The Business of Art

My mother is an artist. She paints, sews, carves, crochets and does all kinds of very creative things that, as a child, I used to look up to with eyes of awe. I wanted to become as adept at all things artistic as she is. But, the day I picked up a crochet needle (or whatever that instrument is called!) for the first time, I knew that the particular gene has skipped a generation. Never mind, life still went on for me. I studied, scored good marks, studied more, scored better marks and kept adding to the length and dimensions of my CV. Later in my life I started drama, painting and writing as proxies to the creative legacy of my mother but neither could I be as good as she was, nor a natural as some around me were. I always wondered whether it was realistically possible to be equally good in studies as in arts. Anyways, life has its own ways, those highly creative people went to schools of art that hardly anyone ever hears about while I went to schools that makes everyone take a note and this complex of mine (about not being naturally creative) was covered up by a certain superiority complex.

 

But now having reached this institution and having lived a little more life, I realise that there are naturals in the field of art who have balanced arts and practicalities equally well; and done so in style. People who sell and exhibit their art not in conventional museums but on facebook, people who don’t walk around wearing kurta-pyjamas but rather clothes as fashionable as mine. People who are breaking all stereotypes about being ‘artistic’.

 

One such person, who happens to be a batchmate and a dear friend Sarthak Mohanty, has a facebook page, the Impressionist, dedicated to his art and has been painting forever. I thought it’d be an interesting idea to talk to him and get his views regarding this rather than playing ping-pong over it in my head. Here I share excerpts from the same conversation:

 

 

sarthak 1

 

Me : How did you start in the field of art? What age? Who was the inspiration? Did you ever think of pursuing it professionally? If yes, then why did you not?

Sarthak : I have been drawing since childhood even before I went to school (just before nursery). It started with my mom teaching me how to draw and she was surprised to see me draft a perfect replica. Well I don’t really remember these instances, these are narrated by my mom, but I do still remember the first flower that I drew and I loved it. I realized I am better than others. I could not understand initially how people could not draw. I realized I had a unique skill and I needed to practice to hone it.

I love my parents for putting me into art school early. I stated getting guidance and new perspectives there. As a child I have always been pretty observant of my surroundings and would try to doodle it on paper, be it nature, animals, family, gods and goddesses.

Well, when my friends were going through “I want to be an astronaut “, “I want to be a cricketer”, phase, it was always “I will become an artist “for me. It sounds strange but I loved studying (yeah that’s true). I was doing really well at school. I used to top in most of the subjects .Good college, IIT engineering was a lucrative, tried and tested option in the society and I was encouraged by my family, teachers and friends to make a good career in it. I knew I had the will and the potential. I come from a middle class family from Bhubaneswar. Bhubaneswar was a small town then. We have great artists in Bhubaneswar but never successful idols in the art scene. I chose the better option.

 

sarthak 2

I believe that it was good that I did not give up my studies for art. Who knows if I would have faced difficulties at that early stage I would have fallen out of love with art.

 

Me: Why start selling your art now, when the only thing that you have done all these years is make them and post them on facebook? Do you think that your business education has commoditized your art as well?

Sarthak: Well MBA inspired me. You focus on what you are good at. You ask yourself, what difference do I bring to the team? What new perspective do I bring?  And most importantly” Do what you love. You‘ll be the best at it “Thus begins a journey of connecting with yourself and bringing out your USP to the world. I have got brilliant entrepreneurs in my friends who saw potential in my art and encouraged me to establish myself in the art scene.

It was my sister who started my FB page. I got appreciation and requests for buying my art there. My paintings got selected for display in exhibitions. I even put up my own exhibition. If I look back it has all been a sudden sweet serendipity and a humbling experience. The best part is I got to meet lots of artists and art enthusiasts and it is a great feeling.

 

sarthak 3

Well I definitely want to continue with my art and to sustain it I need to create my niche and my value in the market. Besides what is the use of learning marketing when I can’t implement it to sell my best skill and the thing I love most.

I would not say business education has commoditized my art. I would not implement lean techniques to produce more and sell more. I would not even customize my art for my customer. My drawings reflect my perspective and I sell it or gift it to the appreciator.

 

 

sarthak 4

I don’t know what to think about my artistic position or Sarthak’s view or the fact that I always saw arts and studies as a mutually exclusive set. I leave it to my readers to figure out. But I do realise that art of any kind has always been the fancy of a minority section in the society. If I talk in the crass language of business, anything is financially lucrative becomes part of the so called dog-eat-dog world that we call ‘corporates’. It’s been happening for music, movies, television, art auctions and would happen to the emerging arts. This is what chills me to my core…that my mother’s delicate crochets might just end up being a commodity rather than the immensely sentimental knick-knacks that they are for me.

 

aakriti_gupta

 

– Akriti Gupta

Akriti Gupta, BM class of 2015 student at XLRI Jamshedpur.  She is a writer by hobby, a speaker by vocation, a painter on whim and a student by compulsion. She hails from Delhi-NCR and has been to Delhi Public School, R K Puram and Jesus and Mary College, Delhi University to study about..well..things that she doesn’t remember any longer :P.

