1. The Aviation Industry
11EX-013 Bishnu Kumar
11EX-015 Davinder Singh
11EX-038 Pankaj Mohindroo
11EX-040 Prateek Wadhwa
11EX-043 Rajat Goel
Institute of Management Technology
Ghaziabad

2. Term III - Business Environments
Table of Contents
Introduction .....................................................................................................................................................2
Characteristics of the Aviation Industry...........................................................................................................2
Indian Aviation Industry ...................................................................................................................................3
History ..........................................................................................................................................................3
Recent Times................................................................................................................................................3
Global Aviation Industry ..................................................................................................................................4
Major Changes in the Industry.........................................................................................................................5
SWOT Analysis of the Industry .........................................................................................................................5
Porter's 5 Forces Analysis ................................................................................................................................6
Overview of Industry in India ...........................................................................................................................7
Market Share ...................................................................................................................................................8
Factors Impacting the Industry ........................................................................................................................9
Fuel Cost.......................................................................................................................................................9
Employees & Manpower .......................................................................................................................... 10
Passengers ................................................................................................................................................ 10
Cargo/Freight ............................................................................................................................................ 12
Accidents ................................................................................................................................................... 13
Currency Exchange.................................................................................................................................... 14
Government Policies ................................................................................................................................. 15
Taxation .................................................................................................................................................... 15
Profitability ............................................................................................................................................... 15
Aviation Industry in United States ................................................................................................................ 17
Economic Impact Summary ...................................................................................................................... 19
Measures of Economic Impacts ................................................................................................................ 20
Aviation Industry in China ............................................................................................................................. 21
Domestic versus International Traffic ....................................................................................................... 22
Chinese Airlines......................................................................................................................................... 22
International Expansion of Indian Aviation Industry .................................................................................... 24
Factors....................................................................................................................................................... 24
Future Prospects and Speculation ............................................................................................................ 26
Profit & Loss Details .................................................................................................................................. 26
References .......................................................................................................................................................0
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3. Term III - Business Environments
Aviation is the design, development, production, operation, and use of aircraft,
especially the heavier-than-air aircraft. Aviation is derived from avis, the Latin word
for bird.
Introduction
The aviation industry encapsulates the development, operation and management
of aircrafts. While the common perception about the sector is that it‘s only about
pilots and airhostesses, there are numerous other, equally significant job options
that the industry cannot function without; from in-flight trainers and aircraft
maintenance engineers to baggage handlers and reservations agents. The
international airline industry provides service to virtually every corner of the globe,
and has been an integral part of the creation of a global economy.
The global airline industry consists of over 1000 airlines registered to IATA and
over 5300 airlines registered to ICAO operating more than 22,000 aircraft, providing
service to over 43,000 airports. In 2010, the world‘s airlines flew almost 37 million
scheduled flight departures and carried over 2.4 billion passengers. The growth of
world air travel has averaged approximately 5% per year over the past 30 years,
with substantial yearly variations due both to changing economic conditions and
differences in economic growth in different regions of the world. Even with relatively
conservative expectations of economic growth over the next 10-15 years, a
continued 4-5% annual growth in global air travel will lead to a doubling of total air
travel during this period. While major conventional mature markets such as the US
and Europe will witness a significant fall in market share from 61% to 52%,
emerging markets, such as India, China and the Middle East, offer a great growth
potential for the civil aviation sector.
The economic slowdown which began in 2008 hit the global aviation industry
severely, with many airlines such as United and British Airways in the red. This was
due to falling passenger numbers and increasing competition from low-frills airlines
coupled with rapidly rising fuel costs. Despite passengers now resuming air travel,
the increase has been very gradual. In fact, International Air Transport Association
(IATA) Director General and CEO, Giovanni Bisignani, in December 2009, stated the
global economic crisis ―has cost the aviation industry 2 years of growth… as the
improvement that has started since passenger traffic hit rock-bottom in March 2009
is similar to the pace of growth in 2006-2007.‖
Characteristics of the Aviation Industry
The aviation industry has the below significant characteristics –
 Industry dominated by a small number of large firms
 It sells either identical or differentiated products in terms of service quality
and offerings.
 It has significant barriers to enter (which holds true both with respect to
regulations and huge capital investment required)
 Firms are the price setters
 Long run profit >=0
 Strategy depends on the individual rival firm‘s behaviour
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4. Term III - Business Environments
Indian Aviation Industry
History
The history of civil aviation in India began in December 1912. This was with the
opening of the first domestic air route between Karachi and Delhi by the Indian state
Air services in collaboration with the imperial Airways, UK, though it was a mere
extension of London-Karachi flight of the latter airline. Three years later, the first
Indian airline, Tata Sons Ltd., started a regular airmail service between Karachi and
Madras without any patronage from the government.
At the time of independence, the number of air transport companies, which were
operating within and beyond the frontiers of the company, carrying both air cargo
and passengers, was nine. It was reduced to eight, with Orient Airways shifting to
Pakistan. In early 1948, a joint sector company, Air India International Ltd., was
established by the Government of India and Air India (earlier Tata Airline) with a
capital of Rs 2 Crore and a fleet of three Lockheed constellation aircraft. Its first
flight took off on June 8, 1948 on the Mumbai (Bombay)-London air route. At the
time of its nationalization in 1953, it was operating four weekly services between
Mumbai-London and two weekly services between Mumbai and Nairobi. The joint
venture was headed by J.R.D. Tata, a visionary who had founded the first India
airline in 1932 and he himself piloted its inaugural flight.
The soaring prices of aviation fuel, mounting salary bills and disproportionately
large fleets took a heavy toll of the then airlines. The financial health of companies
declined despite liberal Government patronage, particularly from 1949, and an
upward trend in air cargo and passenger traffic. The trend, however, was not in
keeping with the expectations of these airlines which had gone on an expansion
spree during the post-World War II period, acquiring aircraft ad spares. The
Government set up the Air Traffic Enquiry Committee in 1950 to look into the
problems of the airline. Though the Committee found no justification for
nationalization of airlines, it favoured their voluntary merger. Such a merger,
however, was not welcomed by the airlines.
Then the Open-sky policy came in April 1990. The policy allowed air taxi-operators
to operate flights from any airport, both on a charter and a non-charter basis and to
decide their own flight schedules, cargo and passenger fares. This allowed several
private airlines to venture into the aviation business which accounted for more than
10 per cent of the domestic air traffic. Meanwhile, Indian Airlines, which had
dominated the Indian air travel industry, began to lose market share to Jet Airways
and Sahara. Today, Indian aviation industry is dominated by private airlines and
these include low cost carriers such as Deccan Airlines, GoAir, and SpiceJet etc, who
have made air travel affordable.
Recent Times
Aviation sector in India has been transformed from an over regulated and under
managed sector to a more open, liberal and investment friendly sector since 2004.
Entry of low cost carriers, higher house hold incomes, strong economic growth,
increased FDI inflows, surging tourist inflow, increased cargo movement, sustained
business growth and supporting government policies are the major drivers for the
growth of aviation sector in India. Forecasts by AAI for the next 5 years have
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5. Term III - Business Environments
projected a sustainable growth rate of 16% for international and 20% for domestic
aviation sector. Recognizing the exponential growth of air traffic in India, the Ministry
of Civil Aviation has been following a very liberal policy in the exchange of capacity
entitlements / traffic rights. Domestic airlines have been allowed to fly overseas,
forge partnerships with foreign carriers while foreign carriers in turn have been
interlining with domestic airlines to access secondary destinations.
The government has also tried to ensure an environment conducive for growth of
all stakeholders associated with Indian aviation segment. With the rise in the number
of airlines, growing passenger segment and route expansion, there is however a
need for Indian airports to have their infrastructure in place, which at present is the
weakest link in the chain. Greenfield and modernisation projects are being developed
on PPP model to develop facilities conforming to international standards and to
encourage the domestic operators to shift base. To monitor the quality of services
rendered by various airports and their tariff, an independent regulator, Airport
Economic Regulatory Authority (AERA), is proposed to be appointed.
Global and domestic aircraft manufacturers are upbeat on the aircraft demands
from India. Non-scheduled services have also steadily picked up and are growing at
a CAGR of 19% primarily driven by a sustained growth in the economy. In addition,
total cargo traffic of all airports has increased from 10% during 2006-07 to 14% in
2009-10, recording a CAGR of 13% for last six years. However, on the manpower
front, currently there is a shortage of qualified pilots and other technical staff
including Aircraft Maintenance Engineers and Air Traffic Controllers.
While there are a lot of new avenues in aerospace services in the coming decades,
the constraints associated need to be addressed to enable the smooth growth of the
sector. Some of the issues faced by the sector include mounting losses of the
airlines, rising aviation fuel prices, congestion at airports, shortage of qualified pilots
and technical manpower, up-gradation of security, land acquisition, high taxation,
high airport charges etc. There is a need to study the causes of the issues and
address the same thereby paving an unobstructed growth path for the various
opportunities. In times of US slowdown and fear of recession, the role of developing
economies like India assumes greater significance. Its thrust for capacity and
capabilities enhancement will be the drivers of growth. The Indian government has
initiated several reforms and steps to keep the momentum going. Indian aviation
space offers promising opportunities in the areas of aircraft manufacturing, airport
infrastructure, airport and ground support equipment, MRO facilities, ground
handling services, trained manpower, air cargo, fuel hedging, aerotropolis along with
tapping the potential stream of non-aeronautical revenues.
Global Aviation Industry
As said by Giovanni Bisignani, Director General & CEO of IATA, in the Annual
Report 2011, ―The aviation is a resilient industry‖. It had $9.9 billion losses in 2009
which turned into $18 billion profit in 2010. In a single year, the industry recovered
around $72 billion in revenues with a capacity expansion of 5.2% and demand
increase by 10.3%. After a decade of constant crises, shocks and changes the
industry is stronger and more efficient now. Labour productivity has increased by
67%, sales and marketing unit costs has gone down by 10% and the fuel efficiency
has increased by 24%. The price of oil has been another factor to the growth of the
industry.
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Major Changes in the Industry
The air transport has gone through a period of unprecedented change, during the
global slowdown. Many commentators claim the industry is almost unrecognizable to
that of ten years ago. Major factors that have resulted in this ever changing
landscape is -
 Many major airlines have been operating under major losses over the last
few years, resulting in bankruptcy and the need for massive restructuring.
 Revenue raised from business traffic has been greatly reduced.
 The emergence of low cost carriers in the US and Europe, and the adoption
of this model in Asia and Middle East.
 The growth of business via the internet reducing operating cost.
 Consolidation of airlines in Europe and Asia through mergers.
 The opening up of the Chinese economy to outward investment, and the
recovery of the US economy.
SWOT Analysis of the Industry
Strengths
A major strength of any airline is the product itself - the air travel. Despite
downturns, over time air travel continues to grow. Strength is the safety record, and
the associated public acceptance of air travel as both a fast and safe way to travel.
Airline staff is highly trained and experienced, from pilots and flight attendants to
mechanics and ground staff. Businesswise, airlines have the ability to segment the
market, even on the same routes. This allows airlines to establish different levels of
service and make associated pricing decisions.
Weaknesses
Airlines have a high "spoilage" rate compared to most other industries. Once a
flight leaves the gate, an empty seat is lost and non-revenue producing. Aircraft is
expensive and requires huge capital outlays. The return on investment can be
different than planned. Large workforces spread over large geographic areas,
including international points, require continual communication and monitoring. This
can be exacerbated during operational irregularities, such as bad weather. While the
business climate can change quickly, airlines have difficulty making quick schedule
and aircraft changes due to leases, staffing commitments and other factors.
Opportunities
Airline market growth offers continual expansion opportunities for both leisure and
business destinations, especially for international destinations. Technology advances
can result in cost savings, from more fuel efficient aircraft to more automated
processes on the ground. Technology can also result in increased revenue due to
customer-friendly service enhancements like inflight Internet access and other value
added products for which a customer will pay extra. Link-ups with other carriers can
greatly increase passenger volumes. By coordinating schedules, airlines can offer
service to destinations via a code share agreement with a partner carrier.
Government allows 100% FDI via the automatic route for the green field airports.
Also, foreign investment up to 74% is permissible through direct approvals while
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7. Term III - Business Environments
special permissions are required for 100% investment. Private investors are allowed
to establish general airports and captive airstrips while keeping a distance of 150 km
