v 2.0 / 1.7.

2008

Indian Institute of Management Bangalore

The Indian Airline Industry in 2008

By

Rishikesha T. Krishnan
Professor of Corporate Strategy & Policy

v 2.0 / 1.7.2008

The Indian Airline Industry in 2008 1

A 19% hike in the price of Aviation Turbine Fuel (ATF) announced by Indias oil companies at the end of May 2008 jolted the Indian airline industry. With this hike, ATF prices had roughly doubled in a year, and tripled in four years. A concerned Civil Aviation Minister, Praful Patel, rushed to the Finance Minister seeking his support to prevent the industry from turning sick losses of the airlines in 2007-08 were of the order of Rs. 40 billion and were predicted by some analysts to reach twice that level in 2008 -09. Yet, just three years earlier, the ind ustry was seen as a sunshine industry that would march in step with Indias economic growth. While individual airlines debated their survival strategies, observers wondered how things could have gone wrong so fast.

History of the Indian Airline Industry At the time of Indias independence from the British in 1947, several small airlines operated in the country. Soon, however, in 1953, the government of India decided to guide the orderly growth and evolution of the industry by creating two state-owned national carriers Air India (for international travel) and Indian Airlines (for domestic travel). Existing carriers (many of which were making losses) were folded into these airlines. In a country of Indias size and diverse topological features, air travel was expected to be an important mode of travel. The Monopoly Era Air India and Indian Airlines retained a monopoly over civil aviation in India till 1992. During this time they grew steadily but slowly. Air travel was patronised by the government, business, and rich individuals and otherwise seen as a luxury, with the masses travelling by train or bus. Till the 1970s, Air India had the reputation of a boutique airline, with gracious Indian service. But it was unable to sustain this image as it slowly adopted many of the insensitivities of Indian public sector enterprises and appeared to be driven more by the priorities of its large workforce than its paying customers. While Indian Airlines took pride from the fact that it had created a domestic network s panning the length and breadth of the country, it was known for its delayed flights, indifferent service, patchy safety record, and high fares. Both Air India and Indian Airlines were dogged by political interference
1

(c) 2008. This case has been written by Prof. Rishikesha T. Krishnan, Indian Institute of Management Bangalore, based on publicly available information. The focus of this case is on the domestic airline industry in India. The author acknowledges with thanks the assistance provided by Ms. S. Krithika and the participants of the Murugappa Group Business Leadership Programme (2008) in collecting data for this case. The author acknowledges with thanks the perceptive comments of an industry stalwart who prefers to remain anonymous. This case may not be reproduced or distributed without the permission of the author. He may be contacted at +91 98450 22710 or at [email protected]

v 2.0 / 1.7.2008

in matters such as fleet purchase decisions, route selection, appointment of chief executive officers, appointment of General Sales Agents, postings of employees, and recruitment of employees. Two clear instances of such interference were the purchase of A-310 aircraft by Air India in the mid-1980s (these aircraft did not even meet the basic operational requirements of the airline) and the extended grounding of newly-purchased A-320 aircraft of Indian Airlines (after an accident) by the Minister of Civil Aviation in 1990 that almost resulted in the airline going bankrupt. Opening up of the Aviation Sector The deregulation of the Indian economy that started in the mid-1980s, and proceeded more aggressively after the New Economic Policy in 1991, led to calls for opening up of the airline sector. The government responded by first allowing the operation of Air Taxi services, and, in 1994, the operation of scheduled air services. Over the following years, several new airlines including Damania, EastWest, Jet, Sahara, Modiluft and NEPC started operations. Though the airline industry is known to be highly capital-intensive, these airlines were not started by Indias large and well- established industrial houses like the Tatas or Birlas but by lesser-known entrepreneurs. For example, the founders of EastWest and Jet came from the travel trade, while the founders of Sahara had made their money in financial services. At first, the regulatory structure for new airlines lacked clarity, and the industry evolved in the shadow of the domestic leader, Indian Airlines. The new airlines had to draw upon either foreign airlines and aviation support companies or former employees of the national carriers for industry specific expertise. The new entrants started small with a few leased aircraft apiece, but charted different strategies. Damania positioned itself as a luxury airline with on-board entertainment such as fashion shows. EastWest tried to grow aggressively and had the most ambitious fleet expansion strategy. Jet established a reputation for punctuality and good service, and rapidly became the preferred airline of the business sector. With its base in Lucknow, Sahara offered excellent connectivity to a part of the country that was historically under-served. Modiluft sought to exploit a technical tie-up with Lufthansa by projecting itself as a safe and reliable airline. The Shakeout The provision of additional capacity by the new airlines helped address latent demand that had not been served by Indian Airlines and the new carriers were able to quickly get a share of the market. By March 1994, they accounted for 24% of the overall market and as much as 44% of the main trunk routes. i However, they struggled to be profitable. High fuel costs (as of mid -1995, domestic airlines operating in India had to pay $1.70 per gallon of Aviation Turbine Fuel (ATF) compared to an international price of around $0.60 per gallon)ii, poor infrastructure, and a regulation that required them to fly on routes to distant parts of the country as well as on non-trunk routes (see Exhibit 1) threatened their financial viability. Under-capitalisation, poor management, failure to build a network that could exploit economies of scale and scope, poor cost economies, and overall high fare levels that suppressed demand spelt trouble for the fledgling 3

v 2.0 / 1.7.2008

airline industry. iii One airline was even believed to have diverted funds raised from an equity issue to other businesses of its promoter and was accused of gross financial mismanagement leading to the abrupt withdrawal of its technical partner from their alliance. iv By 1997, Damania, Modiluft, and NEPC were forced to suspend services, while EastWests demise was hastened by the murder of one of its founders in broad daylight in Bombay city. Jet and Sahara were thus the only survivors of the first phase of liberalisation of the Indian domestic airline industry. The survival of Jet Airways was attributed to its good financial planning and the involvement of airline industry veterans (including several expatriates) in its management since inception.v Jet also benefited from the distribution network of its parent company that had been the General Sales Agent in India for many foreign airlines. Such relationships with foreign airlines helped Jet forge interline arrangements with many of the worlds leading airlines. The expansion of Jets route network also enabled it to offer broad connectivity. The entry of private airlines did have one silver lining - the service offered by Indian Airlines improved as it confronted competition for the first time. Indian Airlines also launched a frequent flyer programme at this time and this was rapidly emulated by the private players. vi Indian Airlines spun-off its Boeing-737 aircraft into a separate subsidiary Alliance Air that covered regional routes. The creation of Alliance Air allowed Indian Airlines to take back into its fold pilots who had left the airline for the private sector and wanted to return following the collapse of the private airlines. The rapid growth and decline of the Indian airline industry led to several changes in regulatory policy including regulations on the minimum size of an airline (5 aircraft). However, somewhat contrarily, the policy also forbade equity investment by foreign airlines in domestic carriers though foreign investment by non-airline entities was allowed up to 49%, and by non-resident Indians up to 100%. This policy was the outcome of the governments reaction to the proposed entry of a joint venture between the Tatas and Singapore Airlines in the domestic airline business and was widely seen as a move to protect the interests of Indian Airlines. vii Media reports suggested that the owners of Jet and Sahara were equally keen to keep the Tata-Singapore Airlines venture out of the industry. In the face of the quick demise of many of the early private airlines and the governments refusal to allow the entry of the Tata-SIA combine into civil aviation, fresh entry into the airline industry stopped for some time. Jet strengthened its position as the airline for the business community considerably during this period. 80% of its passengers were business passengersviii who chose the airline for its punctuality and excellent service 95% of Jets passengers gave it a rating of Good or Excellent. ix Jet, Sahara, and Indian Airlines shared the market between themselves with market shares of 46%, 9% and 40% respectively in the year-ending March 31, 2003. x

