Table of Contents

Executive summary.....................................................................................................................................2
Scope of the project................................................................................................................................2
Introduction.................................................................................................................................................3
Research Methodology................................................................................................................................8
Research Objectives:...............................................................................................................................8
Research Design:.....................................................................................................................................8
Data Analysis and Interpretation...............................................................................................................10
Customer Perspective............................................................................................................................10
Employees’/ Operators’ Perspective.........................................................................................................22
Observational Findings..............................................................................................................................33
Limitations.................................................................................................................................................44
Recommendations, Conclusions and Suggestions.....................................................................................45

1|Page
 Executive summary
Scope of the project
The project aims to bring about a comparative study and effect of pricing on low cost carrier
customers. Low cost airlines have been a phenomenon in India since 2002-03. Low cost
carriers have completely revolutionized the way we perceive air travel in India. Traditionally
air travel was always associated with luxury and high costs. Air Deccan for the first time made
flying affordable and routine for the masses. Since then, many more low cost airlines have
been introduced. The current decrease in spending power of consumers has once again
highlighted the importance of low cost airlines as a means of survival by increasing occupancy

In order to proceed with the detailed analysis, the team incorporated the survey research
methodology. This entailed systematic gathering of information from respondents for the
purpose of understanding and/or predicting some aspect of the behavior of the population of
interest. Furthermore, the team launched the survey online using social media to get an
additional perspective. Members of the team engaged in questionnaire design and then
subsequently carried out the administration of questionnaires to individuals through personal
interviews. There were 2 questionnaires designed with the specific intent to capture the
perspectives of the consumer and the company. Surveys of consumers or distributors of
consumer products are frequently in the form of census.

The survey was carried out on a sample size of 125 respondents through which quantitative
data was generated. This assisted in formulating requisite data sets for methodical data
analysis. By analyzing the data, the team had certain observations or key findings which have
been explained in this project report. Following are the key findings in brief:

Customer Side:
• Paradigm shift in consumer behavior due to LCC
• Preferred LCC and Reasons
• Branding and Advertising
• Compromising factors in selection of LCC
Company Side:
• Price Influencers
• Cost Drivers
• Direct Distribution
• Correlation between Passenger volume & Price
• Increasing customer Base
• Yield Management on Unprofitable routes
• Shaping the Differential Advantage

2|Page
Introduction
a) Topic: Comparative Survey of Pricing and its Effects on Low Cost Airlines Customers

Flying High: Low Cost Carriers

A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or

airline) is an airline that generally has lower fares and less comforts. To make up for revenue lost
in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat
allocating, and baggage etc.

Air Deccan introduced low cost airlines in India in September 2003, carving a niche for
passengers travelling in train, reducing air travel prices by 17%. It started with a fleet strength of
35 with 20,000 seats per day. The trend then followed with SpiceJet, Kingfisher, Paramount
Airways, GoAir and Indigo entering the market in 2005-2006. In April 2007, Jet acquired Air
Sahara, and rebranded it JetLite, another entrant in the low cost airline industry. Kingfisher
bought 26% stake of Air Deccan in 2007, later acquiring it completely, and launching it in the low
cost segment as Kingfisher Red.

The main characteristics of low cost airlines in India are:

i. High seating density and load factors.

ii. Uniform aircraft types (usually the 737-300).
iii. Direct booking (internet/call centre booking), hence reducing cost on sales commission.
iv. No frills, such as free food or beverages, lounges or ‘air miles’.
v. Simple systems of Yield Management (Pricing).
vi. Use of secondary airports to cut charges and turnaround time.

With a growth rate of 18 per cent per annum, the Indian aviation industry is one of the fastest
growing aviation industries in the world. By 2020, Indian airports are expected to handle more
than 100 million passengers including 60 million domestic passengers and around 3.4 million
tons of cargo per annum.

