Industrial Analysis on Civil Aviation Sector

Created By: Sawmyak Ch. Deb

Nature of the Civil Aviation Industry:

◉ Air Traffic: The Airport Authority of India (AAI) manages total 122 Airports 11 International Airports, 94 domestic airports and 28 civil enclaves.

◉ Growth: Domestic passenger Segment growth is at 12% PA, International passenger segment is 7% .

◉ Privatization: Privatization of International Airports is in offering through Joint Venture route.    

◉ Air movements: The international and domestic aircraft movements increased by 15.4 percent each during the period under review.

History

◉ The first commercial flight in India was made on February 18, 1911.◉ Tata Services became Tata Airlines and then Air-India and spread its wings as Air-

India International.◉ When the American Tenth Air Force in India disposed of its planes at throwaway

prices, 11 domestic airlines sprang up, scrambling for traffic that could sustain only two or three.

◉ In 1953, the government nationalized the airlines, merged them, and created Indian Airlines.

◉ In 1999, A-I had 700 employees per plane; today it has 474 whereas other airlines have 350.

◉ The Air Corporation Act was repealed to end the monopoly of the public sector and private airlines were reintroduced.

◉ All aspects of aviation were firmly controlled by the Government.◉ This monopoly was perpetuated for the next forty years.

Civil Aviation Policy in India

◉ The CAA was commissioned to maintain a competitive civil aviation environment which ensures safety and security in accordance with international standards, promotes efficient, cost-effective and orderly growth of air transport and contributes to social and economic development of the country.

Objectives Civil Aviation Ministry:◉ To ensure aviation safety, security◉ Flexibility to adapt to changing needs and circumstances.◉ To provide all players a level-playing field◉ Encourage Private participation◉ Encourage Trade, tourism and overall economic activity and growth◉ Security of civil aviation operations is ensured through appropriate systems,

policies, and practices. 

Passenger airlines – The players

Air India◉ Air India was founded in 1953.◉ It is one of the largest regional airline systems in Asia with a fleet of 62 aircraft.◉ The airlines network spans from Kuwait in the west to Singapore in the East and

covers 75 destinations - 57 within India and 20 abroad.

Air Sahara◉ Air Sahara has established, it is one of the leading players in the Indian Aviation

industry. ◉ Air Sahara is part of the multi-crore Sahara India Pariwar.◉ Starting on a modest scale and a capital of only Rs.2000 cr in 1978, Sahara India

Pariwar has traversed a long way to become an icon in Indian entrepreneurship.

Contd.. Jet Airways

◉ In May 1974, Naresh Goyal founded Jet Air (Private) Limited with the objective of providing Sales and Marketing representation to foreign airlines in India.

◉ It currently operates a fleet of Boeing and ATR72-500 turbo-prop aircraft.

Air Deccan◉ Air Deccan is a unit of Deccan Aviation Private Limited, India's largest private heli-

charter company, Formed in 1995.◉ The company has a modern fleet of ATR-42-320 aircraft, one of the finest and most

efficient Turbo-Prop aircraft flying.

Market Shares of top 3 and bottom 3 players

Classification of players

◉ Leaders: Indigo Airlines, Jet Airways.◉ Challengers: Air Asia.◉ Followers: Go Air, Air Vistara◉ Niche's : Air Costa

Branding Strategies:◉ Indigo Airways

Positioning: Indigo airways are very low price and frills, to compare to other. ◉ Air India:

Positioning: Air India is the airlines that give you the best on flight experience with on time performance and low cost ticket.Pricing PoliciesAirline pricing needs to take a central role in ensuring success. In the highly competitive airline industry, a ‘me-too’ carrier in an established market has little chance of success.

Pricing as a differentiator

◉ In the US, Spirit Airlines is among the fastest growing airlines yet, from a schedule and product standpoint, it brings little to the new markets it serves.

◉ Lower base fares, yes. But to some travelers, a dizzying number of ancillary charges, including carry-on bag fees and boarding pass printing.

Capacity Analysis◉ Total Capacity :The government owned Airports Authority of India (AAI) manages 126

airports and civil enclaves out of a total of 449 airports and airstrips found in India. Indian airports handled 139.3 million domestic and 50.8 million international passengers in the 12 month period (2014-15) ending March 2015.

