AirAsia India 2017

Abstract

The AirAsia India 2017 (AAI) case presents the situation faced by Tony Fernandes, the CEO of the AirAsia group of companies, in 2017, when he had to respond to the changes in aviation policy made by the Ministry of Civil Aviation (MCA). As per the changes, an airline operating in India could start its international operations without having five years of domestic flying experience provided it deployed 20 of its aircraft or 20% of the total capacity, whichever was higher, for domestic operations. Operating international flights was more lucrative than domestic routes as the price difference between domestic and international aviation turbine fuel was substantial. By July 2017, AAI had a fleet size of only eleven planes. If Fernandes decided to fly international, he had to buy another nine aircraft. Before that he had to turnaround AAI’s domestic operations. The company was struggling to achieve its breakeven even after three years of domestic operations.

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Exhibit 1: Key Features of the National Civil Aviation Policy 2016

Regional Connectivity

As per the policy, airlines would charge INR 2,500 for a one-hour flight as a part of connecting smaller cities. The Government of India would sanction INR 500 million to INR 1,000 million for reviving airports as no-frills airports. The policy reduced service tax (on 10% of the taxable value) on tickets for one year, and 2% reduced excise duty for fueling at Regional Connectivity Scheme airports. The State Government would provide police and fire services free of cost.

Route Dispersal Guidelines (RDG)

NCAP revised route categorisation. Category I was modified as a flying distance of more than 700 kilometres with a passenger load factor of 70% and 500,000 travellers annually. Category III included the remaining routes other than category I and II. As per this guideline, all the carriers had to deploy at least 35% of the deployed capacity of Category I in Category III. Himachal Pradesh and Uttarakhand routes were included in Category II.

5/20 Requirement

The new policy abolished the 5/20 rule. An airline could start international operations if it deployed 20 aircraft or 20% of its capacity, whichever was higher, for domestic operations even before completing five years of internal functioning.

Bilateral Traffic Rights

The Government of India would encourage “Open Sky” with South Asian countries and places beyond 5,000 kilometres from Delhi on a mutual basis.

Ground Handling Policy

All the major airports would have three Ground Handling Agencies including the subsidiary of Air India. At the non-major airports, the airport operator would decide on the number of ground handling agencies depending on the terminal building capacity and traffic output. The policy did not allow recruitment of employees through third-party sources for safety reasons.

Airport Public Private Partnership

The Government of India encouraged developing airports through the Public Private Partnership mode in collaboration with the Airport Authority of India, State Governments and Private players.

Helicopters and Charters

DGCA would notify separate regulations for helicopters and airport charges for helicopter operation.

Maintenance, Repair and Overhaul (MRO)

The MRO business of Indian carriers was around INR 50,000 million, out of which 90% was spent outside India. In the 2016–17 budget, customs duty and the process for goods clearance were simplified.

Aviation Education and Skill Building

National Skill Qualification Framework Standards would provide training to the non-licensed category. The Ministry of Civil Aviation (MCA) would provide support to the Aviation Sector Skill Council for imparting skills for the growing aviation industry. MCA would also develop a scheme with budgetary support for Type-rating of Pilots.

Source: civilaviation.gov.in

Retrieved from: http://www.civilaviation.gov.in/sites/default/files/Final_NCAP_2016_15-06-2016-2_1.pdf (accessed on October 22, 2016)

Exhibit 2: Profiles of the Team Members

Tony Fernandes

Educated at Epsom College and London School of Economics, Fernandes, 37, was a fellow of the Association of Chartered Certified Accountants. He had worked with Virgin Atlantic, an airline company, as an auditor, and in Virgin Records, a music company, as its financial controller. He was the Vice President, ASEAN, of Warner Music South East Asia. He had received awards for popularising Malaysian music.

Pahamin A. Rajab

Pahamin A. Rajab, 55, had worked in the ministry of transportation and other departments of the Government of Malaysia. He was the Chairman of the Patent Board and Copyrights when Fernandes requested him to organise a meeting with the Prime Minister. He worked as a lawyer in the High Court of Malaysia. He was recognised internationally as an expert in intellectual property laws by the World Intellectual Property Organization. He was a graduate in International Relations from the University of Malaya. He had a law degree from the University of London and a post-graduate degree in Public Policy from the University of Wisconsin. Fernandes shared a cordial relationship with him while working as the Vice President of Warner Brothers and discussed problems in fighting music piracy.

Kamaruddin Meranun

Kamaruddin Meranun, 41, was the promoter of Intrinsic Capital Management. He had started this company after acquiring the shareholding of the joint venture partner in Innosabah Capital Management Sdn. Bhd., a subsidiary of Innosabah Securities Sdn. Bhd. He had worked in Arab Malaysian Merchant Bank where he had managed the funds of high net worth individuals. He had been a friend of Fernandes.

Abdul Aziz Baker

Abdul, 48, was actively associated with the music industry in Malaysia. He was an agricultural graduate from Malaysia and an MBA from Dallas. Fernandes got to know him while working with the music industry.

Source: Company reports

Retrieved from: http://www.airasia.com/my/en/about-us/ir-directors-biography.page (accessed on August 10, 2016)

Exhibit 3: Financial Performance of AAB (in Malaysian Ringgit, RM)

Items

2013

2014

2015

Revenues

5,111,822

5,415,744

6,001,933

Other income

137,813

156,338

212,153

Operating Expenses

Staff costs

606,765

642,222

732,935

Aircraft fuel expenses

2,212,198

2,254,237

2,000,650

Aircraft operating lease expenses

189,354

198,280

102,232

Maintenance and overhaul

138,622

149,411

196,637

Depreciation of property, plant and equipment

596,827

718,202

691,853

User charges

490,009

545,279

684,342

Other operating expenses

196,596

260,909

695,277

Foreign exchange losses on borrowings

353,218

609,087

1,379,038

Foreign exchange gains from associates and joint venture

34,088

190,293

601,708

Profit/loss before taxation

184,091

27,321

253,362

Taxation

Current taxation

18,910

25,638

35,838

Deferred taxation

19,799

85,773

361,809

889

60,135

325,971

Net Profit

184,980

32,814

72,609

Source: airasia.com

Retrieved from: http://www.airasia.com/my/en/about-us/ir-annual-reports.page (accessed on December 22, 2016)

Exhibit 4: Details of AAB’s Entry Into Different Countries

Thai Air Asia

Fernandes entered Thailand through a joint venture between AirAsia Investment, a holding company of AAB, and Shin Corporation, a shipping firm promoted by Tasksin Shinawat, the then Prime Minister of Thailand. Thai AirAsia (TAA) was incorporated in September 2003. During 2006, Asia Aviation, an aviation company promoted by Shin Corporation acquired Shin Corporation’s shares. 1 In 2004, TAA started its scheduled operations. In February 2006, Asia Aviation was rebranded as Asia Aviation Public Company Limited (AVPCL) and in May 2012 it increased its share in the company to 55%. TAA became the largest LCC in Thailand. By December 2015, TAA had 45 aircraft connected to 44 destinations. It earned a total revenue of THB 2 29,507.3 million with a net profit of THB 1,958.3 million for the financial year 2015 (see Table I for the financial performance of TAA). It had a market share of about 22% by 2016.

