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Indian Civil Aviation Industry

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Executive Summary This paper reviews the civil aviation industry in India with the focus on innovation and corporate governance, and how innovation and corporate governance are contributing to the success of the Indian aviation companies both on commercial and social front. We start by looking at the evolution of aviation in India and identify key players to evaluate from innovation and corporate governance perspective. We also identify the aspects of innovation and corporate governance that contribute to the success of the airlines.

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Further, we define success factors and then evaluate each of the aviation players against these factors based on secondary research. We have selected NACIL, Jet Airways, Kingfisher Airlines, Indigo Air and Paramount Airways for the purpose of evaluation in this paper. The paper concludes by outlining a model for airlines to follow in terms of innovation and corporate governance to achieve success. Table of Contents Executive Summary2 History of the Indian Airline Industry4 Innovation5 Innovation in Civil Aviation Industry in India5 Routing Model6 Segments6

Use of Technology6 Pricing7 Branding7 Bundling7 Loyalty Programs7 Infrastructure usage7 Fuel Efficiency8 Financial Engineering8 Outsourcing8 Processes8 Alliances8 Corporate Governance9 Key Performance Measures of Corporate Governance9 Ownership Structure10 Board and Independent Directors10 Financial Transparency and Information Disclosure10 Shareholder Rights10 Regulatory Framework11 Internal control procedures11 Top Management Compensation11 Success Criteria11 Introduction of Players12 NACIL12 KingFisher Airlines12 Jet Airways12 Paramount Airways13 Indigo Air13

Analysis of the Indian Airline Companies13 NACIL13 KingFisher Airlines14 Jet Airways15 Paramount Airways15 Indigo Air16 Comparative Analysis16 Recommendations17 References18 History of the Indian Airline Industry Civil aviation in India started on February 18, 1911 with the first commercial flight from Allahabad to Naini, a now seemingly short but historically important flight of mere six miles.

Civil aviation continued to be on the sidelines until JRD Tata launched Tata Airlines, the first scheduled airline in 1935 which was later renamed to Air India in 1946.

After the launch of Tata Airlines, a few domestic players such as Deccan Airways, Airways India and Kalinga Airlines mushroomed but these airlines remained niche players, primarily plying short distances. The year of 1953 proved to be a watershed year for the private players when the Indian government nationalized civil aviation. All the existing private players were nationalized and merged into Air India. Under JRD Tata’s stewardship, Air India was rated among the best airlines in the world.

Within a few years of nationalization, Air India was rated amongst the worst airlines in the world, alongside airlines from the poorest nations in Africa. For the next couple of decades civil aviation continued to suffer from government control, corruption and policy issues. In 1990, the government ended its monopoly over airlines in the domestic civil aviation sector and allowed private airlines to ply domestic routes. However, severe restrictions private airlines put them at a severe competitive disadvantage against Indian Airlines, the government owned domestic airline.

The privately owned airlines were given unprofitable flying routes, inconvenient gates and aircraft parking locations. Eventually, these disadvantages led to the demise of most private airlines in the next couple of years. Jet Airways and Sahara Airlines, the only survivors, grew substantially year after year post-1991 as the restriction on private players were either significantly diluted . In the past decade more airlines have taken to the skies and have followed interesting strategies to entice the increasingly discerning flyer.

Air Deccan, pioneered the budget airlines concept in India, selling airline tickets for as low as 5 INR. Paramount Airways, on the other hand, entices flyers with its affordable luxury. The success of private airlines in attracting domestic passenger traffic, and years of complacent attitude have pushed the nationalized carriers into deep red. Air India and Indian Airlines were merged in 2007 and rechristened Indian, but continue to struggle as private players slowly chip away both passenger and cargo traffic from them.

As of 2009, private airlines command more than 50% of the domestic passenger traffic and the Indian is looking for a 160bn INR capital infusion to avoid bankruptcy. Innovation Innovation involves successful development and deployment of new ideas, technologies and business practices to create greater value for customers and shareholders. The process of innovation begins with invention followed by design and culminates in proving its value to businesses and customers as profits and satisfaction respectively.