You can follow her stories here: http://akritigupta.insideiim.com/

Profile gravatar of Akriti Gupta

Akriti Gupta

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Pantene Explains Why Most Influential Women In History Are Forgotten

PANTENE EXPLAINS WHY MOST INFLUENTIAL WOMEN IN HISTORY ARE FORGOTTEN

 

It is said that this is a man’s world and sometimes it is. As a matter of fact if we look at history, historiography to be precise, this seems to be only a man’s world. What with prominent females like Nur Jahan, Jahanaara, Roxelanna and Cleopatra either consigned to oblivion or vilified to the extent that their contribution goes unrecognized. Had it only been an Indian phenomenon I may have attributed it to our generally misogynistic society that has traditionally not been able to tolerate women in powerful positions but even in countries like Egypt, Turkey, Greece and the UK, we see very similar situations presenting themselves. The reason for the same has been explored by a regular shampoo brand, Pantene. But I will come to it later; let’s first understand the cases of these ladies better.

images

Let’s look at the case of Nur Jahan. Nur Jahan was the youngest and the favorite wife of the Mughal emperor Jahangir. She wielded significant influence over her husband and used the same to gain wealth and have a say in the court. She is said to have been the mistress of various trading ships and had coins issued in her name. But in those times when women were expected to be pretty things behind veils, most of the noblemen and courts people found such influence of a woman very hard to digest and she was therefore regarded as an unscrupulous, ambitious woman who deserved naught. Thus, comes the statement in CBSE NCERT Class Xth History book (the one used in 2008), ‘Nur Jahan was a crafty woman who exploited her influence on Jahangir to gain power’. The disturbing part here is that most men around the emperor were doing the same thing, his own children no less and they are not tagged as ‘crafty’ in the history books while Nur Jahan is – the only difference between her and the others being her gender.

funny-cartoon-pictures-48

Something very similar happened with the eldest daughter of Shah Jahan and Mumtaz Mahal. Jahanaara was the first unmarried woman and the first daughter of the Mughal household ever to become in charge of the royal harem. This happened after Mumtaz Mahal passed away and Shah Jahan plunged to the depths of sorrow. As her father became more deeply arrested in his grief, historical records say that she also started playing a role in imperial decision making. But just because she was a female, not just history books but even popular discussions on historically important women completely leave her out. She has been practically wiped off popular history discussions. Her younger sister Roshanara who was the mastermind behind the accession of Aurangzeb and succeeded her, was poisoned by the very same Aurangzeb for having a lover; if being carnal is a sin then the entire mankind must be punished but the standards or rather the double standards in her case were so pervasive that she too, has been wiped off history pages.

And these are not the only examples that I can quote. Right from Roxelanna to Cleopatra, from Marie Antoinette to Fernande Grudet-all these women desirous of power and influence. They employed their own means and did their best to achieve that but were tagged either as overly ambitious or as adulteresses with no morals or were demonized in popular culture. And yet in all these cultures their male contemporaries, who strove for the very same things that these women wanted, were not labeled similarly.

Now how did this thought pop up in my head? It actually has a lot to do with labels, as a matter of fact with an advertisement of Pantene very aptly titled ‘Labels against Women’. The advertisement, neither very long nor very overt, comes like a blow to the face as it exposes the shallowness of our own thought system pretty clearly; how the same actions by a man and a woman are seen so differently by the society. It is this same difference in point of view that has historically been reflected in the aforementioned examples. As a B-school student, the idea that my drive to achieve a better position at work will be seen as being selfish or my interaction with my juniors will be seen only as bossy is really disturbing. It gives me a feeling that I have gone back to live in the medieval ages where nothing that a woman could do was ever right and everything that a man did was nothing but right.

https://www.youtube.com/watch?v=kOjNcZvwjxI

I have tried hard to understand the deeper psychological facts hidden in this skewed way of thinking and how it maybe changes but I have come up empty. But I do see a ray of hope in Gloria Steinem’s words: ‘We’ve begun to raise daughters more like sons… but few have the courage to raise our sons more like our daughters’; probably raising our sons like daughters will change our perceptions of gender roles and stereotypes. All that I can say is Amen!

Profile gravatar of Akriti Gupta

Akriti Gupta

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The Business of Art

My mother is an artist. She paints, sews, carves, crochets and does all kinds of very creative things that, as a child, I used to look up to with eyes of awe. I wanted to become as adept at all things artistic as she is. But, the day I picked up a crochet needle (or whatever that instrument is called!) for the first time, I knew that the particular gene has skipped a generation. Never mind, life still went on for me. I studied, scored good marks, studied more, scored better marks and kept adding to the length and dimensions of my CV. Later in my life I started drama, painting and writing as proxies to the creative legacy of my mother but neither could I be as good as she was, nor a natural as some around me were. I always wondered whether it was realistically possible to be equally good in studies as in arts. Anyways, life has its own ways, those highly creative people went to schools of art that hardly anyone ever hears about while I went to schools that makes everyone take a note and this complex of mine (about not being naturally creative) was covered up by a certain superiority complex.

 

But now having reached this institution and having lived a little more life, I realise that there are naturals in the field of art who have balanced arts and practicalities equally well; and done so in style. People who sell and exhibit their art not in conventional museums but on facebook, people who don’t walk around wearing kurta-pyjamas but rather clothes as fashionable as mine. People who are breaking all stereotypes about being ‘artistic’.

 

One such person, who happens to be a batchmate and a dear friend Sarthak Mohanty, has a facebook page, the Impressionist, dedicated to his art and has been painting forever. I thought it’d be an interesting idea to talk to him and get his views regarding this rather than playing ping-pong over it in my head. Here I share excerpts from the same conversation:

 

 

sarthak 1

 

Me : How did you start in the field of art? What age? Who was the inspiration? Did you ever think of pursuing it professionally? If yes, then why did you not?

Sarthak : I have been drawing since childhood even before I went to school (just before nursery). It started with my mom teaching me how to draw and she was surprised to see me draft a perfect replica. Well I don’t really remember these instances, these are narrated by my mom, but I do still remember the first flower that I drew and I loved it. I realized I am better than others. I could not understand initially how people could not draw. I realized I had a unique skill and I needed to practice to hone it.

