Professional Documents
Culture Documents
Submitted to
Bangalore University
In partial fulfillment of
the requirements for the award
of the degree of
Masters of Business Administration
By
Miss Tejal Arun Savur
(Reg no. 02XQCM6062)
DECLARATION
Place: Bangalore
Date: 13 September 2004
ACKNOWLEDGEMENT
I am extremely grateful to all those who have shared their views, opinions,
ideas and experiences which have significantly improved my research work
embodied in this dissertation.
CONTENT SHEET
Particulars Page No.
Chapter 8: RECOMMENDATIONS 56 - 65
(Including Suggestions for further Research)
ANNEXURE: 66 - 79
Questionnaires
Customer Survey
Travel Agency Survey
Select Bibliography
List of Travel Agencies contacted
Collateral
Title Page No
EXECUTIVE SUMMARY
Jet Airways – the Market Leader of the Indian Domestic Aviation Industry
launched its service on 23rd May 1993. It was set up with the objective of
becoming the most preferred domestic airline in the country by providing high
quality and reliable air travel in India.
Over the past 11 years Jet Airways has been striving towards maintaining its
position as the market leader and has had to withstand and weather many a
challenging and tough times, especially the slump in the aviation industry on the
whole, due to the 9/11 attacks.
Recently, an issue of concern for Jet Airways has been a new entrant into the
industry – one which cannot be under-estimated – one that is using a completely
different approach towards the industry – one which could pose as a threat to the
Market Leader if not analyzed and scrutinized in the initial stages itself.
Air Deccan – India’s first low cost no frills carrier has launched its service on
August 25th, 2003 from its hub at Bangalore. Currently since the airline is
operating 2 aircrafts from its hub in Bangalore to Mangalore and Hubli
(operations started on August 25th 2003) and Chennai, Coimbatore and
Hyderabad (operations started on September 30th 2003). Air Deccan is currently
facing initial operational hitches and its operations other than between BLR-IXE
are not streamlined.
Air Deccan has postponed its second aircraft’s operations three times. Though
once Air Deccan launches its full operations in the coming future, first in South
India and then throughout the country, with a fleet of 6 aircrafts and 75 flights
daily, it can be a major threat to Jet Airways in the highly price sensitive Indian
market. The research work in this dissertation is an attempt to quantify this threat
and counter the effect of Air Deccan on Jet Airways’ seat factor
The conclusion drawn from the perceptions of the sample clearly stated that Air
Deccan was only catering to the needs to Small Scale Businessmen and
Entrepreneurs who had to travel to Belgaum, Hubli, etc on work and were willing
to compromise on quality for the sake of the saving some money and time. Also
students and housewives who were occasional fliers found Air Deccan to be
more cost effective than traveling by train or bus.
This means that the core passengers of Jet Airways – the Corporates,
Professionals and International Fliers still continue to prefer and support Jet
Airways which is a more reliable and professional airline. They are very satisfied
with the services provided by Jet Airways and they would not be sensitive to the
changes in price. Strategies to strengthen its position have been recommended
to Jet Airways for retaining their current passengers by direct marketing and by
attracting the new passenger segment Air Deccan is creating.
Air Deccan aircraft fleet will eventually comprise of six old ATR-42-320s with an
average age of 7 years, dry leased for 5 years. Currently they have started
operations with 1 aircraft only, as the other aircraft has not been cleared by
DGCA. In November 2003 they completed role out with 6 aircrafts. Each aircraft
was expected to do 12 block hours per day and have an estimated turnaround
time of 20 minutes. ATR will provide spares pool to Air Deccan from France
within 48 hours during time of need. These spares are besides a spare parts
stock of $3 million already positioned by the airline at their base.
The target customers are business travelers mainly from the Small Office
House Office (SOHO) segment and personal visits/leisure travelers. The airline
aims to ply same day return flights to facilitate the SOHO business travelers,
such that they save on accommodation expenses. Media reports suggest
Karnataka government has issued a directive for officers who hold the rank of
tahsildar or above should travel by Air Deccan for official purpose. Tamil Nadu
and Andhra Pradesh government may also issue similar directives, which will
guarantee traffic for the airline to sustain operations in its initial phase and
eventually help it to grow. The Andhra Pradesh government has also aided Air
Deccan’s operations by completely wavering off sales tax on ATF.
Air Deccan has cut its distribution costs to 3%, compared to Jet Airways 15%.
This reduction has been possible since Air Deccan does not have any CRS/GDS,
but alternately they seem to be maintaining a local server which can be accessed
through their website and payment necessarily has to be made by a credit card.
The passenger has the option of booking a ticket on the Internet using his credit
card or he can directly buy a ticket at the terminal at the airport before departure.
Tickets can also be booked through a travel agent who will use his credit card on
behalf of the passenger. A few local travel agents have already been issued
credit cards through an arrangement with ICICI Bank, while others will be
provided with the same shortly.
Travel agents earn a commission of 5% per booking; this commission is over and
above the listed fare. Also each passenger has to pay a transaction fee of INR 25
per seat booked over and above the fare. Eventually Air Deccan also plans to
sell tickets as a commodity through retail chains such as Shopper’s Stop and
Food World.
Air Deccan’s founder Capt. Gopinath also plans to fly to Dubai and Singapore,
subject to government regulations. The broad estimated financials for Air Deccan
have been provided in Annexure II. This low cost airline has a grand business
plan and considering it is not a new player since it already has a full fledged
charter helicopter service in place it will soon prove to be a worthy competitor.
Thus we need to position a plan of action to retain our passengers before they
shift to Air Deccan.
Since this new entrant has just entered the market, Jet Airways (Market Leader)
feels the need to re-assess this airline – to judge whether it could have any
impact on them. This comes in the light of the varying tastes and preferences
occurring across various demographic segments of air travelers (age &
profession). Even though the player is very small, it becomes highly imperative to
analyze the stakes involved. Jet Airways acknowledges the efforts of this airline
and finds it crucial to analyze the strengths and weaknesses of this new entrant –
to ensure its hold on the market is not dissolved.