v 2.0 / 1.7.2008

The Emergence of a New Indian Airline Industry The steady growth of the Indian economy after liberalisation at a compounded annual growth rate exceeding 6% increased the size of the economy, and hence demand for both business and leisure travel. The emergence of a new Indian middle class was a well-documented and internationallyrecognised phenomenon. Besides, the number of air travellers and per capita use of airline services in China were about eight times that of India. xi Sensing opportunity, a new phase of development of the Indian airline industry kicked off in 2003 with the entry of new players into the airline industry. In spite of the fact that several costs of operating an airline were fixed irrespective of business model (one estimate put the proportion as high as 80%), most of the new entrants chose to use low fares as their main competitive weapon and hoped to create low-cost operations to make these low fares viable.

Air Deccan Leading the pack was Captain Gopinaths Air Deccan that promised to revolutionise air travel by allowing everyone to fly by offering hitherto unheard of fares. Gopinath was a serial entrepreneur who had earlier been a commissioned officer in the Indian army. After discharge from the army he took up the challenge of farming barren land given to his family as compensation for land that had been submerged due to a dam project. Since it proved to be difficult to grow conventional crops in this land, Gopinath finally turned to sericulture and developed environmentally-friendly and innovative ways of cultivating silk worms. He won the Rolex Challenge award for his work, and his farm became a destination for governments and NGOs seeking innovations in farming. Gopinath entered the aviation business as a response to a pilot friend who did not have a job as he felt that there was good scope for a charter company in India given the distances and the economic development tak place. He started Deccan Aviation in 1997 providing chartered helicopter and ing small aircraft across India. Many times people would approach Gopinath (at Deccan Aviation) to travel to smaller towns but back away when they found out the price of the cha rter. He saw tremendous potential for aviation in India if flying could be brought down to a reasonable price (everyone can fly). Inspired by the low-cost airline model pioneered by Southwest Airlines in the United States (see Exhibit 2 for the Southwest model) and later emulated by other successful carriers such as JetBlue and RyanAir, Air Deccan sought to cut the frills out of airline operations and pass on the benefit to customers. Starting in August 2003 with turboprop aircraft that connected small towns to large cities, Air Deccan soon expanded to Airbus A-320 jet operations connecting major cities. Air Deccan offered a single class point-to-point service, did not serve free meals or even free water on its flights, sold all tickets only through the internet or its call centre, did not pay commissions or give credit to travel agents (thereby avoiding the expensive process of managing credit and reconciliation with the travel trade), had limited staff, and outsourced as many operations as possible. To reach more customers, Air Deccan created a new network of travel intermediaries who would sell their tickets. The airline also tied up with a major oil company and the Department of Posts (Post Offices) to enhance reach. 5

v 2.0 / 1.7.2008

Air Deccan adopted as its icon the common man made famous by cartoonist R.K. Laxman (see Exhibit 3). While Air Deccan was able to capture the imagination of the public and demand grew rapidly for its services thanks to its throwaway fares, the airline itself was plagued by operational problems as it sought to aggressively expand its network and fleet size. In the process, it developed a reputation for delays, poor service and lack of reliability. While the established players Indian Airlines, Jet and Sahara - initially ignored Air Deccan, the obvious demand for air travel at lower fares and the urge to fill vacant seats prompted them to start discounting fares as well. This took the form of a limited number of seats sold at lower prices (apex fares) if purchased 7, 15 or 21 days in advance with substantial penalties for cancellation. Later, as other low-cost carriers entered the airline industry, discounting without the pre-purchase requirements of the Apex fares became the norm. By September 2007, Air Deccan had reached a fleet size of 40 aircraft (10 ATR-42, 8 ATR-72, and 22 A-320 aircraft). It had achieved some success in connecting distant places it was the only carrier offering service to twelve of its destinations, and one of only two carriers offering services to six others. xii Air Deccan had 75 aircraft on order for delivery by December 2012. Other Low -cost Airlines Air Deccans growth in the Indian aviation sector induced other players to enter as well. Two of the new entrants SpiceJet and IndiGo followed the classical low-cost airline model of very competitive fares, a single type of aircraft and a single class of service, point -to-point operations, quick turnarounds, no frills, and internet-based ticketing. Launched in May 2005 by NRI investors and Indian entrepreneurs with operating experience, SpiceJet built its operating model around the new generation Boeing 737s, the workhorse of Southwest Airlines. SpiceJet was focused on twin pillars of cost control and growing its ancillary revenue. It used partnerships with global leaders in their respective fields to enhance safety and reliability. It also made significant investments in information technology to provide a backbone for operational effectiveness. These approaches resulted in SpiceJet achieving the lowest costs in the industry (Rs. 2.65/Available Seat Kilometre (ASKM) in 2008) and a flight dispatch reliability exceeding 99.5%. Some analysts believed that SpiceJets efficiency was comparable to that of the legendary low-cost airlines an ICICIDirect report in 2007 placed SpiceJets operating cost (excluding lease rentals) per ASKM at Rs. 2.15 compared to Rs. 2.21 for Southwest Airlines. SpiceJet had 5 aircraft in its fleet at the end of the first year of operations, and had ramped up to 18 aircraft covering 17 destinations and 117 flights daily by May 2008. SpiceJet had another 30 aircraft on order for delivery between 2008 and 2011. IndiGo launched a year later than SpiceJet but followed a similar business model except that it was based on the A-320 aircraft. IndiGo made the headlines when it announced an order for 100 A-320 aircraft soon after its inception. IndiGo was started by NRI investors with significant airline 6

