Comparative and financial analysis of Indian Aviation

Industry
Abstract - The Indian aviation industry is growing at a very
high rate and this growth rate has been estimated to sustain
for the next 10 years, making India one of the largest
aviation market in the entire world. There are several
factors and government policies like the increase in number
of low cost carriers, strategic partnerships and initiatives by
various airlines, government policies promoting foreign
direct investment (FDI). In this research paper we aim to
present a scenario analysis of four major players of the
Indian aviation industry by conducting a financial and
comparative analysis for the year FY2013. The year 2013
was a difficult year for Indian aviation with kingfisher
reporting huge losses along with other airlines. Only airline
to have had a good year was IndiGo which reported profits
during the same time. Financial ratio analysis can prove to
be very crucial in understanding the reasons behind such
differences in the performance of these major Indian
aviation companies and to comprehend the factors that lead
to such performance. The financial ratios of four major
players in the Indian aviation industry vis--vis IndiGo
Airlines, SpiceJet Airlines, and Kingfisher Airlines were
compared with the average industrial ratios, thus providing
inferences on the financial health and performance of these
companies with respect to the industrial standards. We also
did comparative study of diverse financial ratios of all these
four major players for the year ending March 2013 in order
to understand the reasons behind the success or failure of a
particular company in a particular department as
compared to others over time.
Key Words: Indian Aviation, Financial Ratios, IndiGo,
SpiceJet, Jet, Kingfisher
Introduction and literature review
Aviation industry basically deals with the production,
development and operations of aircrafts and airlines in a
particular country. The growth in the Indian aviation economy
has led to an increase of over 8% in Indias GPD and this high
growth rate has been estimated to sustain for the next 10 years,
which will make India one of the biggest aviation market in the
entire world. It is divided into two broad categories: Civil
aviation and Military aviation. Civil aviation refers to both the
commercial and private flights used by the commuters whereas
military aviation refers to the use of military aircraft and other
flying machines by the military forces of India. International
Air Transport Association has claimed that currently India is
the fastest growing market in the entire world in aviation [9].
Currently India is the ninth largest aviation market in the world
and is estimated to be the third largest by end of 2020. Ministry
of Civil Aviation is responsible and accountable for civil
aviation in the country whereas Ministry of Defense deals with
military aviation. There are currently 20+ operational airlines

in India with SpiceJet, IndiGo, Air India and Jet Airways

having a major chunk of the market.
Indian civil aviation industry is growing at a very high rate and
according to Indian Brand Equity Foundation, it will become
the largest civil aviation market in the entire world [9]. In India,
domestic passenger traffic for January 2016 was 7.66 million
which is growing at a CAGR of 23%. More than 1.5 lakh
aircraft movements have been reported at all the Indian airports
combined. International and domestic aircraft movements rose
to 10.6 per cent and 17.5 per cent, respectively, in January 2016.
According to Centre for Asia Pacific Aviation (CAPA), Indian
domestic air traffic is expected to increase to 100 million by the
end of financial year 2017. The profit for the FY 16 for Indian

airlines has been projected to be INR 8100 Crore which places

India amongst the five fastest growing aviation markets
globally.
There has been several major drivers for the growth of this
market. This has been possible only due to the various
initiatives taken by the Indian Ministry of Civil Aviation.
Foreign direct investment: FDI in Indian domestic airlines has
significantly increased due to the efforts of Ministry of Civil
Aviation in India. Department of Industrial planning and
promotion have reported infusion of USD 612.53 billion in the
Indian aviation industry between April 2000 and December
2015. FDI of up to 49% has been allowed in domestic airlines
by the foreign carriers by the Ministry of Civil Aviation, India.
Foreign equity of even up to 100% is allowed in the
development and creation of new aircrafts.
Low cost carriers: In recent times, several low cost carriers
such as Go Air, Air Asia, and SpiceJet etc. have come up in the
Indian market recently. India being a highly price sensitive
market has benefitted a lot from the introduction of low cost
carrier, however the association has been synergic with an
increased profit for all the major carriers in India.
Strategic initiatives and partnerships: Recently various
strategic initiatives have been taken up particularly by the
Ministry of Civil Aviation, India to accelerate the growth of
domestic civil aviation industry. At the International Civil
Aviation Negotiations (ICAN), 2015 held in Antalya, Turkey
Memorandum of Understanding (MoU) was signed for
increased cooperation between Finland, Kazakhstan, Kenya,