The foregoing analysis establishes the need for a research on the impact of Air
Deccan on Jet Airways. The main focus of the research is on Market Competitor
Analysis. This analysis would form as a base for Jet Airways to examine the
impact that Air Deccan throws on its market share with suitable SWOT Analysis
(an integral component of Market Competitor Analysis), Jet Airways must design
the “Counter Attack” Strategy
AVIATION INDUSTRY
The setting of International pricing is found much more complicated since it is not
only on Air India to set fare and freight structures. The International Airport
Authority of India, International Air Transport Association (IATA), & International
Civil Aviation is some of the important organizations playing a decisive role in
making the pricing decisions for the international air transport business. IATA
divides the world in to three areas, such as:
• Area 1
• Area 2
• Area 3
In the Area 1, the countries are North and South American continents, islands
adjacent there to like Greenland, Bermuda, West Indies, Caribbean area,
Hawaiian island, Midway.
In the Area 2, the countries like Europe, Africa, Islands thereto like Ascensian,
the part of Asia situated west including Iran.
In the Area 3, the countries are remaining part of Asia and island adjacent
thereto East Indies, Australia, New Zealand, Islands of Pacific Ocean.
Aircraft Manufacturers
It is quite interesting to note that there are only two aircraft’s manufacturers for
the whole world with so many bustling airlines around. These two largest giants
are: -
• Boeing
• Airbus
Boeing
The Boeing Company is the world’s leading aerospace company, with its
heritage mirroring the history of flight. It is the largest manufacturer of satellites,
commercial jetliners, and military aircraft’s. The company is also a global market
leader in missile defense, human space flight, and launch services. In terms of
sales, Boeing is the largest U.S. exporter. Total company revenues for 2000
were $51 billion.
Airbus
Airbus is the first European Company, one of the aircraft’s manufacturers in the
market for large commercial airlines. It designs and builds sells and supports
aircraft’s of 100 seats or more.
The marketing function involves selling services of the airline, creating market
strengths, and supply through advertising, charting new programmes / services,
attracting customers and controlling ticket reservations and managing material
purchases. The finance division is concerned with managing the money flow.
Interior decorators are other professionals who work for airlines. They are
assigned the task of decorating passenger lounges at airports and also aircraft’s
interiors. Uniforms of pilots, aircrew, check in personnel and others are designed
by fashion designers.
Commercial aircraft’s operate from the civil airports while military aircraft’s
operate from military airfields and in exceptional circumstances from civil
aerodromes. Airports are large and have its own security and rescue services,
fire department, retail outlets, restaurants, construction and maintenance teams,
warehouses for cargo and an independent transport system.
A very important part of the airline industry is the aircraft’s manufacturers. While
most of the commercial aircraft’s are bought from foreign manufactures the
Hindustan Aeronautics Ltd. as well as the National Aeronautics Ltd. are the main
Indian manufacturers. Though their major work is related to maintenance these
units have manufactured some indigenous airplanes.
DGCA -The Director General of Civil Aviation in India governs the commercial
aviation industry. It controls, standardizes, gives licenses of aircrews and
investigates any incidents and accidents. It also certifies the airworthiness of
aircraft’s.
“When there is a big contract to be signed, and normally eight people would go
now only two are traveling” says Asgar Ali, director of Universal Express Travels
and Tours, whose business has dwindled by nearly 35-45 percent.
The recession is not solely responsible for the airlines suffering red ink.
Reasons for the Recent Recession in the Indian Domestic Airline Industry:
¾ For, when the domestic and global economy was scaling new
heights each day. Flights between Mumbai and Bangalore or
between Delhi and Mumbai were operating with a highly profitable
eighty percent load.
¾ By the time Airlines woke up to the reality of the need for more
seats and obtained necessary schedules and permissions, the
recession had set in emptying out the flights.
¾ The finance ministry has given its had to the infusion of funds came
into force as there was no bidder for the national carrier and the
airline could not be run anymore without upgrading and
modernizing its feet.
COMPANY PROFILE
Jet Airways is the biggest success story in the Indian aviation industry and
one of the fastest growing airlines in the world. They began operations with
the mission of becoming the most preferred domestic airline in the country.
Today, it's a matter of pride with which they are widely recognized as"India's
Best and world-class Domestic Airline".
Their operations began with a fleet of four Modern Generation Boeing 737-300
aircraft. The operation of these aircraft marked the first time they had flown
Indian skies. They used the training facilities of Ansett (Australia) for the training
and conversion of their pilots and engineers. To help them achieve world class
norms in service, Speed wing (a British Airways subsidiary), assisted in
conducting a programme on Customer Service Excellence for staff across
functions at all levels.
To ensure accurate and efficient reservation systems, they even tied up with and
are co-hosted with SABRE - one of the world's best reservations systems.
Within three months of operation, they also became an associate member of
IATA, parties to the IATA multilateral interline agreement and a member of the
IATA clearing house.
Commerce in 1967, Naresh Goyal joined the travel business with the GSA for
Lebanese International Airlines. Between 1967 and 1974 he underwent extensive
training in all facets of the travel business through his association with several
foreign airlines. He also traveled overseas extensively on business during this
period.
Now in its tenth year, Jet Airways has emerged as India's largest private
domestic airline and has been acclaimed by frequent travellers as the most
preferred carrier offering the highest quality of comfort, courtesy and standards of
in-flight and ground service and reliability of operations. It currently has a market
share of around 45 - 46 per cent and operates a fleet of 31 Boeing and eight
ATR72-500 turbo-prop aircraft. Jet Airways has won several national and
international awards, including the 'Market Development Award' for 2001
awarded by Air Transport World
PERFORMANCE CHARACTERISTICS:
Jet Airways will be the most preferred domestic airline in India. It will be
the automatic first choice carrier for the traveling public and set standards,
which other competing airlines will seek to match.
Jet Airways will achieve this pre-eminent position by offering high quality
of service and reliable, comfortable and efficient operations.
BUSINESS SLOGAN:
The business slogan of jet airways sends a clear message to its
customers reminding them about experiencing air travel the Jet-way.
“The Joy of Flying”
The yellow rose provided to all its customers during the course of the flight
is their way of establishing a long and cherished Customer relationship.
