Air India

” REVENUE MODEL ANALYSIS OF
PASSENGER TRAFFIC AND CARGO

TRAFFIC IN AIR INDIA LTD”
By
N.ANANDRAJ
(21107631002)
A PROJECT REPORT
Submitted to the
DEPARTMENT OF MANAGEMENT STUDIES
In partial fulfillment of the requirements

For the award of the degree
Of
MASTER OF BUSINESS ADMINISTRATION

RAJALAKSHMI ENGINEERING COLLEGE
(Affiliated to Anna University)
THANDALAM
CHENNAI – 602 105
JUNE 2009
BONAFIDE CERTIFICATE
Certified that this project report” REVENUE MODEL

ANALYSIS OF PASSENGER TRAFFIC AND CARGO
TRAFFIC OF AIR INDIA LTD” with respect to the bonafide
work of Mr. N.ANANDRAJ, Reg. No. 21107631002, Final year
student of Rajalakshmi Engineering College carried out under my
supervision. Certified further that, to the best of my knowledge, the
work reported herein does not from any part of other project report
or dissertation on the basis of a degree or award was concerned on
an earlier occasion on this or any other candidate.
.
HEAD OF THE DEPARTMENT PROJECT SUPERVISOR

DATE DATE
INTERNAL EXAMINER EXTERNAL EXAMINER

DATE DATE
ACKNOWLEDGEMENTS
At the outset, I thank my beloved parents for their constant

encouragement and blessings provided towards the successful completion of this
project work.
I express my wholehearted gratitude to the Management of Rajalakshmi
Engineering College, Thandalam, Chennai – 602 105 for offering me an opportunity
for successfully completing this project.
I would like to take this opportunity, to express my Heartfelt thanks to
the Director Mr. P.S.Pandian Department of Management Studies for his
inspiration and encouragement throughout the programme and Dean Mr. Shankar
Department Of Management Studies for providing me with the necessary
facilities to our project work.
I would like to express my gratefulness to my faculty
Mr. K.Sampath kumar, Department of Management Studies for his interest and
valuable suggestion rendered throughout this project work.
It’s a privilege to entitle my sincere thanks to all faculty members of
Department of Management Studies who helped me a lot with their suggestion and
ideas for this project work
I am very much indebted to the Management of” AIR INDIA LTD
CHENNAI” for having permitted me to undergo a project work.
I gratefully acknowledge the major contributions made by the
Departmental staffs of finance who had guided me in all possible ways to
accomplish this project in a grandeur way.
I wish to express my sincere thanks to all helped me in making this project
successful. I thank almighty for showering all the blessings on me to complete
this project successfully and steering for success in every attempt of my life.
DECLARATION
I hereby declare that the project entitled” REVENUE MODEL

ANALYSIS OF PASSENGER TRAFFIC AND CARGO
TRAFFIC OF AIR INDIA LTD”, submitted by me for the award of the
degree of Master of Business Administration of the Anna University is a record of
project work done by me during June 2009 and the project has not formed basis
the award of any Degree, Diploma, Associate ship, Fellowship or other similar
titles.
Place :
Date :
(N.ANANDRAJ)
TABLE OF CONTENTS
PAGE
CHAPTER NO. TITLE
NO.
1 INTRODUCTION
1.1 GENERAL CONCEPT 1
1.2 MANAGEMENT CONCEPT 2
1.3 OBJECTIVES 9
1.4 RESEARCH METHODOLOGY 10
2 REVIEW OF LITERATURE 13
3 PROFILE OF AIR INDIA 18
4 ANALYSIS AND INTERPRETATION 25
5 SUMMARY AND CONCLUSION 53

FINDINGS OF THE STUDY 53
SUGGESTIONS 55
6 CONCLUSION. 57
7 BIBLIOGRAPHY 58
8 ANNEXURE 59
LIST OF TABLES
TABLE TITLE PAGE NO

NO.
TABLE SHOWING THE BREAK UP OF REVENUE EARNED BY AIR
INDIA DURING THE YEAR - 2001-2002
1.1 25
1.2 27
1.3 29
1.4 31
1.5 33
TABLE INDICATING CURRENT ASSETS, CURRENT LIABILITIES AND
CURRENT RATIO FOR THE YEAR 2001-2006
2.1 35
TABLE INDICATING CASH, CURRENT LIABILITIES AND CASH
POSITION RATIO FOR THE YEAR 2001-2006
2.2 37
TABLE INDICATING LONG TERM DEBT, SHARE HOLDERS FUND AND
DEBT EQUITY RATIO FOR THE YEAR 2001-2006
2.3 39
TABLE INDICATING PROPRIETORS FUND, TOTAL TANGIBLE ASSETS
AND CASH POSITION RATIO FOR THE YEAR 2001-2006
2.4 41
TABLE INDICATING NET PROFIT, TOTAL SALES AND NET PROFIT
RATIO FOR THE YEAR 2001-2006
2.5 43
TABLE INDICATING NET PROFIT, SHARE HOLDERS FUND AND
RETURN ON SHARE HOLDERS FUND FOR THE YEAR 2001-2006
2.6 45
TABLE INDICATING NET PROFIT, FIXED INTEREST CHARGES AND
INTEREST COVERAGE RATIO FOR THE YEAR 2001-2006
2.7 47
TABLE INDICATING SALES, FIXED ASSETS AND FIXED ASSET
TURNOVER RATIO FOR THE YEAR 2001-2006
2.8 49
TABLE INDICATING SALES, WORKING CAPITAL AND WORKING
CAPITAL TURNOVER RATIO FOR THE YEAR 2001-2006
2.9 51
LIST OF CHART
TABLE TITLE PAGE NO

NO.
CHART SHOWING THE BREAK UP OF REVENUE EARNED BY AIR
1.1 INDIA DURING THE YEAR - 2001-2002 26
1.4 32

CHART INDICATING CURRENT ASSETS, CURRENT LIABILITIES AND
2.1 36
CHART INDICATING CASH, CURRENT LIABILITIES AND CASH

2.2 POSITION RATIO FOR THE YEAR 2001-2006 38
CHART INDICATING LONG TERM DEBT, SHARE HOLDERS FUND AND
2.3 DEBT EQUITY RATIO FOR THE YEAR 2001-2006 40
CHART INDICATING PROPRIETORS FUND, TOTAL TANGIBLE ASSETS
2.4 AND CASH POSITION RATIO FOR THE YEAR 2001-2006 42
CHART INDICATING NET PROFIT, TOTAL SALES AND NET PROFIT

