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Kingfisher acquisition of air deccan
1.
2. Before 1953: 9 airlines existed
1953: Nationalization- Air Corporations Act
1994: ACA Repealed- Private Airlines can
operate scheduled services
2003: Air Deccan starts as 1st LCC of India
2005: Kingfisher, Spice Jet, Indigo, etc. start
operations
2007: Industry Consolidation
3. Entry of more players
Growing Economy
Rising Disposable Incomes
Low Overall Penetration Levels
16% CAGR growth in Passenger Traffic in past
decade
0%
10%
20%
30%
40%
50%
2003-04 2004-05 2005-06 2006-07 2007-08
LCC Market Share
4. Reducing Yields
Aggressive fleet expansions: Affects
Profitability and Capital Structure
High Taxes
Congestion
5. Revenues
Domestic Revenues
International Revenues
Other Operating Income
Sub-Lease of Aircrafts
Cargo, Auxiliary Revenues etc.
Non-Operating Income
Aircraft Sale & Lease back
Cost Structure
Fuel Cost
Employee Cost
Aircraft Maintenance Expenses
Landing, Navigation & Airport
Charges
Other Expenses
Selling & Distribution Expenses
General & Administrative Expenses
EBITDAR
Aircraft Lease Rental
Depreciation
Interest Expense
PBT
6. Assets
Market reports
Approvals and licenses
Financial reports
Customer profile
Break up of revenue w/ margins
7. 2 Models of Aircrafts
Operating on secondary airports
Single Class Configuration
No In-flight Services
Lower employees per aircraft
Outsourcing of ground operations
8. Sale of food inside the aircraft
Advertisement Rights
Differential Ticket Pricing
Non Refundable Tickets
Paid Initial Training to staff
9. Niche in short span of time
Only domestic airline offering premium 1st
class domestic service
Extendable Footrests: Less number of seats
Personal Valet Assistance
Personalized in-flight assistance
10. Market Share (2007):
Kingfisher: 11%; Air Deccan: 14%
Combined: 25%
EV: Rs. 2115 crore
Initially acquired 26% equity for Rs. 550
crores
› Rs. 155 per share (10% premium over CMP)
Bought another 20% stake for Rs. 418
crores (Open Offer)
11. Increasing Costs
Difficulty in maintaining brand image
Competition from LCC
5yr Ceiling of International Operations
Access to new routes
12. Increasing costs
Brand not synonymous with quality
Prices too low to be profitable
Competition from emerging LCC
Reprieve from cash crunch
Better utilization of existing resources
13. Largest fleet of aircrafts- 71
41 Airbus + 30 ATR
Maximum number of flights and connections
Low Fare Segment + Business Segment
Common Fleet
High market share
Engineering costs to come down
15. Style: Friendly
Company Status: Public
Intention: Opportunistic
Purpose: Defensive
Predictability of Value: Calculative
16. Mars vs. Venus
Dilution of the ‘Air Deccan’ Brand
Both entities highly leveraged
Both loss making entities
Losses 06-07
Kingfisher Airlines Rs. 577 Crores
Air Deccan Rs. 418 Crores
17.
18. LCC Customers – High price elasticity
Rise in fares
Other LCC picked up the market share lost
by Air Deccan
High gestation of overseas routes
High service expectation
Wrong signals to lenders, investors and
employees