Geographical Presence◉ Indian Airlines: Head Office- Airlines House,113, Gurudwara Rakabganj Road, New

Delhi,Delhi-110001.◉ Indigo: Head Office- Central Wing, Ground Floor,Thapar House,124, Janpath New

Delhi,Delhi-110001.◉ Go Air Airlines: Head Office- C/o Britannia Industries Limited,A-33 Lawrence Road

Industrial Area, New Delhi.◉ Jet Airways: Head Office- Siroya Centre, Sahara

AirportRoad,Andheri(East) Mumbai 400099 ,MaharashtraDemand and Supply BalanceThe demand for air travel is sensitive to changes in air travel prices and incomes. However, the degree of sensitivity (i.e. its demand elasticity) will vary according to different situationsWhen the supply and demand come in to balance, India's airlines will become profitable. Now, because one airline (Kingfisher) has taken out capacity and 3 airlines Vistara, Air Pegasus and Trujet — took off last year.

 

Key Supply Side Constraints◉ High Aviation Turbine Fuel (ATF)◉ Excess Capacity◉ Huge Debt Burden◉ Poor Infrastructure◉ Regional Connectivity

Professional Trade bodies◉ Indian Association of Tour Operators (IATO)◉ The International Air Transport Association (IATA) ◉ Travel agents association of India (TAAI)◉ The Travel Agents Federation of India (TAFI)

Online Presence◉ Air India- www.airindia.in ◉ Indigo- book.goindigo.in◉ Yatra- www.yatra.com◉ MakeMyTrip- www.makemytrip.com

Promoters Indigo

› Founded in 2006 by Rahul Bhatia of InterGlobe Enterprises and Rakesh Gangwal, a United States-based NRI.

› InterGlobe has a 51.12% stake in IndiGo and 47.88% is held by Gangwal's Virginia-based company Caelum Investments.

› Mr. Rahul Bhatia serves as Group Managing Director of InterGlobe Enterprises Limited.

PromotersSpicejet

› Founded in April 1 , 1992 by Naresh Goyal.

› As of February 2016, it has a 21.2% passenger market share.

Profiles of CMD’s, CEO’s and Top Management Personnel

Jet Airways

Profiles of CMD’s, CEO’s and Top Management Personnel

Spicejet

Corporate Social Responsibility

Indigo◉ IndiGoReach is the title for CSR Projects & Programs of IndiGo.

◉ Its vision and mission is to consistently contribute towards the betterment of under privileged sections of the society for economic prosperity, social development, environmental integrity and sustainable development of the nation.

SpiceJet◉ Since the Company does not have net profit for the last three financial years, the

Company is not mandatorily required to contribute towards CSR activities.

◉ The Company reaches out to provide help and relief to the lesser privileged and to those in need.

Initiative towards Social Inclusion

IndiGo◉ Assistance program during natural calamities / disasters◉ Program for protection of national heritage, art and culture including

restoration of buildings and sites of historical importance and works of art Jet Airways

◉ Company operated special flights to fly relief material and ferry those stranded.◉ Magic Box collection programme that helps support education and sustainable

community services by partnering with the non-governmental organization (NGO) Save the Children India (STCI). Spice Jet

◉ Relief work and natural calamities◉ Special flights◉ Sapnon ki Udaan

Controlling ministry of Civil Aviation/ Regulator

› Ministry of Civil Aviation is responsible for formulation of national policies and programmes for the development and regulation of the Civil Aviation sector in the country.

› Exercises administrative control over attached and autonomous organizations like the DGCA, Bureau of Civil Aviation Security and Indira Gandhi Rashtriya Udan Academy and affiliated PSU like National Aviation Company of India Limited, A.A.I. and Pawan Hans Helicopters Limited.

Regulatory Actions against the Players of Civil Aviation

Section 19 of the Act, provides that CCI may inquire into any alleged cartel on receipt ofany information from any person, consumer or their association or trade associate.

◉ Kingfisher-Jet Airways Agreement on Code Sharing .

◉ Air India’s Involvement in Fuel Surcharge Raising Cartel.

◉ Cartels for Charging High Ticket Pricing .

Key National and Global Issues Affecting the Civil Aviation Industry

◉ High Aviation Turbine Fuel (ATF) Prices. 80% of the total operating costs of Airline Industry, $10.4 billion loss.

◉ Safety 36.4 million flights and 16 fatal accidents, 100,000 flights take-off and arrive safely.

◉ Environment Fuel efficiency gains of 20-30% over their predecessors, biofuels to just 190 airports, we will cover about 80% of potential demand.

◉ Profitability Stocks are volatile, 9/11 tragedy, 2.4% profit margin.