2.5 RATIO FOR THE YEAR 2001-2006 44
CHART INDICATING NET PROFIT, SHARE HOLDERS FUND AND

2.6 RETURN ON SHARE HOLDERS FUND FOR THE YEAR 2001-2006 46
CHART INDICATING NET PROFIT, FIXED INTEREST CHARGES AND

2.7 INTEREST COVERAGE RATIO FOR THE YEAR 2001-2006 48
CHART INDICATING SALES, FIXED ASSETS AND FIXED ASSET

2.8 TURNOVER RATIO FOR THE YEAR 2001-2006 50
CHART INDICATING SALES, WORKING CAPITAL AND WORKING

2.9 CAPITAL TURNOVER RATIO FOR THE YEAR 2001-2006 52
CHAPTER -1
INTRODUCTION
1.1 GENERAL CONCEPT
Airlines are the major source of transport which carries passengers and freight over
regularly scheduled routes or on routes, called “charters,” specifically designed for a
group of travelers or a particular cargo.
Passenger airline carrier is the regional carrier. Regional airlines operate short-haul and
medium-haul scheduled airline service with an emphasis on connecting smaller
communities with larger cities and hubs. Some of the largest regional carriers are
subsidiaries of the major airlines, but most are independently owned, often contracting
their services to the majors.
Cargo is another segment of the airline industry. Cargo can be carried in cargo holds of
passenger airlines or on aircraft designed exclusively to carry freight. Cargo carriers in
the air transportation industry do not provide door-to-door service. Instead, they provide
only air transport from an airport near the cargo’s origin to an airport near the cargo’s
destination.
The project deals with analyzing the revenue model of passenger traffic and cargo traffic
in Air India and its contribution towards the total profit of the organisation. The revenue
generated from passenger traffic and cargo traffic is compared and the more revenue
generating traffic is found and its reason for the decline in revenue is found and
suggestions were given to improve its revenue. The ratio analysis is also done to find out
the profitability position of the organisation.
The outcome of the study will contribute to find the ways and means by which the
company will be able to increase its revenue in its highest contributing operations and
in turn the total profit.
1.2 MANAGEMENT CONCEPT
♦ ACCOUNTING CONVENTION
These accounts have been prepared with the going concern
concept on accrual basis under historical cost convention, except as specifically
stated, and are in compliance with generally accepted accounting principles and the
accounting standards referred to in section 211(3c) of the companies act,1956
♦ USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of financial statements and the reported amounts of
revenue and expenses during the reporting period particularly in respect of major
items such as traffic revenue, provision for liabilities, depreciation, obsolescence,
doubtful debts and advances and the contingent liabilities. Difference between the
actual results and estimates are recognized in the period in which results are known /
materialized.
♦ FIXED ASSETS
i. Fixed assets are stated at historical cost.
ii. Aircraft fleet and equipment are stated at purchase price and other incidental
cost, including interest incurred upto the delivery. Exchange differences on
conversion of foreign currency loans taken for acquisition of aircraft are
adjusted to the cost of the air craft.
iii. Financial lease: Aircraft fleet and equipment acquired under finance leases
are those in respect of which all the risks and rewards of ownership are
transferred to the company.
iv. Depreciation on fixed assets is provided on straight line method at the rates
and in the manner prescribed in schedule XIV to the companies act ,1956
except for the following:
a) Airframe equipment rotables and aero engine equipment rotables

relating to air craft which have completed the useful life are
depreciated over the remaining commercial life of the respective
air craft based on airworthiness as certified by Director General of
Civil Aviation (DGCA).
b) Increase /decrease in cost arising on account of translation of
foreign currency liability for acquisition of fixed assets is
amortized over the residual life of the respective assets.
c) The vehicles are depreciated at 14.29% considering useful life as
Leasehold 7 years.
d) Depreciation on additions to “Other Fixed Assets” is provided for
the full year in the year of acquisition and no depreciation is
provided in the year of disposal.
v. land is amortized over the period of lease.
vi. Intangible assets are amortized over its useful life or five years whichever is
lower.
♦ IMPAIRMENT OF ASSETS
The carrying value of fixed assets of the identified cash-generating
unit are reviewed for impairment at each balance sheet date to determine whether
there is any indication of impairment.
The aircraft are grouped at the fleet type level to constitute a cash
generating unit for comparing the recoverable amount (higher of its net selling price
and value in use with the carrying amount. the net selling prices of aircraft fleet and
equipment are estimated by the management using published sources as available.
If the carrying value of a cash generating units exceeds its estimated recoverable
amount an impairment loss is recognized in the profit&loss account and the assets of
the cash generating unit are written down to their recoverable amount.
♦ INVESTMENTS
Long term investments are stated at cost less diminution other than
temporary, in value, if any. Current investments are valued at lower cost and fair
market value.
♦ INVENTORY
i. Spare parts stores and tools are valued at prime cost on weighted average
basis.
ii. Obsolescence provision for aircraft stores and spare parts
a) Relating to aircraft fleet that has completed the useful/statutory life is

made in full.
b) Relating to aircraft fleet other than that indicated above is made at the rate
of 3% on inventory purchased during the year and forming part of the
closing inventory and at the rate of 6% on the balance inventory on an
annual basis.
c) Relating to dry lease air craft fleet is made on the basis of completed lease
period compared to the total lease period as at the year end.
iii. Obsolescence provision for non-aircraft stores and spares is made to the
extent of non-moving inventory for the period exceeding five years.
♦ FOREIGN CURRENCY TRANSLATION
i. Current Assets And Current Liabilities

Foreign currency denominated current assets and current
liabilities balances at the year-end are translated at the year-end
exchange rate calculated by Foreign Exchange Dealers Association of
India (FEDAI), and the gains/losses arising out of fluctuations in
exchange rates are recognized in the profit and loss account.
ii. Foreign Currency Loans
The outstanding balances of loans as at the end of each quarter
are translated at established quarterly rates(based on published IATA
rates) as applicable for the next quarter. The outstanding balances of
these loans as at the end of the year are translated at FEDAI closing
rates. The differences arising there from
a) relating to loans for acquisition of fixed assets are adjusted to the

cost of the identified fixed assets.
b) Related to other loans are transferred to profit and loss account.
iii. Revenue And Expenditure translations
a) Foreign currency translations of revenue and expenditure are

translated at established quarterly rates (based on published
IATA rates).
b) Interline settlement with airlines for transportation is carried
out at the exchange rate published by IATA for respective
month.
♦ REVENUE RECOGNITION
i. Passenger and cargo sales are recognized as revenue, net of
incentives on sales, when the service is rendered. Amount
represented by sales, for which service remains to be rendered, are
reflected in the accounts as current liabilities under the head
“Advances from Customers”. The balance remaining in said
accounts in respect of passenger and cargo sales, for the period
more than two years and in respect of partly utilized coupons on
identification of revenue when the profitability of utilization
ceases, are recognized as ‘Other Revenue’
ii. The pool revenue is accounted on an accrual basis as per the
arrangements with the airlines concerned. If details of passengers
carried by the pool partners are not received, the revenue is booked
on an estimated basis as per the agreements with respective pool
partners.
iii. Income from interest is recognized on time proportion basis and in
respect of dividend is recognized when right to receive the
payment is established.
iv. The claims receivable from insurance company are accounted for
their acceptance by the insurance company.
♦ OPERATING LEASES
Leases where assets are acquired with or without an option to purchase
where title may or may not eventually be transferred are considered as operating
leases and lease rentals payable for the year are charged to profit and loss account.
♦ BORROWING COST
i. Borrowing cost that are directly attributable to acquisition,
construction or production of qualifying assets are capitalized up to the
time the assets gets ready for its intended use.
ii. Borrowing cost other than stated above is treated as period cost.
♦ COMMODITY HEDGING TRANSACTIONS
Commodity hedging contracts are accounted on the date of their
settlement and realized gain /loss in respect of settled contracts are recognized in
the profit and loss account.
♦ RETIREMENT BENEFITS
i. Provident fund is contributed to Air India Employees provident fund and
charged to profit and loss account of the year.
ii. Gratuity, leave encashment and post retirement medical benefits for staff
recruited in India are provided on actuarial valuation basis as the balance
sheet date.
iii. Liability for gratuity, leave encashment, pension and other retirement
benefits for staff directly recruited at foreign stations is provided as per
local laws prevailing in the respective countries as at the balance sheet
date.
♦ FREQUENT FLYER PROGRAM
The company operates joint frequent flyer programme that provides
travel awards to its members based on accumulated mileage points. The estimated
cost of providing free travel under this programme is provided for and charged to
Profit and Loss Account.
♦ MISCELLANEOUS EXPENDITURE/DEFERRED REVENUE

EXPENDITURE
Expenditure incurred upto 31-3-2003 on significant modernization
and improvements to aircraft, training, booking office decoration and other
benefit of such cost is expected to accrue.
♦ OTHER LIABILITIES
Liabilities which are more than three years old are reversed unless such
liabilities are specifically known to be payable in the future.
♦ TAXES ON INCOME
Provision for current tax is made in accordance with the provision of
Income Tax, 1961
Deferred tax is recognized on timing between book and taxable profits
using the tax rates and laws that have been enacted or substantively
enacted as on the balance sheet date. The deferred tax assets are
recognized and carried forward to the extent that there is a virtual certainty
that the assets will be realized in the future.
♦ PROVISION AND CONTINGENT LIABILITIES
Provisions are recognized in the accounts in respect of present probable
obligation, the amounts of which can be reliably estimated.
Contingent liabilities exceeding Rs.0.1 million in each case are disclosed in
respect of possible obligations that arise from past events but their existence is
confirmed by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the company.
♦ PRIOR PERIOD ITEMS
The Income and Expenses which arise in the current period as result of
errors and omissions in preparation of financial statements of one or more prior
period are considered as prior period items and are shown separately in the
financial statements.
♦ CASH FLOW STATEMENTS

