“An Analytical Study on Comparative Functional Efficiencies of AIR

INDIA & Selected Players of Indian Civil Aviation Industry”

A Synopsis

SUBMITTED IN THE PARTIAL FULFILLMENT FOR THE AWARD OF

THE DEGREE OF MASTER IN BUSINESS ADMINISTRATION

UNDER THE GUIDANCE OF:

Ms. Amandeep Kaur

Assistant Professor/ Associate Professor/ Professor, RDIAS

SUBMITTED BY:
Name of the Student: Jatin Bharara
Enrolment No. 03015903918
MBA, Semester III
Batch 2018 – 2020

RUKMINI DEVI INSTITUTE OF ADVANCED STUDIES

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(Approved by AICTE, HRD Ministry, Govt. of India)
Affiliated to Guru Gobind Singh Indraprastha University, Delhi
2A & 2B, MadhubanChowk, Outer Ring Road, Phase-1, Delhi-110085
Introduction
A country‘s transportation sector is known to act as a prime catalyst in the growth
and development of its economy. India currently remains the ninth largest aviation
market in the world in terms of passenger traffic. India is home to 128 airports -
inclusive of 15 internationally operational ones. Over the past decade the Indian civil
aviation sector has grown enormously and expanded its horizons to become a major
stakeholder in international transport - as both passenger traffic carrier and cargo
carrier. With a host of private airlines taking to the skies, the industry is witnessing a
major growth with multiple players competing to be pioneers of the sector. Despite
the growth, the Indian airline industry has also been facing critical challenges like
high aviation turbine fuel prices, overcapacity, debt, destitute infrastructure, lack
of sufficient number of employees, reserve routes and intense competition within
domestic as well as international paradigms.

Further, the rising demand in the sector has necessitated increasing the number of
airplanes operating in the sector. In this study, the focus has been laid on evaluating
the performance of the major stakeholders namely - Air India, Jet Airways, Vistara,
Spice jet and Indigo - in terms of their market, production and thus the cumulative
overall efficiency, by conduction of a Data Envelopment Analysis. Further, the
selected Airlines are then ranked or ‘Benchmarked’ according to their respective
calculated efficiencies.

Data Envelopment Analysis (DEA) was perceived to be a useful tool for analysing
and evaluating the overall performance efficiency of the chosen airlines via the
deployment of performance indicators as specific decision making units. Of the many
key performance indicators used the input and intermittent output variables were
selected to be the production, marketing and overall efficiency rankings obtained
through a DEA model. Market efficiency is concerned with the extent to which
market prices incorporate evident available information. If market prices do not fully
represent information, then there might exist opportunities that result in profit making
from the processing of that information. Efficient markets are indicative of informative
prices that astutely represent information regarding the fundamental values. In
market-based economies, market prices help determine which companies (and
which projects) obtain capital. If these costs do not efficiently convey information
about a company’s prospects, then it is possible that funds might get misdirected to
other sources. Production efficiency is categorized as an operational state wherein
an organization cannot expand the output of a specific good or service without
surmounting additional costs. Productive efficiency of an industry is based on the
parameter that all operational firms operate using the most premium technological
and managerial processes and that there exists no reallocation that might result in
giving the exact output with the exact inputs.

Industry Overview
India as aforementioned stands tall as one of the fastest growing aviation markets in
the world. Onwards the liberalization of the aviation sector, the industry witnessed a
dramatic transformation as an entity with the entry of the privately owned full service
airlines and low cost carriers. In the year 2006, private carriers accounted for around
75% share of the domestic aviation market. The sector stood witness to a paramount
surge in the number of domestic air travel passengers. Amongst the factors that
have resulted in increased demand for air transport in India include the growing
middle class and their respective per capita purchasing power, developing IT and
low fares offered by LCA’s, a robust boost to the tourism industry in India, increasing
outbound travel from India and the overall economic growth of India.

Source - Handbook of Civil Aviation, DGCA 2017-18

According to the report generated by the Directorate-General of Civil

Aviation(DGCA), Indigo airline carried over 43 million passengers during the fiscal
year 2017. It was first among the country’s most punctual airlines with over 89
percent on-time arrivals. As a carrier that also had the least complaints from the
customer, Indigo’s popularity with the domestic base was high, soaring towards
growth in the years to come.