Sweden, Norway, Denmark, Oman and Ethiopia so as to get

additional seats, sharing of airline codes and increased
frequencies of flights in between India and partner countries.
This would led to improved relations between the countries as
well ultimately leading to more infusion of FDI in our domestic
aviation market. Advanced Systems (TASL) has signed a joint
venture with American aircraft manufacturing major, Boeing,
to establish a centre of excellence for manufacturing aerostructures for Apache helicopter initially and collaborate on
integrated systems development opportunities in India in the
long term.
Financial Ratio
Financial statements like balance sheets, income statements
(profit and loss statements) provide information about the
financial position, performance and changes in financial
position of a company that is useful to a wide range of users like
investors, bankers, management and creditors in making
economic decisions. A ratio analysis is a quantitative analysis
of information contained in a companys financial statements.
They help in linking the financial statements together and offer
figures that are comparable between companies and across
industries and sectors. However, financial ratios vary across
different industries and sectors and comparisons between
completely different types of companies are often not valid. In
addition, it is important to analyze trends in company ratios
instead of solely emphasizing a single periods figure. Since
ratios can only be used for comparative analysis, they are very
useful and efficient in describing the performance of a company
over the years as compared to the other firms of similar nature.
Ratios become all the more important when used to compare
the trends in company ratios with the trends in industrial ratios,
giving a clear image of how well its different divisions are
performing among themselves in different years in comparison
to the industrial average.
However, there a large number of ratios that can be used for
analysis and some tend to be more relevant to study than others
in a specific industry. This raises the issue of classifying
financial ratios by reducing redundancies. [2] [4]
Methodology
We first looked at the annual reports of the four major players
in the Indian aviation industry vis--vis IndiGo Airlines,
SpiceJet Airlines, Jet Airways and Kingfisher Airlines for years
ending March 2012, 2013 and 2014 in order to calculate their
financial ratios across time. (Only 2012 and 2013 were
considered for Kingfisher Airlines since its operations were
shut down by 2014)
In order to draw inferences on the financial health and
performance of these companies with respect to the industrial
standards, these company ratios were compared with the
average industrial ratios, calculated by considering almost all
the players in the Indian aviation industry.
We also did comparative study of diverse financial ratios of all
these four major players for the year ending March 2014 in
order to understand the reasons behind the success or failure of
a particular company in a particular department as compared to
others over time.
The various financial ratios calculated can be classified mainly
into four categories:

1.

Liquidity Ratios: Liquidity ratios also termed as shortterm ratios are used to measure a firms ability to meet
its current liabilities. It also signifies the extent of
convertibility of firms assets into money to pay for its
short term obligations. We have calculated and
compared Current Ratio for our analysis.
Current Ratio = Current Assets / Current Liabilities
2. Solvency Ratios: Solvency ratios are a measure of a
firms ability to repay its long term debts. These ratios
give strong knowledge about the financial health and
viability of a business. There are several solvency
ratios but we have considered Interest Coverage Ratio
for our analysis
Interest Coverage ratio = Operating Profit /Interest
3. Efficiency Ratios: Efficiency ratios also termed as
turnover ratios are indicative of a firms efficiency and
effectiveness to vitalize its assets in a business.
Turnover means the number of times assets are
converted or turned into sales. These ratios also tell us
about the rate of asset conversions.
4. Profitability Ratios: Profitability stands for the profit
earning capacity of any firm/business. Profitability
ratios are therefore a measure of the overall efficiency
or performance of a business. For our analysis, we
have considered Expense Ratio and Operating Profit
Ratio.
Expense Ratio = Particular Expense/Net Sales
Operating Profit Ratio = Operating Profit/Net Sales
DuPont Analysis = New Profit Margin Investment
Turnover [2] [4] [8]
Kingfisher Airlines
Kingfisher Airlines was established in 2003. It was owned by
the Bengaluru based United Breweries Group. The airline
started commercial operations in 9 May 2005 with a fleet of
four new Airbus A320-200s. It started its international
operations
on
3
September
2008
by
connecting Bangalore with London. Ever since the airline
commenced operations in 2005, it reported losses. After
acquiring Air Deccan, Kingfisher suffered a loss of over 10
billion (US$150 million) for three consecutive years. Until
December 2011, Kingfisher Airlines had the second largest
share in India's domestic air travel market. In December 2011,
for the second time in two months, Kingfisher's bank accounts
were frozen by the Mumbai Income Tax department for nonpayment of dues. By early 2012, the airline accumulated losses
of over 70 billion (US$1.1 billion) with half of its fleet
grounded. Kingfisher's position in top Indian airlines on the
basis of market share had slipped to last from 2 because of the
crisis. Indian tax body also stated that Kingfisher Airlines is
delinquent. On 20 October 2012, Kingfisher's license was
suspended by the Directorate General of Civil Aviation after it
failed to address the Indian regulator's concerns about its
operations. On 25 February 2013, its international flying rights
and domestic slots were scrapped by the Indian aviation
authorities. Kingfisher Airlines' fleet with a total of 64 carriers
mainly consisted of ATR 42, ATR 72 and Airbus A320
family aircraft for domestic and short haul services and Airbus
A330-200s for international long-haul services. [1] [3] [10]

Analysis of Kingfisher Airlines

Liquidity Ratio

Solvency Ratio

Profitability Ratio

Financial Summary
Current assets divided by current liabilities, called as Current
Ratio (CR) is a measure of short term financial liquidity of a
firm. In 2012, the companys CR was at 0.78 as compared to
the industrial average of 0.63. In 2013, the CR reached to its
lowest levels of 0.38 and hence reached below the industrial
average of 0.56. It clearly shows that companys current
liabilities kept on increasing. Also the company kept on
decreasing its investment in current assets. Both these factors
collectively hampered its ability to meet its short term expenses
to a great extent.

