2/12/2015. Live Project Report on. Under The Mentorship of: Rahul Agarwal, Chief Pilot. Submitted By: Vijay Satappa Magdum.

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1 2/12/2015 Live Project Report on Under The Mentorship of: Rahul Agarwal, Chief Pilot. Submitted By: Vijay Satappa Magdum PGP Student Indian Institute of Management, Indore

2 Acknowledgements This project involved the collection and analysis of information from a wide variety of sources and the efforts of many people beyond me. Thus it would not have been possible to achieve the results reported in this document without their help, support and encouragement. I would like to express my gratitude to oyesterconnect.com, for giving me opportunity to work on this project. Without this, this project would not have come to culmination. This project took me deep inside the topic and helped me to understand various concepts, facts related to trucking industry. I also would like to acknowledge the help that I received from IIM Library. Resources available from various websites, Airport Authority of India, and websites of aviation companies helped to carry out this project. I thank all of them from the bottom of my heart. Also I would like to thank all the people related to this project and IIM Indore. Without their help this would not have been possible. Vijay S. Magdum 1

3 Executive Summary Indian Aviation Industry research and analysis is a huge topic to study. Indian aviation market is very competitive. Various players are struggling to fetch the profit. Most of them are facing various problems. There are issues with operations, government policies, taxation and huge investment to be brought in to start the business. From the analyst point of view though this market is facing lot of issues and challenges it is growing at the rate of 18 percent per year. Many factors are contributing to this growth such as increase in disposable income of the population, industrial growth in the country or change in government policies such as FDI. From this perspective Indian market is lucrative. Since few years most of the Indian population is moving from lower middleclass to upper middleclass. They are gaining capability to spend and upgrade their lifestyle. This is providing opportunity for low cost players to tap the market share. Industry has faced many challenges and still it is going on. Many new players are entering into this market. Policy change such as 49 percent investment through foreign direct investment (FDI) is changing the face of the industry. Major objective of this project is to study overview of the Industry structure, Major players, new players in the industry and Few major challenges faced by the industry. In addition to this another objective is to look at these players from the consumer point of view on criteria such as price, brand recall, time of arrival or departure, ease of booking and service etc. This project has given me deep insights about the industry. 2

4 Table of content Acknowledgements 1 Executive Summary 2 Glossary 4 1 Overview of the industry: 1.1. Introduction: Challenges faced by the industry 6 2 Analysis of main players 2.1.Main players in the industry 8 Public Players 8 Private Players SWOT Analysis of main players: Market share analysis of the players 9 3 Comparison of the major players of different factors: 3.1. Price of the ticket Comparison on other factors 13 4 Analysis of the Survey carried during the project. 4.1.Details of the survey: Analysis of the survey: 17 5 Recommendations 18 6 References: 19 3

5 Glossary AAI GDP LLC PPP AERA IATA CAPA IOCL BPCL Airport Authority of India Gross Domestic Product Low Cost Carrier Public Private Partnership Airports Economic Regulatory Authority of India International Air Transport Association Center for Aviation Indian Oil Ltd Bharat Petroleum Ltd 4

6 1. Overview of the industry: 1.1 Introduction: Indian aviation industry is among the top 10 aviation industries of the world. It has shown high growth trajectory. According to the recent report by KPMG, Currently Indian civil aviation industry has size of 16 Billion US dollars. It is contributing to the 0.5 % of the GDP. Now a days daily 150 million passengers are transported by air. It is forecasted that by 2020 this number will raise to traffic of 450 million passengers daily. Total aircraft movements and passenger traffic has grown with CAGR of 3.3 and 5.5 percent respectively during FY 11 to FY 14. It is estimated by Airport Authority of India that aircraft and passenger movements at the entire airport are expected to rise at the rate of 4.2 and 5.3 percent respectively. There are few factors such as entry of Low costs carriers (LLC), modern airports, vision of the new government regarding tourism and transportation, foreign direct investments, cutting edge technology, and vision of regional connectivity are driving the industry towards transformation. In 11 th five year plan ( ), four new airports are built in Public Private Partnership (PPP) mode. At present there are around 450 airports still there are no airports in tier 2 and tier 3 cities. Airport Authority of India manages 125 airports of which 11 airports are international airports, 8 custom airports, 81 domestic airports and 25 civil Enclaves at defense airfields. Tier 2 and 3 cities contribute only 30 percent of the total air traffic. Government of India is planning to construct more 15 airports under the Greenfield Airport Policy by identifying low cost viable model for construction of small airports. These airports are expected to improve the connectivity among these T2 and T3 cities. Along with this AAI is also planning to invest 150 million in development of non-metro airport in 12 th five year plan. According to report of CAPA Indian Domestic market has shown growth. 5