from the existing ones. About 49% FDI is allowed for investment in domestic airlines
via the automatic route. However, this option is not available for foreign airline
corporations.
Threats
A global economic downturn negatively affects leisure, optional travel, as well as
business travel. The price of fuel is now the greatest cost for many airlines. An
upward spike can destabilize the business model. A plague or terrorist attack
anywhere in the world can negatively affect air travel. Government intervention can
result in new costly rules or unexpected new international competition.
Porter's 5 Forces Analysis
Threat of New Entrants
Initially, people might think that the airline industry is pretty tough to break into,
but that‘s not true. One needs to look at whether there are substantial costs to
access bank loans and credits. If borrowing is cheap, then the likelihood of more
airliners entering the industry is higher. The more new airlines that enter the market,
the more saturated it becomes for everyone. Brand name recognition and frequent
fliers point also play a role in the airline industry. An airline with a strong brand
name and incentives can often lure a customer even if its prices are higher.
Power of Suppliers
The airline supply business is mainly dominated by Boeing and Airbus. For this
reason, there isn't a lot of cutthroat competition among suppliers. Also, the likelihood
of a supplier integrating vertically isn't very likely. In other words, probably it won't
be seen that suppliers starting to offer flight service on top of building airlines.
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8. Term III - Business Environments
Power of Buyers
The bargaining power of buyers in the airline industry is quite low. There are high
costs involved with switching airplanes, but also look at the ability to compete on
service. Is the seat in one airline more comfortable than another? Probably not
unless a luxury airline is compared with an LCC.
Availability of Substitutes
The likelihood that the passenger will drive or takes a train to his/her destination
depends on the distance of the destination. For regional airlines, the threat might be
a little higher than international carriers. When determining this one should consider
time, money, personal preference and convenience in the air travel industry.
Competitive Rivalry
Highly competitive market of an industry generally brings low returns because the
cost of competition is high. This can spell disaster when times get tough in the
economy and sudden turmoil may also add to its effect.
Overview of Industry in India
Aviation Industry in India is a significant one among those industry segments that
have experienced a phenomenal growth across the globe over the past years. The
open sky policy of the Indian government is one of the key factors that have allured
international players into the aviation industry in India. Since long, the aviation
industry in India has been growing in terms of number of air travel firms and number
of aircrafts. Today, private airlines alone bear the burden of not less than 75% of the
domestic aviation requirements.
Indian aviation industry is the 9th largest in the world. As per the statistics
released by the Ministry of Civil Aviation, in the year 2008 alone not less than 29.8
million people travelled to and from India which was a 30% surge from 2007.
Industry experts have predicted that not less than 50 million passengers will be
served by the India aviation industry by 2015.
Growth Drivers
The factors contributing to the air traffic growth can be broadly classified into
economic and policy factors.
Economic Factors
 Liberalisation and economic reforms undertaken by the government
 Fast expansion of industries in consonance with economic reforms
 Emergence of service sector
 Average GDP growth of around 8.9% during the last 5 years
 Increase in inbound and outbound tourists and medical tourism
 Over 300 million strong middle class
 Disposable incomes expected to increase at an average of 8.5% p.a. till
2015
 Emergence of low cost airlines
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9. Term III - Business Environments
 The organised retail boom that would require the need for timely delivery
thus contributing to the growth in the air cargo segment
 Corporate showing increasing preference for private jets and air charter
services
Policy Factors
 Modernisation and setting up new airports across country
 City side development of non-metro airports
 Providing international airport status to major tier I and tier II cities
 Open sky policy
 Policy of license to new scheduled operators
 Permission to acquire new aircrafts
 Permission of private operators to operate on international sectors
 Encouraging private investments in airlines and airport infrastructure
 Facilitative foreign direct investment norms
 Liberal bilateral service agreements
 Emphasis on development through PPP mode
Market Share
The Indian aviation market is majorly owned by the below given companies and
their market share is as depicted below. The Jet Airways is in the premium class of
the industry and dominates the market. Go Air is the low cost airline and being new
(started operation in 2005) in the industry owns a pretty substantial amount of the
market share. The state owned Air India also owns around 17% of the market share.
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10. Term III - Business Environments
Factors Impacting the Industry
Fuel Cost
Aviation Turbine Fuel (ATF) prices in India are higher than the international
market. The airline industry‘s operational cost component is dominated by the cost
of the (ATF). The ATF price accounts for nearly 45% of the operational expenses. A
10% increase in fuel price would push up costs by atleast 4%, thus causing a
damper on the financial health of an airline business.
240000
220000
ATF Price (Rs/KL)
200000
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
2005 2006 2007 2008 2009 2010 2011
Prices in Delhi Prices in Mumbai Prices in Chennai Prices in Kolkata
Source: CMIE
The industry has also been consuming fuel as a huge rate and its increasing at a
steady pace. The total annual consumption rose to more than double than what was
being consumed 10 years back (from 2200K tonnes in 2000 to 5100K tonnes in
2011).
Aviation Turbine Fuel Consumption (000 tonnes)
6000
5000
4000
3000
2000
1000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: CMIE
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11. Term III - Business Environments
Employees & Manpower
The Civil Aviation Sector is facing acute manpower shortage, especially in the
technical cadre. As per estimates on the Human Resource Development for the Civil
Aviation Sector, India would need 5,400 pilots by the end of the 2012. Similarly the
demand for Aircraft Maintenance Engineers and Air Traffic Controllers would rise with
the increasing number of flights and the new airports. Given a population of more
than one billion plus, the requirement for the technical manpower appears
inconsequential, but the low supply churn out rate of quality technical grade
personnel might perpetuate an undermanned Indian aviation sector.
There are around 40 approved flying training institutes in the country out of which
17 are functional. The training of commercial pilot is a time consuming process. At
present, only 100 pilots graduate from these flying schools every year. On the short
term demand basis there would be a requirement of at least 150 pilots per year as
replacements for retirements and normal attrition. For the airlines, shortage of pilots
would result in higher pilot salaries putting pressures on their revenue margins.
However out of 100 applicants, airlines barely get 15-20 pilots who meet their
requirements. The rejection rate at the CPL level is high because most of the courses
of pilot trainings institutes (both Indian and overseas) are not recognized by the
Directorate General of Civil Aviation (DGCA). DGCA has permitted the foreign pilots
to fly aircrafts on domestic circuits to mitigate the shortage of trained pilots in India.
However, that is not the long term solution, given the growth of Indian aviation
sector.
Similar is the case with the Aircraft Maintenance Engineers (AME) institutes. They
produce about 5000 students every year, but they only provide basic training for
issuance of basic licence. The candidates passing out of the AME institutes need to
undergo a minimum one year experience on the heavy aero planes and pass DGCA
examination to get type rated licence. Due to shortage of type rated licence holders,
the aviation industry faces scarcity of engineers. Currently, foreign engineers are
being inducted in Indian civil aviation to bridge this gap. Also, there is a huge
vacancy in the Air Traffic Management, but the institutes in India are not able to fulfil
the demand.
Passengers
Worldwide air travel, measured by the number of passenger kilometres flown,
rose 7.5% following a 1.9% decline in 2009. International air travel grew 8.3% after
a 2.5% fall the year before, while domestic air travel was up 6.1% following a 0.9%
decline. By the end of 2010, most markets had exceeded their prerecession peaks
and the expansion was on-going in the early part of 2011. According to IATA annual
report 2011, there is an average annual growth rate of 5.2% worldwide in the
number of passenger from 2006 to 2011.
With the introduction of Air Deccan as a Low Cost Carriers (LCCs) in 2003, the
face of the industry has changed. The air travel became more affordable of all class
of passengers. The passengers who would travel in III/II class AC rail considered
option of LCCs beneficial due to marginal cost difference as compared to rail travel.
This visible benefit helped in increase of passenger traffic by many folds and helped
the industry in running a profitable business. This also brought in a number of other
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12. Term III - Business Environments
LCCs like SpiceJet and IndiGo to join the business. The competition in the industry
further brought down the travel cost for the passengers.
In India, top 5 airports handle 70% of the passenger traffic of which Delhi and
Mumbai together alone account for 50% of the traffic. Passenger and cargo traffic
has growth at an average of about 9% over the last 10 years which is the highest
growth rate in the world. ―The sector is slated to cruise far ahead of other Asian
giants like China or even strong economies like France and Australia. The number of
passengers who will be airborne by 2020 is a whopping 400 million‖. The growth rate
of the passenger traffic is an indication of the growing demand of air services in
India.
Summary 2000 2011 AAGR
International Passengers 1,32,93,027 3,79,07,548 10.1%
Domestic Passenger 2,57,41,521 10,55,22,176 14.5%
Total Passengers 3,90,34,548 14,34,29,724 13.1%
Growth in domestic markets varied greatly in 2010 because of structural changes
as well as economic cycles. India as an emerging market saw continued expansion of
almost 20.2%. The number of passengers traveling economy class was above
prerecession peaks. Conversely, the size of the premium international air travel
market was still 10% below its prerecession peak owing to the extent of that
market‘s collapse during the recession that began in 2008.
Scheduled Air Transport Service / Domestic Scheduled Passenger Airline - FDI up
to 49% and investment by Non-resident Indians (NRI) up to 100% allowed under the
automatic route.
120000000 160000000
Passenger Traffic
140000000
100000000
120000000
80000000
100000000
60000000 80000000
60000000
40000000
40000000
20000000
20000000
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Domestic Passenger Traffic International Passenger Traffic Total Passenger Traffic
Source: CMIE
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13. Term III - Business Environments
Jet Airways SpiceJet Kingfisher
Operating Parameters (India)
2011 2010 2011 2010 2011 2010
Available Seat Kilometres (ASKMs) Lakh 3,43,230 2,92,420 1,04,670 87,700 1,61,660 1,48,010
Change in ASKM (YoY) 17.4% 19.4% 9.2%
Revenue Passenger Kilometres (RPKMs) Lakh 2,69,720 2,26,400 86,390 68,070 1,31,010 1,06,250
Change in RPKM (YoY) 19.1% 26.9% 23.3%
Direct Operating Cost (Rupees Lakh) 11,13,585 9,20,595 2,81,232 2,14,968 5,28,934 4,74,751
Operating Revenue (Rupees Lakh) 12,77,683 10,46,964 2,87,951 2,18,108 6,23,338 5,06,792
Cost per ASKM (CASKM) Rupee 3.24 3.15 2.69 2.45 3.27 3.21
Revenue per ASKM (RASKM) Rupee 3.72 3.58 2.75 2.49 3.86 3.42
Passenger Load Factor (%) 78.6 77.4 82.5 77.6 81 71.8
Cargo/Freight
Air cargo operations generates additional revenue for airports and provides better
utilisation of the airport facilities as majority of these services are undertaken during
the non-peak hours.
Summary (Tonnes) 2000 2011 AAGR
International Cargo 5,31,844 14,96,164 10.1%
Domestic Cargo 2,65,570 8,52,198 14.5%
Total Cargo 7,97,414 23,48,362 13.1%
While the amount of cargo freighted via air is growing steadily, the infrastructure
related to air cargo handling and evacuation is not. India already has an open-sky
policy for air cargo as well. The domestic cargo traffic grew at an AAGR of more than
10% within the period of 2000-11; while the international cargo traffic grew by
14.5%. The overall traffic grew by more than 13%. At present India contributes over
1% of the world air cargo traffic.
The Government of India has acknowledged the need for development of cargo
related facilities and is taking the necessary steps to address the situation with
consistent and coherent application of policies. For a developing country like India,
with its natural challenges in terrestrial transportation, a well networked air cargo
system will go a long way in addressing the problem of networking the remote areas
and creating a proper international market access to them. Air cargo remains a vital
mode of transport for India‘s international trade especially for products with high
value or value addition. The five major airports (Mumbai, Delhi, Kolkata, Chennai
and Bangalore) account for around 88% of the total air cargo handled in India.
Growth in cargo / freight volumes is an outcome of macro-economic factors such as
domestic consumption, exports and imports. The infrastructure needed to cater to
the growth remains a major challenge. However, the international and domestic
cargo volumes have shown a steady growth despite inadequate capacity and
infrastructure.
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14. Term III - Business Environments
Some of the cargo service providers include Blue Dart, FedEx, Air India, Gati etc.
The major commodities being air freighted out of India are garments,
pharmaceuticals, dyes, chemicals and perishables such as fruits, vegetables, flowers,
fish and meat. The increased usage of IT applications in cargo handling is likely to
enhance the efficiency of movement of cargo traffic. With the opening of the
economy, buoyant trade, new low cost carriers, up-gradation of the airports across
the country, the cargo handled by air is expected to grow more rapidly in the next
decade. This will require not only better connecting transportation infrastructure, but
also quality, standard warehouses, and speedy operations through automation.
As per the FDI guidelines of the Government of India, a 74% FDI is allowed and
an NRI investment of up to 100% is allowed under automatic route. Foreign airlines
are allowed to participate in the equity of companies operating cargo airlines. The
AAI is also planning to develop airports dedicated to the movement of cargo and
logistics.
Cargo Traffic
2500000
2000000
1500000
1000000
500000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total Cargo Traffic Domestic Cargo Traffic International Cargo Traffic
Source: CMIE
Accidents
Aviation safety has come a long way in over one hundred years of
implementation. In modern times, two major manufacturers still produce heavy
passenger aircraft for the civilian market: Boeing in the United States of America and
the European company Airbus. Both have put huge emphasis on the use of aviation
safety equipment, now a billion-dollar industry in its own right, and made safety a
major selling point—realizing that a poor safety record in the aviation industry is a
threat to corporate survival. When measured on a passenger-distance calculation, air
travel is the safest form of transportation available. When compared against all other
modes of transport on a fatality per mile basis air transport is the safest — six times
safer than traveling by car and twice as safe as rail. But, the perception of the
passengers changes immediately after any accident or mishap that occurs in the
industry which causes cost to the industry in the form of low passenger count.
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15. Term III - Business Environments
Date Flight Number Operator Fatal Location
22 May 2010 812 Air India Express 158 Mangalore
21 Jun 1982 403 Air India 17 Bombay
1 Jan 1978 855 Air India 213 Bombay
17 July 2000 7412 Alliance Air 60 Patna
Saudi Arabian/
12 Nov 1996 763/1907 Kazakhstan Airlines 349 Charkhi Dadri
19 Oct 1988 113 Indian Airlines 130 Ahmedabad
26 Apr 1993 491 Indian Airlines 55 Aurangabad
14 Feb 1990 605 Indian Airlines 92 Bangalore
Currency Exchange
0.028
0.026
0.024
0.022
0.02
0.018
0.016
0.014
0.012
0.01
0.008
Jan-08
Jan-00
Jul-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-09
Jan-10
Jan-11
Jul-01
Jul-02
Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
INR/USD INR/EUR INR/GBP
Source: oanda.com
Most airlines operate in a multicurrency environment. In the past few years
budget airlines have expanded to include bases outside their home countries. The
industry has a huge impact in the revenue and profitability due to exchange rate
movement. From an accounting standpoint, the risk of changing exchange rates is
captured in what is called translation exposure. While translations of foreign
operations from the foreign to the domestic currency, there are two issues we need
to address. The first is whether financial statement items in a foreign currency
should be translated at the current exchange rate or at the rate that prevailed at the
time of the transaction. The second is whether the profit or loss created when the
exchange rate adjustment is made should be treated as a profit or loss in the current
period or deferred until a future period. The major aspects of the business that is
impacted due to the currency exchange is the fuel price which can be overcome to
some extent by hedging and the cost and revenue from the international operation.
PGDM-Exec 2012 14