Businesses innovate on various fronts such as new and improved products, services, skills, markets, processes and technologies to meet the objectives of bigger profits and enhanced stakeholder satisfaction (Canadian Manufacturers and Exporters) Today, innovation is extremely important as it allows businesses to respond to the rapidly changing environment caused by – • More discerning customers and their complex demands • Intensified competition due to the globalization of economies • Rapid advancements in technologies giving an edge to the competition

Innovation capability of a business determines its ability to compete in a global marketplace as competitiveness based on a cost alone is not sustainable. Innovation improves productivity which leads to a higher level of investment resulting in more employment, higher wages and overall social improvement of the country This paper delves deeper into the various dimensions of innovation in the aviation industry and how these innovations have helped companies achieve commercial success. Innovation in Civil Aviation Industry in India

We have identified following areas where aviation companies have either innovated in the past or where there is significant scope for innovation in the foreseeable future. . Airline companies continue to introduce new products, offer novel services, enter virgin markets and entice unserved segments in an effort to not only differentiate themselves from the competition but also to achieve consistent growth, profitability and higher levels of stakeholder satisfaction. Routing Model The airline industry predominantly uses two business models: Point-to-point and the hub-and-spoke.

In the hub-and-spoke model, flights from various originating points converge at the hub and passengers transfer to connecting flights to go to their final destinations. This model is typically used by large airlines. The advantage of this model lies in that it gives a significantly large number of route options to the flyers thereby increasing revenue maximization opportunities for the airline. On the downside planes have to wait for connecting flights thereby resulting in a lower aircraft utilization, higher operational costs due to more take-offs and landings and complex routing.

In India, Indian Airlines and Jet follow hub-and-spoke model for covering smaller towns but this model is predominant in the US where the number of destinations served by the larger airlines is huge. As more and more smaller towns get covered on the air-map of India, this model may be used more by the larger airlines which are targeting more markets. Even though Spice Jet is a low cost airline, it’s still using a hub-and spoke model. In the point-to-point model, flights connect cities directly. Since there is no waiting for connecting flights, the aircraft utilization is high and operational costs are low.

Low cost airlines such as Indigo and Go Air are point-to-point airlines. In the US, Southwest Airlines uses a point-to-point model. The airlines need to judiciously select the right model and create new models that are consistent with their competitive strategy. Segments Airlines are typically classified as either full-service or low-cost.. A full-service airline has business, first and economy class seat configurations and they provide additional services such as food and beverages in-flight, higher baggage limits and transfers.

The airlines primarily cater to business travellers and not so cost-conscious travellers. On the other hand low-cost airlines or budget airlines as they are generally called, offer price sensitive customers an inexpensive travelling option devoid of any frills. Spice Jet, Indigo and Go Air are the top low-cost airlines in India. Paramount Airlines, offers an emerging model that offers an all-business class low cost travel option.. In this model, all the seats in the aircraft are business class and offer full service but the ticket price is less than regular full service airlines.

These airlines are able to make this offering by adapting various cost-saving strategies such as point-to-point travel, using low cost airports, online ticketing etc. Use of Technology Airlines have used technology to improve operations, lower costs and provide a better customer experience. Online ticketing, web check-in, online baggage tracking, seat and meal selection are some ways by which airlines have leveraged technology to offer customers quick ticket buying options, checking-in at the airport and customizing their travel with minimal effort.

Leveraging technology to lower costs and enhance the customer experience will be the key differentiator and competitive advantage for the airlines. Pricing Airlines have been using dynamic pricing to maximize their revenue. Dynamic pricing strategies allow airlines to predict demand and availability of seats using past data on routes, seasonality etc and price tickets for revenue maximization. . The ability to offer lower prices while still ensuring high seat utilization and maximizing profitability will continue to be a key factor in the success of the airlines. Branding

With the proliferation of more and more airlines, it’s essential that the airlines create a unique brand for themselves to attract new customers and retain the existing ones. Each airline is jostling for the attention in the increasingly crowded airline market. Kingfisher has been effectively using branding for itself by the use of colours, taglines and large media coverage. Bundling Airlines have an opportunity to make additional profits by bundling tickets with holiday packages, hotels, cabs and other services.. Profits from these up-sell items can be used to offset the lower margins on low-cost ticket. Airlines which are able to offer these additional services not only provide a one-stop-shop to the customers but are also able to improve their bottom lines. So far, full service airlines like KingFisher, Jet and Indian Airlines provide these add-on services to their passengers while low cost airlines have stayed away from it. Loyalty Programs Loyalty programs such as frequent-flyer programs not only provide value to the customers but also offer an opportunity to the airlines to improve loyalty amongst its customers..