The DuPont analysis on Rate of Assets or ROA given by the

product of Net Profit Margin and Investment Turnover
indicates that the profitability of a company can be improved
either by improving its net profit margin per rupee of sales or
by generating more sales revenues per rupee of investment. In
2012, the companys ROA was at -0.63 as compared to the
industrial average of -0.31. In 2013, the companys ROA stood
at -1.23 whereas the industrial average rose to -0.27. This
drastic fall in the companys ROA was due to the fact that the
company tried to maintain high profit margins despite there
being constant decrease in its sales and hence sales revenue.

Interest Coverage Ratio or ICR measures the companys ability

to pay interest on its borrowings. In 2012, the company had an
ICR of -1.7 as compared to the industrys average ICR of -2.34.
In 2013, the companys ICR further decreased from -1.7 to 2.00 while the industrial average improved from -2.34 to 2.25.
The most important reason behind the companys constantly
increasing negative ICR was the ever increasing debt which the
company failed to repay. The company had a total debt of
8,657.64 crores and 2014, the company appeared as the
country's top Non Performing Asset (NPA) after it has failed to
repay loans of over Rs 4,000 crore borrowed mainly from stateowned banks. [3]

The Operating Profit Ratio or OPR is a very useful tool to judge

the operational efficiency of company and its operating
managers, say production and sales managers. In 2012, the
companys OPR was -0.33 whereas the industrial average was
at -0.11. In 2013, the companys OPR took a huge plunge from
-0.33 to -5.24. Also the industrial average dived from -0.11 to
1.00. This huge decrease in the OPR of the company was
mainly due to its ever so increasing operational expenses. The
selling and administration were greatly increased thus showing
the companys managing inefficiency. Also the increase in
other operational expenses vis--vis power & fuel, employee
and other miscellaneous expenses contributed to the companys
decreased OPR. [3]

SpiceJet Airways
The origins of SpiceJet track back to February 1993 when
ModiLuft was launched by Indian industrialist S K Modi, in
technical partnership with the German flag carrier Lufthansa.
The airline ceased operations in 1996. In 2004, raised funds and
restarted operations as SpiceJet following the low-cost model.
The first flight flew in May, 2005. By 2008, it was India's
second-largest low-cost carrier in terms of market share. Indian
media baron Kalanidhi Maran acquired 37.7% stake in SpiceJet
in June 2010. The airline returned to making profits at the end
of the year. In 2013, SpiceJet launched its first interline pact
with Tigerair on 16 December 2013. In July 2014, SpiceJet
announced up to 50 percent discount in air fares due to
competition. In August 2014, SpiceJet became the second
largest carrier in India's domestic market, in terms of passengers

carried in the month of July, beating leading full service carrier

Jet Airways for the first time in its operational history. In
January 2015, the Sun group sold its entire shareholding to the
airline's founder Ajay Singh and transferred control. In 2015,
SpiceJet's operations experienced a significant turn-around with
93 percent of available seats on flights being filled and only
0.13 percent of scheduled flights canceled each month. The
airline became profitable in the first three consecutive quarters
of the year 2015, in contrast to the previous five quarters when
it suffered losses. As of January 2016, it is the fourth largest
airline in India in terms of passengers carried with a 13.1
percent market share. SpiceJet currently operates 306 flights
daily to 35 Indian and 6 international destinations with a fleet
strength of 41 flights. [1] [7] [10]

Analysis of SpiceJet Airways

Liquidity Ratio

Solvency Ratio

Profitability Ratio

Financial Summary
Current assets divided by current liabilities, called as Current
Ratio (CR) is a measure of short term financial liquidity of a
firm. Company's Current Ratio is 0.34 as compared to 0.63
which is the industry average in 2012. Its CR had increased in
2013 to 0.45, still less than the industry average of 0.56 and then
decreased to 0.39 in 2014 where the industry average also
following a decreasing trend attains a value 0.43. This shows
that the company has improved its ability to match its short term

liabilities but is still behind the industry and is not able to

manage its CL efficiently.
Interest Coverage Ratio or ICR measures the companys ability
to pay interest on its borrowings. It is evident from the industry
average that most of the airline are incurring a loss and hence
lot able pay their interest payments. SpiceJets ICR suggest that
with respect to its interest payment its EBIT has significantly
improved from -10.21 to -0.63 from year 2012 to 2013 due to
increase in passenger load factor but again reduces to -6.2 on
account of increasing Fuel expenses and Manufacturing costs.