PT Indonesia AirAsia

Indonesia was the second country after Thailand that AAB entered. PT 3 Indonesia AirAsia (IAA) was founded in 2004 through a joint venture between AirAsia International Ltd. and PT Air Wagon Air International (AWAI), an existing airline in Indonesia. 4 AWAI had started its operations in 2000. It had ceased operations in March 2002 because of heavy losses and stiff competition. In March 2005, AAB entered into an agreement with AWAI to buy 49% of its shares and rebranded it as PT Indonesia AirAsia. Indonesia had witnessed about 40 airline accidents since 2001. 5 The European Union had banned many Indonesian carriers including IAA for safety reasons till July 2010. On December 28, 2014, 8501, a flight from IAA, crashed while travelling from Surabaya, the second largest city from Indonesia to Singapore and all 162 passengers including the crew died because of the problem with the rudder limit of the aircraft. 6 The Indonesia Transport Ministry banned IAA from flying six of its main routes for violating the permit and flying on an unauthorised schedule. IAA faced stiff competition in the domestic market due to the presence of competitors like Lion Air, Garuda Indonesia and others. Lion Air Group had the maximum market share in the domestic market. IAA incurred a loss of RM 678,264 for the financial year 2015. 7 It focussed on the relatively underserved and growing international market of Indonesia as foreign tourists continued to visit Indonesia and middle-class Indonesian travellers started visiting other countries. IAA became a leader in international operations. 8 It had a market share of about 8% by 2016.

Philippines AirAsia

The Philippines was the next country of entry. Philippines AirAsia (PAA) was established in 2012 through a joint venture between AirAsia International Limited and three Philippine investors with a shareholding of 40% and 60% respectively. PAA started its operations in March 2012 at Clark International Airport, approximately 80 kilometres north-west of Manila, the capital of Philippines. PAA was struggling to attract customers to the domestic market. It wanted to get slots at the Manila International Airport (MIA), the central airport of the capital of Philippines. In March 2013, it entered into a strategic alliance with Zest Air, a Low-Cost Carrier (LCC) based at MIA, struggling financially. PAA rebranded Zest Air as AirAsia Zest (AAZ). 9 It was facing stiff competition from Cebu Pacific, an LCC and the market leader in domestic operations and Philippines Airlines (PAL), the national carrier that had the highest share in international operations during 2013. Carriers like AirPhil Express, the budget carrier from PAL, Cathay Pacific, Singapore Airlines, Emirates, Asiana Airlines, Korean Air and others made the competition more intense for PAA. AAZ integrated with PAA and became a single entity in December 2015. PAA incurred a loss of P 915 10 million during the third quarter of 2016. 11 It was planning to raise money through an Initial Public Offer (IPO) in 2017. It had a market share of about 11% by 2016.

AirAsia Japan

Japan was the fourth country Fernandes entered. AirAsia Japan (AAJ) was established in August 2011 through a joint venture between AirAsia International Limited and All Nippon Airways (ANA), the largest airline in Japan with a shareholding of 33% and 67% respectively. 12 On August 1, 2012, AAJ commenced its scheduled operations. It connected to a few domestic destinations within Japan and international destinations in South Korea. It had a fleet size of four Airbus A320 by 2013. It incurred an operating loss of JPY 13 3.5 billion by March 2013. In June 2013, it declared that it would exit from the joint venture by selling its stake to ANA. 14 AAJ broke up with ANA because of differences and disagreements in managing the business of the airline. AirAsia’s strategy which had worked in Malaysia was not successful in Japan. AAJ sold its tickets online through its website but the Japanese preferred to buy tickets from travel agents and convenience stores. AAJ struggled to fill all the seats. Its online reservation was troublesome, initially available only in English and providing limited payment alternatives. AAJ expected passengers to check in 45 minutes before takeoff, but in Japan, airlines allowed passengers to check in even 15 minutes before departure. Japanese customers expected attentive service even from budget carriers. In October 2013, AAJ separated from AAB and rebranded itself as Vanilla Air from November 1, 2013 onwards. However, Fernandes wanted to return to Japan in the future. On July 1, 2014, AAB declared that it had partnered with Rakuten, an online seller in Japan, Noevir Holdings, an aircraft leasing company, Alpen, a sportswear company and Octave Japan, a private equity company to relaunch AirAsia Japan. 15

AirAsia X (AAX)

In 2007, AAB started AAX, a low-cost, long-haul flight with the objective to strengthen its presence in international platforms. 16 In November 2007, AAX started its first flight from Kuala Lumpur to Australia. It connected with the cheaper international airports. It used A330-300 aircraft for its operation which had a combination of 365 economy and 12 premium seats. AAX was the first budget airline to provide premium flatbeds in its flight. It also offered complimentary food, privacy screens, movable headrests, priority check-in and boarding, 40kg free baggage and other services to its premium customers. AAX provided a “Quiet Zone” cabin in its flights that offered a better ambience with soft lighting and a relaxed atmosphere for passengers over 12 years of age. By 2017, AAX had connected with 23 destinations over Asia, the Middle East, New Zealand, Africa and Australia. It had a fleet size of 30 by October 2016. In 2014, AAX entered Thailand and Indonesia and started Thai AirAsia X and Indonesia AirAsia X respectively.

Source: Company Reports

Table I: Financial Performance of Thai AirAsia (in Thai baht million)

Financial Item

2013

2014

2015

9M2016

Revenues

23,485.0

25,355.5

29,507.3

24,853.8

Cost of Sales

19,928.4

23,707.7

25,315.1

19,966.9

Gross Profit

3,556.7

1,647.9

4,192.2

4,886.9

Other income

928.8

919.8

956.3

641.7

Selling and administrative expenses

1,755.7

1,924.9

2,377.4

1,934.8

Net loss on exchange rates

204.8

Profit before finance costs and income tax (EBIT)

2,729.8

642.8

2,566.4

3,593.8

Finance costs

171.0

312.8

457.1

396.2

Income tax

651.2

1.3

151.1

124.6

Net profit

1,907.7

331.3

1,958.3

3,322.2

Source: www.aavplc.com

Retrieved from: http://www.aavplc.com/index.html?menu=financial_highlight&lang=en (accessed on December 22, 2016)

Exhibit 5: Domestic Destinations covered by Air Asia India by 2016

Cities

To Travel Destinations

Bangalore

Goa

Guwahati

Jaipur

Kochi

Delhi

Pune

Vizag

Chandigarh

Bangalore

Chennai

Closed on April 2, 2015

Goa

Bangalore

Delhi

Vizag

Guwahati

Bangalore

Imphal

Delhi

Imphal

Guwahati

Delhi

Jaipur

Bangalore

Pune

Kochi

Bangalore

Vizag

Delhi

Bangalore

Guwahati

Goa

Imphal

Vizag

Pune

Bangalore

Jaipur

Vizag

Bangalore

Goa

Kochi

Delhi

Source: airasia.com

Retrieved from: http://www.airasia.com/in/en/where-we-fly/route-map.page (accessed on November 20, 2016)

Exhibit 6: AirAsia India Promotion

Details given in the image are as follows:

On the top left corner of the advertisement, text reads as “Fly like a SUPERSTAR; Fly from Bengaluru, Goa, Kochi, Pune, Visakhapatnam all in Rs 786”, and a logo of AirAsia is seen on the bottom right corner. A photo of south Indian celebrity actor Rajinikanth wearing a suit is seen on the right side. An image of an AirAsia airplane on a runway with a cloudy background is in the center of the ad.

An image shows an advertisement by AirAsia India.