Additionally, loyalty programs provide airlines with rich data on customer spending behaviour. Insights gained from this data can be used to create targeted offerings that a re more appealing to customers thus opening additional revenue opportunities for the airlines. KingFisher, Jet Airways and Indian Airlines have loyalty programs while the low cost airlines in India are yet to start loyalty programs. The ability of an airline to create an attractive loyalty program that helps retain customers will be a key factor for success in this era of ongoing price-wars.

Infrastructure usage The airport infrastructure has not kept pace with the growth of the airline industry thus leaving a wide gap between the supply and demand of bays, parking slots and air strips at the Indian airports. The number of ticketing counters, baggage carousels, security check points and other basic services desperately need to be upgraded. Airlines that are able to identify innovative and efficient use of existing infrastructure will be able to overcome infrastructure related constraints in growth and emerge as a leader in the industry. Fuel Efficiency

Aviation fuel comprises of one of the biggest cost elements of an airline. Airlines have tried to control fuel costs by decreasing the weight of the planes by limiting free baggage allowance or charging for extra baggage, or other mechanisms such as using specific fuel saving flying techniques, limiting number of take-offs and landings by using point-to-point routes. The era of low oil prices is over so keeping fuel cost low will determine an airline’s ability to competitively price flight tickets and still provide appropriate returns to the its investors.

Financial Engineering Aviation is a capital intensive business. Innovative financial models such as buy-back and leasing, hedging of fuel costs, hedging of foreign currency contracts can lead to significant cost savings and de-risking of financials due to a volatility in fuel prices and currencies. The low margin on tickets would make it crucial that airlines innovate in the area of financial engineering to ensure sustainability of their business model. Outsourcing

Like many other industries today, airlines are increasingly focussed on their core operations and are outsourcing non-core functions such as food and beverage, maintenance of planes, ground operations, call handling etc to third party vendors who can carry out these non-core activities at lower costs. Furthermore, outsourcing provides airlines with an opportunity to avoid investment in non-core areas and thus lowering overall operational costs. Further innovation in the content and the structure of these outsourcing deals could provide airlines with an edge over it competitors.

Processes One of the cornerstones of successful airlines has been their ability to define very streamlined processes which result in higher utilization of planes and other resources resulting in a lower cost structure and better profit margins. Some of the examples of process innovation are the ability to turn around a plane in a short span of time, baggage tracking using RFID etc. Technology plays a pivotal role in the implementation of these process improvements. Alliances Airlines can form alliances with other businesses to create an opportunity to cross-sell.

Such alliances may be between complementary products such as an airline and a hotel chain, a domestic and an international airline etc. There are existing airline alliances that can be used for such partnerships or new alliances can be formed with other companies to tap the customers’ wallet. Corporate Governance Corporate governance can be defined as a system of checks and balances between various stakeholders such as the board, management and shareholders to produce an efficiently functioning corporation, geared to produce long term value for all stakeholders.

A well-governed company has mostly independent directors with no management ties, undertakes formal evaluation of its directors, and is responsive and transparent to investors’ requests for information on governance issues. Development of a model of corporate governance should include consideration of all facets of society, its stakeholders and the norms the stakeholders generate. Thus, corporations must consider ethical, social and political norms of behaviour in corporate governance structures.

Good corporate governance can lead to higher performance in the medium and long term though its impact in the short term may not be immediately visible. Brown and Caylor (2006) have related corporate governance to financial performance for multiple firms, used return on equity and return on assets as their measures of financial performance, and found that financial performance is higher when corporate governance is higher. Corporate governance also reduces asymmetry of information by improving communication and breaking down systematic barriers to flow of information and leading to open and transparent systems.