ACHIEVEMENTS / AWARDS:
December 1996 H&FS - Best Domestic Airline of the Year Award for
Excellence in hospitality (From Press Release)
OPERATIONAL CHARACTERISTICS:
Jet Airways Fleet
Jet Airways' current fleet consists of B737 New and Next
-Generation
aircraft and the modern turbo-prop ATR72-500 aircraft. CFM 56 engines power
all the Boeing aircraft while the ATR aircraft are powered by Pratt and Whitney
127 engines. The average age of the fleet is 3 years making Jet Airways the
operator of the youngest aircraft fleet in Asia. It has a total of 31 fleets in service
at present. The details are given
B 737 - 800
Total in Cruise Wing
Capacity Engines Length
Service Speed Span
B 737 - 700
Total in Cruise Wing
Capacity Engines Length
Service Speed Span
B 737 - 400
Total in Cruise Wing
Capacity Engines Length
Service Speed Span
ATR 72 - 500
Total in Cruise Wing
Capacity Engines Length
Service Speed Span
NETWORK
Jet Airways operates over 250 flights daily to 41 destinations across the country.
Hotel Partners
9 The Park Hotels
9 The Oberoi Group
9 The Leela Hotels and Resorts
9 Radisson Hotels & Resorts Worldwide
9 ITC Hotels
Telecom Partners
9 BPL Mobile
Car Partners
9 AVIS
MD – Managing Director
CEO – Chief Executive Officer
GM – General Manager MD
AM – Area Manager
SM – Sales Manager
RM – Reservation Manager
DO – Duty Officer
CSA – Customer Service Assistants
CEO
GM GM (East) GM GM
(North) (South) (West)
AM AM (East) AM AM
(North) (South) (West)
SM RM SM RM SM RM SM RM
DO DO DO DO
Jet Airways' In
-flight Services have been officially ISO 9001-2000 certified for
meeting world-class standards. Whilst confirming that Jet Airways had complied
with ISO criteria, the external certifying body Det Norske Veritas (DNV) has
complimented the Airline for its customer focused approach and the wealth of
internal data, which indicated that it "listened to the voice of the customer".
To ensure that the Quality Policy, Objectives and Processes were understood
and complied with, all In-flight Staff were given a half-day training. Det Norske
Veritas was selected as the external certification body, based on its reputation in
the auditing of service organizations. The audit held from March 01 to 18, 2002
examined documented processes through an intensive examination at In-flight
Services Headquarters in Mumbai and also at the crew bases in Mumbai, Delhi
and Chennai.
Jet Airways believes in providing one with the best experiences possible,
including the best benefits and privileges. Jet Airways is the first airline in India to
introduce a multi-tier frequent flyer program, with different levels of privileges
depending on the number of miles and flights one accumulates. The program
gets as rewarding as one makes it, since it depends on one’s membership
status, which is upgraded when one qualifies with the necessary number of
miles.
CONCESSIONAL FARES
Since Jet Airways cannot completely slash down their prices, they have come out
with an innovative manner in which to attract customers. They offer a wide
variety of concessional fares to passengers which encourage them to fly with Jet
Airways.
Inside his 20th floor office in the Air-India Building, chairman and managing
director V. Thulasidas is readying a new master plan to revive the airline's
fortunes. For the past few years, Air-India (AI) has been steadily losing market
share to international airlines like British Airways, KLM, Emirates and Singapore
Airlines. Despite being the national carrier, its market share of outbound traffic
from India has come down to just 20 per cent from 40 per cent in the 1970s.
(India's outbound traffic has been growing at 10 per cent, much faster than the
inbound traffic.) If that weren't eno
ugh, now low-fare airlines are eyeing the
Indian market. The plan is to now allow Air India Express to operate an all-
economy service on short-haul flights of 3-5 hours to destinations in the Middle
East and South-east Asia, while AI focusses on premium quality traffic on
medium- and long-haul flights. AI will also offer full-service flights to select places
in the Middle East and South-east Asia. Over time, AI will vacate these traditional
Middle East sectors and evolve into a truly international airline. "We will acquire
more aircraft, and upgrade our service. The idea is to grow in size and improve
quality," says Thulasidas. Meanwhile, the key to the Air-India Express strategy is
to lower costs by driving efficiency. Air India Express will not have any business
class, since that typically goes empty on these routes. (AI will cater to the little
business class traffic to Dubai and Singapore from Mumbai.) The budget airline
will also have more seats. The Boeing 737-800, which it will take on dry lease,
will have 181 seats as against 145 seats in Indian Airlines' Airbus 320s. And it
will offer point-to-point service and ensure quick turnarounds, to save on hotel
and layover allowances for the crew. In fact, manpower costs will be lower than
that of AI. For that, the employees will be hired on different terms: the pilots and
cabin crew would be on contract. Also, new aircraft will offer better fuel economy.
AIR SAHARA
Rono Dutta: On a Revival Path
In the fast changing Indian Aviation scenario, Air Sahara has unassailably
established itself as one of the leading players in the Indian Aviation industry. It
has constantly brought in new initiatives and has today developed into a
wholesome airline, which offers benefits and services unmatched by any other
domestic operator. Today, the Airline is on the threshold of a new dawn of
success and consolidation. THE much anticipated farewar has broken out across
Indian skies. A little before Rono Dutta announced the Air Sahara 'surprice'
package, Indian Airlines (IA) extended a host of promotional fares and Air
Deccan came up with a much-misunderstood offer: the Rs 500 Mumbai-Delhi
ticket. The Air Sahara surprice is a 30-day advance return fare that's 36 per cent
less than the 30-day advance apex fare. IA's 'metro non
-metro Scheme' lets
travellers pay Rs 1,000 for the non-metro leg of a flight, if it includes a metro leg.
Air Deccan will shift to dynamic pricing next week where, the earlier you book a
ticket, the cheaper the fare (Rs 500- 8,000 for a Bangalore-Delhi ticket). But
others say the fall is due to competitive pressure. Though they feel, Air Deccan,
with a couple of flights a day, won't be an immediate threat. "If Sahara leads a
backlash, other airlines will be sucked into a fare war," says Kapil Kaul, senior
vice-president (Indian sub-continent), Centre for Asia Pacific Aviation. There are
rumours that Sahara will offer walk-in fares that are 10-15 per cent more than
those of Air Deccan, though Dutta does not mention any such plan yet.