Airline traffic growth in India remained in double digits in Nov-2010 for two consecutive

Novembers of strong traffic growth with passenger numbers now well above pre-
recession levels. Passenger traffic increased 25.1% in the month following four months of
growth under 20%. Despite a steep increase in airfares in the month, the seven domestic airlines
reported the highest carriage of passengers during a single month of 2010. Indian aviation,
which entered negative territory earlier than other Asian nations and the rest of the world, has
also been one of the quickest to recover, with domestic traffic now some 62% above Nov-2008
levels. According to the Indian Ministry of Civil Aviation overall domestic passenger numbers in
India increased 25% year-on-year to 4.9 million in Nov-2010 to reach the highest monthly level
so far in 2010.

IndiGo handled 843,000 passengers, becoming the third largest carrier in the domestic market
ahead of Air India with 836,000 passengers. The most dramatic growth was, as is generally the

3|Page
 case, witnessed by the LCCs, driven by GoAir with a 64% year-on-year increase to
337,000. Other LCCs, including India’s largest LCC, IndiGo (+53%) and SpiceJet (+36% to 650,000)
also continued their rapid traffic expansion. Together, IndiGo, GoAir and SpiceJet accounted for
38% of the domestic market up from 32% in Nov-2009.

IndiGo reported the highest load factor of 91% in Nov-2010. SpiceJet, Kingfisher, GoAir and
JetLite also reported load factors of above 80% for the month, with Air India reporting the
lowest load factor at 76.9%.

Airlines in India have now well and truly emerged from the global slump that has been affecting
the industry. And, with the holiday season in full swing, full service and LCCs are seeing heavy
demand with airfares, as a result, rising strongly, to the concern of consumers and the
government.

Mr Praful Patel, Minister for Civil Aviation, expressed concern over “exorbitant” fares recently

charged by airlines, stating the aviation industry should keep in mind that the phenomenal
growth in the sector has been due to the low fares offered earlier. He added: “For five years, the
aviation sector has grown on the back of low fares. We can’t ignore this fact. The benefits of low
fares have gone to the travelling public." He has previously stated that the government “cannot
be a mute spectator” to the “exorbitant” spot or last-minute fares that were charged by carriers
in Nov-2010 and Dec-2010.

The traffic outlook for India’s carriers remains optimistic for the remainder of the peak festival
and holiday season with full-year growth expected to be in the 18-20% range, led by LCCs which
continue to expand their share of the market. This trend is expected to continue into 2011, with
expansion by LCCs in both the domestic and international market.

India’s airlines have also done well in managing capacity, ensuring that load factors and yield
improvements continue although recent fare transparency regulations by DGCA could have a
slight impact on this. The nation’s aviation industry has also benefitted in its brisk recovery due
to higher disposable incomes and increased demand for business travel.

b) Companies Visited
i. Jet Airways
ii. SpiceJet
iii. Go Air
iv. Kingfisher Airlines ltd
v. Indigo
vi. Cox and Kings India ltd
vii. Yatra
viii. Makemytrip
ix. Amdocs
x. Arzoo
xi. JK Tours and Travels
xii. Travel Hut Tours and Travels

4|Page
 xiii. Kaycees Air Tours and Travels
xiv. HMA Travels
xv. Prasanna Tours and Travels Pvt ltd
xvi. Kass Travels Pvt ltd
xvii. Silver Jubilee Travel ltd
xviii. JM Mehta Travel and Tour Pvt ltd
xix. Shalan Tours and Travels
xx. Lara Tours and Travels

c) Service lines of company

a. Jet Airways:

Jet Airways is an airline based in Mumbai, India. It is India’s third largest airline. Jet Airways
also operates two low cost airlines, namely JetLite and Jet Airways Konnect.

b. SpiceJet:

SpiceJet is a Low Cost Carrier based in Delhi, India. It has second largest market share in
Indian LCC, after Indigo. SpiceJet is known to offer world class services within your travel
budget.

c. Go Air:

GoAir is a Low Cost Carrier based in Mumbai, India. Currently, it has the fastest growing
market share. Operated by the successful Wadia group, the aim of this domestic airline is to
provide affordable and good value flights to both business and leisure travellers to major
cities across the country.