Cash flow are reported using the indirect method, whereby profit before tax
is adjusted for the effects of transactions of a non-cash nature and deferrals or
accruals of past or future cash receipts or payments.
The cash flows from regular operating, financing and investing activities of
the company are segregated.
♦ HAJ OPERATIONS
Company acts as a ‘Nodal Agency’ on behalf of the government of India
and the expenses incurred by the company/ paid to other participating airlines and
claimed from the government of India/central haj committee is recognized as
revenue
CHAPTER 1.3
OBJECTIVES
PRIMARY OBJECTIVE
To analyze a revenue model of passenger traffic and cargo traffic so as to
suggest various measures for the improvement of traffic revenue.
SECONDARY OBJECTIVE
• To analyze the revenue model of air India limited during financial years(2002-
2006)
• To analyze the profitability position of air India limited during financial
years(2002-2006)
1.4 RESEARCH METHODOLOGY
SCOPE
The scope of the study is to analyze the revenue model of the Air India Limited.
With particular reference to passenger traffic and cargo traffic and suggest steps for
improving the same.
AREA OF STUDY
The nature of study is made to understand the features and concept underlying in
revenue and profit. The topic under study deals with ‘Revenue Model Analysis of
Passenger Traffic and Cargo Traffic in Air India Limited’ which plays a vital role in
the development of the organization. All projection and interpretation are based on the
balance sheet, income statement etc and financial tools is applied for such analysis of the
financial statement which helps to know the overall profitability position of the
organization.
RESEARCH DESIGN
The main objective of the research is to describe ‘the state of affairs as it exists at
present. The research is a descriptive one.

SOURCE OF DATA
The information needed for the study is collected from organization in two ways.
They are,
1. Primary data
2. Secondary data
Primary data
The primary data was collected through discussion and interaction with various
executives in the organization.
Secondary Data
The secondary data required was collected from annual reports of the
company, balance sheet, income statement, journals etc.
TOOLS USED IN DATA ANALYSIS
Data collected from secondary source is in the form of annual report, which was analyzed
using tools/technique.
The financial tools applied are
 Revenue model analysis
 Ratio analysis
REFERENCE PERIOD
The data reference period is five years 2001 to2006
CHAPTERISATION
1. Introduction, objectives, research methodology, chapterisation
2. Review of literature.
3. Company profile
4. Analysis and interpretation.
5. Findings, suggestions, conclusions.

CHAPTER 2
LITERATURE REVIEW
This chapter provides readers for information of the airline industry in details.
Firstly, start with the industry overview and characteristics of low-cost and traditional
airlines. The next topic describes competitive issues, which consist of deregulation, cost
operation and loyalty schemes. Each factor has both advantage and disadvantage affect to
low-cost and traditional airlines. Later topic describes financial performance and return
on investment of the industry. The last topic discusses future growth in the industry,
whether low-cost and traditional airlines have opportunities to grow in the business,
according to optimistic factors forecasted.
4.1 Industry Overview

Travel and tourism is the largest industry in the world and air transport plays
the significant role to this industry (Hanlon, 2007). Airline business is included in the air
transport industry, which consists of aircraft manufacturers, airports, air traffic services,
etc (Seristö, 1993). The air transport has grown for long period consistently.
The airline deregulation began in the U.S. in 1978 and spread across other
regions of the world, leading to a rapid growth in the air transportation industry during
the last decade (Sinha, 2002). There have been number of new airlines entered to the
industry, high demand on aircraft for the fleet expansion, and increase in passenger traffic
steadily. The passengers of scheduled airlines showed in the figure 3 imply the growth in
the airline business from 1990 to 2006.
Source: Modified - Hanlon 2007, 3
Passenger traffic grows from 1990 to 2006 at the average rate 4%. The
highest growth is in 2004 around 12% then decreases to 7% and 4% in 2005 and 2006
consecutively (Hanlon, 2007). The passenger growth keeps growing in 2007 and
forecasts to continue in the future, according to the liberalization of the industry. Asian
and Middle East markets are considered to grow faster than other mature markets, the
U.S. and European. Average world passenger growth rate is estimated at 5% annually
(Hanlon, 2007). One substantial reason for growth in the airline business is the new
entrants. Since the barriers of the industry have been non-existent in many parts of the
world by deregulations and open-skies agreements, low-cost or no-frills airlines are
entered into the business. The new entrants seem to be more successful than failure in
their operations. They can share the market with profitability from traditional or full-
service airlines and increase portion of market share gradually. Some traditional airlines
have to adjust their strategies by set up subsidiaries low-cost airlines to maintain the
market share and also being their marketing arms. The table below shows some
traditional airlines and their related low-cost airlines.
Traditional Airlines and their related Low-cost Airlines

Traditional Airlines Low-cost Airlines
British Midland Airways (bmi) bmiaby
Lufthansa Germanwings
Qantas Airways Jetstar Airways
Scandinavian Airlines AirBaltic
Blue1
Snowflake
Singapore Airlines Tiger Airways
Thai Airways Nok Airlines
Source: Individual airline website
Southwest Airlines, the U.S. based airline, is the pioneer of low-cost model. Southwest
Airlines has operated the business with consistency profitability for long years. With the
concept of simple product and low operation costs, Southwest Airlines becomes the role
model in this industry (Schneiderbauer and Fainsilber, 2002). To overview how different
between low-cost and traditional airlines, table 2 summarizes main features between them
accordingly.
Competitive Issues
Deregulation
Deregulation has made a big change in the airline industry. It has brought
competitive, affordable fares and service improvement in the airline business.
Deregulation allows newcomers entered the market, which most of them are low-cost
airlines. In 2006, there are over 1,400 airlines in the global including traditional airlines,
low-cost airlines, charter operators, freight carriers, etc (Hanlon, 2007).
One substantial benefit of deregulation is that travelers have more

alternatives with affordable fares. Low-cost airlines offer high discounts, create
competitive and erode traditional airlines’ market share. The expansion of low-cost
airlines forces traditional airlines to adjust their strategies to prevent losing market shares
additionally.
As the effect of deregulation has not yet deployed, opportunities still opens for new
entrants.
Source: Airbus 2006, 31