The DuPont analysis on Rate of Assets or ROA given by the

product of Net Profit Margin and Investment Turnover
indicates that the profitability of a company can be improved
either by improving its net profit margin per rupee of sales or
by generating more sales revenues per rupee of investment.
Company has performed below industry standards in 2012 at 0.63 and in 2014 at -1.187 but raised significantly in 2013 to 0.11 on account of releasing new interline pact Tigerair and
increased sales due to lowering of prices due to fierce market
competition. [5][7]
The Operating Profit Ratio or OPR is a very useful tool to judge
the operational efficiency of company and its operating
managers, say production and sales managers. As evident from
the graph in the years 2012 and 2014 company saw a loss as did
most the other airline companies. Industry average and
companys ratio nearly match showing a decent working but
still witnessed a loss. In 2012 Company witnessed a loss of over
500 Cr on account of increasing global crude oil prices with
operating profit ratio -0.13 but increased significantly to 0.001
and gained about 10 Cr in 2013. operating profit again
decreased in 2014 to -0.113 (loss of 715 Cr) due to high fuel
expenses (Crude oil price increased) and increasing
manufacturing costs with which sales couldnt cope up.
Management needs to optimize their manufacturing expenses
by either utilizing newer technologies or employing cheap
techniques. [5]
Jet Airways
Jet Airways was incorporated as a limited liability company on
1 April 1992. It started commercial operations on 5 May 1993
with a fleet of four leased Boeing 737-300 aircraft from
Malaysia Airlines. The airline was granted a scheduled airline
status on 14 January 1995. On 12 May 1994, all the shares were
transferred to Tailwinds International, whose equity capital was

held by Naresh Goyal (60%), Gulf Air (20%) and Kuwait

Airways (20%).In October 1997, as per the directive
of Ministry of Civil Aviation forbidding foreign investment in
passenger airlines, Goyal took control of the entire company.
The airline launched its first international flight in March 2004
from Chennai and Colombo. The company was listed on
the Bombay Stock Exchange and became public on 28
December 2004, with Goyal retaining 51% ownership of the
stock. In January 2006 Jet Airways announced that it would buy
Air Sahara for US$500 million in an all-cash deal, making it the
biggest takeover in Indian aviation history. On 12 April 2007
Jet Airways agreed to buy out Air Sahara for INR14.5 billion
(US$340 million). Air Sahara was renamed Jet Lite, and was
marketed between a low-cost carrier and a full service airline.
In August 2008 Jet Airways announced its plans to completely
integrate Jet Lite into Jet Airways. On 8 May 2009 Jet Airways
launched its low-cost brand, Jet Konnect. According to a PTI
report, for the third quarter of 2010, Jet Airways (Jet + Jet Lite)
had a market share of 22.6% in terms of passengers carried, thus
making it a market leader in India. On 24 April 2013, Jet
announced that they were ready to sell a 24% stake to Etihad
for US$379 million. However, that date passed and the deal was
further postponed. In August 2014, Jet Airways announced that
it is discontinuing its low fare arm Jet Konnect and Jet Lite. On
1 December 2014, Jet Konnect was fully merged with Jet
Airways, making it the third full service airline in India
besides Air India and Vistara. In December 2015, Jet Airways
announced the closure of its European scissors at Brussels
Airport by March 2016 and opening of new hub at Amsterdam
Schiphol Airport effective 27 March 2016. As of February
2016, it is the second largest airline in India after IndiGo with a
21.2% passenger market share. It has a fleet of 116 aircrafts. Jet
Airways serves 68 destinations including 48 domestic and 20
international
destinations
in
17
countries
across Asia, Europe and North America. [1] [10]

Analysis of Jet Airways

Liquidity Ratio

Solvency Ratio

Profitability Ratio

Financial Summary
Current assets divided by current liabilities, called as Current
Ratio (CR) is a measure of short term financial liquidity of a
firm. In 2012, the companys CR was 0.4 as compared to the
industrys average of 0.634. In 2013, the companys CR
remained at 0.39 as compared to the decreased industrial
average of 0.562. In 2014, the companys CR still remained
constant at 0.38 while the industrial average further decreased
to 0.44. This constant nature of CR is a clear indication of the
companys effort to maintain a certain minimum of current
assets so as to meet their short term goals. Also its CR always
remained below the industrial average which might be a reason
for its decreased profitability.
Interest Coverage Ratio or ICR measures the companys ability
to pay interest on its borrowings. In 2012, the companys ICR
was at a negative value of -0.44 as compared to the low
industrial average of -2.344, showing that the companys ability
to repay its borrowings was better than the other market players.
In 2013, the companys ICR returned to a positive value of 0.18
despite the major depreciation in rupee. But it remained well
below the industrial average of 2.254. In 2014, when the
industrial average took a huge dip from 2.254 to -0.99, the
company too registered a dip in its ICR from 0.18 to -2.02. This
was partly because of the indefinitely postponed Etihad deal.
The DuPont analysis on Rate of Assets or ROA given by the
product of Net Profit Margin and Investment Turnover
indicates that the profitability of a company can be improved
either by improving its net profit margin per rupee of sales or
by generating more sales revenues per rupee of investment. In
2012, the companys ROA was at a negative figure of -0.08 as
compared to the industrial average of -0.31. In 2013, the
company had a slight improvement in its ROA from -0.08 to 0.04 and remained higher than the industrial average of -0.27.
This improvement can be accounted by the combined impact of
higher yields and lower costs which the company achieved by
offering large discounts on ticket prices, thus increasing sales
revenues. In 2014, its ROA plunged to a great extent reaching
as low as -0.42 and thus losing its lead over the industrial
average which stood at -0.42 at that time.
The Operating Profit Ratio or OPR is a very useful tool to judge
the operational efficiency of company and its operating
managers, say production and sales managers. In 2012, the