Source: twitter.com

Retrieved from: https://twitter.com/airasiain/status/748043445063852032 (accessed on October 10, 2016)

Exhibit 7: Financial Performance of AAI Unaudited (in INR’000)

Financial Item

Jan–Dec 2016

Jan–Dec 2015

Jan–Dec 2014

Revenue

8,252,071

5,204,576

846,809

Other income

169,729

54,200

2,219

Operating Expenses

Staff costs

1,582,457

1,245,807

652,881

Aircraft fuel expenses

3,643,581

2,285,949

570,853

Aircraft operating lease expenses

1,620,315

1,118,228

267,814

Maintenance and overhaul

1,018,295

483, 249

65,018

Depreciation of property, plant and equipment

90,421

48,080

3,633

User charges and expenses

1,207,443

686,735

94,538

Other operating expenses

683,616

1,024,549

194,751

Operating loss

1,424,328

1,633,821

1,000,459

Finance income

15,317

42,033

9,904

Finance costs

6,652

19,016

1,007

Net operating loss

1,415,663

1,610,804

991,562

Foreign exchange gain/loss

30,902

50,578

26,202

Loss before tax

1,446,565

1,661,382

1,017,764

Current Taxation

1,262

Net loss after tax

1,446,565

1,661,382

1,019,026

Source: Company reports

Exhibit 8: Market Shares of Major Airlines in India

Sl No

Airlines

Market Share (in percentage)

1

Indigo

40.1%

2

Jet Airways

18.4%

3

Air India

13.2%

4

Spicejet

12.8%

5

Go Air

8.3%

6

AirAsia India

2.6%

7

Vistara

2.8%

Source: Handbook on Civil Aviation Statistics 2016–17 retrieved from http://dgca.nic.in/pub/Handbook_2016–17.pdf (accessed on June 15, 2017)

Exhibit 9: Approximate Cost Structure of the Aviation Industry in India, 2015–16

Attributes

Percentage

Fuel

30

General administration

10.9

Rentals of flight equipment

13.3

User charges (airport, landing and navigation charges )

9.1

Ticketing sales and promotion

6.2

Depreciation and amortisation

8.8

Maintenance, repair and overhaul charges

5.7

Tax

10.4

Flight crew salary and expenses

3.5

Other expenses

2.0

Source: Handbook on Civil Aviation Statistics 2016–17

Exhibit 10: Regulatory Environment in Indian Civil Aviation

Aviation Turbine Fuel (ATF), Airport Charges

The Aviation Turbine Fuel (ATF) price was very high in India. As per the data published by the International Air Transport Association and Oil Companies in 2011, domestic airlines in India were paying 50% more than those in West Asian and European countries (see Table II for Aviation Turbine Fuel Prices – Global Average vs. India). ATF prices in domestic operations were significantly higher in India because they were largely dependent on the International Import Parity Prices and not related to the real cost of producing in India. The cost of ATF involved transportation charges from Gulf countries to India, distribution within India, higher taxes (customs duty of 10% minimum that might be increased up to 20% including excise duty of 8.22% plus sales tax by state governments) and profit margins for petroleum companies. State level tax varied between 3–4% in Tamilnadu to higher than 20% in Karnataka. ATF accounted for around 30% of the operating cost of the Indian carriers against 20% of the operating cost of the global airline companies. Airport charges in India were very high. All the main airports had increased aeronautical charges in 2013 (see Table III for Hike in Aeronautical Charges in four Metro Airports in India). Delhi airport was one of the most expensive airports in the Asia-Pacific region. It was more expensive than Sydney, Tokyo and Osaka. Asian airports like Singapore, Bangkok, Beijing and Dubai were reducing their charges, sometimes through discounts. India did not have any low-cost terminals like Malaysia and other countries.

Table II: Aviation Turbine Fuel Prices – Global Average vs. India

Sl No

ATF Prices (2011)

Rates in USD/Tonne

1

Global Average

1,028.20

2

Asia and Oceania

1,013.50

3

Europe and CIS

1,040.80

4

Middle East and Africa

1,009.70

5

North America

1,029.40

6

Latin and Central America

1,037.40

7

New Delhi (International)

1,190.25

8

New Delhi (Domestic)

1,560.00

Source: business-standard.com

Retrieved from: http://www.business-standard.com/article/economy-policy/aviation-fuel-price-50-higher-in-india-111111700039_1.html (accessed on January 7, 2017)

Table III: Hike in Aeronautical Charges in four Metro Airports in India

Airports

Aeronautical Charges hike (%)

With Effect From

Delhi

364%

May 15, 2012

Mumbai

164%

February 1, 2013

Kolkata

219%

February 16, 2013

Chennai

141%

March 1, 2013

Source: livemint.com

Retrieved from: http://www.livemint.com/Politics/BxDHc1FocSlahkxhSVKYaN/Airport-charges-soaring-in-India-amid-rebates-incentives-ab.html (accessed on December 7, 2016)

Route Dispersal Guidelines

Route Dispersal Guidelines (RDG) were introduced by the DGCA in 1994 with the objective to connect the remote and unviable routes within the country. RDG divided all domestic routes into three categories – Category I, II and III (see Table IV for Route Dispersal Guidelines in India). Category I routes were between inter-metro and bigger cities. Category II routes were to the north-eastern region, Andaman & Nicobar, Lakshadweep and Jammu and Kashmir. Category III included routes other than category I and II. As per this guideline, all the carriers had to deploy at least 10% and 50% of the deployed capacity of Category I in Category II and Category III respectively.

Table IV: Route Dispersal Guidelines

Category I

Mumbai – Bangalore

Calcutta – Delhi

Mumbai – Calcutta

Calcutta – Bangalore

Mumbai – Delhi

Calcutta – Chennai

Mumbai – Hyderabad

Delhi – Bangalore

Mumbai – Madras

Delhi – Hyderabad

Mumbai – Trivandrum

Delhi – Chennai

Category II

North-Eastern region, Jammu & Kashmir, Andaman and Nicobar and Lakshadweep

Category III

Remaining routes other than Category I & II

Source: Civilaviation.gov.in

Retrieved from: http://civilaviation.gov.in/sites/default/files/moca_000754.pdf (accessed on December 7, 2016)

5/20 Norm

In 2004, the GOI came up with the 5/20 norm. As per this rule, all carriers were required to have five years of domestic operations and 20 aircraft to start an international operation. This rule was present only in India.

Restriction on Unbundling of Services

Unbundling of services was prevalent in the Indian aviation industry until March 2013. Unbundling remained a source of ancillary revenue for airlines as they charged for services like preferred seats, lounges, baggage, food and other facilities. In April 2013, the Aviation Ministry in India allowed airlines to unbundle their services and charge fees for carrying musical instruments, sports equipment, meals, drinks (except water), preferred seats and lounges. Most of the carriers in India allowed between 15–20 kilograms (kg) free baggage per passenger on domestic flights. From June 1, 2013, Jet Airways and Indigo reduced the free baggage from 20kg to 15 kg. SpiceJet and GoAir still allowed 20kg free baggage. Most of the carriers charged INR 250–350 per kg above the free baggage limit. In August 2015, the DGCA allowed the domestic players to introduce lower fares for passengers travelling without check-in baggage. SpiceJet offered a discount of INR 200 for passengers travelling without checked-in baggage and one hand baggage, but it would charge customers a fine of INR 400 in case they were found with checked-in baggage. Passengers who later decided to carry checked-in luggage had to pay a fee of INR 500 for up to 10 kg and INR 750 for up to 15 kg baggage respectively. Three airlines, SpiceJet, Indigo and AAI had earlier approached the DGCA with zero-bag fare discount on no check-in baggage. The regulator, however, had rejected the proposal citing that this would discourage middle-class customers from travelling by air.