But, survival in the competitive market is more important. Using the
success model in the industry may not guarantee that new entrants will operate the
business successfully. Therefore, some of businesses will leave the industry accordingly.
The market entries are expected for the near future while the market exits are predicted in
middle or long-term period (Bieger and Laesser, 2004).
Cost Operation
According to low fare offered to passengers, low-cost airlines need to operate their costs
effectively to gain maximized profits, and be able to compete in the fierce market. Major
strategies that low-cost airlines using for cost effectiveness are as follows (Bieger and
Laesser,2004):
- Keep away from highly frequented airports and use small airports instead. This can
reduce the airport fees, which the small airports charge at the lower fees.
- There is no-frills for in-flight services. Passengers need to buy foods or beverages
during the flight. This strategy not only saves in-flight costs, but also makes other
revenues for the airlines.
- Keep low distribution costs by taking advantage on internet and using call center
channels. Most low-cost airlines have a large proportion of booking online. This
32 distribution channel can eliminate intermediate agents that caused high commission
expenses, which traditional airlines normally pay for them.
- Minimize turnaround time to keep aircraft at the high utilization. As the costs are
incurred while the aircraft park at the airports, the revenues are recognized while the
aircraft fly in the skies.
For example of better cost operation, figure 5 shows that among the U.S. airlines, low
cost airlines have lower unit cost per available seat mile2 than traditional (legacy) airlines
during 1998-2004. Please note that both of “mile” and “kilometer” are used for distance
units in this thesis, depending on information of the U.S. airlines, European airlines, or
other airlines, which use different the distance units.
Financial Performance
The airline business is very typical in the term of investing capital. It has been used heavy
capital over the past century and people still invest the money on this extraordinary
business (Hanlon, 2007). Even though the airline industry experienced in high losses over
$40 billion during 2001 to 2005, there were some airlines, especially low-cost carriers,
gained profitability over those years, and this made the industry still being attractive for
investors (Smyth and Pearce, 2006). The airline industry generated positive operating
profits during 1996 to 2004, however, the return for investors is not normal rate of return
and not sufficient to cover related risk, for example, the cost of capital. For low-cost
airlines, although they outperformed traditional airlines, only few of them can provide
investor return3 at the rate covering the cost of capital. International Air Transport
Association (IATA) joined McKinsey & Company working analysis of the financial
results for representative traditional airlines and low-cost airlines to examine the return
on investing capital for the period 1996 to 2004 (Smyth and Pearce, 2006). The analysis
showed that the airlines had the median average return on invested capital at 4.9% from
1996 to 2004, which is lower than the cost of capital of 7.5%. Only representatives of
European low-costs airlines can deliver the higher return on invested capital over the cost
of capital.
Financial Analysis
The Financial Analysis group guides senior management on key business decisions,
policymaking and long-term strategy development. Our Analysts act as internal
consultants and consider quantitative, qualitative and strategic factors in business
evaluations.
Financial Analysts are typically assigned to projects such as: aircraft reconfiguration
economics, analysis support for labor contract negotiations, M&A analysis, regional jet
and commuter economics, alliance partner negotiations, loyalty program economics,
corporate development and competitor analysis.
Performance Analysis
The Performance Analysis group directly affects the company's strategic decisions.
Performance Analysts provide timely, penetrating reports to senior management
regarding analysis of financial, operational and productivity results. Performance
Analysts typically report on competitive profitability and industry benchmarking and
evaluate current performance drivers.
Financial Planning and Analysis seeks talented individuals who ask hard questions and
challenge assumptions. We need qualified people that have broad-based financial skills
and a true understanding of effective leadership.
CHAPTER III
PROFILE OF AIR INDIA
Air India is the national flag carrier airline of India with a network of passenger and
cargo services worldwide. It is one of the two state-owned airlines in the country, the
other being Indian Airlines. Its main base is Chatrapati Shivaji International Airport,
Mumbai, with hubs at Indira Gandhi International Airport, New Delhi and Chennai
International Airport. The airline connects 44 destinations around the world, including 12
gateways in India.
AIR INDIA - HISTORY
Air India traces its history back to October 15, 1932 when its founder, J. R.
D. Tata flew a single engined De Havilland Puss Moth registered VT-ADN carrying air
mail (postal mail of Imperial Airways) from Karachi's Drigh Road Aerodrome to
Bombay's Juhu Airstrip via Ahmedabad. The aircraft continued to Madras via Bellary
piloted by a Royal Air Force pilot Neville Vincent. That same year, the airline was
formally established as Tata Airlines, a division of Tata Sons Ltd. (now Tata Group).
Following the end of World War II, regular commercial service was restored in India and
Tata Airlines became a public limited company on 29 July 1946 under the name Air
India.
1948 was a significant year in the history of the airline when 49% of it was acquired by
the Government of India, with an option to purchase an additional 2% at any time. In
return, the airline was granted status to operate international services from India as the
designated flag carrier under the name Air India International. On June 8, 1948 a
Lockheed Constellation L-749A named Malabar Princess and registered VT-CQP took
off from Bombay bound for London via Cairo and Geneva. This marked the airline's first
longhaul international flight, soon followed by service to Nairobi via Aden.
On 1 August 1953, the Government of India exercised its option to purchase a majority
stake in the carrier and Air India International Limited was born as one of the fruits of the
Air Corporations Act that nationalised the air transportation industry. At the same time all
domestic services were transferred to Indian Airlines. In 1954, the airline took delivery of
its first L-1049 Super Constellations and inaugurated services to Singapore, Bangkok,
Hong Kong and Tokyo.
Air India International entered the jet age in 1960 when its first Boeing 707, named
Nandadevi and registered VT-DJJ, was delivered. Jet services to New York via London
were inaugurated that same year. On June 8, 1962 the airline's name was officially
truncated to its current form of Air India. On June 11, 1962 Air India became the world's
first all-jet airline.
In 1970, Air India moved its offices into its own custom built skyscraper in downtown
Bombay. The next year, the airline took delivery of its first Boeing 747-200 named
Emperor Ashoka and registered VT-EBD. This coincided with the introduction of the
'Palace In The Sky' livery and branding. A distinctive feature of this livery is the
paintwork around each aircraft window, in the cusped arch style of windows in Mughal
palaces.
In 1986 Air India took delivery of Airbus A310s. The airline is the largest operator of this
type in passenger service. In 1988, Air India also took delivery of two Boeing 747-300s
in mixed passenger-cargo configuration.
In 1989, to supplant its "Flying Palace" livery, Air India introduced a new livery that was
mostly white but had a golden sun on a red tail. Only applied to around a half of Air
India's fleet, the new livery failed to "take off" as the Indian flying public raised a hue
and a cry about the phasing out of the classic colours. The new livery was dropped after
two years and the old scheme was re-introduced. Since then, Air India has been hesitant
to radically change the paint scheme, instead opting for minor updates and facelifts.
In 1993, Air India took delivery of the new flagship of its fleet when the first Boeing 747-
400 named Konark and registered VT-ESM made history by operating the first ever
nonstop flight between New York and Delhi.
In 1994 the airline was registered as Air India Ltd. In 1996, the airline inaugurated
service to its second US gateway at Chicago’s O'Hare International Airport. In 1999, the
airline opened its dedicated Terminal 2-C at the newly renamed Chatrapati Shivaji
International Airport in Mumbai.
The 21st century has seen Air India introduce new services to Shanghai in China, as well
as two new US gateways at Newark Liberty International Airport and LAX.
Air-India has registered a profit of Rs 133.85 crores (Approx USD 30 million) in the
financial year ending March 31, 2003, after taking into account the deferred tax benefit.
In the year 2002, it recorded a net profit of Rs 15.44 crores. Air-India earned a total
revenue of Rs 5658 crores (Approx USD 1.26 billion) in 2002-03 as against Rs 5017
crores (Approx USD 1.1 billion) in the previous year. The airline has ambitious plans to
expand its network and acquire new aircraft. The newly elected Government of India has
appointed Mr.Praful Patel, as the Minister for Civil Aviation who plans to make the
airline "A Maharaja of the Skies ".
In March 2004, Air India started non-stop flights from Ahmedabad's Sardar Vallabhbhai
Patel International Airport to London, Heathrow, making it the 3rd station from India
(after Mumbai and Delhi). In December 2004, Air India leased three Boeing 777-222ER
aircraft from United Airlines. With these three new B777s, Air India was able to
introduce three new routes: Delhi-Frankfurt-Los Angeles, Delhi-Amritsar-Birmingham-
Toronto, and Delhi-Dhaka-Kolkata-London.
Furthermore, in the course of 2005, Air India announced interest of commencing service
linking Delhi and Mumbai to Houston, Washington, DC, and San Francisco. However,
the authorities of Dallas/Ft. Worth International Airport have attempted to lure the airline
to form its first direct air link to India. The addition of any new U.S. services have yet to
be announced.
Russell Peters, Air India destinations, Air-India Express, List of commercial airlines in
India
AIR INDIA - INCIDENTS AND ACCIDENTS
Since 1970, Air India has suffered the following events:
• Air India Flight 855 crashed into the Arabian Sea after takeoff from Sahar
International Airport (now Chatrapati Shivaji International Airport) in Bombay
(now Mumbai) on 1 January 1978, killing everyone on board (213 - 190
passengers, 23 crew).
• On 21 June 1982 a Boeing 707 crashed at Bombay airport while trying to land in
a heavy rainstorm. 2 crew and 15 passengers were killed.
• Air India Flight 182 -Kanishka was blown up by Sikh terrorists on 23 June 1985.
The flight was on the first leg on its Montreal-London-Delhi-Bombay (Mumbai)
flight when it exploded off the coast of Ireland. The plane crashed into the
Atlantic Ocean. All 307 passengers and 22 crew on board died. After this incident
Air-India suspended all services to Canada,which resumed after 20 years in 2005.
• On 19 December 2005 a Boeing 747-400 Air India Flight 136 with 273
passengers and crew members aboard made an emergency landing at LAX after
blowing a tire upon taking off from the airport.
AIR INDIA - PASSENGER OPERATIONS
Air India has 44 world-wide destinations. It also has code-sharing agreements with many
international airlines to expand coverage. The airline carried 3.39 million passengers
during the financial year ending March 2003 and achieved a load factor of 71.6 per cent,
substantially higher than the 66 per cent load factor recorded in the preceding year. The
airline has received a 4 star rating for cabin safety procedures from skytrax airline quality
review. Three classes of seats are offered - First class, Executive class and Economy
class. Flat bed seats are offered for first class passengers. The airline also offers a
frequent flyer programme alone and in collaboration with many of its alliances. The
airline also offers luxury lounges in its ground terminals for its First and Executive class
travellers in select destinations within India. Air-India has duty free sale on board its
flights effective June 1, 2003 named 'sky bazaar', meaning Market in the sky.
AIR INDIA - CARGO OPERATIONS
In 1954, Air-India started its freighter operations with a Douglas DC-3 Dakota aircraft,
giving Air-India the distinction of being the first Asian airline to operate freighters. The
airline operates regular cargo flights to many destinations of the world. The airline also
has ground truck-transportation arrangements on select destinations.
A member of IATA, Air-India carries all types of cargo including dangerous goods
(hazardous materials) and live animals, provided such shipments are tendered according
to IATA Dangerous Goods Regulations and IATA Live Animals Regulations,
respectively.
At the warehouse in Mumbai, Air India has developed an indigenous system of inventory
management for cargo handling of import/export functions. This takes care of the entire
management of cargo, supports Electronic Data Interface (EDI) messages with Indian
Customs and replaces to a great extent existing paper correspondence between Customs,
Airlines, and the custodians. This also replaces manual handling and binning of cargo at
the warehouse in Mumbai by Air India.
AIR INDIA – FLEET
As of November 2005, Air India's fleet consists of the following 41 aircraft:
• 21 Airbus A310-300
• 2 Boeing 747-200
• 2 Boeing 747-300
• 13 Boeing 747-400
• 3 Boeing 777-200
The Air India Board has recently approved an acquisition plan at its meeting held in
Mumbai on April 26, 2005. The acquisition plan envisaged procurement of the following
68 aircraft:
• 18 Boeing 737-800 aircraft for Air India's subsidiary Air India Charters Ltd.
under whose umbrella the low cost airline Air India Express would be run.
• 8 Boeing 777-200 LR Medium Capacity Ultra Long Range aircraft in three-class