I love my parents for putting me into art school early. I stated getting guidance and new perspectives there. As a child I have always been pretty observant of my surroundings and would try to doodle it on paper, be it nature, animals, family, gods and goddesses.

Well, when my friends were going through “I want to be an astronaut “, “I want to be a cricketer”, phase, it was always “I will become an artist “for me. It sounds strange but I loved studying (yeah that’s true). I was doing really well at school. I used to top in most of the subjects .Good college, IIT engineering was a lucrative, tried and tested option in the society and I was encouraged by my family, teachers and friends to make a good career in it. I knew I had the will and the potential. I come from a middle class family from Bhubaneswar. Bhubaneswar was a small town then. We have great artists in Bhubaneswar but never successful idols in the art scene. I chose the better option.

 

sarthak 2

I believe that it was good that I did not give up my studies for art. Who knows if I would have faced difficulties at that early stage I would have fallen out of love with art.

 

Me: Why start selling your art now, when the only thing that you have done all these years is make them and post them on facebook? Do you think that your business education has commoditized your art as well?

Sarthak: Well MBA inspired me. You focus on what you are good at. You ask yourself, what difference do I bring to the team? What new perspective do I bring?  And most importantly” Do what you love. You‘ll be the best at it “Thus begins a journey of connecting with yourself and bringing out your USP to the world. I have got brilliant entrepreneurs in my friends who saw potential in my art and encouraged me to establish myself in the art scene.

It was my sister who started my FB page. I got appreciation and requests for buying my art there. My paintings got selected for display in exhibitions. I even put up my own exhibition. If I look back it has all been a sudden sweet serendipity and a humbling experience. The best part is I got to meet lots of artists and art enthusiasts and it is a great feeling.

 

sarthak 3

Well I definitely want to continue with my art and to sustain it I need to create my niche and my value in the market. Besides what is the use of learning marketing when I can’t implement it to sell my best skill and the thing I love most.

I would not say business education has commoditized my art. I would not implement lean techniques to produce more and sell more. I would not even customize my art for my customer. My drawings reflect my perspective and I sell it or gift it to the appreciator.

 

 

sarthak 4

I don’t know what to think about my artistic position or Sarthak’s view or the fact that I always saw arts and studies as a mutually exclusive set. I leave it to my readers to figure out. But I do realise that art of any kind has always been the fancy of a minority section in the society. If I talk in the crass language of business, anything is financially lucrative becomes part of the so called dog-eat-dog world that we call ‘corporates’. It’s been happening for music, movies, television, art auctions and would happen to the emerging arts. This is what chills me to my core…that my mother’s delicate crochets might just end up being a commodity rather than the immensely sentimental knick-knacks that they are for me.

 

aakriti_gupta

 

– Akriti Gupta

Akriti Gupta, BM class of 2015 student at XLRI Jamshedpur.  She is a writer by hobby, a speaker by vocation, a painter on whim and a student by compulsion. She hails from Delhi-NCR and has been to Delhi Public School, R K Puram and Jesus and Mary College, Delhi University to study about..well..things that she doesn’t remember any longer :P.

You can follow her stories here: http://akritigupta.insideiim.com/

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Akriti Gupta

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The fascination to fly ! (Why the airline industry is unprofitable)

My fascination with flying…

Flying has always fascinated me. It so amazing how one can defy gravity and be so high up in the sky that huge cities start looking like doll houses when you peer down at them. An integral part of realizing this fascination, i.e. making me ‘fly’ is the airline companies that possess all those huge planes with snout-like fronts and tripod-like tails scheduled to zip-zap between destinations. Of late the airline industry is under everybody’s radar (post the now infamous Malaysian-Airline-gone-missing case) and many commentators in the white and pink pages of esteemed newspapers have gone on to argue how the oh-so loss making airline firms with their lax security standards, ill-trained pilots and what not are playing with the lives of their passengers.

 

So this set my mind churning. Despite practically everyone ‘going by air’ and airports turning into railways stations due to the frequency and extremely low prices of air travelling, firms in this industry still don’t make a profit. Now I have had the distinction of studying Economics at the undergraduate level (although I don’t know how much I remember :p), so I thought now might be a good time to use my limited analytical know-how and enlighten the world with it . So, looking at airlines as an industry, I started with figuring out how much control do they have over their costs and revenues.

 

The airlines industry – cost structure

Airlines have little control over their cost structure – most of the cost components are either totally beyond control (fuel prices) or controlled by monopoly/oligopoly suppliers (aircraft purchase, airport usage fees etc) 

Major costs in this sector are costs of Aero-turbine fuel, costs of renting aircraft and fees to Airport Authorities (for landing, parking and usage of the airport). The cost of ATF is in the hands of major oil suppliers. With suppliers being limited in number and oil prices fluctuating on a daily basis, it gives airline firms zero bargaining power. Second, the cost of renting an aircraft is controlled by the owners. Even in this industry, demand is generally in excess of a rather inelastic supply. Thus, the price is sticky upwards and not in control of the firms in the airlines industry. Third, the fixed costs associated with airport usage is decided the governing authority (for India, the Airports Authority of India)-again, a cost that is totally not in their control and over which they have zero bargaining power.

 

The following graph depicts the major operating expenses of the airlines industry:

airlines_image

[Graph courtesy: http://seekingalpha.com/article/928911-flying-below-the-clouds-a-common-sense-analysis-of-airline-investing-opportunities]

 

It is notable that most of these are expenses over which Airline firms have little to no bargaining power and are governed by monopolies or oligopolies, causing a further escalation in prices (since they charge prices higher than those under perfect competition). Another pertinent example is the purchase of aircraft – this market is also dominated by two major suppliers – Boeing and Airbus. In this case too, airlines have limited control over their costs.

