airline dat an analysis

8/12/2019 Airline Dat an Analysis

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June 2008 [AVIATION INDUSTRY JET VS KINGFISHER ]

JET VS KINGFISHER

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Aviation Industr

Indian Aviation industry has shown a massive spurt in the recent years with some key

drivers like economic development, globalisation, declining passenger fares and

regulatory liberalisation !ne more significant reason is the consolidation taking place

in the industry "ue to consolidation, the top three players command 88#$ marketshare %he outcome of the consolidation is displayed in the form of improving yields

%here are other positive factors including high &"' growth, corporate profitability,

e(pansions and the overall industrial performance !n the consumer)s side, there are

factors like higher incomes, willingness to spend as well as competitive low fares

In!r"as" in #ass"n$"r tra%%i!

%he step taken by ma*ority of international operators to offer better connectivity to

Indian cities has opened up opportunities in the feeder segment %his means that the

international flights discharge passengers at ma*or hubs, who are then flown by feeder

airlines to smaller towns %he graphs shown below shows the growth in the domestic +international passengers carried by the national carriers

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%he graph shows a considerable growth of total internal passenger growth of both

domestic and foreign carriers at 1-#$ .A&/ till 200

ow cost .arriers ..3 have remarkably contributed to the growth in the number of

passengers &rowth in the number of passengers due to .. can be clearly depicted

from the graph below

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As we can see the ..s have contributed 5uite a lot in the growth of number of

passengers !f the total 6-8 mm e(tra domestic passengers carried by local carriers

from 20047200, -1mm ie --$ were carried by ..s

%here are some more reasons of growth in passenger traffic

9ince price sensitive Indian market are in favour of low cost model, airlines are nowoffering more air connectivity at low fares %he actual yields have been almost steady

but inflation ad*usted yields have declined by about percent in the last three years In

fact, inflation ad*usted fares have been falling appreciably

As we can see from the graph below, the inflation ad*usted yields are declining which

reduces the fare and hence increases the demand for the air tickets

:ield ad*usted for inflation declining which is attracting more travellers and hence the

demand

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&onso'idation is anot("r i)#ortant %a!tor o% $ro*t(

.onsolidation has eased the margin pressure Aviation industry has witnessed growth

in form of mergers and takeovers /ecent consolidation like that of Jet and 9ahara,

;ingfisher and "eccan and Air India and Indian Airlines %he top three players in terms

of passengers carried will have 88#$ market share as compared to


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+In!r"as" in air !ar$o )ov")"nt

..s have started offering competitive rates to companies transporting goods =ore

and more e(porters are opting for air cargo because of the prices offered to them %he

growth in cargo business has led to increase its cargo revenue by 41$

+-i%"st'" !(an$"s a%%"!ts air trav"' in a #ositiv" *a

India has witnessed continued growth in its &"' Increase in wages have led to

increase in disposable incomes, which has increased the spending power of the middle

and the upper middle class population %he graph below shows airline passenger

revenue as a percentage of private final consumption e(penditure '>.?3

R"!"nt D"v"'o#)"nts in Indian Aviation Industr

@e have witnessed three domestic airline mergers in last couple of years which has ledto oligopoly in the sector %hese were the mergers between Jet Airways and Air9ahara, Air India and Indian Airlines and lastly, ;ingfisher and Air "eccan %heac5uisition of Air 9ahara by Jet Airways %he new name being Jetite India td3 helpedJet to become the largest airline group in India with around 40 percent share of the -#million passengers who flew this year ut a serious competition was thrown by;ingfisher Airlines which strategically married with the discount carrier Air "eccan >orthe last many years, private carriers managed to capture the lion)s share of thedomestic aviation market Jetite and ;ingfisher Airlines are now the forces to reckonwith in the airline industry of India,and they seem to play the final game of supremacy in the Indian skiesIndian &overnment had opened its domestic air market for private carriers in early1660s, Air 9ahara started its operations as 9ahara Airlines with only two aircrafts =any


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others such as ?ast @est and "amania Airlines also started their operations but soonwound up !nly Air 9ahara spread its operations in domestic market as well as ininternational market 9imilarly, Jet Airways had a decent beginning in mid 1660s withfour aircrafts providing network in 12 cities %oday, it has more than 4 aircrafts andcovers more than #0 destinations %hey have been known for high standard in flightservice and professionally managed ground staff

