...Airline industry Indian Airline Industry Management Economics P a ge |1 Airline industry A Project report on INDIAN AIRLINE INDUSTRY Submitted on 13Oct2012 in partial fulfillment for the requirement of the subject "Managerial Economics” during academic course of PGDM-Executive 2012-13. Submitted by Abhas Desai(06) Bharat Dalvi (05) Nitin Palve (19) Prasad Babu (10) Arjun Singh (04) Ravi Sastry (22) Vivek Misra (16) Guide: Prof. J Bhargavi K.J.Somaiya Institute of Management studies and research Mumbai Management Economics P a ge |2 Airline industry Industry Outlook: Global Positioning Airlines Industry analysis : Management Economics P a ge |3 Airline industry • • • • Economic growth environment is weak Industry profitability not perfectly but closely correlated High fuel price no problem when growth is strong But growth now close to point where profit turns to loss Management Economics P a ge |4 Airline industry • • • • Price of jet fuel persistently high In 2008 spiked higher but just 7 months Jet fuel price >$120/b for past 15 months Even after recent fall still higher than early 2011 Given difficult environment cash flow performance to date good at around 10% of revenues, except Europe (1/2 that) Financial market signal more or less consistent with change in cash flows since 2009 Management Economics P a ge |5 Airline industry • • • Demand for air travel expanding well above trend...
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...THE IIS UNIVERSITY JAIPUR Indian Airlines- an oligopoly INDEX ACKNOWLEDGEMENT WHAT IS OLIGOPOLY? An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Oligopolies can result from various forms of collusion which reduce competition and lead to higher prices for consumers. Oligopoly has its own market structure.[1] With few sellers, each oligopolist is likely to be aware of the actions of the others. According to game theory, the decisions of one firm therefore influence and are influenced by decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants. The major characteristics of a market proving it to be an oligopoly are:- 1. Profit maximization conditions An oligopoly maximizes profits. 2. Ability to set price Oligopolies are price setters rather than price takers. 3. Entry and exit Barriers to entry are high. The most important barriers are government licenses, economies of scale, patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to discourage or destroy nascent firms. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market. 4. Number of firms "Few" – a "handful" of sellers.[3] There are so few firms that the actions of one firm can influence...
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...Aviation Industry Information The airline industry provides transportation services for passengers as well as cargo through scheduled air routes. The aviation industry derives its revenues from regular ticket fees and freight charges. Other major components of the aviation sector include: • Air traffic control • Helicopter and private charter services • Airport management • Express delivery service History of the Airline Industry The pioneers of the airline industry, the Wright Brothers invented the first airplane in 1903. The first modern airliner, Boeing 247, was launched in 1933. It traveled at 155 miles per hour and had a capacity of ten passengers. Boeing 747 was launched by Pan Am in 1969. This highly sophisticated aircraft had four engines and a seating capacity of 450. The airline industry initially fell under the category of a public utility service, with government agencies establishing the air routes and prices. However, with the Airline Deregulation Act of 1978, the industry became market driven. Demand and Supply Drivers of the Airline Industry The demand drivers of the airline industry include: o Ticket prices o Passenger income levels o Access to and suitability of other modes of transportation o Frequency of services • Safety • Random factors such as terror threat The supply...
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...Business Study Report: Boeing Table of Contents 1. Executive Summary 3 2. Introduction 4 3. Introduction to the Business and General Business Environment 5 3.1 Major Customers of Boeing 5 3.2 Competitors of Boeing 5 3.3 Business Environment 6 3.4 Market Structure: Oligopoly 7 4. Production Costs and Scale 7 5. Macro Business Environment 9 6. Sustainability Practices of the Business 12 6.1 Sustainability in the Production Process 12 6.2 Sustainability in the Consumption of the Goods 12 7. Conclusion 13 References 15 1. Executive Summary This report has been developed for Boeing, which is the leading manufacturing company of airplanes, space-crafts and defense systems. The main quest of this report is to explore the business and the general business environment. It has also covered the major competitors of the company and the demand curve. The report has also covered the fixed and variable costs of the business and how it has affected the cost structure of the business. The report has also explored the macroeconomic environment in which Boeing is operating and what implications it has on the business of the company. Further, the report has also included the sustainability practices of Boeing and its initiatives to reduce the negative effects on the environment from its product. 2. Introduction Boeing is a multinational corporation with its roots in Seattle, USA that manufactures and design airplanes, satellites and space shuttles. It is the largest manufacturing company...