companys OPR stood at a positive value of 0.04 as compared

to the industrial average of -0.11. In 2013, the industrial average
took a huge dip from -0.11 to 1.00 in response to the rupee
depreciation but the company still registered a positive OPR of
0.09. This can be accounted by the decrease in power and fuel
expenses achieved by the company during 2012-13. Also other
operational
expenses
like
manufacturing,
selling,
administrative expenses had marginal increase with respect to
the sales during 2012-13. In 2014, as the market recovered from
hit of rupee depreciation and when the industrial average rose
from -1.00 to -0.13, the company again witnessed a huge
decrease in its OPR due to substantial increase in its operational
expenses vis--vis manufacturing, selling, administrative
expenses. The company did maintain low and constant power
and fuel expenses.
IndiGo Airlines
IndiGo was set up in early 2006 by Rahul Bhatia of Inter Globe
Enterprises and Rakesh Gangwal, a United States-based NRI.
IndiGo placed a firm order for 100 Airbus A320-200 aircraft in
June 2005 with plans to commence operations in mid-2006.
IndiGo took delivery of its first Airbus aircraft on 28 July 2006,
nearly one year after placing the order. It commenced
operations on 4 August 2006 with a service from New
Delhi to Imphal via Guwahati. By the end of 2006, the airline
had six aircraft. Nine more aircraft were acquired in 2007 taking
the total to 15. By December 2010, IndiGo replaced the state
run flag carrier Air India as the third largest airline in India. It
already had 17.3% of the market share, behind Kingfisher
Airlines and Jet Airways. In January 2011, after completing
five years of operations, the airline got permission to launch
international flights. The airline launched international services
in September 2011. On 17 August 2012, IndiGo became the
largest airline in India in terms of market share (27%)
surpassing Jet Airways, six years after operations commenced.
In January 2013, IndiGo was the second fastest growing lowcost carrier in Asia behind Indonesian airline Lion Air. In order
to reduce operational overhead, IndiGo operates only the
Airbus A320 family of aircraft in its fleet. It generally purchases
new aircraft. IndiGo announced an Rs.3200 crore initial public
offering on 19 October 2015, scheduled to open on October 27,
2015. As of May 2016, IndiGo operates 679 daily flights to 40
destinations, 35 in India and 5 abroad. It has a fleet of 108
aircrafts. As of May 2016, it is the largest airline in India in
terms of passengers carried with a 36.8% market share. [1] [10]

Analysis of IndiGo Airlines

Liquidity Ratio

Solvency Ratio

Profitability Ratio

Financial Summary
Current assets divided by current liabilities, called as Current
Ratio (CR) is a measure of short term financial liquidity of a
firm. IndiGo enjoys a good CR throughout the comparison
period. With CR 1.29 and industry average 0.634 in 2012 which
reduced to 1.15(Industry average 0.523) in 2013 is a safe zone
to operate in without the possibility of liquidation. CR
significantly reduced to 0.75(Industry average 0.432) in 2014
due to increasing Current Liabilities (CL). It follows the
industry trend of decreasing CR but have significantly higher
CR as compared to industry average showcasing its underutilization of CA and constantly increasing CL. As evident from
the graph CR decreases tremendously between 2013 and 2014
and hence CL needs to be managed properly.
Interest Coverage Ratio or ICR measures the companys ability
to pay interest on its borrowings. In 2012, the company had
healthy ICR of 1.88 as compared to the industrial average of 2.34. In 2013, the companys ICR further increased to 14.68 as
compared to the very low industrial average of 2.254. In 2014,
the company witnessed a decrease in its ICR from 14.68 to 4.26
due to rupee depreciation, cut-throat competition and high jet
fuel costs. The company has been successful in maintaining a
positive ICR in the three years of comparison. This has been
possible by the earning high operational profits through low
cost structure, high passenger load factor, and significant yield
difference among low fare airlines, stronger corporate

acceptance and most important, superior delivery model due to

operational excellence.
The DuPont analysis on Rate of Assets or ROA given by the
product of Net Profit Margin and Investment Turnover
indicates that the profitability of a company can be improved
either by improving its net profit margin per rupee of sales or
by generating more sales revenues per rupee of investment.
IndiGo has enjoyed a healthy DuPont ratio with 0.05 in 2012
increasing to 0.18 in 2013 as compared to industry average of 0.3 in 2012 to -0.27 in 2013. IndiGo is able to sustain such
figures on account of high operating profits( 189 Cr in 2012 and
1151 Cr in 2013) and good investment turnover values. DuPont
ratio decreases in 2014 to .06, consistent with the industry
average due to lower profits (over 800 Cr operating profit in
2014) and growing expenses of the firm.
The Operating Profit Ratio or OPR is a very useful tool to judge
the operational efficiency of company and its operating
managers, say production and sales managers. In 2012, the
company had a low positive OPR of .03 as compared to the
negative industrial average of -0.11. This was possible due to
the better operational management of the company. In 2013, the
company witnessed an increase in its OPR from 0.03 to 0.12
whereas the industrial average took a huge dip from -0.11 to 1.00. This improvement in its performance can be accounted to
its efficient expense management. The company successfully
decreased operational expenses vis--vis power & fuel, selling