The battle has just begun……And its good news for the “AIR FLIERS”
• More details regarding the Backlash of the price war in the Indian Aviation
Industry is explained in detail in the Annexure section. ------
RESEARCH METHODOLOGY
RESEARCH PARADIGM:
Any Research follows the Research paradigm that includes three important
stages
Information type
Sources of data
Research methods
Sampling Plan
Methods of contacts
Data collection methods (i.e. Research Instruments)
PROBLEM STATEMENT:
“The Impact of Air Deccan, the New Entrant to the Indian Domestic Airways
Industry on Jet Airways, the Market Leader”.
TYPE OF RESEARCH:
The research process adopted for the study is a typical Customer Research
process which is ideally exploratory and conclusive in nature.
SAMPLING TECHNIQUE:-
¿ Random Sampling.
¿ Systematic Sampling.
SAMPLE DESCRIPTION:
The target population includes two parts namely:
¿ All the passengers from Bangalore City who have availed/ availing the
services of Air Deccan.
¿ Travel agencies in Bangalore City who form 60% of Jet Airways ticket
sales in City.
Appropriate samples have been drawn from the target population
SAMPLE SIZE:-
The sample size is restricted to:
¿ 100 passengers.
¿ Top 20 travel agencies.
INSTRUMENTATION TECHNIQUE:
¿ Structured Questionnaires and Telephonic interview sessions have been
used as instrumentation techniques to carry out the work-assignment.
¿ Telephonic interview schedules have been drawn for those sample units
that could not be contacted directly for response generation.
¿ Since our research investigation is highly quantitative, we could not
subject the data to rigorous statistical treatment. In overview, the
qualitative research is as significant as quantitative.
2%
22%
20 - 30 years
30 - 40 years
50 - 50 years
76%
Occupation
Corporate 0
PSU 0
Self Employed 27
Entrepreneur 59
Student 11
Designer 1
Housewife 2
TOTAL 100
Pie-Chart showing the target segment with regards to Profession/Occupation.
1% 0% 0%
2%
11%
27% Corporate
PSU
Self Employed
Entrepreneur
Student
Designer
Housewife
59%
TO TA L 48 52 100
Conical Pyramid showing the first-time flying approval.
45
40
35
30
25 yes
20 no
15
10
5
0
20 - 30 years 30 - 40 years 50 - 50 years
50
40
30
yes
20
no
10
0 yes
Corporate Self Student Housewife
Employed
¾ Most people are adventurous enough to try out this new Airline.
¾ Some are forced to take Air Deccan as that sector is not yet being
covered by the other Airlines.
80
70
60
50 Poor
Average
40
Good
30 Excellent
20
10
0
20 - 30 years 30 - 40 years 50 - 50 years
Housewife
Designer
Student Excellent
Entrepreneur Good
Average
Self Employed
Poor
PSU
Corporate
• The self employed are satisfied with the experience with Air Deccan
– they graded it as Good.
• Entrepreneurs on the other hand are very much pleased with Air
Deccan and graded it as “Excellent”.
• The students feel that this mode of travel in the best thing to
happen to India.
¾ Some are fearful whether any technical snags will take place
when the flight is on course. This fear arose due to the recent spate
of unfortunate events encountered by Air Deccan.
¾ Whether the flight takes off and lands on time does not matter as
much as their reaching the destination safely.
¾ Many just want to try out the Airline and experience the thrills
and pleasure of flying.
The interesting aspect of the comments is that there are no remarkable negative
comments about the air-Deccan service or for that matter any comparison about
the on-time performance and the In-flight services which all other service fliers
offer to their customers.
Travelled to mangalore
profession yes no total
Corporate 0 0 0
PSU 0 0 0
Self Employed 27 0 27
Entrepreneur 59 0 59
Student 11 0 11
Designer 1 0 1
Housewife 2 0 2
TOTAL 100 0 100
yes
11% 1%
0%
0% 2% Corporate
PSU
Self Employed
27%
Entrepreneur
59%
Student
Designer
Housewife
100%
80%
60%
train
40% bus
airline
20%
0%
Corporate Self Student Housew ife
Employed
2%
11% 1%
0%
Corporate
0%
PSU
27% Self Employed
Entrepreneur
Student
Designer
59% Housewife
If yes, how would you compare the services provided in Jet Airways with
Air Deccan?
¾ All passengers are experiencing Air Deccan for the very first time
and are not sure what to say.
¾ They are very satisfied with the services provided by Jet Airways
and graded it to be Excellent.
¾ Jet Airways has never left any scope for error/ complaint/
dissatisfaction as far as their services are concerned.
¾ Still the passengers find the price very steep, especially for
regular travel or even for vacation/ holiday.
Hence it is observed that the steep pricing of the Jet travel is the main concern
for the customers travelling by air.
(8) Is the lower fare on Air Deccan the reason you chose to fly with
them?
Housewife
Designer
Student
Entrepreneur no
Self Employed yes
PSU
Corporate
0 10 20 30 40 50 60
¾ The mode of air-travel has given a new dimension after the launch
Of the air-deccan services.
¾ If not for the comparatively higher fare of Jet Airways, they would
have never switched to Air Deccan.
¾ Most people feel that after a long time now, finally an air-service
that can cater to the needs of common man too. The perceptions
about the air travel being expensive seem to be fading fast.
¾ Finally a service that can fit the common man’s pocket, yet deliver
him travel to the destination at the comfort of an air-travel.
(1) Due to introduction of flights by Air Deccan and Air Sahara, is there any
change in Passenger Numbers:
10%
yes
no
90%
From:
Origin (Say Bangalore – BLR)
To:
Destination (Say Mangalore – IXE)
no of passengersfrequency
3 1
4 2
5 2
6 2
8 3
10 3
14 1
15 5
20 1
TOTAL 20
3 Series1
0
1 2 3 4 5 6 7 8 9
¾ Most travel agents complain that Air Deccan has not yet provided
online facility to reserve tickets on their airline.
¾ Others are forwarding all the customers who were enquiring about
Air Deccan to the nearest travel agent who would help them.
(3) How sensitive do you think are the passengers in your region to price?
TO TA L 20
yes
45%
50% average
no
5%
¾ This question really made the travel agent ponder – does the price
really affect?
¾ The travel agencies situated in the “hub” of the city have regular
fliers as well as casual fliers.
¾ Making this region not at all affected by change in price and the
airline fares.