16. Term III - Business Environments
Government Policies
The regulatory body of civil aviation in India is the DGCA (Directorate General of
Civil Aviation) under the Ministry of Civil Aviation, Government of India. The various
activities of DGCA are to formulate and implement the regulations related to the
below –
 Aircrafts
 Medical
 Operators
 Licencing
 Aerodromes
 Surveillance & Enforcement
 International cooperation
 Statistics
The other regulations of the industry are as below –
 Aircraft Act, 1934
 Aircraft Rules 1937
 Air Corporations Act, 1953 & 1994
 Bureau of Civil Aviation Security (BCAS)
The Ministry of Civil Aviation has the following public sector undertakings /companies
/autonomous bodies under its administrative control for facilitating the industry in
the country –
 National Aviation Company of India Limited (NACIL)
 Airports Authority of India (AAI)
 Pawan Hans Helicopters Limited (PHHL)
 Indira Gandhi Rashtriya Uran Akademi (IGRUA)
Taxation
Income, property, and fuel, even equipment: aviation taxes know no bounds in
the eyes of government. More recently, taxes for social and economic purposes such
as development aid, climate change, and tourism expansion have made the
headlines. Taxing the sale of air tickets is, from a government perspective, an ‗easy
grab‘. The collection mechanism is already in place at no cost to the government and
the airline just passes on the money to the treasury. But this is a simplistic viewpoint
because, while taxes provide a tangible short-term revenue boost to the
government‘s coffers, increased taxes in the long term can be outweighed by the
cost to the underlying economy. This tax is a major pinch to the consumers and also
a major setback for the industry as well.
Profitability
The profitability of the industry highly depends on the factors mentioned above.
Each of the factors has simultaneous impacts on the industry. Top three of the five
companies in the aviation sector reported a robust sales growth of over 20% each.
Higher passenger volumes coupled with improved realisations enabled the industry
post healthy sales growth. Net profit margin (net profit to sales ratio) dipped
PGDM-Exec 2012 15