configuration (including three options);
• 15 Boeing 777-300 ER Medium Capacity Long Range-350 seater, in three-class

configuration (including five options); and
• 20 Boeing 787-8 Medium Capacity Long Range-250 seater aircraft in two class
configuration (including seven options).
Total cost of this acquisition is estimated to be 35000 crores INR (7.5 billion USD). On
15 December, 2005 the Indian Government board approved the purchase of 68 jets from
Boeing Corporation. Price negotiations resulted in a $225 million rebate for Air India.
The Boeing 777's will have GE-90 engines and the Boeing 787 will have Genx engines.
Boeing will set up MRO along with training facilities. The aircafts will start arriving
from 2006 and will go until 2011.
AIR INDIA - LOGO AND MASCOT
As it symbolizes movement and speed, the Centaur, a stylized version of Sagittarius, was
selected as Air-India's logo. The choice of a constellation was also intended as an allusion
to the airline's original long distance routes with Lockheed Constellation aircraft.
Air India's mascot, the Maharaja, is a turban clad king with over-sized moustache and a
royal dress. "He may look like royalty, but he isn't royal" - these are the words of Bobby
Kooka, the man who conceived the Maharajah. This figure first made his appearance in
Air-India in 1946, when Bobby Kooka as Air-India's Commercial Director and Umesh
Rao, an artist with J.Walter Thompson Ltd., Mumbai, together created the Maharajah.
AIR INDIA - WOMEN PILOTS
There are 17 women pilots on Air India's rolls, including five

trainee pilots. On the occasion of the World Women's Day, March 3rd 2004, the airline
operated an "All women Flight" from Mumbai to Singapore. Capt. Rashmi Miranda, who
became Air-India's first woman Commander in November 2003 and Capt. Kshmata
Bajpai, piloted the flight, an Airbus A310 aircraft. The flight despatch activities relating
to this flight was also coordinated by a woman Flight Despatcher, Ms Vasanti Kolnad.
The Safety Audit on board was also conducted by another woman, Ms Harpreet D. Singh.
AIR INDIA - AWARDS AND RECOGNITION
• The Airline entered the Guinness Book of World Records - The largest evacuation
by a civil airliner, involving evacuation of over 111,000 people from Amman to
Mumbai - a distance of 4,117 km, by operating 488 flights in association with
Indian Airlines, during August 13 - October 11, 1990, lasting a total of 59
days.The operation was carried out during Persian Gulf War in 1990 to evacuate
Indian expatriates from the region.
• The airline received The Mercury Award for the years 1994 and 2003, from the
International Flight Catering Association, for finest in-flight catering services.
• Air India's security department became the first aviation security organisation in
the world to acquire ISO 9002-1994 certification (January 31, 2001).
• The Department of Engineering, Air India, has obtained the ISO 9002 for its
Engineering facilities for meeting international standards.
CHAPTER IV
ANALYSIS AND INTERPRETATION
TABLE 1.1
TABLE SHOWING THE BREAK UP OF REVENUE EARNED BY AIR INDIA

DURING THE YEAR - 2001-2002
PARTICULARS AMOUNT %
PASSENGER TRAFFIC 32223.5 63

EXCESS BAGGAGE 668.0 1
MAIL 165.0 0
CARGO 3827.7 8
CHARTER 2853.9 6
POOL RECEIPTS 1443.4 3
BLOCK SEAT ARRANGEMENT 1522.9 3
HANDLING AND SERVICE REVENUE 4809.2 10
NON-OPERATING REVENUE 2815.8 6
SOURCE: ANNUAL REPORT
INFERENCE
From the above table it is seen that the total revenue of the
company consisting of passenger, excess baggage, mail, cargo, charter, and
miscellaneous revenue was rs.50329.4million as compared to rs.52788.5 million for the
year 2001,representing a decrease of 4.7%. The value indicates that 65% of the total
revenue of air India is earned from passenger traffic and 10% from handling charges and
8% from cargo and the remaining from various activities and the same is presented in the
chart below.
CHART 1.1
CHART SHOWING THE BREAK UP OF REVENUE EARNED BY AIR INDIA

RE
6%
10%
3%
TABLE 1.2


MAIL 180.0 0
CARGO 4004.1 7
CHARTER 2524.4 4
INFERENCE
In the above table it is shown that the total revenue of the company
consisting of passenger, excess baggage, mail, cargo, charter, and miscellaneous revenue
was rs.56578.4million as compared to rs.50329.4 million for the previous year 2002,
representing a increase of 12.4% which shows the efficiency of the organisation to
increase the profits.
CHART 1.2

REVENUE EARNED 2002-2003
PASSENGER
7% TRAFFIC
EXC ESS BAGGAGE
11%
MAIL
4% CARGO
3%
CHARTER
4%
POOL RECEIPTS
7% 63%
BLOCK SEAT
0% ARRANGEMENT
1% HANDLING AND
SERVIC E REVENUE
NON-OPERATING
REVENUE
TABLE 1.3

MAIL 201.0 0
CARGO 4232.7 7
CHARTER 2814.5 5

INFERENCE
During the year under review the total revenue of the company consisting
of passenger, excess baggage , mail , cargo ,charter and handling
/servicing/miscellaneous revenue was Rs.62364.4million as compared to
Rs.56578.7million for the year 2002-2003, representing an increase of 10.2%.
CHART1.3

PASSENGER
TRAFFIC
EXCESS BAGGAGE
4%
11%
MAIL
4%
CARGO
3%
5% CHARTER
7% POOL RECEIPTS
65%
0% BLOCK SEAT
1% ARRANGEMENT
HANDLING AND
SERVICE REVENUE
NON-OPERATING
REVENUE
TABLE 1.4