Shortage of Pilots

The airline industry in India had a dearth of pilots. Usually, an airline required 10 pilots per plane. However, many Indian players managed with 8. 17 Because of the scarcity of pilots in India, airlines were hiring pilots from other countries by paying an additional 60%. While the human resource cost was about 10% of total cost, hiring pilots from overseas pushed up costs. The Indian aviation industry was estimated to require about 9,000 pilots by 2018. Though some people had a Commercial Pilot License (CPL) and Private Pilot Licenses (PPL) they could not be hired immediately as pilots without training. The cost of training on a particular aircraft was around USD 48,000. 18 It took about two years for a trainee pilot to obtain CPL but the pilot needed to be trained on a particular aircraft for a few months before being cleared for flying commercial jets. Chartered flights found it harder to get a pilot at an affordable cost. It took around 60 days to get the security clearance from the Home Ministry to get the Foreign Aircrew Temporary Authorisation.

Exhibit 11: Comparison of Passenger Load Factor and Break-Even Load Factor During 2015–16

Airlines

Passenger Load Factor

Break-even Load Factor

Air India

75.5

75.1

Air India Express

82.4

62.9

Jet Airways

82.6

77.9

Indigo

84.0

71.0

SpiceJet

90.6

85.0

Go Air

83.7

77.5

AirAsia India

80.2

102.3

Vistara

69.4

112.0

TruJet

80.1

142.1

Air Costa

80.7

98.8

Air Pegasus

78.5

81.2

Source: Handbook on Civil Aviation Statistics 2016–17 retrieved from http://dgca.nic.in/pub/Handbook_2016–17.pdf (accessed on June 10, 2017)

Exhibit 12: International Passenger Market Share by Indian and Foreign Airlines (in %)

Year

Foreign Carriers

Indian Carriers

2004–05

71.1

28.9

2009–10

65.5

34.5

2010–11

63.8

36.2

2011–12

64.1

35.9

2012–13

66.2

33.8

2013–14

61.7

38.3

2014–15

63.0

37.0

2015–16

63.4

36.6

2016–17

62.3

37.7

Source: Handbook on Civil Aviation Statistics 2016–17 retrieved from http://dgca.nic.in/pub/Handbook_2016–17.pdf (accessed on June 10, 2017)

Exhibit 13: Market Share of Airlines in International Operation (India) During 2016–17

Sl. No.

Name of the Airline

Share (%)

1

Jet Airways

14.5

2

Air India

10.6

3

Emirates Airline

9.9

4

Air India Express

6.0

5

Etihad Airlines

5.0

6

Qatar Airways

3.9

7

Indigo

3.5

8

Air Arabia

3.2

9

Oman Air

3.2

10

SpiceJet

3.1

11

Saudia

2.8

12

SriLankan Airways

2.5

13

Thai Airways

2.4

14

Lufthansa

2.2

15

Singapore Airlines

2.0

Source: Handbook on Civil Aviation Statistics 2016–17 retrieved from http://dgca.nic.in/pub/Handbook_2016–17.pdf (accessed on June 10, 2017)

Exhibit 14: India’s Inbound and Outbound International Traffic, 2016–17

Country

Inbound International Traffic

Outbound International Traffic

Africa and the Middle East

56.3%

56.2%

Asia Pacific

25.1%

25.0%

Europe

12.2%

12.4%

China and North Asia

4.1%

4.1%

The Americas

2.3%

2.4%

Source: Handbook on Civil Aviation Statistics 2016–17 retrieved from http://dgca.nic.in/pub/Handbook_2016–17.pdf (accessed on June 10, 2017)

Exhibit 15: Top 10 Countries for International Traffic (April–June 2017) for India

Country

Market Share (%)

UAE

32.3%

Singapore

7.4%

Thailand

5.8%

Oman

5.8%

Saudi Arabia

5.7%

Qatar

5.1%

Malaysia

4.2%

UK

4.2%

Sri Lanka

3.9%

Hong Kong

2.7%

Source: International Air Traffic Statistics, April–June 2017, DGCA Retrieved from dgca.nic.in/reports/Traffic-ind.htm (accessed on September 10, 2017)

Appendix 1: Competitors

Air India

Air India (AI) was the national carrier of India. It was started as Tata Airlines in 1932 by Tata Sons Limited. In 1946, Tata Airlines became a Public Limited Company and was renamed as Air India. In 1948, the GOI bought a 49% stake in AI and increased the stake further in 1953 and established Air India International. AI operated as a full-service airline. It offered its services with a mix of Boeing, Airbus, Douglas DC-8, Lockheed and Ilyushin II aircraft. It had a monopoly both on domestic and international routes till the early 1990s.

Indian Airlines

The GOI introduced the Air Corporation Act in 1953 to nationalise the entire airline industry in India. Eight pre-independence domestic private airlines, Kalinga Airlines, Air Services of India, Airways India, Bharat Airways, Deccan Airways, The Domestic Wing of India and Himalayan Airways merged and established Indian Airlines Corporation (IAC). IAC took over mostly the domestic routes. It offered two class travel options, economy and executive. It offered complimentary food to its passengers. It offered its services with a mix of Douglas DC-3, Douglas DC-4, Vickers Viking, Boeing 737 and Airbus A320. In December 2015 IAC was rebranded as Indian. During 2004–05 it registered a profit of around INR 656.1 million. Till 2006, Indian was a profitable carrier; however, the airline suffered after the merger with AI and ceased operations in February 2011.

Air India Regional

In 1996, Indian Airlines launched Alliance Air, an LCC to connect between the Tier II and Tier III cities in India. Alliance Air had used ATR 72-600 and ATR 42-320 aircraft. Indian Airlines rebranded Alliance Air as Air India Regional after the merger.

Air India Express

In 2005, Air India started Air India Express (AIE), an LCC that took over short haul international routes mostly to destinations in the Middle East and Southeast Asia. AIE had point-to-point services with one type of plane Boeing 737-800 aircraft. It offered one class configuration. It gave complimentary food to its passengers. It made its first profit of around INR 41.5 million (unaudited) in the first half of 2016.

Merger of Air India and Indian

In 2006, MCA decided to merge both the national carriers, Air India and Indian, to boost revenues. In 2007, AI and IAC merged under a new body called National Aviation Company of India Limited that was renamed as Air India Limited (AIL) in October 2010. AIL faced severe problems because of the post-merger disintegration between the two airlines, difficulties in the distribution and reservation system, differences in work culture, human resources policy, compensation plan and other issues. 19 Many employees left the company. In 2012, pilots of the airline went on strike for 58 days which led to the cancellation of flights, and the carrier suffered a total loss of INR 6 billion. AIL had an outstanding loan and dues of around INR 675.20 billion in 2012.

In April 2012, the GOI proposed a turnaround plan for AIL and would sanction a turnaround package of INR 300 billion and the induction of 27 Boeing 787 by 2020–21.

In 2014–15, AI suffered a loss of INR 59,058.40 million (see Table V for the financial performance of Air India). In 2016–17, the GOI sanctioned an amount of INR 17.31 billion to the airline against a demand of INR 43 billion. The airline registered a profit of around INR 80–100 million in the first quarter of 2016. In April 2016, AI had a market share of 14.7%.

