Description
It describes about Industry Trends of aviation industry, PEST Analysis of aviation Industry, Competitor Analysis, SWOT analysis, Company Description, General Information about Kingfisher airlines, it's Finance performance, SWOT analysis of kingfisher airlines and Various Strategies employed.
AVIATION INDUSTRY: Introduction: the Indian State Air Services in collaboration with the United Kingdom based Imperial Airways started civil aviation industry in India in 1912. Indian government then nationalised nine airline companies according to Air Corporations Act, 1953. Indian Airlines Corporation (IAC) was established to cater to domestic air travel passengers and Air India International (AI) for international air travel passengers. The assets of the existing airline companies were transferred to these two corporations. This Act ensured that IAC and AI had a monopoly over the Indian skies. A third government-owned airline, Vayudoot, which was merged with IAC in 1994. These government-owned airlines dominated India's airtravel industry till the mid1990s.In 1994, IAC was renamed Indian Airlines (IA). Further in 1994 itself government changed a part of its “open skies” policy, ended the mon opoly of IA and AI in the air transport services. Private operators also provide air transport services. Foreign direct investment (FDI) of up to 49 percent equity stake and NRI (Non Resident Indian) investment of up to 100 percent equity stake were permitted through the automatic FDI route in the domestic air transport services sector. However, no foreign airline could directly or indirectly hold equity in a domestic airline company. For many years since its inception the Indian Aviation Industry was plagued by in appropriate regulatory and operational procedures resulting in either excessive or no competition. Nationalization of Indian Airlines (IA) in 1953 brought the domestic civil aviation sector under the purview of Indian Government. Government's intervention in this sector was meant for removing the operational limitations arising out of excess competition. Indian air transportation now comes under the direct control of the Department of Civil Aviation. Aviation constitutes the elitist part of our country's infrastructure. This sector has substantial contribution towards the development of country's trade and tourism. Currently there are 6 major domestic airlines catering to the needs of around 520.1 lakh passengers, with Jet Airways along with Jet Lite enjoys 25% market share and hence a leader in India. Need for Air transport? -Air transport necessary for progress of economy and society -It imparts good connectivity within people, countries and states. -It makes global market accessible. -It generates and stimulates trade and tourism. -It helps developing and developed nations close to each other. -Aviation broadens people’s leisure and cultural experiences via wide -Helps improving living standards and stimulates tourism. -Its the only means of transportation to remote areas. -Helps the delivery of goods and services in emergency. And also comes handy in humanitarian relief aid. ? Global Perspective: o Employment Aviation Industry generates 31.9 million jobs globally direct creation of 5.5 million jobs worldwide Airports and airlines employ 4.71 million people 782,000 people are employed by the Civil aerospace sector.
6.3 million indirect jobs are created via purchases of goods and services fromcompanies in the air transport supply chain spending by industry employees induce 2.9 million jobs. 17.1 million direct and indirect jobs are created through air transport’s catalytic impact on tourism o Economic benefits Aviation provides the only worldwide transportation system which makes it essential for global business and tourism Aviation provide transportation to 2 billion passengers annually Aviation carries over 43 million tonnes of freight annually and 35% of interregional exports of goods by value 40% of international tourists use travel air travel as a main mode of transportation. Aviation’s global economic impact is estimated at $ 3,557 billion (2007) That is equivalent to 7.5% of world GDP 25% of all companies’ sales are dependent on air transport o Air Transport Facts (2009) 1,715 airlines 27,024 aircraft (22,235 jets and 5,789 turbo props) 3,670 airports 28.6 million scheduled departures per year o Air Transport Efficiency Aviation occupancy rates of 75.7% (2009 industry load factor) are better than those of road and rail Air transport entirely covers its infrastructure costs ($54.2 billion/year) It is a net contributor to national treasuries through taxation Modern aircraft achieve fuel efficiencies of 3.5 litres per 100 passenger kilometres or67 passenger miles per gallon ? Stats about Indian Aviation Industry: •The Total sales in 2010 is 41 thousand crore. •Net Profit of Indian aviation industry is 3.9 thousand crore. •In the present scenario around 12 domestic airlines and above 60 international airlines are operating in India. •The growth of airlines traffic in Aviation Industry in India is almost four times above international average. •Indian aviation industry has placed the biggest orders for aircrafts globally •Indian aviation industry holds around 69% of the total share of the airlines traffic in the region of South Asia
o Structure: Monopoly: Air India and Indian Airlines are the only two players who were active in aviation industry in Indian sky until 1986. 1. Indian Airlines and Air India both under the Government of India were the only suppliers of air services. 2. The product and the air services were similar in the two airlines and though Railways was considered as a competitor but the market which it caters is entirely different market segment and was incomparable to the air services considering the time and cost factor. 3. No other player could enter the market due to government regulation. 4. Entire demand and supply was controlled by only these two airlines. 5. Government was the price maker and pricing decisions were not taken strategically. Oligopoly: After privatization, the period after 1991 lot of private players entered the industry according to the government policy of open sky. Opening up of the Aviation industry to 41% FDI has also increased the competition in the economy. By 1995, 10% of the domestic air traffic was occupied by private airlines. Hence the various playersbroke into the monopoly of IA and AI creating a situation of Oligopoly market. There are 8 major airways in India. Every player has a control on the prices and hence each of them influences the market prices. The business strategies of pricing of tickets, advertisements, promotion schemes etc. are decided after taking a competition into consideration. A slight change in any type policy by accompany will lead to the others to follow suit The Aviation Industry in India involves a huge capital investment and government regulation which acts as major reasons for any new player to enter. Not only that, the customer loyalty is attached to a particular airline and they might not be willing to switch. The product offered i.e. air services is more or less same with minor differences. The prices in this industry are fixed by the players according to the segment of market they want to cater to.
? TOP INTERNATIONAL AIRLINES: 1)Delta airlines 2)United airlines 3)Southwest airlines 4)American airlines 5)China southern airlines
? TOP INDIAN PLAYERS: 1)Kingfishere 2)Jet Airways & Jet lite 3)Nacil(I) 4)Indigo 5)Spice jet 6)Go Air
Barriers: Barriers to entry are high start-up costs or obstacles that prevent new entrants from easily entering the particular industry. These barriers benefit existing companies who already operate in the industry by protecting their existing revenues from new competitors. They can be as a result of interventions by the government or a natural occurrence in business. In the airline industry, there are number of barriers to entry that affect new entrants. Risk: Main risk is a barrier for new entrant. Airlines have high cost. Increases in fair may affect revenue, when this happens profits will be instantly affected. Due to this airline industry is vulnerable to an economic slowdown. Slots: Since 1969, the Federal Aviation Administration has limited the daily number of take-offs and landings at key airports such as the Chicago O'Hare, Ronald Reagan Washington National and New York's JFK and LaGuardia. As a result of new airlines entering the market, the demand for access at these airports increased. This increase made it difficult for the takeoff and landing slots to be equally divided. Leases: Airports in cities such as Charlotte, Cincinnati, Detroit, Minneapolis, Newark and Pittsburghpermit airlines to lease the airport gates over a long period of time. This period can beextended as long as 20 years. This gives them exclusive rights to use the gates and preventsnew airlines from acquiring the use of any airport facilities. Perimeter Rules:
Perimeter rules at LaGuardia and National airports prohibit incoming and outgoing flights that exceed 1,500 and 1,250 miles, respectively. These rules were implemented to promote JFK and Dulles airports as the long-haul airports for the New York and Washington metropolitan areas. Additionally, these rules limit the ability of airlines based in the west from competing, since those airlines are prohibited from serving LaGuardia and National airports where the western airlines are strongest. Marketing Strategies: Some marketing strategies such as booking incentives and frequent flier programs have been executed by established airlines to create loyalty among passengers and travel agents. This has made it increasingly difficult for new airlines to enter the market. Smaller airlines may choose not to enter or quickly exit a market due to increased competition and financial loss. Resources: A company's control or ownership of a significant resource bars would-be competitors from entering the market. For example, a monopoly that provides oil to local governments might have access and exclusive rights to the land from which the oil comes. Government also creates barriers to entry when it grants firm exclusive rights to certain resources through grants, patents, copyrights and licenses. Sunk Costs: Sunk costs are unavoidable expenditures for a company. For example, some firms in a competitive market have more money than others to spend on advertising. Marketing costs must be spent, thus it's a sunk cost. Business owners with little money budgeted to spend on marketing and advertising can find it difficult to enter an industry where another company has more money to put towards product promotion. Investment: Businesses with a higher amount of start-up capital than other firms create barriers to entry. Firms with high-yielding investments and those that show a good return for investors can afford to spend much money on resources, thereby overshadowing the efforts of the competition. Innovation and Research: The high cost of investment in new technologies or research deters many firms from entering the market. Firms with greater resources for research and development to create new products, as well as capital to invest in equipment and in emerging technologies, can dominate an industry that depends on Research and innovation to grow
Regulations: In order to maintain orderly growth of airline operation, to serve the needs of the country, in an efficient and safe manner, the Civil Aviation Requirements, Section 3, Air Transport, Series C, Part II were issued in 1994 which stipulates the minimum requirements for grant of permit to operate scheduled passenger air transport services Scheduled Operator's Permit is granted only to: A citizen of India; or A Company or a Corporate provided that: It is registered and has its principal place of business within India; Its chairman and at least two-thirds of its directors are citizens of India; and, Its substantial ownership and effective control is vested in Indian nationals. Eligibility Requirements Before the Scheduled Operator's Permit is issued, an applicant should have: A subscribed equity capital of not less than Rs. 30 crores in respect of aircraft of maximum take-off mass exceeding 40,000 kg and not less than Rs. 10 crores in respect of aircraft of maximum takeoff mass not exceeding 40,000 kg. A fleet of minimum five aircraft either by outright purchase or through lease with maximum certified take-off mass more than 5,700 kg and type Certified meeting the requirements of transport category aircraft acceptable to DGCA. To facilitate the start of operations, operators will be permitted to operate with three aircraft and will be given one year's time to have the fleet size of five aircraft. The fourth aircraft should be acquired within a period of six months and the fifth aircraft within a period of one year. The aircraft shall be registered in India with current Certificate of Airworthiness in normal passenger category. Adequate number of AMEs and own maintenance and repair facilities for maintenance of aircraft at least up to flight release or 500 hours, whichever is higher. For higher maintenance, the operator should preferably establish his own maintenance facilities, but can carry out such maintenance using facilities of reputed organisation approved by DGCA. Sufficient number of flight crew and cabin crew but not less than three sets of crewper aircraft. The flight crew should hold current licenses issued by DGCA and appropriate endorsements on the type of aircraft operated
? PEST Analysis: Political: In India, one can never over-look the political factors which influence each and every industry existing in the country. Like it or not, the political interference has to be present everywhere. Given below are a few of the political factors with respect to the airline industry: The airline industry is very susceptible to changes in the political environment as it has a great bearing on the travel habits of its customers. An unstable political environment causes uncertainty in the minds of the air travellers, regarding travelling to a particular country. Overall India’s recent political environment has been largely unstable due to international events & continued tension with Pakistan. The Gujarat riots & the government’s inability to control the situation have also led to an increase in the instability of the political arena. The most significant political event however has been September 11. The events occurring on September had special significance for the airline industry since airplanes were involved. The immediate results were a huge drop in air traffic due to safety & security concerns of the people.
