Ankit Tiwari (R#7) Avneesh Munjal (R#18) Meenakshi Deshpande (R#34) Sanket Tandon (R# 52) Sobhit Agarwal

(R# 56) Indian Institute of Foreign Trade MBA(IB) 2013-15

AGENDA
Industry Overview Major Players in the Industry Performance Overview Recent Happenings Major Events in Aviation Industry Porter Analysis Aero Turbine Fuel (ATF) Policy Support Future Outlook

Overview of Aviation Industry

9th largest civil aviation market in the world Ranked 4th in domestic passenger volumes Total Passenger traffic stood at around 60 million in FY12 Total freight traffic stood at 2.26 million tonnes (MT) in FY12, about 30 per cent of India's total trade (by value) FDI worth US$ 449.26 million from April 2000 to march 2013, as per the data released by DIPP The government envisions airport infrastructure investment of US$11.4 billion under the 12th Five Major Revenue/Expense Areas Year Plan (2012-17)

Key Performance Indices

Load Factor
Revenue Passenger Mile Revenue per Available Seat Mile Available Seat Mile

% of [Occupied Seat/Available Seating Capacity] No. of Revenue Payers * No. of miles flown in a period Revenue/No. of Seats available No. of Seats Available * No. of miles flown during given period Estimate of money already received

Air Traffic Liability

Year / Parameter
No. of Aircraft No. of Operational Airports Passenger Handling Capacity at airports Scheduled Airlines: Distance Flown

Then [2000]
125 50 66 million 199 (mn km)

Now [2012-13]
369 125 233 million 762 (mn km)

Revenue Areas
Freight Passengers On-Board Sales

Expense Areas
ATF Crew MRO

Cost for carrying luggage

Passenger Services

Source: http://www.ibef.org/industry/indian-aviation.aspx Airports Authority of India, Planning Commission, Ministry of Statistics and Programme Implementation, Aranca Research

Comparison of Major Competitors in Indian Aviation Industry

Airlines

Parameters Market Share [May 2013] Passenger Load Factor [May 2013] On-time Performance [OTP] [May 2013] Cancellation Rate [May 2013] Airline Debt [in USD bn, FY 2013] Net Income [in USD mn, FY 2013] 29.50 % 89.60 % 95.00 % 19.80 % 80.90 % 85.20 % 22.50 % [JetLite = 5.40 %] 76.15 % 91.80 % 19.10 % 82.00 % 89.20 % 9.00 % 85.80 % 89.40 %

0.10 % 0.1 100 110

0.80 % 0.2 (34)

0.50 % 2.1 (90 100)

0.70 % 9 (950)

0.40 % 0.07 (14 16)

SpiceJet has a high cancellation rate , which ultimately effected its market share

Air Indias debt is approximately twice that of all the other carriers in India combined (taking kingfisher debt of 1.8 bn USD)

Indigo scores the best on all the parameters Except Indigo, all airlines suffer loses

The three LCCs combined account for just 4-5% of total industry debt and this is largely aircraft-related

Source: DGCA Report on Indian Airline Industry CAPA Centre for Aviation, DGCA centreforaviation.

Passenger Traffic Trends

Passenger Load Factor of Competitors

International Passengers in million FY01 FY12

Source : DGCA

Market Share of Competitors 2013 vs 2012

Domestic Passengers in million FY01 FY12

Key Highlights
Trends of the decade show a 300% increase in the domestic passengers, and 160% in international passengers traffic Passenger load factors of all except kingfisher has not changed significantly

The market share of Jet Airways and Jet Lite has shown a decrease over the year, Indigo with around 30% share
Domestic passenger traffic expanded at 15.6 per cent compound annual growth rate (CAGR) over FY06-12

International passenger traffic posted a compound annual growth rate (CAGR) of 10.5 per cent over

Qatar Airways keen on tie-up with GoAir

Increase in present market share of 4.4 Bilateral traffic rights of 24,000 seats increased to 72,000 seats per month Strong Financial clout and backing of former Emir Sheikh Hamad bin Khalifa Al Thani

Air India to acquire 19 Airbus A320s

Done in bid to compete with low cost airlines

Deal is to DRY-LEASE the aircraft for 6 years

Bring in foreign money through FDI

Increase Competitiveness

Increase Competitiveness

The Mobile Store partners with Jet Airways' JetPrivilege

Benefit of earning JPMiles on purchase of mobile phones and tablets 2 JPMiles per Rs. 100 spent for purchases made online 1 JPMile per Rs 200 spent for purchases made through the retail outlets

Air Asia Tata(Telestra) joint venture

Tata venturing back in aviation sector after a long gap Low cost to be achieved by providing high volumes Base setup in chennai