17. Term III - Business Environments
marginally to 3.3% in December 2010 quarter due to a more than proportionate
increase in net sales vis-à-vis profit. Profits were lower due to deferred tax
adjustment made by the company. Although sales of Kingfisher Airlines surged by a
big margin, it continued to record a loss at the net level. Appreciation of Indian
Rupee vis-à-vis USD enabled a number of companies to recover losses and also
reduce their costs.
Sales growth in the last quarter of 2011 was driven by both, higher volumes and
better yields. Higher fuel consumption due to an increase in the scale of operations,
and a rise in ATF prices resulted in a sharp growth in fuel expenses. Rent expenses
fell year-on-year, due to an appreciation in the rupee. However, the industry
recorded net losses for the year ending 2011.
Jet Airways Kingfisher Airlines SpiceJet Airlines
in Rs Crore
2011 2010 2011 2010 2011 2010
Sales 12,782.52 10,438.57 6,233.38 5,067.92 2,879.51 2,181.08
Power & Fuel Cost 4,366.70 3,151.65 2,274.03 1,802.99 1,226.23 814.22
Employee Cost 1,342.19 1,226.55 680.54 689.38 231.45 168.39
Manufacturing Expenses 2,375.85 2,114.04 1,192.80 1,108.82 599.79 465.45
Selling and Admin Expenses 1,809.12 1,482.68 997.34 996.85 258.87 252.72
Miscellaneous Expenses 373.87 354.93 87.94 108.58 57.73 50.57
Operating Profit 2,514.79 2,108.72 944.04 320.41 505.44 429.73
Net worth 2,604.34 2,641.98 -2,951.19 -3,898.45 321.11 -342.18
Total Debt 13,480.39 13,896.98 7,057.08 7,922.60 85.76 438.29
Interest 1,872.72 1,824.74 2,340.32 2,245.59 439.68 409.7
It has been observed and stated that, the LCCs (SpiceJet, IndiGo) of India are
performing better than premium class airlines (Jet, Kingfisher) in terms of
profitability and resource utilization. The LCCs has more efficient utilization of their
operating costs that eventually increases the profitability.
PGDM-Exec 2012 16