Table V: Financial Performance of Air India (INR in Million)

Financial Items

2012–13

2013–14

2014–15

Income

Revenues

145,714.44

165,526.60

182,903.10

Other income

15,006.30

25,408.30

23,228.50

Total income

160,721.10

190,934.90

206,131.60

Expenditure

Aircraft operations

95,720.80

107,297.90

104,366.23

Repair, maintenance and overhaul

8,308.10

14,840.40

22,802.00

User charges and station expenses

11,063.80

13,916.30

14,537.50

Passenger services

6,881.00

7,871.20

10,547.47

Ticketing, sales and promotion

4,440.20

3,986.50

4,579.60

Depreciation and amortization

17,003.70

18,955.70

19,207.40

General & administration expenses

38,276.40

37,391.20

28,344.30

Other operating expenses

16,655.90

19,229.30

22,469.90

Total expenditure

198,349.90

223,488.50

226,854.40

Profit/loss before taxes

−65,119.40

−68,929.90

−59,058.40

Tax

0.00

0.00

0.00

Net profit/loss after tax

−65,119.40

−68,929.90

−59,058.40

Source: dgca.nic.in Retrieved from http://dgca.nic.in/reports/Traffic-ind.htm (accessed on November 8, 2016)

Air Deccan

Air Deccan (AD), was the first LCC of India, founded in 2003 by G. R. Gopinath, a retired Indian Army Captain. AD had started connecting smaller towns with bigger cities. It provided single class, point-to-point services. It focused on high aircraft utilisation and quick turnaround time. AD targeted middle-class customers and offered fares 30% cheaper than full-service airlines. It did not provide meals or food on its flights. It distributed tickets through call centres, the internet and limited travel agents. It had tied up with Post Offices and created travel intermediaries to reach maximum people. It employed fewer people and outsourced most of its services wherever possible. It got additional revenues by permitting advertisements both within and outside the aircraft. It started with two ATR 42-320 aircraft and bought another two Airbus 132-200 in 2004. In December 2004, it entered into an agreement with Airbus for buying 30 A320 aircraft for USD 1.8 billion. It witnessed 30% passenger growth during 2005–06. However, with increasing fuel costs, aggressive expansion of routes and fleet sizes, AD made heavy losses. Established players like Sahara Airlines, Jet and Indian Airlines started giving discounts to fill their vacant seats. During 2005–06, LCCs like Indigo, SpiceJet, GoAir and Jet Lite entered the industry.

During the third quarter of 2006, AD incurred a total loss of INR 3,405.5 million (see Table VI for the financial performance of Air Deccan). It had 34 aircraft by June 2006 and travelled to more than 55 destinations. AD had a market share of approximately 19% by 2006–07.

Table VI: Financial Performance of Air Deccan (INR in Million)

Financial Items

March 31, 2003

March 31, 2004

March 31, 2005

June 30, 2006

June 30, 2007

Income

Revenues

234.15

629.39

3,055.54

12,363.9

17,745.5

Other income

0.77

44.18

147.29

1,154.1

3,677.6

Total Income

234.92

673.57

3,202.83

13,518

21,423.1

Expenditure

Staff costs

26.40

71.46

317.65

1,706.2

2,517.9

Aircraft fuel expenses

12.54

92.44

929.85

6,254.5

9,795.0

Aircraft lease

57.22

106.45

451.17

2,162.3

4,030.5

Repair and maintenance

3.10

88.43

492.76

1,775.6

2,275.0

Depreciation and amortisation

11.15

21.03

87.84

322.8

439.2

Selling and administration expenses

34.56

75.57

203.06

1,091.2

1,312.7

Operating expenses

58.11

167.64

736.54

1,327.7

1,611.0

Others

20.58

41.87

165.09

1,926.2

2,979.5

Total expenditure

223.66

664.89

3,383.96

16,566.5

24,960.8

Profit/loss before taxes

11.26

8.68

181.13

3,368.0

4,161.7

Tax

5.02

2.71

13.24

Prior period income/expenses

0.37

27.43

37.5

34.1

Net profit/loss after tax

6.24

5.60

195.32

3,405.5

4,195.8

Source: sebi.gov.in Retrieved from www.sebi.gov.in/dp/dec.pdf (accessed on December 8, 2016)

Kingfisher Airlines

Kingfisher Airlines was established in 2003 by the Bangalore-based business conglomerate United Breweries Group (UB). On May 9, 2005, it started its first scheduled flight from Mumbai to Delhi. Vijay Mallya, the founder of the carrier, had positioned it as a premium airline. It offered free food and in-flight entertainment. Every seat in the Kingfisher aircraft had a TV screen like international carriers and a greeting from the founder through the screen. It gave goody bags to travellers and encouraged them to give their feedback about the service. It also had a first class in the flight. Kingfisher served free liquor to its first class customers though alcohol was not allowed on domestic flights in India.

Acquisition of Air Deccan

Mallya wanted to start international flights, but as per the 5/20 norm, he could not start till the airline had completed five years of operation. He planned to buy an existing airline to start international operations. In 2007, he bought the loss-making AD as it already had 20 aircraft and by August 2008, it would be eligible to fly internationally. In May 2007, Mallya bought 26% equity in Air Deccan for INR 5.5 billion. He further acquired 20% and 2.95% stakes through open offers in October 2007 and December 2007 respectively. In December 2007, Kingfisher and Air Deccan had a combined market share of around 29% in the Indian aviation market. Kingfisher Airlines was rebranded as Air Deccan through a reverse merger and further rebranded as Simplify Deccan. Mallya changed the name to Kingfisher in 2008 after the completion of the acquisition with approval from the Security & Exchange Board of India (SEBI), the securities regulator in India. Kingfisher rebranded AD as Kingfisher Red and positioned it as a budget airline.

Kingfisher Red flew to tier II cities and a few bigger cities. Kingfisher remained the flagship premium brand and operated on the trunk routes and international routes. In September 2008, Kingfisher started its first international flight from Bangalore to London. Kingfisher Red cannibalised the flagship brand as both brands looked similar and customers preferred the low priced one. The global financial crisis in 2009 affected the business of Kingfisher. The airline found it difficult to manage two brands, one low-cost and another high-end. During September 2011, Kingfisher made a loss of INR 4,690 million. In 2011, it decided to exit from its low-cost business and ceased the operation of Kingfisher Red. It had a debt of around INR 65,000 million during November 2011. Kingfisher had taken loans from banks and was overburdened with a debt of around INR 70,000 million. In the quarter ending March 2012, it made a loss of INR 23,280 million (see Table VII for the financial performance of Kingfisher Airlines). It suspended operations from most of its locations as a result of which employees’ salaries were delayed and the service deteriorated.