International airlines are greatly affected by trade relations that their country has with others. Unless governments of the two countries trade with each other, there could be restrictions of flying into particular area leading to a loss of potential air traffic (e.g. Pakistan & India)Another aspect is that in countries with high corruption levels like India, bribes have to be paid for every permit & license required. Therefore constant liasoning with the minister &other government official is necessary. The state owned airlines suffer the maximum from this problem. These airlines have to make several special considerations with respect to selection of routes, free seats to ministers, etc which a privately owned airline need not do. The state owned airlines also suffers from archaic laws applying only to them such as the retirement age of the pursers & hostesses, the labour regulations which make the management less flexible in taking decision due to the presence of a strong union, & the heavy control & interference of the government. This affects the quality of the service delivery & therefore these airlines have to think of innovative service marketing ideas to circumvent their problems & compete with the private operators. Economic: Business cycles have a wide reaching impact on the airline industry. During recession, airline is considered a luxury & therefore spending on air travel is cut which leads to reduce prices. During prosperity phase people indulge themselves in travel & prices increase. After the September 11 incidents, the world economy plunged into global recession due to the depressed sentiment of consumers. In India, even a company like Citibank was forced to cut costs to increase profits for which even the top level managers were given first class railway tickets instead of plane tickets. The loss of income for airlines led to higher operational costs not only due to low demand but also due to higher insurance costs, which increased after the WTC bombing. This prompted the industry to lay off employees, which further fuelled the recession as spending decreased due to the rise in unemployment. Even the SARS outbreak in the Far East was a major cause for slump in the airline industry. Even the Indian carriers like Air India was deeply affected as many flights were cancelled due to internal (employee relations) as well as external problems, which has been discussed later. Social: The changing travel habits of people have very wide implications for the airline industry. In a country like India, there are people from varied income groups. The airlines have to recognize these individuals and should serve them accordingly. Air India needs to focus on their clientele which are mostly low income clients & their habits in order to keep them satisfied. The destination, kind of food etc. all has to be chosen carefully in accordance with the tastes of their major clientele. Especially, since India is a land of extremes there are people from various religions and castes and every individual travelling by the airline would expect customization to the greatest possible extent. For e.g. A Jain would be satisfied with the service only if he is served Jain food and it should be kept in mind that the customers next to him are also Jain orat least vegetarian. Another good example would be the case of South West Airlines which occupies a solid position in the minds of the US air travellers as a reliable and convenient, fun, low fare, and no frills airline. The major element of its success was the augmented marketing mix which it used very effectively. What South West did was it made the environment inside the plan every consumer friendly. The crew neither has any uniform nor does it serve any lavish foods, which indirectly reduces the costs and makes the consumers feel comfortable. Technological: The increasing use of the Internet has provided many opportunities to airlines. For e.g. Air Sahara had introduced a service, through the internet wherein the unoccupied seats are
auctioned one week prior to the departure. Air India also provides many internet based services to its customer such as online ticket booking, updated flight information & handling of customer complaints. USTDA (US trade& development association) is funding a feasibility study and workshops for the Airports Authority of India as part of a long-term effort to promote Indian aviation infrastructure. The Authority is developing modern communication, navigation, surveillance, and air traffic management systems for India's aviation sector that will help the country meet the expected growth and demand for air passenger and cargo service over the next decade. A proposal for restructuring the existing airports at Delhi, Mumbai, Chennai and Kolkata through long-term lease to make them world class is under consideration. This will help in attracting investments in improving the infrastructure and services at these airports. Setting up of new international airports at Bangalore, Hyderabad and Goa with private sector participation is also envisaged. A good example of the impact of technology would be that of AAI, wherein with the help of technology it has converted its obsolete and unused hangars into profit centres. AAI is now leasing these hangars to international airlines and is earning huge profits out of it. AAI has also tried to utilize space that was previously wasted installing a lamination machine to laminate the luggage of travellers. This activity earns AAI a lot of revenue. These technological changes in the environment have an impact on Air India as well. Better airport infrastructure, means better handling of airplanes, which can help reduce maintenance cost. It also facilitates more flights to such destinations
? SWOT Analysis: STRENGTHS Speed and Comfort Air mode of transportation is the fastest and most comfortable form of transport. Geographical barriers not a constraint Geographical barriers like mountains, sea etc are constraints for land and water mode of transport but Air travel is not constrained by such issues. Tourism growth: Due to growth in tourism, there has been an increase in number of the international and domestic passengers. The estimated growth of domestic passenger segment is at 50% per annum and growth for international passenger segment is 25%. Airlines is the most preferred mode of transportation by the foreign tourists as the convenience provided by the airlines is higher. Rising income levels: Because of the rise in income levels, the disposable income is also higher which are expected to enhance the number of flyers
WEAKNESSES Under penetrated Market: The total passenger traffic was only 50 million as on 31st Dec 2005 amounting to only 0.05trips per annum as compared to developed nations like United States have 2.02 trips per annum. Inefficiency of the domestic airlines: There are number of instances of flight being cancelled or delayed. Secondly frequent strikes by the pilots and maintenance problems are a major cause of concern. This is one of the reasons that make a tourist disheartened Infrastructural constraints: The infrastructure development has not kept pace with the growth in aviation services sector leading to a bottleneck. Huge investment requirement for physical infrastructure for airports. Lack of basic facilities at the airport. When international airports offer such services like free transportation facilities, private lounge facilities at airports, food etc, it sometimes become impossible to find a clear toilet in our international airports.
OPPORTUNITIES Expecting investments: Indian Airlines industry is expecting investment of about US $30 billion in 2011. Expected Market Size: In Indian airlines industry average growth of aviation sector is about 25%-30% and the expected market size is projected to grow upto100 million by 2010. As the tourism expands the airline industry is also in for a boom and development and up gradation of the present airports, India's geographic location makes it an ideal location to serve as a link between the East and the West Untapped Air Cargo Market: Air cargo market has not yet been fully taped in the Indian markets and is expected that in the coming years large number of players will have dedicated fleets. THREATS Shortage of trained Pilots: There is a huge shortage of trained pilots, co-pilots and ground staff which is severely limiting growth prospects. because of payment delay. Shortage of Airports: There is a shortage of airport facilities, parking bays, air traffic control facilities and takeoff and landing slots. High Fuel prices: Though enough number of low cost carriers already exists in the industry, majority of the population is still not able to fly to other destinations. High oil prices mainly affect the airlines in this regard bringing up the operational cost. Government policies: Changing government policies also affect the Indian airlines industry it is regulated by the DGCA which is in turn controlled by the Aviation Ministry
? COMPETETORS ANALYSIS: Availability of Substitutes: Purchasing power of customers has increased: As the purchasing power of the customers has increased they have more options, from high fare to low cost airlines they can travel from any airlines. Roadways, Railways, Private Transport: Roadways, Railways, Private transport are the major substitutes for the airlines. However this is not a threat if the distances are long Competition rivalry within an industry: Many players of about the same size; there is no dominant firm: There are 6 major domestic firms and there is a major competition between them, so customers have a wide choice with them. Little differentiation between competitor’s products and services: There is not much difference between the services provided by all the airlines. The only difference being the fares and the meals that are provided. A mature industry with very little growth; companies can only grow by stealing customers away from competitor: The only way to grab the customer share is to snatch the customers from the competitors. This can be done by differentiated pricing, frequencies, and services. Threat of new entrants: Existing loyalty to major brands: Till now the customers are loyal to their brands. But as the competition will increase they may switch over to some other players. High fixed cost: The fixed cost involved in the entry or setup is very huge, but these days the funds are available and the credits are available easily so the entry is no more a worry. Scarcity of resources: The resources are scares. Fuel is a major resource for the aviation industry and the rising prices of it is a major concern. Government restrictions or legislation: The restrictions which were there earlier are not there now. After liberalization the entry of new player has become much easier. Besides there are very few restrictions by government in terms of the fees , platform, frequencies of flights etc. Indian airlines market is not fully trapped, it’s underdeveloped: The Indian market is still not fully trapped. There is a shortage in the supply as compared to demand. Besides the infrastructure is also not fully developed.
Bargaining Power of Suppliers: There are very few suppliers of a particular product: There are only 2 suppliers of aircrafts currently. So the bargaining power is not there for the firms. They can’t bargain much and cost is also very high. There are no substitutes: For airlines the only source of income is the aircraft. They can’t substitute this with any other thing and because of this they can’t bargain with the suppliers. The product is extremely important to buyers - can't do without it: Aircrafts are the only source of income for the buyers; they can’t do anything without it.
The supplying industry has a higher profitability than the buying industry: The supplier has the high margin or profitability in supplying the aircrafts, because it’s a onetime affair for them. But for the buyers the profitability is low. Bargaining power of customers: Small number of buyers: There are not many no. of buyers or customers. As said earlier the market is still untapped. So the customers have the upper hand and he can bargain with the seller. Switching to another (competitive) product is simple: As there are many buyers with same product the switching from one firm to another is easier for the customers. The product is not extremely important to buyers; They can do without the product for a period of time: Even if there are no airline services the domestic passengers can do without it because for domestic travelling they can use the other alternatives as mentioned earlier. Customers are price sensitive: If one competitor increases the price, a customer can always switch to some other player. They are pricing sensitive and an change there preferences if there is even a slight fluctuation in the prices.
Distribution: Air ticket distribution is carried out both directly by airlines via their websites, call centres or dedicated ticket sales offices and via third-party intermediaries - including global distribution systems (GDSs) and travel agents - both on- and offline. Most of the major legacy(traditional) airlines continue to sell the majority of their tickets via traditional intermediaries such as GDS, and, by and large, only the low-cost carriers (LCCs) have succeeded in distributing the greater part of their tickets via their proprietary websites. As the trade association for the international air travel industry, the International Air Transport Association (IATA) plays an important role in the billing of transactions, the accreditation of travel agents worldwide and the implementation of e-ticketing. Key statistics In 2007, the worldwide sale of air tickets reached an estimated US$275 billion. E-ticketing became universal as of mid-year 2008, following a four-year campaign led by the IATA. Premium tickets accounted for 7% of the total issued in 2007. Major legacy carriers generally succeed in selling between 10-30% of their tickets via their own websites. Most tickets continue to be sold by traditional third-party channels (travel agents and GDSs). Proprietary websites are by far the most important distribution channel for LCCs, accounting for between 70% and almost 100% of ticket sales Pricing strategies: Premium Pricing: The airlines may set prices more than the market price either to reflect the image of quality or the different status of the product. The product features are not shared by its competitors or the company itself may enjoy a strong reputation like that the 'brand image' is only sufficient to charge a premium price. Value for Money Pricing:
The value for money pricing is to charge the average price for the product and it represents excellent value for money at this price. This accredits the airline to achieve good levels of profit on the basis of established reputation. Low-cost Pricing: The low-cost airlines in the Indian aviation industry, a different low-cost flying concept has come up. Since these low-cost airlines are trying to attract the customers by providing air travel in exceptionally low prices. In low-pricing strategies, the airlines provide very low prices for the flight tickets. Also, they prices are made cheaper by booking the tickets long before the flight date. APEX Fares: Apex fare is when, people are paid very cheap rates only if tickets are booked at leastbefore the specified time period (e.g. before at least one month). But the draw-back hereis that if the booking is cancelled, a substantial amount of money is not refund
Marketing Strategies: In-flight advertising is the use of personalised spaces or objects such as headrests, trays as well as magazines and audiovisual messages for advertising purposes and for advertisers it can represent an ideal opportunity to reach a highly receptive audience that is literallycaptive.Emirates publishes three magazines, Open Skies, Portfolio and TV & Radio with the idea of making contact with its more sophisticated readers.The first is a lifestyle magazine reflecting the cosmopolitan character of its readership, including stories from around the world covering such diverse topics as travel, technology, health, the environment, art, culture, food, business and adventure. Portfolio is a business magazine aimed exclusively at First Class and Business Class passengers including interviews and profiles related to business topics and current affairs.TV & Radio is an entertainment guide providing listings for the in-flight entertainments programs available on the different routes operated by the airline. The advertising included in these publications is not invasive; on the contrary, travelers are provided with added value and entertainment. Other promotional options are also possible, such as the campaign carried out by La Prairie where first class passengers travelling with Qantas, Swiss International Air Lines, Malaysia Airlines, Lufthansa and Eva Air were delivered with a gift set of the company’s cosmetics.
