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1
Indian Aviation Industry
GEEI Project Report
8/10/2013
Submitted to: Dr. Ravikesh Srivastava
Submitted By: Group 4
Agam Arora 211090
Prakhar Gupta 211097
Purnima Choudhry 211104
Sahil Dhussa 211119
2
Contents
Part A:
Industry Performance
Executive summary
Capacity Utilization
International passenger traffic – Review & Outlook
Outlook for profitability
Domestic airlines sales growth- Review & Outlook
5
8
12
13
14
Part B:
State of the industry
Industry Overview
Growth of LCC Segment
Changing domestic competitive landscape
- PESTLE Analysis
- Porters
- Market Share of Top players
Role of Government
Factors affecting profitability
17
21
22
23
24
25
28
30
3
- Impact of Fuel Costs
- Impact of Rupee Depreciation
Investment Prospects
MRO Reforms
Player Profile
Jet Airways
Spice Jet
28
28
30
31
33
48
4
List of Figures and Tables
Figure 1 8
Figure 2: 8
Figure 3 10
Figure 4: 10
Figure 5 12
Figure 6: 12
Figure 7 13
Figure 8 14
Figure 9 15
Figure 10 20
Figure 11 22
Figure 12 24
Figure 13 25
Figure 14 26
Figure 15 30
Figure 16 31
Figure 17 35
Figure B-8 35
Figure 19 40
Figure 20 43
Figure 21 50
Figure 22: 50
Figure 23 52
Figure 24: 52
Figure 25 53
Figure 26: 53
Figure 27 56
5
List of Figures and Tables
Table 1 19
Table 2 35
Table B-3 36
Table 4 37
Table 5 38
Table 6 39
Table 7 41
Table 8 42
Table 9 46
Table 10 55
Table 11 55
Table 12 56
6
PART A:
Executive Summary
India is the 9th largest civil aviation market in the world and ranked 4th in domestic
passenger volume. India’s civil aviation market is set to become the world’s 3rd largest
by 2020.The aviation sector does not only provide air transport for passengers and
goods, but is also a vital strategic element for employment generation. About one-third
of world trade by value is delivered by air and about half of international tourism is
facilitated by air links.
The Indian Aviation Industry has been facing periods of subdued demand growth over
the past years driven by multiple headwinds such as high oil prices and limited pricing
power. The airline operators are facing challenges related to high debt burden and
liquidity constraints. However in the recent years, the industry has been transformed
from an over regulated and an under managed sector to a more open, liberal and
investment friendly sector over the years. The entry of low cost carriers, higher
disposable incomes, and strong economic growth coupled with the increased FDI
inflows supporting government policies have been the major drivers for the growth of
aviation sector in India. The domestic airlines have been allowed to fly overseas and
forge partnerships with foreign carriers while foreign carriers in turn have been
interlining with domestic airlines to access secondary resources. Private participation in
expanding air transport network and related infrastructure has propelled growth of air
7
traffic in a big way in India. The Government on its part has initiated a series of
measures including a proposal to allow foreign carriers to make strategic investments
that are up to 49% stake in Indian Carriers, allow airlines to directly import ATF, lifting
the freeze on international expansions of private airlines and financial assistance to the
national carriers.
However, these measures alone are inadequate to address the fundamental problems
affecting the industry. There is a need for the operators to focus on improving cost
structure by the means of rationalization at all levels including mix of fleet and routes
that is aimed at cost efficiency. The long term viability also requires return of pricing
power through better alignment of capacity to the underlying demand growth.
8
Capacity Utilization
Figure 1
Figure 2: Capacity Utilization Source: DGCA
Revenue Passenger Kilometers (RPK)
the number of revenue passengers carried times distance in kilometers.
Available Seat Kilometers (ASK)
the number of seats available for the transportation of passengers times distance in
kilometers.
9
Passenger Cabin Factor (or Passenger Load Factor)
RPK divided by ASK and expressed as a percentage. It describes the utilization level of
available seats.
Ideally any airlines operator wishes aims at maximizing revenue passenger kilometer
and reducing on available seat kilometers. Although this is not a matter of concern for
the Indian operators, yet this is one of the more crucial factors in the aviation industry,
Passenger traffic
16% CAGR terms over the past decade
13% in the first half has increased substantially to 19% CAGR during 2006-2011.
Air travel penetration in India
Less than half of that in China where people take 0.2 trips per person per year
United States, the world’s largest domestic aviation market stands at 2 trips per
person per year.
The penetration of the aviation sector in India is merely 3%, which when compared
to other nations make India a poor player in this sector. Also for every one Indian
travelling though an air carrier there is 6 Chinese and 40 Americans. This shows
how the Indian penetration levels are pretty low and the average usage of people is
also not comparable.
Although this is something that can be looked as a weakness of the industry, yet this
is also an opportunity for the same. A mere 3% penetration means huge potential
10
and untapped user base which if tapped appropriately can trigger a huge industry
growth.