Mallya wanted a foreign carrier to invest in Kingfisher, but Indian regulations did not allow him to do so. He was a Member of Parliament at that time and lobbied for change. In October 2012, the DGCA suspended Kingfisher’s license, 20 and in December 2012, refused to renew its Air Operator Certificate permit. 21

Table VII: Financial Performance of Kingfisher Airlines (INR in Million)

Financial Items

March 31, 2011

March 31, 2012

Income

Revenues

62,333.79

54,934.09

Duty free credit entitlement

12,62.617

Other income

1,359.216

3,304.99

Total Income

64,955.623

58,239.08

Expenditure

Staff costs

6,760.085

6,695.065

Aircraft fuel expenses

22,740.258

29,458.858

Aircraft lease

9,839.956

8,684.515

Finance costs

13,129.40

12,763.352

Depreciation and amortisation

2,410.376

3,418.659

Operating and other expenses

24,370.912

20,863.08

Redelivery and other costs arising on settlement of disputes

912.465

743,4.472

Restructuring costs

3,382.00

Total expenditure

80,163.452

92,700.001

Loss before taxes

15,207.829

34,460.921

Tax expense

4,933.849

11,180.846

Loss for the period

10,273.980

23,280.075

Source: moneycontrol.com

Retrieved from: www.moneycontrol.com/bse_annualreports/5327470312.pdf (accessed on June 16, 2017)

Air Sahara

Air Sahara (AS) was started as Sahara Airlines in September 1991, by Sahara India Pariwar, a business conglomerate in India. Sahara Airlines began its operations in December 1993. It distributed tickets through authorised agents, station offices and airport counters, but sold maximum tickets through agents. It had a large workforce of 1,600 employees in 2000. On October 2, 2000, Sahara Airlines was rebranded as Air Sahara. It expanded aggressively to various destinations. It had taken loans from various financial institutions. In 2003, the Indian Government launched the Open Skies Policy that allowed private airlines to fly to neighbouring South Asian countries. AS was the first private airline that started international operations on March 22, 2004, flying from Chennai to Colombo, the capital of Srilanka. By 2006, it had a fleet size of 28 aircraft and travelled to 34 destinations within and outside India. Most of its fleet was underutilised because of the non-availability of pilots. It struggled because of huge infrastructure costs, increasing fuel prices, low profitability, underutilised aircraft and competition from LCCs like AD. It incurred a net loss of INR 3.49 billion during 2000–01, accumulated losses of INR 15.99 billion during 2001–02 and a loss of INR 3.775 billion during 2002–03. The Sahara India group wanted to exit from the airline business because of consecutive losses and also because it needed to focus on its other businesses like real estate and financial services.

In 2006, AS started negotiations with Jet Airways to sell its business. On April 13, 2007, Jet Airways acquired AS for INR 14.5 billion. Jet Airways got access to the parking slot at Delhi, Mumbai and London’s Heathrow airports after acquiring AS. Jet Airways rebranded Air Sahara as Jet Lite.

Jet Airways

Jet Airways was established in 1992 by Naresh Goyal who had considerable experience in the airline business. It started as an air taxi operator, a non-scheduled commercial airline in 1993 and began its scheduled operations in 1995. It positioned itself as a full-service carrier. It offered free food to its travellers. In 2004, it started its international operations. It acquired SA in 2007. It rebranded SA as Jet Lite and positioned it between low cost and full-service airlines. Jet Lite used a mix of Boeing 777-300 and A330-200 aircraft. It offered complimentary food on the flight. In May 2009, Jet Airways launched Jet Konnect and positioned it as a no-frills airline. Konnect used Boeing 737 and ATR for its operations and connected the metros, tier II and tier III cities. Its passengers could buy food on the flight. In March 2012, Jet Lite merged with Jet Konnect as a part of restructuring. In 2013, Etihad Airways, an airline from Abu Dhabi acquired a 24% stake in Jet Airways for about INR 20 billion. Jet Airways recorded a loss of about INR 18 billion in 2014–15 (see Table VIII for details about the financial performance of Jet Airways). Cramer Ball, a turnaround expert from Australia, joined as the CEO of Jet Airways in May 2014. He took various initiatives like restructuring the route network, reducing the cost, increasing efficiencies, managing staff, increasing the cash flow, rearranging distribution, increasing sales and rebranding the airline. Under his guidance, in 2014, Jet Konnect merged with Jet Airways and started as a full-service carrier. Jet Airways had increased the aircraft utilisation to about 13 hours per day. It increased the seating capacity. It upgraded the company website and offered lowest priced tickets through the site. In March 2016, Jet Airways made a profit of INR 3,971.6 million. Jet Airways along with Jet Lite had a market share of 17.6% by April 2016.

Table VIII: Financial Performance of Jet Airways (INR in Million)

Financial Items

2012–13

2013–14

2014–15

Income

Revenue

158,806.2

159,934.02

180,422.27

Other income

12,110.13

12,391.03

15,183.79

Total income

170,916.33

172,325.05

195,606.05

Expenditure

Aircraft operations

8,8371.10

99,797.95

94,251.44

Repair, maintenance and overhaul

13,340.57

20,383.76

21,878.81

User charges and station expenses

12,706.91

14,587.70

15,959.77

Station expenses

2,232.91

2,078.34

2,245.72

Passenger services

7,286.88

8,399.54

10,094.00

Ticketing, sales and promotion

13,604.33

14,498.23

20,424.77

Depreciation and amortisation

9,265.72

8,757.44

7,625.01

General and administration expenses

22,882.05

32,569.55

42,550.59

Other operating expenses

0.00

0.00

0.00

Total expenditure

169,690.47

201,072.50

215,030.10

Profit/loss before taxes

−4,854.16

−36,678.51

−18,135.88

Tax

1.20

0.02

1.20

Net profit/loss after tax

−4,855.36

−36,678.49

−18,137.08

Source: dgca.nic.in/

Retrieved from: http://dgca.nic.in/reports/Traffic-ind.htm (accessed on November 8, 2016)

Indigo

Indigo was a low-cost airline started in April 2006 by Rahul Bhatia 22 and Rakesh Gangwal 23 . They started Indigo with INR 10 billion in which Rahul had a 51.12% and Gangwal had a 48% stake. Indigo got its airline license in 2004, and started its operations in August 2006 with one aircraft. It ordered aircraft in bulk which helped it to get substantial discounts. It followed the sale-and-leaseback model, according to which the lessor would take back the plane after six years which helped it to instate new aircraft. It believed that new aircraft were better as they did not require repair and maintenance. It flew from one point to the other with one type of aircraft (Airbus 320). It offered only economy class. It did not give any in-flight entertainment or complimentary food on its flights. However, passengers could buy food in flight. It trained pilots to maintain a low turnaround time and its trained ground staff to disembark all passengers within six minutes, unload and load in 10 minutes and get the aircraft ready to fly in 25 minutes or less. It helped the airline to fly around 12 hours a day. It operated flights to fewer destinations than its competitors with a higher frequency. It used software for efficient aircraft planning and modern fuel saving technology. It had bought Airbus A320 neo family planes that claimed to consume 15% less fuel and incurred 8% less operating costs. In January 2011, it got the license to fly international after finishing five years of domestic operation. During early 2012, it had a fleet size of 50. It registered a market share of 27% in August 2012. Indigo recorded a net profit of about INR 16,590 million in 2014–15 (see Table IX for the financial performance of Indigo). By April 2016, Indigo was the market leader in India with a 38.4% market share.

In 2016 it operated more than 681 flights daily, connecting to 40 domestic and five international destinations.