The airlines industry – revenues

Price-sensitive demand, and extremely high competition

Now coming to revenues, airlines as an industry is characterized by multiple players who are looking forward to grab a share of the existing market from each other by price undercutting. Also, the demand is highly sensitive to macro-economic factors like global economic conditions (a reduced disposable income would lead to decreased expenditures across the board), geopolitical situations (would you want to fly to a country hit by civil strife?), etc.

Is the industry better suited to be an oligopoly?

Thus, we are looking at an industry that cannot predict either its costs or its revenues with any degree of certainty. Therefore, it is only obvious that such firms will not be on your top performing list. This is a unique business since not only are its fixed costs high but its variable (operational costs) are also high and while the total cost of operation is huge, the marginal cost is negligible (the cost of putting another passenger on a flight that is anyway scheduled to fly is negligible as compared to the total cost of operating that flight). Thus, it is no surprise that most of these firms struggle to become profitable. I guess, this industry is more suitable for monopoly or oligopoly market structures, so that the players may be able to obtain super-normal profits and reduce the uncertainty and leanness in at least their revenues, if not their costs. Only time will tell where this industry is headed and in the meanwhile, we can only hope that nothing like the Malaysian Airline incident happens again.

 

 

Akriti Gupta, BM class of 2015 student at XLRI Jamshedpur.  She is a writer by hobby, a speaker by vocation, a painter on whim and a student by compulsion. She hails from Delhi-NCR and has been to Delhi Public School, R K Puram and Jesus and Mary College, Delhi University to study about..well..things that she doesn’t remember any longer.

If you want to read more from her

Samarthya-The counselling initiative of budding managers at XLRI

Follow Akriti at InsideIIM at akritigupta.insideiim.com

Profile gravatar of Akriti Gupta

Akriti Gupta

Message Author


Message Author

My fascination with flying…

Flying has always fascinated me. It so amazing how one can defy gravity and be so high up in the sky that huge cities start looking like doll houses when you peer down at them. An integral part of realizing this fascination, i.e. making me ‘fly’ is the airline companies that possess all those huge planes with snout-like fronts and tripod-like tails scheduled to zip-zap between destinations. Of late the airline industry is under everybody’s radar (post the now infamous Malaysian-Airline-gone-missing case) and many commentators in the white and pink pages of esteemed newspapers have gone on to argue how the oh-so loss making airline firms with their lax security standards, ill-trained pilots and what not are playing with the lives of their passengers.

 

So this set my mind churning. Despite practically everyone ‘going by air’ and airports turning into railways stations due to the frequency and extremely low prices of air travelling, firms in this industry still don’t make a profit. Now I have had the distinction of studying Economics at the undergraduate level (although I don’t know how much I remember :p), so I thought now might be a good time to use my limited analytical know-how and enlighten the world with it . So, looking at airlines as an industry, I started with figuring out how much control do they have over their costs and revenues.

 

The airlines industry – cost structure

Airlines have little control over their cost structure – most of the cost components are either totally beyond control (fuel prices) or controlled by monopoly/oligopoly suppliers (aircraft purchase, airport usage fees etc) 

Major costs in this sector are costs of Aero-turbine fuel, costs of renting aircraft and fees to Airport Authorities (for landing, parking and usage of the airport). The cost of ATF is in the hands of major oil suppliers. With suppliers being limited in number and oil prices fluctuating on a daily basis, it gives airline firms zero bargaining power. Second, the cost of renting an aircraft is controlled by the owners. Even in this industry, demand is generally in excess of a rather inelastic supply. Thus, the price is sticky upwards and not in control of the firms in the airlines industry. Third, the fixed costs associated with airport usage is decided the governing authority (for India, the Airports Authority of India)-again, a cost that is totally not in their control and over which they have zero bargaining power.

 

The following graph depicts the major operating expenses of the airlines industry:

airlines_image

[Graph courtesy: http://seekingalpha.com/article/928911-flying-below-the-clouds-a-common-sense-analysis-of-airline-investing-opportunities]

 

It is notable that most of these are expenses over which Airline firms have little to no bargaining power and are governed by monopolies or oligopolies, causing a further escalation in prices (since they charge prices higher than those under perfect competition). Another pertinent example is the purchase of aircraft – this market is also dominated by two major suppliers – Boeing and Airbus. In this case too, airlines have limited control over their costs.

The airlines industry – revenues

Price-sensitive demand, and extremely high competition

Now coming to revenues, airlines as an industry is characterized by multiple players who are looking forward to grab a share of the existing market from each other by price undercutting. Also, the demand is highly sensitive to macro-economic factors like global economic conditions (a reduced disposable income would lead to decreased expenditures across the board), geopolitical situations (would you want to fly to a country hit by civil strife?), etc.

Is the industry better suited to be an oligopoly?

Thus, we are looking at an industry that cannot predict either its costs or its revenues with any degree of certainty. Therefore, it is only obvious that such firms will not be on your top performing list. This is a unique business since not only are its fixed costs high but its variable (operational costs) are also high and while the total cost of operation is huge, the marginal cost is negligible (the cost of putting another passenger on a flight that is anyway scheduled to fly is negligible as compared to the total cost of operating that flight). Thus, it is no surprise that most of these firms struggle to become profitable. I guess, this industry is more suitable for monopoly or oligopoly market structures, so that the players may be able to obtain super-normal profits and reduce the uncertainty and leanness in at least their revenues, if not their costs. Only time will tell where this industry is headed and in the meanwhile, we can only hope that nothing like the Malaysian Airline incident happens again.