Apart from the penetration level, the market leader has not taken up the role of
creating awareness or expanding the size of the market. This once implemented
properly will create massive opportunity.
Figure 3
Figure 4: Passenger Load Factor Source: DGCA
11
Passenger load factor (PLF) – or load factor – is a measure of the amount of
utilization of the total available capacity of a transport vehicle. It is useful for calculating
the average occupancy on various routes of airlines, railway trains or bus.
The passenger load factor in the Indian aviation industry is a critical aspect which is
pretty high considering the international standards for the same. No wonder there are
international clients that want to have code sharing agreements with Indian air carriers
in an attempt to increase their load factors.
For India the usual passenger load factor is somewhere about 75-80%, whereas in the
western countries the average is somewhere in the range of 50-60%. The companies in
the west are looking at this aspect of the Indian airline carrier and this can be leveraged
and hence prove beneficial for the industry as a whole.
12
International Passenger Traffic
Figure 5
Figure 6: International Passenger Traffic
Even during the economic downturn in 2008/09, when domestic traffic registered a
Double digit decline, international Traffic remained in positive territory, growing at 6.
This is one of the strangest factors as during the economic recession all the sectors
were failing while the travelling internationally kept strong. There were many factors that
13
led to the development of this market. In the FY 08-09 the number of passengers flying
internationally the percentage of passengers increased.
Outlook for profitability
Figure 7
Figure 6: Projected Sales Growth
Now let us look at the industry growth over the last five years. Starting from year 2008
when the industry was booming at a 137 thousand million INR not stands at 139
Thousand million. The overall CAGR of the industry stands at a 4$, which is bound to
increase in the subsequent years. Looking just at the CAGR we are looking at a 142
137.7
132.5
127.8
139.8 140.6 141.3 142.0
137.7
132.5
127.8
139.8
120.0
125.0
130.0
135.0
140.0
145.0
2008 2009 2010 2011 2012 2013 2014
Tho
usa
nd
Mill
ion
s
Expected
Historical
Linear (Historical)
14
thousand million INR. But as this growth consists of many ups and downs, the industry
also touched a minimum of 127.
Owing to these slopes and peaks we have calculated the growth of the company using
the regression function, which shows the industry average somewhere at 135 Thousand
Million INR.
Domestic airlines Sales Growth
Figure 8
Figure 5: MoM Sales Growth Source: ICRA
15
While in the beginning of 2008-09, the sector was impacted by sharp rise in crude oil
prices, it was the decline in passenger traffic growth which led to severe
underperformance during H2, 2008-09 to H1 2009-10.
The operating environment improved for a brief period in 2010-11 on back of recovery
in passenger traffic, industry-wide capacity discipline and relatively stable fuel prices.
However, elevated fuel prices over the last three quarters coupled with intense
competition and unfavorable foreign exchange environment has again deteriorated the
financial performance of airlines.
During this period, while the passenger traffic growth has been steady (averaging 14%
in 9m 2011-12), intense competition has impacted yields and forced airlines back into
Figure 6: PAT as percentage of Sales Source: ICRA
Losses in an inflated cost base scenario.
Figure 9
16
Profit Margins: With combined impact of 1) moderating pax growth 2) lower yields due
to excessive competitive 3) rising ATF prices 4) steep rupee depreciation and 5) rising
debt levels and interest costs, the profitability margins of the airlines industry have been
severely impacted. As per Centre for Asia Pacific Aviation (CAPA), Indian carriers could
be posting staggering losses of $2.5 billion (~Rs 12,500 crore) in 2011-12, worse than
the losses of 2008-09 when traffic was declining and crude oil prices spiked to $150 per
barrel.
17
PART B: STATE OF INDUSTRY
Industry Overview
India is the 9th largest civil aviation market in the world. It is ranked 4th in domestic
passenger volumes (45.3 million*). India’s civil aviation market is set to become the
world’s 3rd largest by 2020. As per AAI, passenger handling capacity has risen two-fold
from 72 million (FY 06) to 143 million (FY 11), and freight traffic has risen from 1.5
million MT (FY ‘06) to 2.3 million MT (FY ‘11).
The Indian government has also proposed investment of US$12.1 billion in the airport
infrastructure during the 12th Plan period, of which US$ 9.3 billion is anticipated to
come from the private sector.
Aviation as an infrastructure segment has played vital role in facilitating the growth of
business and economy in India. A robust civil aviation set-up is key to seamless flow of
investment, trade and tourism, with significant multiplier effects through the economy.
About one-third of world trade (by value) is delivered by air and about half of
international tourism is facilitated by air links.
The sector relies on the flourishing tourism industry, more outbound tours, financial
progress, and lesser airfares because of the introduction of low cost carriers and
improved buying power of the people. It is the engine for innovation and technological
progress in a world of decreasing barriers to trade.
