Fu

ture

Ch

alle

ng

es F

or

the

Ind

ian

Mar

ket

An

dre

w M

iller

CE

O C

entr

e fo

r A

sia

Pac

ific

Avi

atio

n

Ap

ril 2

006

- 2

-

En

viro

nm

enta

l Dri

vers

Go

vern

men

ts’ f

ocu

s o

n t

ou

rism

gro

wth

an

d r

egio

nal

dis

per

sal

sti

mu

late

eco

no

my

Rap

id l

iber

alis

atio

n o

f mar

kets

LC

C s

tart

-up

s en

teri

ng

Fla

g c

arri

ers’

lim

ited

ab

ility

to

res

po

nd

(cu

ltu

re, c

ost

str

uct

ure

,d

ecis

ion

-mak

ing

, ow

ner

ship

)

New

in

tern

atio

nal

ro

ute

s fr

om

sec

on

dar

y p

ort

s

Tra

velle

rs e

mb

race

th

e L

CC

mo

del

LC

Cs

gra

bb

ing

sig

nif

ican

t m

arke

t sh

are

Lo

wer

far

es s

tim

ula

tin

g m

ore

air

tra

vel

LC

Cs

gro

win

g t

he

mar

ket:

bu

s/tr

ain

/car

tra

velle

rs f

lyin

g

- 3

-

Wh

at s

trat

egie

s ca

n a

irlin

esp

urs

ue…

.?

Bas

is f

or

Str

ateg

y

Def

ensi

veO

ffen

sive

Gro

wth

Ret

ain

cu

sto

mer

s–

Po

ten

tial

“lo

wfa

re”

swit

cher

s–

Pre

miu

m p

ax–

Fee

der

tra

ffic

for

med

/lon

gh

aul

net

wo

rkvi

abili

ty

Co

nta

in t

he

gro

wth

of

com

pet

ito

rs–

LC

C–

Oth

ers?

Tak

e co

ntr

ol

of

mar

ket

–D

isti

nct

bra

nd

s–

Pri

ce le

ader

ship

–L

ow

est

cost

s

Cap

ture

sh

are

of

mar

ket

gro

wth

En

han

ce s

har

eho

lder

val

ue

- 4

-

… a

nd

wh

y d

o t

hey

fin

d it

so

har

d?

Bar

rier

s to

Imp

lem

enta

tio

n

Def

ensi

veO

ffen

sive

Gro

wth

Competency

Capital

Speed

- 5

-

Wh

at a

re t

he

mar

ket

imp

acts

on

Leg

acy

Fu

ll S

ervi

ce C

arri

ers

aro

un

d t

he

wo

rld

?

Lo

ss o

f h

om

e d

om

esti

c m

arke

t to

LC

C s

tart

-up

s

Lo

ss o

f in

bo

un

d in

tern

atio

nal

mar

ket

shar

e to

oth

er N

ewW

orl

d C

arri

ers

du

e to

der

egu

lati

on

, e.g

. Em

irat

es

Pre

ssu

re o

n h

om

e fl

ag c

arri

ers

to k

eep

pac

e in

inve

stin

g in

new

cap

acit

y

Mo

vem

ent

away

fro

m s

ing

le h

om

e ca

rrie

r in

tern

atio

nal

hu

bw

ith

res

ulta

nt

net

wo

rk s

pre

ad i

n d

eman

d

Red

uct

ion

in y

ield

s co

up

led

wit

h h

igh

er le

gac

y co

sts

(lab

ou

r co

ntr

olle

d)

- 6

-

Gro

wth

of

No

n H

ub

Air

po

rts

Pas

sen

ger

gro

wth

(ye

ar-o

n-y

ear)

at

Ind

ia’s

to

p 1

1 ai

rpo

rts

(Ap

r-05

to

Feb

-06)

01234567

Hyder

abad

Amris

tar Ban

galore Ahm

edab

ad

Delhi

Kolkat

aCoch

in Trivan

drum

GoaM

umbai

Chennai

Millions

0%5%10%

15%

20%

25%

30%

35%

40%

Inte

rnat

iona

l Pax

Gro

wth

- 7

-

Ho

w a

re h

om

e le

gac

y fl

ag c

arri

ers

rest

ruct

uri

ng

?

Reg

ain

ing

co

ntr

ol o

f th

eir

ho

me

do

mes

tic m

arke

t b

y in

tro

du

cin

gL

CC

op

erat

ion

s, e

.g.

Qan

tas

wit

h J

etst

ar

Res

tru

ctu

rin

g t

he

cost

bas

e o

f th

e le

gac

y ca

rrie

r d

om

esti

co

per

atio

n in

to “

Leg

acy

Lit

e”, e

.g. A

ir L

ing

us

and

Air

New

Zea

lan

d

Res

tru

ctu

rin

g t

he

inte

rnat

ion

al c

ost

bas

e (n

on

-fu

el)

to 2

0-30

%lo

wer

th

an c

urr

ent

cost

s, e

.g.