Table IX: Financial Performance of Indigo Airlines (INR in Million)

Financial Items

2012–13

2013–14

2014–15

Income

Revenue

90,705.80

109,494.12

137,086.01

Other income

1,325.00

1,671.72

2,167.35

Total income

92,030.80

111,165.84

139,253.36

Expenditure

Aircraft operations

62,332.66

78,816.70

86,755.22

Repair, maintenance and overhaul

2,058.90

2,341.08

2,914.55

User charges and station expenses

6,418.78

8,795.29

1,0901.32

Passenger services

339.94

359.40

477.07

Ticketing, sales and promotion

5,575.87

6,945.46

8,729.76

Depreciation and amortization

856.20

2,260.08

3,022.14

General and administration expenses

1,688.87

2,408.29

2,990.34

Other operating expenses

4,801.68

6,540.63

7,788.24

Total expenditure

84,072.90

108,466.91

123,578.64

Profit/loss before taxes

9,932.23

4,777.55

18,465.23

Tax

856.51

1,602.03

1,874.92

Net profit/loss after tax

9,075.72

3,175.52

16,590.31

Source: dgca.nic.in/

Retrieved from: http://dgca.nic.in/reports/Traffic-ind.htm (accessed on November 8, 2016)

SpiceJet

SpiceJet was started as an air taxi service provider in 1984 by an industrialist, S. K. Modi. In February 1993, SpiceJet entered into a technical alliance with the German national carrier Lufthansa and started an airline known as ModiLuft. It had both business and economy class. Lufthansa provided pilots, aircraft on lease and trained the cabin crew and other staff of ModiLuft. In May 1993 it started its first flight from Delhi to Mumbai. The joint partners separated in May 1996 after Modi alleged that Lufthansa had not invested in the airline as per its commitment. ModiLuft was rebranded as Royal airlines but never took off because of lack of funds. In 2004, Ajay Singh, an Indian entrepreneur, acquired the airline and rebranded it as SpiceJet. SpiceJet positioned itself as an LCC and started its first flight on May 24, 2005, from Delhi to Mumbai. It offered only economy class within its flights. However, passengers could get pre-assigned seats with extra leg room through its premium services, Spicemax. It did not provide complimentary food, but passengers could buy food on the flight. In 2005–06, SpiceJet collaborated with various travel websites like MakeMyTrip, Cleartrip, Travelguru and Indiatimes to distribute its tickets and increase its sales through the online mode. It made a sale and leaseback agreement with Babcock & Brown, an Australian investment company, for 16 new Boeing 737-800/900ER aircraft for USD 1.1 billion. In March 2006, it launched a co-branded credit card with State Bank of India. By 2008, it became the second largest LCC in India. In 2008, Wilbur Ross, an American investor, invested around INR 3.45 billion in the airline.

However, in 2010, Ross sold its stake to Kalanidhi Maran, chairman of the Sun Group, a giant media conglomerate based in Chennai. In September 2010, it completed five years of domestic operations and started its international operations. During 2012, it incurred a loss of USD 5.7 million because of the increasing price of global crude. Maran invested approximately USD 15 million in making the airline turn around. SpiceJet created a fun culture within the organisation. It introduced colourful weekend uniforms for its staff. In March 2014, its cabin crew celebrated Holi, an Indian festival by dancing in the flight. It offered 50% discount in July 2014 to attract more passengers. It had 140 employees per aircraft with a total of 5,500 employees in 2014. In the last quarter of 2014, the airline faced a financial crunch, cancelled around 2,000 flights and delayed staff salaries and defaulted on payments to airports, vendors and oil companies. It suffered a loss of around INR 6,870.54 million in 2014–15 (see Table X for details of the financial performance of SpiceJet). In January 2015, Maran sold the airline to Ajay Singh, an Indian entrepreneur who had tremendous experience in airline operation. Singh had taken various initiatives to turn around the loss-making airline. He performed the dual role of a CEO and promoter. He reduced the number of employees to 3,800. He retrenched some of the top executive positions to save a wage bill of INR 200 million. He reorganised the route network of the airline. He dropped five destinations including two international routes. The decline in fuel prices helped the airline to recover and make profits. It launched a SpiceJet mobile application for its customers. It started making profit in the first quarter of 2015. It incurred a profit of INR 3,565.4 million in 2015. By April 2016, it had a market share of 12.8%.

Table X: Financial Performance of SpiceJet (INR in Million)

Financial Items

2012–13

2013–14

2014–15

Income

Revenue

53,530.33

59,780.99

49,425.63

Other income

2,476.45

3,261.34

2,589.62

Total income

56,006.78

63,042.33

52,015.25

Expenditure

Aircraft operations

36,436.39

43,387.62

32,951.75

Repair, maintenance and overhaul

6,737.57

9,932.53

6,721.16

User charges and station expenses

3,540.11

4,740.10

3,815.02

Passenger services

523.96

534.50

244.30

Ticketing, sales and promotion

2,791.45

3,521.47

2,793.61

Depreciation and amortisation

835.45

1,482.60

1,266.25

General and administration expenses

2,376.00

3,227.00

7,282.85

Other operating expenses

5,564.00

6,211.00

5,810.05

Total expenditure

58,804.93

73,036.82

60,884.99

Profit/loss before taxes

−1,910.76

−10,032.44

−6,870.54

Tax

0.00

0.00

0.00

Net profit/loss after tax

−1,910.76

−10,032.44

−6,870.54

Source: dgca.nic.in

Retrieved from: http://dgca.nic.in/reports/Traffic-ind.htm (accessed on November 14, 2016)

GoAir

GoAir was a budget airline founded in 2005 by the Wadia Group, a large business conglomerate in Mumbai. GoAir started its operations in November 2005. It operated point to point, did not offer complimentary food on board and charged for extra services. It provided a single class configuration. It utilised the aircraft 13 hours per day compared to the industry average of 11 hours. It had a quick turnaround time. It took various initiatives to keep the fuel consumption low. It operated only one engine during taxiing. It minimised the size of its in-flight magazine to bring down the aircraft weight. It hired more women cabin crew to keep the onboard weight low. It followed a calculated growth strategy instead of having an aggressive expansion strategy like other airlines. 24 It did not expand rapidly like other airlines. It focused on specific routes. Besides connecting metro routes, it connected metros to specific non-metro profitable routes. It used about 70% of its planes on the metro to non-metro routes, 24% on metro routes and 6% on non-metro routes. It had a fleet size of only 19 during 2012 for which the airline did not get the permission to fly internationally even after completing five years. However, the small fleet size helped the airline to fill its seats quickly and earn profit. GoAir was the second airline after Indigo that made profit consistently. It made a profit of INR 363.72 million in 2014–15 (see Table XI for the financial performance of GoAir). By April 2016, it had a market share of 8.3%.

Table XI: Financial Performance of Go Air (INR in Million)

Financial Items

2012–13

2013–14

2014–15

Income

Revenues

21,434.64

23,588.76

28,140.48

Other income

824.68

1,735.03

2,523.76

Total income

22,259.33

25,323.80

30,664.24

Expenditure

Aircraft operations

14,795.00

18,087.17

19,483.73

Repair, maintenance and overhaul

670.35

1,403.91

2,244.39

User charges and station expenses

1,347.35

1,816.60

2,271.85

Station expenses

1,869.03

0.00

0.00

Passenger services

266.46

990.25

0.00

Ticketing, sales and promotion

1,195.27

969.25

931.17

Depreciation and amortisation

72.52

81.74

91.35

General and administration expenses

1,192.37

877.45

3,693.34

Other operating expenses

0.00

0.00

0.00

Total expenditure

21,408.35

24,226.81

28,715.82

Profit/loss before taxes

1,469.86

83.70

532.62

Tax

426.46

29.29

168.90

Net profit/loss after tax

1,043.39

54.41

363.72

Source: dgca.nic.in

Retrieved from: http://dgca.nic.in/reports/Traffic-ind.htm (accessed on November 8, 2016)

Vistara

Vistara was established in 2013 as a joint venture between Tata Sons Ltd with 51% and Singapore Airlines, the national carrier of Singapore, with 49% stake. Vistara positioned itself as a full-service carrier. It started its first scheduled flight in January 2015. It used Airbus A320-200 aircraft for its operations. It ordered Airbus A320 Neo planes, the upgraded version of planes that would be delivered by 2018. It offered three class configurations namely, business, premium economy and economy. It was the first airline to offer premium economy seats on domestic routes. It had a fleet size of 13 A320-200 aircraft in February 2017 and planned to increase it to 20 by 2018 to start international flights. It had a market share of approximately 2% as of April 2016.