18
Year Major milestones
< 1953 Nine Airlines existed including Indian Airlines & Air India
1953 Nationalization of all private airlines through Air Corporations Act
1978 Airline Deregulation Act
1986 Private players permitted to operate as air taxi operators
1994 Air Corporation act repealed
Private players can operate schedule services
1995 Jet, Sahara, Modiluft, Damania, East West granted scheduled carrier
status
1997 4 out of 6 operators shut down; Jet & Sahara continue
2001 Aviation Turbine Fuel (ATF) prices decontrolled
2003 Air Deccan starts operations as India’s first LCC
2005 Kingfisher, SpiceJet, Indigo, Go Air, Paramount start operations
2007 Industry consolidates; Jet acquired Sahara; Kingfisher acquired Air
Deccan
2010 SpiceJet starts international operations
2011 Indigo starts international operations, Kingfisher exits LCC segment
19
2012 Government allows direct ATF imports, FDI proposal for allowing foreign
carriers to pick up to 49% stake under consideration
Table 1
Table 1: major Milestones Source: ICRA
According to a study jointly released by Civil Aviation Secretary Nasim Zaidi and
IATA DG and CEO Tony Tyler, the India aviation industry has been referred to as
“The Real World Wide Web”
It contributes Rs 33,000 crore or 0.5 per cent of India's GDP and supports 1.7 million
jobs in the country. Moreover, it is creating the much-needed critical assets as
infrastructure. Some of the statistics are as follows:
Rs 14,700 crore as direct output
Rs 10,700 crore as indirectly through the supply chain
Rs 58,200 crore as catalytic benefits through tourism
The overall contribution amounts to Rs 91,200 crore or 1.5 per cent of GDP.
The industry supports 276,000 jobs directly and 841,000 jobs indirectly through its
supply chain. It supports 605,000 jobs through spending by employees of the sector.
Overall, 7.1 million people are employed in the industry through the catalytic effects
like tourism.
20
Airport Authority of India
The Airport Authority of India (AAI) was established in 1994 under the Airport
Authority Act. India has 136 airports, out of which 128 are owned by AAI.
Figure 10
Figure 7: Airports in India Source: AAI WEBSITE
It is responsible for ordering, financing and maintaining all government airports. The
remaining airports are governed by the Aircraft Act (1934).
Airports
(136)
AAI Managed
(128)
International (including JV)
(14)
Others
(114)
Domestic
(81)
Custom
(8)
Civil Enclaves
(25)
Non AAI
(8)
21
Growth of the LCC Segment
Internationally the LCC model came into existence when the US Congress passed the
Airline Deregulation Act in 1978 easing the entry of new companies into the business
and giving them freedom to set their own fares and choose routes (Prior to this routes
and fares were fixed by a Government Agency).
Aviation sector in India experienced liberalization in its late nineties when private airlines
like spice jet, jet airways, Kingfisher, Indigo, go air etc. contributed 75 percent to the
Indian market.
This was followed by entry of carriers like Southwest, which pioneered the LCC
concept. Majority (~60-65%) of an airline cost are dependent on external factors, which
can’t be managed by an LCC. This includes the fuel cost (~40%), maintenance cost
(~12%) and ownership cost (~12-15%).LCCs try to achieve a cost advantage in other
ways by avoiding the in-flight services, operating from secondary airports, selling tickets
through the internet, higher number of seats in the aircraft, inventory reduction through
use of similar aircraft and lower employees per aircraft.
The sector which was completely dominated by full-service airlines till a decade ago is
now dominated by low-cost airlines. However, longer term viability of LCCs models in
India remains to be seen (Kingfisher exited the segment recently) as airport charges are
same for FSCs and LCCs in India.
22
Changing domestic competitive
landscape
PESTLE Analysis
Figure 11
Figure 8: PESTLE Analysis
23
Looking at the above model of the aviation industry, we can infer the present state of
the industry and see how it is going to come up in the times to come. To understand the
environment the scenario in 2000 and the present scenario are compared and how the
difference in the two times has been with respect to the influence of the environment.
Few of the findings from the analysis are follows;
FDI policy has been relaxed.
Huge growth in MRO.
Tax incentives.
Open sky policy.
Traffic is likely to increase as tourism is growing as an industry,
Marketing and CRM have stepped in.
Government in infusing huge amounts in to the industry.
The 12th five year plan has a proposed budget of $12.1 BN.
There is growth in per passenger profit.
24
Porter’s Five Forces Analysis
Figure 9: Porter’s Five Forces Analysis
The Porters five forces model shows how different factors in the environment are
influencing the decisions that are taken in the industry.
The power of the consumers is relatively low as compared to the power the substitutes
command, and this is quite evident with the amount of penetration this industry has in
India.
Figure 12
25
Market Share of Top Players
Figure 13
Figure 10: Market Share (Sales)
Total domestic passengers carried by the scheduled domestic airlines between January
and April 2013 were 20.289 million.
26
Reforms by government
1. Proposal to allow foreign carriers to make strategic investments (up to 49%
stake) in Indian Carriers
To consider allowing up to 49% equity investment by foreign carriers in domestic
airlines.In case of listed airlines, if the proposal does not get a waiver from
SEBI’s Takeover Code, foreign carriers may have to first make an open offer of
26% stake to public shareholders and later acquire up to 23% stake (from
promoters or fresh equity), such that their stake remains within the 49 % cap.
