A COMPARATIVE ANALYSIS BETWEEN AVIATION, REAL ESTATE AND TEXTILE INDUSTRY

8/11/2019 A COMPARATIVE ANALYSIS BETWEEN AVIATION, REAL ESTATE AND TEXTILE INDUSTRY

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MANAGERIAL ECONOMICS

Assignment

(8000 words )

Test-4

COMPARATIVE ANALYSIS BETWEEN AVIATION,REAL

ESTATE AND TEXTILE INDUSTRY.

SUBMITTED TO: SUBM ITTED BY:

Dr . Rituparna Das (Facul ty of Management), Akshay Singh-1055

Manager ial Economics Sourav Modi - 1072

NLU JODHPUR Suryaneel Das-1073

NATIONAL LAW UNIVERSITY,JODHPUR


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-Micheal E. Porter


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TEXTILE INDUSTRY

The textile and clothing industry is very dynamic in its nature. Things have changed within

this industry very frequently before. This model is one of the best tools available for

analytical evaluation the competitive nature of the industry. Porter has further said that every

industry is unique and has its own unique structure [and this] five-forces framework allows a

firm to see through the complexity and pinpoint those factors that are critical to competition

in its industry, as well as to identify those strategic innovations that would most improve the

industrys profitability. Hence we can say that the model will be useful in defining the most

important forces those actually define the nature and amount of competitiveness within the

industry and will explain that the way these forces can be deemed to be interconnected with

each other. According to this model there are five forces which determine the

competitiveness of an industry in the long-run. The five competitive forces are:

1. The bargaining power of buyers

2. The bargaining power of suppliers

3. The threat of substitutes

4.

The threat of new entrants

5.

The rivalry among existing competitors

1.

The Bargaining Power Of Buyers

The demand forces inside the industry can be evaluated with the help of bargaining power

which the buyers of the industry possess. According to a 2007 research done Texsummit the

current international textile and clothing industry stands at a value of 52 billion US Dollars.

The dominating markets which define the trend in the business in textiles and clothing in the

international scenario are US and European markets. It is expected, that in future demand for


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local made clothing and apparel will rise at a much increased growth rate since it has

achieved a competitive edge over and above its neighbour nations. But in the global scene

China will be the supplier which will see more demand for its supply with respect to India

due to Indias incompetence related to several aspects like fragmented structure,

technological obsolesce, rigid labour issues, lack of skill and training. But due to the fact that

India is one of the lowest cost producer countries, most of the foreign buyers will try to hedge

their risk factors by the process of outsourcing only from one country.

2. The Bargaining Power Of Suppliers

The bargaining power of suppliers in an industry tries to evaluate the scene of the supply

market of the textile and clothing industry. The main raw material of textile and clothing

industry is cotton. India has always been a significant producer of cotton and due to this

factor it has played a very important role in the worlds market for cotton. The textile

industry in India achieves cost advantage in the segment of apparel as well as home textiles

with the help of unending supply of local staple cotton which have been domestically

produced. Further, Indian Government and other policy makers have taken definitive steps

for improving the amount and quality of cotton yield for making sure that higher productivity

can be achieved. India has now bypassed the United States and has become the second largest

producer of cotton in the world in the year 2007. The following fig. 3 shows Indias growing

cotton trend.

3. The Threat Of Substitutes

The factor of threat of substitutes is dependent upon several different factors. These factors

are the relative price and performance of substitutes, consumers interest in the substitute

products and the cost the consumers have to bear for switching to other substitutes (Porter,


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1990). When a number of good substitutes are available in the market, it cuts down the

profitability of a particular industry as well as the magnetism of the industry due to the

necessity of price restriction in the industry. There are many low cost producing countries

like Pakistan and Bangladesh where the labour cost is very cheap in comparison to other first

world countries. These countries pose a threat towards the Indias textile export industry.

Many researchers have put an emphasis to this point in the past.