 

 

Akriti Gupta, BM class of 2015 student at XLRI Jamshedpur.  She is a writer by hobby, a speaker by vocation, a painter on whim and a student by compulsion. She hails from Delhi-NCR and has been to Delhi Public School, R K Puram and Jesus and Mary College, Delhi University to study about..well..things that she doesn’t remember any longer.

If you want to read more from her

Samarthya-The counselling initiative of budding managers at XLRI

Follow Akriti at InsideIIM at akritigupta.insideiim.com

Profile gravatar of Akriti Gupta

Akriti Gupta

Message Author


Message Author

My fascination with flying…

Flying has always fascinated me. It so amazing how one can defy gravity and be so high up in the sky that huge cities start looking like doll houses when you peer down at them. An integral part of realizing this fascination, i.e. making me ‘fly’ is the airline companies that possess all those huge planes with snout-like fronts and tripod-like tails scheduled to zip-zap between destinations. Of late the airline industry is under everybody’s radar (post the now infamous Malaysian-Airline-gone-missing case) and many commentators in the white and pink pages of esteemed newspapers have gone on to argue how the oh-so loss making airline firms with their lax security standards, ill-trained pilots and what not are playing with the lives of their passengers.

 

So this set my mind churning. Despite practically everyone ‘going by air’ and airports turning into railways stations due to the frequency and extremely low prices of air travelling, firms in this industry still don’t make a profit. Now I have had the distinction of studying Economics at the undergraduate level (although I don’t know how much I remember :p), so I thought now might be a good time to use my limited analytical know-how and enlighten the world with it . So, looking at airlines as an industry, I started with figuring out how much control do they have over their costs and revenues.

 

The airlines industry – cost structure

Airlines have little control over their cost structure – most of the cost components are either totally beyond control (fuel prices) or controlled by monopoly/oligopoly suppliers (aircraft purchase, airport usage fees etc) 

Major costs in this sector are costs of Aero-turbine fuel, costs of renting aircraft and fees to Airport Authorities (for landing, parking and usage of the airport). The cost of ATF is in the hands of major oil suppliers. With suppliers being limited in number and oil prices fluctuating on a daily basis, it gives airline firms zero bargaining power. Second, the cost of renting an aircraft is controlled by the owners. Even in this industry, demand is generally in excess of a rather inelastic supply. Thus, the price is sticky upwards and not in control of the firms in the airlines industry. Third, the fixed costs associated with airport usage is decided the governing authority (for India, the Airports Authority of India)-again, a cost that is totally not in their control and over which they have zero bargaining power.

 

The following graph depicts the major operating expenses of the airlines industry:

airlines_image

[Graph courtesy: http://seekingalpha.com/article/928911-flying-below-the-clouds-a-common-sense-analysis-of-airline-investing-opportunities]

 

It is notable that most of these are expenses over which Airline firms have little to no bargaining power and are governed by monopolies or oligopolies, causing a further escalation in prices (since they charge prices higher than those under perfect competition). Another pertinent example is the purchase of aircraft – this market is also dominated by two major suppliers – Boeing and Airbus. In this case too, airlines have limited control over their costs.

The airlines industry – revenues

Price-sensitive demand, and extremely high competition

Now coming to revenues, airlines as an industry is characterized by multiple players who are looking forward to grab a share of the existing market from each other by price undercutting. Also, the demand is highly sensitive to macro-economic factors like global economic conditions (a reduced disposable income would lead to decreased expenditures across the board), geopolitical situations (would you want to fly to a country hit by civil strife?), etc.

Is the industry better suited to be an oligopoly?

Thus, we are looking at an industry that cannot predict either its costs or its revenues with any degree of certainty. Therefore, it is only obvious that such firms will not be on your top performing list. This is a unique business since not only are its fixed costs high but its variable (operational costs) are also high and while the total cost of operation is huge, the marginal cost is negligible (the cost of putting another passenger on a flight that is anyway scheduled to fly is negligible as compared to the total cost of operating that flight). Thus, it is no surprise that most of these firms struggle to become profitable. I guess, this industry is more suitable for monopoly or oligopoly market structures, so that the players may be able to obtain super-normal profits and reduce the uncertainty and leanness in at least their revenues, if not their costs. Only time will tell where this industry is headed and in the meanwhile, we can only hope that nothing like the Malaysian Airline incident happens again.

 

 

Akriti Gupta, BM class of 2015 student at XLRI Jamshedpur.  She is a writer by hobby, a speaker by vocation, a painter on whim and a student by compulsion. She hails from Delhi-NCR and has been to Delhi Public School, R K Puram and Jesus and Mary College, Delhi University to study about..well..things that she doesn’t remember any longer.

If you want to read more from her

Samarthya-The counselling initiative of budding managers at XLRI

Follow Akriti at InsideIIM at akritigupta.insideiim.com

Profile gravatar of Akriti Gupta

Akriti Gupta

Message Author


Message Author

My fascination with flying…

Flying has always fascinated me. It so amazing how one can defy gravity and be so high up in the sky that huge cities start looking like doll houses when you peer down at them. An integral part of realizing this fascination, i.e. making me ‘fly’ is the airline companies that possess all those huge planes with snout-like fronts and tripod-like tails scheduled to zip-zap between destinations. Of late the airline industry is under everybody’s radar (post the now infamous Malaysian-Airline-gone-missing case) and many commentators in the white and pink pages of esteemed newspapers have gone on to argue how the oh-so loss making airline firms with their lax security standards, ill-trained pilots and what not are playing with the lives of their passengers.