Online Marketing Attracting potential customers to airline websites is the first step towards boosting the sale of flight tickets online. One of the several possibilities available is email marketing. According to a survey conducted by the Travel Industry Association of America (TIA), over 35 million Internet users made a travel reservation after receiving information on offers or promotions by email. The same study also found that in 2003 ten million people were influenced by email marketing to make a trip or journey that they otherwise would not have made. In order to start up online marketing campaigns, the definition of the goals to be attained and the performance of prior segmentation of the data bases to be employed are both crucial. It is also important to reach persons forming part of the target audience who will receive the offer favourably with a strong interest in the services offered by the airline. At the same time this type of actions will contribute to brand notoriety. In this context the email
marketing campaigns conducted by Austrian Airlines (which according to organiza.com managed to attract 11,000 new customers) or Vueling are of special interest. The latter was centred on the prize draw of a trip to Venice, linked to the willingness to receive information on special flight offers. There is wide variety of online marketing methods. According to a survey on the Effectiveness of Display Publicity conducted by IAB and the Cocktail Analysis in April 2009on a sample of 1035 Internet users of both sexes, aged between 15 and 50 and who had been online for at least one hour before accessing the survey on which the research was based. The results showed that in terms of generation of brand recall, layers and pop-ups were found to the most effective formats. With only 3.1% of the investment, a 23.4% recall rate was attained (+655%). The second most effective format turned out to be online video. Even though only 3 out of 100 euros are destined to this format, its effectiveness on generating brand recall is proportionally much higher. Almost 2 out of 10 of the commercials associated to the brands recalled by the persons surveyed were linked to this format. As could be expected, it was the more creative, dynamic ads that generated greater recall. Over half (54%)of the ads mentioned were dynamic. In this direction, one of the points to be included in this online plan would be the analysis of presence in social networks. The same study found that 78% of the persons surveyed belonged to one of the social networks under analysis (Facebook, Fotolog, Tuenti, Myspace,Hi5, Twitter, Sonico, Badoo).It is clear that these communities provide an opportunity for spreading information on airlines? special offers, however it is not as simple to find a way to do so successfully; this will entail the analysis of what moves our future customers. Airlines such as American Airlines and Virgin Atlantic already have a presence in Facebook. On Twitter, some airlines such as Vueling only offer corporate information to their users whereas other such as JetBlue offer a more a more active service where customers are provided with access to exclusive offers. Other companies such as the Dutch airline KLM have developed their own social network, the China Club, aimed both at young people looking for cheap flights and the business community. Other promotional strategies can be studied in the context of Kingfisher airlines as they are a prime example owing to their prolific marketing campaign
Marketing strategies of Kingfisher Airlines Kingfisher airlines launched its domestic air service operations in May 2005.KFA was promoted by UB group and offered a single class“Kingfisher Class”. KFA Successfully leverage the youthful and vibrant image of its kingfisher beer brand and called its airlines as “Fun liners” to emphasize the fun-filled experience. Within the first six months of its launch, KFA managed to corner a 6% market share in the domestic air travel market. KFA started its operation in May 7, 2005, positioning itself as a budget carrier and not as Low Cost Carrier (LCC). As part of its promotional strategy the marketing team of KFA showcased the airline as “the new flying experience” The following initiatives were taken as part of its promotional strategy -It came up with a very appealing promotional line “Fly the good times” and it reflected in the experience the company offered to its passengers. -KFA also launched Kingfisher express in order to tap into the growing LCC segment.
-The company gave best services to its customers that were like providing world class interiors, and in-flight entertainment systems. -The company came up with only one class airlines rather than other airlines that had Business Class; Economy Class the idea was to combine Business Class experiences and Economy Class experiences in one. Having a single class freed up more leg space for passengers when compared to normal economy class flights. -The company started addressing its customers as “GUEST” rather than passengers. -The company made its mark by providing its guests with more legroom and bigger seats so as to provide better comfort. -Advertisements hoardings at airports depicted the stylish interiors of the “Funliners”, which conveyed youthful, fun-filled, and world class image. -INOX multiplexes in Mumbai publicized KFA?s special offers for a month. -KFA was the official travel airlines for the cast and crew of “Mangal Pandey” themovie. -KFA made use of various fashion shows, celebrity golf matches, New Year parties all to build its “Kingfisher” brand. -The UB groups monthly magazine called “Pegasus” published information about -KFA along with other information related to UB group. -KFA launched many attractive offers to promote its sales like the “King Card” in association with ICICI Bank, in August 2005. This was meant to create loyal customers for KFA by providing benefits like privileged access to lounges, restaurants, free refreshments at airports, access to 180 golf clubs across India, special invites for lifestyle shows. -In October, KFA launched “Chill Times Offer” in the month of August 2005 and September 2005. -In October they launched the “King Saver Offer” which said “Fly like a King, don’t play like one”. -KFA targeted the frequent fliers business traveller segment, which was dominated by Jet Airways. By offering a “King Saver Booklet”, This booklet contained six free flight tickets and was presented as a free gift if the passenger bought two such booklets each worth Rs. 26,999.Passengers could avail off this offer if they showed there Jet Privilege Member (Gold or Platinum) card.
COMPANY OVERVIEW: Kingfisher Airlines Limited is one of India's leading airlines, operating more than 100 flights a day with a wide network of destinations. In May 2009, Kingfisher Airlines carried more than a million passengers, giving it the highest market share among airlines in India. The airline started operations on 9 May 2005. Kingfisher Airlines is India's largest private airline both in capacity and market share. The Airline has brand new aircrafts with stylish red interiors, and smartly dressed crew and ground staff. Kingfisher was the first Indian airline to have in-flight entertainment (IFE) systems on every seat with guests being able to watch live TV in-flight. Kingfisher Airlines is one of the leading private players in the Indian aviation industry. Incorporated in 1995 as Deccan Aviation, the company is engaged in the business of
providing passenger services and helicopter charter services. The name was changed to Kingfisher Airlines in the year 2005. The airline is part of UB Group owned by Dr Vijay Mallya. Kingfisher Airlines owns 76 aircraft comprising A330, A 321 (single and double cabin), A 320 (single and double cabin), A 319, ATR 72-500 and ATR 42-500. In India, the airline has a network in 72 cities operating more than 400 flights a day and commands a market share of 25%. Internationally, it operates flights to Dubai, Colombo and London
? KEY FACTS: Date of Establishment Revenue Market Cap Corporate Address 1995 1397.93 ( USD in Millions ) 8346.0212568 ( Rs. in Millions ) U B Tower Level 12,U B City 24 Vittal Mallya Road, Bengaluru-560001, Karnataka www.flykingfisher.com. Chairperson - Vijay Mallya MD - Vijay Mallya Directors - A K Ravi Nedungadi, A Raghunathan, AK Ravi Nedungadi, Anil Kumar Ganguly, Bharath Raghavan, Diwan Arun Nanda, G R Gopinath, Ghyanendra Nath Bajpai, K J Samuel, Lalit Bhasin, Manmohan Singh Kapur, N Srivatsa, Naresh Trehan, Piyush G Mankad, S R Gupte, Sanjay Aggarwal, Shrikant Ruparel, Subhash R Gupte, Vijay Amritraj, Vijay Mallya Airlines Kingfisher Airlines is one of the leading private players in the Indian aviation industry. Incorporated in 1995 as Deccan Aviation, the company is engaged in the business of providing passenger services and helicopter charter services. The name was changed to Kingfisher Airlines in the year 2008. The airline is part of UB Group owned by Dr Vijay Mallya. Kingfisher Airlines owns 76 aircrafts. Total Income - Rs. 64955.623 Million ( year ending Mar 2011) Net Profit - Rs. -10273.98 Million ( year ending Mar 2011) N Srivatsa
Management Details
Business Operation Background
Financials
Company Secretary
Bankers Auditors
BK Ramadhyani & Co
? BUSINESS DESCREPTION This airline offers three unique classes of services Kingfisher First (Business class), Kingfisher Class (Premium economy) and Kingfisher Red (Low fare). The company owns two subsidiaries namely Northway Aviation and Vitae India Spirits. Northway Aviation is engaged in the business of financing pre-delivery payments and aircraft acquisition. Kingfisher Airlines is only five star airline in the Indian skies and is known for providing world class in fight services to its passengers. The company has emerged as the first Indian airline that provides a range of services in the mobile segment such as flight updates, ticket buying through SMS and many more.
? KEY EMPLOYEES SR No. 1 2 3 4 5 6 7 8 9 10 Name Vijay Mallya Vijay Mallya Bharath Raghavan Subhash R Gupte Manmohan Singh Kapur Lalit Bhasin Shrikant Ruparel Piyush G. Mankad Ghyanendra Nath Bajpai A K Ravi Nedungadi Designation Chairman Managing Director Company Secretary Vice Chairman Additional Director Independent Director Independent Director Non Executive Independent Director Non Executive Independent Director Non Independent & Non Executive Director
? FINANCIAL PERFORMANCE: The Indian aviation industry is confronted with an unprecedented, tough operating environment –intensified by consistently high fuel prices and the depreciating Indian rupee. Fuel prices have increased by over 40% over last year compounded by the weakened rupee. The industry’s demand growth in the domestic market at 13% in FY12 over last year has been overshadowed by a 17% growth in industry capacity leading to a pressure on the yields and the load factor for the industry.
For the year ended FY12, Kingfisher delivered an EBITDAR profit of Rs. 13 crore vs. a profit of Rs. 1,108 crore last year. EBITDA loss for FY12 was Rs. 855 crore vs. a profit of Rs. 140 crore last year. The performance was impacted primarily due to Rs. 672 crore of additional fuel cost and additional cost due to depreciation of the Indian Rupee and lower revenue generation due to reduction of operational capacity in an attempt to contain losses. Net loss on normal operations for the year stood at Rs. 1,356 crore. Operational cost savings (6% achieved in FY12 vs F11) were offset by a steep hike in fuel prices and sharp depreciation of the Indian rupee, which negatively impacted over 70% of the cost base. There was an incremental one-time loss of Rs. 743 crore due to early redelivery of the aircraft and Rs. 338 crore due to restructuring costs. Rationalization of capacity in the last two quarters of FY12 and continued adverse publicity led to a disproportionate loss of revenue. On the domestic front, Kingfisher recorded an operating revenue drop of 14% on 5% lower ASKM. The domestic operations however generated an EBITDAR profit of Rs. 138 crore which bears evidence to the reduction of operating expenses. In international operations, operating revenue declined by only 5% on 6% lower ASKM, supported by realization of high passenger yields. Kingfisher Airlines in now continuing on it’s previously stated “Holding Plan” with a limited fleet and simultaneously progressing on it’s aircraft reconfiguration plan to contain losses in this very tough operating environment for the Indian aviation industry. The company has a focused fleet re-induction plan and hopes to be back to full-scale operations in the next 12 months backed by a recapitalization plan that the company is actively pursuing and confident of achieving.