Competitive Advantage

Increase in market share

Increase Competitiveness

Direct competition to SpiceJet

Major Events In Aviation Industry

Downfall Of Kingfisher Airlines Jet-Etihad Deal
Bilateral air service agreement signed between India and Abu Dhabi The news came out on 31st January 2013 Deal has run into problems with SEBI in July 2013 No new demands have been made by agencies like the Foreign Investment Promotion Board, Cabinet Committee on Economic Affairs and SEBI but the approval from CCEA is still pending
Air India sign MOU with Adria Airways

Commenced operations in May 2005 and had the 2nd largest market share till end of 2011 License suspended in October 2012 GOI withdrew both domestic and international flight entitlements allocated to the airline in Feb 2013 Kingfisher have lost nearly three quarters of their value this year and currently have a market capitalisation of

Both the airlines plan to sign a "code share agreement" shortly MOU to pave way for better commercial viability An increase in domain of operations for both the airlines

Threat of New Entrant s Bargainin g Power of Suppliers Intra Industr y Rivalry Threat of Substitu te Product s

Threat of New Entrants

Capital Requirement Customer Loyalty to established brands Sunk Cost Industry Profitability Inadequate airport Infrastructure Shortage of pilots and high fuel cost.

Threat of Substitute Products

Relative price/time performance of substitute Buyer propensity to substitute Buyer switching cost No of substitutes Ease of substitution Video conferencing, Bargaining Power railways.

Bargainin g Power of Buyers

Bargaining Power of Buyers Intra Industry Rivalry Low level of

differentiation Price Rivalry Firm concentration ratio High fixed costs and input constraints Innovation Business travellers Regular travellers Travel agents Cargo and mail No differentiation

of Suppliers

Fuel CompaniesFew suppliers Aircraft manufacturers Labour unions Switching costs Airports facilities Brand value

Financial Highlights

Aero Turbine Fuel (ATF)

IATA estimates 1USD increase in

average price of a barrel requires industry to recover an additional 1.6billion USD in revenue The airline industry fuel bill rose to 177 billion $ in 2011 as price of oil per barrel rose by 20 USD in 2011 The barrel price of oil rose further by 10-12 USD by end of 2012
Source: FICCI PWC report- Indian Aviation

Recent News Though the Direct ATF Import policy

was approved in 2012 but was could not be implemented because of lack of infrastructure 76% of the equity would be owned by AAI and State owned oil marketing companies 24% would be owned by airlines

Implications
With direct ATF import it is expected that airfares will come down and that passenger numbers will rise ATF costs 30-45% of overall operating costs for Full Service Carriers (pscs) and 40-55% for Low cost carriers Domestic ATF prices are linked to fluctuation in crude oil prices and movement of INR Vs $ High central and state levied taxes translates into 60-70% higher ATF prices ICRA Ratingaverage. Feature- Indian Aviation inSource: India over global
Industry

FY13 budget

In the Union Budget for FY13 the Finance Minister has proposed support worth USD 58.3 million to AAI to develop airport infrastructure in north eastern states Aviation Regulator DGCA has been allocated USD 12.5 million for implementing developmental plans

Under the Twelfth Five Year Plan(2012-2017), Government of India have set aside USD 11.4 billion for infrastructure investment and development Focus on GOI have plans to invest around USD 30 billion in next 10 years to Infrastructur open new airports and modernize the existing ones e 100% tax exemption for airport projects for period of 10 years 100% FDI under automatic route for Greenfield projects 100% FDI for existing projects with automatic route up to 74% and Government route beyond 74% FDI Policy 49% FDI in civil aviation sector for foreign players

Liberalizati Approval for Greenfield Airports in 2008 on and New regulatory body (Airport Economic Regulatory Authority) set up in 2009 Open Sky Policy
Source: IBEF Report on Airports, March 2013

Increased traffic rights under bilateral agreement with foreign countries

Growth Indicators

Challenges

Increase in Demand
More people travelling by air Rise in tourist travelers Strong growth in external trade

Policy Support
Large proposed government spending on infrastructure Liberalization & Open Sky Policy

Poor Infrastructur e
Delay in take-off and landing
High Airport Charges Stifling growth rates

Company Specific
Lack of focus Faulty M&A decisions and failed Mergers KingfisherAir Deccan, Jet-Air Sahara

Volatility in Fuel Prices

Lack of focus

Faulty M&A decisions and failed Mergers Eg: KingfisherAir Deccan, Jet-Air Sahara

FDI Policy

Future Outlook

Indian market severely underserved (1%)

Increase in per capita income of people

Consistent market growth rate

ADVANTAG E INDIA

Source: Indian Aviation spreading its wings, pwc, Feb 2013