4. The Threat Of New Entrants

This factor that is threat of new entrants helps in increasing the competitive nature inside the

industry to a greater level. On the other hand the threat is also instrumental in bringing

increased amount of capacity in the market. The seriousness and effectiveness of the threats

posed mainly is dependent upon the entry or exit barriers which are present in the industry. It

further is dependent upon the way the player who are already existing in the industry react to

the new entrant (Porter, 1979; Besanko, 2003). In the case of a quota free economy, all the

players try to achieve expansion of capacity. But the implied result of it is huge number of

domestic and small player entering the local market. This happens due to the fact that they do

not possess the capacity to make any impact on the international scenario.

World over Textile Trade


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5. The Rivalry Among Existing Competitors

The amount of rivalry within the competitors who already exist in the industry is highly

dependent on the following factors: the structure of competition, the structure of industry

costs, strategic objectives, degree of differentiation, entry and exit barriers, and switching

costs (Porter, 1990). The rivalry of Indian textile industry, globally, depends upon various

factors like; Indias poor logistics, fragmented infrastructure and unskilled labour. These all

factors are a major thumbs-down to Indian economy on the global front.

The analysis which was carried out with respect to Porters model, is instrumental in summing

up the works done by Porter on the topic of competitiveness which has been immensely

helpful in understanding the literatures which are relevant on this industry. This has proved

that despite the structural inefficiency, the Indian textile and clothing industry has vast

potential to successfully compete in the international business.

PRODUCTIVITY:

The productivity of a country depends upon the productivity of the companies operating in

that country. Dowling has said that productivity is the one of the most important factors

which determines a nations standard of living in the long run. This happens due to the factor

that this is the root of growth of per capita income.

INDIAN PERSPECTIVE

In India textile industry is the second largest employment maker after agriculture and it is the

second largest in the world. It holds major position in India as it offers one of the most basic

necessities of the citizens. Textile industry was one of the earliest industries to come into

existence in India and it accounts for more than 30% of the total exports.Indian textile


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industry is formed of the following segments: Readymade Garments, Cotton Textiles

including Man-made Textiles, Handlooms, Woollen Textiles, Silk Textiles, Coir,

Handicrafts, and Jute.

Nationwide Textile Policy was declared in the year 2000. Its major purpose was: to offer

cloth of suitable quality at realistic prices for the vast majority of the people of the country

and to compete with confidence for a rising share of the global market. The decision makers

do not know the potential events or are unable to allocate probabilities about the particular

changes that will be incurred. For analyzing the macro-environment, the significant variables

that influence the demand, supply and its costs should be recognized.

POLITICAL ENVIRONMENT

Textile industries in India are affected by the government at both nationwide and local levels

not only for a short period throughout policies, laws, and authority but also on strategic level

by generating opportunities and threats. Political decisions have a cause on industrial

structure, markets, social and economic trends, tax policies, employment law, trade

restrictions and tariffs. The affect of these important changes should be anticipated by the

textile manufacturers

ECONOMIC ENVIRONMENT

It is significant for firms to learn the economic environment and recognize the changing

trends, and their strategic implications. The economic change are affect of government

policies, economic cycle, commodity prices, world trade pattern, changes in currency

conversation rate, labor markets, capital markets, and their rates, , tax rates, inflation and

interest rates.


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The Indian textile industry is one of the most significant parts that provide employment to a

large populace and thus contribute to the economic and financial expansion of the nation. In

is the sector which has the availability of cheap and skilled labor power. The employment

opportunity formed by the textile industry is also huge, creating up to 12 million jobs

covering both agricultural as well as industrial sectors.

SOCIAL CULTURAL ENVIRONMENT

In socio cultures, gender differentiation of clothing is measured suitable for men and women.

The differentiations are in colors, styles and fabrics. Women's outfits in India differ widely

and are closely linked to local culture, religion and climate.

THREAT OF NEW ENTRANTS

Indian Textile Industry is extremely dependent on personal associates and experience. The

new performers would have to get some kind of customer base along with the

new establishment. Without any established customer portfolio it is difficult to attract.

As the new entrant has less experience in textile manufacturing and they dont have

relationships with customers so they might experience disadvantages comparative to

the recognized competitors.

Governmental policies do influence the industry environment to some level. An example of

this is subsidies, which are obtainable to companies launching production in certain regions.

