v 2.0 / 1.7.

2008

Indian Institute of Management Bangalore

The Indian Airline Industry in 2008

By

Rishikesha T. Krishnan
Professor of Corporate Strategy & Policy

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The Indian Airline Industry in 2008 1

A 19% hike in the price of Aviation Turbine Fuel (ATF) announced by Indias oil companies at the end
of May 2008 jolted the Indian airline industry. With this hike, ATF prices had roughly doubled in a
year, and tripled in four years. A concerned Civil Aviation Minister, Praful Patel, rushed to the
Finance Minister seeking his support to prevent the industry from turning sick losses of the airlines
in 2007-08 were of the order of Rs. 40 billion and were predicted by some analysts to reach twice
that level in 2008 -09. Yet, just three years earlier, the ind ustry was seen as a sunshine industry that
would march in step with Indias economic growth. While individual airlines debated their survival
strategies, observers wondered how things could have gone wrong so fast.

History of the Indian Airline Industry

At the time of Indias independence from the British in 1947, several small airlines operated in the
country. Soon, however, in 1953, the government of India decided to guide the orderly growth and
evolution of the industry by creating two state-owned national carriers Air India (for international
travel) and Indian Airlines (for domestic travel). Existing carriers (many of which were making losses)
were folded into these airlines. In a country of Indias size and diverse topological features, air travel
was expected to be an important mode of travel.
The Monopoly Era
Air India and Indian Airlines retained a monopoly over civil aviation in India till 1992. During this time
they grew steadily but slowly. Air travel was patronised by the government, business, and rich
individuals and otherwise seen as a luxury, with the masses travelling by train or bus.
Till the 1970s, Air India had the reputation of a boutique airline, with gracious Indian service. But it
was unable to sustain this image as it slowly adopted many of the insensitivities of Indian public
sector enterprises and appeared to be driven more by the priorities of its large workforce than its
paying customers.
While Indian Airlines took pride from the fact that it had created a domestic network spanning the
length and breadth of the country, it was known for its delayed flights, indifferent service, patchy
safety record, and high fares. Both Air India and Indian Airlines were dogged by political interference
1

(c) 2008. This case has been written by Prof. Rishikesha T. Krishnan, Indian Institute of Management
Bangalore, based on publicly available information. The focus of this case is on the domestic airline industry in
India. The author acknowledges with thanks the assistance provided by Ms. S. Krithika and the participants of
the Murugappa Group Business Leadership Programme (2008) in collecting data for this case. The author
acknowledges with thanks the perceptive comments of an industry stalwart who prefers to remain
anonymous. This case may not be reproduced or distributed without the permission of the author. He may be
contacted at +91 98450 22710 or at rishi@iimb.ernet.in

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in matters such as fleet purchase decisions, route selection, appointment of chief executive officers,
appointment of General Sales Agents, postings of employees, and recruitment of employees. Two
clear instances of such interference were the purchase of A-310 aircraft by Air India in the mid-1980s
(these aircraft did not even meet the basic operational requirements of the airline) and the
extended grounding of newly-purchased A-320 aircraft of Indian Airlines (after an accident) by the
Minister of Civil Aviation in 1990 that almost resulted in the airline going bankrupt.
Opening up of the Aviation Sector
The deregulation of the Indian economy that started in the mid-1980s, and proceeded more
aggressively after the New Economic Policy in 1991, led to calls for opening up of the airline sector.
The government responded by first allowing the operation of Air Taxi services, and, in 1994, the
operation of scheduled air services.
Over the following years, several new airlines including Damania, EastWest, Jet, Sahara, Modiluft
and NEPC started operations. Though the airline industry is known to be highly capital-intensive,
these airlines were not started by Indias large and well- established industrial houses like the Tatas
or Birlas but by lesser-known entrepreneurs. For example, the founders of EastWest and Jet came
from the travel trade, while the founders of Sahara had made their money in financial services.
At first, the regulatory structure for new airlines lacked clarity, and the industry evolved in the
shadow of the domestic leader, Indian Airlines. The new airlines had to draw upon either foreign
airlines and aviation support companies or former employees of the national carriers for industry
specific expertise.
The new entrants started small with a few leased aircraft apiece, but charted different strategies.
Damania positioned itself as a luxury airline with on-board entertainment such as fashion shows.
EastWest tried to grow aggressively and had the most ambitious fleet expansion strategy. Jet
established a reputation for punctuality and good service, and rapidly became the preferred airline
of the business sector. With its base in Lucknow, Sahara offered excellent connectivity to a part of
the country that was historically under-served. Modiluft sought to exploit a technical tie-up with
Lufthansa by projecting itself as a safe and reliable airline.
The Shakeout
The provision of additional capacity by the new airlines helped address latent demand that had not
been served by Indian Airlines and the new carriers were able to quickly get a share of the market.
By March 1994, they accounted for 24% of the overall market and as much as 44% of the main trunk
routes. i However, they struggled to be profitable.
High fuel costs (as of mid -1995, domestic airlines operating in India had to pay $1.70 per gallon of
Aviation Turbine Fuel (ATF) compared to an international price of around $0.60 per gallon)ii, poor
infrastructure, and a regulation that required them to fly on routes to distant parts of the country as
well as on non-trunk routes (see Exhibit 1) threatened their financial viability. Under-capitalisation,
poor management, failure to build a network that could exploit economies of scale and scope, poor
cost economies, and overall high fare levels that suppressed demand spelt trouble for the fledgling
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airline industry. iii One airline was even believed to have diverted funds raised from an equity issue to
other businesses of its promoter and was accused of gross financial mismanagement leading to the
abrupt withdrawal of its technical partner from their alliance. iv
By 1997, Damania, Modiluft, and NEPC were forced to suspend services, while EastWests demise
was hastened by the murder of one of its founders in broad daylight in Bombay city. Jet and Sahara
were thus the only survivors of the first phase of liberalisation of the Indian domestic airline
industry.
The survival of Jet Airways was attributed to its good financial planning and the involvement of
airline industry veterans (including several expatriates) in its management since inception.v Jet also
benefited from the distribution network of its parent company that had been the General Sales
Agent in India for many foreign airlines. Such relationships with foreign airlines helped Jet forge
interline arrangements with many of the worlds leading airlines. The expansion of Jets route
network also enabled it to offer broad connectivity.
The entry of private airlines did have one silver lining - the service offered by Indian Airlines
improved as it confronted competition for the first time. Indian Airlines also launched a frequent
flyer programme at this time and this was rapidly emulated by the private players. vi Indian Airlines
spun-off its Boeing-737 aircraft into a separate subsidiary Alliance Air that covered regional
routes. The creation of Alliance Air allowed Indian Airlines to take back into its fold pilots who had
left the airline for the private sector and wanted to return following the collapse of the private
airlines.
The rapid growth and decline of the Indian airline industry led to several changes in regulatory policy
including regulations on the minimum size of an airline (5 aircraft). However, somewhat contrarily,
the policy also forbade equity investment by foreign airlines in domestic carriers though foreign
investment by non-airline entities was allowed up to 49%, and by non-resident Indians up to 100%.
This policy was the outcome of the governments reaction to the proposed entry of a joint venture
between the Tatas and Singapore Airlines in the domestic airline business and was widely seen as a
move to protect the interests of Indian Airlines. vii Media reports suggested that the owners of Jet
and Sahara were equally keen to keep the Tata-Singapore Airlines venture out of the industry.
In the face of the quick demise of many of the early private airlines and the governments refusal to
allow the entry of the Tata-SIA combine into civil aviation, fresh entry into the airline industry
stopped for some time. Jet strengthened its position as the airline for the business community
considerably during this period. 80% of its passengers were business passengersviii who chose the
airline for its punctuality and excellent service 95% of Jets passengers gave it a rating of Good or
Excellent. ix Jet, Sahara, and Indian Airlines shared the market between themselves with market
shares of 46%, 9% and 40% respectively in the year-ending March 31, 2003. x