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...Oligopoly ← Oligopoly Market Characteristics ▪ Few sellers. ▪ Homogenous or unique products. ▪ Blockaded entry and exit. ▪ Imperfect dissemination of information. ▪ Opportunity for above-normal (economic) profits in long-run equilibrium. ← Examples of Oligopoly ▪ Carbonated Beverage Market (Pepsico & Coca Cola), Domestic aviation Industry in India (Few Players like Indian Airlines, Jet airways, Kingfisher). ← In this form of market structure, the number of sellers is few such that a seller can closely watch what his co-selller is doing in terms of his price & output and take that into consideration while doing his own profit maximization exercise. ▪ For instance: Let P = a – bQ be the market demand curve where the market is supplied by two sellers 1 & 2. Then market demand can be expressed as P = a – b (Q1+Q2). Now firm/seller 1 will define his profit function as Π = TR –TC = PQ1 – C1 = {a – b(Q1+Q2)}Q1 – C1 . Thus now with oligopoly, a seller’s profit function includes rival’s output Q2 as given, which was not the case in other forms of market. Similarly it can also include P2 if sellers are competing based on Prices and not on market share This value of rival’s output (Q2) is arrived at by a seller by looking at how rival was selling in last period. He looks at the quantity or price his rival was selling...
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...PRICING STRATEGY IN IMPERFECT MARKET CONDITION Outline: 1. Imperfect markets * Characteristics * Number of firms * Type of products * Entry conditions 2. Industry examples of each market 3. List of Specific companies and their competitors in each industry for analysis * Pricing strategy of the companies in each market * Price discrimination applicability * Market power * Different customer groups * Resale is not possible Imperfect market : * There are four types of imperfect markets: - Monopoly (only one seller) * Oligopoly (few sellers of goods) * Monopolistic competition (many sellers with highly differentiated product) * Monopsony (only one buyer of a product) In this market scenario, the seller enjoys the luxury of influencing the price in order to earn more profits. Monopoly: A market in which a single firm sells a product and that does not have any close substitutes. Characteristics: Market power | The ability of the firm to affect the price of its product | Barrier to entry | Something that prevents firms from entering a profitable market | Patent | The exclusive right to sell a new good for some period of time | Network externalities | The value of a product to a consumer increases with the number of other consumers who use it.It inhibits the entry of new ones. | A natural monopoly occurs when the scale...
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...CONFIDENTIAL EXPERT REPORT Research Study of the Civil Aviation Sector in India SUBMITTED TO: The Ministry of Corporate Affairs, Govt. of India, India SUBMITTED BY: Nathan Economic Consulting India Pvt. Ltd., India www.nathaninc.com January 24, 2012 CONFIDENTIAL Table of contents 1. 2. 3. 4. 5. Executive Summary ................................................................................................................................. 1 Introduction .............................................................................................................................................. 7 Market Structure and Competition Issues ......................................................................................... 11 Identification of Anti-Competitive Provisions and Practices ......................................................... 15 Analysis of the Identified Issues .......................................................................................................... 24 5.1 Fleet and Equity Requirements ................................................................................................................... 24 5.2 Route Dispersal Guidelines......................................................................................................................... 29 5.3 Slot Allocation ..............................................................................................................................................
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...where buyers and sellers gather in order to buy and sell a particular good or commodity. The term market refers not necessarily to a place but always to a commodity and the buyers and sellers who are not in direct competition with one another. CLASSIFICATION OF MARKETS Generally, the determination of price and output depends on the type the market. In a market, the products are produced, sold and purchased. Therefore, the economists from time to time classified the various market structures on the basis of time, area and competition. Here we are going to see about Market Structures on the basis of Competition. On the basis of competition a market may be of following types. * Perfect Competition * Monopoly * Duopoly * Oligopoly * Monopolistic competition PERFECTLY COMPETITIVE MARKET In a Perfectly Competitive Market we have a large number of small firms producing identical products. As the number is large, each firm has no market power. That is they are driven by their rivals to a common price and that will be the equilibrium price in the market. If you are an individual firm in this market your individual demand curve looks like A horizontal line at the equilibrium market price P*. If you raise the price above the equilibrium price , you will lose your customer. They will go to the next company which offers an identical product at the equilibrium price. In such a market there are no barriers for entry and exit. Firms can start and stop business at will...