BARGAINING POWER OF CUSTOMERS (DEMAND SCENARIO)

India is likely to gain from the increasing demand in the home textiles in which it

has competitive border against its neighbours. Therefore, the bargaining power of customers


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is strong. As a result, it is importance for a producer of apparel to make different their

products, thus it will not compete with price as primary mean.

Differentiation can be important in the Indian textile industry since agreements are usually

put on short-term base and are hardly ever set more than six months ahead. Thus, there is a

need to tie the consumer to manufacturers without the need of open agreements. And thus,

the bargaining power for the consumer is enhanced.

BARGAINING POWER OF SUPPLIERS (SUPPLY SCENARIO)

In India, we have various players in textile industry. There has been raise in production and

supply of textile products in last few decades.In India, The excess of available suppliers gives

an initial sign of a weak bargaining power for the supplier. In addition, the suppliers lack

switching costs and have a low level of product differentiation. This directs to huge chances

for textile manufacturers to scout the suppliers for finest terms and prices for production.

Therefore, manufacturers can make contact with a huge number of suppliers and play

suppliers against each other. Such activity weakens the bargaining power for suppliers and

as a result pushes prices down and makes prices similar among suppliers.

A benefit which the Indian Suppliers have capitalized on is, Due to their capacity to integrate

ahead in value added chain, they have got an enhanced bargaining position towards textile

manufacturing.

THREAT OF SUBSTITUTE PRODUCTS

When using such a wide term as Textile, there are apparent reasons for identifying substitute

products proves hard. Obviously, there are differences in types of material and clothing.

Differences in textile sector can also be known as trends in styles and fashion. Thus products


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in the apparel sector can act as substitutes but the common conclusion still places; theres no

substitute to apparel.

COMPETITIVE RIVALRY WITHIN THE INDUSTRY

The textile manufacturing sector is an enormous sector with lot of companies producing

apparel. The high growth rate of total textile exports shows that the rivalry between

manufacturers is low. In some products segments growth rate is high but even negative in

others. Thus, the rivalry between textile manufacturers is varied since they enjoy different

growth rates.

As Indian textile manufacturers are forced to lower prices in order to stay competitive with

companies in a foreign country, the overall rivalry within the industry gets companies to

spread out their consumer base so as to keep profits up. Therefore reasonable to consider that

such developments may happen on the behalf of competitors if possible, and thereby raise

the rivalry in the industry sector.


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REAL ESTATE INDUSTRY

INDIAN REAL ESTATE INDUSTRY

The Indian real estate sector has come a long way and is today one of the fastest growing

markets in the world. It comprises four sub-sectors housing, retail, hospitality, and

commercial. While housing contributes to fivesix percent of Indias gross domestic product

(GDP), the remaining three sub-sectors are also increasing at a fast pace. The total realty

market in the country is expected to touch US$ 180 billion by 2020. Real estate in India is

being recognised as an infrastructure service that is driving the economic growth engine of

the country. Growing infrastructure requirement in diverse sectors such as tourism, education,

healthcare, etc., are offering several investment opportunities for both domestic as well as

foreign investors. Total investment by private equity (PE) funds in the real estate sector from

JanuaryMarch 2014 was approximately Rs 28 billion (US$ 465.19 million). This is a

substantial increase of 28 per cent compared to the previous quarter and close to 2.5 times the

investments during JanuaryMarch 2013.

The role of the Government of India has been instrumental in the development of the

sector. With the government trying to introduce developer and buyer friendly policies, the

outlook for the real estate sector does look promising. The real estate industry has been under

scrutiny in recent years with the mortgage crisis and other current events, but it is still a large

field which generates billions or dollars in revenue. There were 165,000 companies operating

in the residential brokerage and management field last year, which generated $170 billion in

revenue, and there were 25,000 companies operating in the commercial brokerage and

management field, generating annual revenue of $30 billion.

