Rishikesh Ahire Sushil Kadam Vaibhav Pardeshi Mahesh Gitte

AVIATION INDUSTRY
Jet Airways

Content
About Indian Aviation Industry About Jet Airways Market Size, Structure, Growth & Segmentation SWOT Analysis PEST Analysis Porters 5 Forces Model

Introduction to Indian Aviation Sector

Sector structure/Market size

The Indian aviation industry is one of the fastest growing aviation industries in the world
The government's open sky policy has led to many overseas players entering the market and the industry has been growing both in terms of players and number of aircrafts Today, private airlines account for around 75 per cent share of the domestic aviation market.

India is the 9th largest aviation market in the world. According to the Ministry of Civil Aviation, around 29.8 million passengers travelled to/from India during 2008, an increase of 30 per cent on previous year It is predicted that international passengers will grow up to 50 million by 2015 Further, due to enhanced opportunities and international connectivity -Today, 87 foreign airlines fly to and from India and five Indian carriers fly to and from 40 countries.

Growth of Industry

Passengers carried by domestic airlines during January 2012 and corresponding period of previous year thereby registering a growth of 8.06%. Domestic airlines flew 3.67 million passengers in August 2011an increase of 25 per cent. The Centre for Asia Pacific Aviation (CAPA) forecasted that domestic traffic will increase by 25 per cent to 30 per cent till 2012 and international traffic growth by 15 per cent, taking the total market to more than 100 million passengers. The government plans to invest US$ 9 billion to modernise existing airports . The government is also planning to develop around 300 unused airstrips.

Indian Aviation Pros

Strong growth prospects Passenger traffic growth has grown at a CAGR of 16% in India over the past 10 years Relative underpenetrated market Penetration of air travel at <3% is significantly below benchmarks in other markets An opportunity to create India as an hub

An opportunity for foreign airlines to create India as their hub for international traffic between Europe and South East Asia; Additionally offer better connectivity within India with international destinations
An opportunity to create India as an MRO centre

Foreign airlines could also look at leveraging on Indias low-cost arbitrage by setting up MRO facilities in India
Low Valuations

Indian Aviation Cons

Aviation economics are not favorable in India Higher taxes on ATF and airport charges continue to be key headwinds for the sector; besides higher cost base, airlines in India are also mandatorily required to fly on certain unviable routes

Inadequate Infrastructure Development of airport infrastructure has not kept pace with demand, thereby resulting in delays and higher costs for airlines

Poor financial health of most airlines Intense competition, sharp fluctuation in ATF prices and high debt burden continue to weigh on the financial performance of Indian airlines; foreign exchange fluctuation and lack of adequate hedging mechanism (for fuel) have added to the woes

Highly competitive & Price Sensitive traveler base

Highest growth Aviation market in the world

In Aviation Industry Sector India Get 11.5% Of market Growth Compare to World

Introduction of
Parent Company Tailwinds Limited

Category

Indian domestic sector Airlines The Joy of Flying Premium Airline, High Class Passengers preferring comfort Corporate, Upper Middle Class

Sector

Tagline/ Slogan
USP Segment Target Group Positioning

Premium

Some Facts
Details
Founded
Commenced operations Frequent-flyer program Airport lounge Subsidiaries Fleet size Destinations Headquarters Revenue

Information
1 April 1992
5 May 1993 Jet Privilege Jet Lounge Jet Lite 101 (+49 Orders) 76 Mumbai, India Rs. 145,225.80 million (US$2,897.25 million) (2010-11)

Profit
Key people

Rs.858.40 million (US$-17.13 million)

Naresh Goyal, Founder & Chairman , Nikos Kardassis, CEO

Top Players

SWOT Analysis
Strength

Weakness

Has created a good image among the Indian fliers Trusted Airline by the Corporates One of the biggest Indian airline companies with over 13,000 employees Operations in over 75 Indian cities and over 400 daily flights Top of the mind brand due to excellent operations and marketing It also has international destinations in nearly 20 countries

Poor infrastructure at airports. Acute shortage of trained pilots and technicians. Stiff rules and regulations for operation. High operational cost for airlines. High security threats in the subcontinent. Training infrastructure incompatible both in terms of quality and quantity. Presence of other airlines on international routes making it difficult to have significant market share.