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The Emergence of a New Indian Airline Industry

The steady growth of the Indian economy after liberalisation at a compounded annual growth rate
exceeding 6% increased the size of the economy, and hence demand for both business and leisure
travel. The emergence of a new Indian middle class was a well-documented and internationallyrecognised phenomenon. Besides, the number of air travellers and per capita use of airline services
in China were about eight times that of India. xi
Sensing opportunity, a new phase of development of the Indian airline industry kicked off in 2003
with the entry of new players into the airline industry. In spite of the fact that several costs of
operating an airline were fixed irrespective of business model (one estimate put the proportion as
high as 80%), most of the new entrants chose to use low fares as their main competitive weapon and
hoped to create low-cost operations to make these low fares viable.

Air Deccan
Leading the pack was Captain Gopinaths Air Deccan that promised to revolutionise air travel by
allowing everyone to fly by offering hitherto unheard of fares. Gopinath was a serial entrepreneur
who had earlier been a commissioned officer in the Indian army. After discharge from the army he
took up the challenge of farming barren land given to his family as compensation for land that had
been submerged due to a dam project. Since it proved to be difficult to grow conventional crops in
this land, Gopinath finally turned to sericulture and developed environmentally-friendly and
innovative ways of cultivating silk worms. He won the Rolex Challenge award for his work, and his
farm became a destination for governments and NGOs seeking innovations in farming. Gopinath
entered the aviation business as a response to a pilot friend who did not have a job as he felt that
there was good scope for a charter company in India given the distances and the economic
development taking place. He started Deccan Aviation in 1997 providing chartered helicopter and
small aircraft across India.
Many times people would approach Gopinath (at Deccan Aviation) to travel to smaller towns but
back away when they found out the price of the cha rter. He saw tremendous potential for aviation
in India if flying could be brought down to a reasonable price (everyone can fly). Inspired by the
low-cost airline model pioneered by Southwest Airlines in the United States (see Exhibit 2 for the
Southwest model) and later emulated by other successful carriers such as JetBlue and RyanAir, Air
Deccan sought to cut the frills out of airline operations and pass on the benefit to customers.
Starting in August 2003 with turboprop aircraft that connected small towns to large cities, Air
Deccan soon expanded to Airbus A-320 jet operations connecting major cities. Air Deccan offered a
single class point-to-point service, did not serve free meals or even free water on its flights, sold all
tickets only through the internet or its call centre, did not pay commissions or give credit to travel
agents (thereby avoiding the expensive process of managing credit and reconciliation with the travel
trade), had limited staff, and outsourced as many operations as possible. To reach more customers,
Air Deccan created a new network of travel intermediaries who would sell their tickets. The airline
also tied up with a major oil company and the Department of Posts (Post Offices) to enhance reach.
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Air Deccan adopted as its icon the common man made famous by cartoonist R.K. Laxman (see
Exhibit 3).
While Air Deccan was able to capture the imagination of the public and demand grew rapidly for its
services thanks to its throwaway fares, the airline itself was plagued by operational problems as it
sought to aggressively expand its network and fleet size. In the process, it developed a reputation for
delays, poor service and lack of reliability.
While the established players Indian Airlines, Jet and Sahara - initially ignored Air Deccan, the
obvious demand for air travel at lower fares and the urge to fill vacant seats prompted them to start
discounting fares as well. This took the form of a limited number of seats sold at lower prices (apex
fares) if purchased 7, 15 or 21 days in advance with substantial penalties for cancellation. Later, as
other low-cost carriers entered the airline industry, discounting without the pre-purchase
requirements of the Apex fares became the norm.
By September 2007, Air Deccan had reached a fleet size of 40 aircraft (10 ATR-42, 8 ATR-72, and 22
A-320 aircraft). It had achieved some success in connecting distant places it was the only carrier
offering service to twelve of its destinations, and one of only two carriers offering services to six
others. xii Air Deccan had 75 aircraft on order for delivery by December 2012.
Other Low -cost Airlines
Air Deccans growth in the Indian aviation sector induced other players to enter as well. Two of the
new entrants SpiceJet and IndiGo followed the classical low-cost airline model of very
competitive fares, a single type of aircraft and a single class of service, point -to-point operations,
quick turnarounds, no frills, and internet-based ticketing.
Launched in May 2005 by NRI investors and Indian entrepreneurs with operating experience,
SpiceJet built its operating model around the new generation Boeing 737s, the workhorse of
Southwest Airlines. SpiceJet was focused on twin pillars of cost control and growing its ancillary
revenue. It used partnerships with global leaders in their respective fields to enhance safety and
reliability. It also made significant investments in information technology to provide a backbone for
operational effectiveness. These approaches resulted in SpiceJet achieving the lowest costs in the
industry (Rs. 2.65/Available Seat Kilometre (ASKM) in 2008) and a flight dispatch reliability exceeding
99.5%. Some analysts believed that SpiceJets efficiency was comparable to that of the legendary
low-cost airlines an ICICIDirect report in 2007 placed SpiceJets operating cost (excluding lease
rentals) per ASKM at Rs. 2.15 compared to Rs. 2.21 for Southwest Airlines.
SpiceJet had 5 aircraft in its fleet at the end of the first year of operations, and had ramped up to 18
aircraft covering 17 destinations and 117 flights daily by May 2008. SpiceJet had another 30 aircraft
on order for delivery between 2008 and 2011.
IndiGo launched a year later than SpiceJet but followed a similar business model except that it was
based on the A-320 aircraft. IndiGo made the headlines when it announced an order for 100 A-320
aircraft soon after its inception. IndiGo was started by NRI investors with significant airline
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experience including Rakesh Gangwal, former CEO of US Air. By April 2008, IndiGo was operating 17
aircraft out of the 100 ordered and flew to 17 destinations.
Kingfisher, Paramount, and GoAir
Three other airlines Kingfisher, Paramount, and GoAir - started by prominent industrial houses
followed diverse approaches to the airline business.
Kingfisher Airlines started by flamboyant beer baron Vijay Mallya in May 2005 shared the name of
Indias leading beer brand. Though originally conceived and announced as a value carrier,
Kingfisher rapidly morphed into a full-service airline more in keeping with Mallyas style and went
head-on at Jet Airways. By September 2007, Kingfisher had 34 aircraft in its fleet (4 A-319, 12 A-320,
6 A-321, 12 ATR-72) and served 34 destinations. The airline had 51 A-320 family aircraft on order for
delivery by 2014, 35 ATR aircraft on order for delivery between 2006 and 2010, and 50 wide-bodied
aircraft (including the A-380) on order for delivery between 2008 and 2018 for a planned
international expansion. More details of Kingfishers strategy are in the Competitive Dynamics
section that follows.
Paramount Airways was launched in September 2005 by the young scion of the Loyal Textiles group
in south India as a business class-only airline at economy class prices. After some experimentation
with cross-country routes, Paramount settled into a regional presence with its Embraer -170 jet
aircraft connecting all the major business locations of south India and soon grew to a strong position
with an estimated regional market share of 26%. (The Embraer-170 aircraft is a smaller aircraft than
the B-737 or A-320 and offers the benefit of jet travel but with smaller break-even loads. )
Paramount also launched a Paramount First class on some of its routes. By April 2008, Pa ramounts
fleet consisted of five aircraft and it served 8 destinations, all in South India. Paramounts expansion
plans included having 40 aircraft by 2010 and moves into western and northern India. xiii
The Wadias of Bombay Dyeing started GoAir as a low -cost carrier in November 2005. Unlike the
steady expansion of other similar carriers, GoAir adopted a dynamic fleet strategy under which
they inducted aircraft in peak season (winter months) and returned aircraft to the lessors in the lean
season. Having started with seven A-320 aircraft, GoAir had reduced its fleet size to five by March
2007. GoAirs market share remained less than 5%. However, GoAir had announced long-term plans
of increasing its fleet strength to 18 by 2009 and 24 by 2011.
For a comparison of the financial performance of different airlines in India in 2005-06 and 2006-07,
see Exhibit 4.
Competitive Dynamics
The rapid entry of new players into the Indian Airline industry changed its competitive dynamics. On
the one hand, the low fares of the low -cost players changed the growth dynamics of the industry
(see Exhibit 5 for growth of domestic air traffic in a historical perspective ). On trunk routes such as
Mumbai-Delhi or Delhi-Bangalore, the fares of these airlines were close to the fares of airconditioned rail travel, yet air travel offered significant time advantages for instance, travel from
Delhi to Bangalore by air took only 2.5 hours against more than 30 hours by train.
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On the other hand, since airlines had an expensive fixed asset (a new Airbus A-320 had a list price in
excess of US $70 million) and a perishable commodity (each seat on a given flight), they strove to fill
their seats by offering attractive deals such as special fares of Rupee 1 or Rupees 99 per passenger
for a seat that had cost passengers more than Rs. 10,000 in the past. Full service airlines were forced
to drop fares as well (and remove the restrictions that they had in the earlier apex fares) though
their minimum fares tended to be still higher than those offered by the low-cost carriers (See
Exhibit 6). By 2008, full-service carriers such as Jet Airways reported that three-fourths of their seats
