India's First Low Cost Airline

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


• 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

– Capt. G R Gopinath – A Legend

Presentation Flow

Capt. G R Gopinath – A Legend


• 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

– Birth of Air Deccan and Scale of Operations

Presentation Flow

The Birth of Air Deccan


• 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


• 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


Destinations by Number

Scale of Operations


Flights by Number

Scale of Operations


Passengers by Number



• Air Deccan

– Business Philosophy

Presentation Flow

Business Philosophy


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


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


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



• Kingfisher – Introduction

Presentation Flow

Fly the Good Times


• 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



• Kingfisher

–– Operations and Many First

Presentation Flow

What we do?


• 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…


• 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



• The Merger– The Battle Begins and Birth of a new ‘King’

Presentation Flow

The Battle Begins


“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’


• 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



• The Merger

– Let’s talk numbers

Presentation Flow

Let’s talk numbers


Takeover of Air Deccan has helped Kingfisher gain synergies of operation



“We should have done it five years ago”- Dr. Vijay Mallya



• Outcome

Presentation Flow

Revamp is the word


Kingfisher is busy revamping



“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


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’


• 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

India's First Low Cost Airline

Business

Transcript of India's First Low Cost Airline