Figure 11: Impact of FDI in Aviation
Figure 14
27
Proposal to allow airlines to directly import ATF
Currently India buys Airline Tribune Fuel from OMCs which is priced on an import
parity formula and is also subject to sales tax varying from 4%-30% depending upon
states. The airlines pay on an average 22-26% sales tax on ATF for domestic
operations.
The proposal would r educe effective taxes on ATF, even though the import duties
have to be paid.
However, some of the disadvantages of this proposal can be realized in the following
manner:
• Fee-based structure for utilizing infrastructure for fueling, storing and transporting
ATF
• Current liquidity constraints of almost all key players.
• Credit period adherence is necessary.
• Lose volume discounts (4 to 5 %) may be lost.
• Entry tax by states may be charged in near future.
2. Lifting the freeze on international expansions of private airlines
In another major boost to private airlines (especially IndiGo and SpiceJet), the Civil
Aviation Ministry has lifted the freeze on their overseas expansions. The government
28
had imposed the freeze in Mar-2011 with the objective of protecting the financially
strained Air India from more competition on foreign routes.
However, lower utilizations of maximum permissible limits under the bilateral Air
Service Agreements (ASAs) have prompted the move to allow eligible domestic
airlines (with more than 5 years experience) expand their international operations.
The move will benefit the private carriers (although may increase competition and
losses for the national carrier) international flights provide better margins owing to
the availability of fuel at international rates, higher auxiliary revenue through in-flight
sales and higher fleet utilization, as international operations could happen during the
otherwise idle night hours.
3. Financial guarantees to the debt-ridden national carrier in securing funding
at competitive rates
As per media reports, Group of ministers (GoM), headed by finance minister cleared
the financial restructuring plan for Air India under which the national carrier will be
allowed to raise Rs 7,400 crore through government- guaranteed bonds bearing a
coupon rate of 8.5-9%.
While the financial guarantees may help it overcome near term headwinds,
operation turnaround at ailing national carrier remains critical for overall health of the
industry
29
MRO Sector Reforms
The Government has made several concessions in the Union Budget for 2013-14
Extension of time period allowed for utilization of aircraft parts and equipments
from three months to one year
Exemption of custom duty on parts, equipment, accessories, spares required for
MRO purposes to private category aircrafts also
Inclusion of foreign airlines for the purpose of duty-free imports of parts, etc as
applicable for scheduled air transport services
The Maintenance and Repair industry is also under limelight as Indian air carriers are
outsourcing MRO to smaller subcontinent countries like Sri Lanka. There are various
countries which are benefiting from this.
Considering the expanding size of the Indian aviation industry, the MRO industry will
also have a trickledown effect which will have a positive effect. But this benefit as of
now is going through the Indian economy which can be done by promoting the MRO
industry and setting up better and efficient MRO suppliers.
No matter where the benefit trickle down to, the aviation sector players are bound to
look at their benefits and thus will go for cost effective solutions. The only way to
compete in such scenario is to make a self sustaining MRO sector in India as well.
30
Factors affecting profitability
Impact of Rising Fuel Costs
Figure 15
Figure 12: percentage change in Fuel Costs
The fuel prices constitute to 30-45% of the total cost involved in any aviation
industry related operation. More flights would mean more fuel demands and thus
even economies of scale are unable to push up Indian airline profits. This can be
seen through the constantly increasing fuel prices. There has been a significant
increase in ATF prices up to 57% in the last 18 months. Indian Carriers do not
hedge fuel prices. There is limited ability to charge fuel surcharges due to
31
irrational and undisciplined pricing dictated by competition rather than costs /
demand.
Impact of Rupee Depreciation
Figure 16
Figure 12: Percentage change in Rupee Prices
In CY11, 18.7% depreciation was partly reversed through 7.3% YTD
appreciation. The fuel costs, MRO, expat salaries and a portion of sales
commissions are USD-linked. Low-fare carriers have less international exposure
in terms of flights. The reduction in air fares is less than would usually be
expected in the lean season. Air India plans to hedge jet fuel in the near future.
32
Investment Prospects
Looking at the factors in favor of investments in this industry, firstly the
penetration of air travel is less than 3% is significantly below benchmarks in other
markets it presents an opportunity for foreign airlines to create India as their hub
for international traffic between Europe and South East Asia. Additionally it may
offer better connectivity within India with international destinations. The foreign
airlines could also look at leveraging on India’s low-cost arbitrage by setting up
MRO facilities in India. But, the market valuation of listed airlines in India has
suffered due to poor performance
But on the other hand, factors such as higher taxes on ATF and airport charges
continue to be key headwinds for the sector. Airlines in India are also mandatorily
required to fly on certain unviable routes. Moreover, the development of airport
infrastructure has not kept pace with demand, thereby resulting in delays and
higher costs for 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.