18. Term III - Business Environments
Aviation Industry in United States
The aviation industry is a vital part of the US economy. Despite the lingering
effects of the past recession, there is cautious optimism in the air transport sector of
the U.S. economy. The industry continues to be flexible, developing new, innovative
ways to lower costs and increase revenues. For example, as the price of jet fuel
climbs, air carriers are finding innovative ways to conserve fuel and lower costs.
Investment in air transportation infrastructure leads to smart growth and job
creation. The American Recovery and Reinvestment Act of 2009 provided funding to
invest $200 million in FAA facilities and equipment and $1.1 billion in grants-in-aid
for airports. The 2011 FAA Aerospace Forecast expected a 4.9 per cent increase in
RPM between fiscal years 2010 and 2011, and projects average annual growth rates
of 3.8 per cent per year through 2031 for U.S. airlines. Despite the dramatic
slowdown of the economy and impact on the aviation industry, the U.S. economy
produced $14.1 trillion in value-added economic activity and sustained 140 million
jobs. At the same time, civil aviation economic activity: Supported 10.2 million jobs;
Contributed $1.3 trillion in total economic activity; Accounted for 5.2 per cent of
total U.S. GDP.
As commonly stated in 1950s and 1960s economic literature, every time America
sneezes, the rest of the world catches pneumonia. This old adage can also be applied
to today‘s aviation industry‘s relationship with the overall U.S. economy. However,
after September 11, 2001, the link between the economy and the airline industry
decoupled and the impact on the demand for air travel is again exhibiting an
increase in sensitivity to economic and global events.
The economy grew 1.1 per cent in 2001, but after the events of September 11,
the demand for air travel fell 6.2 per cent. The subsequent years continue to exhibit
a similar pattern. Air travel demand increased 11.6 per cent in 2004, just over three
times the growth rate of the economy (3.6 per cent), whereas in 2009, air travel
demand dropped by 5.3 per cent, twice that of the economy (-2.6 per cent). The
aviation industry has shown flexibility and ingenuity, adopting innovative resource-
saving and revenue-enhancing techniques during these challenging economic times.
Transportation Statistics (BTS), the average round trip air fare (including taxes)
increased 5.2 percent from $320 in the fourth quarter of 2009 to $337 in the fourth
quarter of 2010.
FAA.com
US have an advantage that it has a domestic aircraft manufacturer Boeing. This
reduces a lot of import cost for the industry. The highly volatile price of fuel
continues to be a major concern for the airline industry in US as well along with
PGDM-Exec 2012 17