Further, corporate governance also leads to decision making based on facts and data that are easily verifiable and thus reduces subjectivity and potential risk. Good corporate governance helps in creating a strong brand and creates comfort and transparency for all stakeholders and society in general. However, it is critical to note that there are various internal and external factors that impact corporate performance and good governance alone cannot lead to superior performance.

Key Performance Measures of Corporate Governance Corporate governance performance metrics can be used to estimate company’s share value and help investors make investment decisions by providing necessary information on a level of corporate governance in rated companies. These metrics allow easy comparison between prior to making an investment decision and also expose possible risks due to malpractices. Many organizations and rating agencies have begun to make ratings of corporate governance performance.

Examples of foreign and international ratings are Governance Metrics International, Institutional Shareholder Services and S. Listed below are key performance measures of corporate governance and how they can impact corporate performance: Ownership Structure A critical factor that determines the ownership structure is the percentage of ownership held by the largest shareholders. It is observed that in almost half of Indian companies largest shareholders have a shareholding of more than 50% which is not desirable.

On the other side, Jensen and Meckling (1976) argue that the interests of management and shareholders become more aligned and the incentive to indulge in opportunistic behaviour diminishes as the proportion of equity held by insiders increases. In this context, a large body of literature suggests that, for most companies, managerial ownership helps executives make better decisions, which enhances corporate governance quality. Some studies show that the institutional investors must intervene in the corporate governance system of a company.

Shleifer and Vishny (1986) observe that institutional investors by virtue of their large stockholdings would have greater incentives to monitor corporate performance since they derive greater benefits from monitoring. Board and Independent Directors Company boards with independent directors are typically more effective in monitoring management leading to better performing companies (Bhagat, 2002). Also, independent boards are more likely to opt for a clean slate when company performance deteriorates significantly, and to hire a replacement CEO from outside the firm rather than promote an internal candidate (Huson, 2001).

In addition, the frequency of board meetings may have an impact on company performance since the recovery from poor performance is faster with more frequent board meetings (Vafeas, 1999). In addition, many studies have confirmed that by separating the positions of Chairperson and CEO, relying on small boards, and limiting the number of other boards on which a board member may serve, result in improved governance systems. Financial Transparency and Information Disclosure Asymmetry of information can be minimized by transparency and timely information disclosure.

This improves communication and removes the constraints to information flow. The recent downturn was caused due to companies that created a web of complex and confusing financial instruments to hide bad business fundamentals and allowed risk to be spread leading to the detriment of all concerned stakeholders. In these tough economic situations, it is getting increasingly difficult to arrange for finances for daily operations. Thus, confidence building in investors using complete transparency in investors is essential.

This builds good confidence among existing shareholders and potential new investors. Shareholder Rights Certain studies have shown that stronger shareholder rights are associated with higher earnings quality. However, when firms’ stocks are held predominantly by institutions with short investment horizons, the role of shareholder rights in constraining aggressive and opportunistic management of earnings is significantly diminished (Jiang, 2009). Thus the type of ownership needs to be considered when we consider steps to increase shareholder rights.

Regulatory Framework The Ministry of Civil aviation in India has formulated route dispersal guidelines which require the airline operators to operate at least 10 percent of their deployment of capacity on trunk routs, in Category II routes. These guidelines are aimed at ensuring the availability of a minimum level of air operations in Category II routes which are typically low traffic, low margin routes. At present, the domestic air transport policy debars foreign airlines form equity participation in the companies formed for domestic air transportation.

The policy allows participation of foreign individuals/companies up to 40 percent and the participation of non-resident Indians (NRIs) / overseas corporate bodies (OCB) up to 100 percent in the domestic air transport services. Lastly, high aviation fuel prices for airlines since they have to purchase aviation fuel at high prices from government are causing the sector to accumulate heavy losses. Internal control procedures Internal control procedures are the policies implemented by the board of directors, internal audit committee, management, and other personnel to rovide reasonable assurance of the company achieving its objectives related to reliable financial reporting, operating efficiency, and compliance with laws and regulations. Internal auditors are personnel within an organization who test and ensure the design and implementation of the entity’s internal control procedures and the reliability of its financial reporting. Top Management Compensation There is a growing disparity between the compensation paid to the top management executives and the average worker in big corporations and investment firms.