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FINANCIAL CRISIS:
OVERVIEW: SR No. 1 2 3 4 5 6 7 Total From Apr-05 Jul-06 Jul-07 Apr-08 Apr-09 Apr-10 Apr-11 To Jun-15 Jun-07 Mar-08 Mar-09 March-10 Mar-11 Sep-11 Months 15 12 09 12 12 12 06 78 Total Income 1352 2142 1546 5577 5271 6496 3410 25793 Cost 1689 2562 1734 7186 6918 7523 4142 31754 Net Profit -337 -420 -188 -1609 -1647 -1027 -732 -5960
PAYMENT PROBLEMS:
-Delayed salary Kingfisher Airline has staff strength of 6,000 and spends 58 crore (US$11.57 million) on salaries a month. According to the first quarter financial results, it has 173.66 crore (US$34.65 million) under the employees cost head, which has increased from 163.41 crore (US$32.6 million) during the same quarter last year. Kingfisher Airlines delayed salaries of its employees in August 2011, and for four months in succession from October 2011 to January 2012. In a report to DGCA on 09th Jan 12, Kingfisher had stated that it has paid past (salary) dues to 60% of its employees and that by 31st Jan 12, payment of December 2011 salary for all its employees will be done. Protesting at the delays in payment, Kingfisher pilots started making in-flight announcements citing "It is their sense of duty towards the guest that is making them fly despite not being paid salaries for the past two months". Kingfisher also defaulted on paying the Tax Deducted at Source from the employee income to the tax department
-Fuel Dues
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HPCL: In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) stopped the fuel (ATF) supplies for about two hours to Kingfisher airlines owing to the non-payment of dues. Situation was later resolved by Vijay Mallya meeting the CBDT Chairman to unfreeze some A/C's. In the past several years, Kingfisher airlines has had trouble paying their fuel bills. BPCL: Bharat Petroleum Corporation in 2009 had filed a case against Kingfisher airlines for non-payment of dues. High court in an order said that the entire amount ( 245 crore (US$48.88 million)) had to be paid by Nov 2010 and the airline paid it in instalments.
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-Aircraft lease rental dues Since 2008, it has been reported that Kingfisher Airlines has been unable to pay the aircraft lease rentals on time.
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GECAS: In Nov 2008, GE Commercial Aviation Services threatened to repossess 04 leased planes in lieu of default. Kingfisher Airlines initially denied that it missed the payments. GECAS had filed a complaint with DGCA saying Kingfisher had defaulted on rentals for four Airbus A320 aircraft, and sought repossession of the planes. In Jan 2009, The Karnataka High Court rejected petition by Kingfisher Airlines to restrain GECAS from taking any step to deregister and repossess the 04 aircraft in dispute. As a result, Kingfisher had to return the A320 aircraft to GECAS. DVB: In Jul 2010, DVB Aviation Finance Asia Ltd (a lessor from Singapore), sued Kingfisher Airlines for lease rental default. Case was filed in a UK court on Jul 16, 2010 after Kingfisher did not pay for three month lease rental for A320 aircraft it leased from DVB.
Kingfisher Airlines has grounded 15 out of 66 aircraft in its fleet as it was unable to meet the maintenance and overhaul expenses. -Income tax On 9 December 2011, MC Joshi, Chairman CBDT announced that ITis considering legal action against Kingfisher for not paying tax and may go for prosecution. As on 10th Jan 2012, Kingfisher Airlines has service tax arrears of 60 crore (US$11.97 million). The Ministry of Finance has given a concession to Kingfisher and instructed them to pay the dues by 31st Mar 2012. In Jan 2012, Kingfisher paid 20 crore (US$3.99 million) towards its dues for December 2011 and part of the arrears. -Bank arrears Kingfisher Airlines had not paid some bankers (Lenders) as per the Debt Recast Package (DRP) with lending banks. Till the end of Dec 2011, the arrears were estimated to be 260 crore (US$51.87 million) to 280 crore (US$55.86 million). Lenders hence had told Kingfisher Airlines to clear its dues before they can release any more money sought by the Airline. Ravi Nedungadi, chief financial officer of UB Group however said that the arrears were 180 crore (US$35.91 million). If arrears were not paid in time (Dec 2011); Kingfisher Airlines would automatically have been treated as NPA, (Non-performing asset). On the last working day of the third quarter of financial year 2011-2012, Kingfisher Airlines made one month interest amount to the banks; thus saving the account from turning a non-performing asset. State Bank of India (SBI) on 5th Jan 2012 declared Kingfisher Airlines a NPA (Nonperforming asset). SBI is largest creditor and the leader of the consortium of banks in the DRP (Debt Recast Package) and has an exposure of 1,457.78 crore (US$290.83 million). By Feb 2012, Kingfisher has been decleared NPA by following banks
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SBI, Bank of Baroda, PNB, IDBI, Central bank, BOI, Corporation Bank
In December 2011, for the second time in two months, Kingfisher's bank accounts were frozen by the Mumbai Income Tax department for non-payment of dues. Kingfisher Airlines owes 70 crore (US$13.97 million) to the service tax department. Indian tax body also stated that Kingfisher Airlines is delinquent. As response, Dr. Vijay Mallya called on the Chairman CBDT and offered to pay up the dues by 13 Dec 11 Kingfisher bank accounts were unfrozen on 14th Dec 11. Due non-payment, several Kingfisher's vendors had filed winding up petition with the High Court. As on Nov 2011, winding up petition of seven creditors was pending before the Bangalore High Court. In the pastLufthansa Technik & Bharat Petroleum Corporation Limited (BPCL) had also filed winding up petition against Kingfisher Airlines
OYHER PROBLEMS: -Erosion of net worth
In Sep 2011, the Chairman & Managing Director of Kingfisher Airlines made following disclosure to BSE; The Company has incurred substantial losses and its net worth has been eroded. However, having regard to improvement in the economic sentiment, rationalization measures adopted by the Company, fleet recovery and the implementation of the debt recast package with the lenders and promoters including conversion of debt into share capital, these interim financial statements have been prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value of assets and liabilities" This filing was widely covered by Indian and international print and electronic media and analysts. It was stated by analysts and media that the company needs capital infusion to remain viable and this has pushed shares to near historic lows. Kingfisher Airlines Lenders later stated that they consider that company is viable. On 15 November 2011 the airline released poor financial results, indicating that it was "drowning in high-interest debt and losing money". Mallya indicated that his solution was for the government to reduce fuel and other taxes. The government was engaged in assessing whether to bail out the company and other airlines or let market forces determine which ones survive.
-Oneworld alliance On 7 June 2010 Kingfisher became a member elect of the Oneworld airline alliance when it signed a formal membership agreement. Kingfisher confirmed on the 20th December 2011 that it will join the Oneworld airline alliance on February 10, 2012. Kingfisher would have been the first Indian carrier to join one of the big airline alliances.[42] However on February 3, 2012, owing to bad financial situation and two days after IATA clearing house suspended Kingfisher airlines; the airlines participation to Oneworld has been put on hold. Recent reports indicate that Oneworld is confirming Kingfisher's ouster from the alliance in the coming few days.
2012 Crisis: -Fleet grounding During late February, 2012, Kingfisher Airlines started to sink into a fresh crisis. Several flights were cancelled and aircraft were grounded. The cash-strapped airline claimed that the disruptions will continue for four days due to unexpected events including bird strikes which rendered aircraft out of service. The airline shut down most international short-haul operations and also temporarily closed bookings. Out of the 64 aircraft, only 22 were known to be operational by February 20. With this, Kingfisher's market share clearly dropped to 11.3%. The cancellation of the flights was accompanied by a 13.5% drop in the stocks of the company on 20 February 2012. The CEO of the airlines, Sanjay Agarwal was summoned by the Directorate General of Civil Aviation to explain the disruptions of the operations.
The State Bank of India, which is the lead lender to Kingfisher airlines said that they would not consider giving any more loans to Kingfisher unless and until it comes up with a new equity by itself. Political activists also claimed that bailing or helping a private airline would lead to problems within the Government. By February 27, Kingfisher operated only above 150 out of its 400 flights and only 28 aircraft were functional. Reuters reported that if Kingfisher were to shutdown, it would be the biggest failure in the History of Indian Aviation. It was announced that the direct flights to the smaller airports of Jaipur, Thiruvananthapuram, Nagpur and also to Hyderabad's Rajiv Gandhi International Airport were all shut down and only one/two-stop flights from its main hubs of Delhi and Mumbai would operate. In response to a situation as bad as bankruptcy, Vijay Mallya announced that he had organized funds to pay all the employees' overdue salaries. With bank accounts frozen and huge debts due, it is unknown so as from where he arranged the money. But he apologized to his workers and said that he would pay them immediately. By this time, kingfisher had accumulated losses of 444 crore (US$88.58 million) during the third quarter of the fiscal year 2011-12. Reuters then reported that Etihad Airways was interested in investing in Kingfisher by providing equity in exchange for a stake in the airline. Also involved in the talks was the International Airlines Group, owner of British flag carrier British Airways and Spanish flag carrier Iberia
-Frozen bank accounts On March 3, 2012, The CBDT of India froze many more Kingfisher accounts as it was unable to pay all the dues as per schedule. Kingfisher was meant to pay 1 crore (US$199,500) per working day. It reportedly missed the deadline set by the board and could not pay the dues until the evening on February 29. This led to more accounts being frozen. The airline neither did comment on the situation, nor pay the taxes. Aviation minister Ajit Singh warned the airline about the temporary suspension of the license until the crisis was sorted out. He announced that the rest of the airline's fleet would be grounded and all flights cancelled until the crisis came to an end. This would be only one step from permanently closing the airline -IATA Suspension On March 7, 2012 IATA suspended ticket sales of Kingfisher airlines citing non-payment of dues as the primary reason, and they said that sales services will only be restored once Kingfisher settles ICH (IATA Clearing House) account. IATA also immediately directed all travel agents to stop booking tickets for Kingfisher. According to preliminary reports, this would affect Kingfisher's business by around 30%. Kingfisher claimed that frozen bank accounts was the main cause of being unable to pay the IATA, and the airline started making alternate arrangements for the sale of tickets. Soon it became difficult for the airline to follow the much smaller schedule that it earlier released as even more pilots began to go on strike. A pilot later claimed that from March 12, about 80% of the pilots would not fly as they mentioned in their letter to Vijay Mallya. The airline's plans on restating all services by April 4 did not seem too real at the moment
? SWOT ANALYSIS: ? STRENGTH: ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Strong brand value and reputation in the minds of the consumer UB group as the parent company First Indian airline to have a new fleet of planes Quality service and innovation More than 80 destinations Less than 100 people (employees) per aircraft
WEEKNESS: Still in RED (still to Break Even) (An outstanding of 950crs only to oil marketing cos till may end) High ticket pricing (KF First & Class) Tough competition from Indian as well as international players OPPORTUNITY: If able to survive for a couple of years, then can have a big market share Untapped International Markets Untapped cargo market Expanding tourism business THREATS: Falling demand Over capacity in the skies ATF prices Economic slowdown Infrastructure issues
doc_534937670.docx
It describes about Industry Trends of aviation industry, PEST Analysis of aviation Industry, Competitor Analysis, SWOT analysis, Company Description, General Information about Kingfisher airlines, it's Finance performance, SWOT analysis of kingfisher airlines and Various Strategies employed.