19. Term III - Business Environments
other economies. Oil market speculators usually drive the fluctuation along with the
U.S. crude petroleum field production, cuts in U.S. refining capacity, declines in
Strategic Petroleum Reserve stocks, decreases in Organization of Petroleum
Exporting Countries (OPEC) production targets, and political uncertainty in the Gulf
countries. The industry saw the lowest price of $53 per barrel for last couple of years
in February 2009—a 68 per cent decline. This decrease was mainly due to the
delayed impact of falling overall demand for oil as a result of the recession. With the
upturn in the economy, the price of jet fuel has slowly risen.
The recent growth in the economy has led to increases in airline operating
revenues and RPM, but not industry employment. The employment trend has fallen
since reaching a peak in 2000 at over 557,000 employees, before the onset of the
U.S. recession in 2001 and the ensuing terrorist attacks on September 11. It fell
sharply to about 376,000 employees by the third quarter of 2010 (Figure 7), a
decrease of 32.5 per cent over 10 years, or approximately 3.9 per cent per year,
whereas the RPM rose by 1.4 per cent per year, from 710.6 billion to 811.4 billion
over the same period. The decline in employment is majorly due to the airlines
replacing directly employed workers with workers supplied through contracts with
outside firms. According to annual data from BTS, maintenance employment fell 33
per cent from 64,248 in 2000 to 42,774 in 2009. Another reason of the fall in
employment was the introduction of LCCs which employ far fewer maintenance
employees per aircraft and outsource a higher percentage of maintenance expenses.
LCC‘s maintenance activity is lower because these carriers utilize newer aircraft.
According to calculations using the Aircraft Inventory data from BTS, the average
age of LCC‘s aircraft was 9.4 years versus 14.8 years for network carriers in 2009.
Also noteworthy is the increase in LCC industry share of domestic flight
operations. According to BTS, the annual number of domestically scheduled flights
by network airlines fell from 4.2 to 2.5 million between 2000 and 2009, while the
number of flights among LCCs increased from 1.3 to 1.8 million. The third reason for
the fall in industry employment is the substitution of technology for tasks previously
handled by employees. For example, more travellers are using the Internet instead
of contacting airline ticket agents to book, price-compare or check in for flights.
Digital technology also has brought about greater efficiencies in handling airline
activities.
Decline in Aviation Employment
PGDM-Exec 2012 18

20. Term III - Business Environments
Aviation Employment Data 2000 2008 2009
Passenger Airlines
Maintenance employees 64,248 46,075 42,774
Maintenance employees per aircraft 13 8.9 7.9
Percent maintenance expenses outsourced 29.6 45.2 43.1
Low-Cost Airlines
Maintenance employees 3,630 3,015 3,300
Maintenance employees per aircraft 5.7 3.2 3.2
Percent maintenance expenses outsourced 52 54.6 55.6
Economic Impact Summary
Summarizing the economic impacts of the aviation industry on US economy are as
below –
Primary Impacts: The primary impacts of aviation are a summation of direct and
indirect impacts of civil aviation on the U.S. economy and include:
 Air transportation and supporting services
 Aircraft, aircraft engines and parts manufacturing
 Travel and other trip-related expenditures by travellers using air
transportation
Direct: Direct impacts of civil aviation are created through manufacturing and
air-transportation activities measured by the employment, payroll and
sales/output associated with the following industries/entities:
 Scheduled and non-scheduled airlines and air couriers
 Airport and aircraft service providers
 Air cargo service providers
 GA (non-commercial) aircraft operators (including flight schools)
 Aircraft and components manufacturing
Indirect: Indirect impacts result from the expenditures of air passengers, other
than airfares and charges paid directly to airlines or travel agent. Visitor
expenditures translate into sales, payroll and employment for:
 Traveller accommodations (hotel, motel, etc.)
 Food and beverage (restaurants, bars, fast-food outlets and stores)
 Arts, entertainment and recreation (museums, theatres, parks)
 Visitor travel services (sightseeing, tourist services, travel agencies)
 Ground transportation (to and from airports)
 Other on- and off- airport purchases of goods and services (souvenirs)
Secondary Impacts: Induced impacts result from expenditures made by
industries identified in the measurement of primary impacts to supporting businesses
and entities, as well as the spending of direct and indirect employees. Induced
impacts capture the secondary impacts to the economy as direct/indirect sales, and
payroll impacts are circulated to supporting industries through multiplier effects.
PGDM-Exec 2012 19

21. Term III - Business Environments
Measures of Economic Impacts
Direct and indirect expenditure estimates are input into RIMS II to estimate the
secondary effects of those expenditures on the U.S. economy. The output of RIMS
II includes the secondary effects on economic output, earnings and jobs.
Output: The current dollar production of goods or services by a production unit
and measured by total sales or receipts of that unit, plus other operating income,
commodity taxes (sales and excise taxes) and changes in inventories.
Earnings: Wages and salaries, other labour income, benefits and proprietor‘s
income paid to all employed persons who deliver final demand output and
services.
Jobs: The number of people employed in the industry that provide civil-aviation
services, manufacture aircraft and aircraft engines, or work in other industries
that are indirectly affected by activity in the civil air transportation sector.
PGDM-Exec 2012 20

