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Answer - Flying high: Low-cost carriers driving India’s aviation growth

Financial Analysis for Managers’ Assignment

40 Pages / 10,000 Words

This assignment will be based on real data which can be taken primarily from the annual reports of Indigo and SpiceJet airlines for the 3 years ended 2016.  Full copies of both airlines annual financial reports can be accessed through their web pages and are copied for your information on Moodle.         

Scenario

Flying high: Low-cost carriers driving India’s aviation growth

“Low-cost carriers like IndiGo and SpiceJet have been instrumental in driving growth in India’s aviation industry

Things have never been this good for India’s aviation industry. In a report released this month, International Air Transport Association (IATA) has named India among the five fastest growing aviation markets in the world. India is expected to become the world’s third largest market by 2026, bringing an additional 322 million fliers into the fold.

Low-cost carriers (LCCs) like IndiGo and SpiceJet have been instrumental in driving this growth. The market share of LCCs increased from 25 to 65 percent in the past decade, while full-service carriers (FSCs) like Jet Airways saw their market share sliced in half, from 70 to 35 percent, according to Centre for Asia Pacific Aviation, aviation advisory and research body.

Popularity of online travel services like MakeMyTrip that allow people to compare air ticket prices is one of the ways the LCCs were able to expand their customer base. More than 40 percent of Indians booked their air tickets online in 2015, up from 20 percent in 2008, according to Phocus Wright, a travel market research company.

“The convenience of booking online is certainly a part of the growth,” says Chetan Kapoor, research analyst at Phocus Wright. Kapoor added that LCCs’ prices, which tend to be cheaper than the FSCs, have helped drive their growth.

The Indian aviation industry’s long-term growth is pegged to be the world’s highest, at 8.9 percent, according to Boeing.

India has around 450 commercial aircraft, and it will need more than 1,800 new aircraft in the next 20 years, according to Boeing’s internal research. Almost 85 percent of those will be single aisle planes that usually fly domestic routes, while wide-body planes that fly international routes will account for about 15 percent of the total.

Yet for all its opportunities, the aviation industry is likely to face growing pains, said Dinesh Keskar, senior vice president, Asia Pacific and India sales, Boeing Commercial Airlines, whose major Indian clients are Air India and SpiceJet.

To sustain its growth, Keskar said, the industry will need to work on developing its infrastructure, maintenance, and repair facilities at airports as well as training personnel.

 (Images)

BUSINESS Updated: Oct 27, 2016  Garima Garg  Hindustan Times

You have been commissioned to conduct a financial analysis of these two LCCs in the Indian airline sector and to report your findings in a formal written report.

Required

A professionally produced report which should include a detailed analysis of the following areas:-

(a)   Profitability

(b)   Efficiency

(c)    Liquidity

(d)   Gearing

(e)   Horizontal common size analysis (using 2014 as a base)

(f)     Vertical common size analysis (using total assets as a base)

(g)   The evaluation of performance of business units in either Indigo or SpiceJet using financial and non-financial measures 

(h)    Conclusions and Recommendations

You should state any assumptions made and you are not required to comment on the investment performance of Indigo nor SpiceJet

Please make sure you are aware of the rules regarding plagiarism. Whilst we encourage you to discuss ideas and issues with your colleagues, the final piece of work must be entirely your own.

A sample of students may be selected to come and present their work in a 15 minute question and answer session with one or more members of the postgraduate council

Assessment Criteria (marking scheme is attached for your reference)