There are concerns and anger within employees and shareholders whether these huge numbers are fair and justified. The directors of board are responsible for setting the compensation levels and should be advised by more than one consultant. Finally, boards should insist on contracts that make it easier to fire executives, and should not be provided with golden parachutes Success Criteria The success of a company can be measured in terms of the financial parameters and the social impact that it makes. While financial parameters are easily available for publicly listed companies, the financial data for privately held firms is hard to come by.

Similarly, the softer impressions that a business makes are very subjective and usually formed in terms of media reports and the consumer sentiment. We shall evaluate the various Indian airline companies on the following success factors that can result from innovation and good corporate governance – • Profitability • Growth Rate • Utilization • Employee Satisfaction • Customer Satisfaction • Shareholder Satisfaction • Media impression • Contribution in expanding the airline market and tourism in India • Impression of rating agencies • Corporate Social Responsibility (CSR) Introduction of Players NACIL

NACIL was created as a result of the merger of Air India and Indian Airlines in 2007. Although both its predecessors had over five decades of aviation experience, NACIL has been in dire straits since its inception even with the preferential treatment provided in every aspect of operation. NACIL is given preferred parking bays, gates and flight schedules. In a recent circular, the government mandated that all government sponsored trips be undertaken on Indian even if Indian does not offer best value. NACIL is a prime example of organizations that become complacent due to their monopoly status and failed to innovate miserably.

NACIL has also been at the centre of major violations of safety norms, nepotism and political battles. KingFisher Airlines Launched in 2005 with a promise to provide luxury at affordable prices, KingFisher is one of the few full service airlines surviving the onslaught of low-cost carriers. In 2008, KingFisher acquired controlling stake in Air Deccan, a leading low-cost carrier and rebranded it as KingFisher Red. Besides Indian and Jet, KingFisher is the only airline that operates both full-service and low-cost flights. KingFisher introduced a number of firsts in the domestic flights such as on-screen safety demonstration and Dish TV or in-flight entertainment. Jet Airways Jet Airways was launched in 1992 and like KingFisher and Indian operates both full-service and low-cost flights. Jet Airways was the first domestic airline allowed to fly internationally among allegations of kickbacks and political favouritisms. In a litigation regarding on Jet copyright, it was alleged that Jet Airways chief Mr. Naresh Goyal used dirty money to start the Jet Airways operations. As Jet Airways expanded over the years, it relied on innovation to remain competitive in a market where its main competitor Indian Airlines controlled most of the airline infrastructure in the country.

Paramount Airways Started in 2005, Paramount Airways followed a different positioning from all the other airlines. Paramount was the first airline targeting business customers. Paramount aircrafts are all-business class configuration and its current plans are to replicate this unique strategy for international sectors. Indigo Air Indigo commenced its operation in 2006 as a low-cost carrier and rapidly expanded to become a major player in the domestic airline industry. Indigo does not offer in-flight meal service offers unique in-flight shopping.

Analysis of the Indian Airline Companies NACIL NACIL has evolved into an organization which offers both full service and low cost travel options. They don’t seem to follow a clear hub-and-spoke or point-to-point routing strategy. This could be one of the reasons for inefficiencies in their operations. NACIL continues to be a full service airline in spite of multiple attempts to start a low cost operation. On the technology front, NACIL has not really taken off very well and its online presence is neither reliable nor fully functional. The pricing of tickets is redominantly static. This does not allow them to compete with other airlines who offer dynamic pricing depending on the demand and supply situation. The Maharaja brand of Air India has been around for decades. It was supposed to be a high end service brand but for similar priced airlines, the Maharaja has failed to meet customer expectation. For additional revenue, NACIL offers holiday packages to the destinations it flies. NACIL has a loyalty program which is not very well implemented and often faces technical glitches leading to little customer loyalty.