Air "eccan started its operations in 2004 as the first low cost carrier in India ItrevolutioniBed air travel in India by offering innovative prices as low as /e 1 It becamethe first airline to connect smaller cities with metros and utiliBed price discriminationvery effectively;ingfisher started its operations in 200# as a full service airline for the premium classsector providing comfort and a plethora of services that any customer could ever dreamof It focused on building its brand image as a business traveller)s paradiseJetite and ;ingfisher Airlines are now formidable players in Indian aviation industrywith stiff competition for the top slot After the merger, each airline e(pects synergies toemanate and benefit its operations %hey are drawing different strategies forsustenance, growth, and increase in market share

Industr ana'sis.

%he below graph shows the growth of various players in this sector

It is evident from the graph that after the consolidation in the industry, ;ingfisher andJet are fighting for the top slot, Indian Airlines being at the third position

elow graph show the market share of different players in the market


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%he low penetration of airline services in the country and the tremendous scope for

growth has made all players in the industry announced massive fleet e(pansion plans

In last - months, Indian carriers had added 1#< aircrafts, an induction of almost about

4# aircrafts per month

Fleet expansion plan of various Market players

Currentfleet FY10 CAGR

Indian Airlines 74 117 16%

Jet Airways + JetLite 94 148 16%

SpiceJet 17 35 27%

Kingfisher + Air Deccan 77 188 34%

Go Air 5 34 88%

Indigo 13 40 45%

Total 280 562 26%

%hough demand continues to be strong, massive capacity additions may surpassdemand in the long run %his demand7supply mismatch will force another round of pricewar in the industry./ising oil prices have also forced oil companies to increase A%> prices %he airlineindustry, which is already in losses, has not been able to absorb these costs and had topass these costs to customers %his has thus resulted in -#( rise in fuel surchargefrom /s 410 in July 200 to /s 1,-#0 at present.Hence, companies need to continue their innovation so that price is at a optimumlevel.

Gro*t( o% Sa'"s and Ass"ts.

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%he sales of various players "eccan clearly indicate that Jet was leading the race inAirline space before the marriage of ;ingfisher and "eccan

0

200000

400000

600000

800000

1000000

1200000

1400000

Jet Airways Air Deccan SpiceJet

2007

2006

-oss ,"%or" ta/

0

10000

20000

30000

40000

50000

60000

70000

Jet Airways Air Deccan SpiceJet

2007

2006

Cow the combined force of Air "eccan and ;ingfisher has sales almost e5ual tocombined sales of Jet and 9ahara

elow table shows the current fleet siBe of ;ingfisher

Aircraft Typ N!" i#

Sr$ic

KF Fir&t KF

Ec!#!'y

T!ta(

)apacity

A 31* 3 144 144

A 32+ ,Si#-(

)a.i#/

3 174 174

A 321 ,Si#-(

)a.i#/

2 1** 1**

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A 32+ ,0a(

)a.i#/ * 2+ 114 134

A 321 ,0a(

)a.i#/ 1 4 32 11* 151

A 321 ,0a(

)a.i#/ 2 2 2+ 158 178 ATR 72 5++ 15 66 66

Sta#.y , ATR

725++ / 3 66 66

Sta#.y A32+

, 0a( )a.i# / 1 2+ 114 134

;ingfisher is most aggressive in its fleet e(pansion plan when compared to other

market players elow graph shows average number of aircraft per >iscal year

%he below table shows current fleet siBe of Jet Airways

Jet Airways

Aircraft N'.r

ATR 725++ 1+

!i#- 7378++ 1*

!i#- 737*++ 2

!i#- 7374++ 4

!i#- 7378++ 4Air.& 33+2++ *

!i#- 7378++ 5

!i#- 7377++ 13

!i#- 7773++E 1+

!i#- 7378++ 7

T!ta( 83

Jet also has plans for e(pansion in its fleet %he graph below shows Jet)s plan for #

years

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Inv"st)"nt 0rodu!tion &a#a!it

%he below graph shows the capacity in various aircrafts

T"!(no'o$

oth Jet and ;ingfisher is investing heavily in =/!)s An =/! =aintenance /epairand !verhaul3 is a repair station, which provides ma*or and minor maintenance,modifications, refurbishment and repairs of aircraft and engines