& administrative, manufacturing expenses. In 2014, the

companys OPR decreased from 0.12 to 0.07 whereas the
industrial average increased from -1.00 to -0.13. This decrease
in OPR was mainly due to a drastic increase in its miscellaneous
expenses and other operational expenses. The company has
been able to achieve constant positive OPRs due to its
operational management in terms of fuel cost reduction, low
average fleet age, single class and single aircraft type policy and
the crucial sale and leaseback policy of the company.
2013 Year Comparative Analysis:

In 2013 market share of kingfisher dropped from 6.4% to 0%

and IndiGos market share rose to 29%. Jet airways continued
to contain their strong position with 22% market share followed
by spice jet at 17.1%. The airline industry in India was going
through a difficult phase on the account of rising oil prices and
limited pricing power contributed by the industry overcapacity
and periods of subdued demand growth. Airline operators were
having a turbulent phase over high debts burden and liquidity
constraints. Most of the operators in Indian aviation industry
needed significant equity infusion to showcase a meaningful
improvement in their statements. [11] Long term viability and
brand building through different customized approach should
have been there main focus, but was only achievable by
improving their financial profile. These operators over long
term needed to improve their cost structure, aimed at cost
efficiency through mix of fleets and routes at all levels. For long
term viability operators required return from pricing power
through better alignment of capacity to the critical demand
growth. In the following pages a comparative study of the 4
major airlines in the Indian aviation industry is done.
Financial Comparison:

Current Ratio: In 2013, the three major players of the industry

vis--vis Kingfisher, SpiceJet and Jet airlines worked in the
same index of Current Ratio (CR). All three of these companies
were working below the industrial CR average of 0.56. This has
a direct implication that the companies were spending very less
on their current assets and had quite high current liabilities to
be accounted for. Its highly probable that these companies
might not be able to meet their short term borrowings. SpiceJet
(0.45) had better CR than the other two companies i.e.
Kingfisher (0.38) and Jet (0.39) airlines. IndiGo airlines was a
stand out when it came to CR. Its CR (1.15) was very high as
compared to the industrial average of 0.56. This clearly
demonstrates that the company was not managing its current
assets in an efficient manner and had either too much inventory
or too much unused cash. Even with such exorbitant amount of
debts industry average manages to stay at 0.562 and companies
are controlling their day-to-day operations. All major airlines
should work to significantly improve their situation whereas
IndiGo should manage their excess cash more efficiently to
cope up with the increasing burden due to increased market
share.

Interest coverage Ratio: In 2013, the industrial average of

Interest Coverage Ratio (ICR) stood at 2.25. Kingfisher
Airlines had a low IRC of -1.99 owing to the high debts and
thus the losses it faced. Also it had to pay high interest rates.
SpiceJet also had a negative ICR of -0.63 owing the high levels
of depreciation in rupee and high fuel prices. All these factors
caused quite high losses to the company. Jet Airways did
succeed in maintaining a low but positive CR of 0.18. This was
possible due the proposed Etihad deal which would have
increased the companys profits and also Jet Airways
concentrated well on revenues, costs and network side, which
resulted in the airline making profits for the first time since the
rupee depreciation. IndiGo Airlines had a very high CR of
14.68. This was way high than the industrial average. It
maintained very low debts and ensured high profits. The poor
performance of other players in the market and its better
operational management in terms of cost cutting resulted in
higher sales and thus higher profits.

a quarter). Every single airline that existed were bleeding

money and Kingfisher was a part of it. This was simply because
aviation sector was only nascent, required huge investments and
other significant factors.

Operating Profit: In 2013, the industrial average of Operating

Profit Ratio (OPR) stood at -1.00 implying that the profit
margins in the industry were very low. Kingfisher Airlines had
the worst OPR in the entire industry. Their OPR stood at -5.24
which was very low compared to the industrial average. Their
expansion policy which resulted in huge debts and losses along
with the weak operational management of the company was one
of the reasons for this low OPR. Kingfisher Airlines was also
stung by the aggressive price cutting by other market players
and high cost of landing fees and airline taxes. All these factors
placed the company under great debts and thus low OPR. Both
Jet Airways and SpiceJet benefited from the downfall of
Kingfisher Airlines. Also the price cutting strategy adopted by
these companies helped them to have a low but positive OPR.
IndiGo Airlines enjoyed the highest OPR i.e. 0.12. The
company saved a lot by its aggressive fuel price hedging. Also
the use of same type of aircrafts saved a lot of operational
expenses of the company. The sale & leaseback strategy which
reduced financial pressure on the firm and ensured low average
fleet age. All these factors along with the downfall of
Kingfisher Airlines were responsible for its high OPR.