were being sold at discounted fares and only one -fourth at full fares; just three years earlier this
ratio was 35:65. xiv
These low fares attracted leisure travellers to fly by air. The overall growth rate of the market was
about three times faster than the growth in business travellers. The proportion of business travellers
on full-service carriers such as Jet Airways came down to about two-thirds. xv
All airlines used revenue management systems to dynamically vary their fares according to supply
and demand, and to manage yield with the objective of achieving profitability. However, their
systems varied in sophistication.
For the traveller, comparison shopping was made easy by the emergence of specialised travel
portals such as makemytrip.com, and indiatimes.com that allowed customers to see all air travel
options on a single screen and choose between them. In parallel with the growth of e-commerce in
ticket purchase, the importance of travel agents declined. However, full-service airlines were still
dependent on travel agents e.g. 77% of Kingfishers sales were through travel agents and only 10%
through direct web purchase xvi while low cost carriers like Deccan sold 40% of their tickets through
direct internet purchase and only 44% through travel agents. xvii
Airlines sought to build strong relationships with the manufacturers of aircraft so as to get the best
possible terms and support (see Exhibit 7).
Besides connecting hitherto unconnected towns to bigger cities, the low-cost airlines created a
number of direct connections between city pairs that were earlier connected only through hub and
spoke networks of full-service carriers. For example, Deccan started direct flights from Bangalore to
Nagpur and Bangalore to Bhubaneswar whereas passengers had earlier to make such trips through
Mumbai and Kolkata respectively.
Low-cost carriers sought to supplement their revenue streams by advertising (in its early years, Air
Deccan carried advertisements even on the fuselage), sale of food on board, and selling other
services (e.g. insurance).
In the full-service airline category, competition took on several new dimensions. Kingfisher Airlines
introduced leather seats, in-flight entertainment wit h live television, gourmet meals, and a luxurious
Kingfisher First for its business travellers on board its fleet of new A-320 aircraft, and valet services
on the ground. It addressed its customers as guests rather than passengers and sought to build a
service-oriented company culture. Chairman Vijay Mallya promised to look personally into any
service complaints. By December 2007, Kingfisher had received 17 national and international
awards. xviii
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Kingfisher Airlines secured access to the relatively under-utilised departure terminals of Indian
Airlines in Delhi and Mumbai, thereby avoiding jostling for space with all the other private airlines. It
advertised aggressively and sponsored major sporting events. It specifically targeted the mosttravelled frequent flyer s of Jet Airways (passengers who had travelled more than 100,000 miles in
the previous year) by giving them a Mega Mile Move offer to transfer their frequent flyer miles to
Kingfisher (see Exhibit 8). It launched a major campaign to capture corporate accounts by targeting
large travel agents and big corporate houses with special deals.
Jet Airways was initially slow to respond to the rapid transformation of Kingfisher into a full-service
carrier. However, Kingfishers growth in share on major routes and its rapid expansion of fleet did
eventually elicit a response from Jet. Over a period of 12 -18 months, Jet sought to retain frequent
flyer s by making its frequent flyer programme more attractive (a special triple-mile offer followed by
establishment of frequent flyer exchange relationships with an increasing number of international
airlines, hotel chains and car rental agencies), installation of in-flight entertainment (IFE) systems on
new aircraft (retrofitting of IFE systems on existing aircraft was considered too expensive), removal
of a row of seats to improve leg space in its Premiere (business) class, modification of the Jet Airways
logo to give it a more contemporary look, and new uniforms for crew and ground staff. However,
Kingfisher sought to take credit for these changes (see Exhibit 9).
With only a fourth of the international air traffic from India being handled by Indian carriers, xix and
the government agreeing to allow private airlines to use the routes/capacity not used by Air India
and Indian Airlines, Jet had, in 2004, seen an opportunity to extend its strong domestic competitive
position to international markets. With the increased competition in the domestic market, Jet
intensified its efforts to take advantage of the deregulation of international air traffic and the Open
Skies policies of several countries to rapidly expand its international footprint; rival Kingfisher could
not expand internationally as it did not meet the Indian Civil Aviation Ministrys pre-requisite of five
years commercial operation. Between 2006 and 2008, Jet Airways international footprint expanded
to the United Kingdom, United States, Continental Europe (Brussels), South East Asia, the Persian
Gulf and China apart from existing services to neighbouring Nepal, Sri Lanka and Bangladesh.
However, the cost of establishing operations to new destinations at a rapid pace put some strain on
Jets finances as well as organisational capabilities. By December 2007, Jets international operations
accounted for 37% of itsrevenue and this proportion was expected to rise to 50% by 2009-10.
Jet hoped to leverage its advantages such as the ability to provide end-to-end travel solutions for
customers, its domestic and international network, code-share agreements with leading
international airlines, strong frequent flyer programme, e-commerce innovations and highly trained,
service-oriented personnel to (1) sustain market leadership in domestic operations; (2) build
domestic and international as equally strong pillars; (3) maintain product and service excellence; (4)
achieve profitable growth; and (5) operate a young and modern fleet. xx
Barriers to Further Growth
Looking forward, further growth of the airline industry was threatened by several speed bumps.
Airport landing and navigation charges at Indian airports were 50% higher than international
benchmarks (though ATR aircraft were exempted from such charges), and amongst the highest in
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the world. But these higher charges did not translate into superior infrastructure. On the contrary,
the increased air traffic between major airports resulted in congestion in the air and on the ground.
It was not unusual to find aircraft circling over major cities for 30-45 minutes awaiting clearance to
land. Overnight parking bays on the ground were scarce as well. These infrastructure constraints
resulted in delays and inconvenience to passengers as also consumption of extra fuel, reduced
availability of aircraft for operation, and additional crew hours/costs. To cover these additional
costs, from December 1, 2006, airlines (except Indian Airlines/Air India) started adding a separate
fixed congestion surcharge of Rs. 150 to the price of each ticket they sold. In addition, airport
terminals burst at their seams, and passengers had to check in well in advance so as to negotiate the
serpentine queues for check-in and security clearance.
Operationalisation of the second runway at Indias second busiest airport at Delhi (and the
construction of a third runway), greenfield airports at Hyderabad (started operations in March 2008)
and Bangalore (May 2008), modernisation and privatisation of Delhi and Mumbai airports, and
upgradation of Chennai and Kolkata airports were expected to address some of the infrastructural
bottlenecks. However, lack of space to build an independent second runway at Mumbai (Indias
busiest airport) and restricted availability of airspace for civil aviation meant that several problems
would continue indefinitely.
In the United States, low-cost airlines often operated from small airports that charged lower fees
and that did not suffer from the congestion at large airports. In India, however, government policy
did not allow the creation of airports closer than 150 km from each other, and the old airports at
Bangalore and Hyderabad were closed down when the new ones were started.
While government -run airports charged passengers on domestic routes an Inland Air Transport Tax
of Rs. 225 per passenger per flight, the new private airports at Bangalore and Hyderabad planned to
charge a much higher user fee. The new Bangalore International Airport started charging
international passengers a fee of Rs. 1070 per passenger per flight and was keen to extend this fee
to domestic passengers as well. However, the government had put such a levy on hold and planned
to create an Airport Regulatory Authority to oversee the levy of such charges.
The main suppliers of Aviation Turbine Fuel (ATF) to airlines in India were three public sector oil
companies that dominate d the Indian petroleum sector. While the prices of most of their products
(petrol, diesel, kerosene, cooking gas) were controlled and subsidised by the government, ATF was
sold at international market prices plus additional transportation and marketing margins
(approximately 20-25%). Further, most state governments tax ed ATF at high rates (sometimes as
much as 34%) as they saw aviation as a luxury industry. As a result, ATF prices in India were
estimated to be about 70% higher than international benchmarks. Domestic airlines were not
allowed to hedge their fuel costs. The take-off of the Indian airline industry coincided with a spurt in
fuel prices originally induced by the US presence in Iraq, but reinforced by worldwide shortage of
refining capacity and a sharp increase in fuel consumption in China and India. To cover the increasing
costs of fuel, from May 2006 airlines started adding a fixed fuel surcharge to the price of each ticket
sold. By June 2008, the fuel surcharge had risen to Rs. 2,250 for each ticket for a distance of less than
750 km and Rs. 2,900 for each ticket for a distance of more than 750 km. As a result the total taxes
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and surcharges payable on each ticket rose to Rs. 2,625 or Rs. 3,275 depending on the distance
flown.
New airlines also found qualified people in short supply. Specialist roles that need prior certification
such as pilots and maintenance engineers were particularly difficult to fill and airlines were forced to
hire expatriate pilots at higher salaries to tide over the shortage.