 

So this set my mind churning. Despite practically everyone ‘going by air’ and airports turning into railways stations due to the frequency and extremely low prices of air travelling, firms in this industry still don’t make a profit. Now I have had the distinction of studying Economics at the undergraduate level (although I don’t know how much I remember :p), so I thought now might be a good time to use my limited analytical know-how and enlighten the world with it . So, looking at airlines as an industry, I started with figuring out how much control do they have over their costs and revenues.

 

The airlines industry – cost structure

Airlines have little control over their cost structure – most of the cost components are either totally beyond control (fuel prices) or controlled by monopoly/oligopoly suppliers (aircraft purchase, airport usage fees etc) 

Major costs in this sector are costs of Aero-turbine fuel, costs of renting aircraft and fees to Airport Authorities (for landing, parking and usage of the airport). The cost of ATF is in the hands of major oil suppliers. With suppliers being limited in number and oil prices fluctuating on a daily basis, it gives airline firms zero bargaining power. Second, the cost of renting an aircraft is controlled by the owners. Even in this industry, demand is generally in excess of a rather inelastic supply. Thus, the price is sticky upwards and not in control of the firms in the airlines industry. Third, the fixed costs associated with airport usage is decided the governing authority (for India, the Airports Authority of India)-again, a cost that is totally not in their control and over which they have zero bargaining power.

 

The following graph depicts the major operating expenses of the airlines industry:

airlines_image

[Graph courtesy: http://seekingalpha.com/article/928911-flying-below-the-clouds-a-common-sense-analysis-of-airline-investing-opportunities]

 

It is notable that most of these are expenses over which Airline firms have little to no bargaining power and are governed by monopolies or oligopolies, causing a further escalation in prices (since they charge prices higher than those under perfect competition). Another pertinent example is the purchase of aircraft – this market is also dominated by two major suppliers – Boeing and Airbus. In this case too, airlines have limited control over their costs.

The airlines industry – revenues

Price-sensitive demand, and extremely high competition

Now coming to revenues, airlines as an industry is characterized by multiple players who are looking forward to grab a share of the existing market from each other by price undercutting. Also, the demand is highly sensitive to macro-economic factors like global economic conditions (a reduced disposable income would lead to decreased expenditures across the board), geopolitical situations (would you want to fly to a country hit by civil strife?), etc.

Is the industry better suited to be an oligopoly?

Thus, we are looking at an industry that cannot predict either its costs or its revenues with any degree of certainty. Therefore, it is only obvious that such firms will not be on your top performing list. This is a unique business since not only are its fixed costs high but its variable (operational costs) are also high and while the total cost of operation is huge, the marginal cost is negligible (the cost of putting another passenger on a flight that is anyway scheduled to fly is negligible as compared to the total cost of operating that flight). Thus, it is no surprise that most of these firms struggle to become profitable. I guess, this industry is more suitable for monopoly or oligopoly market structures, so that the players may be able to obtain super-normal profits and reduce the uncertainty and leanness in at least their revenues, if not their costs. Only time will tell where this industry is headed and in the meanwhile, we can only hope that nothing like the Malaysian Airline incident happens again.

 

 

Akriti Gupta, BM class of 2015 student at XLRI Jamshedpur.  She is a writer by hobby, a speaker by vocation, a painter on whim and a student by compulsion. She hails from Delhi-NCR and has been to Delhi Public School, R K Puram and Jesus and Mary College, Delhi University to study about..well..things that she doesn’t remember any longer.

If you want to read more from her

Samarthya-The counselling initiative of budding managers at XLRI

Follow Akriti at InsideIIM at akritigupta.insideiim.com

Profile gravatar of Akriti Gupta

Akriti Gupta

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My fascination with flying…

Flying has always fascinated me. It so amazing how one can defy gravity and be so high up in the sky that huge cities start looking like doll houses when you peer down at them. An integral part of realizing this fascination, i.e. making me ‘fly’ is the airline companies that possess all those huge planes with snout-like fronts and tripod-like tails scheduled to zip-zap between destinations. Of late the airline industry is under everybody’s radar (post the now infamous Malaysian-Airline-gone-missing case) and many commentators in the white and pink pages of esteemed newspapers have gone on to argue how the oh-so loss making airline firms with their lax security standards, ill-trained pilots and what not are playing with the lives of their passengers.

 

So this set my mind churning. Despite practically everyone ‘going by air’ and airports turning into railways stations due to the frequency and extremely low prices of air travelling, firms in this industry still don’t make a profit. Now I have had the distinction of studying Economics at the undergraduate level (although I don’t know how much I remember :p), so I thought now might be a good time to use my limited analytical know-how and enlighten the world with it . So, looking at airlines as an industry, I started with figuring out how much control do they have over their costs and revenues.

 

The airlines industry – cost structure

Airlines have little control over their cost structure – most of the cost components are either totally beyond control (fuel prices) or controlled by monopoly/oligopoly suppliers (aircraft purchase, airport usage fees etc) 

Major costs in this sector are costs of Aero-turbine fuel, costs of renting aircraft and fees to Airport Authorities (for landing, parking and usage of the airport). The cost of ATF is in the hands of major oil suppliers. With suppliers being limited in number and oil prices fluctuating on a daily basis, it gives airline firms zero bargaining power. Second, the cost of renting an aircraft is controlled by the owners. Even in this industry, demand is generally in excess of a rather inelastic supply. Thus, the price is sticky upwards and not in control of the firms in the airlines industry. Third, the fixed costs associated with airport usage is decided the governing authority (for India, the Airports Authority of India)-again, a cost that is totally not in their control and over which they have zero bargaining power.

