Managing in Troubled Times Case Study

Case Title:

Rising Aviation Turbine Fuel: How can Indian Airline Operators Cope?

Abstract:
In a severely competitive industry, the last straw can be a steady rise in operational costs. For Indian airline operators, who were already making losses, increased airline turbine fuel (ATF) costs meant more woes. ATF costs representing 50% of total costs in 2007 rose to 70% in 2008, triggering ticket price increases. With travellers consequently turning towards roads and railways, airline operators managed the cost revenue gap through:

1. removing travel agent commission
2. the reduction of passenger amenities and short-haul flights
3. job reductions
4. deferred fleet expansion
5. operational collaborations between operators. Hedging options were also being examined.

Industry experts opined that losses could double if prices remained at current levels. The pertinent question was how long could the Indian operators cope?

Pedagogical Objectives:

• To analyse the factors that contributed to the losses of domestic airline operators in India.
• To understand the cost structure of the Indian airline operators.
• To the increase in ATF prices in India and its impacts.
• To understand the challenges faced by the Indian domestic airline operators to manage the cost-revenue gap, and to curtail losses and avoid bankruptcy

Keywords : Growth of Indian aviation sector; Impact of aviation turbine fuel (ATF); Prices on airlines operation; Operational costs of the airlines; Cost structure of the airlines; Indian airline operators; Business environment; Passenger traffic growth; Bankruptcy in aviation sector; Business expansion strategy; What is fuel hedging?; Competitive strategy; Revenue model of the airlines; Business model; Industry consolidation; Government policy on aviation industry

Contents:

• Domestic Airlines in India: An Overview
• Hike in ATF Price: Impact on Indian Domestic Airlines