33
Player Profile
Spicejet Airlines
Company Background
Spicejet Ltd. was incorporated as a public limited company on 9 February 1984 as
Genius Leasing Finance & Investment Co. Ltd. The name of the company was changed
to M G Express Ltd. on 17 February 1993 and then, to Modiluft Ltd. on 12 April 1994. It
was renamed as Royal Airways Ltd. on 9 February 2002. The name was again changed
to Spicejet Ltd. on 29 April 2005. Equity shares of the company were listed on the
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) on 25
February 1994 and 10 May 1995 respectively. The company has its registered office in
Chennai and a corporate office in Gurgaon.
Spicejet started operations in 1993 as a domestic airline in technical collaboration with
Lufthansa of Germany, where Lufthansa also leased aircrafts to the company. The
airline services were marketed under the brand name ModiLuft. However, the Lufthansa
alliance fell through in May 1996, resulting in the company incurring huge losses.
Services were totally stopped after the break-up. In the mean time the company went
through operational and management changes. Royal Holding Services Ltd. became
34
the promoters in 2001. The company re-started its commercial operations on 23 May
2005 with a new brand name 'Spicejet'. It offered various promotional schemes like
ticket for only Rs.99 for the first 99 days of its operation, to make Spicejet a known
brand.
The company was initially promoted by Satish Kumar Modi of the Modi Group. It was
taken over by Royal Holding Services Ltd. (a NRI overseas corporate body (OCB)) in
2001. Satish Kumar Modi resigned as Director of the company on 31 December 2001.
The promoters changed again in November 2010, when Kalanithi Maran (owner of Sun
TV Network Ltd.) and a company promoted by him, Kal Airways Pvt. Ltd. took over
majority stake in the company through a share purchase agreement.
By 2012, Spicejet was India's third largest airline in terms of market share, ahead of Air
India, Kingfisher Airlines, and GoAir. Spicejet operates as a low cost airline service
provider offering passenger and cargo transportation services. The company operates
aircraft configured with a single passenger class. Between 2 to 3.5 tons of cargo is
ferried on each flight, ensuring maximum utilization of the aircraft. The airline is famous
for its on-time performance compared with similar domestic flight services in India.
Spicejet MAX is the frequent flyer programmer of the company. It is a combo offer
provided by the airline that includes a choice of meal onboard, seat preference at the
time of booking and a priority check-in at the airport.
Global Flight Destinations
35
The company currently has a fleet size of 52 aircrafts which cover 46 destinations in
India and 7 destinations abroad operating around 281 flights daily. The destination
coverage can be viewed in the below map.
Figure 17
Figure B-18: Global Destinations of Spicejet
As of July 2013, the airline had the following set of fleet:-
Table 2
36
Table B-3: Aircraft Fleet of Spicejet
Spicejet has a fleet consisting of Boeing and Bombardier aircrafts with a seat capacity
varying from 78 to 212 passengers in an aircraft. All aircrafts under the possession of
Spicejet have a single Economy class only.
Product Details
Spicejet earns its revenues from various products and services. The bulk of the revenue
from transportation services which include transporting passengers and freight and
training services. The other revenue sources include lease for aircrafts, sale and hiring
of aircrafts to government and private individuals and sale of own shares. The share of
revenues from transport services has increased from 97% in 2008 to 99% in 2012. The
following table indicates the break-up of revenues of Spicejet over the period.
Product/s manufactured/traded
(Rs. Million) 2008 2009 2010 2011 2012
Services >> Transport services 12,949.90 16,894.50 21,810.80 28,802.70 39,561.00
Income From Training Services 33.1 128.4
37
Income From Operating Services 12,949.90 16,283.50 20,733.80 27,139.00 37,463.80
Airline Freight Services 611 1,077.00 1,630.60 1,968.80
Services >> Financial services
including leasing 466.9 617.9 149.3 40 40
Profit On Sale Of Aircraft 438.4 617.9 34.7 40 40
Hire Charges 28.5
Income From Sale Of Own Shares 114.6
Grand total 13,416.80 17,512.40 21,960.10 28,842.70 39,601.00
Table 4
Table B-3: Revenue from Different Products and Services of Spicejet
Board of Directors and Shareholding Pattern
Kalinithi Maran, owner of the Sun Group, holds the position of the Chairperson of the
board of directors of Spicejet and S Natrajhen is the Executive Director of the company.
Neil Raymond Mills used to be CEO of the company till he resigned from the position on
3 August 2013. The company has not been able to find his successor till now. The table
below provides the details of the members of the board.
38
Directors Designation
Committee
positions
held
Board
meetings
attended
Directorships
held in other
companies
Kalanithi Maran Chairperson 3 3 13
Kavery Kalanithi Director 5 3 13
S Natrajhen
Executive
Director
J Ravindran Director 10 6 3
Nicholas Martin
Paul Director 6 3 5
M K Harinarayanan Director 6 6 1
S Sridharan Director 2
R Ravivenkatesh Director 3 1
Table 5
Table B-3: Board of Directors of Spicejet
The shareholding pattern indicates that the majority stake of 52.13% is held by Kalinithi
Maran and his Sun Group in the company. Non-institutions, mutual funds, banks and
FIIs are other shareholders in the company.