;ingfisher Airlines plans to setup a =/!=aintenance, /epair and !verhaul3

facility at a cost between /s 200 crore and /s -00 crore and is in negotiationswith Abu "habi7based &ulf Aircraft =aintenance &amco3 for the same

ufthansa %echnik signed a D100 million 107year contract with ;ingfisher

Airlines, which recently ac5uired a holding stake in budget Air "eccan, fore(clusive technical support of the new Airbus A420 fleet %he agreement, which

covers components and engines, is an e(tension of an e(isting contract thatincludes 1< ;ingfisher aircraft

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ufthansa %echnik will serve the ;ingfisher Airlines A420 family fleet with its

%otal .omponent 9upport, with components at the carrierEs hub at =umbaiF%s Indian subsidiary !ne 9top Airline =/! 9upport will set up a regionalcomponent pool to support e(isting customers, such as ;ingfisher Airlines, aswell as future customers within India

;ingfisher Airlines has also entered into an agreement with Foneywell which willprovide it the full7suite of avionics and its Au(iliary 'ower Gnit A'G3;ingfisher Airlineswill benefit from the common configuration of world7class technological e5uipment onits present and future aircraft with optimiBed inventory management and predictablemaintenance costs ;ingfisher is also heavily investing indeveloping customiBed avionics for which it has entered into a long term contract withFoneywell

Jet Airways is also planning to setup a maintenance, repair and overhaul =/!3 facilityin the ne(t 18 months and another year to open a flight catering subsidiary as part of itsstrategy to diversify in order to generate larger revenues and decrease the losses from

its core aviation business A separate subsidiary for hotel business with a hotel inrussels near the airlines ?uropean hub

.urrently !beroi)s flight catering service is providing the catering services for thecarrier)s domestic flights A three year contract with Aviapartner .atering 200< toprovide food for international flights %he pro*ect is e(pected to get completed by2010%here is a huge demand for =/! business and setting up a flight catering facilitywill be profitable

>ive metros viB "elhi, Cagpur, angalore, Fyderabad and .hennai have beenshortlisted for the setting up of =/! facility %he work is e(pected to start by mid72006at an estimated cost of more than 200 crores An India7based company is preferred topartner with Jet for this venture oeing has already promised to invest around D100million in an =/! in Cagpur

Jet has also installed the Aircraft =aintenance and ?ngineering 9ystem A=!93 forbetter inventory control

@ith 0 aircrafts of the oeing family out of its total fleet siBe of I' approval will be

re5uired for >"I beyond "I under automatic route is again permissible for greenfield airports

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%hough -6$ >"I is permissible in domestic airlines under the automatic route,

but not by foreign airline operators

100$ e5uity ownership by Con7/esident Indians C/Is3 is allowed

AAI Act amended so that legal framework can be used for airport privatisation

100$ ta( e(emption for all airport pro*ects for ne(t 10 years

&o)#an ana'sis

;ing>isher is not listed on any of the stock e(changes in India so no stock prices isavailable for ;ingfisher elow graph shows price movement for Jet airways over last 4years

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I)#ortant Finan!ia' d"tai's a,out J"t Air*as

Jet Airways Financials

(USD $) 2003 2004 2005 2006 2007T!ta( R$# 736 8*1 11+5 1522 185+

R$# Gr!t 21% 24% 38% 22%

T!ta( prati#- Ep#& 7*7 847 *6+ 1341 1837

EIT0A 61 45 146 181 13

Nt I#c!' 3+ 41 *8 113 7

9r!fit :ar-i# 4% 5% *% 7% +%

I)#ortant Finan!ia' d"tai's a,out Kin$Fis("r .

in!"is#er Financials

(USD $) 2005 2006 2007

T!ta( R$# 136 3*6 735

R$# Gr!t 1*1% 86%

T!ta( prati#- Ep#& 161 437 631

EIT0A 25 41 1+4

Nt I#c!' 58 145 63

9r!fit :ar-i# 43% 37% *%

1Kin$%is("r air'in" *as o#"rationa' on' in FY 234

J"t5s Str"n$t(s

A well7developed network both of the airline and the chairman

A massive pool of loyal customers

Ability to survive downturns earlier

>inancing is raised on strength of its own balance sheet

J"t5s 6"a7n"ss"s

A perceived drop in service standards when compared against ;ingfisher

%he carcass of Air 9ahara has made it crippled

Inability to raise money for the last two years

Kin$%is("r5s Str"n$t(s

9uperior product on groundH in fact Jet business class is being e5uated with

;ingfisherEs economy

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acking of G group to raise finance