Restructuring of the Industry

The rapid increase in costs combined with competitive pressures to keep fares low threatened the
survival of relatively less efficient airlines. At the same time, leadership in terms of size (see Exhibit
10 for evolution of fleet size) and market share (see Exhibit 11 for changes in domestic airline market
shares over time) emerged as a quest of some of the industrys important personalities. These
developments spurred consolidation initiatives.
The first of these was the takeover of Sahara by Jet Airways. This acquisition gave Jet access to
Saharas fleet of Boeing 737 and CRJ aircraft, and, more importantly, Saharas parking slots in major
Indian airports. Though the deal was announced in early 2006, Jet completed acquisition of Sahara in
April 2007 and decided to run the airline as a value carrier subsidiary under the brand name JetLite.
Post-acquisition, Jet found that JetLites aircraft were in poor shape and needed considerable
attention and investment to be brought up to efficient performance standards. (The process of
restoring Saharas aircraft to operational readiness was still going on as of April 2008). Over time,
they hoped to bring about a high degree of operational synergy between the two airlines. Soon after
the takeover, Saharas frequent flyer programme was closed and all its members transferred to the
Jet Privilege programme of Jet. Flights on JetLite were eligible for mileage points on Jet Privilege.
An even bigger acquisition was to follow in mid-2007, Kingfisher acquired a controlling stake in Air
Deccan. Kingfisher justified the acquisition based on synergies in aircraft maintenance, and spares
since Air Deccan and Kingfisher both had fleets of the same types of aircraft (A -320 jets and ATR
turboprop). Other shared services would include sales and marketing, ground handling, engineering
services, customer service, and training. Over time, Kingfisher hoped to mesh routes and
frequencies through combined strengths of network reach, connections, frequencies, and
infrastructure. xxi
Since Deccan would be eligible to fly on international routes by August 2008, Kingfisher planned to
use the Deccan brand to enter international routes in case it was unable to get the policy requiring
five years of prior operating experience changed.
Following the takeover of Deccan, it was re-christened as Simplifly Deccan, and Deccans aircraft
were re-painted in the distinctive red and white livery of Kingfisher at a reported cost of Rs. 600
million. Ground handling equipment and buses reflected both the Kingfisher and Deccan brand
names (See Exhibit 12 for a comparison between the old and new livery and uniforms of Deccan).
Following the takeover, Deccan served free water on board, operations were streamlined, and
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Deccans prices increased. (Capt. Gopinath decided to leave the company and start a new cargo
airline.)
Kingfisher Airlines saw its strengths as its emphasis on aviation hospitality including a distinctive
Kingfisher First business class and its association with the Kingfisher brand. It saw the Kingfisher
brand as a symbol of the aspirational, upwardly mobile culture of Indias growing higher income
groups.xxii It planned to expand its range of customer service offerings, increase its fleet size and
number of flights per day in the domestic market, operate flights to international destinations, and
leverage the Kingfisher brand in order to strengthen customer loyalty and be perceived as a brand
in the airline industry and not just another airline. Deccan planned to use its reputation as the
pioneer of low-cost air travel in India, a diversified network, and a simplification of its operations to
reduce costs and keep services affordable to attract high volumes of passengers flying point-t o-point
routes, both between major cities, and to and from regional locations. xxiii
The third major consolidation was the merger of the two national carriers Indian Airlines and Air
India into a single national entity under the corporate name of National Aviation Company of India
and the brand name of Air India. This move was first mooted several years earlier, but was
ultimately consummated only in 2007. Shortly before the official approval of the merger, the boards
of Indian Airlines and Air India approved major fleet expansion plans that would result in a complete
overhaul of their respective fleets.
With no major new carrier having entered the airline industry since 2006 (partly due to the intense
competition in the industry, and partly due to the reluctance of the government to allow more
airlines to jostle for an already congested air infrastructure), consolidation was expected to help the
long-term sustainability of the airline business.