(4) What do you feel will be the impact in the near future because of the
Air Deccan and Air Sahara?
Air Deccan:
¾ All the travel agents unanimously agree that Air Deccan would
pose no threat to Jet Airways.
¾ It is not even a month since Air Deccan has been introduced
whereas Jet Airways has been in the industry for ten years!
¾ Air Deccan has been suffering from bad luck as two of its flights
suffered from technical snags after take off.
¾ Luckily for Air Deccan, all passengers have been safely grounded
and upgraded to Jet Airways at no extra cost.
Air Sahara:
5%
yes
no
95%
¾ Travel Agencies feel that in the recent past there has been an
alarming increase in the number of new customers/ passengers.
Reasons:
Airline 0
Train 18
Bus 1
TOTAL 19
5% 0%
Airline
Train
Bus
95%
Observations - Fares:
¾ Jet Airways has been rated as the “Best Indian Domestic Airline”.
¾ Their Apex and Super Apex scheme is a runaway success. These tickets
are almost always sold out!
¾ Air Sahara can prove to be a threat for Jet Airways in the near future.
¾ Jet Airways will continue to reign as the market leader in the near future.
(Visualization on the basis of the current scenario)
RECOMMENDATIONS
Since our recommendations have emerged from SWOT Analysis, we give below
the SWOT Analysis, followed by the recommendations:
SWOT ANALYSIS
Operational Strategy
Air Deccan’s strategy is to provide fares at almost half that of other airlines, to
attract and retain passenger share. Considering their expenditure is almost 95%
of that of Jet Airways on their ATR fleet, how do they propose to achieve such
low fares?
This has been possible as hey have identified other sources of revenue by virtue
of their no frills model and as they are not brand conscious. The revenue sources
for Air Deccan could be: -
On the other hand they have also reduced costs such as fuel cost, distribution
cost and communication cost. Their long term strategy is the mass volume
strategy where they will acquire passenger volumes to match their capacity
deployed and cost per unit will considerably reduce and consequently revenue
per unit will increase.
STRENGHS:
1. Very low operational (fleet commonality, no in-flight service and low fuel
consumption) and distribution costs are an integral part their business plan.
IMPACT - Jet Airways, on the other hand has high costs on both these fronts
which will make it difficult if not impossible for us to cut costs and
thus match fares with Air Deccan. Moreover Jet Airways cannot
change its pricing policy for a select few sectors, which are
common between Air Deccan and Jet Airways, as it will have a
network wide, and long term impact. For instance if they match Air
Deccan’s fare on metro sectors such as Hyderabad – Chennai or
Bangalore - Chennai, then passengers will want a proportionate
decrease in fares on Delhi – Mumbai or Kolkotta – Chennai. Also
once fares are reduced to Air Deccan’s level and assuming they
manage to oust them from these sectors, Jet Airways will not be
able to hike their fares to their original level.
3. Fares are very low on all sectors compared to other domestic airlines – they
are just marginally higher than first class railway tickets. For example Bangalore
– Mangalore fare on Air Deccan in INR 1875 and on Jet Airways it is INR 3310.
IMPACT - The Indian airline passenger market is very price sensitive and loss
of passengers on the sectors Jet Airways shares in common with
Air Deccan is an absolute certainty in the coming future, especially
once Air Deccan’s operations smoothen out. Though so far their
passenger loads are not very good, but one can see an
improvement in their current loads compared to the initial week
WEAKNESSES:
1. Air Deccan is not currently operationally sound either in terms of its capacity or
efficiency. It has already had one AOG in its first month of operation due to
engine trouble.
IMPACT - Jet Airways can use its internationally acclaimed operational
excellence and past track record to keep its current passengers
loyal. A little impetus by using direct marketing is a must.
2. Since Air Deccan is using an all ATR fleet even on metro sectors.
IMPACT - A few Jet Airways flights on the metro sectors are Boeing operated,
which is another fact, which can be highlighted to their passengers
through direct marketing to retain these passengers.
4. Average age of the fleet is 7 years, which can be perceived as a safety threat
by the passengers.
IMPACT - Jet Airways should soothe the passengers’ perception by
highlighting that safety of their passengers is of prime importance to
Jet Airways, which is why it maintains an average fleet of 3.13
years and will continue to in the future also. This fact again can be
used to the advantage of Jet Airways.
5. Air Deccan does not have any loyalty programmes or any accrued benefits for
its customers.
IMPACT - This again is an aspect which can be offset by the low fare Air
Deccan is offering but should be highlighted as the “rewards” of
flying with Jet Airways to their passengers. The passengers need to
be reminded that they will lose the currency Jet Airways offers its
passengers in the form of miles, if they fly by Air Deccan. This can
be used to retain regular flyers.
OPPORTUNITIES:
1. There is a vast untapped travel market which is hitherto untapped by airlines,
primarily due to high fares for air travel, which Air Deccan can easily tap.
IMPACT - Once these train travelers are converted into air travelers, Jet
Airways can also hope to increase its market share by converting
these passengers to their apex and super-apex passengers. Strong
promotions will be in order to get these passengers to fly by Jet
Airways and also an efficient yield management system will have to
be put in place to ensure seat allocation to apex and super apex
utilizes the availability of these passengers to the maximum.
3. Owing to the low connectivity in these cities mentioned above, Air Deccan can
get various benefits from State governments. It already has gotten a complete
sales tax waiver from the Andhra Pradesh State government, a section of
guaranteed passengers in the form of government employees from Karnataka
government etc. These incentives can magnify manifold once its operations pick
up and start connecting to cities across India.
IMPACT - Jet Airways being a premiere carrier will not be allowed the same
incentives primarily since they will not travel to such smaller cities,
thus they will not be competing with Air Deccan on equal footing.
This gap, which will increasingly benefit Air Deccan, will continue to
widen with time. Thus before Air Deccan can gain financial and
operational muscle, Jet Airways has to remove it from destinations
critical to Jet Airways’ operations.
THREATS:
1. The Indian airline passenger has so far been used to superior service such as
in-flight food, quick travel time and comfortable passage and hence he might not
be so easily convinced to travel the low-frills way.
IMPACT - In this scenario Jet Airways can continue to be the market leader as
their service standards and operational excellence are unmatched.