INDIADURING THE YEAR - 2004-2005

MAIL 201.6 0
CARGO 5523.4 7
CHARTER 3106.1 4
INFERENCE
During the year under review , the total revenue of the company consisting of
passenger , excess baggage, mail , cargo , charter and handling /servicing/miscellaneous
revenue was Rs.76299.9 million as compared to Rs.62461.5 million for the year2003-
2004, representing an increase of 22.2%.
CHART 1.4

REVENU
2%
12%
4%
3%
4%
TABLE 1.5

INDIADURING THE YEAR - 2005-2006
MAIL 247.6 0
CARGO 5759.8 6
CHARTER 4880.3 5
ROYALTY FROM AIR INDIA CHARTERS LTD 996.3 1
INCOME FROM UN-UTILISED SERVICES 4077.5 4
INFERENCE
During the year under review , the total revenue of the company consisting
of passenger, excess baggage, mail, cargo, charter, pool , block seat arrangement, royalty
from air India charters limited and handling/servicing/miscellaneous revenue was
Rs.92449.5 million as compared to Rs. 77268.9 million in the year 2004-2005 ,
representing an increase of 19.6%.
CHART 1.5
PASSENGER
TRAFFIC
EXCESS BAGGAGE
4%
4%
MAIL
11% CARGO
1% CHARTER
4%
POOL RECEIPTS
2%
BLOCK SEAT
5% ARRANGEMENT
63% ROYALTY FROM AIR
6% INDIA CHARTERS LTD
HANDLING AND
0% SERVICE REVENUE
0% INCOME FROM UN-
UTILISED SERVICES
NON-OPERATING
REVENUE
CURRENT RATIO
TABLE 2.1
TABLE INDICATING CURRENT ASSETS, CURRENT LIABILITIES AND
(RS IN MIILIONS)
YEAR CURRENT CURRENT RATIO
ASSETS LIABILITIES
2002 19170.6 18463.8 1.03:1
2003 18044.2 21481.4 0.83:1
2004 18875.5 24590.9 0.76:1
2005 21124.2 25182.4 0.83:1
2006 31625.0 21049.8 1.50:1
Source; Annual report, Air India Limited
.
Current asset
Current ratio = *100
Current liabilities
INFERENCE
The average current ratio for the business is 1.5:1 in the year
2005-2006 .The ratios were low for but increasing gradually every year so the company
was able to achieve the normal standard during 2005-2006. A current liabilities is
gradually increasing every year over the current assets which reduces the ability of the
concern to meet its current obligation.
CURRENT RATIO
CHART 2.1
CHART INDICATING CURRENT RATIO FOR THE YEAR 2001-2006
CURRENT RATIO
1.6 1.5
1.4
1.2
1.03
1
0.83 0.83
RATIO
0.76
0.8 Series1
0.6
0.4
0.2
0
2001- 2002- 2003- 2004- 2005-
2002 2003 2004 2005 2006
YEAR
YEAR CASH CURRENT RATIO
LIABILITIES
2002 4660.7 18463.8 0.25
2003 1893.4 21481.4 0.08
2004 1872.8 24590.9 0.07
2005 2317.6 25182.4 0.09
2006 1879.1 21049.8 0.08
CASH POSITION RATIO

TABLE 2.2
TABLE INDICATING CASH, CURRENT LIABILITIES AND CASH POSITION
RATIO FOR THE YEAR 2001-2006
(RS IN MIILIONS)
Cash position ratio= cash and bank balance

Current liabilities
INFERENCE
The above table shows the cash position of the firm. The cash position ratio
was 0.25 in the year 2001-2002 and its shows the decreasing trend in the following years.
The cash availability is low and is not able to meet the current liability in any of the
years. The ideal ratio is 0.75:1 which is used to measure firms liquidity position.
CASH POSITION RATIO
CHART2.2
CHART INDICATING CASH POSITION RATIO FOR THE YEAR 2001-2006
C AS H P O S IT IO N RAT IO
0.3
0 .25 0 .25
0.2
RATIO
0 .15 S eries1
0.1 0.08 0.07 0.09
0.0 8
0 .05
0
2001- 20 02- 200 3- 2 004 - 2 005 -
2002 20 03 200 4 2005 2006
YE AR
DEBT EQUITY RATIO

TABLE 2.3
TABLE INDICATING LONG TERM DEBT, SHARE HOLDERS FUND AND
DEBT EQUITY RATIO FOR THE YEAR 2001-2006
(RS IN MIILIONS)
YEAR LONG TERM SHARE RATIO
DEBT HOLDERS
FUND
2002 28904.5 3916.6 7.3
2003 21602.7 3118.7 6.9
2004 14757.0 2458.5 6.0
2005 12616.9 3249.6 3.8
2006 36219.1 3398.0 10.6
Total long term debts

Debt –equity ratio =
Share holders fund
INFERENCE
The debt equity ratio for the year 2001-2002 is 7.3 and its fluctuating and shows
a highest ratio of 10.6 in the year 2005-2006. The standard ratio is ‘1’ but the company
always borrows more than five times of the owner’s capital. Due to the interest paid out
of the profit is increasing every year; the ratio is also increasing every year. This is not
safe for the organisation.
DEBT EQUITY RATIO
CHART 2.3
CHART INDICATING DEBT EQUITY RATIO FOR THE YEAR 2001-2006
DEBT EQUITY RATIO
12
10 10.6
8
RATIO
7.3 6.9
6 6 Series1
4 3.8
2
0
2001- 2002- 2003- 2004- 2005-
2002 2003 2004 2005 2006
YEAR
PROPRIETARY RATIO
YEAR PROPRIETORS TOTAL RATIO
FUND TANGIBLE
ASSETS
2002 3916.6 54252.3 0.07
2003 3118.7 51409.2 0.06
2004 2458.5 47845.7 0.05
2005 3249.6 46730.1 0.06
2006 3398.0 66303 0.05
TABLE 2.4
TABLE INDICATING PROPRIETORS FUND, TOTAL TANGIBLE ASSETS
AND CASH POSITION RATIO FOR THE YEAR 2001-2006
(RS IN MIILIONS)
Share holders fund

Proprietary ratio=
Total tangible assets
INFERENCE
The proprietary ratio for the year 2001-2002 shows 0.07 and it
shows an average of 50% in the following years. The ratio below 50% indicates to the
creditor that they may loose heavily .Due to the gradual fluctuation in the total tangible
assets the ratio also fluctuates.
PROPRIETARY RATIO
CHART 2.4
CHART INDICATING PROPRIETARY RATIO FOR THE YEAR 2001-2006
PROPREITARY RATIO
0.08
0.07 0.07
0.06 0.06 0.06
RATIO
0.05 0.05 0.05

0.04 Series1
0.03
0.02
0.01
0
2001- 2002- 2003- 2004- 2005-
2002 2003 2004 2005 2006
YEAR
YEAR NET PROFIT SALES RATIO
2002 (9186.8) 50329.4 (18.25)
2003 (7848.2) 56578.7 (13.87)
2004 (6924.9) 62364.4 (11.10)
2005 963.6 76299.9 1.26
2006 940.5 92449.5 1.01
NET PROFIT RATIO
TABLE 2.5
TABLE INDICATING NET PROFIT, TOTAL SALES AND NET PROFIT RATIO
FOR THE YEAR 2001-2006
(RS IN MIILIONS)
Operating profit
Net profit = *100
Net sales
INFERENCE
The net profit ratio for the first three years shows negative figure. In
2001-2002 a loss of 18.25% and decreases 4.38 in next year and further decreases 2.77 in
2003-2004 and from 2004-2005 earning a profit of 1.26 and 1.01. Due to the gradual
increase in operating expenses and interest paid the management profit is reduced
NET PROFIT RATIO

CHART 2.5
CHART INDICATING NET PROFIT RATIO FOR THE YEAR 2001-2006
NET PROFIT RATIO
20
18 18.25
16
14 13.87
12
RATIO
11.1
10 Series1
8
6
4
2 1.26 1.01
0
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
YEAR
RETURN ON SHARE HOLDERS FUND