The regulatory framework provides preferential treatment to NACIL and yet NACIL has not been able to capitalize on it so far. In addition to its obligation to serveless lucrative routes as mandated by the government regulations, influence of politicians , have contributed to the negative margins for NACIL. NACIL has been one of the most inefficient airlines in the world in terms of aircraft to employee ratio and continues to be overstaffed compared to the private carriers (261 employees/aircraft, India Air Transport Statistics). NACIL is fully owned by the Indian government.

There is only one independent director while remaining directors are employees of NACIL. Being a government owned company, its financials are available to the public. The office of Comptroller and Auditor General of India has found multiple accounting issues over the years related to Air India (Financial Express, 10 Jul 2009). Since the airline is fully owned by the government and run by government appointees, there is little pressure and incentive to create shareholder value. The internal control procedures for NACIL have been lax and significantly contributed to huge losses over the years (Rs. 200 Cr accumulated losses, Economic Times 15 July, 2009). It has been consistently losing market share to the new players. There have been multiple rounds of VRS and strikes are a regular affair at NACIL. Employee morale is low due to pressure on the management. Customers are usually not satisfied with the service level for the high ticket prices that NACIL charges and the inefficient service attitude of the staff. On the positive side, NACIL has been instrumental in expanding the footprint of air traffic in India due to the government’s andate to cover less lucrative areas. Currently, the government is working on a bail-out plan for NACIL and is considering privatization of the airline. Given that NACIL has unique monopoly on a lot of airline related resources, there is ample opportunity for improvement. It needs to innovate more to make optimum usage of these resources at its disposal and also provide better corporate governance to make it more competitive. Privatizing the airline could provide the much needed impetus for its turn-around. KingFisher Airlines

KingFisher Airline is one of the youngest airlines in India and given its lineage to the UB Group, it presents a very bold image with a prominent usage of red colour. It started off as a full-service airline and acquired Air Deccan to increase its offering to the price sensitive flyers. It follows a hub-and-spoke model for route planning. It was quick in adapting technology for online customer engagement, loyalty programs, e-check-in etc. KingFisher uses dynamic pricing for revenue maximization and also offers holiday packages.

It has been able to secure preferred terminals by outsourcing its ground handling, engineering and aircraft maintenance support to Indian Airlines. This is a good strategy to reduce fixed costs. Also, KingFisher is buying surplus kilometers from IA on IA’s less profitable routes. This way KingFisher can offer additional destinations to its customers without having to deploy its aircrafts on less profitable routes. (AllBusiness, May 16 2005). KingFisher has been following a rapid growth strategy although it has been incurring losses.

KingFisher has created a niche brand in the airline sector and likes to calls its flyers “guests” instead of passengers, highlighting it’s customer focus. KingFisher Airlines is owned by the UB Group which has significant interests in the liquor business, raising concerns that it serves as a surrogate advertising medium for the liquor brands of UB Group. KingFisher Airlines owes billions of rupees to the oil companies for ATF payments. The fares from Kingfisher are frequently advertised with a base price of INR 1. However, after taking various s surcharges into accountthe ticket price umps to over a thousand rupees. Instead of increasing the base price, the airline is using fuel and other surcharge to pass on its operating costs to the customer. The airline is essentially deceiving customers by not correctly classifying individual parts of the ticket price. Kingfisher Airlines needs to clarify its shareholding structure and provide true pricing to its customers. With the growth strategy in place after the acquisition of Air Deccan, KingFisher needs to focus more on the bottom-line for the long term sustainability of the business. Jet Airways Jet Airways is the largest private airline in India.

It predominantly follows hub-and-spoke model with Delhi and Mumbai as the major hubs followed by Chennai and Kolkata. Jet continues to be a full service airline. Jet acquired Sahara and transformed into its low cost provider JetLite. Jet has a reliable online ticket system along with an online customer loyalty program. It uses dynamic pricing and holiday bundling as a means to maximize revenue. Jet has partnered with Brussels Airport in Belgium to use the hub of its international operations. This is a good strategy to ensure that they have a hub in Europe which is not congested.