AVIATION INDUSTRY: Introduction: the Indian State Air Services in collaboration with the United Kingdom based Imperial Airways started civil aviation industry in India in 1912. Indian government then nationalised nine airline companies according to Air Corporations Act, 1953. Indian Airlines Corporation (IAC) was established to cater to domestic air travel passengers and Air India International (AI) for international air travel passengers. The assets of the existing airline companies were transferred to these two corporations. This Act ensured that IAC and AI had a monopoly over the Indian skies. A third government-owned airline, Vayudoot, which was merged with IAC in 1994. These government-owned airlines dominated India's airtravel industry till the mid1990s.In 1994, IAC was renamed Indian Airlines (IA). Further in 1994 itself government changed a part of its “open skies” policy, ended the mon opoly of IA and AI in the air transport services. Private operators also provide air transport services. Foreign direct investment (FDI) of up to 49 percent equity stake and NRI (Non Resident Indian) investment of up to 100 percent equity stake were permitted through the automatic FDI route in the domestic air transport services sector. However, no foreign airline could directly or indirectly hold equity in a domestic airline company. For many years since its inception the Indian Aviation Industry was plagued by in appropriate regulatory and operational procedures resulting in either excessive or no competition. Nationalization of Indian Airlines (IA) in 1953 brought the domestic civil aviation sector under the purview of Indian Government. Government's intervention in this sector was meant for removing the operational limitations arising out of excess competition. Indian air transportation now comes under the direct control of the Department of Civil Aviation. Aviation constitutes the elitist part of our country's infrastructure. This sector has substantial contribution towards the development of country's trade and tourism. Currently there are 6 major domestic airlines catering to the needs of around 520.1 lakh passengers, with Jet Airways along with Jet Lite enjoys 25% market share and hence a leader in India. Need for Air transport? -Air transport necessary for progress of economy and society -It imparts good connectivity within people, countries and states. -It makes global market accessible. -It generates and stimulates trade and tourism. -It helps developing and developed nations close to each other. -Aviation broadens people’s leisure and cultural experiences via wide -Helps improving living standards and stimulates tourism. -Its the only means of transportation to remote areas. -Helps the delivery of goods and services in emergency. And also comes handy in humanitarian relief aid. ? Global Perspective: o Employment Aviation Industry generates 31.9 million jobs globally direct creation of 5.5 million jobs worldwide Airports and airlines employ 4.71 million people 782,000 people are employed by the Civil aerospace sector.
6.3 million indirect jobs are created via purchases of goods and services fromcompanies in the air transport supply chain spending by industry employees induce 2.9 million jobs. 17.1 million direct and indirect jobs are created through air transport’s catalytic impact on tourism o Economic benefits Aviation provides the only worldwide transportation system which makes it essential for global business and tourism Aviation provide transportation to 2 billion passengers annually Aviation carries over 43 million tonnes of freight annually and 35% of interregional exports of goods by value 40% of international tourists use travel air travel as a main mode of transportation. Aviation’s global economic impact is estimated at $ 3,557 billion (2007) That is equivalent to 7.5% of world GDP 25% of all companies’ sales are dependent on air transport o Air Transport Facts (2009) 1,715 airlines 27,024 aircraft (22,235 jets and 5,789 turbo props) 3,670 airports 28.6 million scheduled departures per year o Air Transport Efficiency Aviation occupancy rates of 75.7% (2009 industry load factor) are better than those of road and rail Air transport entirely covers its infrastructure costs ($54.2 billion/year) It is a net contributor to national treasuries through taxation Modern aircraft achieve fuel efficiencies of 3.5 litres per 100 passenger kilometres or67 passenger miles per gallon ? Stats about Indian Aviation Industry: •The Total sales in 2010 is 41 thousand crore. •Net Profit of Indian aviation industry is 3.9 thousand crore. •In the present scenario around 12 domestic airlines and above 60 international airlines are operating in India. •The growth of airlines traffic in Aviation Industry in India is almost four times above international average. •Indian aviation industry has placed the biggest orders for aircrafts globally •Indian aviation industry holds around 69% of the total share of the airlines traffic in the region of South Asia
o Structure: Monopoly: Air India and Indian Airlines are the only two players who were active in aviation industry in Indian sky until 1986. 1. Indian Airlines and Air India both under the Government of India were the only suppliers of air services. 2. The product and the air services were similar in the two airlines and though Railways was considered as a competitor but the market which it caters is entirely different market segment and was incomparable to the air services considering the time and cost factor. 3. No other player could enter the market due to government regulation. 4. Entire demand and supply was controlled by only these two airlines. 5. Government was the price maker and pricing decisions were not taken strategically. Oligopoly: After privatization, the period after 1991 lot of private players entered the industry according to the government policy of open sky. Opening up of the Aviation industry to 41% FDI has also increased the competition in the economy. By 1995, 10% of the domestic air traffic was occupied by private airlines. Hence the various playersbroke into the monopoly of IA and AI creating a situation of Oligopoly market. There are 8 major airways in India. Every player has a control on the prices and hence each of them influences the market prices. The business strategies of pricing of tickets, advertisements, promotion schemes etc. are decided after taking a competition into consideration. A slight change in any type policy by accompany will lead to the others to follow suit The Aviation Industry in India involves a huge capital investment and government regulation which acts as major reasons for any new player to enter. Not only that, the customer loyalty is attached to a particular airline and they might not be willing to switch. The product offered i.e. air services is more or less same with minor differences. The prices in this industry are fixed by the players according to the segment of market they want to cater to.
? TOP INTERNATIONAL AIRLINES: 1)Delta airlines 2)United airlines 3)Southwest airlines 4)American airlines 5)China southern airlines
? TOP INDIAN PLAYERS: 1)Kingfishere 2)Jet Airways & Jet lite 3)Nacil(I) 4)Indigo 5)Spice jet 6)Go Air
Barriers: Barriers to entry are high start-up costs or obstacles that prevent new entrants from easily entering the particular industry. These barriers benefit existing companies who already operate in the industry by protecting their existing revenues from new competitors. They can be as a result of interventions by the government or a natural occurrence in business. In the airline industry, there are number of barriers to entry that affect new entrants. Risk: Main risk is a barrier for new entrant. Airlines have high cost. Increases in fair may affect revenue, when this happens profits will be instantly affected. Due to this airline industry is vulnerable to an economic slowdown. Slots: Since 1969, the Federal Aviation Administration has limited the daily number of take-offs and landings at key airports such as the Chicago O'Hare, Ronald Reagan Washington National and New York's JFK and LaGuardia. As a result of new airlines entering the market, the demand for access at these airports increased. This increase made it difficult for the takeoff and landing slots to be equally divided. Leases: Airports in cities such as Charlotte, Cincinnati, Detroit, Minneapolis, Newark and Pittsburghpermit airlines to lease the airport gates over a long period of time. This period can beextended as long as 20 years. This gives them exclusive rights to use the gates and preventsnew airlines from acquiring the use of any airport facilities. Perimeter Rules:
Perimeter rules at LaGuardia and National airports prohibit incoming and outgoing flights that exceed 1,500 and 1,250 miles, respectively. These rules were implemented to promote JFK and Dulles airports as the long-haul airports for the New York and Washington metropolitan areas. Additionally, these rules limit the ability of airlines based in the west from competing, since those airlines are prohibited from serving LaGuardia and National airports where the western airlines are strongest. Marketing Strategies: Some marketing strategies such as booking incentives and frequent flier programs have been executed by established airlines to create loyalty among passengers and travel agents. This has made it increasingly difficult for new airlines to enter the market. Smaller airlines may choose not to enter or quickly exit a market due to increased competition and financial loss. Resources: A company's control or ownership of a significant resource bars would-be competitors from entering the market. For example, a monopoly that provides oil to local governments might have access and exclusive rights to the land from which the oil comes. Government also creates barriers to entry when it grants firm exclusive rights to certain resources through grants, patents, copyrights and licenses. Sunk Costs: Sunk costs are unavoidable expenditures for a company. For example, some firms in a competitive market have more money than others to spend on advertising. Marketing costs must be spent, thus it's a sunk cost. Business owners with little money budgeted to spend on marketing and advertising can find it difficult to enter an industry where another company has more money to put towards product promotion. Investment: Businesses with a higher amount of start-up capital than other firms create barriers to entry. Firms with high-yielding investments and those that show a good return for investors can afford to spend much money on resources, thereby overshadowing the efforts of the competition. Innovation and Research: The high cost of investment in new technologies or research deters many firms from entering the market. Firms with greater resources for research and development to create new products, as well as capital to invest in equipment and in emerging technologies, can dominate an industry that depends on Research and innovation to grow
Regulations: In order to maintain orderly growth of airline operation, to serve the needs of the country, in an efficient and safe manner, the Civil Aviation Requirements, Section 3, Air Transport, Series C, Part II were issued in 1994 which stipulates the minimum requirements for grant of permit to operate scheduled passenger air transport services Scheduled Operator's Permit is granted only to: A citizen of India; or A Company or a Corporate provided that: It is registered and has its principal place of business within India; Its chairman and at least two-thirds of its directors are citizens of India; and, Its substantial ownership and effective control is vested in Indian nationals. Eligibility Requirements Before the Scheduled Operator's Permit is issued, an applicant should have: A subscribed equity capital of not less than Rs. 30 crores in respect of aircraft of maximum take-off mass exceeding 40,000 kg and not less than Rs. 10 crores in respect of aircraft of maximum takeoff mass not exceeding 40,000 kg. A fleet of minimum five aircraft either by outright purchase or through lease with maximum certified take-off mass more than 5,700 kg and type Certified meeting the requirements of transport category aircraft acceptable to DGCA. To facilitate the start of operations, operators will be permitted to operate with three aircraft and will be given one year's time to have the fleet size of five aircraft. The fourth aircraft should be acquired within a period of six months and the fifth aircraft within a period of one year. The aircraft shall be registered in India with current Certificate of Airworthiness in normal passenger category. Adequate number of AMEs and own maintenance and repair facilities for maintenance of aircraft at least up to flight release or 500 hours, whichever is higher. For higher maintenance, the operator should preferably establish his own maintenance facilities, but can carry out such maintenance using facilities of reputed organisation approved by DGCA. Sufficient number of flight crew and cabin crew but not less than three sets of crewper aircraft. The flight crew should hold current licenses issued by DGCA and appropriate endorsements on the type of aircraft operated
? PEST Analysis: Political: In India, one can never over-look the political factors which influence each and every industry existing in the country. Like it or not, the political interference has to be present everywhere. Given below are a few of the political factors with respect to the airline industry: The airline industry is very susceptible to changes in the political environment as it has a great bearing on the travel habits of its customers. An unstable political environment causes uncertainty in the minds of the air travellers, regarding travelling to a particular country. Overall India’s recent political environment has been largely unstable due to international events & continued tension with Pakistan. The Gujarat riots & the government’s inability to control the situation have also led to an increase in the instability of the political arena. The most significant political event however has been September 11. The events occurring on September had special significance for the airline industry since airplanes were involved. The immediate results were a huge drop in air traffic due to safety & security concerns of the people.