v 2.0 / 1.7.2008

experience including Rakesh Gangwal, former CEO of US Air. By April 2008, IndiGo was operating 1 7 aircraft out of the 100 ordered and flew to 17 destinations. Kingfisher, Paramount, and GoAir Three other airlines Kingfisher, Paramount, and GoAir - started by prominent industrial houses followed diverse approaches to the airline business. Kingfisher Airlines started by flamboyant beer baron Vijay Mallya in May 2005 shared the name of Indias leading beer brand. Though originally conceived and announced as a value carrier, Kingfisher rapidly morphed into a full-service airline more in keeping with Mallyas style and went head-on at Jet Airways. By September 2007, Kingfisher had 34 aircraft in its fleet (4 A-319, 12 A-320, 6 A-321, 12 ATR-72) and served 34 destinations. The airline had 51 A-320 family aircraft on order for delivery by 2014, 35 ATR aircraft on order for delivery between 2006 and 2010, and 50 wide-bodied aircraft (including the A-380) on order for delivery between 2008 and 2018 for a planned international expansion. More details of Kingfishers strategy are in the Competitive Dynamics section that follows. Paramount Airways was launched in September 2005 by the young scion of the Loyal Textiles group in south India as a business class-only airline at economy class prices. After some experimentation with cross-country routes, Paramount settled into a regional presence with its Embraer -170 jet aircraft connecting all the major business locations of south India and soon grew to a strong position with an estimated regional market share of 26%. (The Embraer-170 aircraft is a smaller aircraft than the B-737 or A-320 and offers the benefit of jet travel but with smaller break-even loads. ) Paramount also launched a Paramount First class on some of its routes. By April 2008, Pa ramounts fleet consisted of five aircraft and it served 8 destinations, all in South India. Paramounts expansion plans included having 40 aircraft by 2010 and moves into western and northern India. xiii The Wadias of Bombay Dyeing started GoAir as a low -cost carrier in November 2005. Unlike the steady expansion of other similar carriers, GoAir adopted a dynamic fleet strategy under which they inducted aircraft in peak season (winter months) and returned aircraft to the lessors in the lean season. Having started with seven A-320 aircraft, GoAir had reduced its fleet size to five by March 2007. GoAirs market share remained less than 5%. However, GoAir had announced long-term plans of increasing its fleet strength to 18 by 2009 and 24 by 2011. For a comparison of the financial performance of different airlines in India in 2005-06 and 2006-07, see Exhibit 4. Competitive Dynamics The rapid entry of new players into the Indian Airline industry changed its competitive dynamics. On the one hand, the low fares of the low -cost players changed the growth dynamics of the industry (see Exhibit 5 for growth of domestic air traffic in a historical perspective ). On trunk routes such as Mumbai-Delhi or Delhi-Bangalore, the fares of these airlines were close to the fares of airconditioned rail travel, yet air travel offered significant time advantages for instance, travel from Delhi to Bangalore by air took only 2.5 hours against more than 30 hours by train. 7

v 2.0 / 1.7.2008

On the other hand, since airlines had an expensive fixed asset (a new Airbus A-320 had a list price in excess of US $70 million) and a perishable commodity (each seat on a given flight), they strove to fill their seats by offering attractive deals such as special fares of Rupee 1 or Rupees 99 per passenger for a seat that had cost passengers more than Rs. 10,000 in the past. Full service airlines were forced to drop fares as well (and remove the restrictions that they had in the earlier apex fares) though their minimum fares tended to be still higher than those offered by the low-cost carriers (See Exhibit 6). By 2008, full-service carriers such as Jet Airways reported that three-fourths of their seats were being sold at discounted fares and only one -fourth at full fares; just three years earlier this ratio was 35:65. xiv These low fares attracted leisure travellers to fly by air. The overall growth rate of the market was about three times faster than the growth in business travellers. The proportion of business travellers on full-service carriers such as Jet Airways came down to about two-thirds. xv All airlines used revenue management systems to dynamically vary their fares according to supply and demand, and to manage yield with the objective of achieving profitability. However, their systems varied in sophistication. For the traveller, comparison shopping was made easy by the emergence of specialised travel portals such as makemytrip.com, and indiatimes.com that allowed customers to see all air travel options on a single screen and choose between them. In parallel with the growth of e-commerce in ticket purchase, the importance of travel agents declined. However, full-service airlines were still dependent on travel agents e.g. 77% of Kingfishers sales were through travel agents and only 10% through direct web purchase xvi while low cost carriers like Deccan sold 40% of their tickets through direct internet purchase and only 44% through travel agents. xvii Airlines sought to build strong relationships with the manufacturers of aircraft so as to get the best possible terms and support (see Exhibit 7). Besides connecting hitherto unconnected towns to bigger cities, the low-cost airlines created a number of direct connections between city pairs that were earlier connected only through hub and spoke networks of full-service carriers. For example, Deccan started direct flights from Bangalore to Nagpur and Bangalore to Bhubaneswar whereas passengers had earlier to make such trips through Mumbai and Kolkata respectively. Low-cost carriers sought to supplement their revenue streams by advertising (in its early years, Air Deccan carried advertisements even on the fuselage), sale of food on board, and selling other services (e.g. insurance). In the full-service airline category, competition took on several new dimensions. Kingfisher Airlines introduced leather seats, in-flight entertainment wit h live television, gourmet meals, and a luxurious Kingfisher First for its business travellers on board its fleet of new A-320 aircraft, and valet services on the ground. It addressed its customers as guests rather than passengers and sought to build a service-oriented company culture. Chairman Vijay Mallya promised to look personally into any service complaints. By December 2007, Kingfisher had received 17 national and international awards. xviii 8

v 2.0 / 1.7.2008

Kingfisher Airlines secured access to the relatively under-utilised departure terminals of Indian Airlines in Delhi and Mumbai, thereby avoiding jostling for space with all the other private airlines. It advertised aggressively and sponsored major sporting events. It specifically targeted the mosttravelled frequent flyer s of Jet Airways (passengers who had travelled more than 100,000 miles in the previous year) by giving them a Mega Mile Move offer to transfer their frequent flyer miles to Kingfisher (see Exhibit 8). It launched a major campaign to capture corporate accounts by targeting large travel agents and big corporate houses with special deals. Jet Airways was initially slow to respond to the rapid transformation of Kingfisher into a full-service carrier. However, Kingfishers growth in share on major routes and its rapid expansion of fleet did eventually elicit a response from Jet. Over a period of 12 -18 months, Jet sought to retain frequent flyer s by making its frequent flyer programme more attractive (a special triple-mile offer followed by establishment of frequent flyer exchange relationships with an increasing number of international airlines, hotel chains and car rental agencies), installation of in-flight entertainment (IFE) systems on new aircraft (retrofitting of IFE systems on existing aircraft was considered too expensive), removal of a row of seats to improve leg space in its Premiere (business) class, modification of the Jet Airways logo to give it a more contemporary look, and new uniforms for crew and ground staff. However, Kingfisher sought to take credit for these changes (see Exhibit 9). With only a fourth of the international air traffic from India being handled by Indian carriers, xix and the government agreeing to allow private airlines to use the routes/capacity not used by Air India and Indian Airlines, Jet had, in 2004, seen an opportunity to extend its strong domestic competitive position to international markets. With the increased competition in the domestic market, Jet intensified its efforts to take advantage of the deregulation of international air traffic and the Open Skies policies of several countries to rapidly expand its international footprint; rival Kingfisher could not expand internationally as it did not meet the Indian Civil Aviation Ministrys pre-requisite of five years commercial operation. Between 2006 and 2008, Jet Airways international footprint expanded to the United Kingdom, United States, Continental Europe (Brussels), South East Asia, the Persian Gulf and China apart from existing services to neighbouring Nepal, Sri Lanka and Bangladesh. However, the cost of establishing operations to new destinations at a rapid pace put some strain on Jets finances as well as organisational capabilities. By December 2007, Jets international operations accounted for 37% of itsrevenue and this proportion was expected to rise to 50% by 2009-10. Jet hoped to leverage its advantages such as the ability to provide end-to-end travel solutions for customers, its domestic and international network, code-share agreements with leading international airlines, strong frequent flyer programme, e-commerce innovations and highly trained, service-oriented personnel to (1) sustain market leadership in domestic operations; (2) build domestic and international as equally strong pillars; (3) maintain product and service excellence; (4) achieve profitable growth; and (5) operate a young and modern fleet. xx Barriers to Further Growth Looking forward, further growth of the a irline industry was threatened by several speed bumps. Airport landing and n avigation charges at Indian airports were 50% higher than international benchmarks (though ATR aircraft were exempted from such charges), and amongst the highest in 9

