I am extremely bullish on Aviation Industry. I have chosen Aviation Industry to explore because:
- I understand it. It is very simple to understand. I can relate it to a bus travel Agency. The agency buys a fleet of buses, hires drivers, conductors, and other staffs and transports passengers from one city to another via road. An airline is exactly the same. It buys a fleet of aircraft, hires pilots, air hostesses, and other staff members and transports passengers from one city to another via air.
- It is very difficult to set up an airline. This is an extremely hard industry to enter for new players. Starting an airline is relative very difficult than say starting a paint company or a Consumer goods company.
- The Aviation Industry has a long way to go. Presently the Indian Aviation Industry has only 400-500 commercial planes with 1.3 billion population compared to 7000 commercial planes in the US with 300 million population. With rapid expanding Middle class in India, it is damn sure that aviation Industry has a huge room for growth. According to Airbus India, Indian Civil Aviation Market is growing at 20% per annum and it will need 1600 aircraft over next 20 years.
Currently, there are following players in Aviation Industry:
- Jet Airways
- AirAsia India
Out of these 7 players, only IndiGo, Jet AirWays and SpiceJet are listed (Means you can only buy shares in these companies). Jet Airways, AirIndia, and Vistara are full-service carriers (FSC) while IndiGo, SpiceJet, GoAir and AirAsia India are Low-Cost Carriers (LCC).
Full-service Carriers have high ticket fares and they provide meals and entertainment in their flights while Low-cost carriers’ fares are comparatively low and they do not provide any meals or entertainment. Their focus is on reducing cost and maximizing productivity.
Full-service Carriers and Low-cost carriers can be thought similar to full-service brokers and discount brokers.
Vistara and AirAsia are foreign airlines. Vistara is a joint venture between Tata Sons and Singapore airlines and AirAsia India is a joint venture between Tata Sons and AirAsia. All other are Domestic Airlines.
IndiGo is the Market leader with a fleet of 126 Airplanes and Market share of more than 42% (Feb 2017).
Organizations and Regulatory Bodies:
DGCA (Directorate general of civil aviation)
~ Regulatory body of civil aviation in India. Similar to SEBI.
AAI (Airport authorities of India)
~ Airport governing body
BCAS (Bureau of civil aviation security of India)
~ Deals in suspending and giving licenses to airlines and overlooks aviation security.
MoCA (Ministry of Civil aviation in India)
~ It is like Principal of the School and it creates the rules and policies for airlines and overlooks the work of DGCA, AAI, BCAS etc.
APAI (Air passengers association of India)
~ A Non-Profit Organization, engaged in promoting air travel and ensuring rights of air passengers.
FIA (Federation of Indian Airlines)
~ A group of Indian airlines. Rahul Bhatia of IndiGo Airlines is the head.
Technical Terms associated with Aviation Industry
These are the terms you will need to understand to analyze the operational performance of an airline:
1.ASK (Available Seat kilometer)
Suppose an airplane has 180 seats and it flys 1000 kms then ASK for that particular flight will be 180×1000= 180,000. Airlines measure their capacity (Supply) by this Technical Term.
2. CASK (Cost per Available Seat Kilometer)
As understood by the term itself, it is the cost incurred by the airline per Available Seat Kilometer. This cost includes Airplane cost, fuel cost, employee cost(Pilots, crew, air hostess etc.), airport charges and all other expenses.
You can understand it by the following roughly similar example:
Suppose your Bike runs 70 kms in 1 liter of fuel and fuel price is 70Rs/liter then your cost is 1 Rupee per kilometer. You also have to take the bike cost, maintenance cost, insurance cost etc. in your calculation.
3. CASK ex-fuel
This is Cost per Available Seat Kilometer excluding fuel. Since fuel prices cannot be controlled, airlines often use this metric to gauge their cost efficiency.
4. RPK (Revenue Passenger kilometers)
It is similar to ASK. If ASK is Supply then RPK is demand. Suppose there are 180 seats available for a particular flight traveling 1000 kms distance, but only 160 seats were filled, meaning the airline received revenue for only 160 seats then RPK will be 160×1000 =160,000.
Airlines measure the traffic (Demand) by this technical term. A growing RPK is a good sign for an airline.
5. Load Factor
It is the ratio of RPK and ASK. It is expressed in percentage. Basically, it measures the utilization of an airline’s capacity. The greater the load factor the better it is for the airline.
This is Passenger ticket revenue (ticket fares) per RPK. A larger yield means the airline charges more fares from the passengers while smaller yield means ticket fares are generally low.
7. RASK (Revenue per Available seat kilometer)
This is derived by multiplying Load factor and Yield. It is Passenger Ticket Revenue per Available seat Kilometer.
RASK = Yield x Load Factor
RASK= (Revenue/RPK) x (RPK/ASK)
There are a lot of other things which you should know about aviation industry but the above things are good starting information. I will add more info as I come to know them.
Thanks so much for reading. 🙂