Real estate tends to be a particularly cyclical industry, going up and down based on trends in

the economy at large such as the fluctuation in interest rates. The story of real estate often


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mirrors the general story of the American economy. Real estate soared in the post-World War

II 1950s, sank in the 1970s, rose again in the early 1980s until the depression at the end of

that decade, and was prosperous again at the end of the 1990s. Because of low interest rates

in the mid-2000s, residential real estate was booming even when the economy was slow until

the mortgage crisis hit and the bubble collapsed. After that point it sank and as of 2011 has

yet to truly recover. Brokerage firms have taken on property management divisions in order

to diversify their revenue streams and combat poor economic climates.

The real estate industry consists of three primary fields: brokerages, leasing, and

management. Brokers bring together buyers and sellers of property, assist in the price

negotiations and arrange the steps between a buyer first taking interest in a property and

closing, including appraisals and inspections. Generally, the seller pays a commission,

dependent on the sale price (usually 5 or 6 percent), and this is split between a broker

working for the buyer and the broker working for the seller. Real estate brokers must be

licensed in the state in which they work. Leasing brings together property owners with

tenants, sometimes owning that property themselves, or subleasing property they have leased

from someone else. Management companies are responsible for making sure their buildings

are filled with tenants, deciding what to charge these tenants, making sure the buildings run

properly, paying utilities, hiring staff and other maintenance for owners who do not want to

manage buildings themselves. Since most property expenses are fixed, maintaining low

vacancy rates is critical to management companies. In particular, property management has

been a fast growing field and should continue in its expansion, as commercial and residential

properties that were overbuilt during the real estate boom will continue to need management

until they are sold.

The old adage, Location, location, location, is clich but true -- location is centrally

important to determining the marketplace and the value for real estate. Factors controlling the


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called the "incumbent company"), the abnormal profit rate will trend towards zero. There will

be decrease in profitability due to increase in the number of entrants. As a result of the

economic downturn around the globe, it has been difficult for the new entrants to get a hold

because of cost reduction in expansion plans by corporates in real estate, little scope in

commercial construction, and strong rivalry between existing firms.

Result: Relatively weak threat of new entrants

Barrier To Entry-The existence of high start-up costs or other obstacles that prevent new

competitors from easily entering an industry or area of business. Barriers to entry benefit

existing companies already operating in an industry because they protect an established

company's revenues and profits from being whittled away by the new competitors.


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FACTOR BARRIER IN REAL ESTATE

LEGAL Ownership restrictions are clearly a very high barrier, but such

restrictions can be overcome by JV. Problems with tenants can be

difficult to deal with in certain countries

TAXATION AND COSTS This is not a high barrier as long it is believed tax can be compensated

for by high post-tax returns

POLITICAL RISK Low barrier if the country has a strong economy and acceptable legal

framework, although infrastructure investment can be a very

politicised area and a problem for developers

ECONOMIC STABILITY Medium Barrier

LIQUIDITY RISK High Barrier

CULTURAL BARRIERS Religion is not a high barrier; language and education are

important; local partners are helpful

GOVRNMENT

RESTRICTIONS

Licensing is a major issue

FINANCE Real estate requires a lot of funding so finance is a high barrier


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2. Suppliers Power

When your suppliers have increased bargaining power, it affects one s ability to serve target

market in a number of ways. Supplier power can impact the price the target market will pay

for goods, the quantity and quality of items available for purchase, and even which

companies will be able to remain in the marketplace. This potential business disruption may

influence you to seek out substitute products or a new solution to the market's needs that

avoids being held hostage by a critical supplier.

SUPPLIER CONCENTRATION-

PRICE-PRODUCTIVITY OF ALTERNATIVE INPUTs

RELATIONSHIP SPECIFIC INVESTMENTS

SUPPLIER SWITCHING COSTS

Bargaining power of real estate suppliers is medium as the supplier concentration is quite

high when it comes to supply of Raw Materials like Cement, Steel, etc. However, supply of

Land is limited in Real Estate and due to this the supplier of Land has a high bargaining

power in Real Estate Industry.An important category of suppliers in Real Estate is the bank

as the Real Estate industry has a very high requirement of funds. Banks have the power to

decide whether to fund a venture or not and at what rate. Banks have now become highly

conservative especially after the economic downturn. Are significantly affected by the

monetary regulations like the Repo rate & CRR formulated by the Central Bank of the

country. This is in turn affects the real estate sector. Consequently the bargaining power of

suppliers is very strong.