@ell capitaliBed airline and prepared to take short term losses

etter handling of employees and staff

.hairman =allyaEs grand vision where it is looking to be among the best in theworld

%he "eccan deal 7 which gives it market share, a new market segment and was

cheap

Kin$%is("r5s 6"a7n"ss"s

;ingfisher is a new organiBation and structure of the company is still not well

defined @hile lobbying , generally unable to leverage connections to the same e(tent

;ingfisherEs loads are lower than JetEs, a reflection of its marketing and salesability

er!in! &'etiti'n

@ith the new changes happening in the civil aviation sector in India, a host of new

opportunities can be seen%he emergence of a flurry of ow .ost Airlines including

Jetite launched by Caresh &oyal)s Jet Airways itself3 is an indication of the cut throat

competition in the aviation sector

%he emerging competition has also led to an improvement in the hospitality services,

timely deliveries, least latency time between the consecutive *ourneys

!ther allied effects of competition are improved airline infrastructure, and improved

ground handling facilities

Cew changes and competitors are e(pected in both the low cost sectors as well as the

premium segments

%he passenger air carriers like 'aramount, &o Air, Indigo and 9pice Jet etc are carving

a niche segment in the low cost airline industry and already providing a tough

competition to Jetite at least in the pricing segment as of now %he new passenger

airlines to be launched shortly are =ega Airways, Air !ne, 'ioneer, Jagson, Indus Air

and ="/, =egapode Airlines, ?asy Air, 9tar Air and =agic Air

Segmentation:

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Apart from catering to the premium passenger segment at the higher end of the price

spectrum, both Jet Airways and ;ingfisher Airlines have grabbed a fair share in the low

price segment too

@ith Jet Airways combined with Air 9ahara ma*ority of the fleet being used as Jetite3

and ;ingfisher Airlines combined with Air "eccan, both the organiBations have realiBedthat to survive in a growing market , it becomes necessary to have a fleet suited to

each and every flyer segment

Route development:

%he competition can be felt in the busy and e(tremely profitable routes of "elhi

=umbai7Ahmedabad sectors

oth Jet Airways and ;ingfisher Airlines have tried to dig their fingers in the prime flying

time of


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Frequencyof traffic

%he sectors which are second in the priorities list today will have to be worked upon to

get a fair share of the pie tomorrow

%he sectors like Indore, Cagpur,iBag and .oimbatore which are potential business

hubs in terms of I%+I%?9, 9hipping and Industrial &oods can have an increased flights

fre5uency %his can be done as soon as the government initiated 9?B)s 9pecial

?conomic ones3 business shape up and the volume of flyers begin to increase

%he delay time will have to be minimiBed so that there is least idling on the ta(iways for

both the organiBations

Spatial Concentration at Key Airports

%he ta(i7ing on the runway, alignment of the passenger aircraft on the airport should be

such that there are no delays due to spatial constraints and fleet management

%his can also result in take7of and landing delays

%he other factors which can also contribute to the emerging competition between the

air carriers are

%he aviation policy which can turn the tide in flavor of the low frill carriers or

towards the premium segment

"emand and /evenue =anagement of the organiBations

Advertising and other 'ublic /elation e(penses

Airline >leet choice and options from where it can be chosen from

>inancing "ecisions for the fleet enhancement and maintenance ?nhanced supply chain management

International /oute ?(pansion

0ro%its and 0ro%ita,i'it

Indian aviation is growing at a rapid pace, and is poised for a further leap with largeairport modernisation effort underway .urrently, profitability is constrained heavily bycosts thrust on the industry due to inade5uate infrastructure support and also due tofuel surcharges being increased on a continuous basis

J"t 8 Kin$%is("r 8 Ot("r do)"sti! Air'in"s

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.ompetitive pressure has been increasing though there are only three ma*or players,which has led industry to run into estimated losses of close to G9D-00m, Jet has

managed to report a 'A% of /s280m in >:0:08, Jet has reported a netprofit of /s#64m helped by profit from sale and lease back operation3 as against a lossof /s 1,001m in the same period last year

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