7 1.2 Challenges faced by the industry: During industry has gone through tough time. The industry was facing major challenges such as a. Rising Operational costs b. Higher air fares These are the major challenges arises because of the following factors: i. Challenges with policies ii. Procedures iii. Taxation Many factors are responsible for the high operational costs in India. a. Higher cost of fuel in India b. High taxation i. Excise duty ii. Customs duty iii. Sales tax c. High airport fare These factors are leading to high operational costs. It is observed that in India 35 to 45 percent operational cost is of fuel. Whereas 20 percent is the global average. Major oil providing companies in India are Indian oil Corporation Ltd and Bharat Petroleum Ltd. These companies charge around 16 to 30 percent sales tax on fuel. This results into high price. Along with this there are different taxes imposed by the government. Recently new airports are built in PPP mode. These airports are highly modern. This infrastructure change is also an area of high concern for aviation industries. Investment cost for these airports is very high. To recover this amount airport holding company charges very high this directly results into high costs. For example recently Airports Economic Regulatory Authority of India (AERA) approved to raise tax of Delhi and Mumbai airport to 346 percent and 154 percent respectively in Chennai and Kolkata also proposed to increase in airport tax to 118 percent and 242 percent respectively. This increased tax will eventually lead to higher price paid by the aviation companies for landing and parking their flights. This increases the cost of operation. Along with this getting aviation license in India is main hurdle for small companies to enter into the market. The procedure of getting license is bit slow and hectic. This is major hurdle to growth of the industry. This will responsible in coming years also if not addressed properly. 6

8 In 2014 government has taken some initiative such as they have allowed direct import of the fuel, which will help to save sales tax to be paid to the oil companies in India. Spice Jet is the first successful company to import oil for its own in September Also government has promised to reduce the custom duty charges. 7

9 2.1 Main players in the industry 2. Analysis of main players Indian aviation industry is dominated by the Low Cost Carriers (LCC). These players can be classified into three major categories. 1. Public Players i. Air India ii. Alliance Air- Air India Regional- LLC 2. Private Players i. Jet Airways ii. Kingfisher India iii. IndiGo iv. Spice Jet v. Go Air Also in 2014 the industry has saw entry of five new players. These new players are: i) JET Etihad deal has been finalized (FDI) ii) Tata-Singapore airlines Ltd-VISTARA iii) Air Costa (Part of LEPL Group) iv) Tata-Air Asia Ltd v) Air Pegasus Ltd These are the five new players in the industry. They have different strategies to tackle the market. 2.2 SWOT Analysis of main players: Attached in the excel document of this project report. 8

10 2.3 Market share analysis of the players Players in Indian Aviation Industry are fighting to gain maximum market share. Domestic market is dominated by LLCs such as IndiGo and SpiceJet. IndiGo is the only domestic company which has shown all time profits in its balance sheet. At the time of crisis Indigo sustained itself while gaining profits. It is India s most preferred LLC. According to analysis presented by Business Standards Indigo retained at top position followed by Jet Airways. This analysis was at the end of November, Market Share-Aviation Industry Indigo Jet Airways Jet Lite SpiceJet Air Costa Air India Go Air 18% 9% 35% 1% 16% 19% 2% Source: Passenger load factor, or load factor, measures the capacity utilization of public transport services. Considering passenger load factor analysis, Indigo and Air India has shown better results. From the data of CAPA we can compare it for the month of April and May All the companies are trying to increase load factor to 100 percent. This will directly results into their profit gain. 9

11 During the month of May 2013, Spice Jet has shown more capacity deployment than the mandatory capacity deployment requirements given in the Route Dispersal Guidelines. Source: DGCA Market report accessed on 6th Feb

12 Spice Jet is gaining higher market share. It is spending high in advertising and promotions. Now a day Spice Jet is providing lowest fare all over India. For example: SpiceJet is coming with aggressive strategy in low cost market. Problem with this strategy is the limited routes availability. Spice Jet flight is not available on all the routes. SpiceJet is managing all the summer days in advance. They are tapping up market way ahead of others. Price conscious customers are going for these offers and they prefer it. 11