Category of Shareholder Percent
share in
total equity
39
Promoters
Kal Airways Pvt Ltd 30.08
Kalanithi Maran 22.05
Non-Promoters
Mutual Funds, Banks and FIIs 14.58
Non-institutions 33.28
Table 6
Table B-3: Shareholding Pattern of Spicejet
Promoter holding for the company has changed from 13% in 2008 to 52% in 2013. The
figure below shows the pattern of promoter holding.
40
Figure 19
Figure B-18: Global Destinations of SpicejetFigure B-18: Pattern of Promoter Holding
of Spicejet
Employee Compensation
Airline industry is one of the highest paying industries of the country. Air India Ltd. tops
the chart with a total annual remuneration of Rs. 3726.87 crore and 28,080 employees
as in March 2013. The annual compensation per employee is Rs. 13.27 lakhs. Spicejet
ranks fifth in the chart with a total annual remuneration of Rs. 402.87 crore and 4,680
employees. The annual compensation per employee is Rs. 8.60 lakhs.
41
Airline
Company
Annual
Compensation
to employees
(Rs. crore)
No. of
employees
('000s)
Annual
Compensation
per employee
(Rs. lakhs)
Air India Ltd. 3726.87 28.08 13.27
Jet Airways
(India) Ltd.
1599.49 12.84 12.45
Kingfisher
Airlines Ltd.
687.98 5.69 12.08
Air-India
Charters Ltd.
96.76 1.05 9.16
Spicejet Ltd. 402.87 4.68 8.60
Table 7
Table B-3: Aircraft Fleet of Spicejet
Financial Performance
The financial performance of the company can be measured on a number of
parameters. The market capitalization of Spicejet is Rs. 1,430.77 crore as in July 2013,
which is one-tenth of the value for Container Corp. with the largest market capitalization
42
in the aviation industry. The sales turnover for Spicejet is Rs. 5,714.56 crore which is
lower only to Jet Airways having the value of Rs. 16,852.59 crore. Spicejet incurred a
net loss of Rs. 191.08 crore with last share price as Rs. 27.50 as on 1 August 2013. The
total assets for the company are Rs. 708.20 crore, which are one of the lowest amongst
its top competitors. The table below compares the financial performance of different
competitors in the aviation industry.
Table 8
Source: www.moneycontrol.com
Table B-3: Aircraft Fleet of Spicejet
The stock performance of Spicejet over the period from 2008-13 has been shown in the
figure below. While BSE SENSEX has grown by 24.12% from 1 April 2008 to 1 July
2013, the shares of Spicejet lost by 34.23% during the same period. Spicejet saw many
ups and downs in this period. As compared to the share price on 1 April 2008, the price
43
fell by 74.54% by October 2008 when the CFO of the company resigned to join
Whirlpool. Then, the stocks went up to a high in April 2010 when Kalanithi Maran
acquired a 37.7% stake in the shareholding patter. The company reached an all time
high of around Rs. 90 in November 2010 when there was a proposed announcement of
purchase of up to 30 aircrafts by the company. Afterwards, the share price fell to around
Rs. 12 by December 2011 when the company suffered losses to the tune of Rs. 39
crore owing to a 90% jump in prices of fuel imported by the company. However, the
company came to another high in November 2012 when Kalinithi Maran increased his
consolidated stake in the company to 52.13%.
Figure 20
44
Figure B-18: Global Destinations of Spicejet
The table below indicates the financial performance of Spicejet in the period of 2008-12.
There has been heavy consolidation by the company in this period by increasing its fleet
size and improving its operations on key routes, financed by own capital.
(Currency: Rs.
million)
2008 2009 2010 2011 2012
-
Total income 14,509.50 18,219.80 22,436.70 29,663.80 40,193.40
Sales 13,282.50 17,242.00 21,961.90 29,125.90 39,908.80
Income from financial
services
644 325.5 396.9 262.2 211.4
Total expenses 15,844.50 21,745.50 21,822.20 28,652.20 46,251.10
Profits
Profit after tax (PAT) -1,335.00 -3,525.70 614.5 1,011.60 -6,057.70
Total assets/liabilities 13,614.70 7,575.50 9,858.00 11,101.30 19,708.80
45
Profitability ratios
PAT as % of sales -16.9 -20 3.6 4.1 -13.1
PAT as % of total
income
-12.5 -21.8 2.8 3 -15.2
Liquidity ratios
(times)
Quick ratio 0.538 0.425 0.534 0.281 0.375
Current ratio 0.546 0.437 0.544 0.306 0.395
Debt to equity ratio 19 0 0 0.27 0
Interest cover -18.289 -31.078 12.426 11.755 -11.904
Debtors (days) 1 1.5 2.6 2.3 1.8
Creditors (days) 160.1 112.2 111.5 93.2 71.5
Efficiency ratios
(times)
Total income / total 1.087 1.72 2.574 2.837 2.616
46
assets
Total income /
compensation to
employees
10.024 11.364 12.339 11.974 9.966
Table 9
Table B-3: Aircraft Fleet of Spicejet
The total income has seen a growth of 177.01% in this period, where sales have grown
by 200.46% and income from financial services has reduced by 67.17%. The total
expenses have increased by 191.91% in this period. Profit after tax (PAT) has
increased by 353.76%. Total assets or liabilities have increased by 44.76%. Amongst
the profitability ratios, PAT as percent of sales has reduced by 22.49% and PAT as
percent of total income has increased by 21.60%. Amongst the liquidity ratios, quick
ratio has reduced by 30.30%, current ratio has reduced by 27.66%, debt-to-equity ratio
has reduced by 100% owing to zero debt, interest coverage has reduced by 34.91%,
debtor days have increased by 80% and creditor days have reduced by 55.34%.