State of the Industry as of May 2008

Notwithstanding the consolida tion moves, it was clear by May 2008 that the Indian Airline industry
was in serious trouble. Growth in demand that had been averaging 26% in the preceding three years
had dropped to below 20% in the current year. There were hardly any instances of airlines reporting
quarterly profits, and even the profits reported were often the result of sale and leaseback
transactions related to aircraft or sale of delivery positions for new aircraft.
Kingfisher and Deccan were reported to be losing more than Rs. 30 million a day. Jet Airways
reported a loss for the Oct-Dec 2007 quarter and its results for the year-ended March 2008 were
expected to indicate a worsening of the trend. (See Exhibits 13-18 for airlines financial and
operational performance). GoAir, IndiGo, and Paramount were not listed on an Indian stock
exchange and hence did not have to disclose earnings, but were believed to be losing money as well.
The sharp increase in fuel prices at the end of May 2008 was expected to further accelerate the
downturn in performance. Could the airlines do anything to prevent a repeat of the first phase of
private entry that ended in disaster for most of the airlines?
12

v 2.0 / 1.7.2008

Exhibit 1
Route Dispersal Guidelines
An airline providing scheduled services on domestic sectors in India is required to comply with Route
Dispersal Guidelines as formulated by the Government in March 1994. These guidelines provide for
the following categories of routes:
Category I
Twelve city pairs: Mumbai -Bangalore, Mumbai-Kolkata, Mumbai -Delhi, Mumbai-Hyderabad,
Mumbai-Chennai, Mumbai-Thiruvananthapuram, Kolkata-Delhi, Kolkata -Bangalore, Kolkata-Chennai,
Delhi-Bangalore, Delhi -Hyderabad, Delhi-Chennai.
Category II
Routes connecting the North East, Jammu & Kashmir, Andaman & Nicobar Islands, and Lakshadweep
with cities in Category I and Category III routes.
Category IIA
City pairs within the North East, Jammu & Kashmir, Andaman & Nicobar Islands, and Lakshadweep.
Category III
Any city pair that does not fall in Categories I, II and IIA.
According to the Route Dispersal Guidelines, scheduled domestic airlines must deploy their capacity
as follows:

On Category II routes, 10% of the capacity on Category I units.

On Category IIA routes, 10% of the capacity on Category II routes (which is aggregated for
meeting the requirement of Category II)

On Category III routes, 50% of the capacity on Category I routes.

The Director General of Civil Aviation (DGCA) monitors compliance with these guidelines on a weekly
basis. Compliance with these guidelines is a pre-condition for renewal of an airlines operating
permit. In the event of non-compliance, DGCA requires an airline to make up any shortfall in the
subsequent period. Failure to comply with these guidelines will lead to restrictions being imposed
on the capacity deployed on Category I routes.
Source: UB Holdings Ltd. Prospectus, December 2007, p. 187.

13

v 2.0 / 1.7.2008

Exhibit 2
Southwest Airlines Activity Chart

Exhibit 3
Air Deccans Icon: The Common Man

14

v 2.0 / 1.7.2008

Exhibit 4
Financial Summary of Scheduled Indian Carriers during 2005-06 & 2006-07 (Rs. Million)
Airline

2005-06

2006-07

Operating
Revenue

Operating
Expenses

Operating
Result

Operating
Revenue

Operating
Expenses

Operating
Result

AIR INDIA

88337.1

92333.0

-3995.9

84388.6

96658.9

-12270.3

AIR INDIA
EXPRESS

4323.8

4275.4

48.4

7794.0

7629.0

165.0

INDIAN
AIRLINES

57660.1

56902

758.1

59862.7

73704.3

-13841.6

ALLIANCE AIR

5533.4

5971.2

-437.8

3802.7

4660.6

-857.9

TOTAL (PUBLIC
SECTOR
AIRLINES)

155854.4

159481.6

-3627.2

155848.0

182652.8

-26804.8

JET AIRWAYS

56960.6

51573.0

5387.6

70578.0

71098.2

-520.2

SAHARA
AIRLINES

20617.2

21212.1

-594.9

20153.3

25715.4

-5562.1

AIR DECCAN

13518.1

16741.4

-3223.3

21423.0

24960.7

-3537.7

PARAMOUNT
AIRWAYS

144.2

321.9

-177.7

2549.8

2306.6

243.2

SPICEJET

3418.6

3903.9

-485.3

7574.4

9241.0

-1666.6

10

KINGFISHER

4250.1

6587.8

-2337.7

15084.6

20415.3

-5330.7

11

GO AIR

384.0

968.0

-584.0

3482.6

5634.6

-2152.0

12

INDIGO

2162.8

3904.2

-1741.3

143008.5

163276.0

-20267.4

TOTAL
(PRIVATE)

99292.8

101308.1

-2015.3

Source: Compiled by DGCA from ICAO ATR Form EF furnished by scheduled Indian carriers
15

v 2.0 / 1.7.2008

Exhibit 5
Capacity and Demand for Air Services on Indian Domestic Routes
S. No.

Year

Scheduled
domestic
passengers
carried (,00,000)

Available
seat
Kilometres
on
scheduled
domestic services

Revenue
Passenger
Kilometres
on
Domestic Servi ces

(million)

(million)

1996-97

117.0

14812

9810

1997-98

115.5

16454

10599

1998-99

120.2

17932

10827

1999-00

127.1

19089

11419

2000-01

137.1

19897

12283

2001-02

128.5

20850

11574

2002-03

139.5

22833

12848

2003-04

156.8

24936

14566

2004-05

194.5

27790

18031

10

2005-06

252.0

35077

23709

11.

2006-07

357.9

48702

33519

12.