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3. Power of the Buyer

Powerful customers are able to exert pressure to drive down prices, or increase the required

quality for the same price, and therefore reduce profits in an industry. Customers significantly

influence the business operations in real estate. Customers do possess a threat of integrating

backwards. Consequently, the bargaining power of the buyers is strong.

4.

Threat of the Substitute Product

Relative price of the substitute

Relative quantity of the substitute

Switching Costs to Buyer


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In real estate business, substitute might be some type of totally new retail space, some new

location for office space or rehabilitation instead of new construction. The threat of substitute

in real estate business and its impact on profitability of the industry is quite ambiguous and

difficult to establish given the economic downturns and the recovery mode of the real estate

business cycle. But as a whole Real Estate in itself has no substitute. Housing is a basic

necessity that one has to fulfill in order to survive.

5. Rivalry among existing firms

Number of Competitors (Concentration) - The number of competitors is increasing

day by day in the industry which in turn is increasing the Competition and reducing

the rate of profit of the industry.

Industry Growth- The Real Estate Industry is expanding day by day and the industry

which in turn is also increasing the rivalry among the existing firms.

CAGR of Indian Real Estate Industry from 2008 to 2011 and expectations of 2020.


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High fixed costs- Real estate is a special industry, and its 'product' is fixed at a cost of

large risks. In general, this prevents access to the number of enterprises in this sector,

making the industry a relatively small degree of competition in other industries.

High exit costs- The particularity of the real estate industry has been decided, once

into the industry, especially real estate development has already begun, if you want to

retire halfway through, the cost is quite large, human, financial, material has been

input, the true 'finished product' is also did not come out, this is a dilemma to the

realm.

Rivalry is strong due to the large no. of real estate firms operating in India (65 in total) and

the difficulty to differentiate. The services offered by real estate companies cannot be

differentiated because these firms dont offer a product, other than the facilities they lease

and this itself is very difficult to quantify. In the current economic crisis, there is minimal

profitability and only companies with large cash reserves are likely to survive.

Thus, to sum up Real Estate is a profitable industry provided one has the funds and patience

to invest in the industry. However, one should take into consideration the recent Bubble in

the industry and not get influenced by it.


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AVIATION INDUSTRY

The Indian civil aviation industry is on a high growth trajectory. India has a vision of

becoming the third largest aviation market by 2020 and is expected to be the largest by 2030.

The civil aviation industry in India has ushered in a new era of expansion driven by factors

such as low-cost carriers (LCC), modern airports, foreign direct investments (FDI) in

domestic airlines, cutting edge information technology (IT) interventions and a growing

emphasis on regional connectivity. Simply going by the market size, the Indian civil aviation

industry is amongst the top 10 in the world with a size of around US$ 16 billion.

"The world is focused on Indian aviation - from manufacturers, tourism boards, airlines,

global businesses to individual travelers, shippers and businessmen... If we can find common

purpose among all stakeholders in Indian aviation, a bright future is at hand," as per Mr Tony

Tyler, Director General and CEO of International Air Transport Association (IATA).

Market size

In India, air traffic in terms of aircraft movement and passenger traffic has increased during

the last three years. The total aircraft movements and passengers have registered a compound

annual growth rate (CAGR) of 3.3 per cent and 5.6 per cent respectively during FY11 to

FY14. In the April-May period of the current financial year, aircraft movements and

passengers have increased by 5 per cent each over traffic handled during the corresponding

period of FY14. The freight traffic during April-May, FY15, also grew by 9.9 per cent over

traffic handled during the same period of the last fiscal.

Airports Authority of India (AAI) has estimated that aircraft movements, passengers and

freight at all Indian airports are expected to grow at the rate of 4.2 per cent, 5.3 per cent and 5

per cent, respectively, for the next five years.


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The aviation job market is expected to improve in FY15 with two new airlines entering the

industry. One is AirAsia's joint venture with the Tatas, a low-cost carrier which began in

June, 2014. The other, a full-service carrier to be formed separately by the Tatas and

Singapore Airlines (SIA), is likely to begin in the fourth quarter of 2014.

