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Aviation

Sector Report

Sensex: 19,931

December 11, 2007

Blue side up

Demand for air travel is growing in India as a result of economicdevelopment, globalisation, regulatory
liberalisation and decliningpassenger fares. We expect air travel to grow 16% CAGR (14.7% fordomestic
and 16.5% for international passengers) over the next fouryears until FY10E. This growth in passenger
traffic will drive a farlarger growth of 20% in airline revenues.

Consolidation in the industry has meant that the top three playersnow command 88.5% market share.
The fallout of the consolidationhas already begun in the form of improving yields.

With a strong demand growth, the onset of rational pricing behaviourand the fact that the airline
industry has underperformed the Sensexby about 19% over the last 18 months, we expect valuations to
improvein future. Against this backdrop, we like efficient players like JetAirways and SpiceJet, the former
being able to connect with a wideraudience in the aviation space and the latter having the lowest cost
ofoperations. We initiate coverage on both companies with BUY rating.
Indian Aviation Sector – 20 years of the Open Skies Policy!
Posted on February 28, 2010 by aseemrastogi2| 14 Comments

India is one of the fastest growing aviation markets in the world. The Airport Authority of India (AAI)
manages a total of 127 airports in the country, which include 13 international airports, 7 custom airports, 80
domestic airports and 28 civil enclaves. There are over 450 airports and 1091 registered aircrafts in the
country. In the early fifties, most of the operating airlines were merged into Indian Airlines or Air India and
this monopoly under the Air Corporations Act continued till about the 1990s. 1991, was the year when the
Indian Government came up with the Open Skies Policy and the Indian skies were never the same again.

As of today, India has 1 government airline (that’s if one considers Air India and Indian Airlines as “Indian” –
which surely was, is and will be one of the biggest disaster decisions taken by anyone) and 7 private airlines –
Paramount, Air Deccan, Jet (includes Jet Lite (formerly Sahara), Jet Airways and Jet Konnect), Spice Jet, Go
Air, Indigo and Kingfisher (includes Kingfisher and Kingfisher Red (previously Air Deccan). I am not
considering MDLR, Jagson Airlines and others because their market share is too low for them to bring about
any kind of change in the Indian aviation scene.

The open skies policy introduced by the Government brought such a huge change in the aviation scene that
suddenly everyone wanted to start their own airline. That’s the problem with our country. If there’s an
opportunity to do something, everyone rushes to get into it without even realising if there are any problems or
difficulties associated with it or whether everyone would be really so successful as the others in getting into
that particular field. No one thinks about all this. At one time, phones were a luxury and the rates across the
nation were really expensive. But then there was a plethora of mobile networks which started their operations
and mobile communication rates reached the lowest in the world in India. But everyone started encountering
the message “Is route ki sabhi line vyasth hain (All the lines of these route are blocked” because the networks
were never built to encounter such a huge base of users. The same thing happens with roads, railways,
infrastructure everything in our country. And as we will see, the same happened in the Indian aviation industry.

Jet Airways and Sahara Airlines were the first private airlines to begin their services after the Govt opened the
skies to private players. And lo and behold! Change became the order of the day. People were treated to a
much better and organized service with well groomed crews, better seats, easy options of ticketing and a good
overall feel of being in an aircraft. People started flocking to these airlines like never before. But still the
monopoly of the two – Air India and Indian Airlines remained on the international sector. They also had
slightly cheaper rates than both the private players. In between, a lot of other lines like ModiLuft, East West
Airlines, Vayudoot which had set up shop due to the expected boom in air travel had to close down due to
reasons ranging from the death of the head to total bankruptcy.

Around 2003-2004, another revolution took place in the Indian aviation industry. This revolution was bigger
than any other seen before and definitely bigger than the one in 1991. Simplify Deccan – an airline started by
Captain Gopinath gave birth to the idea of Low Cost Carriers (LCC) or budget airlines as they are called in our
country. He was single handedly responsible for making millions who had not even seen a plane let flown on
it, dream of flying. With prices as low as 1 Rs (dont be fooled!! It doesn’t include taxes – I’ll get to that a little
later”), no food (with the option of buying food at moderate prices – though some like Jet Konnect charge
freaking 120 for a veg sandwich..GOODNESS GRACIOUS!!!!) but ya free water and no magazines or
anything else and last but not the least air hostesses across all flights in skirts which made people all the more
crazy (yeah male stewards are there only on Jet flights mostly). Basically if one doesn’t want to or doesn’t
have the money to spend on other things, he / she can just buy the ticket, board the flight and reach his / her
destination. He doesn’t need to spend money on all other activities. And as usual as things happen in India,
since this model succeeded, even Spice Jet, Indigo and Go Air began their operations on this model. All these
were owned by some industrialist or the other like the Modi family, the Wadia family etc. Suddenly the Indian
aviation industry which had seen bad times during the 2001 WTC attacks started looking up. People were
lining up in hordes to travel on planes like never before.

