Overview of the Major Players in the Airline Industry

Indigo is leading the Indian domestic market with 38.2% of market share followed by 83.6% of passenger load factor. The market share of Jet Airways and Jet Lite jointly stands at 18% approximately. Spice Jet stands at 3rd position with 13.8% market share and approximately 94.5% passenger load factor. This is followed by Air India, which has a market share of 13.5% with passenger load traffic at 76%. There are other players as well, but their load factor and market shares are significantly low but operating at a niche segment of the Indian market or dominating in any specific geographical regions of the country

Cost Structure

Though the barriers to entry are relatively small in the airline industry as compared to other sectors, the initial set up costs are too high.

Also some of the airlines often do not own their own planes taking advantage of the lower initial costs of leasing aircrafts. Over the time, passengers also tend to develop some loyalty towards a particular airline, which are ultimately provided frequent flyer perks.

Get quality help now

Bella Hamilton

Verified writer

Proficient in: India

5 (234)

“ Very organized ,I enjoyed and Loved every bit of our professional interaction ”

+84 relevant experts are online

Hire writer

There could be various types of costs involved in the functioning of an airline starting from airport capacity, airline’s personnel such as registration agent, gate agent, baggage handler etc; cabin crew members, oil and fuel, refreshment costs, maintenance charges etc.

The cost is the important competing factor in the airlines industry. Majority of the airlines focus on controlling costs. The costs in the airline industry can be divided in to 2 major components; objective cost categories and functional cost categories.

Objective Cost Categories

• Salaries and related fringe benefits: General management, flight personnel, maintenance labor, aircraft & traffic handling personnel, other personnel.
  Get to Know The Price Estimate For Your Paper

  Topic

  Deadline: 10 days left

  Number of pages

  Email Invalid email

  By clicking “Check Writers’ Offers”, you agree to our terms of service and privacy policy. We’ll occasionally send you promo and account related email

  "You must agree to out terms of services and privacy policy"

  Write my paper

  You won’t be charged yet!

• Materials purchased: Aircraft fuel & oil, maintenance materials, passenger food, other materials.
• Services purchased: Advertising & promotions, communications, insurance, outside maintenance, commissions, other services.
• Separate categories for: Landing fees, rentals (including aircraft), depreciation (including aircraft), other expenses.

Functional Cost Categories

• Aircraft operating costs: Expenses associated with flying aircraft, also referred to as “Direct Operating Costs” (DOC).
• Aircraft servicing costs: Handling aircraft on the ground, includes landing fees.
• Traffic service costs: Processing passengers, baggage and cargo at airports.
• Passenger service costs: Meals, flight attendants, in-flight services.
• Reservation and Sales costs: Airline reservations and ticket offices, travel agency commissions.
• Other costs, including: Advertising and publicity expense and General and administrative expense.

Full Costing in Airline Industry

In order to explain the concept of full costing in the Airline Industry, we would like to compare costing of Indigo Airlines and Jet Airways. The reason behind picking these two airlines is that Indigo works on Sale and Lease back model i.e. the Company has taken aircraft on operating lease whereas Jet Airways owns fleets.

• Profit and Loss Statement of Indigo Profit and Loss Statement of Jet Airways
• The major operating costs in both companies as per 2018 Profit and Loss statements are
• Aircraft Fuel Expenses: 37.23% in Indigo vs 28.12%
• Aircraft and Engine Rentals: 17.32% in Indigo vs 20.96% in Jet Airways
• Employee Benefits Expense: 11.78% in Indigo vs 12.11% in Jet Airways

Other Expenses

• Landing Fee and en-route charges: 11.40% in Indigo vs 9.59% in Jet Airways
• Aircraft Repair and Maintenance: 5.58% in Indigo vs 9.6% in Jet Airways

Indigo Jet Airways

Irrespective of whether airlines owns fleets or leases it, these costs constitutes more than 80% of the cost. And these costs though variable in nature don’t depend upon the number of passengers which makes them mandatory to incur.

• Only a minor chunk of operating cost changes with respect to Sale and Lease model or own fleets and they are
• Aircraft and Engine Rentals: 17.32% in Indigo vs 20.96% in Jet Airways
• Depreciation and Amortization Costs: 1.96% in Indigo vs 2.4% in Jet Airways
• Finance Costs: 1.63% in Indigo vs 3.4% in Jet Airways
• Indigo
• Jet Airways
• Again these costs doesn’t vary with respect to change in number of passengers travelling in a flight.
• All these costs are passed on to the customers and thus industry follows full costing. All stakeholders are more interested towards profits and they are concerned to know the actual expenditure along with proportionate expenditure incurred by the airline.