Amongst the efficiency ratios, the ratio of total income to total assets has increased by
140.66% and ratio of total income to compensation of employees has reduced by
0.58%.
47
Company in the News
Recently, Spicejet has been in the news in the following scenarios:-
• Reports suggested that Kuwait Airways may pick up around 25% stake of
Spicejet. The deal value is pegged around Rs. 1000 crore. However, Spicejet
considered it very pre-mature to comment on such possibilities and downplayed
it as speculative media reporting.
• The rupee's slide has come as another blow at a time when the industry is
grappling with high operating cost and compressed margins. This would
adversely impact airlines which incur 60 percent of their expense in dollar
denomination. For smaller carriers like SpiceJet, the impact might be deeper as
their international revenues are limited and other dollar-denominated expenses
remain high.
• The Directorate General of Civil Aviation (DGCA) issued a circular to airlines to
unbundle services on ‘opt in’ basis, a method that allows passengers to choose
what services they would prefer. Also, seats on 'opt in' basis would not exceed
25 percent of total seats. Thus, Spicejet mentioned that it would charge an
additional amount for unaccompanied minors, infants and services like bulk
baggage. The company also introduced a combo package including priority
check in, complimentary meal, seat selection and early baggage delivery.
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Company Analysis: Jet Airways
Company Background
Incorporated in 1992, Jet Airways is the second largest airline company in India. It
operates over 1000 flights daily to 76 destinations worldwide. Its main hub is Mumbai,
with secondary hubs at Delhi, Kolkata, Chennai, Bengaluru and Pune. It has an
international hub at Brussels Airport, Belgium.
The company was started as Jetair (Private) Limited in 1974 by Naresh Goyal to
provide sales and marketing representation to foreign airlines in India. In 1991, the
Indian government de--regulated the aviation sector, Jetair (Private) Limited changed its
name to Jet Airways Ltd and commenced commercial airline operations through air taxi
operations with 24 daily flights serving 12 destinations in 1993. In 1995 it started
offering services as a full--frill airline. Increasing competition in the domestic market
compelled the airline to foray into international operations.
Jet Airways provides two services namely, air passenger and freight services, the
former accounts for a massive 92.1 per cent (2006--07) of the airline's total revenues.
In May 2007, Jet Airways became the first and the only airline in Asia to have a
European hub at Brussels.
Ownership Controversy
49
The promoter Naresh Goyal had sold the company to Tail Winds' in 1994. At that point
of time he held 60% stake, while foreign airlines Gulf Air and Kuwait Airways held 20%
each. In 1997, after a directive on foreign equity and NRI/OCB equity participation in the
domestic air transport services sector the foreign airlines divested their stake in favour
of Mr Goyal. Promoter Company Tail Winds (owned by Goyal) owns around 80% equity
stake in the company while institutional investors held 15.5%.
A serious allegation that delayed Jet Airways being permitted to fly to the United States
focused on its opaque ownership structure as well as its alleged links to organized
crime in India and abroad. Jet Airways was originally set up as a subsidiary of
Tailwinds, an Isle of Man-based holding company designed as a tax shelter, whose sole
shareholder was Naresh Goyal, the airline's non-resident Indian (NRI) founder and
chairman. Initially, both Gulf Air and Kuwait Airways had acquired minority stakes in the
airline. However, the Government of India subsequently decreed that foreign airlines
would not be allowed to own any shares in any Indian airline (though other foreign
entities and individuals could still acquire or own minority stakes in Indian carriers.
Gulf Air and Kuwait Airways subsequently sold their stakes to Naresh Goyal, who then
became the airline's sole shareholder. Jet Airways then floated a minority stake of
approximately 20% on the Bombay Stock Exchange in 2005 to reduce debt and to fund
its fleet expansion programmer. Hence, Tailwind's stake in the airline reduced to just
below 80%. According to the company's articles of association, the bulk of Naresh
Goyal's shares in Tailwinds are held on behalf of several other individuals who all seem
to be resident citizens of India. Indian government officials have been satisfied that
50
these arrangements do not compromise Jet Airways' status as an Indian-owned airline
that is effectively controlled by Indian citizens.