Opportunities

Threats

The number of air travelers is about 0.8 per cent of the population India's civil aviation ministry expects 100 million passengers by 2020. India anticipates doubling of passenger traffic over the next decade. Economic Growth Growth in Tourism Currently domestic

Government Regulations; though the govt. is making changes in the regulations, it needs to move at a much faster pace on this. Aviation in India is over regulated and needs to free itself from govt. shackles. Inadequate infrastructure. Acute shortage of Pilots and maintenance engineers. Security and safety. Low profit margins and high operating costs. Other faster means of

PEST Analysis

P
E S

Political

Slow development of new airports No secondary airports. Slow Regulatory Clearances Land acquisition problems. Defence Procurement Procedure Rules Strong Economy but Euro zone crisis/ Double Dip Recession. Aviation Fuel Taxes are highest in the world. High Salaries for Expert Pilots, Cabin Crew salaries for LCA same as full service ones. Aviation Highly vulnerable industry. High Debt around $ 13.5 billion.

Economic

P E S T
Analysi s

Social
Value

conscious traveller Mobile young population. 75% of all passengers travel by low cost airlines.

Technical
Spare

parts manufacturers, manufacturing companies like Tata, L&T, HAL etc. Sub vendor and ancillary factories.

Porters Five forces Analysis

Porter model first detailed in Competitive Strategy by Michael Porter in 1980 To a large extent it applied basic economic concepts like the structureconduct-performance paradigm to general business analysis The aim of the model is to analyze the basic forces that affect industry profitability and provide a guide to successful strategy

Porters Five forces Model

Threat of New Entrants

Power of Buyers

Aviatio n Industr y

Availability of Substitute

Power of Suppliers

Competitiv e Rivalry

Threat of New Entrants

A lucrative industry is always a target for investors looking at investment. One of the foremost factors in consideration while looking at the attractiveness of an industry is the threat of new entrants. In the airlines industry, this was a major threat a few years ago. The airlines operating in the industry were limited and the industry had few players like Indian Airlines and Jet Airways. However, as the industry had scope for accommodating more players many players joined the fray. The airlines industry however comes with its fair share of barriers. The investment in the airlines is very huge and acts as a major barrier to entry. Bundled with it were different permits for running an airline company from the civil aviation company and FDI limits. Factors that can limit the threat of new entrants are known as barriers to entry. Some examples include:

Existing loyalty to major brands

Incentives for using a particular buyer (such as frequent shopper programs) High fixed costs Scarcity of resources High costs of switching companies Government restrictions or legislation

Power of Buyers

This how much pressure customers can place on a business. If one customer has a large enough impact to affect a company's margins and volumes, then the customer hold substantial power. Predominantly, in the airlines industry, it has been seen that the civil aviation ministry has been in favour of the customer and buyers thus have reasonable power. While most airlines companies are running with wafer thin margins, it is pretty difficult for companies to increase prices as the capacity utilization will be seriously affected. Here are a few reasons that customers might have power:

Small number of buyers Purchases large volumes Switching to another (competitive) airline is simple The airline is not extremely important to buyers; they can do without the same brand for a period of time Customers are price sensitive

Power of Suppliers

This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company's margins and volumes, then it holds substantial power. In the airlines company there is certain amount of bargaining power the suppliers have. Firstly, suppliers in the form of aircraft builders, who very often exceed the time limits. Adding to it are suppliers of oil who hold the key to running of the airlines. Here are a few other reasons that suppliers might have power

There are very few suppliers of a particular product There are no substitutes Switching to another (competitive) product is very costly The product is extremely important to buyers - can't do without it The supplying industry has a higher profitability than the buying industry Fuel accounts for nearly 35% of the total cost and the cost of fuel is increasing rapidly posing a threat to the companys profits.

Availability of Substitute

Product for product substitution

Consumers has various options in terms of airlines to choose from. They may also switch to other modes of transport such as road and rail.

Substitution for need

With the advent of technology options such as video conferencing and conference calls reduces the need to travel thus the option of substitution of need in present but it is marginal as it is not possible to totally do away with traveling.

What is the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses a serious threat. Most airline companies have similar facilities and are listed on website such as makemytrip.com, yatra.com where customers choose from the cheapest available tickets. This shows that the customer has a lot of options and would not mind shifting to a new service. Here are a few factors that can affect the threat of substitutes:

The main issue is the similarity of substitutes. All low cost airlines have similar facilities. If substitutes are similar, it can be viewed in the same light as a new entrants

Competitive Rivalry

The competition in the industry in high but the intensity of the competition has been reduced as it is an expanding market. This describes the intensity of competition between existing firms in an industry. Highly competitive industries generally earn low returns because the cost of competition is high . The competition in the airline industry is cutthroat and each player is trying to gain an upper-hand based on non price factors. A highly competitive market might result from: Many players of about the same size; there is no dominant firm Little differentiation between competitors products and services A mature industry with very little growth; companies can only grow by stealing customers away from company.

Conclusion

5 forces of Porters Model are strong in the aviation industry i.e. Bargaining Power of Suppliers , Bargaining Power of Customers , Substitutes and Intensity of competition are strong . Hence we can conclude that Indian Aviation sector is highly unattractive to compete.