DuPonts Ratio: 2013 was a tough year for the Indian aviation
industry which is evident from the industry average of -0.27.
Kingfisher was the biggest loss maker of all the major operators
in the Indian market which resulted in their bankruptcy. Jets
Airways and SpiceJet even though did not perform well on
investors money, DuPont ratios being -0.04 & -0.11 yet shows
signs of improvement and hence may results in positive values.
IndiGo the only airline with a positive DuPont ratio of 0.18
performed significantly well as compared to industry average
of -0.27. Aviation sector in India was never profitable (until
very recently when IndiGo managed to put positive figures for

Conclusion:
Jet Airways:
In 2013 Jet Airways made a deal with Etihad Airways, under
which the Abu Dhabi-based airline picked up 24 per cent stake
in financially-crunched Jet Airways for Rs. 2,058 crore. [11]
Apart from this, Etihad Airways also paid almost INR 425
crores in exchange for London Heathrow Airport slots of Jet
Airways. They had also committed to invest another INR 910
crores to buy out Jet Airways frequent flier programme. Etihad
also agreed to procure funding worth $300 million to reduce
Jets debt burden. [11] This partnership will offer a combined
network of more than 130 destinations worldwide. This deal
would act as a major savior for Jet Airways, whose owner was
always opposed to foreign airlines investing in Indian carriers.
SpiceJet:
SpiceJet's revenue grew by 13 per cent in 2013-14 primarily
driven by 8 per cent increase in the overall passenger traffic.
The domestic traffic grew by around 3 per cent year-on-year to
11.5 million. On a low base, international passenger traffic
carried grew by 98 per cent y-o-y to 1.1 million. However, the
company's operating margins further weakened to a negative
13.5 per cent in 2013-14 compared to a negative 3.5 per cent in
2012-13. Weak PLFs, steep rupee depreciation and higher ATF
prices impacted margins. The ATF prices, which constitute for
about 53 per cent of the operating costs, rose 6 per cent during
2013-14. The rupee depreciated by a steep 11 per cent during
the year, which further hit the profitability (as about 70 per cent
of the operating costs are dollar linked). Also, the operating
margin was impacted due to 590 bps y-o-y increase in operating
expenses (excluding aircraft fuel, staff, selling and distribution)
largely due to higher maintenance and repairs. SpiceJet
managed to pare its total debt to Rs 15 billion in 2013-14 from
17 billion in 2012-13, aided by equity infusions of about Rs 2
billion by the promoter during the year, though that was
insufficient. Hence, on account of the dismal operating
performance, the net loss increased significantly to Rs 10
billion in 2013-14 compared to Rs 1.9 billion in 2012-13. The
auditor's without issuing qualifying opinion have raised the
issue of 'going concern'. This is because SpiceJet accumulated
losses in 2013-14 exceed 50% of its net worth. [10]
IndiGo:
IndiGo announced a net profit of Rs. 700 crore where most
airlines continued to suffer losses. [11] Following were the
reason behind their success:
Operational Aspect:
Single model of aircraft: IndiGo's whole fleet consists
of Airbus A320 aircraft while SpiceJet, Air India, and
Jet Airways etc. use more than 3 types of aircrafts
thereby increasing hiring, training and upgradation
costs. [12] While IndiGo has achieved greater
flexibility by making use of the same crew from pilots
to flight attendants to the ground force thereby
reducing costs.

Single travelling class: Having only Economy class

helps them save expenditure of time, money and crew
on privilege passengers. They also don't need to
maintain expensive lounges and exclusive services at
airports further reducing costs.
Fuel: Domestic Taxes on fuel can be as high as 30 %
with an 8.2 % excise duty which results in fuel
accounting for about 45 % of total operating costs for
Indian airlines as compared to the global average of 30
%. [13] IndiGo try to save fuel by making use of latest
fuel saving technology i.e. software to optimize flight
planning for minimum fuel burning routes and
altitudes which are embedded in the aircraft.
Route Optimization: IndiGo operates over a lesser
number of destinations than its competitors but with a
higher frequency - with a fleet of 78 planes for 36
destinations while for Eg. SpiceJet flies to 46
destinations with 58 planes. [14]
Strategic marketing: Amount spend on IndiGos
advertising was very less as compared to their
competitors, they relied on strategies such as word of
mouth for their marketing. IndiGo advertised heavily
when they started their international operations and
also when Kingfisher was losing balance, with
catchphrases like 'Let the bad times roll Fly IndiGo
in good times and in bad times.' which was very
similar to Kingfisher's tagline 'Fly the good times.'
This move was criticized but it helped its advertising
campaign.