Calendar 2007

420.9

Source: DGCA

16

v 2.0 / 1.7.2008

Exhibit 6
Comparative Fares on a Select
Sector

Search for fare options on a

Bangalore-Delhi flight for June 10,
2008 yielded the results shown
here. The prices shown do not
include surcharges and taxes.
The full fare in economy class
quoted by Jet Airways for the same
day was Rs. 13,285 + surcharges &
taxes.
Options
generated
using
www.makemytrip.com on June 4,
2008.

17

v 2.0 / 1.7.2008

Exhibit 7
Airlines & the Aircraft Manufacturing Industry
Airlines purchased new aircraft typically from either Airbus Industrie (a European consortium of
aircraft companies strongly supported by the French and German governments) or Boeing (an
American aircraft manufacturer). As there were significant cost advantages in having a standard
fleet, airlines tended to be loyal to a manufacturer for a particular category of aircraft. Both Airbus
and Boeing offered families of aircraft with different seating capacities but common cockpit systems
that facilitated pilot and engineer certification across the family.
The A-320 family of Airbus (A319/A320/A321) and the Boeing-737 family of Boeing (Boeing 737700/800/900) were both well-engineered and state -of-the-art. They had excellent records for
reliability and safety. Since aircraft are built -to-order and manufacturing capacity cant be ramped
up and down very easily, airlines had to order aircraft in advance and wait for delivery. In addition to
firm orders, airlines could also book options for the purchase and delivery of aircraft.
The aircraft manufacturing industry had consolidated over time as companies such as Lockheed and
McDonnell Douglas could not deal with the cyclicality of the industry and the huge, uncertain
investments involved in developing and launching new aircraft.
During the 1980s and 1990s, a new industry segment of jet aircraft with capacities of 50 -100 seats
emerged to meet the needs of regional operators in the United States. This segment had two major
players Bombardier (a diversified transportation equipment company based in Canada) and
Embraer (a Brazilian company). The upper end of capacity of these regional transport aircraft (RTA)
was just short of the A-319 and B-737/700 aircraft.
Turboprop aircraft flew at lower speeds than jet aircraft (500 kmph vs. 800+ kmph) and also
consumed less fuel. However, they flew at lower heights and were therefore more susceptible to the
weather. In 2008, the French ATR series of aircraft was the only commercially available turboprop
aircraft.
All aircraft manufacturers offered their customers financing packages. Besides, the aircraft leasing
industry had several large players including GECAS, a division of GE Financial Services, that offered
both operating and financial lease alternatives to airlines purchasing new aircraft.
Second-hand aircraft could be leased from leasing com panies or from airlines that had excess
capacity. New aircraft offered major advantages in terms of operating and maintenance costs but
were much more expensive than used aircraft.
Aircraft manufacturers also provided maintenance and spares support to airlines. Aircraft had to
periodically undergo major checks and overhauls; facilities for such checks were expensive and often
run by third parties. In markets where a critical mass of aircraft operated, aircraft manufacturers
were willing to build or support the creation of Maintenance, Repair and Overhaul (MRO) centres to
facilitate these checks and overhauls. By 2008, the Indian market had reached the size where such
MRO centres were being contemplated by aircraft manufacturers as well as entrepreneurs.
18

v 2.0 / 1.7.2008

Aircraft manufacturers fought hard for customers and were known to offer significant incentives to
airlines making large purchases. Pricing depended on the market situation, financial position of the
airline, sellers/lessors perception of the credibility of the management of the airline, long -term
plans of the airline, etc. Airbus and Boeing were aggressive and often bitter rivals, and had often
accused each other of obtaining illegal subsidies. Both sought to be leaders in terms of number of
aircraft sold/delivered in a year and order backlog on hand. Bombardier and Embraer had a similar
rivalry in the RTA business.
Aircraft Manufacturers & their Indian Customers
Boeing 737 family:

Jet, Jetlite, SpiceJet, Air India (for international short-haul)

A320 family:

Air India, Kingfisher, IndiGo, GoAir, Deccan

ERJ170 (Embraer):

Paramount

CRJ series (Bombardier):

Jetlite and Air India (domestic)

ATR:

Jet, Kingfisher, Deccan, Air India (domestic)

19

v 2.0 / 1.7.2008

Exhibit 8
Kingfishers MegaMileMove Invitation

Exhibit 9
Jet Airways Change & Kingfishers Response

20

v 2.0 / 1.7.2008

Exhibit 10
Fleet Size of Indian Carriers

AIR INDIA

9697

9798

9899

9900

0001

0102

0203

0304

0405

0506

0607

28

26

26

26

28

29

31

35

37

38

35

13

55

59

91

AIR INDIA
EXPRESS
39

INDIAN
AIRLINES

52

ALLIANCE AIR

12

12

12

11

11

11

15

15

15

15

(just before
merger)

JET AIRWAYS

13

19

25

28

30

38

41

41

42

53

53

81 (05/08)*

SAHARA/
JETLITE

10

12

20

22

29

29

24 (05/08)

16

29

39

41 (09/07)

PARAMOUNT
AIRWAYS

6 (04/08)

SPICEJET

11

18 (05/08)

KINGFISHER

11

25

34 (09/07)

GO AIR

5 (mid 07)

17 (04/08)

AIR DECCAN

44

44

42

44

43

47

INDIGO

52

Latest
Position

ARCHNA

No

NEPC

Longer in

SKYLINE NEPC
(DAMANIA)

Operation

* Incl. 18 wide-bodied aircraft used exclusively for international operations.

Source: DGCA, except for last column

21

v 2.0 / 1.7.2008

Exhibit 11
Indian Domestic Airline Industry: Market Share Data
(In Per Cent)

Airline
Jet Airways

Y.E. 31/3/02

Y.E. 31/3/03

45.3

45.9

Q.E. 06/06

Q.E. 03/07

34

JetLite

Q.E. 03/08

24.2

22.7

8.12

7.4

Sahara

4.8

9.3

Indian

44.3

39.6

21

19.2

14.8

Air Deccan

19

18.6

14.6

Kingfisher

10.6

14.5

SpiceJet

8.1

10.3

1.5

1.2

4.7

4.4

10.3

Paramount
GoAir

IndiGo
Others

5.6

5.2

Acquired by Jet Airways &

renamed as JetLite

Sources: Jet Airways IPO Prospectus February 2005; Press reports based on DGCA data

22

v 2.0 / 1.7.2008

Exhibit 12
The New Deccan

Old Logo

New Logo

Old Uniform

New Uniform
23

v 2.0 / 1.7.2008

Exhibit 13
Financial & Operational Performance of SpiceJet Ltd.
Income Statement: Rupees Million
Year-ending
31.5.2006
1.

Net

Sales

(Income

from

10 months to
31.3. 07

Qtr ending
30.06.2007

Qtr ending
30.09.2007

4196.45

6404.44

2653.77

2226.15

Other Income

323.34

1078.35

460.39

473.75

Total Income

4519.80

7482.79

3114.17

2699.90

Operations)
2.

3.