Jet Airways board has close relations of the founder as board members (Jet Airways, Senior Management). Jet Airways does not own its brand. The brand is owned by Jetair Enterprises Ltd, a separate company substantially owned by Naresh Goyal, which licenses the brand to the airline in return for an annual payment. Jet Airways has code sharing agreement with various airlines such as American Airlines, Etihad Airways, Qantas Airways, Air Canada and Brussels Airlines (Crisil Research, Future of LFC Model in India). Jet Airways had a loss of face when they retrenched around 1000 staff members and had to rehire them after widespread public protest.

There have been allegations against Jet of using mafia money for its expansion. Jet needs to focus more on the bottom-line and also add more diversity to its board to ensure better corporate governance. Paramount Airways Paramount Airways made a mark in the Indian aviation landscape by introducing an all-business offering in the low-cost space. It is one of the very few airlines which have been profit making. It follows a point-to-point routing strategy. Despite the low-cost model, it offers business class services like complimentary access to airport lounges and valet assistance.

It has embraced technology for ticketing, e-check-in, customer loyalty, dynamic pricing etc. It is focusing on smaller airports to make use of the cheaper infrastructure and save on fuel costs and achieve higher utilization of the aircrafts. It has been growing above 80% per annum and has the highest on-time-performance (87. 6%) for a domestic airline in India (OTP of Scheduled Domestic Airlines). Paramount has also followed a different approach in its aircrafts acquisition by buying only Embraer aircrafts unlike other airlines which go for Boeing and Airbus.

Since Paramount is a key customer for Embraer’s entry strategy into the high growth Asia market, Embraer has been giving preferential treatment to Paramount. Continuing to focus on its customers, Paramount has got an approval to use mobile phones in the planes (Outlook India – Desperate Measures). Paramount is a privately held airline and has done well so far. As it expands, it should bring more professionals to its management and the board to ensure good corporate governance. It should also continue to innovate further to maintain the edge it has created in the competitive airline industry.

Indigo Air Indigo Air is a low-cost airline with a point-to-point routing strategy. It has one of the highest OTPs and seat utilizations amongst the domestic carriers in India. It also uses technology extensively to sell tickets, provide e-check-ins and dynamic pricing. It has not introduced a customer loyalty program yet but uses sales promotions extensively. Indigo has a clear strategy to use only one type of planes – Airbus 320 (About Indigo) as a way to ensure low maintenance costs and cross utilization of pilots and other employees across all planes.

Indigo has also introduced an in-flight shopping channel which provides an additional revenue stream to the airline. There are allegations that Indigo used Air Deccan data that its sister concern InterGlobe acquired while managing ticketing for Air Deccan , to make business plans for Indigo (DNA India, 22 Dec 2008). Comparative Analysis To conclude, we do a comparative analysis of these airlines on the basis of corporate governance, innovation and the relative profit/loss of these airlines. Paramount Airlines was the only profitable airline out of these players. Size of the circle represents relative profit. pic] Some statistics for these airlines from the DGCA website are provided here – |2008-09 |NACIL |Jet |KF |Indigo |Paramount | |Fleet Size |128 |106 |41 |17 |5 | |Number of flights per day |424 |458 |203 |83 |35 | |Growth rate in passenger traffic |-2. 95 |4. 95 |77. 4 |  |82. | |Avg Passenger Load Factor |65. 8 |70. 8 |68. 1 |72. 7 |70. 8 | |Employees per aircraft |261 |133 |123 |122 |122 | |Total Number of Employees |33386 |15720 |5023 |2074 |611 | |Revenue per Employee (Cr) |0. 468 |0. 6295 |0. 535 |0. 55 |0. 439 | |Total Revenue (Cr) |15624. 48 |9895. 74 |2687. 305 |1140. 7 |268. 229 | Recommendations Based on the analysis of these five players, we can make some observations that the Indian domestic airline industry has grown very fast in the last ten years. To achieve this growth, the larger players have focused more on the top line and hence resulting in significant financial losses. On the other hand, a number of small airlines have started business and have tried to remain more focused in terms of growth and have ensured a positive bottom-line.