SQ

, C

X, B

A

Pro

tect

ing

sec

on

dar

y p

ort

s as

wel

l as

pri

mar

y h

ub

s, e

.g. Q

F, L

H,

NZ

Mer

gin

g o

per

atio

ns

to s

trip

ou

t co

sts,

e.g

. MH

an

d A

ir A

sia

Mer

gin

g a

irlin

es t

o a

chie

ve b

enef

its

of s

cale

, e.g

. AF

/KL

M a

nd

Air

Sah

ara/

Jet

Air

way

s

- 8

-

Wh

ere

will

th

e co

st c

om

pre

ssio

nco

me

fro

m f

or

leg

acy

carr

iers

?

01234567

Fu

llS

ervi

ceC

arri

er

Sea

tD

ensi

tyA

ircr

aft

Util

isat

ion

Peo

ple

Sal

es &

Mar

ketin

gU

ser

Ch

arg

esA

ircr

aft

rela

ted

Ove

rhea

dL

ow

Co

stC

arri

er

Aro

un

d h

alf

of

the

cost

dif

fere

nti

al c

om

es f

rom

mo

re s

eats

an

d b

ette

rai

rcra

ft u

tili

sati

on

Sim

ple

str

uct

ure

;fe

w s

tep

s to

cust

om

er

Inn

ov

ativ

eap

pro

ach

es

to d

irec

tse

llin

g

1

2

New

er a

ircr

aft

(les

sm

ain

ten

ance

, bet

ter

fuel

bu

rn, e

tc)

can

als

o h

elp

3

4

10 5

- 9

-

Wh

at d

oes

th

is m

ean

fo

r A

ir In

dia

and

Ind

ian

Air

lines

an

d t

he

Ind

ian

Go

vern

men

t as

a s

har

eho

lder

?

Th

e In

dia

n m

arke

t h

as t

rem

end

ou

s g

row

th o

pp

ort

un

itie

s

Th

e g

ove

rnm

ent

po

licie

s su

pp

ort

lon

g-t

erm

gro

wth

Th

e In

dia

n le

gac

y ca

rrie

rs a

re n

ot

wel

l pla

ced

to

“cr

eate

valu

e” f

rom

th

is d

ereg

ula

tio

n

Du

plic

atio

n o

f g

ove

rnm

ent

cap

ital

in t

he

do

mes

tic a

nd

inte

rnat

ion

al m

arke

t as

so

me/

mo

st c

ust

om

ers

are

the

sam

e

Th

e G

ove

rnm

ent

inve

sto

r n

eed

s to

rat

ion

alis

e it

sap

plic

atio

n o

f ca

pit

al in

th

e d

om

estic

an

d in

tern

atio

nal

mar

kets

no

t o

nly

to

sto

p lo

sses

bu

t g

row

the

mar

ket

- 10

-

Air

Ind

ia L

osi

ng

Gro

un

d in

Inte

rnat

ion

al G

row

th

Inte

rnat

ion

al p

asse

ng

er g

row

th,

Air

In

dia

vs

To

tal

Ind

ia

-5%

0%

5%

10%

15%

20%

2000/01

2001/02

2002/03

2003/04

2004/05

Tota

l in

tern

atio

nal

Pax

Air I

ndia

Pax

- 11

-

Wh

at d

oes

th

e In

dia

n G

ove

rnm

ent

do

?

Mer

ge

the

do

mes

tic

and

inte

rnat

ion

al o

per

atio

ns

at a

lo

wer

co

stb

ase

(2+

2=3)

with

hig

her

rev

enu

e p

ote

nti

al (

2+2=

5)

Man

y h

isto

rica

l pre

ced

ents

: B

OA

C/B

EA

= B

A, Q

anta

s/A

ust

ralia

nA

irlin

es =

Qan

tas,

NA

C/A

ir N

ew Z

eala

nd

All

mer

ger

s to

ok

too

lon

g a

nd

did

n’t

giv

e q

uic

k w

ins

Th

e In

dia

n G

ove

rnm

ent

will

ben

efit

fro

m h

ind

sig

ht

fro

m t

hes

eg

lob

al m

erg

ers

Th

e b

alan

ce s

hee

t st

ress

on

th

e n

atio

nal

car

rier

will

be

alle

viat

ed

A c

oo

rdin

ated

air

craf

t, n

etw

ork

an

d b

ran

d p

osi

tion

ing

will

be

ach

ieve

d w

hic

h w

ill b

e g

oo

d f

or

tou

rism

- 12

-

Th

e w

ork

of

CA

PA

Co

nsu

ltin

g

Pro

du

cts

–L

egac

y C

arri

er R

estr

uct

uri

ng

–L

CC

Sta

rt-u

ps

–A

irlin

e M

erg

ers,

Acq

uis

itio

ns

and

Jo

int

Ven

ture

s

Geo

gra

ph

ies

–A

fric

a-

Au

stra

lia–

Ind

ia-

Ind

on

esia

–Ja

pan

- N

ew Z

eala

nd

–M

alay

sia

- S

ing

apo

re

Ski

lls–

CE

O/M

D/C

OO

–A

ll co

nsu

ltan

ts h

ave

han

ds-

on

avi

atio

n e

xper

ien

ce–

CA

PA

dat

a b

ase

pro

vid

es u

nri

vale

d m

arke

t in

telli

gen

ce

- 13

-

Th

e E

nd