Though in the long run this factor might be inconsequential, but Jet
Airways should try to gain mileage in the current phase by pointing
out their service standards to passengers (using direct marketing)
2. An old fleet leading to frequent technical snags and lack of initial financial
muscle will forbid Air Deccan from hiring superior talent either as pilots or as
engineers and can lead to a permanent damage to its image.
IMPACT - Jet Airways will then have to deal with one less competitor, before it
gains popularity or a foothold in the airline business - This maybe a
long shot.
OVERALL CONCLUSIONS
Based on the above SWOT analysis, we can draw the following overall
conclusions regarding the Market Challenger – Air Sahara and the New Entrant –
Air Deccan.
AIR DECCAN
¾ Air Deccan, the new entrant, will not pose any threat to Jet Airways.
¾ It has been labeled as the most “reasonable and economical” domestic
airline.
¾ Air Deccan has created a niche for itself.
¾ It caters to only a small segment of people, which will form a negligible
part of the total number of passengers.
AIR SAHARA
PROPOSED STRATEGY:
1. A strategy to bow beat Air Deccan from all routes where Jet Airways flies
or proposes to fly is to strengthen its position in these markets. This
strengthening of position will be as a function of retaining their current
passengers by direct marketing and by attracting the new passenger
segment Air Deccan is creating. Direct marketing, which highlights facts
such as a younger fleet, on board safety, on time performance, better
service, benefits in terms of redeemable miles etc., will be a way to re-
establish the Jet brand in the current passengers’ minds.
2. Jet Airways have to match the fares offered by Air Deccan. Since they
cannot reduce their current fares in keeping with the long term view, their
brand and product and their primary target customers – business
travelers, an alternate would be to introduce a new 3 tier apex fare
structure: –
Tier one a 5 days New Apex,
Tier two the15 day Apex and
Tier three the 30 day Super Apex.
The Apex and Super Apex schemes could be the same as they are
currently using. The New Apex Fare could offer either the Apex or Super
Apex fare depending on the sector in question, where passengers can
book only 5 days in advance and this class will allow a larger capacity
than the current apex and super apex classes allow. In this way once Jet
Airways retains their passengers they can again reduce the capacity in
this new class and get back to their current yield structure. But in the
process Jet Airways will face the risk of permanently suppressing their
yield from these sectors. Possibly market conditions do not allow them to
reduce the capacity of the new apex fare class subsequently. Introduction
of a new class is a critically called for.
3. The estimated loss in revenue on the four sectors Jet Airways have in
common with Air Deccan is quite alarming. Though they will still incur a
loss compared to their current yield on all these routes, but this loss will be
lower than if they lose their passengers to Air Deccan – forever! Also the
cost of making a passenger is higher than the cost of diluting the revenue
from this passenger.
4. The assumption in the aforesaid strategy is that in the long run Air Deccan
will withdraw from the sectors in question or may not deploy enough
capacity on these sectors to threaten Jet Airways’ position. Thus it will be
able to eliminate or reduce the presence of a potential competitor before it
becomes too big and a major threat.
5. But on the other hand Jet Airways should actively encourage Air Deccan
to serve as a feeder service to them, since many of the routes identified by
Air Deccan such as Hubli, Vishakapatnam, Vijaywada are witnessing an
increase in business activity and thus will see growth in air traffic.
This research entitled Impact of Air Deccan on Jet Airways, A Market Competitor
Analysis, dealt more with the changes in tastes and preference of the Indian air
travelers with regards to price sensitivity and mode of travel preferred. However
this research has been carried out as a “testing waters” strategy in order to have
a feel of customer perceptions with regards to the new entrant and its services.
Hence this research is more strategic and a macro level focus rather than a
tactical one, and in its whole does not suffice entirely the requirements for
developing a counter offensive (responsive) attack on the market challenger.
¿ Price
¿ Hospitality
¿ In-flight services
¿ Queuing time
¿ Luggage handling
Perhaps the line of thinking on which our research investigation is based may
give scope for further research in this important area.
Occupation:
Corporate Managerial Public Sector Managerial
Self Employed Others (please mention) ___________
Entrepreneur
If no, previously how often have you flown with Air Deccan? _______ times.
_____________________________________________________________________________
_____________________________________________________________________________
If yes, how would you compare the service in Jet Airways with Air Deccan?
_____________________________________________________________________________
_____________________________________________________________________________
Is the lower fare on Air Deccan the reason you choose to fly with them?
Yes No
Due to introduction of flights by Air Deccan and Air Sahara, is there any change in:
Number of passengers?
Yes No
How sensitive do you think are the passengers in your region to price?
Extremely Not at all
Average
What do you feel will be the impact in the near future because of Air Deccan & Air Sahara?
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
SELECT BIBLIOGRAPHY
Internet sites:
www.jetairways.com
www.airsahara.net
www.indian-airlines.nic.in
www.airdeccan.net
Books
Marketing Management by Philip Kotler
Services Marketing by Christopher Lovelock and Lauren Wright
Journals
Jetwings – Jet Airways
Xpressions – Air Sahara
Business Today
Business World
Newspapers
Times of India
Economic Times
Business Standard
Business Line
The hugely successful low-cost airline model is now in India. ----- AIR DECCAN
Captain G.R. Gopinath looks more like a mild-mannered research scientist than
the CEO of an airline - hardly the sort of person who would send shivers down a
competitor's spine. Even though he launched Air Deccan's services in September
2003, not many in the aviation industry have taken him seriously so far. That's not
surprising, given that Air Deccan operates with just seven French-made, 48-seater
ATRs, largely in the South, on routes that his bigger competitors like Jet Airways
and Air Sahara wouldn't care about. Besides, not too many people in his top
management have any real experience of the aviation business. Gopinath himself
would seem like a bit of a rolling stone, having dabbled in many things, including
the army, multi-crop farming, sericulture, agri-consultancy and then a helicopter
charter service. Not quite the combination that would inspire confidence, right?
Well, some of that perception could change soon. Next month, Air Deccan will
expand its service to high-traffic destinations like Mumbai, Delhi, Bangalore,
Hyderabad and Chennai at fares that are 30-70 per cent of the standard fare of
existing airlines. That's when aviation experts expect that Deccan could incur the
wrath of its competitors - Jet, Sahara and Indian Airlines. There's no real evidence
yet of exactly how the battle will play out, but aviation experts are betting that Jet
and Sahara could start a debilitating price war to push the fledgling airline off the
tarmac - permanently.