Total Expenditure
Operating Expenses:

3783.73

Aircraft Fuel

2465.07

1989.83

3494.39

1402.35

Aircraft Lease Rentals

771.67

1367.06

508.65

Airport Charges

339.33

601.59

244.35

Aircraft Maintenance

470.56

671.57

210.36

456.27

193.81

Other Operating Costs

Staff Cost
Rent
Legal,

Professional

&

479.73

855.00

285.89

305.90

26.32

37.55

14.14

17.94

90.57

72.18

9.43

15.13

505.23

124.91

138.78

27.31

9.75

18.69

58.47

16.30

18.70

(33.67)

(0.04)

0.04

(697.50)

188.66

(374.72)

13.12

9.94

3.31

3.00

(414.20)

(707.44)

185.35

(377.72)

Consultancy
Other
4.

Interest

5.

Depreciation/Obsolescence

6.

Prior Period Adjustment

7.

Profit (Loss) before Tax

8.

Provision for Taxation

Fringe Benefit tax

9.

Net Profit/Loss

31.34

(459.76)
58.68

24

v 2.0 / 1.7.2008

Balance Sheet (Rs. Million)

SOURCES OF FUNDS

As at March 31,
2006

Shareholders Funds
Sha re Capital
Reserves & Surplus
Loan Funds
Secured Loans
Unsecured Loans
APPLICATION OF FUNDS
Fixed Assets
Gross Block
Less: Depreciation
Net Block
Capital Work in progress
Investments
Current Assets, Loans & Advances
Inventories
Sundry Debtors
Cash & Bank Balances
Loans and Advances
Less: Current Liabilities & Provisions
Current Liabilities
Provisions
Net Current Assets
Miscellaneous Expenditure
Deferred Revenue Expenditure
Profit & Loss Account

As at March 31,
2007

1843.39
1060.90
2904.29

2406.51
3178.71
5585.22

3596.40
610.85
7111.54

3571.82
749.70
9906.74

588.83
98.40
490.43
3628.92
0.00

621.12
137.34
483.78
6943.51
812.22

33.98
37.21
634.32
798.76
1504.27

79.40
55.61
3510.46
1153.79
4799.26

1495.96
141.92
1637.88
(133.61)

6456.22
415.25
6871.47
(2072.21)

93.78
3032.02
7111.54

3739.44
9906.74

Selected Operational Parameters of SpiceJet Ltd. (Adapted from Reports by Prabhudas Liladher)
Oct-Dec 06

July-Sept 07

Oct-Dec 07

ASKMs (m)

955

1298

1647

RPKMs (m)

724

883

1255

Load Factor

75.8

68.0

76.2

Rev/RPKM

2.86

2.53

3.25

Cost/ASKM

2.50

2.34

2.59

B/E Load Factor

87

93

80

25

v 2.0 / 1.7.2008

Average Fare

NA

NA

Rs. 3150

SpiceJets net revenue per passenger was Rs. 2209 in the period ending May 31, 2006 and Rs. 2320 in the
period ending March 31, 2007.

26

v 2.0 / 1.7.2008

Exhibit 14
Financial Performance of Deccan Aviation Ltd.
15 months
ending
30.6.2006
1.

Net

Sales

(Income

from

Year ending
30.6.2007

Quarter ending
31.12.2007

12363.9

17745.5

5676.3

1154.1

3677.6

96.6

Operations)
2.

Other Income

3.

Total Income

4.

Total Expenditure
Employee

5772.9

remuneration

&

1706.2

2517.9

818.7

Aircraft Fuel

6254.5

9795.0

2876.8

Aircraft Lease Rentals

2162.3

4030.5

1138.6

Aircraft Maintenance

1775.6

2275.0

639.6

Airport Charges

1926.2

2979.5

763.5

1327.7

1611.0

582.3

1091.2

1312.7

487.4

322.8

439.2

119.4

24960.8

7426.3

319.5

624.0

244.1

(3368.0)

(4161.7)

(1897.5)

37.5

34.1

11.1

(3405.5)

(4195.8)

(1908.6)

benefits

Other
Direct
Expenses

Operating

Sales, general & admin

Depreciation

and

Amortisation
Total
5.

Interest & Finance Charges

Profit (Loss) before Tax
Tax expense
Net Profit/Loss

27

v 2.0 / 1.7.2008

July - Sep 06
ASKMs (m)
RPKMs (m)
No. of
seats
available
No. of
passengers
flown
Passenger
Load
Factor
Number of
Flights
Operated
per Day
Number of
Airports
Operated

Oct-Dec 06

1695
1266
1898867

Jan Mar
Apr Jun
July- Sep 07 Oct-Dec 07
07
07
1887
1874
2122
2221
2053
1465
1570
1791
1515
1601
2142031
2150568
2490981
2641438
2272036

1378655

1643868

1746765

2013345

1696319

1765690

72.6%

76.74%

81.22%

80.83%

64.22%

77.71%

220

258

264

270

267

260

52

58

61

64

63

63

Selected Operational Parameters of Deccan

From Data available on Deccan website

28

v 2.0 / 1.7.2008

Ex hibit 15
Financial Performance of Kingfisher Airlines Ltd.
(Rs. Million)
Year ending
31.3.2006

Net

Sales

(Income

from

Year ending
31.3.2007

Six months
ending
30.09.2007

4358.1

13824.2

11313.7

4381.9

15529.5

11914.0

680.6

1575.0

Aircraft Fuel

2356.2

7068.0

Aircraft Lease Rentals

1164.8

2762.5

Commissions to Agents

268.7

762.0

22.9

391.7

381.9

41.2

402.9

36.2

490.0

(1933.7)

(5081.1)

Operations)
Other Income
Total Income
Expenditure:
Employee

remuneration

&

benefits

Ticket Distribution charges

Service Tax expenses
Rates and Taxes
Depreciation
Amortisation

and

Net Profit/Loss

2017.1

(3993.2)

Note: Kingfisher Airlines Ltd. Is not a listed company. This information has been pieced together from data
contained in United Breweries (Holdings) Ltd. Preliminary placement document dated December 3, 2007. It is
incomplete and may be treated as merely indicative.
Number of passengers flown was 1.23 million in 2005-06 and 3.26 million in 2006 -07.
60% seats were filled in 2005-06 and 68% in 2006- 07.
Revenue per passenger was Rs. 3554 in 2005- 06 and Rs. 4 241 in 2006- 07.
th

Kingfisher Airlines had a networth of -7,848 million as of 30 September 2007.

