1.77%

• DIV (%) -150.00%

Operating Profit

Total Assets

Equity Dividend

Profit After Tax

FINANCIALS

(JET AIRWAYS)Mar16 Mar15 Mar14 Mar13 Mar12

Income

Revenue From Operations [Net] 19,556.50 18,044.22 15,994.70 15,881.86 13,981.85

Other Operating Revenues

1,610.83 1,529.21 1,307.19 970.73 834.06

Total Operating Revenues

21,167.33 19,573.43 17,301.89 16,852.59 14,815.91

Other Income 743.63 707.30 411.58 550.58 357.17

Total Revenue 21,910.96 20,280.73 17,713.47 17,403.17 15,173.08

Mar16 Mar15 Mar14 Mar13 Mar12

Expenses

Aircraft Fuel Expenses

5,015.73 6,686.26 7,175.42 6,992.00 6,630.67

Aircraft Lease Rentals

2,124.79 1,958.92 1,676.10 1,232.10 906.00

Employee Benefit Expenses

2,388.13 2,243.00 1,899.59 1,544.24 1,599.49

Finance Costs 868.11 884.06 997.16 1,118.98 971.23

Depreciation And Amortisation Expenses

995.09 762.50 875.75 926.57 939.88

COMPARATIVE ANALYSIS

• Indigo:-

• Single type of aircraft: Indigo's whole fleet consists of A-320-232 aircraft while Air India, Jet Airways and Spice Jet use 10, 9 and 3 different makes of aircraft respectively. This results is in greater flexibility by making use of the same crew from pilots to flight attendants to the ground force thereby cutting hiring, training and up gradation costs.

• Single Class:  Having only Economy class means that Indigo does not have to spend time, money and crew on privilege passengers.

• Fuel: Domestic fuel taxes can be as high as 30 per cent along with an 8.2 per cent excise duty. As a result, fuel for Indian airlines accounts for about 45 per cent of total operating costs,  Indigo's aircraft try to save fuel by using software to optimize flight planning for minimum fuel burning routes and altitudes and also by making use of latest fuel saving technology.

The company is also involved in Fuel hedging after the government allowed it in 2007.

• Route Planning: Indigo operates over a lesser number of destinations than its competitors but with a higher frequency

•  all Indigo's destinations are connected to at least two cities while most are connected to 3 or more destinations. Indigo can keep its aircraft in the air for a longer period of time and save up on airport charges.

PASSENGER LOAD FACTOR

CANCELATION FACTOR

JET AIRWAYS

• Posted a profit Rs. 467.11 Crore

• Reasons for this is the turn in focus on cost and revenue quality, productivity and efficiency .

• Reasons are as follows:-

• Decrease in oil price.

• Appointment of Mr Ball as CEO( known arund as turnaround expert)

• Bringing of LCC carrirs under the brand Jetlite and Jet Konnect

• Shifting its hubs to Abu Dhabi and Amsterdam from Brussels, increasing short haul international flights and depending on codeshare agreements with Etihad's partners to ferry its passengers forward. 

• Re-negotiating maintenance and engineering contracts (

It reworked the rotation of aircraft for maintenance checks, and increased utilisation of planes by two hours a day. 

• The airline ensured that the cheapest buckets of its inventory was sold on its own website. 

PROBLEMS

• About 24 of Jet's 75 narrow bodied planes have ages ranging from 8-15 years. 

• The airline has a directly employed workforce of 15,000 people and it has an additional 6,000-7,000 on contract. This gives the airline a high employee to aircraft ratio of slightly less than 200:1 

• . In 2009, Jet had to cancel hundreds of flights as pilots reported sick en masse, protesting the sacking of two colleagues. 

CONCENTRATION RATIO

• In economics, a concentration ratio is a measure of the total output produced in an industry by a given number of firms in the industry

• Top companies- indigo(38.5%), jet airways(17.6%), air India(15.5%), Spicejet(12.3%), go air, air India express, jetlite airways, air asia

• In terms of Passenger Load Factor (PLF) -- an indicator of filled seats -- SpiceJet was on top with 91.1%, followed by GoAir (86.3%), IndiGo (85.1%), AirAsia (82.7%) and Air Costa (82.1%). Among other airlines, the PLF of Jet Airways was at 79.1% while that of JetLite and Air India stood at 77% and 75.7% respectively.

• Indigo(38.5%),

• Jet airways(17.6%),

• Air India(15.5%),

• Spicejet(12.3%)

• 38.5+17.6+15.5+12.3=83.9% or 84%

• The Herfindahl index (also known as Herfindahl–Hirschman Index, or HHI) is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them.

• Calculation-

• Herfindahl index= ∑ ( market share n ) x

• (0.385)2+(0.176)2+(0.155)2+(0.123)2

• 0.1482+0.0309+0.0240+0.0151=21.82% (highly concentrated Market)

• A high four firm concentration ratio and HHI above the 1,800 benchmark, indicates a high degree of concentration within the industry. This type of market concentration can be defined as a tight oligopoly, where India‘s four firms hold more than 60% of the market share.

GOVERNMENT INITIATIVE

• New Aviation Policy, Which Includes Proposals Such As Allowing New Airlines To Fly Abroad, Introduction Of More Regional Flights And A New Formula For Granting Bilateral Flying Rights.

• The Indian Space Research Organisation (Isro) Is Aimed At Providing Space Technology For Construction Of Airports.

• The Government Of India Is Planning To Boost Regional Connectivity By Setting Up 50 New Airports Over The Next Three Years, Out Of Which At Least 10 Would Be Operational By 2017.

• India's Aviation Regulator, Has Signed An Agreement With United States Technical Development Agency (Ustda) For India Aviation Safety Technical Assistance Phase Ii, Aimed At Bringing In Systemic Improvements In The Area Of Operation, Airworthiness And Licensing.

• · Aircraft Engines And Parts Thereof Are Eligible For Duty Exemption When Imported For Servicing, Repair Or Maintenance Of Aircraft Used For Scheduled Operations.

• · The Budget Envisages The Development Of New Airports In Tier Ii And Tier Iii Cities.

• · Basic Customs Duty Exemption Is Available For Parts And Testing Equipment Used For The Maintenance, Repair And Overhaul Of Aircraft.

• · Budgetary Support Is Provided To The Airport Authority Of India (Aai) For The Development Of Airport Infrastructure In The North-eastern States Of India.

STRATEGIC INDUSTRY MAPPING

CONCLUSION

• India’s aviation industry is largely untapped with huge growth opportunities, considering that air transport is still expensive for majority of the country’s population, of which nearly 40 per cent is the upwardly mobile middle class. 

• The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions that would boost India’s civil aviation industry. With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2020 and the largest by 2030.