india's first low cost airline
TRANSCRIPT
A Managerial Economics Presentation –Air Deccan a case study
November 22, 2010 – IMT Ghaziabad
Air Deccan a case Study
Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 2
• Air Deccan– Introduction
Presentation Flow
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• Launched in August 2003• A low cost, no frill airline• Targeted the unconventional
travel routes• Covered 65 destinations
across India• 365 flights per day• Flew 14 Million passengers a
year (maximum)• Market share of 11%
Introduction
Welcome to Air Deccan
Air Deccan a case Study
Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 4
• Air Deccan
– Capt. G R Gopinath – A Legend
Presentation Flow
Capt. G R Gopinath – A Legend
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• Capt. G R Gopinath was born in a small village called Gorur in Hassan district of Karnataka
• Managing Director of Air Deccan• Considered the father of low cost air
travel in India• Started with private sector commercial
helicopter rental service in 1996• Launched a low cost, no frills airline
called ‘Air Deccan’ on 25 August 2003• Air Deccan had a total of 121 planes
flying to 55 destinations across India
Air Deccan
Capt. G R Gopinath
• Launched: August 25, 2003
• 365 flights for 65 destinations
• Investment – USD 50 Million
Air Deccan a case Study
Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 6
• Air Deccan
– Birth of Air Deccan and Scale of Operations
Presentation Flow
The Birth of Air Deccan
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• Gopinath a serial entrepreneur who after his discharge from the army took and went from farming to sericulture to aviation
• Identified the potential of a low cost airline industry in India• Started a off with a ‘Heli-Charter’ service in 1997 called ‘Air
Deccan’• With time and growth in business Gopinath acquired his first
turboprop in 2003• At first ‘Air Deccan’ connect only small town to the bigger ones
thus, flying on routes considered unconventional routes by other players in the industry
• The idea: low cost, no frills, quick turn around, maximum outsourcing, strict cost check
Story of an airline that changed the way people flew
Scale of Operations
Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 8
• a
In Numbers
• Number of Planes– 60 (2006)
• Number of destinations – 55
• Number of Flights – 236 per day
• Number of passengers – 4 Million
• Market Share –11% (Dec, 2005)
Scale of Operations
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Destinations by Number
Scale of Operations
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Flights by Number
Scale of Operations
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Passengers by Number
Scale of Operations
Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 12
Passengers by Number
Air Deccan a case Study
Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 13
• Air Deccan
– Business Philosophy
Presentation Flow
Business Philosophy
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We deliver
Air Deccan Jet Airways Rail I AC Rail II AC
Route(One-way) Fares(INR) Fares(INR) Fares(INR) Fares(INR)
Chennai-Bangalore 721-1500 1370-2970 990-1402 614-747
Delhi-Mumbai 1999-5499 3120-5610 3303-4135 1775-2210
Vision
To be the preferred airline in India
Mission
To demystify air travel in India by providing reliable, low-cost air travel to the common man by constantly driving down the airfare as an ongoing mission
Beat us if you can
• Air Deccan stressed on:– Fastest aircraft turnaround
time– Single class point-to-point
service– No free meals or even water– Sale of tickets only through
• Internet or• Call centers
– Limited Staff– Outsource all non-core
operations– Third party advertisements
• Air Deccan’s mantras gave– Help achieved ‘economies of
scale’
– Customer preference as a first choice of airline
– Check costs though airline was criticized for this
– Cut commissions and gave a bigger profit share, thus lowering cost of operations
– Better employee satisfaction
– Specialization in core business operations
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Hammer the costs
The Mantra of Success The Implications
• Air Deccan’s strong take on various cost centers lead to– Economies of Scale
– Practical relevance of law of demand
– Diseconomies of Scale
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Economic and Business
Economics and Mantras The Economic Relevance
• Economies of Scale:– Refers to the cost
advantages that a business obtains due to expansion
• Law of Demand– Lower the cost higher the
demand
• Diseconomies of Scale– The forces that cause larger
firms to produce goods and services at increased per-unit costs
Air Deccan a case Study
Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 17
• Kingfisher – Introduction
Presentation Flow
Fly the Good Times
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• Founded on May 09, 2005 as gift to Siddharth Mallyaby Vijay Mallya
• Is a subsidiary of the ‘UB Group’
• The airline boasts of a five star service standard and brand new airplanes among other things
Kingfisher Airlines - Introduction
Air Deccan a case Study
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• Kingfisher
–– Operations and Many First
Presentation Flow
What we do?
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• Aircrafts – 66 (130 ordered)
• Average Aircraft Age – 2.3 Years
• Number of destinations –71
• Number of flights – 375• Pricing – Premium• Revenue – INR 272 Million• Employees – 7600
Operations
Many first…
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• Kingfisher has been associated with many first in the Indian airline industry– All new planes– Web check in– Mobile check in– Mobile ticketing– Five star airline experience
“This is a world class experience, all at an affordable price. We are not a low-cost carrier and we do not intend to be one,”
- Dr. Vijay Mallya
Air Deccan a case Study
Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 22
• The Merger– The Battle Begins and Birth of a new ‘King’
Presentation Flow
The Battle Begins
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“Gopi has completely over reacted”- Dr. Vijay Mallya
January25, 2006
May 18, 2006
Air Deccan, plans an IPO in NSE to
offload 25% stake
IPO is floated in the price band of Rs 150 - 175
June, 2006
IPO bombs and barely manages
to scrape through
February 27, 2007
Air Deccan upgrades it ticketing system to
‘Radixx’. Huge investment is made
December, 2007
Airline Industry is faced with a slump and with low
funds Capt. Gopinath is pushed for consolidation
Birth of a new ‘King’
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• April, 2008• Kingfisher bought 50%
stake in Air Deccan• Not just panacea• A strategic move for an
airline with its eye on the international horizon
• Dr. Vijay Mallya –Chairman and CEO
• Capt. Gopinath – Vice Chairman
Kingfisher Red
Air Deccan a case Study
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• The Merger
– Let’s talk numbers
Presentation Flow
Let’s talk numbers
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Takeover of Air Deccan has helped Kingfisher gain synergies of operation
Let’s talk numbers
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“We should have done it five years ago”- Dr. Vijay Mallya
Air Deccan a case Study
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• Outcome
Presentation Flow
Revamp is the word
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Kingfisher is busy revamping
Let’s talk numbers
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“We should have done it five years ago”- Dr. Vijay Mallya
0
10000
20000
30000
40000
50000
60000
2006 2007 2008 2009 2010
Total Income (Rs Million) • The merger helped the airlines achieve– Lower operational
costs as most of the equipment used is same
– Achieve ‘Economies of Scale’ in terms of operations
– Better bargaining power from vendors
– Better market reach and higher earnings
Year
Inco
me
The Future
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From Air Deccan to Simplifly Deccan to Kingfisher Red
• Under the leadership of Vijay Mallya, Kingfisher has undertaken major rebranding of Air Deccan
• Rebranding aims at:– Improving the brand image of ‘Air Deccan’– Improving customer service standards– Improving the overall operational efficiency of the airline– Providing same service standards as Kingfisher
• The rebranding has already begun the result ‘Kingfisher RED’
Friday, May 06, 2011 IMT, Ghaziabad - DCP - Economics 32
• Alok Munjal -
• Akash Jauhari -
• Harsh Rautela – 10DCP-069
• Satyarth Pandey – 10DCP-090
• Shobit Ranjan – 10DCP-091
• Varun Sehgal – 10DCP-092
A Presentation By:
Thank you for flying with us. Thank you for flying with us.
A presentation for Managerial Economics – Semester 1, Dual Country Program, IMT Ghaziabad