22. Term III - Business Environments
Aviation Industry in China
China‘s aviation industry has advanced at an impressive rate over the past
decade. While some of this progress can be attributed to rapidly growing
governmental support for China‘s aviation sector, China‘s aviation capabilities have
also benefited from the increasing
participation of its aviation industry in the
global commercial aviation market and the
supply chains of the world‘s leading
aviation firms. This monograph assesses
China‘s aviation capabilities and the extent
to which China‘s participation in commercial
aviation markets and supply chains is
contributing to the improvement of those
capabilities.
Specific areas assessed include China‘s
commercial aviation manufacturing
capabilities, its commercial and military
capabilities in space, efforts of the Chinese
government to encourage foreign
participation in the development of the
aviation industry, transfers of foreign
aviation technology to China, the extent to
which U.S. and other foreign aviation firms
are dependent on supplies from China, and
the implications of all of these issues for
U.S. security interests.
China is already the world‘s second-largest national air travel market, trailing only
the United States. This market, moreover, is likely to grow rapidly over the next two
decades—an estimated 4,000 new passenger aircraft are expected to be purchased
by Chinese airlines over this period.
This represents approximately one-
eighth of the total world demand
during the next 20 years. The
markets for cargo aircraft, general
aviation, and helicopters in China,
although significantly smaller than
that for passenger aircraft, are also
expected to grow rapidly in the
coming years.
In 2007, China‘s major airlines
booked more than 230 billion RPK, or
almost 31 billion tonne-kilometres,
flown. For comparison, China‘s RPK is
about 20 per cent that of U.S. about
6.7 per cent of all world traffic in
2007. To support that level of air
transport, Chinese airlines used a
fleet of roughly 1,350 large commercial aircraft and 60 regional jets in 2010. The
large commercial aircraft fleet comprises 55 per cent Boeing airplanes and 43 per
cent Airbus airplanes. The Chinese commercial fleet is approximately 20 per cent the
PGDM-Exec 2012 21

23. Term III - Business Environments
size of the North American–based large commercial aircraft fleet and just over 7 per
cent of the world fleet.
China‘s commercial aviation market is dominated by the ―big three‖—Air China,
China Eastern, and China Southern. These airlines were created by the Civil Aviation
Administration of China (CAAC) in 2000 and 2001 to rationalize the air transport
market. They are all effectively controlled by the central government. Hainan Airlines
is the largest private start-up airline.
Domestic versus International Traffic
China‘s airlines deliver three-fourths of their service on domestic routes. China is a
large geographic area similar in size to the United States, but its population density
is both higher and much more concentrated, with more than 90 per cent of the
population living in the eastern half of the
country. However, alternative
transportation methods, rails and roads,
are not as developed, leaving Chinese
citizens more dependent on air transport.
China‘s continuing development of rails
and roads is likely to increase their
competitiveness with air transport, which
will limit the growth of domestic air
transport. On the other hand, given
China‘s vast expanses, rail travel is
unlikely to replace air travel to the same
extent as in other countries, and increasing
per-capita income will likely result in more
Chinese citizens traveling both
domestically and abroad. Thus, the net
effect is that, in PPP terms, China‘s
RPK/GNI ratio will likely increase to a level
somewhere between those of the United States and Japan; and over the next two
decades, China‘s air transportation market may continue to grow at a rate somewhat
faster than the economy in PPP terms, but projections extrapolated from U.S. figures
are likely to be overstated.
Chinese Airlines
Benefiting from China's steady economic growth, China aviation industry took the
lead in the global recovery. In 2010, it completed an RTK of 53.845 billion ton-km,
up 26.1% year on year. In Q1 2011, due to the rising international oil prices, the
instability in the world and Japan‘s earthquake, the RTK of China aviation industry
only grew by 8.0% year on year, much less than the growth rate of 32.2% in Q1
2010.
In 2010, by average monthly passenger traffic and fleet scale, China Southern
Airlines, China Eastern Airlines and Air China International ranked top 3, with
average monthly passenger traffic of 5,814,800, 4,926,500 and 4,350,700
respectively, and fleet scale of 422 aircrafts, 348 aircrafts and 393 aircrafts
PGDM-Exec 2012 22

24. Term III - Business Environments
separately. Other airlines occupied very small shares in both passenger traffic and
fleet scale in the industry.
China Southern Airlines: It has the most aircrafts and annual passenger traffic
in China aviation industry. In 2010, its passenger traffic ranked first in Asia and third
in the world. In 2010, it achieved net profit of RMB5.805 billion, up 1521.5% from
RMB358 million in 2009.
China Eastern Airlines: In 2010, China Eastern Airlines and Shanghai Airlines
merged, so that the operation scale was larger. Coupled with the driving force of
Shanghai World Expo, the transportation revenue gained by China Eastern Airlines in
2010 grew by 81.49% to RMB68.47 billion. However, in Q1 2011, the transportation
revenue only grew by 16.63% year on year.
Air China International: It has the most assets and traffic in China aviation
industry. In 2010, it achieved net profit of RMB12.208 billion, up 142.75% year on
year; in Q1 2011, it achieved net profit of RMB1.671 billion, down 23.04% year on
year.
In 2010, the throughput of Chinese airports touched a record high level. The
passenger throughput reached 564,312,000, up 16.1% from last year; cargo and
mail throughput was 11.29 million tons, up 19.4% from last year. Chinese airports
are divided into three categories: first, three hub airports, including Beijing Capital
International Airport, Shanghai Pudong Airport and Guangzhou Baiyun Airport;
second, 17 major airports in
Chengdu, Kunming, Xi'an,
Urumqi, Wuhan and other
cities; third, other types of
airports.
In 2010, the number of
airports in China increased. The
passenger throughput of three
hub airports accounted for
27.6% of the total throughput,
declining slightly. The
passenger throughput of Beijing
Capital International Airport
accounted for the highest
13.1%, while Guangzhou
Baiyun Airport 7.3 % and
Shanghai Pudong Airport 7.2%.
PGDM-Exec 2012 23

25. Term III - Business Environments
International Expansion of Indian Aviation Industry
India‘s airlines handled 1.3 million international passengers, for an 8.5% year-on-
year increase, according to the DGCA. Air India is still the largest Indian carrier in
the international market, with a 38.2% seat share and a 46.6% capacity (ASKs)
shares. This international network strength provides the struggling national carrier
with international connectivity from its still-sizeable domestic network. In this sense,
Air India has benefited from access to all the main markets, with 140,675 weekly
seats across its international network. However, according to a damning Comptroller
and Auditor General (CAG) report released last week, all international routes of the
carrier were loss making by 2009/10. For every one international seat, Air India
operates 2.2 domestic seats, although it operates 2.3 more ASKs internationally than
in the domestic market. Jet Airways is the second largest operator of international
capacity (seats and ASKs) to/from India, and the largest by frequency, and is quickly
catching up to Air India.
Indian Aviation is undergoing a massive expansion at present. India is one of the
fastest growing aviation markets in the world. Growth in the sector was instigated by
the liberalisation of the Indian aviation sector through the 1990 'open sky policy'
adopted by the government. The industry has changed significantly as privately
owned full-service airlines and low cost carriers have entered the market. In 1991
private carriers accounted for 0.4% of the market, now they hold about 75% of
market share. The sector has grown rapidly compared to other aviation markets
around the world; the Indian aviation market is the 9th largest globally up from 12th
in 2006. The expansion has been accompanied by increased competition with many
new players joining the market.
Other LCCs like IndiGo and SpiceJet are trying to get into international market,
but the government policies and macroeconomic factors are hindering the
opportunity for the airlines. The state owned Air India always gets the priority and
that is stopping the other airlines in getting the international operation licence.
Factors
Macroeconomic Factors
• Level of growth in the economy, population, incomes etc.
• Airline market factors, including fares, flight frequency, and schedules;
• Air transport production costs and technology;
• Regulatory factors;
• Infrastructure constraints and improvements;
• Substitutes for air travel.
Economic Factors
The various economic factors that need to be considered for the expansion are –
 New investments
The expansion of the industry in the international market would require
huge investment in terms of new and bigger airplanes, additional employees
to serve the new load of passengers, new parking hangars at international
airports, slot booking at the airport and ATC, space for kiosks, employee
halt arrangements etc.
PGDM-Exec 2012 24