Key Initiatives by the Government to Promote the Industry

◉ Airports Authority of India (AAI) plans to develop city-side infrastructure at 13 regional airports across India.

◉ The Airports Authority of India (AAI) plans to revive and operationalize around 50 airports in India over the next 10 years to improve regional and remote air connectivity.

◉ DGCA 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.

Financial Highlight’s

FY 2014-15 (Indian rupee .in Crores)

COMPANIES Sales Gross Profit Profit before tax Profit after tax

Jet Airways 20132.13 4066.32 -1813.71 -1813.71

SpiceJet 5201.53 -134.14 -687.05 -687.05

Trend Analysis 1

Jet Airways(Indian rupee .in Crores)        

Particulars 2012-13 2013-14 2014-15   2012-13 2013-14 2014-15

Net Sales 17360.46 17805.26 20132.13   100.00% 102.56% 115.97%

Gross Profit 3881.78 1891.29 4066.32   100.00% 48.72% 104.75%

Operating profit 902.93 -1484.65 -115.95 

100.00% -164.43% -12.84%

Profit Before Tax -485.5 -3667.97 -1813.71 

100.00% 755.50% 373.58%

Profit After Tax -485.5 -3667.97 -1813.71 

100.00% 755.50% 373.58%

Earnings Per Share 56.24 322.87 -159.65   100.00% 574.09% -283.87%

Book Value Per Share -39.67 -196.1 -360.06   100.00% 494.33% 907.64%

Spicejet(Indian rupee .in Crores)        

Particulars 2012-13 2013-14 2014-15   2012-13 2013-14 2014-15

Net Sales 5600.68 6304.23 5201.53   100% 112.56% 92.87%Gross Profit 283.54 -259.59 -134.14   100% -91.55% -47.31%

Operating Profit -195.13 -848.46 -656.73   100% 434.82% 336.56%

Profit Before Tax -191.08 -1003.24 -687.05  100% 525.04% 359.56%

Profit After Tax -191.08 -1003.24 -687.05  100% 525.04% 359.56%

Earnings Per Share -3.95 -18.75 -11.46  100% 474.68% 290.13%

Book value per share -4.63 -18.58 -21.1  100% 401.30% 455.72%

Ratio Analysis 2

Jet Airways (2014-15) Spicejet (2014-15)

Current Ratio 0.97 0.40

Quick Asset ratio 0,80 0.37

Debt To Equity Ratio 70.45 2.21

Proprietary Ratio 0.02 9.32

Gross Profit Ratio 20.20% -2.57%

Operating Profit Ratio -0.58% -12.63%

Stock Turnover ratio -------------------- --------------------

Earnings Per Share -159.66 -11.46

Key Factors Contributing to Cost 3

Particulars FY 2014-15

Power & Fuel Cost 6702.05

Employee Cost 2243.00

Other Manufacturing Expenses 7120.76

General and Administration Expenses 2040.94

Miscellaneous Expenses 1075.77

Total Cost 20248.08

Key Factors Contributing to Cost (Jet Airways) (Indian rupee .in Crores)

Key Factors Contributing to Cost (SpiceJet) (Indian rupee .in Crores)

Particulars FY 2014-15

Power & Fuel Cost 2412.58

Employee Cost 537.47

Other Manufacturing Expenses 2385.62

Selling and Distribution Expenses 279.36

Other expenses 243.23

Total Cost 5858.26

Comparative Statements 4

Jet Airways

(Indian rupee .in Crores)

Particulars 2014-15 2013-14 2012-13Net Sales 20132.13 17805.26 17360.46

Gross Profit 4066.32 1891.29 3881.78

Operating profit -115.95 -1484.65 902.93

Profit Before Tax -1813.71 -3667.97 -485.5

Profit After Tax -1813.71 -3667.97 -485.5

Earnings Per Share -159.65 322.87 56.24

Book Value Per Share -360.06 -196.1 -39.67

Dividend Per Share 0 0 0

Face value per share is Rs - 10

SpiceJet

(Indian rupee .in Crores)

Particulars 2014-15 2013-14 2012-13Net Sales 5201.53 6304.23 5600.68

Gross Profit -134.14 -259.59 283.54

Operating profit -656.73 -848.46 -195.13

Profit Before Tax -687.05 -1003.24 -191.08

Profit After Tax -687.05 -1003.24 -191.08

Earnings Per Share -11.46 -18.75 -3.95

Book Value Per Share -21.10 -18.58 -4.63

Dividend Per Share 0 0 0

Face value per share is Rs - 10

THANKS!

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