v 2.0 / 1.7.2008

the world. But these higher charges did not translate into superior infrastructure. On the contrary, the increased air traffic between major airports resulted in congestion in the air and on the ground. It was not unusual to find aircraft circling over major cities for 30-45 minutes awaiting clearance to land. Overnight parking bays on the ground were scarce as well. These infrastructure constraints resulted in delays and inconvenience to passengers as also consumption of extra fuel, reduced availability of aircraft for operation, and additional crew hours/costs. To cover these additional costs, from December 1, 2006, airlines (except Indian Airlines/Air India) started adding a separate fixed congestion surcharge of Rs. 150 to the price of each ticket they sold. In addition, a irport terminals burst at their seams, and passengers had to check in well in advance so as to negotiate the serpentine queues for check-in and security clearance. Operationalisation of the second runway at Indias second busiest airport at Delhi (and the construction of a third runway), greenfield airports at Hyderabad (started operations in March 2008) and Bangalore (May 2008), modernisation and privatisation of Delhi and Mumbai airports, and upgradation of Chennai and Kolkata airports were expected to address some of the infrastructural bottlenecks. However, lack of space to build an independent second runway at Mumbai (Indias busiest airport) and restricted availability of airspace for civil aviation meant that several problems would continue indefinitely. In the United States, low-cost airlines often operated from small airports that charged lower fees and that did not suffer from the congestion at large airports. In India, however, government policy did not allow the creation of airports closer than 150 km from each other, and the old airports at Bangalore and Hyderabad were closed down when the new ones were started. While government -run airports charged passengers on domestic routes an Inland Air Transport Tax of Rs. 225 per passenger per flight, the new private airports at Bangalore and Hyderabad planned to charge a much higher user fee. The new Bangalore International Airport started charging international passengers a fee of Rs. 1070 per passenger per flight and was keen to extend this fee to domestic passengers as well. However, the government had put such a levy on hold and planned to create an Airport Regulatory Authority to oversee the levy of such charges. The main suppliers of Aviation Turbine Fuel (ATF) to airlines in India were three public sector oil companies that dominate d the Indian petroleum sector. While the prices of most of their products (petrol, diesel, kerosene, cooking gas) were controlled and subsidised by the government, ATF was sold at international market prices plus additional transportation and marketing margins (approximately 20-25%). Further, most state governments tax ed ATF at high rates (sometimes as much as 34%) as they saw aviation as a luxury industry. As a result, ATF prices in India were estimated to be about 70% higher than international benchmarks. Domestic airlines were not allowed to hedge their fuel costs. The take-off of the Indian airline industry coincided with a spurt in fuel prices originally induced by the US presence in Iraq, but reinforced by worldwide shortage of refining capacity and a sharp increase in fuel consumption in China and India. To cover the increasing costs of fuel, from May 2006 airlines started adding a fixed fuel surcharge to the price of each ticket sold. By June 2008, the fuel surcharge had risen to Rs. 2,250 for each ticket for a distance of less than 750 km and Rs. 2,900 for each ticket for a distance of more than 750 km. As a result the total taxes 10

v 2.0 / 1.7.2008

and surcharges payable on each ticket rose to Rs. 2,625 or Rs. 3,275 depending on the distance flown. New airlines also found qualified people in short supply. Specialist roles that need prior certification such as pilots and maintenance engineers were particularly difficult to fill and airlines were forced to hire expatriate pilots at higher salaries to tide over the shortage.

Restructuring of the Industry The rapid increase in costs combined with competitive pressures to keep fares low threatened the survival of relatively less efficient airlines. At the same time, leadership in terms of size (see Exhibit 10 for evolution of fleet size) and market share (see Exhibit 11 for changes in domestic airline market shares over time) emerged as a quest of some of the industrys important personalities. These developments spurred consolidation initiatives. The first of these was the takeover of Sahara by Jet Airways. This acquisition gave Jet access to Saharas fleet of Boeing 737 and CRJ aircraft, and, more importantly, Saharas parking slots in major Indian airports. Though the deal was announced in early 2006, Jet completed acquisition of Sahara in April 2007 and decided to run the airline as a value carrier subsidiary under the brand name JetLite. Post-acquisition, Jet found that JetLites aircraft were in poor shape and needed considerable attention and investment to be brought up to efficient performance standards. (The process of restoring Saharas aircraft to operational readiness was still going on as of April 2008). Over time, they hoped to bring about a high degree of operational synergy between the two airlines. Soon after the takeover, Saharas frequent flyer programme was closed and all its members transferred to the Jet Privilege programme of Jet. Flights on JetLite were eligible for mileage points on Jet Privilege. An even bigger acquisition was to follow in mid-2007, Kingfisher acquired a controlling stake in Air Deccan. Kingfisher justified the acquisition based on synergies in aircraft maintenance, and spares since Air Deccan and Kingfisher both had fleets of the same types of aircraft (A -320 jets and ATR turboprop). Other shared services would include sales and marketing, ground handling, engineering services, customer service, and training. Over time, Kingfisher hoped to mesh routes and frequencies through combined strengths of network reach, connections, frequencies, and infrastructure. xxi Since Deccan would be eligible to fly on international routes by August 2008, Kingfisher planned to use the Deccan brand to enter international routes in case it was unable to get the policy requiring five years of prior operating experience changed. Following the t akeover of Deccan, it was re-christened as Simplifly Deccan, and Deccans aircraft were re-painted in the distinctive red and white livery of Kingfisher at a reported cost of Rs. 600 million. Ground handling equipment and buses reflected both the K ingfisher and Deccan brand names (See Exhibit 12 for a comparison between the old and new livery and uniforms of Deccan). Following the takeover, Deccan served free water on board, operations were streamlined, and 11