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...compared with jets 115. 3. Highest employees per aircraft in the world. 200:1 whereas desirable is 130-170 :1 4. Bad management and faulty policies has brought air india to this crisis level. 5. A culture of complete sloth in administration. 6. Complete lack of ownership. 7. Lack of responsibility for results and failures. 8. Deeply ingrained corruption in all levels. 9. Instead of renting out unused iconic portions of Nariman point building , for the huge sum the debt ridden airline is paying Rs. 22 lakh each month for its upkeep , 15 of its 23 florrs are lying vacant. 10. Old gas guzzling aircrafts still running 11. Poor marketing and campaign management competitiors like spice jet and kingfisher do effective marketing. 12. Employees not paid salaries. 13. Employee strikes further taking it out of business and competitors taking advantage. 14. The airline has not posted a profit since merging with duopoly partner Indian Airlines in 2007 and relies on hand outs from new delhi to survive. Flight to survival: It needs to 1. Secure a massive debt and operational overhaul if it is to survive in a market growing at 20% a year. 2. $ 4 billion of working capital debt 3. Privatisation – free from government interference 4. To lure customers and grab market share 5. To lease some of the 14 floors lying idle in the south Mumbai to raise about $1 billion over 5 years. 6. To clear $9 billion in debt...
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...Industry, Competition and Strategy Industry • Number of Sellers • Degree of differentiation Pure Monopoly • Only one Provider Unregulated monopoly Regulated monopoly Oligopoly • Small no. of Firms Providing Service • Pure Oligopoly ( Less/ No Differentiated)- Steel • Differentiated Oligopoly ( More Differentiated)Camera, Overhead projectors Monopolistic Competition • Many Competitors • Ability of differentiate offering is high - Hotels Pure Competition • Many Competitors • Similar Offering • Scope and basis for Differentiation is low - Cereals, Cigarette, Tea, Biscuit Drivers of Industry’s Competitive Structure • • • • • • Entry Barrier Mobility Barrier Exit Barrier Cost Structure Degree of Vertical Integration Degree of Globalization Entry Barrier • • • • • • • Capital Requirements Economies of Scale Patents Licensing Requirement Location Raw materials Intermediaries Exit Barrier • Legal and Moral Obligation to Customers, Creditors, Employee • Govt. Restrictions • Low Asset Salvage Value • Lack of Better Opportunities • High Degree of Vertical Integration Mobility Barrier • Barrier when Firm Tries to go Upward, Enter More Attractive Segments ( AirAsia & Vistara; Permission to operate internationally) Cost Structure • Which Component is the major Cost Centre -Manufacturing - Distribution -Advertising -Licensing and any other Degree of Vertical Integration • Flexibility in Operating...
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...References 12 Scope Indian tourism industry is growing at a rapid rate with foreign visitor arrivals reaching a record 0.5 million in 2010, resulting in international tourism receipts of USD 3.8 billion. Tourism is a great foreign exchange earner for India accounting around 3-4 % of GDP. It also makes a direct contribution to economy with significant linkages with agriculture, horticulture, handicrafts, food, transportation, medicine and construction. India’s culture and the slogan “Atithi Devo Bhavah” targeted at the inbound foreign tourists in the country, is paying huge dividends. This assignment aims at analyzing the market structure in tourism industry and the specialties of Kerala tourism. This also analyses the competition and the market potential available in Tourism sector, Medical tourism, spiritual tourism and Adventure tourism are not considered here. Tourism market in India The foreign tourist arrivals in India has seen tremendous growth from 90’s to 2010, it has increased to six hundred thousand visitors in 2010, Main reason for this increase has been following fundamental factors: ❖ India’s economic growth and newly found image. ❖ Opening of tourism sector to private sector/ foreign investment. ❖ Better relationship with Western countries. ❖ Reforms in aviation sector which led to better connectivity with many. Also, introduction of low cost airlines also contributed to the demand. The increase...
