AVIATION SECTOR PARADOX!

The entire nation was taken by surprise when Kingfisher was to collaborate with its arch rival Jet Airways, This alliance was formed mainly to cut down their operational costs, excess capacity & sharing Codeshare agreements. The Aviation sector was badly hit by the burgeoning Crude prices resulting in a loss of 4000 Crore to the Indian Aviation Sector. The Crude at present is trading in the $40 per barrell , However recessionary pressures owing to the global financial meltdown have led to a steep decline in the flow of passengers to and from abroad which inturn had been a matter of concern to the Indian Aviation Sector. All these factors have resulted in most of the Aviation Sector players hanging their boots as far as recruitments are concerned, Interestingly Indigo Airlines is going on a hiring spree when the giants like Kingfisher and jet Airways are cooling their hiring heels. Lets look at the factors which resulted to this behaviour.

KingFisher Airlines mainly caters to 3 different classes of customers namely- Business, premium and Lowfare. lowfare services are provided by Kingfisher Red( Formerly Air Deccan). Kingfisher Spends a lot on its Ambience, pays a very high salary to its Chic Air Hostesses, Its Therapeutic Massage seats too come at an expensive price, all these factors adding up to their costs. The fleet size of Kingfisher is 86 ( Each Flight costs no less than $50 Million on the lower side), For 86 Aircrafts they spent $4,300 million. They have a standing order of further 164 Aircrafts tantamounting to $9,840 million. They cover 69 local destinations and 1 International Destination. They will be soon operating international flights to Singapore, Hongkong, Bangkok, Colombo, Dhaka, Dubai, Male and chittagong. They are already operating Flights to London. Owing to their Vision of catering to the international markets they went on an expansion spree in the past. They operate 218 flights a day. Moreover Kingfisher picked up a 26% stake in Air Deccan for 550 crores. Thus their stake in Air Deccan and the heavy capital expenditure in the purchase of aircrafts has resultied in a very high leverage ratio( Ratio of Debt to Capital) for Kingfisher Airlines, Standing payments to the placed order of 164 aircrafts has further starined their leverage, Excess capacity( Ex- If seat Capacity is 150 , only 50 tickets may be booked meaning an excess capacity of 100 seats) has been one of their concern. As Kingfisher is a premium segment player, they come at a high price which is resulting people to opt for other low cost carriers. The Expenditur on Advertising and promotion by Kingfisher is also a factor of high costs incurred.

Jet Airways which was formed in 1993, took over Air Sahara few years back for a whopping 1450 Crores. It has a fleet size of 85 Aircrafts, operating 357 flights daily to 42 local destinations and 17 International Destinations. Its Investments on Aircrafts is around $5100 million. Its standing orders for purchase of Aircrafts has not been disclosed. It employs around 14,000 employees. Jet Airways too is a premium segment Aviation Sector player paving way for passengers to opt for low cost carriers. t has to pay for all the International Codesharing agreements too along with the domestic codesharing costs.

Fuel Suppliers IOC, HPCL and ONGC have been forcing them to pay the outstanding amounts immediately as they(Fuel Suppliers) were also wrecked by the high fuel prices.All the above factors have led to very high leverage ratio for Kingfisher Airlines and Jet Airways thus forcing them to cut their operational costs by resorting to layoffs and other techniques.

More over the Govt. Charges a surcharge of around 2000 rs for every ticket making the travel more dearer to the travellers. Global Financial meltdown has already resulted in a steep decline in the flow of passengers to and from abroad , Recent Terror strikes in Mumbai has already resulted in the cancellation of trips by the foreigners and is likelt to affect the prospects of Indian Tourism thus aggravating the woes of the Giant Airlines.

On the Otherhand Indigo Airlines is a comparatively a new entrant in the field of Aviation (established in Mid 2006). It has a fleet size of 19. It owns only Airbus A 320's with a seating capacity of 180 . It being the most preferred low cost carrier, the issue of excess capacity is not much a matter of concern. It covers across 38 cities leaving it ample scope for exploring new markets and improving its market share of 11%. It is mainly a domestic carrier and does not cater to any international destinations. As it owns a small fleet size and as it did not have any takeover commitments, its leverage ratio is relatively superior compared to the Giants( Kingfisher and Jet) thus allowing them to optimally utilise the availability of low cost skilled labour in the current market conditions. The global financial meltdown and the Mumbai terror attack has not greatly affected the domestic passenger turnover. In economic terms law of increasing returns to scale is being witnesses in this Airline due to the relatively high efficiency of the work force.The Expenditure on advertising and promotion by Indigo Airlines is very meagre too thus leaving it a favourable leverage ratio.

In terms of Product Life Cycle, Indigo Airlines is in the growth stage unlike the Giants who are in a stage of maturity and are poised for a decline if the International crisis does not cease. The Global Phenomenon has been the main cause of the untoward shaping of the Giants of the Indian Aviation Industry who together account for 60% of market share.