v 2.0 / 1.7.2008

Deccans prices increased. (Capt. Gopinath decided to leave the company and start a new cargo airline.) Kingfisher Airlines saw its strengths as its emphasis on aviation hospitality including a distinctive Kingfisher First business class and its association with the Kingfisher brand. It saw the Kingfisher brand as a symbol of the aspirational, upwardly mobile culture of Indias growing higher income groups.xxii It planned to expand its range of customer service offerings, increase its fleet size and number of flights per day in the domestic market, operate flights to international destinations, and leverage the Kingfisher brand in order to strengthen customer loyalty and be perceived as a brand in the airline industry and not just another airline. Deccan planned to use its reputation as the pioneer of low-cost air travel in India, a diversified network, and a simplification of its operations to reduce costs and keep services affordable to attract high volumes of passengers flying point-t o-point routes, both between major cities, and to and from regional locations. xxiii The third major consolidation was the merger of the two national carriers Indian Airlines and Air India into a single national entity under the corporate name of National Aviation Company of India and the brand name of Air India. This move was frst mooted several years earlier, but was i ultimately consummated only in 2007. Shortly before the official approval of the merger, the boards of Indian Airlines and Air India approved major fleet expansion plans that would result in a complete overhaul of their respective fleets. With no major new carrier having entered the airline industry since 2006 (partly due to the intense competition in the industry, and partly due to the reluctance of the government to allow more airlines to jostle for an already congested air infrastructure), consolidation was expected to help the long-term sustainability of the airline business.

State of the Industry as of May 2008 Notwithstanding the consolida tion moves, it was clear by May 2008 that the Indian Airline industry was in serious trouble. Growth in demand that had been averaging 26% in the preceding three years had dropped to below 20% in the current year. There were hardly any instances of airlines reporting quarterly profits and even the profits reported were often the result of sale and leaseback , transactions related to aircraft or sale of delivery positions for new aircraft. Kingfisher and Deccan were reported to be losing more than Rs. 30 million a day. Jet Airways reported a loss for the Oct-Dec 2007 quarter and its results for the year-ended March 2008 were expected to indicate a worsening of the trend. (See Exhibits 13-18 for airlines financial and operational performance). GoAir, IndiGo, and Paramount were not listed on an Indian stock exchange and hence did not have to disclose earnings, but were believed to be losing money as well. The sharp increase in fuel prices at the end of May 2008 was expected to further accelerate the downturn in performance. Could the airlines do anything to prevent a repeat of the first phase of private entry that ended in disaster for most of the airlines? 12

v 2.0 / 1.7.2008

Exhibit 1 Route Dispersal Guidelines An airline providing scheduled services on domestic sectors in India is required to comply with Route Dispersal Guidelines as formulated by the Government in March 1994. These guidelines provide for the following categories of routes: Category I Twelve city pairs: Mumbai -Bangalore, Mumbai-Kolkata, Mumbai -Delhi, Mumbai-Hyderabad, Mumbai-Chennai, Mumbai-Thiruvananthapuram, Kolkata-Delhi, Kolkata -Bangalore, Kolkata-Chennai, Delhi-Bangalore, Delhi -Hyderabad, Delhi-Chennai. Category II Routes connecting the North East, Jammu & Kashmir, Andaman & Nicobar Islands, and Lakshadweep with cities in Category I and Category III routes. Category IIA City pairs within the North East, Jammu & Kashmir, Andaman & Nicobar Islands, and Lakshadweep. Category III Any city pair that does not fall in Categories I, II and IIA. According to the Route Dispersal Guidelines, scheduled domestic airlines must deploy their capacity as follows: On Category II routes, 10% of the capacity on Category I units. On Category IIA routes, 10% of the capacity on Category II routes (which is aggregated for meeting the requirement of Category II) On Category III routes, 50% of the capacity on Category I routes.

The Director General of Civil Aviation (DGCA) monitors compliance with these guidelines on a weekly basis. Compliance with these guidelines is a pre-condition for renewal of an airlines operating permit. In the event of non-compliance, DGCA requires an airline to make up any shortfall in the subsequent period. Failure to comply with these guidelines will lead to restrictions being imposed on the capacity deployed on Category I routes. Source: UB Holdings Ltd. Prospectus, December 2007, p. 187.

13

v 2.0 / 1.7.2008

Exhibit 2 Southwest Airlines Activity Chart

Exhibit 3 Air Deccans Icon: The Common Man

14

v 2.0 / 1.7.2008

Exhibit 4 Financial Summary of Scheduled Indian Carriers during 2005-06 & 2006-07 (Rs. Million) Airline 2005-06 2006-07

Operating Revenue

Operating Expenses

Operating Result

Operating Revenue

Operating Expenses

Operating Result

1 2 3 4

AIR INDIA AIR INDIA EXPRESS INDIAN AIRLINES ALLIANCE AIR TOTAL (PUBLIC SECTOR AIRLINES)

88337.1 4323.8 57660.1 5533.4 155854.4

92333.0 4275.4 56902 5971.2 159481.6

-3995.9 48.4 758.1 -437.8 -3627.2

84388.6 7794.0 59862.7 3802.7 155848.0

96658.9 7629.0 73704.3 4660.6 182652.8

-12270.3 165.0 -13841.6 -857.9 -26804.8

5 6 7 8 9 10 11 12

JET AIRWAYS SAHARA AIRLINES AIR DECCAN PARAMOUNT AIRWAYS SPICEJET KINGFISHER GO AIR INDIGO TOTAL (PRIVATE)

56960.6 20617.2 13518.1 144.2 3418.6 4250.1 384.0

51573.0 21212.1 16741.4 321.9 3903.9 6587.8 968.0

5387.6 -594.9 -3223.3 -177.7 -485.3 -2337.7 -584.0

70578.0 20153.3 21423.0 2549.8 7574.4 15084.6 3482.6 2162.8

71098.2 25715.4 24960.7 2306.6 9241.0 20415.3 5634.6 3904.2 163276.0

-520.2 -5562.1 -3537.7 243.2 -1666.6 -5330.7 -2152.0 -1741.3 -20267.4

99292.8

101308.1

-2015.3

143008.5

Source: Compiled by DGCA from ICAO ATR Form EF furnished by scheduled Indian carriers 15

v 2.0 / 1.7.2008

Exhibit 5 Capacity and Demand for Air Services on Indian Domestic Routes S. No. Year Scheduled domestic passengers carried (,00,000) Available seat Kilometres on scheduled domestic services (million) 1 2 3 4 5 6 7 8 9 10 11. 12. 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Calendar 2007 117.0 115.5 120.2 127.1 137.1 128.5 139.5 156.8 194.5 252.0 357.9 420.9 14812 16454 17932 19089 19897 20850 22833 24936 27790 35077 48702 Revenue Passenger Kilometres on Domestic Servi ces (million) 9810 10599 10827 11419 12283 11574 12848 14566 18031 23709 33519

Source: DGCA

16

v 2.0 / 1.7.2008

Exhibit 6 Comparative Fares on a Select Sector

Search for fare options on a Bangalore-Delhi flight for June 10, 2008 yielded the results shown here. The prices shown do not include surcharges and taxes. The full fare in economy class quoted by Jet Airways for the same day was Rs. 13,285 + surcharges & taxes. Options generated using www.makemytrip.com on June 4, 2008.