International airlines are greatly affected by trade relations that their country has with others. Unless governments of the two countries trade with each other, there could be restrictions of flying into particular area leading to a loss of potential air traffic (e.g. Pakistan & India)Another aspect is that in countries with high corruption levels like India, bribes have to be paid for every permit & license required. Therefore constant liasoning with the minister &other government official is necessary. The state owned airlines suffer the maximum from this problem. These airlines have to make several special considerations with respect to selection of routes, free seats to ministers, etc which a privately owned airline need not do. The state owned airlines also suffers from archaic laws applying only to them such as the retirement age of the pursers & hostesses, the labour regulations which make the management less flexible in taking decision due to the presence of a strong union, & the heavy control & interference of the government. This affects the quality of the service delivery & therefore these airlines have to think of innovative service marketing ideas to circumvent their problems & compete with the private operators. Economic: Business cycles have a wide reaching impact on the airline industry. During recession, airline is considered a luxury & therefore spending on air travel is cut which leads to reduce prices. During prosperity phase people indulge themselves in travel & prices increase. After the September 11 incidents, the world economy plunged into global recession due to the depressed sentiment of consumers. In India, even a company like Citibank was forced to cut costs to increase profits for which even the top level managers were given first class railway tickets instead of plane tickets. The loss of income for airlines led to higher operational costs not only due to low demand but also due to higher insurance costs, which increased after the WTC bombing. This prompted the industry to lay off employees, which further fuelled the recession as spending decreased due to the rise in unemployment. Even the SARS outbreak in the Far East was a major cause for slump in the airline industry. Even the Indian carriers like Air India was deeply affected as many flights were cancelled due to internal (employee relations) as well as external problems, which has been discussed later. Social: The changing travel habits of people have very wide implications for the airline industry. In a country like India, there are people from varied income groups. The airlines have to recognize these individuals and should serve them accordingly. Air India needs to focus on their clientele which are mostly low income clients & their habits in order to keep them satisfied. The destination, kind of food etc. all has to be chosen carefully in accordance with the tastes of their major clientele. Especially, since India is a land of extremes there are people from various religions and castes and every individual travelling by the airline would expect customization to the greatest possible extent. For e.g. A Jain would be satisfied with the service only if he is served Jain food and it should be kept in mind that the customers next to him are also Jain orat least vegetarian. Another good example would be the case of South West Airlines which occupies a solid position in the minds of the US air travellers as a reliable and convenient, fun, low fare, and no frills airline. The major element of its success was the augmented marketing mix which it used very effectively. What South West did was it made the environment inside the plan every consumer friendly. The crew neither has any uniform nor does it serve any lavish foods, which indirectly reduces the costs and makes the consumers feel comfortable. Technological: The increasing use of the Internet has provided many opportunities to airlines. For e.g. Air Sahara had introduced a service, through the internet wherein the unoccupied seats are
auctioned one week prior to the departure. Air India also provides many internet based services to its customer such as online ticket booking, updated flight information & handling of customer complaints. USTDA (US trade& development association) is funding a feasibility study and workshops for the Airports Authority of India as part of a long-term effort to promote Indian aviation infrastructure. The Authority is developing modern communication, navigation, surveillance, and air traffic management systems for India's aviation sector that will help the country meet the expected growth and demand for air passenger and cargo service over the next decade. A proposal for restructuring the existing airports at Delhi, Mumbai, Chennai and Kolkata through long-term lease to make them world class is under consideration. This will help in attracting investments in improving the infrastructure and services at these airports. Setting up of new international airports at Bangalore, Hyderabad and Goa with private sector participation is also envisaged. A good example of the impact of technology would be that of AAI, wherein with the help of technology it has converted its obsolete and unused hangars into profit centres. AAI is now leasing these hangars to international airlines and is earning huge profits out of it. AAI has also tried to utilize space that was previously wasted installing a lamination machine to laminate the luggage of travellers. This activity earns AAI a lot of revenue. These technological changes in the environment have an impact on Air India as well. Better airport infrastructure, means better handling of airplanes, which can help reduce maintenance cost. It also facilitates more flights to such destinations
? SWOT Analysis: STRENGTHS Speed and Comfort Air mode of transportation is the fastest and most comfortable form of transport. Geographical barriers not a constraint Geographical barriers like mountains, sea etc are constraints for land and water mode of transport but Air travel is not constrained by such issues. Tourism growth: Due to growth in tourism, there has been an increase in number of the international and domestic passengers. The estimated growth of domestic passenger segment is at 50% per annum and growth for international passenger segment is 25%. Airlines is the most preferred mode of transportation by the foreign tourists as the convenience provided by the airlines is higher. Rising income levels: Because of the rise in income levels, the disposable income is also higher which are expected to enhance the number of flyers
WEAKNESSES Under penetrated Market: The total passenger traffic was only 50 million as on 31st Dec 2005 amounting to only 0.05trips per annum as compared to developed nations like United States have 2.02 trips per annum. Inefficiency of the domestic airlines: There are number of instances of flight being cancelled or delayed. Secondly frequent strikes by the pilots and maintenance problems are a major cause of concern. This is one of the reasons that make a tourist disheartened Infrastructural constraints: The infrastructure development has not kept pace with the growth in aviation services sector leading to a bottleneck. Huge investment requirement for physical infrastructure for airports. Lack of basic facilities at the airport. When international airports offer such services like free transportation facilities, private lounge facilities at airports, food etc, it sometimes become impossible to find a clear toilet in our international airports.
OPPORTUNITIES Expecting investments: Indian Airlines industry is expecting investment of about US $30 billion in 2011. Expected Market Size: In Indian airlines industry average growth of aviation sector is about 25%-30% and the expected market size is projected to grow upto100 million by 2010. As the tourism expands the airline industry is also in for a boom and development and up gradation of the present airports, India's geographic location makes it an ideal location to serve as a link between the East and the West Untapped Air Cargo Market: Air cargo market has not yet been fully taped in the Indian markets and is expected that in the coming years large number of players will have dedicated fleets. THREATS Shortage of trained Pilots: There is a huge shortage of trained pilots, co-pilots and ground staff which is severely limiting growth prospects. because of payment delay. Shortage of Airports: There is a shortage of airport facilities, parking bays, air traffic control facilities and takeoff and landing slots. High Fuel prices: Though enough number of low cost carriers already exists in the industry, majority of the population is still not able to fly to other destinations. High oil prices mainly affect the airlines in this regard bringing up the operational cost. Government policies: Changing government policies also affect the Indian airlines industry it is regulated by the DGCA which is in turn controlled by the Aviation Ministry
? COMPETETORS ANALYSIS: Availability of Substitutes: Purchasing power of customers has increased: As the purchasing power of the customers has increased they have more options, from high fare to low cost airlines they can travel from any airlines. Roadways, Railways, Private Transport: Roadways, Railways, Private transport are the major substitutes for the airlines. However this is not a threat if the distances are long Competition rivalry within an industry: Many players of about the same size; there is no dominant firm: There are 6 major domestic firms and there is a major competition between them, so customers have a wide choice with them. Little differentiation between competitor’s products and services: There is not much difference between the services provided by all the airlines. The only difference being the fares and the meals that are provided. A mature industry with very little growth; companies can only grow by stealing customers away from competitor: The only way to grab the customer share is to snatch the customers from the competitors. This can be done by differentiated pricing, frequencies, and services. Threat of new entrants: Existing loyalty to major brands: Till now the customers are loyal to their brands. But as the competition will increase they may switch over to some other players. High fixed cost: The fixed cost involved in the entry or setup is very huge, but these days the funds are available and the credits are available easily so the entry is no more a worry. Scarcity of resources: The resources are scares. Fuel is a major resource for the aviation industry and the rising prices of it is a major concern. Government restrictions or legislation: The restrictions which were there earlier are not there now. After liberalization the entry of new player has become much easier. Besides there are very few restrictions by government in terms of the fees , platform, frequencies of flights etc. Indian airlines market is not fully trapped, it’s underdeveloped: The Indian market is still not fully trapped. There is a shortage in the supply as compared to demand. Besides the infrastructure is also not fully developed.
Bargaining Power of Suppliers: There are very few suppliers of a particular product: There are only 2 suppliers of aircrafts currently. So the bargaining power is not there for the firms. They can’t bargain much and cost is also very high. There are no substitutes: For airlines the only source of income is the aircraft. They can’t substitute this with any other thing and because of this they can’t bargain with the suppliers. The product is extremely important to buyers - can't do without it: Aircrafts are the only source of income for the buyers; they can’t do anything without it.
The supplying industry has a higher profitability than the buying industry: The supplier has the high margin or profitability in supplying the aircrafts, because it’s a onetime affair for them. But for the buyers the profitability is low. Bargaining power of customers: Small number of buyers: There are not many no. of buyers or customers. As said earlier the market is still untapped. So the customers have the upper hand and he can bargain with the seller. Switching to another (competitive) product is simple: As there are many buyers with same product the switching from one firm to another is easier for the customers. The product is not extremely important to buyers; They can do without the product for a period of time: Even if there are no airline services the domestic passengers can do without it because for domestic travelling they can use the other alternatives as mentioned earlier. Customers are price sensitive: If one competitor increases the price, a customer can always switch to some other player. They are pricing sensitive and an change there preferences if there is even a slight fluctuation in the prices.
Distribution: Air ticket distribution is carried out both directly by airlines via their websites, call centres or dedicated ticket sales offices and via third-party intermediaries - including global distribution systems (GDSs) and travel agents - both on- and offline. Most of the major legacy(traditional) airlines continue to sell the majority of their tickets via traditional intermediaries such as GDS, and, by and large, only the low-cost carriers (LCCs) have succeeded in distributing the greater part of their tickets via their proprietary websites. As the trade association for the international air travel industry, the International Air Transport Association (IATA) plays an important role in the billing of transactions, the accreditation of travel agents worldwide and the implementation of e-ticketing. Key statistics In 2007, the worldwide sale of air tickets reached an estimated US$275 billion. E-ticketing became universal as of mid-year 2008, following a four-year campaign led by the IATA. Premium tickets accounted for 7% of the total issued in 2007. Major legacy carriers generally succeed in selling between 10-30% of their tickets via their own websites. Most tickets continue to be sold by traditional third-party channels (travel agents and GDSs). Proprietary websites are by far the most important distribution channel for LCCs, accounting for between 70% and almost 100% of ticket sales Pricing strategies: Premium Pricing: The airlines may set prices more than the market price either to reflect the image of quality or the different status of the product. The product features are not shared by its competitors or the company itself may enjoy a strong reputation like that the 'brand image' is only sufficient to charge a premium price. Value for Money Pricing:
The value for money pricing is to charge the average price for the product and it represents excellent value for money at this price. This accredits the airline to achieve good levels of profit on the basis of established reputation. Low-cost Pricing: The low-cost airlines in the Indian aviation industry, a different low-cost flying concept has come up. Since these low-cost airlines are trying to attract the customers by providing air travel in exceptionally low prices. In low-pricing strategies, the airlines provide very low prices for the flight tickets. Also, they prices are made cheaper by booking the tickets long before the flight date. APEX Fares: Apex fare is when, people are paid very cheap rates only if tickets are booked at leastbefore the specified time period (e.g. before at least one month). But the draw-back hereis that if the booking is cancelled, a substantial amount of money is not refund
Marketing Strategies: In-flight advertising is the use of personalised spaces or objects such as headrests, trays as well as magazines and audiovisual messages for advertising purposes and for advertisers it can represent an ideal opportunity to reach a highly receptive audience that is literallycaptive.Emirates publishes three magazines, Open Skies, Portfolio and TV & Radio with the idea of making contact with its more sophisticated readers.The first is a lifestyle magazine reflecting the cosmopolitan character of its readership, including stories from around the world covering such diverse topics as travel, technology, health, the environment, art, culture, food, business and adventure. Portfolio is a business magazine aimed exclusively at First Class and Business Class passengers including interviews and profiles related to business topics and current affairs.TV & Radio is an entertainment guide providing listings for the in-flight entertainments programs available on the different routes operated by the airline. The advertising included in these publications is not invasive; on the contrary, travelers are provided with added value and entertainment. Other promotional options are also possible, such as the campaign carried out by La Prairie where first class passengers travelling with Qantas, Swiss International Air Lines, Malaysia Airlines, Lufthansa and Eva Air were delivered with a gift set of the company’s cosmetics.
