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What is service
Services involve a direct interaction betweenproducers and consumers, whether its face toface (as in retailing, personal services, health
care, or live entertainment), or more remotely (asin the case of Internet access or television
broadcasting)
The service sector includes education, finance,
communications, health care, utilities, wholesaleand retail trade, and transportation.
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Indian owned Airlines Companies
Air India
Jet Airways
Kingfisher
Indigo
Spice Jet
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Introduction
Indian Aviation Industry is one of the fastestgrowing markets in the world. The AirportAuthority of India (AAI) manages a total of 127
airports in the country, which include13 international airports, 7 custom airports, 80domestic airports and 28 civil enclaves. There areover 1091 registered aircrafts in the country. The
genesis of civil aviation in India goes back toDecember 1912 when the first domestic air routebetween Karachi and Delhi became operational
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Types of Players
In 1990s, aviation industry in India saw someimportant changes. The Air Corporations Act wasabolished to end the monopoly of the public
sector and private airlines were introduced. The indian aviation industry comprises of three
types of players:
Full cost carriers
Low cost carriers (LCC)
Other start-up airlines
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Challenges Faced by Aviation Industry
Employee Shortage
Regional Connectivity
Rising Fuel Prices Gaps in Infrastructure
High Inputs Costs
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Future Growth
India is expected to be amongst the top five nations inthe world in the next 10 years in the aviation sector.
India is the 9th largest civil aviation market in the
world.
Domestic air traffic will touch 160-180 million
passengers a year, in the next 10 years and international
traffic will exceed 80 million passengers a year.
The Indira Gandhi International Airport (IGI) in NewDelhi, India, has been ranked the second-best airport in
the world for 2011 by the Airports Council
International
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Market Size
The rapidly expanding aviation sector in India handles2.5 billion passengers across the world in a year; moves45 million tonnes (MT) of cargo through 920 airlines,using 4,200 airports and deploys 27,000 aircraft. Today,
87 foreign airlines fly to and from India and five Indiancarriers fly to and fro from 40 countries.
Passengers carried by domestic airlines during January2012 was recorded at 5.33 million as against 4.94
million during the corresponding period of previousyear thereby registering a growth of 8.06 per centaccording to DCGA.
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Initiatives
The first 100 per cent private airport in the
country is likely to become operational in
Karaikal, an enclave of Puducherry in Andhra
Pradesh, in another 24 months The new domestic terminal building at Biju
Patnayak Airport at Bhubaneswar, which is likely
to be completed by August 2012, will cater to 800passengers from the existing capacity of 500 of
the present terminal building.
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contd
The Joy Alukkas Group, the Kerala-based gold jewelleryretail chain, plans to invest Rs 100 crore (US$ 20.04million) in its aviation wing by next year to provideexclusive air charter services to various destinations acrossIndia and abroad and helicopter tours within Kochi.
The Group would also launch its helicopter services by theend of March 2012.
The Turkish Airlines is planning to expand its operations inIndia by 2012. "India is a very important market for us and
we need to fly to at least five cities there," according toTemel Kotil, CEO, Turkish Airlines.
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Largest Airline in India
Jet Airways is the largest Indian airline based out
of Mumbai.
It operates over 400 flights daily to 76
destinations worldwide
Its main hub is Mumbai with secondary hubs at
Delhi, Cochin, Chennai, Ahmedabad, Bengaluru,
and Kolkata Jet Airways is owned by Naresh Goyal.
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Low Cost Airline
Indigo is a private low cost airline based in Gurgaon.
Since commencing operations in August 2006, it has
established itself as one of India's leading airlines using
its model of efficient, low-cost operations and byattracting customers with low fares.
Indigo has the second largest share in India's domestic
air travel market
As of October 2011 it is the only airline in India
making profit.
It is one of the fastest growing low cost carrier.
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SWOT ANALYSIS OF INDIGO
Segment - Cost Conscious Passengers Target group - Lower Middle Class / Middle Class
Strengths - Strong backing Promoters, Only LCC to make
consistent profits (Low Cost Carrier)
Weakness - Not on too many routes
Opportunities - Largest Market share among LCCs in
Indian Market, Opening up of International Skies, Middle
Class taking to the skies
Threats - Plenty of new LCCs to compete with , Rising
Labour costs, Rising Fuel Costs
CompetitorsGoAir, Spice Jet, Kingfisher Red,
JetKonnect
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Various Costing involved
Service costing is that part of operation costing
which is used in all organisation who provide
services instead of producing of goods.