 

The following graph depicts the major operating expenses of the airlines industry:

airlines_image

[Graph courtesy: http://seekingalpha.com/article/928911-flying-below-the-clouds-a-common-sense-analysis-of-airline-investing-opportunities]

 

It is notable that most of these are expenses over which Airline firms have little to no bargaining power and are governed by monopolies or oligopolies, causing a further escalation in prices (since they charge prices higher than those under perfect competition). Another pertinent example is the purchase of aircraft – this market is also dominated by two major suppliers – Boeing and Airbus. In this case too, airlines have limited control over their costs.

The airlines industry – revenues

Price-sensitive demand, and extremely high competition

Now coming to revenues, airlines as an industry is characterized by multiple players who are looking forward to grab a share of the existing market from each other by price undercutting. Also, the demand is highly sensitive to macro-economic factors like global economic conditions (a reduced disposable income would lead to decreased expenditures across the board), geopolitical situations (would you want to fly to a country hit by civil strife?), etc.

Is the industry better suited to be an oligopoly?

Thus, we are looking at an industry that cannot predict either its costs or its revenues with any degree of certainty. Therefore, it is only obvious that such firms will not be on your top performing list. This is a unique business since not only are its fixed costs high but its variable (operational costs) are also high and while the total cost of operation is huge, the marginal cost is negligible (the cost of putting another passenger on a flight that is anyway scheduled to fly is negligible as compared to the total cost of operating that flight). Thus, it is no surprise that most of these firms struggle to become profitable. I guess, this industry is more suitable for monopoly or oligopoly market structures, so that the players may be able to obtain super-normal profits and reduce the uncertainty and leanness in at least their revenues, if not their costs. Only time will tell where this industry is headed and in the meanwhile, we can only hope that nothing like the Malaysian Airline incident happens again.

 

 

Akriti Gupta, BM class of 2015 student at XLRI Jamshedpur.  She is a writer by hobby, a speaker by vocation, a painter on whim and a student by compulsion. She hails from Delhi-NCR and has been to Delhi Public School, R K Puram and Jesus and Mary College, Delhi University to study about..well..things that she doesn’t remember any longer.

If you want to read more from her

Samarthya-The counselling initiative of budding managers at XLRI

Follow Akriti at InsideIIM at akritigupta.insideiim.com

Profile gravatar of Akriti Gupta

Akriti Gupta

Message Author


Message Author

My fascination with flying…

Flying has always fascinated me. It so amazing how one can defy gravity and be so high up in the sky that huge cities start looking like doll houses when you peer down at them. An integral part of realizing this fascination, i.e. making me ‘fly’ is the airline companies that possess all those huge planes with snout-like fronts and tripod-like tails scheduled to zip-zap between destinations. Of late the airline industry is under everybody’s radar (post the now infamous Malaysian-Airline-gone-missing case) and many commentators in the white and pink pages of esteemed newspapers have gone on to argue how the oh-so loss making airline firms with their lax security standards, ill-trained pilots and what not are playing with the lives of their passengers.

 

So this set my mind churning. Despite practically everyone ‘going by air’ and airports turning into railways stations due to the frequency and extremely low prices of air travelling, firms in this industry still don’t make a profit. Now I have had the distinction of studying Economics at the undergraduate level (although I don’t know how much I remember :p), so I thought now might be a good time to use my limited analytical know-how and enlighten the world with it . So, looking at airlines as an industry, I started with figuring out how much control do they have over their costs and revenues.

 

The airlines industry – cost structure

Airlines have little control over their cost structure – most of the cost components are either totally beyond control (fuel prices) or controlled by monopoly/oligopoly suppliers (aircraft purchase, airport usage fees etc) 

Major costs in this sector are costs of Aero-turbine fuel, costs of renting aircraft and fees to Airport Authorities (for landing, parking and usage of the airport). The cost of ATF is in the hands of major oil suppliers. With suppliers being limited in number and oil prices fluctuating on a daily basis, it gives airline firms zero bargaining power. Second, the cost of renting an aircraft is controlled by the owners. Even in this industry, demand is generally in excess of a rather inelastic supply. Thus, the price is sticky upwards and not in control of the firms in the airlines industry. Third, the fixed costs associated with airport usage is decided the governing authority (for India, the Airports Authority of India)-again, a cost that is totally not in their control and over which they have zero bargaining power.

 

The following graph depicts the major operating expenses of the airlines industry:

airlines_image

[Graph courtesy: http://seekingalpha.com/article/928911-flying-below-the-clouds-a-common-sense-analysis-of-airline-investing-opportunities]

 

It is notable that most of these are expenses over which Airline firms have little to no bargaining power and are governed by monopolies or oligopolies, causing a further escalation in prices (since they charge prices higher than those under perfect competition). Another pertinent example is the purchase of aircraft – this market is also dominated by two major suppliers – Boeing and Airbus. In this case too, airlines have limited control over their costs.

The airlines industry – revenues

Price-sensitive demand, and extremely high competition

Now coming to revenues, airlines as an industry is characterized by multiple players who are looking forward to grab a share of the existing market from each other by price undercutting. Also, the demand is highly sensitive to macro-economic factors like global economic conditions (a reduced disposable income would lead to decreased expenditures across the board), geopolitical situations (would you want to fly to a country hit by civil strife?), etc.

Is the industry better suited to be an oligopoly?