Online Marketing Attracting potential customers to airline websites is the first step towards boosting the sale of flight tickets online. One of the several possibilities available is email marketing. According to a survey conducted by the Travel Industry Association of America (TIA), over 35 million Internet users made a travel reservation after receiving information on offers or promotions by email. The same study also found that in 2003 ten million people were influenced by email marketing to make a trip or journey that they otherwise would not have made. In order to start up online marketing campaigns, the definition of the goals to be attained and the performance of prior segmentation of the data bases to be employed are both crucial. It is also important to reach persons forming part of the target audience who will receive the offer favourably with a strong interest in the services offered by the airline. At the same time this type of actions will contribute to brand notoriety. In this context the email
marketing campaigns conducted by Austrian Airlines (which according to organiza.com managed to attract 11,000 new customers) or Vueling are of special interest. The latter was centred on the prize draw of a trip to Venice, linked to the willingness to receive information on special flight offers. There is wide variety of online marketing methods. According to a survey on the Effectiveness of Display Publicity conducted by IAB and the Cocktail Analysis in April 2009on a sample of 1035 Internet users of both sexes, aged between 15 and 50 and who had been online for at least one hour before accessing the survey on which the research was based. The results showed that in terms of generation of brand recall, layers and pop-ups were found to the most effective formats. With only 3.1% of the investment, a 23.4% recall rate was attained (+655%). The second most effective format turned out to be online video. Even though only 3 out of 100 euros are destined to this format, its effectiveness on generating brand recall is proportionally much higher. Almost 2 out of 10 of the commercials associated to the brands recalled by the persons surveyed were linked to this format. As could be expected, it was the more creative, dynamic ads that generated greater recall. Over half (54%)of the ads mentioned were dynamic. In this direction, one of the points to be included in this online plan would be the analysis of presence in social networks. The same study found that 78% of the persons surveyed belonged to one of the social networks under analysis (Facebook, Fotolog, Tuenti, Myspace,Hi5, Twitter, Sonico, Badoo).It is clear that these communities provide an opportunity for spreading information on airlines? special offers, however it is not as simple to find a way to do so successfully; this will entail the analysis of what moves our future customers. Airlines such as American Airlines and Virgin Atlantic already have a presence in Facebook. On Twitter, some airlines such as Vueling only offer corporate information to their users whereas other such as JetBlue offer a more a more active service where customers are provided with access to exclusive offers. Other companies such as the Dutch airline KLM have developed their own social network, the China Club, aimed both at young people looking for cheap flights and the business community. Other promotional strategies can be studied in the context of Kingfisher airlines as they are a prime example owing to their prolific marketing campaign
Marketing strategies of Kingfisher Airlines Kingfisher airlines launched its domestic air service operations in May 2005.KFA was promoted by UB group and offered a single class“Kingfisher Class”. KFA Successfully leverage the youthful and vibrant image of its kingfisher beer brand and called its airlines as “Fun liners” to emphasize the fun-filled experience. Within the first six months of its launch, KFA managed to corner a 6% market share in the domestic air travel market. KFA started its operation in May 7, 2005, positioning itself as a budget carrier and not as Low Cost Carrier (LCC). As part of its promotional strategy the marketing team of KFA showcased the airline as “the new flying experience” The following initiatives were taken as part of its promotional strategy -It came up with a very appealing promotional line “Fly the good times” and it reflected in the experience the company offered to its passengers. -KFA also launched Kingfisher express in order to tap into the growing LCC segment.
-The company gave best services to its customers that were like providing world class interiors, and in-flight entertainment systems. -The company came up with only one class airlines rather than other airlines that had Business Class; Economy Class the idea was to combine Business Class experiences and Economy Class experiences in one. Having a single class freed up more leg space for passengers when compared to normal economy class flights. -The company started addressing its customers as “GUEST” rather than passengers. -The company made its mark by providing its guests with more legroom and bigger seats so as to provide better comfort. -Advertisements hoardings at airports depicted the stylish interiors of the “Funliners”, which conveyed youthful, fun-filled, and world class image. -INOX multiplexes in Mumbai publicized KFA?s special offers for a month. -KFA was the official travel airlines for the cast and crew of “Mangal Pandey” themovie. -KFA made use of various fashion shows, celebrity golf matches, New Year parties all to build its “Kingfisher” brand. -The UB groups monthly magazine called “Pegasus” published information about -KFA along with other information related to UB group. -KFA launched many attractive offers to promote its sales like the “King Card” in association with ICICI Bank, in August 2005. This was meant to create loyal customers for KFA by providing benefits like privileged access to lounges, restaurants, free refreshments at airports, access to 180 golf clubs across India, special invites for lifestyle shows. -In October, KFA launched “Chill Times Offer” in the month of August 2005 and September 2005. -In October they launched the “King Saver Offer” which said “Fly like a King, don’t play like one”. -KFA targeted the frequent fliers business traveller segment, which was dominated by Jet Airways. By offering a “King Saver Booklet”, This booklet contained six free flight tickets and was presented as a free gift if the passenger bought two such booklets each worth Rs. 26,999.Passengers could avail off this offer if they showed there Jet Privilege Member (Gold or Platinum) card.
COMPANY OVERVIEW: Kingfisher Airlines Limited is one of India's leading airlines, operating more than 100 flights a day with a wide network of destinations. In May 2009, Kingfisher Airlines carried more than a million passengers, giving it the highest market share among airlines in India. The airline started operations on 9 May 2005. Kingfisher Airlines is India's largest private airline both in capacity and market share. The Airline has brand new aircrafts with stylish red interiors, and smartly dressed crew and ground staff. Kingfisher was the first Indian airline to have in-flight entertainment (IFE) systems on every seat with guests being able to watch live TV in-flight. Kingfisher Airlines is one of the leading private players in the Indian aviation industry. Incorporated in 1995 as Deccan Aviation, the company is engaged in the business of
providing passenger services and helicopter charter services. The name was changed to Kingfisher Airlines in the year 2005. The airline is part of UB Group owned by Dr Vijay Mallya. Kingfisher Airlines owns 76 aircraft comprising A330, A 321 (single and double cabin), A 320 (single and double cabin), A 319, ATR 72-500 and ATR 42-500. In India, the airline has a network in 72 cities operating more than 400 flights a day and commands a market share of 25%. Internationally, it operates flights to Dubai, Colombo and London
? KEY FACTS: Date of Establishment Revenue Market Cap Corporate Address 1995 1397.93 ( USD in Millions ) 8346.0212568 ( Rs. in Millions ) U B Tower Level 12,U B City 24 Vittal Mallya Road, Bengaluru-560001, Karnataka www.flykingfisher.com. Chairperson - Vijay Mallya MD - Vijay Mallya Directors - A K Ravi Nedungadi, A Raghunathan, AK Ravi Nedungadi, Anil Kumar Ganguly, Bharath Raghavan, Diwan Arun Nanda, G R Gopinath, Ghyanendra Nath Bajpai, K J Samuel, Lalit Bhasin, Manmohan Singh Kapur, N Srivatsa, Naresh Trehan, Piyush G Mankad, S R Gupte, Sanjay Aggarwal, Shrikant Ruparel, Subhash R Gupte, Vijay Amritraj, Vijay Mallya Airlines Kingfisher Airlines is one of the leading private players in the Indian aviation industry. Incorporated in 1995 as Deccan Aviation, the company is engaged in the business of providing passenger services and helicopter charter services. The name was changed to Kingfisher Airlines in the year 2008. The airline is part of UB Group owned by Dr Vijay Mallya. Kingfisher Airlines owns 76 aircrafts. Total Income - Rs. 64955.623 Million ( year ending Mar 2011) Net Profit - Rs. -10273.98 Million ( year ending Mar 2011) N Srivatsa
Management Details
Business Operation Background
Financials
Company Secretary
Bankers Auditors
BK Ramadhyani & Co
? BUSINESS DESCREPTION This airline offers three unique classes of services Kingfisher First (Business class), Kingfisher Class (Premium economy) and Kingfisher Red (Low fare). The company owns two subsidiaries namely Northway Aviation and Vitae India Spirits. Northway Aviation is engaged in the business of financing pre-delivery payments and aircraft acquisition. Kingfisher Airlines is only five star airline in the Indian skies and is known for providing world class in fight services to its passengers. The company has emerged as the first Indian airline that provides a range of services in the mobile segment such as flight updates, ticket buying through SMS and many more.
? KEY EMPLOYEES SR No. 1 2 3 4 5 6 7 8 9 10 Name Vijay Mallya Vijay Mallya Bharath Raghavan Subhash R Gupte Manmohan Singh Kapur Lalit Bhasin Shrikant Ruparel Piyush G. Mankad Ghyanendra Nath Bajpai A K Ravi Nedungadi Designation Chairman Managing Director Company Secretary Vice Chairman Additional Director Independent Director Independent Director Non Executive Independent Director Non Executive Independent Director Non Independent & Non Executive Director
? FINANCIAL PERFORMANCE: The Indian aviation industry is confronted with an unprecedented, tough operating environment –intensified by consistently high fuel prices and the depreciating Indian rupee. Fuel prices have increased by over 40% over last year compounded by the weakened rupee. The industry’s demand growth in the domestic market at 13% in FY12 over last year has been overshadowed by a 17% growth in industry capacity leading to a pressure on the yields and the load factor for the industry.
For the year ended FY12, Kingfisher delivered an EBITDAR profit of Rs. 13 crore vs. a profit of Rs. 1,108 crore last year. EBITDA loss for FY12 was Rs. 855 crore vs. a profit of Rs. 140 crore last year. The performance was impacted primarily due to Rs. 672 crore of additional fuel cost and additional cost due to depreciation of the Indian Rupee and lower revenue generation due to reduction of operational capacity in an attempt to contain losses. Net loss on normal operations for the year stood at Rs. 1,356 crore. Operational cost savings (6% achieved in FY12 vs F11) were offset by a steep hike in fuel prices and sharp depreciation of the Indian rupee, which negatively impacted over 70% of the cost base. There was an incremental one-time loss of Rs. 743 crore due to early redelivery of the aircraft and Rs. 338 crore due to restructuring costs. Rationalization of capacity in the last two quarters of FY12 and continued adverse publicity led to a disproportionate loss of revenue. On the domestic front, Kingfisher recorded an operating revenue drop of 14% on 5% lower ASKM. The domestic operations however generated an EBITDAR profit of Rs. 138 crore which bears evidence to the reduction of operating expenses. In international operations, operating revenue declined by only 5% on 6% lower ASKM, supported by realization of high passenger yields. Kingfisher Airlines in now continuing on it’s previously stated “Holding Plan” with a limited fleet and simultaneously progressing on it’s aircraft reconfiguration plan to contain losses in this very tough operating environment for the Indian aviation industry. The company has a focused fleet re-induction plan and hopes to be back to full-scale operations in the next 12 months backed by a recapitalization plan that the company is actively pursuing and confident of achieving.
