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Indian Aviation Sector: Looking Beyond Profits!

CASELET, OPERATIONS MANAGEMENT
ET Cases, 7 Pages
AUTHOR(S) : Tuhin Sengupta, Doctoral Student, IIM Indore and Ankita Chhabra, Doctoral Student, IIM Indore

Case Preview

Indian Aviation Sector: Looking Beyond Profits!

 

Indian aviation sector has experienced tremendous growth in previous one decade in terms of infrastructure and air traffic. As per the current DGCA report on domestic  air traffic for the month of December 2015, the passenger traffic in India has seen a growth of 20.34% (comparing passengers carried in January–December 2015 with  January–December 2014) and 19.71% increment month on month passenger traffic(comparing passengers carried in December 2015 with December 2014). In  addition, the international air traffic has recorded 8% year-on-year growth for the year 2015–16.

Structure of the Industry

The Indian aviation sector can be divided into the following three main categories:

• Scheduled air transport service includes domestic and international airlines
•..............

Evolution of Indian Aviation Sector

Indian aviation sector started in December 1912, with its first flight between Karachi and Dubai by Indian Air services in collaboration with UK based Imperial Airways. After independence, we had various small players operating in this sector like Tata Airlines, Indian National Airways, Air Service of India, Deccan  Airways, Ambica Airways, Bharat Airways, Orient Airways and Mistry Airways. Amongst them Orient Airways shifted...........

Current Scenario

In a recent development, Air India became the member of one of the major global alliances i.e., star alliance in July 2014, which will help them in increasing their market share. On the other side, after increase up to 49% in FDI investment, in aviation sector in September 2012, various new players tried their luck in the new market. Air Asia India has commenced its operations in June 2014 on a smaller scale and is expected to operate full-fledged from early 2015.............

Challenges Faced by Aviation Sector

• Rupee Depreciation

The depreciation of Indian rupee from INR62 in 2014-15 to INR66 in 2015-16 has caused a huge increase in the operating costs of airlines, as over 60% of their operating costs..............

• High Fuel Cost and Varied Taxation Structure

Aviation Turbine Fuel (ATF) constitutes around 40% of total operating costs of an airline. Only public sector companies, namely.......................

..........................

The Task!

To survive in this hyper competitive market, they have to look beyond profits and analyze their capacity, production, efficiency, cost, revenue etc. Apart from the financial statement analysis......

Exhibits

Exhibit I: Evolution of Indian Aviation (2002–2015)

Exhibit II: Existing Players* Market Share for the First Half of 2015-16 (based on RPKM) (in %)

Exhibit III: Available Seat Kms (Domestic and International)

Exhibit IV: Total Income and Expenditure of Domestic Airlines

Teaching Note Preview

Indian Aviation Sector: Looking Beyond Profits!

 

Synopsis

The case gives an overview of the Indian Aviation Sector. With this overview, this case attempts to bring out the importance of analysing a sectorial performance based on basic productivity measures.

Expected Learning Outcomes

  • • Appreciate different productivity measures, in addition to financial statements
  • • Gain a different perspective of performance measurement in the context of the aviation sector
  • • Understand the dynamic behavior of the aviation sector

 

Case Positioning and Setting

The case can be used as an introductory exercise for Operations Management or General Management/Strategy course for the MBA program

Assignment Questions

  • I. What is Capacity Utilization? How can it be measured in the present context of the case?
  • II. What is Revenue Management? What can you infer about the performance of various airlines in terms of revenue as one of the parameter?
  • III. .....................

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Product code: OM-2-0039, OM-2-0039A

Abstract

India is one of the fastest growing aviation markets in the world. With the relaxation of FDI norms, many of the foreign players have entered the market in the past one decade. As of now, for the year 2015 private carriers accounted for around 81.6% share of the domestic aviation market. There has been a significant increase in domestic air traffic (growth of 20.34 % over the previous year). This increase has been due to many factors such as, increase in the purchasing power of the customers (emergence of large middle class proportion), increase in urbanization, increase in working population, emergence of low-cost carriers, increase in service quality and offerings like frequent flyer programmes and modernization of airports. Despite the demandpull factors existing in this sector, airlines are still experiencing losses consistently for the past couple of years. Hence, there exists an urgent need to introspect performance measures beyond the financial statements. This caselet attempts to provide analysis of productivity measures relevant to the airline industry and helps in establishing a founding stone for subsequent study on the remedial measures to be undertaken by the airlines industry.



Pedagogical Objectives

  • To appreciate different productivity measures, in addition to financial statements
  • To gain a different perspective of performance measurement in the context of the aviation sector
  • To understand the dynamic behavior of the aviation sector

Case Positioning and Setting

The case can be used as an introductory exercise for Operations Management or General Management/Strategy course for the MBA program



This Case Pack Includes:
- Abstract
- Caselet
- Teaching Note (**ONLY for Academicians)
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