Some of the key success factors for the airline companies in India would be to innovate in terms of segments they target, cost management, financial engineering, branding, additional revenue sources on the commercial front. On the softer aspects, these companies need to ensure that their board of directors are comprised of professionals who are truly independent, their employees are given a fair and professional treatment, customers are satisfied so that they keep on returning and their ownership structures of these airlines are made clear to the public.

There is plenty of growth opportunity for airline traffic in India. The availability of infrastructure would be the driving factor for increasing airline traffic. The major private players need to work closely with the government to achieve the growth in infrastructure and aviation since a reliable and large aviation industry creates a considerable number of jobs and contributes to the growth of the economy. References The Business Case for Innovation from http://www. cme-mec. ca/national/documents/caseforinnovation. pdf http://airlinesindia. rg/ Brown, L. and Caylor, BM. (2006), “Corporate Governance and Firm Valuation”, Journal of Accounting and Public Policy, Vol. 25, pp. 409-34. Bhagat, S. and Black, B. (2002), “The non-correlation between board independence and long-term firm performance”, Journal of Corporation Law, Vol. 27, pp. 231-73. Huson, M. (2001), “Internal monitoring and CEO turnover: a long-term perspective”, Journal of Finance, Vol. 56 No. 6, pp. 2265-97. Vafeas, N. (1999), “Board meeting frequency and firm performance”, Journal of Financial Economics, Vol. 3 No. 1, pp. 113-42. Shleifer, A. and Vishny, R. W. (1986), “Large shareholders and corporate control”, Journal of Political Economy, Vol. 94 No. 3, pp. 461-88. Jensen, M. C. and Meckling, W. H. (1976), “Theory of the firm, managerial behaviour, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-60. Wei, J. and Anandarajan, A. (2009), “Shareholder rights, corporate governance and earnings quality: The influence of institutional investors”, Managerial Auditing Journal, Vol. 24 No. 8, pp. 767-791.

India Air Transport Statistics 2007-08, Statistical Division, Directorate General of Civil Aviation, New Delhi http://dgca. nic. in Financial Express, 10 Jul 2009, PSUs are routinely understating liabilities, overstating assets: CAG http://www. financialexpress. com/news/psus-are-routinely-understating-liabilities-overstating-assets-cag/487359/2 Economic Times, 15 Jul 2009, AI-IA loss at Rs 7200 cr: Patel: http://economictimes. indiatimes. com/News/News-By-Industry/Transportation/Airlines-Aviation/AI-IA-loss-at-Rs-7200-cr-Patel/articleshow/4778442. ms AllBusiness, May 16 2005 – Kingfisher Airlines signs outsourcing deal with Indian Airlines – http://www. allbusiness. com/operations/shipping-air-freight/422470-1. html Jet Airways – Senior Management -http://www. jetairways. com/EN/IN/AboutUs/SeniorManagement. aspx Crisil Research, Future of LFC Model in India https://www. crisilresearch. com/ResearchProWeb/control/usagetracker? usagestring=DisplayFullReport:ReportTree=55314 KingFisher pledging shares – http://gv-moneymatters. blogspot. com/2009/01/vijay-mallya-pledges-big-chunk-of. html

On Time Performance (OTP) of Scheduled Domestic Airlines – July 2009, DGCA (http://dgca. nic. in/reports/otp. pdf) About Indigo – http://www. indigoairways. com/skylights/cgi-bin/skylights. cgi? module=C3=ABOUTINDIGO DNA India, 22 Dec 2008 – Air Deccan was sabotaged by Indigo operator InterGlobe http://www. dnaindia. com/mobile/report. asp? n=1215866 Outlook India – Desperate Measures – http://business. outlookindia. com/inner. aspx? articleid=2779=76=20=22 ———————– [Type the company name] Innovation and Corporate Governance in the Indian Civil Aviation Industry

Cite this Indian Civil Aviation Industry

Indian Civil Aviation Industry. (2018, Jan 28). Retrieved from https://graduateway.com/indian-civil-aviation-industry/

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