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FINANCIAL CRISIS:
OVERVIEW: SR No. 1 2 3 4 5 6 7 Total From Apr-05 Jul-06 Jul-07 Apr-08 Apr-09 Apr-10 Apr-11 To Jun-15 Jun-07 Mar-08 Mar-09 March-10 Mar-11 Sep-11 Months 15 12 09 12 12 12 06 78 Total Income 1352 2142 1546 5577 5271 6496 3410 25793 Cost 1689 2562 1734 7186 6918 7523 4142 31754 Net Profit -337 -420 -188 -1609 -1647 -1027 -732 -5960
PAYMENT PROBLEMS:
-Delayed salary Kingfisher Airline has staff strength of 6,000 and spends 58 crore (US$11.57 million) on salaries a month. According to the first quarter financial results, it has 173.66 crore (US$34.65 million) under the employees cost head, which has increased from 163.41 crore (US$32.6 million) during the same quarter last year. Kingfisher Airlines delayed salaries of its employees in August 2011, and for four months in succession from October 2011 to January 2012. In a report to DGCA on 09th Jan 12, Kingfisher had stated that it has paid past (salary) dues to 60% of its employees and that by 31st Jan 12, payment of December 2011 salary for all its employees will be done. Protesting at the delays in payment, Kingfisher pilots started making in-flight announcements citing "It is their sense of duty towards the guest that is making them fly despite not being paid salaries for the past two months". Kingfisher also defaulted on paying the Tax Deducted at Source from the employee income to the tax department
-Fuel Dues
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HPCL: In Jul 2011, Hindustan Petroleum Corporation Limited (HPCL) stopped the fuel (ATF) supplies for about two hours to Kingfisher airlines owing to the non-payment of dues. Situation was later resolved by Vijay Mallya meeting the CBDT Chairman to unfreeze some A/C's. In the past several years, Kingfisher airlines has had trouble paying their fuel bills. BPCL: Bharat Petroleum Corporation in 2009 had filed a case against Kingfisher airlines for non-payment of dues. High court in an order said that the entire amount ( 245 crore (US$48.88 million)) had to be paid by Nov 2010 and the airline paid it in instalments.
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-Aircraft lease rental dues Since 2008, it has been reported that Kingfisher Airlines has been unable to pay the aircraft lease rentals on time.
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GECAS: In Nov 2008, GE Commercial Aviation Services threatened to repossess 04 leased planes in lieu of default. Kingfisher Airlines initially denied that it missed the payments. GECAS had filed a complaint with DGCA saying Kingfisher had defaulted on rentals for four Airbus A320 aircraft, and sought repossession of the planes. In Jan 2009, The Karnataka High Court rejected petition by Kingfisher Airlines to restrain GECAS from taking any step to deregister and repossess the 04 aircraft in dispute. As a result, Kingfisher had to return the A320 aircraft to GECAS. DVB: In Jul 2010, DVB Aviation Finance Asia Ltd (a lessor from Singapore), sued Kingfisher Airlines for lease rental default. Case was filed in a UK court on Jul 16, 2010 after Kingfisher did not pay for three month lease rental for A320 aircraft it leased from DVB.
Kingfisher Airlines has grounded 15 out of 66 aircraft in its fleet as it was unable to meet the maintenance and overhaul expenses. -Income tax On 9 December 2011, MC Joshi, Chairman CBDT announced that ITis considering legal action against Kingfisher for not paying tax and may go for prosecution. As on 10th Jan 2012, Kingfisher Airlines has service tax arrears of 60 crore (US$11.97 million). The Ministry of Finance has given a concession to Kingfisher and instructed them to pay the dues by 31st Mar 2012. In Jan 2012, Kingfisher paid 20 crore (US$3.99 million) towards its dues for December 2011 and part of the arrears. -Bank arrears Kingfisher Airlines had not paid some bankers (Lenders) as per the Debt Recast Package (DRP) with lending banks. Till the end of Dec 2011, the arrears were estimated to be 260 crore (US$51.87 million) to 280 crore (US$55.86 million). Lenders hence had told Kingfisher Airlines to clear its dues before they can release any more money sought by the Airline. Ravi Nedungadi, chief financial officer of UB Group however said that the arrears were 180 crore (US$35.91 million). If arrears were not paid in time (Dec 2011); Kingfisher Airlines would automatically have been treated as NPA, (Non-performing asset). On the last working day of the third quarter of financial year 2011-2012, Kingfisher Airlines made one month interest amount to the banks; thus saving the account from turning a non-performing asset. State Bank of India (SBI) on 5th Jan 2012 declared Kingfisher Airlines a NPA (Nonperforming asset). SBI is largest creditor and the leader of the consortium of banks in the DRP (Debt Recast Package) and has an exposure of 1,457.78 crore (US$290.83 million). By Feb 2012, Kingfisher has been decleared NPA by following banks
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SBI, Bank of Baroda, PNB, IDBI, Central bank, BOI, Corporation Bank
In December 2011, for the second time in two months, Kingfisher's bank accounts were frozen by the Mumbai Income Tax department for non-payment of dues. Kingfisher Airlines owes 70 crore (US$13.97 million) to the service tax department. Indian tax body also stated that Kingfisher Airlines is delinquent. As response, Dr. Vijay Mallya called on the Chairman CBDT and offered to pay up the dues by 13 Dec 11 Kingfisher bank accounts were unfrozen on 14th Dec 11. Due non-payment, several Kingfisher's vendors had filed winding up petition with the High Court. As on Nov 2011, winding up petition of seven creditors was pending before the Bangalore High Court. In the pastLufthansa Technik & Bharat Petroleum Corporation Limited (BPCL) had also filed winding up petition against Kingfisher Airlines
OYHER PROBLEMS: -Erosion of net worth
In Sep 2011, the Chairman & Managing Director of Kingfisher Airlines made following disclosure to BSE; The Company has incurred substantial losses and its net worth has been eroded. However, having regard to improvement in the economic sentiment, rationalization measures adopted by the Company, fleet recovery and the implementation of the debt recast package with the lenders and promoters including conversion of debt into share capital, these interim financial statements have been prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value of assets and liabilities" This filing was widely covered by Indian and international print and electronic media and analysts. It was stated by analysts and media that the company needs capital infusion to remain viable and this has pushed shares to near historic lows. Kingfisher Airlines Lenders later stated that they consider that company is viable. On 15 November 2011 the airline released poor financial results, indicating that it was "drowning in high-interest debt and losing money". Mallya indicated that his solution was for the government to reduce fuel and other taxes. The government was engaged in assessing whether to bail out the company and other airlines or let market forces determine which ones survive.
-Oneworld alliance On 7 June 2010 Kingfisher became a member elect of the Oneworld airline alliance when it signed a formal membership agreement. Kingfisher confirmed on the 20th December 2011 that it will join the Oneworld airline alliance on February 10, 2012. Kingfisher would have been the first Indian carrier to join one of the big airline alliances.[42] However on February 3, 2012, owing to bad financial situation and two days after IATA clearing house suspended Kingfisher airlines; the airlines participation to Oneworld has been put on hold. Recent reports indicate that Oneworld is confirming Kingfisher's ouster from the alliance in the coming few days.
2012 Crisis: -Fleet grounding During late February, 2012, Kingfisher Airlines started to sink into a fresh crisis. Several flights were cancelled and aircraft were grounded. The cash-strapped airline claimed that the disruptions will continue for four days due to unexpected events including bird strikes which rendered aircraft out of service. The airline shut down most international short-haul operations and also temporarily closed bookings. Out of the 64 aircraft, only 22 were known to be operational by February 20. With this, Kingfisher's market share clearly dropped to 11.3%. The cancellation of the flights was accompanied by a 13.5% drop in the stocks of the company on 20 February 2012. The CEO of the airlines, Sanjay Agarwal was summoned by the Directorate General of Civil Aviation to explain the disruptions of the operations.
The State Bank of India, which is the lead lender to Kingfisher airlines said that they would not consider giving any more loans to Kingfisher unless and until it comes up with a new equity by itself. Political activists also claimed that bailing or helping a private airline would lead to problems within the Government. By February 27, Kingfisher operated only above 150 out of its 400 flights and only 28 aircraft were functional. Reuters reported that if Kingfisher were to shutdown, it would be the biggest failure in the History of Indian Aviation. It was announced that the direct flights to the smaller airports of Jaipur, Thiruvananthapuram, Nagpur and also to Hyderabad's Rajiv Gandhi International Airport were all shut down and only one/two-stop flights from its main hubs of Delhi and Mumbai would operate. In response to a situation as bad as bankruptcy, Vijay Mallya announced that he had organized funds to pay all the employees' overdue salaries. With bank accounts frozen and huge debts due, it is unknown so as from where he arranged the money. But he apologized to his workers and said that he would pay them immediately. By this time, kingfisher had accumulated losses of 444 crore (US$88.58 million) during the third quarter of the fiscal year 2011-12. Reuters then reported that Etihad Airways was interested in investing in Kingfisher by providing equity in exchange for a stake in the airline. Also involved in the talks was the International Airlines Group, owner of British flag carrier British Airways and Spanish flag carrier Iberia
-Frozen bank accounts On March 3, 2012, The CBDT of India froze many more Kingfisher accounts as it was unable to pay all the dues as per schedule. Kingfisher was meant to pay 1 crore (US$199,500) per working day. It reportedly missed the deadline set by the board and could not pay the dues until the evening on February 29. This led to more accounts being frozen. The airline neither did comment on the situation, nor pay the taxes. Aviation minister Ajit Singh warned the airline about the temporary suspension of the license until the crisis was sorted out. He announced that the rest of the airline's fleet would be grounded and all flights cancelled until the crisis came to an end. This would be only one step from permanently closing the airline -IATA Suspension On March 7, 2012 IATA suspended ticket sales of Kingfisher airlines citing non-payment of dues as the primary reason, and they said that sales services will only be restored once Kingfisher settles ICH (IATA Clearing House) account. IATA also immediately directed all travel agents to stop booking tickets for Kingfisher. According to preliminary reports, this would affect Kingfisher's business by around 30%. Kingfisher claimed that frozen bank accounts was the main cause of being unable to pay the IATA, and the airline started making alternate arrangements for the sale of tickets. Soon it became difficult for the airline to follow the much smaller schedule that it earlier released as even more pilots began to go on strike. A pilot later claimed that from March 12, about 80% of the pilots would not fly as they mentioned in their letter to Vijay Mallya. The airline's plans on restating all services by April 4 did not seem too real at the moment
? SWOT ANALYSIS: ? STRENGTH: ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Strong brand value and reputation in the minds of the consumer UB group as the parent company First Indian airline to have a new fleet of planes Quality service and innovation More than 80 destinations Less than 100 people (employees) per aircraft
WEEKNESS: Still in RED (still to Break Even) (An outstanding of 950crs only to oil marketing cos till may end) High ticket pricing (KF First & Class) Tough competition from Indian as well as international players OPPORTUNITY: If able to survive for a couple of years, then can have a big market share Untapped International Markets Untapped cargo market Expanding tourism business THREATS: Falling demand Over capacity in the skies ATF prices Economic slowdown Infrastructure issues
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