Almost as a precursor to the impending battle, intense lobbying with the civil
aviation ministry has begun. Last week, Praful Patel, the new minister of civil
aviation, met the heads of all the domestic airlines in the capital. At that meeting,
the representatives from Jet and Sahara sprung a surprise by arguing for a new
level-playing field. They wanted the government to increase the minimum equity
needed to start an airline from Rs 30 crore to Rs 250 crore-300 crore. Also, fleet
sizes ought to be at least 7-10 planes, not five, they argued.
While both Jet and Sahara were unwilling to comment on this, aviation experts say
the two operators of what the industry calls full-service airlines are trying to erect
entry barriers. After all, it could well be a matter of their survival. Anyone with even
a passing knowledge of recent aviation history will know how, the world over, low-
cost airlines have begun to radically change the rules of the business. In market
after market - be it in the US, Europe and, now, Australia and South-east Asia - the
low-cost model has expanded the market, and gained significant share. Full-
service airlines have responded in one of three ways: restructure their operations,
launch their own low-cost airline. or simply get crippled.
For the past five years, low-cost airlines have been growing at more than 40 per
cent a year, while the full-service airlines are yet to recover from the crisis that hit
them post 9/11. Many of these low-cost airlines, be it Southwest Airlines, easyJet,
Ryanair or even AirAsia, have had such a great run that they are taught as case
studies at leading business schools across the world. And the CEOs of these low-
cost airlines now see themselves as a tightly-bound community of evangelists who
have an avowed mission: to make air travel accessible to more and more people.
(See 'Rewriting The Rules'.)
Last month, Richard Branson, the founder of the Virgin Group and the man behind
Virgin Blue, invited a select group of 10 CEOs of low-cost airlines to an exotic
island off the Australian coast. Captain Gopinath was among the invitees. The idea
behind the two-day retreat: learn from each other's experiences an
d brainstorm on
the way forward.
Gopinath says he learned a fair deal from Virgin Blue's experience in Australia,
where the low-cost carrier has grabbed a 30 per cent share in just 3-4 years. Now,
if all goes well with his own plans in India, Air Deccan could spark off a similar
price competition - sooner than most people think. A number of people are waiting
to see how Air Deccan does. As Gopinath says: "Originally, everyone wanted to be
a full-service airline, but now everyone wants to be a low-cost carrier."
At last count, at least four companies were in the process of starting up. There is
Royal Airlines, the new avatar of ModiLuft, and AirOne and Visa, both of which are
promoted by former Indian Airlines employees. Then there is Vijay Mallya's UB
Group, which is gearing up to launch its Kingfisher Airline. "We plan to charge the
fares in such a way that we will be able to attract those people who don't want to
travel by rail, but are unable to afford air travel," says Subhash R. Gupte, executive
vice-chairman, UB Group, and ex-CEO, Air-India. There are other companies, too,
that are still testing the waters, doing their initial market studies, and waiting for the
civil aviation policy to finally reveal itself, before stepping into the fray.
The entry of these low-cost carriers will have several far-reaching implications for
the aviation sector in India and, to a wider extent, on the mass transportation
industry and domestic tourism. In a country of a billion people, the Indian aviation
industry is puny. We have 12 million people who travel by air every year against 3
million passengers who fly everyday in the US, even though its population is one-
fourth that of India. The number of daily flights in India averages just about 400 a
day, as against 40,000 flights a day in the US. Ryanair, among the low-cost
pioneers in Europe, flies 25 million people in a year and still has less than 5 per
cent market share. Closer home, in Malaysia, there are 12 million people who
travel by air yearly. Look at it another way: India's 200
-million middle-class
population is equal to that of the whole of Europe. Even if we assumed that only
one-fourth of that large middle-class could afford and would be willing to travel by
air, it would call for at least a 5-6-fold increase in capacity.
Simple. Since Independence, the sector has been largely a public sector
monopoly. Even when it was opened up in the early 1990s, the civil aviation policy
has remained opaque. A new policy has been in the making for over five years
now. "In the absence of a clear civil aviation policy, the government's stance on the
subject has changed every time a new minister or secretary has taken charge,"
says a Delhi-based advocate who specialises in aviation. The result: airfares in
India are among the highest in the world. For instance, a typical Delhi-Bangalore
round trip costs Rs 18,000 - the same as it would from Delhi to Singapore!
Moreover, despite the fact that India has close to 400 airstrips, airport
infrastructure is very weak for the most part. "Even a bigger airport like Mumbai
faces regular congestion and causes flight delays, even though it handles less than
half the number of flights as, say, Hong Kong. That, too, when the Hong Kong
airport operates for less than half the day because of concerns of noise pollution,"
says Shekhar Damle, president (funds business), Feedback Ventures.
It is a vicious circle. Scheduled airlines are not willing to fly to smaller towns,
primarily because they fly mostly Boeings and Airbuses, which are uneconomical
for short-haul flights. And unless there are adequate flights into these smaller
towns, getting enough private investment to modernise airports will not be feasible.
(See '
Needed: Low-cost Terminals'.) But mostly, the scheduled airlines have
preferred to concentrate on the more profitable trunk routes, because that's where
70 per cent of the traffic, which primarily comprises business travellers, originates.
Since airfares are high, most leisure travellers are forced to use an already over-
burdened train system.
The emergence of the low-cost airlines could trigger a new virtuous circle -
provided the government sees its virtue. Making air travel accessible to the
common man could well make for good politics. Talking to Businessworld, a senior
bureaucrat in the civil aviation ministry said that the department is all for low-cost
airlines. "Our mandate is two-fold - to make air travel affordable, and penetrate
deep into the country. That cannot be done without encouraging low-cost airlines."
Much will now depend on what Patel, the new minister, does to promote the low-
cost model.