But then the bubble had to burst someday. With things like SARS, the economic depression, swine flu,
terrorist attacks, the industry went into a tailspin. Something had to be done and fast. After years of serving
millions of customers, Simplifly Deccan became Kingfisher Red and merged with Kingfisher. Kingfisher is
and will always be India’s most luxurious airline. With its amazing service in terms of food, ground services,
baggage handling and the overall feel of the aircraft one surely feels that he / she is in an international airline.
It’s the only airline in the country to have been given a 5 star rating by Skytrax – The best airline rating agency
in the world! The most famous or infamous however you may call it thing about Kingfisher is that it employs
mostly models aged 20 – 25 as its airhostesses. On merging, Kingfisher Red though its still called a LCC,
became a full cost carrier (that’s what I feel..Because one gets low prices on very few seats and those who get
should book 1-2 months earlier!! So its just crazy) just that its prices were lower than Kingfisher. Jet Airways
acquired Sahara (Jet Lite) and Air India merged with Indian Airlines. These steps were taken to prevent any
airline from going bust and keep the Indian aviation industry in the green. But the worst was the merger of Air
India and Indian Airlines. It ended up becoming a clash of people, planes and everything that is Indian. Both
are the worst airlines as I have talked about in one of my earlier blog posts and are milked by every babu for
his gain, have the worst service but still are bailed out. Why were the taxpayer’s billions spent on bailing them
out?? Pathetic! is the word I can say for this. In between all this, Paramount Airways, an airline with a unique
model of providing business class seats with economy class fares with use of Embraer Jets and having no
middle seats was started in Madurai. It positioned itself as a business airline and after capturing a 27% market
share in the South, it moved to the West, then East and is now set to move to the North. Recently it had the
highest on time performance among all airlines. Slowly but surely, it has made a name for itself on the aviation
map of the country.

In the midst of all this, our airport infrastructure has completely collapsed. Be it Mumbai or Delhi or Bangalore
everywhere there are frequent delays running into minutes or hours. As I have always said, when the airports
were built no one ever thought that so many people will fly. But interestingly in the case of the new Bangalore
airport at Devanahalli which was built recently, after a few months the infrastructure developers realised that it
was too small to service the population. God save our country!! One can only hope that GMR Infrastructure
and the other private airport developers do a good job!

This sector is greatly expected to grow as the disposable incomes of the people across the country continue
rising. But most importantly, until the infrastructure issues like the size of the airports, the number of airports,
the ability to handle more no of planes etc are sorted out, we will continue to face the same problems that we
have been facing over the years, day in and day out.

Indian Aviation Sector on an Upward Swing

Posted by danteshwari on 2/11/10 • Categorized as Finance
 There is much economic recovery in the domestic air
flight and has no doubt made a comeback in the year 2009. The overall traffic registered an increase of 7.9% more as
compared to last year. During 2008, air traffic came down by 5% with about 412 lakh domestic flierstraveling by air as
compared to 433 lakh in 2007.

Since July there has been an upward trend and the number of fliers has gone up to 445.1 lakh fliers in the year 2009,
although during the first half there happened to be “double digit fall in percentage. For example, in the month of
December last there was an increase of 33% rise with 44.8 lakh people flying within the country as against 33.7 lakhs
in December 2008.

Kingfisher as well as Jet Airlines have of course been operating their respective fleet with their budget airlines. Market
share of Indigo, Jet life as well as Spicejet, GoAir and JetLite was around 38.5%. This figure has certainly gone up to
55% or 60% or so. This figure is of course after one has added up to the combined share of Jet Konnect as well as
Kingfisher Red which happens to be budget brands of main airlines.

According to the well known travel agent, low fare was the way to survive as well to go ahead. It is very surprising
according to him that Air India decided not to have a low budget airline. Kingfisher lost out to Jet Airways last year,
the latter being Naresh Goyal airline which in 2009 had a market share of 25.4% which has been followed by Vijaya
Malaya’s Kingfisher with a market share of 23.9%. Air-India incidentally finished at 17.5% share placing it in third
position.

Obviously situation is now improving in the Indian aviation sector. Number of fliers are increasing. During the
recession the airlines received much setback. Many had cut costs and even tried to lay off their personnel. Now of
course there is revival and the aviation sector is certainly showing an upward trend.