17

v 2.0 / 1.7.2008

Exhibit 7 Airlines & the Aircraft Manufacturing Industry Airlines purchased new aircraft typically from either Airbus Industrie (a European consortium of aircraft companies strongly supported by the French and German governments) or Boeing (an American aircraft manufacturer). As there were significant cost advantages in having a standard fleet, airlines tended to be loyal to a manufacturer for a particular category of aircraft. Both Airbus and Boeing offered families of aircraft with different seating capacities but common cockpit systems that facilitated pilot and engineer certification across the family. The A -320 family of Airbus (A319/A320/A321) and t e Boeing-737 family of Boeing (Boeing 737h 700/800/900) were both well-engineered and state -of-the-art. They had excellent records for reliability and safety. Since aircraft are built -to-order and manufacturing capacity cant be ramped up and down very easily, airlines had to order aircraft in advance and wait for delivery. In addition to firm orders, airlines could also book options for the purchase and delivery of aircraft. The aircraft manufacturing industry had consolidated over time as companies such as Lockheed and McDonnell Douglas could not deal with the cyclicality of the industry and the huge, uncertain investments involved in developing and launching new aircraft. During the 1980s and 1990s, a new industry segment of jet aircraft with capacities of 50 -100 seats emerged to meet the needs of regional operators in the United States. This segment had two major players Bombardier (a diversified transportation equipment company based in Canada) and Embraer (a Brazilian company). The upper end of capacity of these regional transport aircraft (RTA) was just short of the A-319 and B-737/700 aircraft. Turboprop aircraft flew at lower speeds than jet aircraft (500 kmph vs. 800+ kmph) and also consumed less fuel. However, they flew at lower heights and were therefore more susceptible to the weather. In 2008, the French ATR series of aircraft was the only commercially available turboprop aircraft. All aircraft manufacturers offered their customers financing packages. Besides, the aircraft leasing industry had several large players including GECAS, a division of GE Financial Services, that offered both operating and financial lease alternatives to airlines purchasing new aircraft. Second-hand aircraft could be leased from leasing com panies or from airlines that had excess capacity. New aircraft offered major advantages in terms of operating and maintenance costs but were much more expensive than used aircraft. Aircraft manufacturers also provided maintenance and spares support to airlines. Aircraft had to periodically undergo major checks and overhauls; facilities for such checks were expensive and often run by third parties. In markets where a critical mass of aircraft operated, aircraft manufacturers were willing to build or support the creation of Maintenance, Repair and Overhaul (MRO) centres to facilitate these checks and overhauls. By 2008, the Indian market had reached the size where such MRO centres were being contemplated by aircraft manufacturers as well as entrepreneurs. 18

v 2.0 / 1.7.2008

Aircraft manufacturers fought hard for customers and were known to offer significant incentives to airlines making large purchases. Pricing depended on the market situation, financial position of the airline, sellers/lessors perception of the credibility of the management of the airline, long -term plans of the airline, etc. Airbus and Boeing were aggressive and often bitter rivals, and had often accused each other of obtaining illegal subsidies. Both sought to be leaders in terms of number of aircraft sold/delivered in a year and order backlog on hand. Bombardier and Embraer had a similar rivalry in the RTA business. Aircraft Manufacturers & their Indian Customers Boeing 737 family: A320 family: ERJ170 (Embraer): CRJ series (Bombardier): ATR: Jet, Jetlite, SpiceJet, Air India (for international short-haul) Air India, Kingfisher, IndiGo, GoAir, Deccan Paramount Jetlite and Air India (domestic) Jet, Kingfisher, Deccan, Air India (domestic)

19

v 2.0 / 1.7.2008

Exhibit 8 Kingfishers MegaMileMove Invitation

Exhibit 9 Jet Airways Change & Kingfishers Response

20

v 2.0 / 1.7.2008

Exhibit 10 Fleet Size of Indian Carriers 9697 9798 9899 9900 0001 0102 0203 0304 0405 0506 0607 Latest Position

AIR INDIA AIR INDIA EXPRESS INDIAN AIRLINES ALLIANCE AIR JET AIRWAYS SAHARA/ JETLITE AIR DECCAN PARAMOUNT AIRWAYS SPICEJET KINGFISHER GO AIR INDIGO ARCHNA NEPC SKYLINE NEPC (DAMANIA)

28

26

26

26

28

29

31

35

37

38 4

35 13 59 15 53 29 39 5 11 25 5 8 91 (just before merger) 81 (05/08)* 24 (05/08) 41 (09/07) 6 (04/08) 18 (05/08) 34 (09/07) 5 (mid 07) 17 (04/08) No Longer in Operation

52 3 13 4

39 12 19 6

44 12 25 8

44 12 28 9

42 11 30 7

44 11 38 10

43 11 41 12

47 15 41 20 4

52 15 42 22 16

55 15 53 29 29 1 5 11 3

4 9 5

* Incl. 18 wide-bodied aircraft used exclusively for international operations. Source: DGCA, except for last column

21

v 2.0 / 1.7.2008

Exhibit 11 Indian Domestic Airline Industry: Market Share Data (In Per Cent)

Airline Jet Airways JetLite Sahara Indian Air Deccan Kingfisher SpiceJet Paramount GoAir IndiGo Others

Y.E. 31/3/02 45.3

Y.E. 31/3/03 45.9

Q.E. 06/06 34

Q.E. 03/07 24.2 8.12

Q.E. 03/08 22.7 7.4

4.8 44.3

9.3 39.6

9 21 19 8 6

Acquired by Jet Airways & renamed as JetLite 19.2 18.6 10.6 8.1 1.5 14.8 14.6 14.5 10.3 1.2 4.4 10.3

4.7 5

5.6

5.2

Sources: Jet Airways IPO Prospectus February 2005; Press reports based on DGCA data

22

v 2.0 / 1.7.2008

Exhibit 12 The New Deccan

Old Logo

New Logo

Old Uniform

New Uniform 23

v 2.0 / 1.7.2008

Exhibit 13 Financial & Operational Performance of SpiceJet Ltd. Income Statement: Rupees Million
Year-ending 31.5.2006 1. Net Sales (Income from 4196.45 10 months to 31.3. 07 6404.44 Qtr ending 30.06.2007 2653.77 Qtr ending 30.09.2007 2226.15

