India's First Low Cost Airline

A Managerial Economics Presentation –
Air Deccan a case study
November 22, 2010 – IMT Ghaziabad

Air Deccan a case Study
Presentation Flow

• Air Deccan
– Introduction

Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 2

Welcome to Air Deccan
Introduction

• Launched in August 2003
• A low cost, no frill airline
• Targeted the unconventional
travel routes
• Covered 65 destinations
across India
• 365 flights per day
• Flew 14 Million passengers a
year (maximum)
• Market share of 11%


Presentation Flow

• Air Deccan

– Capt. G R Gopinath – A Legend


Capt. G R Gopinath – A Legend
Capt. G R Gopinath

• Capt. G R Gopinath was born in a small
village called Gorur in Hassan district of
Karnataka
• Managing Director of Air Deccan
• Considered the father of low cost air
travel in India
• Started with private sector commercial
helicopter rental service in 1996 Air Deccan
• Launched a low cost, no frills airline • Launched: August 25,
called ‘Air Deccan’ on 25 August 2003 2003
• Air Deccan had a total of 121 planes • 365 flights for 65
destinations
flying to 55 destinations across India
• Investment – USD 50
Million

Presentation Flow

• Air Deccan

– Birth of Air Deccan and Scale of Operations


The Birth of Air Deccan
Story of an airline that changed the way people flew

• Gopinath a serial entrepreneur who after his discharge from
the army took and went from farming to sericulture to aviation
• Identified the potential of a low cost airline industry in India
• Started a off with a ‘Heli-Charter’ service in 1997 called ‘Air
Deccan’
• With time and growth in business Gopinath acquired his first
turboprop in 2003
• At first ‘Air Deccan’ connect only small town to the bigger ones
thus, flying on routes considered unconventional routes by
other players in the industry
• The idea: low cost, no frills, quick turn around, maximum
outsourcing, strict cost check


Scale of Operations
In Numbers

• Number of Planes
• a – 60 (2006)
• Number of
destinations – 55
• Number of Flights
– 236 per day
• Number of
passengers – 4
Million
• Market Share –
11% (Dec, 2005)

Scale of Operations
Destinations by Number


Scale of Operations
Flights by Number


Scale of Operations
Passengers by Number


Presentation Flow

• Air Deccan

– Business Philosophy


Business Philosophy
We deliver
Vision

To be the preferred airline in India

Mission

To demystify air travel in India by providing reliable, low-cost air travel to the common man by constantly driving down the
airfare as an ongoing mission

Beat us if you can
Air Deccan Jet Airways Rail I AC Rail II AC

Route(One-way) Fares(INR) Fares(INR) Fares(INR) Fares(INR)

Chennai-Bangalore 721-1500 1370-2970 990-1402 614-747

Delhi-Mumbai 1999-5499 3120-5610 3303-4135 1775-2210


Hammer the costs
The Mantra of Success The Implications

• Air Deccan stressed on: • Air Deccan’s mantras gave
– Fastest aircraft turnaround – Help achieved ‘economies of
time scale’
– Single class point-to-point – Customer preference as a
service first choice of airline
– No free meals or even water – Check costs though airline
– Sale of tickets only through was criticized for this
• Internet or – Cut commissions and gave a
• Call centers bigger profit share, thus
– Limited Staff lowering cost of operations
– Outsource all non-core – Better employee satisfaction
operations
– Specialization in core
– Third party advertisements
business operations


Economic and Business
Economics and Mantras The Economic Relevance

• Air Deccan’s strong take on • Economies of Scale:
various cost centers lead to – Refers to the cost
– Economies of Scale advantages that a business
obtains due to expansion
– Practical relevance of law
of demand • Law of Demand
– Diseconomies of Scale – Lower the cost higher the
demand
• Diseconomies of Scale
– The forces that cause larger
firms to produce goods and
services at increased per-
unit costs


Presentation Flow

• Kingfisher
– Introduction


Fly the Good Times
Kingfisher Airlines - Introduction
• Founded on May 09, 2005
as gift to Siddharth Mallya
by Vijay Mallya
• Is a subsidiary of the ‘UB
Group’
• The airline boasts of a five
star service standard and
brand new airplanes
among other things


Presentation Flow

• Kingfisher
–
– Operations and Many First


What we do?
Operations
• Aircrafts – 66 (130
ordered)
• Average Aircraft Age – 2.3
Years
• Number of destinations –
71
• Number of flights – 375
• Pricing – Premium
• Revenue – INR 272 Million
• Employees – 7600


Many first…
“This is a world class experience, all at an affordable price. We
are not a low-cost carrier and we do not intend to be one,”
- Dr. Vijay Mallya

• Kingfisher has been
associated with many first
in the Indian airline
industry
– All new planes
– Web check in
– Mobile check in
– Mobile ticketing
– Five star airline experience


Presentation Flow

• The Merger
– The Battle Begins and Birth of a new ‘King’


The Battle Begins
“Gopi has completely over reacted”
- Dr. Vijay Mallya
IPO bombs and Airline Industry is faced
Air Deccan, plans an
barely manages with a slump and with low
IPO in NSE to
to scrape funds Capt. Gopinath is
offload 25% stake
through pushed for consolidation

January May 18, June, February December,
25, 2006 2006 2006 27, 2007 2007

Air Deccan upgrades it
IPO is floated in
ticketing system to
the price band
‘Radixx’. Huge
of Rs 150 - 175
investment is made

Birth of a new ‘King’
Kingfisher Red
• April, 2008
• Kingfisher bought 50%
stake in Air Deccan
• Not just panacea
• A strategic move for an
airline with its eye on the
international horizon
• Dr. Vijay Mallya –
Chairman and CEO
• Capt. Gopinath – Vice
Chairman

Presentation Flow

• The Merger

– Let’s talk numbers


Let’s talk numbers
Takeover of Air Deccan has helped Kingfisher gain synergies of operation


“We should have done it five years ago”
- Dr. Vijay Mallya


Presentation Flow

• Outcome


Revamp is the word
Kingfisher is busy revamping


“We should have done it five years ago”
- Dr. Vijay Mallya

Total Income (Rs Million) • The merger helped the
airlines achieve
60000
– Lower operational
50000
costs as most of the
equipment used is
40000 same
Income

30000
– Achieve ‘Economies of
Scale’ in terms of
20000 operations
10000
– Better bargaining
power from vendors
0 – Better market reach
2006 2007 2008 2009 2010
and higher earnings
Year

The Future
From Air Deccan to Simplifly Deccan to Kingfisher Red

• Under the leadership of Vijay Mallya,
Kingfisher has undertaken major rebranding of
Air Deccan
• Rebranding aims at:
– Improving the brand image of ‘Air Deccan’
– Improving customer service standards
– Improving the overall operational efficiency of the airline
– Providing same service standards as Kingfisher
• The rebranding has already begun the result
‘Kingfisher RED’


Thank you for flying with us.

A Presentation By:

• Alok Munjal -
• Akash Jauhari -
• Harsh Rautela – 10DCP-069
• Satyarth Pandey – 10DCP-090
A presentation for Managerial
Economics – Semester 1, Dual • Shobit Ranjan – 10DCP-091
Country Program, IMT
• Varun Sehgal – 10DCP-092
Ghaziabad


India's First Low Cost Airline

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