Investment

The foreign direct investment (FDI) inflows in air transport (including air freight) during

April 2000 to July 2014 stood at Rs 2,348.12 crore (US$ 383.63 million), as per data released

by Department of Industrial Policy and Promotion (DIPP).

The following are some of the major investments and developments in the Indian aviation

sector:

IndiGo has signed a US$ 2.6 billion agreement with the Industrial and Commercial Bank of

China (ICBC) under which the latter will finance the airline's plan to purchase 30 aircraft.

SpiceJet Airlines has signed a contract with GE aviation to use GE's Flight Efficiency

Services (FES) to support its fleet of 52 Boeing 737 and Bombardier Q400 aircraft.

Air Costa has made capital expenditure plan for about Rs 600 crore (US$ 98.04 million) to

acquire new aircraft to strengthen its fleet and expand its network.

L&T Technology Services has bought 74 per cent equity stake in Thales Software India Pvt

Ltd, to strengthen its avionics business. This collaboration will enhance L&T's expertise in

high-end avionics software.

The Tata Group and Swiss aerospace and defence firm Ruag Aviation plans to set up an

aircraft manufacturing facility in Hyderabad, Telangana.


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The Ministry of Civil Aviation has assigned 18 new tourist destinations in India as part of the

Air Services Agreement with Sri Lanka.

The Government of India plans to upgrade the Jaipur and Jodhpur airports. It plans to extend

the runway of Jaipur airport with Cat-II approach lighting system and allocate land to the

Jodhpur airport for the upgradation.

Road Ahead

There is large untapped potential for growth in the Indian aviation industry due to the fact

that access to aviation is still a dream for nearly 99.5 per cent of its large population, nearly

40 per cent of which is the upwardly mobile middle class. It is critical for the industry

stakeholders to engage and collaborate with the policy makers to come up with efficient and

rational decisions that will shape the future of the Indian civil aviation industry. With the

right policies and a relentless focus on quality, cost and passenger interest, India would be

well placed to achieve its vision of becoming the third largest aviation market by 2020 and

the largest by 2030. With the liberalization of the Indian aviation sector, aviation industry in

India has undergone a rapid transformation. From being primarily a government-owned

industry, the Indian aviation industry is now dominated by privately owned full service

airlines and low cost carriers. Private airlines account for around 75% share of the domestic

aviation market. Earlier air travel was a privilege only a few could afford, but today air travel

has become much cheaper and can be afforded by a large number of people. The Air

Corporations Act, 1953 ensured that IAC and AI had a monopoly over the Indian skies. A

third government-owned airline, Vayudoot, which provided feeder services between smaller

cities, was merged with IAC in 1994. These government-owned airlines dominated Indian

aviation industry till the mid-1990s. In April 1990, the Government adopted open-sky policy

and allowed air taxi- operators to operate flights from any airport, both on a charter and a non


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charter basis and to decide their own flight schedules, cargo and passenger fares. In 1994, the

Indian Government, as part of its open sky policy, ended the monopoly of IA and AI in the

air transport services by repealing the Air Corporations Act of 1953 and replacing it with the

Air Corporations (Transfer of Undertaking and Repeal) Act, 1994. Private operators were

allowed to provide air transport services. Foreign direct investment (FDI) of up to 49 percent

equity stake and NRI (Non Resident Indian) investment of up to 100 percent equity stake

were permitted through the automatic FDI route in the domestic air transport services sector.

However, no foreign airline could directly or indirectly hold equity in a domestic airline

company By 1995, several private airlines had ventured into the aviation business and

accounted for more than 10 percent of the domestic air traffic. These included Jet Airways

Sahara, NEPC Airlines, East West Airlines, ModiLuft Air-lines, Jagsons Airlines,

Continental Aviation, and Damania Airways. But only Jet Airways and Sahara managed to

survive the competition. Meanwhile, Indian Airlines, which had dominated the Indian air

travel industry, began to lose market share to Jet Airways and Sahara. Today, Indian aviation

industry is dominated by private airlines and these include low cost carriers such as Deccan

Airlines, GoAir, SpiceJet etc, who have made air travel affordable. Airport infrastructure

needs to be upgraded rapidly if Indian aviation industry has to continue its success story.