Operations) 2. Other Income Total Income 3. Total Expenditure Operating Expenses: Aircraft Fuel Aircraft Lease Rentals Airport Charges Aircraft Maintenance Other Operating Costs Staff Cost Rent Legal, Professional & 479.73 26.32 90.57 3783.73 1989.83 771.67 339.33 470.56 3494.39 1367.06 601.59 671.57 456.27 855.00 37.55 72.18 285.89 14.14 9.43 2465.07 1402.35 508.65 244.35 210.36 193.81 305.90 17.94 15.13 323.34 4519.80 1078.35 7482.79 460.39 3114.17 473.75 2699.90

Consultancy Other 4. 5. 6. 7. 8. Interest Depreciation/Obsolescence Prior Period Adjustment Profit (Loss) before Tax Provision for Taxation Fringe Benefit tax 9. Net Profit/Loss (459.76) 58.68 13.12 (414.20) 9.94 (707.44) 3.31 185.35 3.00 (377.72) 31.34 505.23 27.31 58.47 (33.67) (697.50) 124.91 9.75 16.30 (0.04) 188.66 138.78 18.69 18.70 0.04 (374.72)

24

v 2.0 / 1.7.2008

Balance Sheet (Rs. Million) SOURCES OF FUNDS Shareholders Funds Sha re Capital Reserves & Surplus Loan Funds Secured Loans Unsecured Loans APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Capital Work in progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Loans and Advances Less: Current Liabilities & Provisions Current Liabilities Provisions Net Current Assets Miscellaneous Expenditure Deferred Revenue Expenditure Profit & Loss Account As at March 31, 2006 1843.39 1060.90 2904.29 3596.40 610.85 7111.54 As at March 31, 2007 2406.51 3178.71 5585.22 3571.82 749.70 9906.74

588.83 98.40 490.43 3628.92 0.00 33.98 37.21 634.32 798.76 1504.27 1495.96 141.92 1637.88 (133.61) 93.78 3032.02 7111.54

621.12 137.34 483.78 6943.51 812.22 79.40 55.61 3510.46 1153.79 4799.26 6456.22 415.25 6871.47 (2072.21)

3739.44 9906.74

Selected Operational Parameters of SpiceJet Ltd. (Adapted from Reports by Prabhudas Liladher) Oct-Dec 06 ASKMs (m) RPKMs (m) Load Factor Rev/RPKM Cost/ASKM B/E Load Factor 955 724 75.8 2.86 2.50 87 July-Sept 07 1298 883 68.0 2.53 2.34 93 Oct-Dec 07 1647 1255 76.2 3.25 2.59 80

25

v 2.0 / 1.7.2008

Average Fare

NA

NA

Rs. 3150

SpiceJets net revenue per passenger was Rs. 2209 in the period ending May 31, 2006 and Rs. 2320 in the period ending March 31, 2007.

26

v 2.0 / 1.7.2008

Exhibit 14 Financial Performance of Deccan Aviation Ltd. 15 months ending 30.6.2006 1. Net Sales (Income from 12363.9 Year ending 30.6.2007 Quarter ending 31.12.2007

17745.5

5676.3

Operations) 2. 3. 4. Other Income Total Income Total Expenditure Employee benefits Aircraft Fuel Aircraft Lease Rentals Aircraft Maintenance Airport Charges Other Direct Expenses Operating 6254.5 2162.3 1775.6 1926.2 1327.7 9795.0 4030.5 2275.0 2979.5 1611.0 2876.8 1138.6 639.6 763.5 582.3 remuneration & 1706.2 2517.9 818.7 1154.1 3677.6 96.6 5772.9

Sales, general & admin Depreciation Amortisation Total 5. Interest & Finance Charges Profit (Loss) before Tax Tax expense Net Profit/Loss and

1091.2 322.8

1312.7 439.2

487.4 119.4

24960.8 319.5 (3368.0) 37.5 (3405.5) 624.0 (4161.7) 34.1 (4195.8)

7426.3 244.1 (1897.5) 11.1 (1908.6)

27

v 2.0 / 1.7.2008

July - Sep 06 ASKMs (m) RPKMs (m) No. of seats available No. of passengers flown Passenger Load Factor Number of Flights Operated per Day Number of Airports Operated 1695 1266 1898867 1378655 72.6% 220

Oct-Dec 06

Jan Mar Apr Jun July- Sep 07 Oct-Dec 07 07 07 1887 1874 2122 2221 2053 1465 1570 1791 1515 1601 2142031 2150568 2490981 2641438 2272036 1643868 76.74% 258 1746765 81.22% 264 2013345 80.83% 270 1696319 64.22% 267 1765690 77.71% 260

52

58

61

64

63

63

Selected Operational Parameters of Deccan

From Data available on Deccan website

28

v 2.0 / 1.7.2008

Ex hibit 15 Financial Performance of Kingfisher Airlines Ltd. (Rs. Million) Year ending 31.3.2006 Year ending 31.3.2007 Six months ending 30.09.2007 11313.7

Net

Sales

(Income

from

4358.1

13824.2

Operations) Other Income Total Income Expenditure: Employee benefits Aircraft Fuel Aircraft Lease Rentals Commissions to Agents Ticket Distribution charges Service Tax expenses Rates and Taxes Depreciation Amortisation Net Profit/Loss and 2356.2 1164.8 268.7 22.9 0 41.2 36.2 7068.0 2762.5 762.0 391.7 381.9 402.9 490.0 2017.1 remuneration & 680.6 1575.0 4381.9 15529.5 11914.0

(1933.7)

(5081.1)

(3993.2)

Note: Kingfisher Airlines Ltd. Is not a listed company. This information has been pieced together from data contained in United Breweries (Holdings) Ltd. Preliminary placement document dated December 3, 2007. It is incomplete and may be treated as merely indicative. Number of passengers flown was 1.23 million in 2005-06 and 3.26 million in 2006 -07. 60% seats were filled in 2005-06 and 68% in 2006- 07. Revenue per passenger was Rs. 3554 in 2005- 06 and Rs. 4 241 in 2006- 07. Kingfisher Airlines had a networth of -7,848 million as of 30 September 2007.
th

29

v 2.0 / 1.7.2008

Exhibit 16 Financial Performance & Selected Operational Parameters of Indian Airlines Operational Fleet before Merger (Includes Alliance Air) Airbus A-300 Airbus A-330 Airbus A-321 Airbus A-320 Airbus A-319 Boeing 737-200 Dornier DO-228 ATR-42 CRJ Total Fleet 3 2 6 48 11 11 2 7 1 91

[This includes 11 of the 43 aircraft ordered from Airbus Industrie in February 2006. The balance 32 aircraft are to be delivered by 2010.] Operational Network Domestic International Total 59 15 74