Air Costa

LEPL Group, a real estate firm in Vijayawada, a city in Andhra Pradesh, set up Air Costa in 2013. Air Costa started its operations in October 2013 as a regional airline and connected tier II and tier III cities in India. It used Embraer E-170 and E-190 aircraft. It offered both economy and business class. It had two hubs, Vijayawada and Chennai. It incurred a loss of INR 6,950 million by March 2014. On August 3, 2016, it cancelled all its flights due to non-payment of dues to the aircraft lessors. In October 2016, it received a Pan India airline license from the DGCA. It had plans to connect more cities in India.

Air Pegasus

Air Pegasus was incorporated in 2014 by Décor Aviation, an aviation services firm in Bangalore and started its operation in 2015 as a regional airline. It connected tier II and tier III cities in India using ATR 72-500 aircraft. On July 27, 2016, it ceased its operations due to a massive financial crunch and failure to pay to the plane leasing companies. In November 2016, the DGCA cancelled its flying licence after the carrier failed to provide its revival plan. In January 2017, it made an agreement with Fly easy, a regional airline in Bangalore to sell its 74% stake and was scheduled to restart its operations in 2017.

TruJet

TruJet was a regional scheduled budget airline incorporated as Turbo Mega Airways Private Limited, in Hyderabad, in 2013. It started its scheduled services in July 2015. A group of investors with experience in aircraft ground handling services, the movie business, etc., promoted TruJet. It focussed on connecting tier-II cities using ATR 72-500 aircraft. It had a fleet size of three aircraft by 2016.

Zoom Air

Zoom Air was incorporated as Zexus Air Service in 2013 in Delhi. In 2014 the airline got the NOC from DGCA. On February 15, 2017, it started its first scheduled service from Delhi to Durgapur, a city in West Bengal, with Bombardier CRJ 200 aircraft. It positioned itself as a full-service regional airline and had plans to connect mostly unserved and underserved cities in India.

Notes

1. Kazmin, A. and Smith, J.L. (2006, February 15). Shin Corp launches Joint Venture to buy Thai AirAsia stake. Financial Times, Retrieved from https://www.ft.com/content/43fbd526-9e18-11da-b641-0000779e2340 (accessed on December 10, 2016)

2. THB stands for Thai Baht, the currency of Thailand. 1 THB = INR 1.91 as on December 5, 2016.

3. PT stood for Perseroan Terbatas in the Indonesian language. PT meant a limited liability company.

4. The AirAsia Family. Airasia.com, Retrieved from https://www.airasia.com/th/en/about-us/corporate-profile.page (accessed on December 10, 2016)

5. Smith, Oliver. (2015, August 17). How dangerous is flying in Indonesia. The Telegraph, Retrieved from https://www.telegraph.co.uk/travel/destinations/asia/indonesia/articles/How-dangerous-is-flying-in-Indonesia/ (accessed on December 10, 2016)

6. (2014, December 28). AirAsia Indonesia flight QZ8501 to Singapore missing. bbc.com, Retrieved from, http://www.bbc.com/news/world-asia-30614627 (accessed on December 10, 2016)

7. Annual Reports 2015. Airasia.com, https://www.airasia.com/cdn/docs/common-docs/investor-relations/annual-report-2015.pdf (accessed on December 7, 2016)

8. (2015, July 10). AirAsia adjusts Indonesian operation but should be able to maintain leading international position. centreforaviation.com, https://centreforaviation.com/insights/analysis/airasia-adjusts-indonesian-operation-but-should-be-able-to-maintain-leading-international-position-234589 (accessed on December 10, 2016)

9. Agcaoili, L. (2013, May 25). AirAsia acquires 85% interest in ZestAir. The Philippine Star, https://www.philstar.com/business/2013/05/25/945909/airasia-acquires-85-interest-zestair (accessed on January 10, 2016)

10. P stood for Phillippine Peso, the currency of Philippines. 1 USD was approximately 49.7 P during January 2017.

11. (2016, December 12). AirAsia targets next year for Philippine unit’s IPO. Business World online, Retrieved from http://www.bworldonline.com/content.php?section=TopStory&title=AirAsia-targets-next-year-for-Philippine-unit&rsquos-IPO&id=137632 (accessed on January 10, 2017)

12. Maslen, Richard. (2013). AirAsia and ANA Confirm End for AirAsia Japan Partnership. routesonline.com, Retrieved from https://www.routesonline.com/news/29/breaking-news/206114/airasia-and-ana-confirm-end-for-airasia-japan-partnership/ (accessed on December 10, 2016)

13. JPY stood for Japan Yen. 1 JPY was equal to approximately INR 59 as on December 5, 2016.

14. Tabuchi, H. (2013, June 25). ANA and AirAsia end partnership on low-cost carrier. The New York Times, Retrieved from http://www.nytimes.com/2013/06/26/business/global/ana-and-airasia-end-partnership-on-low-cost-carrrier.html (accessed on December 10, 2016)

15. Raghuvanshi, G. (2014, July 1). AirAsia finds partners for return to Japan. The Wall Street Journal, Retrieved from https://www.wsj.com/articles/airasia-finds-partners-for-return-to-japan-1404202254 (accessed on December 12, 2016)

16. Corporate Profile, airasia.com, Retrieved from http://www.airasiax.com/profile.html (accessed on September 16, 2016)

17. (2017, August 20). DGCA notice period norms for pilots many hit expansion plans of carriers: CAPA. Indian Express, Retrieved from http://indianexpress.com/article/business/aviation/dgca-notice-period-norms-for-pilots-many-hit-expansion-plans-of-carriers-capa-4804916/ (accessed on August 25, 2017)

18. Abdi, B. Ghosh, M. and Jha, S. (2016, July 26). Airlines’ cost set to soar over pilots’ crisis: here’s why, The Financial Express, Retrieved from http://www.financialexpress.com/industry/airlines-costs-set-to-soar-over-pilots-crisis-heres-why/328770/ (accessed on January 10, 2017)

19. Phadnis, A. (2012, July 15). Air India, Indian still operates two airlines. The Hindu, Retrieved from http://www.thehindubusinessline.com/economy/logistics/air-india-indian-still-operate-as-2-airlines/article3642818.ece (accessed on October 25, 2016)

20. Mishra, L. (2012, October 20). Kingfisher’s license suspended. The Hindu, Retrieved from http://www.thehindu.com/business/companies/kingfishers-licence-suspended/article4016399.ece (accessed on December 21, 2016)

21. (2012, December 31). Kingfisher Airlines loses flying permit. The Hindu, Retrieved from http://www.thehindu.com/business/companies/kingfisher-airlines-loses-flying-permit/article4258886.ece (accessed on December 28, 2016)

22. Rahul Bhatia was an electrical engineer from University of Waterloo, Ontario, Canada. He had founded Interglobe Enterprises Limited, an air transport management company.

23. Rakesh Gangwal was a Bachelor in Technology from Indian Institute of Technology, Kanpur and an MBA from the Wharton School of Business. He had worked in various airlines like Air France and United Airlines in various capacities and was the former CEO of US Airways Group.

24. Sanjai, P. R. (2014, August 11). Go Air posts Rs 50 crore profit, aims for Rs 100 crore. Mint, Retrieved from http://www.livemint.com/Companies/dTXsGORxrWTtgHKpH216uJ/GoAir-posts-50-crore-profit-aims-for-100-crore-net-profit.html (accessed on December 7, 2016)

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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