TABLE 2.6
TABLE INDICATING NET PROFIT, SHARE HOLDERS FUND AND RETURN
ON SHARE HOLDERS FUND FOR THE YEAR 2001-2006
(RS IN MIILIONS)
YEAR NET SHARE RATIO
PROFIT HOLDERS
FUND
2002 2270.5 3916.6 57.9
2003 1922.4 3118.7 61.6
2004 1322.0 2458.5 53.7
2005 911.1 3249.6 28.03
2006 116.5 3398.0 3.42
Net profit after tax

Return on shareholders fund= *100
Share Holders Fund
INFERENCE
During the period of first 3 years shows return to the share holders is more
than 50%. In 2004-2005 it has come down to 28.03 and further decreases in 2005-2006 to
3.42
In the last 2 years the return decreases due to payment of fixed interest is increased

CHART 2.6
CHART INDICATING RETURN ON SHARE HOLDERS FUND FOR THE YEAR
2001-2006
70
60
57.9 61.6 53.7
50
RATIO
40
Series1
30 28.03
20
10
3.42
0
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
YEAR
INTEREST COVERAGE RATIO
TABLE 2.7
TABLE INDICATING NET PROFIT, FIXED INTEREST CHARGES AND
INTEREST COVERAGE RATIO FOR THE YEAR 2001-2006
(RS IN MIILIONS)
YEAR PROFIT INTEREST RATIO
2002 2270.5 1576.2 1.44
2003 1922.4 746.7 2.57
2004 1322.0 396.3 3.33
2005 911.1 323.8 2.81
2006 116.5 838.8 0.13
Profit before interest and tax

Interest coverage ratio =
Fixed interest charges
INFERENCE
During the period of 2002-2004 the trend is increasing and again
it has shown a decline in 2005-2006. Due to the increase in the long term borrowings by
the organisation the interest to be paid is also increased and the profit is declining which
is not safe for the organisation.
16
14.9
14
12
10
RATIO
8 CHART 2.7 Series1

CHART6INDICATING INTEREST COVERAGE RATIO FOR THE YEAR
2001-2006
2.57 3.33
4
1.44 2.81
2
0
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
YEAR
FIXED ASSETS TURNOVER RATIO
TABLE 2.8
TABLE INDICATING SALES, FIXED ASSETS AND FIXED ASSET
TURNOVER RATIO FOR THE YEAR 2001-2006
(RS IN MIILIONS)
YEAR SALES FIXED RATIO
ASSET
2002 50329.4 34397.0 1.4
2003 56578.7 32605.6 1.7
2004 62364.4 28202.3 2.2
2005 76299.9 24804.2 3.0
2006 92449.5 21954.5 4.2
Cost of sales
Fixed assets turnover ratio =
Net fixed assets
INFERENCE
The above figures show the fixed asset ratio seems to improve from
1.4 in the year 2001-2002 to 4.2 in the year 2005-2006. The efficient utilization of fixed
assets for making the sales is the cause for increase in ratio.
FIXED ASSETS TURNOVER RATIO

CHART 2.8
CHART INDICATING FIXED ASSETS TURNOVER RATIO FOR THE YEAR
2001-2006
F IX E D A S S E T T U R N O V E R R A T IO
4 .5 4 .2
4
3 .5 3
3
2 .5 2 .2
RATIO
S e r ie s 1
2 1 .7
1 .4
1 .5
1
0 .5
0
2 0 0 1 -2 0 0220 0 2 -2 0 0230 0 3 - 2 0 0240 0 4 -2 0 0250 0 5 -2 0 0 6
Y E AR
WORKING CAPITAL TURNOVER RATIO

TABLE 2.9
TABLE INDICATING SALES, WORKING CAPITAL AND WORKING
CAPITAL TURNOVER RATIO FOR THE YEAR 2001-2006
(RS IN MIILIONS)
YEAR SALES WORKING RATIO
CAPITAL
2002 50329.4 2338.4 21.52
2003 56578.7 6941.0 8.15
2004 62364.4 9215.9 6.76
2005 76299.9 7629.4 10.0
2006 92449.5 7002.8 13.2
Sales
Working capital turn over ratio =
Net working capital
INFERENCE
During the period 2001-2002 the ratio was high which is the indication of
lower investment of working capital and more profit. But after that till the year 2005 the
trend is fluctuating and again in 2006 the ratio is increased which again shows the
company is earning profit.

CHART 2.9
CHART INDICATING FIXED ASSETS TURNOVER RATIO FOR THE YEAR
2001-2006
W OR K IN G C APITAL TU R NOVER R ATIO
25
21.52
20
15
RATIO
13.2 Series1
10 10
8.15
6.76
5
0
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
YEAR
SUMMARY AND CONCLUSION
DESCRIPTION OF THE STUDY

The title of the project is ‘Revenue Model Analysis Of Passenger Traffic Versus Cargo
Traffic Of Air India Limited’ the main objective is to analyze the revenue model and find
the profitability position of air India limited. This study is purely on in house analysis.
Due to the merger of Air India and Indian Airlines as NACIL (National Aviation
Company Of India Limited) the annual report of the years 2006-2007 and 2007-2008 was
not published. So the study is restricted to the years from 2001-2002 to 2005-2006.
FINDINGS
 The decline in revenue in the year 2001-2002 is primarily because of decline in

scheduled services revenue due to September 11 incidents, resulting in drop in
passenger and over load factors in September/October 2001 and cancellation of
scheduled flights.
 It is found that the increase in revenue is due to gradual decrease in the oil prices
in the international market during the year 2002-2003.
 It is found that the decline in the profitability during the year 2003-2004 is due
the upward spiral prices of ATF Aviation Turbine Fuel during the year from
US$ 104.34 to US$ 113.99.
 The main factor attributed to the profitability in the year 2004-2005 is reduction
in the financing cost on borrowings.
.
 It is found that during the year 2005-2006, the company launched Air India
Express under the banner of its subsidiary company, which was a low fare, no
frill, and low cost budget air line and transferred some of its routes to the gulf to
the subsidiary company. To this extent , the financial and physical parameters of
2005-2006 of the company are not strictly comparable with the earlier years
 It is found that the current ratio has been decreased in the year 2005-2006 as
1.50:1when compared to other years and nearing the standard ratio of 2:1
 The debt equity ratio is high as the company borrows more than five times of its
capital.
 It’s found that the proprietary ratio shows an average of 50% which is safe for
the creditors.
 The net profit shows a declining trend as 18.25 in the year 2002 to 1.01 in the
year 2006
 It has been found that in the last two years the return on share holders fund is
decreasing as the payment of interest or fixed interest rate commitment is
increasing
 It’s found that the interest coverage ratio is increased in the year 2006 which
gives ability to meet the company’s commitment in future
..
 The above figures show the fixed asset ratio seems to improve from 1.4 in the
year 2001-2002 to 4.2 in the year 2005-2006. The efficient utilization of fixed
assets for making the sales is the cause for increase in ratio
IMPLICATIONS
 The profit can be increased by effective control of expenses.

 Reduction in air fares compare to other air lines may yield high revenue to the
company by attracting more fliers.
 The borrowing has to be reduced which in turn may reduce the payment of
interest which increases the profit.
 The services has to be improved which attract customers which in turn generate
revenue to the company.
 The company has to provide more facilities in Air India express which will lead to
earn more revenue
 Current Assets has to be increased and utilized in the proper manner and to meet
current liabilities
 The working capital has to be increased which will lead to increase in cash
position.
 The borrowing has to be efficiently utilized and the revenue profit has to be
increased to meet the interest commitments.
 The tangible assets has to be utilized in effective manner which will also lead to
more share holders contribution satisfaction for the creditors
 The operating expenses have to be reduced and this will lead to increase in net
profit.
 The revenue and profit has to be increased by minimizing the operating expenses
which will contribute to the payment of dividend to the share holders.
 Revenue has to be increased by maximizing the facilities for which the loan has
been brought and efficient utilization of loans will yield profit inturn to meet
interest commitments
 Air craft has to be maintained efficiently and equipments has to be utilized in a
proper way which will yield more profit.
CONCLUSION
On the review of the performance of the company the income is in the decreasing
trend because the organization is not yielding good return due to various factors during
the year. The performance of the organization can improve by the excersise of effective
control over the expenses and utilizing optimally the capital assets available.
Data are collected and various tools are applied to analyse the performance of the
company. Various findings and implications are given to the organization.
The company is optimistic about its growing plan in future year. So the company
may successfully grow in the future
BIBLIOGRAPHY
1. Annual Reports*(2004-2008) of AIR INDIA LTD limited.