Thus, we are looking at an industry that cannot predict either its costs or its revenues with any degree of certainty. Therefore, it is only obvious that such firms will not be on your top performing list. This is a unique business since not only are its fixed costs high but its variable (operational costs) are also high and while the total cost of operation is huge, the marginal cost is negligible (the cost of putting another passenger on a flight that is anyway scheduled to fly is negligible as compared to the total cost of operating that flight). Thus, it is no surprise that most of these firms struggle to become profitable. I guess, this industry is more suitable for monopoly or oligopoly market structures, so that the players may be able to obtain super-normal profits and reduce the uncertainty and leanness in at least their revenues, if not their costs. Only time will tell where this industry is headed and in the meanwhile, we can only hope that nothing like the Malaysian Airline incident happens again.

 

 

Akriti Gupta, BM class of 2015 student at XLRI Jamshedpur.  She is a writer by hobby, a speaker by vocation, a painter on whim and a student by compulsion. She hails from Delhi-NCR and has been to Delhi Public School, R K Puram and Jesus and Mary College, Delhi University to study about..well..things that she doesn’t remember any longer.

If you want to read more from her

Samarthya-The counselling initiative of budding managers at XLRI

Follow Akriti at InsideIIM at akritigupta.insideiim.com

Profile gravatar of Akriti Gupta

Akriti Gupta

Message Author


Message Author

My fascination with flying…

Flying has always fascinated me. It so amazing how one can defy gravity and be so high up in the sky that huge cities start looking like doll houses when you peer down at them. An integral part of realizing this fascination, i.e. making me ‘fly’ is the airline companies that possess all those huge planes with snout-like fronts and tripod-like tails scheduled to zip-zap between destinations. Of late the airline industry is under everybody’s radar (post the now infamous Malaysian-Airline-gone-missing case) and many commentators in the white and pink pages of esteemed newspapers have gone on to argue how the oh-so loss making airline firms with their lax security standards, ill-trained pilots and what not are playing with the lives of their passengers.

 

So this set my mind churning. Despite practically everyone ‘going by air’ and airports turning into railways stations due to the frequency and extremely low prices of air travelling, firms in this industry still don’t make a profit. Now I have had the distinction of studying Economics at the undergraduate level (although I don’t know how much I remember :p), so I thought now might be a good time to use my limited analytical know-how and enlighten the world with it . So, looking at airlines as an industry, I started with figuring out how much control do they have over their costs and revenues.

 

The airlines industry – cost structure

Airlines have little control over their cost structure – most of the cost components are either totally beyond control (fuel prices) or controlled by monopoly/oligopoly suppliers (aircraft purchase, airport usage fees etc) 

Major costs in this sector are costs of Aero-turbine fuel, costs of renting aircraft and fees to Airport Authorities (for landing, parking and usage of the airport). The cost of ATF is in the hands of major oil suppliers. With suppliers being limited in number and oil prices fluctuating on a daily basis, it gives airline firms zero bargaining power. Second, the cost of renting an aircraft is controlled by the owners. Even in this industry, demand is generally in excess of a rather inelastic supply. Thus, the price is sticky upwards and not in control of the firms in the airlines industry. Third, the fixed costs associated with airport usage is decided the governing authority (for India, the Airports Authority of India)-again, a cost that is totally not in their control and over which they have zero bargaining power.

 

The following graph depicts the major operating expenses of the airlines industry:

airlines_image

[Graph courtesy: http://seekingalpha.com/article/928911-flying-below-the-clouds-a-common-sense-analysis-of-airline-investing-opportunities]

 

It is notable that most of these are expenses over which Airline firms have little to no bargaining power and are governed by monopolies or oligopolies, causing a further escalation in prices (since they charge prices higher than those under perfect competition). Another pertinent example is the purchase of aircraft – this market is also dominated by two major suppliers – Boeing and Airbus. In this case too, airlines have limited control over their costs.

The airlines industry – revenues

Price-sensitive demand, and extremely high competition

Now coming to revenues, airlines as an industry is characterized by multiple players who are looking forward to grab a share of the existing market from each other by price undercutting. Also, the demand is highly sensitive to macro-economic factors like global economic conditions (a reduced disposable income would lead to decreased expenditures across the board), geopolitical situations (would you want to fly to a country hit by civil strife?), etc.

Is the industry better suited to be an oligopoly?

Thus, we are looking at an industry that cannot predict either its costs or its revenues with any degree of certainty. Therefore, it is only obvious that such firms will not be on your top performing list. This is a unique business since not only are its fixed costs high but its variable (operational costs) are also high and while the total cost of operation is huge, the marginal cost is negligible (the cost of putting another passenger on a flight that is anyway scheduled to fly is negligible as compared to the total cost of operating that flight). Thus, it is no surprise that most of these firms struggle to become profitable. I guess, this industry is more suitable for monopoly or oligopoly market structures, so that the players may be able to obtain super-normal profits and reduce the uncertainty and leanness in at least their revenues, if not their costs. Only time will tell where this industry is headed and in the meanwhile, we can only hope that nothing like the Malaysian Airline incident happens again.

 

 

Akriti Gupta, BM class of 2015 student at XLRI Jamshedpur.  She is a writer by hobby, a speaker by vocation, a painter on whim and a student by compulsion. She hails from Delhi-NCR and has been to Delhi Public School, R K Puram and Jesus and Mary College, Delhi University to study about..well..things that she doesn’t remember any longer.

If you want to read more from her

Samarthya-The counselling initiative of budding managers at XLRI

Follow Akriti at InsideIIM at akritigupta.insideiim.com

Profile gravatar of Akriti Gupta

Akriti Gupta

Message Author