Nothing in reality, though, is as cut and dried. As the Virgin Group founder Richard
Branson once famously said: "The safest way to become a millionaire is to start as
a billionaire and invest in the airline industry." The mortality rate in the airline
business is very high. That's equally true for any low
-cost airline model. It requires
adequate staying power to buy aircraft and take losses in the initial years. Experts
say it takes nearly $60 million-70 million (Rs 270 crore-315 crore) to float a full-
service airline. This includes everything, even the losses that you have to sustain
for the first two years. In contrast, a low-cost airline takes $30 million (Rs 135
crore) to start up, if you want to ply the trunk routes. And if you want to be on the
feeder routes, you just need $10 million-15 million (Rs 45 crore-67.5 crore). So far,
Air Deccan has been funded through contribution by directors and cash accruals.
Gopinath and his close aide and executive director K.J. Samuel hold 26 per cent
each, while Vishnu Rawal, an old Hong Kong-based friend of Gopinath, owns 8 per
cent. Golden Ventures, promoted by an NRI Group, holds another 20 per cent.
The high mortality rates and wafer-thin margins in the airlines business make it
hard for entrepreneurs to raise money. Captain Gopinath has mandated N.M.
Rothschilds & Sons to raise $60 million-70 million to fund the expansion. He has
been jetting around the globe, presenting a business case to private equity funds
like Warburg Pincus and CDC, which have shown an interest in funding Air
Deccan. If Gopinath is able to get funding, it will be the first instance of private
equity in an airline in India. Abroad, private equity has funded airlines for a long
time. For instance, US-based Ryanair was funded by Newbridge, and Australia-
based Virgin Blue got funds from Indigo Partners and Temasek. Explains Amitabh
Malhotra, director, N.M. Rothschilds & Sons: "Investors are interested in low-cost
airlines which have a first-mover advantage. But once the market gets competitive
and crowded, investors turn to virgin markets." However, even if Gopinath gets
past that hurdle, there's still the larger question:
While most full-service airlines like Jet take at least an hour to leave an airport after
landing there, Deccan can do it in 15-20 minutes for ATRs (and about 30 minutes
for its new A320 service.) So, if Deccan does six sectors a day, it can fly one
additional sector a day. This allows it to fly 20-30 per cent more than a full-service
airline. On an average, the conventional airlines fly their aircraft for 8-9 hours a
day, while a low-cost carrier is able to keep its planes airborne for 11 hours a day.
"It is only by more hours of flying that you can give a lower price," says Gopinath.
In fact, it is able to make the same revenue with fewer aircraft.
Now, squeezing out more from the capital asset simply lowers the fixed costs.
Even other costs, like costs of the crew, hangerage or even finance costs are
somewhat lower, in these airlines. All this tots up to close to 40-45 per cent less
depending, of course, on how much extra the airline can fly.
And if the airline uses the same type of aircraft in its fleet, it can move pilots and
cabin crews around, and won't have to worry about carrying spares for three
different kinds of aircraft. That generates economies of scale.
In Europe as well as the US, low-cost airlines have one more way to shave off
costs - but one that Deccan or its followers will not have in India for some time to
come. These airlines avoid flying into mainland airports and, therefore, don't incur
high parking and landing fees. So, instead of Heathrow in London, a low-fare
airline would use Luton or Stansted. India doesn't have too many secondary
airports, and this is considered a major constraint. The Naresh Chandra
Committee, however, has suggested a compromise - lower landing and parking
charges for low-cost airlines.
A low-cost airline then tries to save on distribution costs, which can be 11-15 per
cent in a conventional airline. They do this by not going through the travel agents
and the existing central reservation systems like Amadeus and Galileo. Instead,
they sell through the Internet and call centres - easyJet in Europe even has its
website address painted on its plane. These airlines don't issue a ticket, as it costs
to print, mail and process tickets. What you get instead is a booking number when
you make a reservation. Passengers have to quote this number at airport check-
Even the logistics model works differently. A low-cost airline offers a point-to-point
service, rather than the hub-and-spoke concept followed by conventional airlines
like Jet. In fact, a Jet aircraft would fly out from Mumbai only when all the
connecting flights come in. This is true more for interline traffic. So Jet handles
Emirates' interline traffic, and hence picks up the passenger bags and o
srts them
out - a process that often causes delays. But in a point-to-point service, a
passenger travelling on two separate connecting flights isn't issued a single ticket.
"We will say, you will have to get out of the aircraft, you have to take out your bag
and again you have to check in. It is a bit of a hassle, but your bag will never get
lost. You have to carry it, but it is half the fare, so you have to do it yourself," says
Gopinath. If you miss your onward flight because the first flight was delayed,
Deccan will not owe you an explanation. "Our contract is to take you from point A
to point B, and if we don't take you from point A to point B, we refund you the
money," he adds.
On paper, it does look like a very nifty model. What's more, the model could
transpose well into India. It is partly a question of discomfort. People may not want
to sit for too long in cattle class, without meals. Which is why, globally, low cost
airlines ply on short-haul routes (which typically last 4-5 hours). "The longest flight
in this country, between Delhi and Thiruvananthapuram, is close to three hours.
Even the regional flights - to the Asean countries, fall in this band," says Kapil
Kaul, senior vice-president (Indian sub-continent), Centre for Asia Pacific Aviation.
Pricing will be crucial. UB Group's Gupte says they plan to charge fares that are at
a slight premium over train fares, but not high enough to preclude travellers from
thinking air travel. Deccan has already pitched its fares slightly higher than AC II-
class fares, but lower than AC I-class fares (See 'Indian Skies: A Fare To
Remember'). The idea: if you have return flights to a town the same day, the
traveller could come in the morning and go back in the evening. By doing so, he
manages to save on his overnight hotel bills. In the past few years, rail fares,
especially in the higher classes, have gone up. Despite that, a quarter of a million
passengers travel on AC trains every day. So if the differential isn't much, there's a
possibility that a large number of them could well upgrade.
Over the next few years, one can expect to see a complex system of low-cost
airlines. Depending on the amount of capital they are able to raise and the
business plan they formulate, some will ply on the trunk routes, others on the Class
A and B towns and then, some will operate purely as air taxis.
Fortunately, a low-cost airline has the advantage of being a model that throws up
cash much faster than its full-service counterparts. So, if Deccan can survive the
price war for the first year or so and scale up, it will soon reach a size where Jet
and the rest cannot undercut without losing massively in the bargain. "It is always
simpler to drop prices if you are trying to take on a company with just three planes.
If, Air Deccan, however, scales up fast to 100 planes or so, the others cannot
undercut it without maiming themselves," says Kaul.