Global Flight Destinations
Jet Airways serves 52 domestic destinations and 21 international destinations, a total of
73 in 19 countries across Asia, Europe and North America. Short-haul destinations are
served using Boeing 737 Next Generation. ATR 72-500s are used only on domestic
regional routes, while long-haul routes are served using its Airbus A330-200 and Boeing
777-300ER aircraft. London, England was the airline's first long-haul destination and
was launched in 2005. Since 2007 Jet Airways has had a scissors hub at Brussels
Airport in Belgium for onward trans-Atlantic connections to Canada and the United
States.
Figure 21
Figure 22: Global flight destinations of Jet Airways`
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The recession forced Jet Airways to discontinue the following routes: Ahmedabad–
London, Amritsar–London, Bangalore–Brussels, Mumbai–Shanghai–San Francisco and
Brussels-New York. Due to the recession all flights to North America were operated on
an Airbus A330-200 replacing the Boeing 777-300ERs. It also had to sell a brand-new,
yet-to-be-delivered Boeing 777-300ER in 2009 and had to defer all new aircraft
deliveries by at least two years. The airline planned to restore the Mumbai-Shanghai
route by the end of 2011 but never went through with it. As the economic crisis in the
Eurozone countries worsened, Jet also closed the Delhi-Milan route.
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Jet Airways Fleet
Following figure gives an overview of the different planes that Jet Airways has in its fleet
of aircrafts.
Figure 23
Figure 24: Jet Airways Fleet
Financial Performance
The stock performance of Jet Airways over the period from 2008-13 has been shown in
the figure below. BSE SENSEX has grown by 24.12% from 1 April 2008 to 1 July 2013.
Jet airways saw many ups and downs in this period. The figure below also gives a brief
53
about the various reasons that were responsible for the ups and downs in the stock
prices.
Figure 25
Figure 26: Jet airways stock performance 2008-2013
The table below indicates the financial performance of Spicejet in the period of 2008-12.
There has been heavy consolidation by the company in this period by increasing its fleet
size and improving its operations on key routes, financed by own capital.
Jet Airways (India)
Ltd. Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
54
Currency: Rs.
Crore (Non-
Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Total income
Sales 7,104.09 8,892.15 11,388.32 9,720.89 12,322.23 14,967.45
Total expenses 7,441.76 9,897.36 13,201.20 11,239.89 13,308.54 16,998.16
Power, fuel & water
charges 2,437.02 3,307.56 4,935.88 3,170.88 4,385.38 6,648.41
Indirect taxes 47.25 82.05 -254.62 80.6 199.65 452.68
Profits
PBDITA 759.82 941.54 1,452.64 1,560.53 2,145.54 958.46
Profit after tax
(PAT) 27.94 -253.06 -402.34 -467.64 9.69 -1,236.10
Total
liabilities/assets 10,772.10 20,944.10 23,460.73 21,012.33 21,667.29 22,141.65
Growth (%)
Total income 21.96 29.11 32.71 -15.83 23.63 18.35
Total expenses 31.19 33 33.38 -14.86 18.4 27.72
55
PBDITA net of
P&E&OI&FI -59.09 -34.14 -83.92 1,109.48 126.39 -85.62
Table 10
Table 11: Financial performance of Jet Airways
The total income grew year on year except in 2009 when recession hit all companies.
However Jet Airways has significantly bounced back and increased its sales by 18.35%
in 2012 as compared to 2011.
As can be seen from the table, total expenses also increased year on year. In FY2010,
Jet airways consolidated and hence expenses decreased considerably (14.86%) as
compared to 2009. In recent years, Jet has significantly increased its expenses owing to
acquiring new assets in terms of fleet etc.
Company in the news
Recently, following are a few of the important news articles that Jet Airways was
featured in.
Etihad deal
• Etihad Airways planned to buy a stake in Jet Airways.
• Jet announced that they were ready to sell a 24% stake to Etihad at US$379
million.
56
• In September 2012, government of India had announced that foreign airlines can
take up a stake of up to 49% in Indian airlines
• The date passed by and the deal was further postponed
Figure 27
Table 12: Etihad-Jet Airways deal complications
South African Airways ties up with Jet Airways
• Will operate non-stop flights between Mumbai and Johannesburg with the African
carrier assessing the Indian market to expand its presence here
• A code sharing agreement has been agreed upon between the two parties
• Frequent flier programmes will be applicable for both
• Done to improve load factor by seeing current trend on Mumbai-Jo’burg route
57
Jet Airways announces senior management change
• Jet Airways announced a change in the airline’s leadership, with the appointment
of Mr. Gary Kenneth Toomey as its new Chief Executive Officer
• Exit of Ex-Chief Executive Nikos Kardassis occurred without citing a reason
Code share agreement
Jet Airways announces Codeshare agreements with Air France, KLM Royal Dutch
Airlines to enhance connectivity between Europe & India. This will help Jet increase
international reach and also improve its connectivity and coverage.