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...Indian Railways – A monopoly Abstract In economics, monopoly (from Greek monos (alone or single) + polein (to sell)) exists when delivery of a particular product or service is completely controlled by an individual or an enterprise. This is in contrast to monopsony where there is only one buyer of a particular product or service; however there can be more than one provider. It is also different from cartel (a form of oligopoly) wherein several providers establish an institution and coordinate their actions and services. Indian Railways is the state-owned railway company of India having more than 64000 Kilometers of track and 6909 stations. It has the world’s 4th largest railway network after that of United States, Russia and China. It carries over 20 million passengers and 2 million tons of freight daily. It is one of the world’s largest commercial employers with more than 1.6 million employees. It owns over 200000 freight wagons, 50000 coaches and 8000 locomotives. Indian railways hold monopoly in rail transport in India. Source of their market power can be attributed to following factors 1. Capital Intensive venture, which can be understood from the fact that Indian railways has a separate budget each year 2. Economies of scale, as Indian railways operate all over India and thus have sufficient operating domain to achieve economies of scale which a new entrant cannot easily replicate 3. Government rules and regulations Indian railways has a position, which is not possible...
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...Indian Railways – A monopoly Abstract In economics, monopoly (from Greek monos (alone or single) + polein (to sell)) exists when delivery of a particular product or service is completely controlled by an individual or an enterprise. This is in contrast to monopsony where there is only one buyer of a particular product or service; however there can be more than one provider. It is also different from cartel (a form of oligopoly) wherein several providers establish an institution and coordinate their actions and services. Indian Railways is the state-owned railway company of India having more than 64000 Kilometers of track and 6909 stations. It has the world’s 4th largest railway network after that of United States, Russia and China. It carries over 20 million passengers and 2 million tons of freight daily. It is one of the world’s largest commercial employers with more than 1.6 million employees. It owns over 200000 freight wagons, 50000 coaches and 8000 locomotives. Indian railways hold monopoly in rail transport in India. Source of their market power can be attributed to following factors 1. Capital Intensive venture, which can be understood from the fact that Indian railways has a separate budget each year 2. Economies of scale, as Indian railways operate all over India and thus have sufficient operating domain to achieve economies of scale which a new entrant cannot easily replicate 3. Government rules and regulations Indian railways has a position, which is...
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...ABSTRACT For thirty years, the five-force model of Michael Porter has been used as a standard tool to analyze and determine industry attractiveness. In a recent interview to mark thirty years of the theoretical framework, Porter reaffirmed his faith in the model, quoting examples from the airline and steel industries. The model along with the others that Porter has developed, such as the value chain, strategic groups and national competitive advantage, continue to influence strategic thinking in profound ways. And yet, one cannot help observing that perhaps the time has come to re-examine these models in the light of empirical evidence. This paper attempts to argue that the usefulness of the five-force model is limited in emerging economies as compared to mature markets. A longitudinal study of the IT Enabled Services Industry in India demonstrates that with low entry barriers, a high degree of competition (industry rivalry), bargaining power of buyers (Fortune 100 companies), bargaining power of suppliers (large manufacturers of hardware who force technological up gradation at regular intervals), and the absence of clear differentiators (or close substitutes being offered), the industry should have been very unattractive according to the five-force model. On a practical level though, the paper shows that the major players in the industry have all been able to turn in stellar performances year after year. With this apparent dichotomy between theory and practice...
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...3 Industry Analysis: The Fundamentals When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact. —Warren Buffett, Chairman, Berkshire Hathaway The reinsurance business has the defect of being too attractive-looking to new entrants for its own good and will therefore always tend to be the opposite of, say, the old business of gathering and rendering dead horses that always tended to contain few and prosperous participants. —Charles T. Munger, Chairman, Wesco Financial Corp. OUTLINE n n n n n INTRODUCTION AND OBJECTIVES FROM ENVIRONMENTAL ANALYSIS TO INDUSTRY ANALYSIS THE DETERMINANTS OF INDUSTRY PROFIT: DEMAND AND COMPETITION ANALYZING INDUSTRY ATTRACTIVENESS Porter’s Five Forces of Competition Framework Competition from Substitutes Threat of Entry Rivalry Between Established Competitors Bargaining Power of Buyers Bargaining Power of Suppliers APPLYING INDUSTRY ANALYSIS Describing Industry Structure Forecasting Industry Profitability Strategies to Alter Industry Structure 66 INTRODUCTION AND OBJECTIVES 67 n n n n DEFINING INDUSTRIES: WHERE TO DRAW THE BOUNDARIES Industries and Markets Defining Markets: Substitution in Demand and Supply FROM INDUSTRY ATTRACTIVENESS TO COMPETITIVE ADVANTAGE: IDENTIFYING KEY SUCCESS FACTORS SUMMARY NOTES INTRODUCTION AND OBJECTIVES In this chapter and the next we explore the external environment of...
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