Review of Literature (optional)*

Data envelopment analysis or DEA was introduced in Charnes, Cooper, and Rhodes
(1978) and further developed in Banker, Charnes and Cooper (1984). It is a mere
generalization of the Farrell (1957) single-output/input measure of technical
efficiency to multi-output/multi-input measure case. Schefczyk et al. (1993) used the
DEA method to analyze and compare operational efficiency of 15 international
airlines although without using financial data such as available ton kilometer,
revenue passenger kilometer. Sickles et al. (1995) examined the performance of the
eight largest European and the eight largest American airlines for a ten year period
between 1976-1986 using two methods –parametric analysis using statistical
estimation and non-parametric analysis (DEA) using linear programming. Wen-Min
Lu et al. (2011) analyzed the effects of corporate governance on airline performance
(Production and marketing efficiency). The study applied two-stage Data
Envelopment Analysis (DEA) truncated regression to find out if the characteristics of
corporate governance affect airline performance. The concept of operational
efficiency can be easily interpreted as a measure of gross profit margin under two
assumptions: (a) that all firms are price takers for both input and output; and (b) that
all firms are operating at their production possibility frontier. To the extent that a firm
is not operating at its production frontier, we should expect a relatively less gross
margin for this firm. This means the firm should expect lower cash flow. Hence the
firm’s price should be lower. In other words, we should expect inefficient firms to
perform worse than the efficient firms.

Benchmarking is recognized as an essential tool for continuous improvement of

quality. A large number of publications by various authors reflect the interest in this
technique (R. Kumar, R.Jagadeesh, 2003). Atul Raiet. al. (2013) determined the
technical efficiency of US airlines during 1985-1995 using the DEA model. Results of
efficiency analysis were applied to determine if efficiency and stock returns were
related.

Rationale of the Study

I was inclined towards conducting this specific research due to a combination of
factors. The prime being that I worked as a finance and audit intern at Air India as a
part of my summer training. During the course of the internship, I identified several
factors that plagued Air India and its performance as compared to its private
counterparts that occupy the major chunk of the market share in the Indian civil
aviation industry. Therefore the major objective of this project was to perform a
comparative analysis to find out how Air India and another few selected players of
the Indian civil aviation industry fared based on their market, production and overall
efficiency. A contemporary study involving a Data Envelopment Analysis of certain
specific decision making units was therefore conducted to evaluate the performance
of and rank the various airlines chosen for the report.

Research Methodology
The research is Quantitative in nature i.e. in the form of numbers that can be quantified and
summarized.

a) Research Objectives

This research is aimed at the following objectives.

1) To analyze the performance of AIR INDIA & other selected players of Civil Aviation
Industry using key parameters.

2) To analyze and benchmark the functional efficiencies i.e. Production, Marketing &
overall efficiencies of Indian Airlines in the Civil Aviation Industry.
b) Research Design
i) Sample of the study – 5 years of data has been taken as per the market share and the
availability.

ii) Tool of Data Collection – Documents & Records (published sources), Internet, Books,
Newspapers, Business News Channel & Company’s Annual Reports

iii) Sources of data – Secondary data that is already available and published. It could be
internal and external source of data.

Internal source: which originates from the specific field or area where research is carried out
e.g. published broachers, official reports etc.

External source: This originates outside the field of study like books, periodicals, journals,
newspapers and the Internet.

 http://dgca.nic.in/
 https://www.iata.org/Pages/default.aspx
 https://www.aai.aero/
 https://www.ibef.org/industry/indian-aviation.aspx

References
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and performance measurement: a statistical analysis", Benchmarking: An
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Global Journal of Management and Business Research: Administration and
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envelopment analysis, Investment Management and Financial Innovations
Journal, Volume 10, Issue 1
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791. https://doi.org/10.1108/BIJ-05-2013-0061
5. Masson, S., Jain, R., Ganesh, N. and George, S. (2016), "Operational
efficiency and service delivery performance", Benchmarking: An International
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