Financial Aspects:
Debt: IndiGo airlines in 2013 practically no debt
however the scenario is way different for other airlines
- Air India, Jet Airways and SpiceJet all have huge
debts which were taken to finance expansions. Reason
behind Jet's 24% stake sale to Etihad was the massive
debt of more than 123.03 billion rupees it had. Even
Kingfishers major financial problems originated from
their debt of more than 75 billion Rupees. SpiceJet has
a relatively smaller debt of 16.45 billion rupees. A
large debt leads to a considerable portion of revenue
going to service the debt and hence hindered the
airlines performances
Sale and Leaseback: Leaseback is a transaction
wherein the owner sells an asset and leases it back for
a long-term. Therefore, one continues to be able to use
the asset but no longer owns it. IndiGo has been able
to better leverage this transaction by placing bulk
orders for aircraft thereby gaining an estimated
amount of $5 million per plane. In 2005, InterGlobe
Enterprises placed an order for 100 Airbus A320s
during the 2005 Paris Air show at which point IndiGo
didnt even exist. A bulk order helped gain a better
bargaining capability with the manufacturer while
buying and ensure better returns when the aircraft are
later sold using Leaseback agreements. [15]

Kingfisher:
The downfall of Kingfisher Airlines is widely credited to Mr.
Mallya - his tactics and professional behavior. Following are a
few reasons behind their huge losses:
Aviation sector in India: It was never profitable for
any airline until very recently when IndiGo managed
to declare profits in 2013. Every airline in the Indian
aviation sector was bearing huge losses and kingfisher
was no different. This was simply because aviation
sector was only nascent and required huge
investments, traveling by aircraft was only limited to
upper class hence market penetration was very far
from saturation. Yet this situation is changing to
various low cost airlines lining up to eat the market
share.
Air Deccan Acquisition: Kingfishers acquisition of
Air Deccan was a bad move which they acquired for
550 crores running with losses more than 500 crores to
enter the international space which finally turned out
to be a bad move. [16]
Excessive expenditures: As evident from IndiGos
success who were managing their finances very well,
kingfisher paid their staff exorbitantly, which was very
high as compared to others and hence resulted in
unnecessary losses. [16]
High ATF cost: It again added to the already wounded
airline. At one point ATF cost went as high as 150 $
per barrel. [18]
Personal motives & interests: Mr. Mallyas personal
interest in IPL maybe one of the reason for
Kingfishers losses, Capital which could have been
allotted for kingfisher was diverted towards IPL.
Mismanagement: Management plays a key role in
deciding a companys future, making Siddharth
Mallya the CEO of Kingfisher only added to their
misery. [17]
The Indian aviation industry is facing significant operational
and non-operational challenges as evident from their
performances over the years.
Sales Growth: After a strong comeback in 2010, the
pax growth has been steady over the last few years due
to moderate economic growth and low industrial
activity. Besides, an intense competitive environment
which has been created by domestic LCC players are
rapidly gaining market share, and Air India who is
trying to retain its market share have resulted in price
wars which at times had resulted in low cost pricing,
lower yields and neutralized sales growth for the
airlines. On international routes, the yields have
remained low due to weaker economic conditions and
severe competition from global airlines. [18]
Rising ATF Prices & Steep Rupee Depreciation: The
aviation industry has been extremely impacted by the
significant increase in Aviation-Turbine Fuel (ATF)
prices which went up 57% in last 18 months (reference
2012). As Indian Carriers dont hedge fuel prices and
have showcased limited ability to charge fuel expenses
due to irrational and undisciplined pricing dictated by

competition rather than costs or demand in the Indian

aviation industry. Besides, the steep rupee
depreciation of ~18.7% in CY11 which was partly
reversed through 7.3% YTD appreciation in CY12,
presents concerns for the operators as apart from fuel
costs. Substantial portion of operating costs like lease
rentals, maintenance, etc. are US currency dependent
and hence presents concerns. [18]
Profit Margins: With combined impact of moderating
pax growth, reduced yields due to excessive
competition, rising ATF prices , heavy rupee

depreciation , rising debt levels and interest costs, the

profitability margins of the aviation industry in India
have been severely impacted. As per Centre for Asia
Pacific Aviation (CAPA), Indian operators could be
posting staggering losses of approx. $2.5 billion in
FY12 & USD1.65 billion in FY2013, worse than the
losses of 2008-2009 when crude oil prices touched to
$150 per barrel & traffic was declining. [18]

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Management, Vol. 2, Issue 8, August, 2014
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6. IRCA Limited, INDIAN AVIATION INDUSTRY: Through turbulent times, FDI relaxation alone not a game changer, 2012
7. RBSA Advisors, SpiceJet-Hope is in the air?, 2016
8. http://www.netmba.com/finance/financial/ratios/
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10. Crisis Research, Airlines, 2013
11. Laltendu Mishra 2013, a year of surprises for aviation industry, The Hindu, 29th Dec 2013
12. Cuckoo Paul, How Rahul Bhatia Found His Escape Velocity, June 2016
13. AMRITA NAIR-GHASWALLA, India aviation grounded by high taxes: IATA chief, Feb 2014
14. Surajeet Das Gupta & Aneesh Phadnis, What keeps IndiGo's profit flying high?, Oct 2013
15. SWATI DAFTUAR, How IndiGo escaped the blues, June 2012
16. Mihir Mishra, A tale of two airlines: Kingfisher vs IndiGo, February 2012
17. Sindhu Bhattacharya, The inside story of Vijay Mallya's tumble: He bought Deccan with eyes closed, Apr 2014
18. Indian aviation industry, Through turbulent times FDI relaxation not game changer, March 2012