2. Gupta S.P (1998). Statistical methods of techniques, New Delhi,
Sulthanchand & sons.
3. Khan H.Y & P.K .Jain (1992). Financial Management, New Delhi, Tata
McGraw Hill Publishing Company Limited.
4. Maheswari S.N (1999). Principles of Management Accounting

.New Delhi, Sulthan Chand & Sons.
5.Reddy T.S & V.Hariprasad Reddy (2002). Management accounting,

Margham Publication
ANNEXURES
CURRENT RATIO
Current assets
Current ratio =
Current liabilities
19170.6
For the year (2001-2002) = =1.03
18463.8
18044.2
For the year (2002-2003) = =0.83 %
21481.4
18875.5
For the year (2003-2004) = =0.76%
24590.9
21124.2
For the year (2004-2005) = =0.83%
25182.4
31625.0
For the year (2005-2006) = =1.50%
21049.8
CASH POSITION RATIO
Cash and bank balances

cash position ratio=
Current liabilities
4660.7
For the year (2001-2002) = = 0.25%
18463.8
1893.4
For the year (2002-2003) = = 0.08
21481.4
1872.8
For the year (2003-2004) = = 0.07
24590.9
2317.6
For the year (2004-2005) = =0.09
25182.4
1879.1
For the year (2005-2006) = =0.08
21049.8
DEBT EQUITY RATIO
Long term debt

Debt equity ratio =
Share holders fund
28904.5
For the year (2001-2002) = = 7.3
3916.6
21602.7
For the year (2002-2003) = = 6.9
3118.7
14757.0
For the year (2003-2004) = = 6.0
2458.5
12616.9
For the year (2004-2005) = = 3.8
3249.6
36219.1
For the year (2005-2006) = = 10.6
3398.0
PROPRIETARY RATIO
Share holders fund

Proprietary ratio =
Total tangible assets
3916.6
For the tear (2001-2002) = = 0.07
54252.3
3118.7
For the year (2002-2003) = = 0.06
51409.2
2458.5
For the year (2003-2004) = = 0.05
47845.7
3249.6
For the year (2004-2005) = = 0.06
46730.1
3398.0
For the year (2005-2006) = = 0.05
66303
NET PROFIT RATIO
Operating profit
Net profit ratio =
Net sales
(9186.8)
For the year (2001-2002) = = (18.25)
10400
7848.2
For the year (2002-2003) = =(13.87)
56578.7
6924.9
For the year (2003-2004) = = (11.10)
62364.4
963.6
For the year (2004-2005) = = 1.26
76299.9
940.5
For the year (2005-2006) = =1.01
92449.5

Net profit after tax
Return on share holder’s fund = *100
Share holders fund
2270.5
For the year (2001-2002) = *100 = 57.9
3916.6
1922.4
For the year (2002-2003) = *100 = 61.6
3118.7
1322.0
For the year (2003-2004) = *100 = -11.9%
2458.5
911.1
For the year (2004-2005) = *100 =28.03%
3249.6
116.5
For the year (2005-2006) = *100 =3.42
3398.0
Profit before interest and tax

Interest coverage ratio=
Fixed interest charges
2270.5
For the year (2001-2002) = =1.44
1576.2
1922.4
For the year (2002-2003) = =2.57
746.7
1322.0
For the year (2003-2004) = =3.33
396.3
911.1
For the year (2004-2005) = =2.81
323.8
116.5
For the year (2005-2006) = = 0.13
838.8
FIXED ASSET TURNOVER RATIO

Cost of sales
Fixed asset turn over ratio =
Net fixed asset
50329.4
For the year (2001-2002) = = 1.4
34397.0
56578.7
For the year (2002-2003) = = 1.7
32605.6
62364.4
For the year (2003-2004) = =2.2
28202.3
76299.9
For the year (2004-2005) = = 3.0
24804.2
92449.5
For the year (2005-2006) = =4.2
21954.5
Sales
Working capital turn over ratio =
Net working capital
50329.4
For the year (2001-2002) = = 21.52
2338.4
56578.7
For the year (2002-2003) = = 8.15
6941.0
62364.4
For the year (2003-2004) = =6.76
9215.9
76299.9
For the year (2004-2005) = =10.0
7629.4
92449.5
For the year (2005-2006) = =13.2
7002.8

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” REVENUE MODEL ANALYSIS OF

PASSENGER TRAFFIC AND CARGO

In partial fulfillment of the requirements

MASTER OF BUSINESS ADMINISTRATION

Certified that this project report” REVENUE MODEL

HEAD OF THE DEPARTMENT PROJECT SUPERVISOR

INTERNAL EXAMINER EXTERNAL EXAMINER

At the outset, I thank my beloved parents for their constant

I hereby declare that the project entitled” REVENUE MODEL

3 PROFILE OF AIR INDIA 18

4 ANALYSIS AND INTERPRETATION 25

5 SUMMARY AND CONCLUSION 53

TABLE TITLE PAGE NO

TABLE TITLE PAGE NO

CHART SHOWING THE BREAK UP OF REVENUE EARNED BY AIR

CHART INDICATING CASH, CURRENT LIABILITIES AND CASH

CHART INDICATING NET PROFIT, TOTAL SALES AND NET PROFIT

CHART INDICATING NET PROFIT, SHARE HOLDERS FUND AND

CHART INDICATING NET PROFIT, FIXED INTEREST CHARGES AND

CHART INDICATING SALES, FIXED ASSETS AND FIXED ASSET

CHART INDICATING SALES, WORKING CAPITAL AND WORKING

a) Airframe equipment rotables and aero engine equipment rotables

a) Relating to aircraft fleet that has completed the useful/statutory life is

♦ FOREIGN CURRENCY TRANSLATION

i. Current Assets And Current Liabilities

a) relating to loans for acquisition of fixed assets are adjusted to the

iii. Revenue And Expenditure translations

a) Foreign currency translations of revenue and expenditure are

♦ MISCELLANEOUS EXPENDITURE/DEFERRED REVENUE

♦ CASH FLOW STATEMENTS

To analyze a revenue model of passenger traffic and cargo traffic so as to

suggest various measures for the improvement of traffic revenue.

• To analyze the profitability position of air India limited during financial

improving the same.

present. The research is a descriptive one.

executives in the organization.

company, balance sheet, income statement, journals etc.

TOOLS USED IN DATA ANALYSIS

The financial tools applied are

 Revenue model analysis

The data reference period is five years 2001 to2006

1. Introduction, objectives, research methodology, chapterisation

4. Analysis and interpretation.

5. Findings, suggestions, conclusions.

4.1 Industry Overview

Traditional Airlines and their related Low-cost Airlines

One substantial benefit of deregulation is that travelers have more

Source: Airbus 2006, 31

PROFILE OF AIR INDIA

AIR INDIA - HISTORY

AIR INDIA - INCIDENTS AND ACCIDENTS

Since 1970, Air India has suffered the following events:

AIR INDIA - PASSENGER OPERATIONS

AIR INDIA - CARGO OPERATIONS

AIR INDIA – FLEET

As of November 2005, Air India's fleet consists of the following 41 aircraft:

• 8 Boeing 777-200 LR Medium Capacity Ultra Long Range aircraft in three-class

• 15 Boeing 777-300 ER Medium Capacity Long Range-350 seater, in three-class

AIR INDIA - LOGO AND MASCOT

AIR INDIA - WOMEN PILOTS

There are 17 women pilots on Air India's rolls, including five

ANALYSIS AND INTERPRETATION