Whenever I look at the airline industry I wonder how they make money…for the shareholder.

All airlines buy planes from the same companies, fly to the same airports, recruit from the same talent pool (well largely), have the same set of shareholders….how will the end product be different?

Well I have no clue, but I guess it has to be because of the training! The attitude of an air-hostess in Air India is likely to be different from that of a Kingfisher airline – and that has to make the difference, correct?

Well not so sure.

The airline industry has most costs outside its control – cost of planes (fixed costs), interest (borrow in the same international markets), salaries especially of pilots.

No Indian airline company has set up a pilot training school – and that is surprising. India could have easily set up many pilot training academies – with a tie up from schools abroad. This school could have easily become the pilot supply hub for the rest of Asia -or even rest of the world. Why did we miss this bus? not sure

However for an airline to make money for the shareholder seems to be difficult – given the current scenario in the lean months. However the encouraging news is there is Gen X which has perhaps lost its ability to travel by road or rail…and are happy hopping into 40 minute flights for 2 day holidays. In another 5 years these kids would be married, have kids etc.

Hopefully they will ensure that there is enough demand.

The hotel industry on the other hand has set up many, many colleges – Taj, Oberoi, …and many others have set up training institutes and colleges. They do recruit a lot of people, train them and absorb them. However not all the students stick to the industry – in fact I see them running away to the other sectors like retail, banking, etc. because of the long hard hours that they have to put up with in the hotel business..

A real dichotomy…what does one do…..depends on which industry one is from. Even if they are similar industries, strategies seem to be so different….

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  1. this is a worldwide phenomenon. exceptions like southwest airlines etc only prove the point.these companies have been burning cash since the 1950s.i am surprised why businessmen like this business at all

  2. Right…except SouthWest no one is making money. We don’t know much about the Luft and Singapore. I guess the business men(in India) who make money from other business just to feed their ego; they buy Airlines. I am not sure how much analysis they do about the industry before they get into that business.

    Everything is fixed and increasing costs and Airline ticket from East coast to west coast would cost about 1000 USD 20 years back but now it is just 300-400 USD. I mean to say revenue/margins are thin and the internet brought big change to ticket prices just like term/auto insurance in US. It will happen in India also but our babu/netas allow cartels and will not break till customers raise the voice.

    Most of the things are not in their control also like weather, pilot, staff and lot more. It all dents the revenue.



  3. Amazing observation Subra!

    I’ve always wondered about his question – How …no the right question is – WHEN would the airline company make money for its investors.

    They have huge capex which results in a net loss in early years. Then there are fuel price increases and huge competition from completely similar companies. All this puts a big question mark on really WHEN would they start generating profits.

    They don’t setup pilot training schools because it’s very capital intensive to do so. On the other hand, they are always trying to poach the military pilots while the govt has spent huge amounts to train these pilots. If training pilots was more dependent upon the labour costs instead of capital requirements, we would have seen large numbers of schools just like air-hostess training academies.

  4. For all your queries on airline biz you may contact Professor RajKumar Pant at IIT Mumbai.From MIHAN (proposed cargo hub in Nagpur) to SARAS (the supposed 14 seater aircraft by NAL) there is tons of data which explains where the profit(if any) in the aviation biz is.
    As for hotels the critical factor is still land in India which is why Ginger is away from or on the outskirts of the city whilst Taj is downtown.
    And the ultimate survival or profitability of any biz has to be how they weather the downturn and not how the grow in the upturn.

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