Some steps have been taken in this direction. Two of India's largest airports-Mumbai and

New Delhi-were privatized recently. Two green field airports are coming up at Bangalore and

Hyderabad in southern India. Investments are pouring into almost all aspects of the industry,

including aircraft maintenance, pilot training and air cargo services. The future prospects of

Indian aviation sector look bright.

This airline industry is classified into four categories

1. International


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2. National

3. Regional

4. Cargo

Airport capacity, route structures, technology, and costs to lease or buy the physical aircraft

are significant in the airline industry. Other large issues are:

1. Weather:

The problem is that weather is variable and unpredictable. Extreme heat, cold, fog, and snow

can shut down airports and cancel flights (which costs money). Weather is also the second-

largest cause of flight accidents.

2. Fuel Cost:

On average, fuel can make up 14-16% of an airline's total costs, although efficiency among

different carriers can vary widely. Short haul airlines typically get lower fuel efficiency

because take-offs and landings consume high amounts of jet fuel.

3. Labour:

It is estimated that 40% of an airline's expenses are used to pay pilots, flight attendants,

baggage handlers, dispatchers, customer service, and others Airlines also earn revenue from

transporting cargo, selling frequent flier miles to other companies, and 'up-selling' in flight

services. But by far, the largest proportion of revenue is derived from regular and business

passengers. For this reason, it is important that we take consumer and business confidence

into account on top of the regular factors that one should consider like earnings growth, debt

load, etc.


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Business travellers are important to airlines because they are more likely to travel several

times throughout the year, and they tend to purchase the upgraded services that have higher

margins for the airline. On the other hand, leisure travellers are less likely to purchase these

premium services and are typically very price sensitive. In times of economic uncertainty or

sharp decline in consumer confidence you can expect the amount of leisure travellers to

decline.

It is also important to look at the geographic areas that an airline targets. Obviously, more

market share is better for a particular market, but it is also important to stay diversified. For

example, an airline that sends a high number of flights to the Caribbean might see a dramatic

drop in profits if the outlook for leisure travellers looks poor.

A final key area to keep a close eye on is costs. The airline industry is extremely sensitive to

costs such as fuel, labour, and borrowing costs. Some of the major players in the airline

industry attribute 10-20% of their costs to jet fuel. Airline Industries operators need to factor

fuel costs into their cost structures. Fuel prices have been known to fluctuate 5-10% or more

on a month basis, so paying close attention to these costs is crucial. Low-cost airlines are

mushrooming in India, and the traveller has become the king. "The Fare Well" carriers are

putting a smile on the face of the Indian air passenger.

Analyst Insight:

Airlines also earn revenue from transporting cargo, selling frequent flier miles to other

companies, and 'up-selling' in flight services. But by far, the largest proportion of revenue is

derived from regular and business passengers. For this reason, it is important that you take

consumer and business confidence into account on top of the regular factors that one should


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consider like earnings growth, debt load, etc. Business travellers are important to airlines

because they are more likely to travel several times throughout the year, and they tend to

purchase the upgraded services that have higher margins for the airline. On the other hand,

leisure travellers are less likely to purchase these premium services and are typically very

price sensitive. In times of economic uncertainty or sharp decline in consumer confidence

you can expect the amount of leisure travellers to decline.

It is also important to look at the geographic areas that an airline targets. Obviously, more

market share is better for a particular market, but it is also important to stay diversified. Try

to find out where a majority of an airlines flights are departing to. For example, an airline

that sends a high number of flights to the Caribbean might see a dramatic drop in profits if the

outlook for leisure travellers looks poor. A final key area to keep a close eye on is costs. The

airline industry is extremely sensitive to costs such as fuel, labour, and borrowing costs.

Aircraft Movement in India of the Past 7 years.