30

v 2.0 / 1.7.2008

Indian Airlines: Abridged Financial Results (Rs. Millions) Total Revenue Total Expenses Net Profit (Loss) before Tax Net Profit (Loss) after Tax 2005-06 57888.2 57258.2 630.0 495.0 March 31, 2006 4321.4 5685.2 3130.8 263.5 434.0 2006-07 71962.4 74272.1 (230.97) (240.29) March 31, 2007 4321.4 5685.2 6138.9 7297.9 (1968.9)

Equity Capital Reserves & Surplus Secured Loans Unsecured Loans Net Worth

Selected Operational Performance Parameters 2002-03 Available Tonne Kilometres (Millions) Revenue-Tonne Kilometres (Millions) Overall Load Factor (%) Revenue Passengers Carried (Millions) 1308 845 64.6 5654 2003-04 1334 877 65.8 5900 2004-05 1472 1017 69.1 7132 2005-06 1593 1141 71.6 7861 2006-07 1692 1236 73.1 8570

Source: Government of India Ministry of Civil Aviation Annual Report 2007-08

31

v 2.0 / 1.7.2008

Exhibit 17 Financial Performance & Selected Operating Parameters of Jet Airways (India) Ltd. Company P&L (Rs. Millions)

2005- 06 Income Operating Revenues Non- operating Revenues Total Revenues Expenditure Employees Remunera tion & Benefits Aircraft Fuel Expenses Selling & Distribution Expenses Other Operating Expenses Aircraft Lease Rentals Depreciation Interest Total Expenditure Profit Before Taxation Provision for Taxation Profit after Taxation EBITDAR 16789 7261 13111 4340 4064 2416 53653 7223 2702 4520 13625 5672 56458 4417 60876

2006-07

Apr-Jun 07

July- Sep07

Oct-Dec07

70578 3435 74013

18067 1763 19830

18186 4356 22542

24260 912 25172

9381

2634

2863

3027

24276 8008 18833 6458 4141 2402 73499 514 234 280 10079

5996 2140 5061 1532 1328 644 19336 495 186 309 2235

6960 2305 5813 1253 1743 1180 22117 425 141 284 245

9173 2622 6531 1365 2204 1554 26476 (1304) (393) (911) 2907

32

v 2.0 / 1.7.2008

Company Summary Balance Sheet (Rs. Millions) As on 31.3.2006 Sources of Funds Shareholders Funds Loan Funds Deferred Tax Liability Total Sources of Funds Application of Funds Net Fixed Assets Investments Current Assets, Loans and Advances Less: Current Liabilities & Provisions Net Current Assets Total Application of Funds 47882 1872 38754 13286 25468 75221 72920 689 33645 20402 13243 86852 23059 48956 3207 75221 22979 60563 3311 86852 As on 31.3.2007

P&L of Domestic Operations (Rs. Millions)

2005- 06 Income Operating Revenues Non- operating Revenues Total Revenues Expenditure Employees Remuneration & Benefits Aircraft Fuel Expenses Selling & Distribution Expenses 14550 6263 5179 501125 4417 54543

2006-07

Apr-Jun 07

July- Sep07

Oct-Dec07

57004 3431 60435

13708 1759 15467

12526 4345 16870

15397 906 16304

8194

2302

2352

2583

18878 6894

4421 1654

4673 1595

5257 1762

33

v 2.0 / 1.7.2008

Other Operating Expenses Aircraft Lease Rentals Depreciation Interest Total Expenditure Profit Before Taxation EBITDAR

10615 2604 3980 2416 45607 8936 13518

13942 4041 3707 2358 58013 2422 9096

3357 905 1002 514 14155 1312 1974

3883 886 1067 809 15265 1606 22

3811 1037 1155 843 16448 (144) 1985

Operating Parameters o Domestic Operations f Apr 05Mar06 Number of Departures ASKMs (Million) RPKMs (Million) Passenger Load Factor Revenue Passengers (Millions) Revenue/RPKM (Rupees) Cost per ASKM (Rupees) Breakeven Seat Factor Average Gross Revenue per passenger in Rupees 100, 958 10,683 7875 73.7% 9.12 5.43 3.42 63.0% 5165 Apr 06Mar07 112,759 12,155 8538 70.2% 9.90 5.66 3.95 69.8% 5295 Apr-Jun 07 July-Sep07 Oct-Dec07

27,832 2990 2129 71.2% 2.41 5.61 3.56 63.4% 5285

28,128 3046 2020 66.3% 2.31 5.28 4.01 75.9% 5006

28,870 3040 2198 72.3% 2.52 6.16 4.50 73.1% 5667

Source: Investor Relations Pages at www.jetairways.com

34

v 2.0 / 1.7.2008

Exhibit 18 Select Financial & Operating Parameters of JetLite

Source: Jet Airways (India) Ltd. Presentation on Financial Results Q3 FY08 dated 28 January 2008. Downloaded from Investor Relations Pages on www.jetairways.com

th

35

v 2.0 / 1.7.2008

References
i
ii

Fighting the Aliens, Business India, June 20 -July 3, 1994, p. 82.

Flying into the Storm Business India, June 19-July 2, 1995, p. 70. Divorces are made in Heaven Business India, June 17-30, 1996, pp. 67-76. Will it fly again? Business India, December 2 -15, 1996, p. 176. Divorces are made in Heaven Business India, June 17-30, 1996, pp. 67-76. Attractive Offers Business India, August 29-September 11, 1994, pp. 35 -36. over my dead body Business India, January 27 -February 9, 1997. Jet Airways (India) Ltd. Initial Public Offer Prospectus, February 28, 2005, p. 50.

iii

iv

vi

vii

viii

ix

Jet Airways (India) Ltd. Initial Public Offer Prospectus, February 28, 2005, p. 49.

Jet Airways (India) Ltd. Initial Public Offer Prospectus, February 28, 2005, p. 57. United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 106. United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 147. Paramount Airways Press Note of February 9, 2008. Downloaded from www.paramountairways.com/press_release.html

xi

xii

xiii

on 1.7.2008
xiv

Wolfgang Prock -Schauer Full Service Carriers: Adapting to the New Environment Presentation at CAPA Conference,

September 2006. Downloaded from www.jetairways.com on 9.6.2008.

xv

Wolfgang Prock-Schauer Airline Developments, State of the Industry and Way Ahead Presentation at the South Asia
th

Aviation Finance conference, 5 February 2007. Downloaded from www.jetairways.com on 9.6.2008.

xvi

United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 142. United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 153. United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 124.

xvii

xviii xix

Wolfgang Prock -Schauer Airline Developments, State of the Industry and Way Ahead Presentation at the South Asia Aviation Finance conference, 5th February 2007. Downloaded from www.jetairways.com on 9.6.2008.
xx

Wolfgang Prock-Schauer Airline Developments, State of the Industry and Way Ahead Presentation at the South Asia Aviation Finance conference, 5th February 2007. Downloaded from www.jetairways.com on 9.6.2008.
xxi

United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 156. United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, p. 124. United Breweries (Holdings) Ltd., Preliminary Placement Document, December 3, 2007, pp. 19-20.

xxii

xxiii

36