For calculating the price of each service, it is verynecessary to collect all the expenses relating to
that services.
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Examples of Service Costing
Salary
Insurance
License Fees
Interest on Capital
Repairs
Depreciation
Petrol Expenses (ATF)
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Airline Operating Expense
The price of buying the airplanes.
Hiring qualified pilots to fly the planes is anothermajor cost.
First officers and other crew members make less,but still represent a major cost.
Fuel costs not only take a huge chunk out of anairline's revenue.
Maintenance costs,
Fees paid to airports,
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contd
Fees paid to the government,
The cost of food served to passengers,
The cost of running computer systems to track
bookings.
Fees and percentages paid to travel agents and
Web sites, pilot training.
Other incidental costs all add to operating
expenses
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Example
For example, long flights cost the airline
proportionally more money -- that's because
they're in the air for a long while and burn a lot of
fuel -- but the passengers still only pay for asingle ticket. Empty seats represent an additional
cost. The plane has to make the trip for the paying
passengers, but if not all of the tickets were sold,
the airline is not making the maximum possible
profit on that flight.
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Cost
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Explanation
The above graph can be explained as follows.
They include flight operations (fuel, pilots)
Maintenance (parts and labour)
Station expenses (handling passengers, luggage andfreight at terminals)
Promotion (advertising, reservations and travel agentcommissions; 80% of all ticket sales are done throughtravel agents)
Passenger services (food and entertainment) Administration, equipment depreciation and
amortization and transport related (delivery trucks).
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Operating Expenses
Globally, labour accounts for 35% of the
operating costs of the airline industry, which
represents about 75% of all non-fixed costs.
Fuel comes in second with 10-12% andcommissions to travel agents account for 6%
(down from 10% in 1995).
Eg: Fuel Cost of Jet Airways increased by 38.6%to Rs 436670 in 2011 from Rs 315165 in 2010.
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How to cut Airlines Cost
Fuel hedging
Use only one kind of plane ( No separate Training
required by pilots, Maintenance and Repairs)
Cheap Airport Fees.
Direct to the Destination.
Direct Ticket Sales.
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Hedging
It's a gamble against the future price of jet fuel. If
an airline thinks that the cost of fuel is going to
rise in the future, they can sign contracts locking
in the current price for months or even years. Iffuel prices double in 12 months, the airline would
be buying fuel at last year's cheaper rate.
However, if prices drop, the airline is stuck
paying their "locked in" higher rate.
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Typical Cost Sheet
a) Fixed costs:
Garage Rent
Insurance
Vehicle Tax
Interest on Capital
b) Maintenance Costs
Tyre and Tubes
Repairs
Overhaulings
c) Operating Costs
Petrol
Engine oil
Lubricating oil
Wages of Operators
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Jet Airways Operating Expenses
Decrease in Insurance costs is due to reduced rate negotiated for the year
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Consolidated P & L A/c
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Recommendations
Schedule O
Staff Welfare Expense has increased drastically
from Rs 5580 to 8223. And expenses including
salary, wages, bonus increased from Rs 127940 to137162.
Aircraft fuel Expenses from Rs 3,75,839 to Rs
5,16,734. If Fuel Hedging would have been used it would
have reduced the cost up to a certain expenses.
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contd
Schedule P :
Selling & Distribution Expenses
Commission to travel agents increased from Rs
63645 to Rs 84287.
It would have been reduced if the company
directly sells its own tickets.
Maintain more tie up with corporate clients.
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contd
Schedule Q:
Consumption of stores and spares increased from Rs11316 to Rs 14409.
It would have been reduced if more one type of planewould have been used.
Loss on scrapping of Aircraft parts increased from Rs43 to Rs 1843.
Repairs and Maintenance which include leasedpremises and others.
Cost of others increased from Rs 3044 to Rs 4028.
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contd
Schedule R:
Interest and finance charges includes interest on
fixed loan and others.
Cost of others increased from Rs 11511 to Rs
24460