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Porter analysis:

1. Threat of New Entrants:

As of now it is very easy to enter into the aviation sector in India since there are very few

entry barriers. Government is also promoting the Local Players in the sector. Various low

cost carriers, both domestic and foreign are entering the Indian skies with the increase in FDI

limit to 49% from 40%. We need to look at whether or not there are substantial costs to

access bank loans and credit. If borrowing is cheap, then the likelihood of more airliners

entering the industry is higher. The more new airlines that enter the market, the more

saturated it becomes for everyone. Brand name and frequent ier point also play a role in the

Airline industry. An airline with a strong brand name and incentives can usually be enough to

lure a customer (even if their prices are higher).

Since Choppers/Airbus grab more Air space, the demand for helicopters is growing with the

rise of heli-tourism, adventure sports, point-to-point heli-services connecting remote areas,

islands and religious locations. The helicopter segment of the aviation sector is expected to

grow further in the coming years.

With the airline industry cruising deeper into red zone and losses mounting, government is

planning to erect a host of checks and balances on entry barriers to permit only serious and

financially sound aviation ventures to take off. Under these fresh regulations, government

intends to make it mandatory for all wannabe aviators to first tie-up finances; aircraft leasing

deals and recruits pilots and engineers before seeking a scheduled airline license.

2. Bargaining Power of Suppliers:

All suppliers have tremendous bargaining power with the airline industry. There are few fuel

providers and no reliable alternative to fuel. There are very few pilots in the job market and


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planes cannot be own without pilots. Mechanics for airplanes are in short supply and planes

cannot be own without being serviced. Flight attendants provide services that cannot easily

be replaced and customer satisfaction without flight attendant would be detrimental. Finally

airports are in limited supply and we need airports to land planes and board passengers. The

airline supply business is mainly dominated by Boeing and Airbus. For this reason, there isn't

a lot of Cut throat competition among suppliers. Also, the likelihood of a supplier integrating

vertically isn't very likely. In other words, we probably won't see suppliers starting to oer

flight service on top of building airlines. There is a trend of Global contraction of Material

Supplies in this sector. So Companies are trying to take step towards Achieving Self-

Sufficiency in Raw Material Supplies.

3.Bargaining Power of Buyers:

The bargaining power of buyers in the airline industry is quite low. Obviously there are high

costs of switching airplanes, but taking a look at the ability to compete on service, the seat in

one airline is probably not more comfortable than another , unless we are analyzing a luxury

liner. Generally speaking consumers, business or regular travellers, have little bargaining

power with airlines. Either they buy the ticket or not, one traveller does not hurt the airline.

The demand for more affordable air travel is quite robust.

4. Availability of Substitutes:

What is the likelihood that someone will drive or take a train to their destination? For

regional airlines the threat might be a little higher than international carriers. When

determining this we should consider time, money, personal preference, and convenience in

the air travel industry. No other product domestically competes directly with airlines in terms

of cost and speed of travel. Bus services may cost less but travel speed extremely slow and

tedious with many stops before your destination. Train services are generally less expensive


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than airplane and only have select stations/ stops. Generally charter planes are much more

expensive than commercial airlines. Taxis are tremendously expensive for long distance and

are constricted to speed limits and road layouts. Low cost carriers are mainly aiming to

compete with Indian Railway's AC segment

5. Competitive Rivalry:

Competition among major players is extremely intense in many aspects. Switching costs are

generally low, even though companies have tried to increase switching costs with the use of

"frequent flyer" programs. Highly competitive industries generally earn low returns because

the cost of competition is high. This can spell disaster when the times get tough in the

economy.


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future as well. Also, when it comes to bargaining power of buyers, a buyer has actually no

alternative as his options are limited since all real estate companies are not omnipresent.

Further, House is a necessity as already stated in the introduction itself. Also, for suppliers

they do not have a number of options to supply to so as times they do give in. Products like

cement are perishable and so a supplier cannot store it for a long time and thus he has less

bargaining power. Labour is very important component of real estate industry but a labourer

cannot store labour so he too has less bargaining power even though labour laws are strict in

India. Internal Competitive Rivalry is also quite low as the majority of market is captured by

the top 10 companies in India. All in all though all three industries are profitable yet as an

investor the best returns can be generated by investing in the Real Estate Industry.

Documents

A COMPARATIVE ANALYSIS BETWEEN AVIATION, REAL ESTATE AND TEXTILE INDUSTRY