26. Term III - Business Environments
 Right destinations for expansion
For the expansion of the industry the airlines need to choose the
destinations which can get the maximum utilization of employed resources.
These resources can be the maximum RPK, employee utilization etc. This
means the companies need to choose the destinations with maximum
passengers. As per the CAPA Sept-2011 report (Center for Aviation and
Innovata) the maximum numbers of passenger destined to and from India
are from Dubai, Qatar, Singapore, Sri Lanka, New York, UK, Thailand etc.
So, as per the data above, the recommendations of initial expansions
are Dubai, Thailand, Singapore and UK.
 Right type and number of employees
For the international expansion, the airlines will need more employees
and as per the targeted destination, they would need different skillset for
PGDM-Exec 2012 25

27. Term III - Business Environments
the employees like language training, etiquette training etc. These
requirements will bring cost to the company. Also, the employee halt
arrangement at the destined locations will also add up to the operational
cost for the airlines.
 Achieving right revenue-profit structure for sustainability
The airlines will have to decide on the right revenue and cost pattern in
order to sustain in a particular country. It has to look into various monetary
factors in the destined country like tax structure, currency exchange
fluctuation, ATC charge, airport cost etc. to decide on the right cost and
revenue structure for the profitability of the company.
Future Prospects and Speculation
In this section we are going to discuss the prospects of expansion of the Indian
Aviation Industry in international market. For this, we will be using historical data for
future data analysis. We are using multiple growth stats for the analysis. These
assumptions are based on growth rate in 2011 and some changes around the last
change seen.
Aircraft Traffic (number) Passenger Traffic (number) Cargo Traffic (tonnes)
YoY
Growth Growth Growth Growth
Growth Growth Growth at Growth at Growth Growth
as 2011 as 2011 as 2011
at 5% at 10% 5% 15% at 15% at 20%
(6.36%) (10.3%) (17.74%)
2009 270345 270345 270345 31584001 31584001 31584001 1149923 1149923 1149923
2010 282204 282204 282204 34367929 34367929 34367929 1270712 1270712 1270712
2011 300145 300145 300145 37907548 37907548 37907548 1496164 1496164 1496164
2012 319234 315152 330160 41812025 39802925 43593680 1761583 1720589 1795397
2013 339537 330910 363176 46118664 41793071 50132732 2074088 1978677 2154476
2014 361132 347456 399494 50868886 43882725 57652642 2442031 2275479 2585371
2015 384100 364829 439443 56108381 46076861 66300538 2875247 2616801 3102445
2016 408529 383070 483387 61887544 48380704 76245619 3385316 3009321 3722934
2017 434511 402224 531726 68261961 50799739 87682462 3985871 3460719 4467521
2018 462146 422335 584899 75292943 53339726 100834831 4692965 3979827 5361025
2019 491538 443452 643389 83048116 56006712 115960056 5525497 4576801 6433230
2020 522800 465625 707728 91602072 58807048 133354064 6505720 5263321 7719876
2021 556050 488906 778501 101037085 61747400 153357174 7659835 6052819 9263851
Profit & Loss Details
Equipment for Operation: Airbus A321-200
Fuel Details
Flying Distance to Bangkok 2917 KM
Fuel Consumption 0.022 L/PKM
PGDM-Exec 2012 26

28. Term III - Business Environments
Employee Details Number Avg. Salary Flight/Month Cost/Flight
Pilot 2 150000 120 2500
Cabin Crew 6 40000 120 2000
Ground Staff (Avg) 20 32000 120 5333
PGDM-Exec 2012 27

29. P & L Statement of one Flight 2012 2013 2014 2015 2016 2017 2018 2019 2020
Business Class 26000 28600 31460 34606 38067 41873 46061 50667 55733
Ticket Price Growing at a rate of 10%
Economy Class 13000 14300 15730 17303 19033 20937 23030 25333 27867
Business Class 16 16 16 16 16 16 16 16 16
Available Seat
Economy Class 169 169 169 169 169 169 169 169 169
Business Class 30.00% 33.00% 36.30% 39.93% 43.92% 46.12% 48.43% 50.85% 53.39%
Load Factor
Economy Class 40.00% 44.00% 48.40% 53.24% 58.56% 61.49% 64.57% 67.80% 71.18%
Business Class 124800 151008 182720 221091 267520 308985 356878 412194 476084
Revenue
Economy Class 878800 1063348 1286651 1556848 1883786 2175773 2513017 2902535 3352428
Total Revenue Round Trip 1003600 1214356 1469371 1777939 2151306 2484758 2869896 3314729 3828513
Avg Barrel Growth rate of 3% as plane
Fuel Cost Consumption 101 104 107 111 114 117 121 124 128 grows old
Cost 666312 686302 706891 728097 749940 772438 795612 819480 844064
Employee Cost 9833 10325 10841 11383 11952 12550 13178 13836 14528 Rises by 5% every year
Admin & Selling
Cost 10000 10500 11025 11576 12155 12763 13401 14071 14775 Rises by 5% every year
Misc Expenses 100360 121436 146937 177794 215131 248476 286990 331473 382851 10% of Revenue
Total Cost 786505 828562 875694 928851 989178 1046227 1109180 1178860 1256218
Operating Profit 217095 385794 593677 849088 1162127 1438531 1760716 2135869 2572294
Straight Line : 103 million * 48 /
Depriciation 115111 115111 115111 115111 115111 115111 115111 115111 115111 30 * 12 *120
Interest on 50% Loan for buying
Interest 122000 122000 122000 122000 122000 122000 122000 122000 122000 airplane
PBT -20016 148683 356566 611977 925016 1201420 1523605 1898758 2335183
Tax @ 30% of PAT 0 44604.86 106969.76 183593.07 277504.92 360425.99 457081.48 569627.43 700554.92
PAT -20016.50 104078.01 249596.10 428383.83 647511.48 840993.98 1066523.45 1329130.67 1634628.16

30. References
- Indian Aviation - Scaling New Heights, Deloitte Report
- IATA
- ICAO
- http://www.foolonahill.com
- http://www.entrepreneurswebsite.com
- CMIE
- en.wikipedia.org
- www.wocu.com
- http://dgca.nic.in/
- http://industrytracker.wordpress.com
- bts.gov
- FAA Economic Impact Report 2011
- researchinchina.com