13 3. Comparison of the major players of different factors 3.1 Price of the ticket. Comparison of the players on price factor is difficult. Price varies according to time of the booking as well as the route to be chosen, time of the day etc. Every carrier has different price strategy. For the sake of convenience I have chosen following parameters to compare: i. Route: Delhi to Mumbai ii. Time duration: 7 pm to 12 am iii. Time of booking: a. Immediate booking b. 3 months prior booking a. Immediate booking: 14 th Feb Name of Price of Duration of Services Frequency during the carrier ticket Journey the day Indigo hours 10 min 1. Paid Meal 2. Special assistance 16 Spice Jet hours Paid meal only 4 Vistara hours 20 min Free Meal Included 4 Jet hours 10 min Free Meal 37 Airways Go Air hours 20 min Paid Meal only 9 Air India hours 05 min Free meal 44 Hence Spice Jet is lowest among all. Air India is providing maximum frequency. And Indigo is better among the all for better service with low price. b. Prior booking of 3 months- 6 th May 2015 Name of the Price of Duration of Services Frequency carrier ticket Journey during the day Indigo hours 10 min 1) Paid Meal 2) Special assistance 17 Spice Jet hours Paid meal only 4 Vistara hours 20 min Free Meal Included 7 Jet Airways hours 10 min Free Meal 29 Go Air hours 20 min Paid Meal only 8 Air India hours 05 min Free meal 38 12

14 Hence in prior booking Indigo is providing lowest fare with better services. Followed by Air India and Spice Jet. Air India is giving maximum frequency which provides better ease of booking. Source: accessed on 12 th Feb Comparison on other factors A large survey all over India by Trip Adviser following is the findings on scale of 100 percent: Factors\Name Indigo Jet Airways Air India Go Air Jet Connect SpiceJet Value for money Services- food and entertainment Cabin crew appearance Cabin crew quality- Service On Time performance Landing & Take off quality Time taken to deliver baggage Seat Comfort/ Leg room Overall experiance Source: Survey by Trip-Advisor Accessed on 10th Feb Hence most preferred airline is indigo followed by Jet airways and Spice Jet. 13

15 Also, most of the responded told they need improvement in services such as Meal provided during the journey followed by improvement in leg room. For new players in the Industry, most of the respondents prefer to go by TATA SIA i.e. VISTARA followed by Air Asia. 14

16 Source: Survey by Trip-Advisor Accessed on 10th Feb

17 4. Analysis of the Survey carried during the project. 4.1 Details of the survey: Survey Respondents: 56 Link of the survey: Host website of the survey: Duration of the survey conducted: 4 days (8 th Feb to 12 th Feb, 2015) 4.2 Analysis of the survey: Following things have been found from the survey carried out: i. Most of the people (around 60%) prefer Indigo as their favorite airline. Followed by Jet Airways. Spice-Jet is the third choice of the consumers ii. iii. Most of them prefer Indigo because of the low price Around 95% people are looking for the low price carrier. 16

18 iv. People are conscious about service quality and promotions. v. On time flight is most preferred for Indigo followed by the ease of booking. vi. vii. Food is the most hated thing on the flight and ambience is least hated thing. People want better food followed by better service. Most of the young consumers look for better cabin crew and least look for the leg room. 17

19 5. Recommendations India has very high potential in the aviation Industry but still it is going through tough time. Indian aviation Industry has high growth rate as disposable income of the people is growing and most of the people tending to upgrade their lifestyle. Airline industry in India is very competitive and price conscious. Most of the people look for the price and very least look for the brand. There are very few people who are loyal customers of the airlines. Also most of these are high class business persons. People follow the promotional ads of the airline and look for the low price carrier. Now days Spice Jet is offering tickets at very low price. They are promoting their campaign as Less than train fare. To give lowest price possible these airline companies are looking to cut the costs. Along with these they have to function at very less margin. Following are recommendation to improve sustainability of the airline business. 1. Government Policies: Government interventions are one of the common threats for the private players. They need some liberty. 2. Government Tax: Government of India is imposing many taxes on the airline industry. This directly results into increase in the ticket price,. Considering airline is one of the basic transportation systems, government has to revise their taxation policy. 3. Fuel is highly charged because of the taxes on it. Very few companies such as IOCL, BPCL are providing fuel to aviation companies. These oil companies charge it high due to taxes. Government needs to subsidies fuel for the airline industry. 4. There is high potential in Tier II and Tier III cities. Airline companies have to explore these options for better revenue. 5. Indian consumer is addicted for the promotions. Airline companies have to update their promotional and marketing strategies time to time. 18

20 6. References: