The Story of Indias First Low Cost Airline

Case Outline
Air Deccans first flight took-off from Bangalore to Mangalore on Aug.
25, 2003

Stunned the market by offering tickets at 10% of the regular rate, at an
average price at 50% less than full service airlines

Achieved a market share of 11%, two years after its debut, making it the
second largest privately owned airline in India

Plans to go IPO in 2006 with a goal to be the leading aircraft company
in India providing a wide gamut of airborne services throughout the
country
Agenda
Air Deccans business
The aviation industry in India
Major risk factors
Air Deccans Business
Positioning as a low cost carrier
Offers no in-flight service
Single class aircraft configuration
Internet booking and cheap fares

Two aircraft strategy Airbus and ATR

Offering non-trunk short-haul routes and attracting high-end railway
traffic through comparable fares

Target market: Upper middle class in short term and lower middle class
aggressively in long term
Air Deccans Business
Target to expand fleet to 124 aircraft by 2013

The Indian aviation market expected to grow at 20% annually for the
next ten years. Air Deccan is targeting 18% market share by 2013

Passenger load factors anticipated at 70%

Revenues per customer to increase at 5% in the long run

Targets to decrease fuel expense as a percentage of total revenues from
30% to 26%, operating expense from 23% to 16% in 8 years
The Aviation Industry in India
High growth potential due to economic boom and highly under penetration
market
0.02 trips per capita per annum
Long-term GPD growth at 8% annually

It is forecast that India would be the second fastest growing travel and tourism
economy in the world

ATF (Aviation Turbine Fuel) prices and airport charges in India are among the
highest in the world

Regulatory and infrastructure bottlenecks have prevented accelerated growth in
the industry

The government is proactively looking to address the bottlenecks
The Aviation Industry in India
Five-force analysis

Rivalry: Increased competitive pressures due to new entrants

Barriers to Entry: Easy entry but execution doubtful

Resource & Supply: Inadequate airport infrastructure, shortage of pilots,
high fuel costs

Customers: Business travelers sector intensified by GDP growth, leisure
customer market too a huge growth opportunity

Substitutes: Railways, high price elasticity of common mans
Major Risks
Increase in Competition
Excess capacity could lead to price wars

Oil Price
Extremely vulnerable to oil price fluctuations due to government
regulations on price hedging

Regulatory risk

Growth Sales
Revenue Projection
Operating Expenses
Expense Projections
Air Deccan Expense Projections
(1)
Actual Projected
Year ended March 31,
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Aircraft fuel expenses 5.34% 13.72% 29.03% 30.00% 31.00% 30.00% 29.00% 28.00% 28.00% 27.00% 26.00%
Aircraft/engine repairs 1.32% 13.13% 15.39% 14.00% 14.00% 14.00% 14.00% 14.00% 14.00% 14.00% 14.00%
and maintenance
Aircraft/engine lease 24.36% 15.80% 14.09% 14.00% 12.00% 10.00% 9.00% 8.00% 8.00% 8.00% 8.00%
rentals
Other direct operating 24.74% 24.89% 23.00% 22.00% 20.00% 19.00% 17.00% 16.00% 16.00% 16.00% 16.00%
expenses
Employee remuneration 11.24% 10.61% 9.92% 10.00% 10.00% 9.00% 9.00% 8.00% 8.00% 8.00% 8.00%
and benefits
Administrative and 14.71% 11.22% 6.34% 7.00% 8.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
general expenses
Employee stock - - - - - - - -
compensation cost
Advertisement and 2.30% 0.47% 1.97% 2.00% 3.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
business promotion
expenses
Finance and banking 6.46% 5.74% 3.19% 6.00% 8.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
charges
Amortisation 3.35% 1.47% 1.79% 2.00% 1.00% 1.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Depreciation 1.39% 1.66% 0.96% 3.00% 7.00% 10.00% 8.00% 7.00% 7.00% 7.00% 7.00%
Total Expenditure 95.21% 98.71% 105.68% 110.00% 114.00% 115.00% 108.00% 103.00% 103.00% 102.00% 101.00%
Note:
(1) All numbers are a percentage of revenue.
Profits
Profits(in Rs millions)
2006 187
2007 304
2008 751
2009 1784
2010 3373
2011 4004
2012 5276
2013 6464
Thanks
If its on the map, we will get you there---Air Deccan