29

v 2.0 / 1.7.2008

Exhibit 16
Financial Performance & Selected Operational Parameters of Indian Airlines
Operational Fleet before Merger (Includes Alliance Air)
Airbus A-300

Airbus A-330

Airbus A-321

Airbus A-320

48

Airbus A-319

11

Boeing 737-200

11

Dornier DO-228

ATR-42

CRJ

Total Fleet

91

[This includes 11 of the 43 aircraft ordered from Airbus Industrie in February 2006. The balance 32
aircraft are to be delivered by 2010.]
Operational Network
Domestic

59

International

15

Total

74

30

v 2.0 / 1.7.2008

Indian Airlines: Abridged Financial Results (Rs. Millions)

Total Revenue
Total Expenses
Net Profit (Loss) before Tax
Net Profit (Loss) after Tax

Equity Capital
Reserves & Surplus
Secured Loans
Unsecured Loans
Net Worth

2005-06
57888.2
57258.2
630.0
495.0

2006-07
71962.4
74272.1
(230.97)
(240.29)

March 31, 2006

4321.4
5685.2
3130.8
263.5
434.0

March 31, 2007

4321.4
5685.2
6138.9
7297.9
(1968.9)

Selected Operational Performance Parameters

2002-03

2003-04

2004-05

2005-06

2006-07

Available Tonne
Kilometres (Millions)

1308

1334

1472

1593

1692

Revenue-Tonne
Kilometres (Millions)

845

877

1017

1141

1236

Overall Load Factor (%)

64.6

65.8

69.1

71.6

73.1

Revenue Passengers
Carried (Millions)

5654

5900

7132

7861

8570

Source: Government of India Ministry of Civil Aviation Annual Report 2007-08

31

v 2.0 / 1.7.2008

Exhibit 17
Financial Performance & Selected Operating Parameters of Jet Airways (India) Ltd.
Company P&L (Rs. Millions)

2005- 06

2006-07

Apr-Jun 07

July- Sep07

Oct-Dec07

Income
Operating Revenues

56458

70578

18067

18186

24260

4417

3435

1763

4356

912

60876

74013

19830

22542

25172

5672

9381

2634

2863

3027

16789

24276

5996

6960

9173

7261

8008

2140

2305

2622

13111

18833

5061

5813

6531

Aircraft Lease Rentals

4340

6458

1532

1253

1365

Depreciation

4064

4141

1328

1743

2204

Interest

2416

2402

644

1180

1554

53653

73499

19336

22117

26476

Profit Before Taxation

7223

514

495

425

(1304)

Provision for Taxation

2702

234

186

141

(393)

Profit after Taxation

4520

280

309

284

(911)

13625

10079

2235

245

2907

Non- operating Revenues

Total Revenues
Expenditure
Employees Remunera tion &
Benefits
Aircraft Fuel Expenses
Selling & Distribution Expenses
Other Operating Expenses

Total Expenditure

EBITDAR

32

v 2.0 / 1.7.2008

Company Summary Balance Sheet (Rs. Millions)

As on 31.3.2006

As on 31.3.2007

Sources of Funds
Shareholders Funds

23059

22979

Loan Funds

48956

60563

3207

3311

75221

86852

47882

72920

1872

689

Current Assets, Loans and Advances

38754

33645

Less: Current Liabilities & Provisions

13286

20402

Net Current Assets

25468

13243

Total Application of Funds

75221

86852

Deferred Tax Liability

Total Sources of Funds
Application of Funds
Net Fixed Assets
Investments

P&L of Domestic Operations (Rs. Millions)

2005- 06

2006-07

Apr-Jun 07

July- Sep07

Oct-Dec07

Income
Operating Revenues
Non- operating Revenues
Total Revenues

501125

57004

13708

12526

15397

4417

3431

1759

4345

906

54543

60435

15467

16870

16304

5179

8194

2302

2352

2583

14550

18878

4421

4673

5257

6263

6894

1654

1595

1762

Expenditure
Employees Remuneration &
Benefits
Aircraft Fuel Expenses
Selling & Distribution Expenses

33

v 2.0 / 1.7.2008

Other Operating Expenses

10615

13942

3357

3883

3811

Aircraft Lease Rentals

2604

4041

905

886

1037

Depreciation

3980

3707

1002

1067

1155

Interest

2416

2358

514

809

843

45607

58013

14155

15265

16448

8936

2422

1312

1606

(144)

13518

9096

1974

22

1985

Apr-Jun 07

July-Sep07

Total Expenditure
Profit Before Taxation
EBITDAR

Operating Parameters of Domestic Operations

Apr 05Mar06
Number of Departures

Apr 06Mar07

Oct-Dec07

100, 958

112,759

27,832

28,128

28,870

ASKMs (Million)

10,683

12,155

2990

3046

3040

RPKMs (Million)

7875

8538

2129

2020

2198

73.7%

70.2%

71.2%

66.3%

72.3%

Revenue Passengers (Millions)

9.12

9.90

2.41

2.31

2.52

Revenue/RPKM (Rupees)

5.43

5.66

5.61

5.28

6.16

Cost per ASKM (Rupees)

3.42

3.95

3.56

4.01

4.50

63.0%

69.8%

63.4%

75.9%

73.1%

5165

5295

5285

5006

5667

Passenger Load Factor

Breakeven Seat Factor

Average Gross Revenue per
passenger in Rupees

Source: Investor Relations Pages at www.jetairways.com

34

v 2.0 / 1.7.2008

Exhibit 18
Select Financial & Operating Parameters of JetLite

th

Source: Jet Airways (India) Ltd. Presentation on Financial Results Q3 FY08 dated 28 January 2008.
Downloaded from Investor Relations Pages on www.jetairways.com

35

v 2.0 / 1.7.2008

References
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ii

Flying into the Storm Business India, June 19-July 2, 1995, p. 70.

iii

Divorces are made in Heaven Business India, June 17-30, 1996, pp. 67-76.

iv

Will it fly again? Business India, December 2 -15, 1996, p. 176.

Divorces are made in Heaven Business India, June 17-30, 1996, pp. 67-76.

vi

Attractive Offers Business India, August 29-September 11, 1994, pp. 35 -36.

vii

over my dead body Business India, January 27 -February 9, 1997.

viii

Jet Airways (India) Ltd. Initial Public Offer Prospectus, February 28, 2005, p. 50.

ix

Jet Airways (India) Ltd. Initial Public Offer Prospectus, February 28, 2005, p. 49.

Jet Airways (India) Ltd. Initial Public Offer Prospectus, February 28, 2005, p. 57.

xi

United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 106.

xii

United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 147.

xiii

Paramount Airways Press Note of February 9, 2008. Downloaded from www.paramountairways.com/press_release.html

on 1.7.2008
xiv

Wolfgang Prock -Schauer Full Service Carriers: Adapting to the New Environment Presentation at CAPA Conference,

September 2006. Downloaded from www.jetairways.com on 9.6.2008.

xv

Wolfgang Prock-Schauer Airline Developments, State of the Industry and Way Ahead Presentation at the South Asia
th

Aviation Finance conference, 5 February 2007. Downloaded from www.jetairways.com on 9.6.2008.

xvi

United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 142.

xvii

United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 153.

xviii

United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 124.

xix

Wolfgang Prock -Schauer Airline Developments, State of the Industry and Way Ahead Presentation at the South Asia
Aviation Finance conference, 5th February 2007. Downloaded from www.jetairways.com on 9.6.2008.
xx

Wolfgang Prock-Schauer Airline Developments, State of the Industry and Way Ahead Presentation at the South Asia
Aviation Finance conference, 5th February 2007. Downloaded from www.jetairways.com on 9.6.2008.
xxi

United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 156.

xxii

United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 124.

xxiii

United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, pp. 19-20.

36