5|Page
 d. Kingfisher Airlines ltd:

Kingfisher Airlines is an airline based in Banglore, India. It December 2007, Air Deccan
merged with Kingfisher and entered low cost segment with the introduction of Kingfisher
Red. Kingfisher airlines are best known for the high level of service provided on board. This
pattern continues in Kingfisher Red, which is known for excellent services known only in full
service carriers, at a much lower cost.

e. Indigo:

Indigo Airlines is based in Delhi and flies to around 15 destinations all over India. This
privately owned airline started operating in mid 2006, and has a market share of almost
11%. It's considered to be India's best low cost carrier .

f. Cox and Kings India ltd:

Cox & Kings is the longest established travel company in the world. Its Indian operations are
headquartered at Mumbai. The status is of a limited company. It has over 12 fully owned
offices in India across key cities. The principal services offered by the company are:

 Destination Management
 Outbound Tourism
 Business Travel
 Incentive & Conference Solutions
 Domestic Holidays
 NRI
 Trade Fairs
 Foreign Exchange

6|Page
  Insurance

g. Yatra:

Based in Gurgaon, India, Yatra is a one-stop-shop for all travel-related services. Yatra.com is
India’s leading online travel company. We provide information, pricing, availability, and
booking facility for domestic and international air travel, railway reservation, hotel bookings,
holiday packages, buses, and car rentals. We offer a host of travel services designed to make
business and leisure travel easier.

h. Makemytrip:

MakeMyTrip.com, India’s leading online travel company was founded in the year 2000 by
Deep Kalra. Created to empower the Indian traveller with instant booking and
comprehensive choices, the company began its journey in the US-India travel market. It
aimed to offer a range of best-value products and services along with cutting-edge
technology and dedicated round-the-clock customer support.

i. Amdocs
j. Arzoo
k. JK Tours and Travels
l. Travel Hut Tours and Travels
m. Kaycees Air Tours and Travels
n. HMA Travels
o. Prasanna Tours and Travels Pvt ltd
p. Kass Travels Pvt ltd
q. Silver Jubilee Travel ltd
r. JM Mehta Travel and Tour Pvt ltd
s. Shalan Tours and Travels
t. Lara Tours and Travels

7|Page
Research Methodology
Research Objectives:
1. To understand the purchase behaviour of LCC customers
2. To understand the pricing decisions of LCC
3. To understand the impact of pricing on LCC customers

Research Design:
1. Qualitative
a. Exploratory: Focus Group Discussion
Sampling Frame: MBA students
Sample Size: 10
Objective: To evaluate customer behaviour to price of LCC tickets and pricing
strategies of LCC.
2. Quantitative
a. Conclusive: Web Survey
Sampling Frame: MBA Students, Self Employed, Consultants, Assistant
Managers and Consultants.
Sample Size: 30
Objective: To evaluate customer behaviour to price of LCC tickets and pricing
strategies of LCC.
b. Conclusive: Field Survey
Sampling Frame: Working Professionals, Self Employed, Service Providers(Airline
Offices, Travel Agencies)
Sample Size: 150
Objective: To evaluate customer behaviour to price of LCC tickets and pricing
strategies of LCC.

8|Page
9|Page
10 | P a g e
Data Analysis and Interpretation
Questionnaires:

Customer Perspective
1. What was your preferred mode of transport before and after introduction of Low Cost
Carriers?

BEFORE AFTER
a) Full Service Carriers a) Low Cost Carriers
b) AC FIRST CLASS b) Full Service Carriers
c) AC II/AC III Tier c) AC FIRST CLASS
d) Road Transport d) AC II/AC III Tier
e) Road Transport
e) Others f) Others
Please Specify: Please Specify:

The findings from the survey:

Low Cost Carriers 98

Full Service Carriers 15

42

FIRST CLASS 8
23
After
AC II/AC III Tier 11 Before
51

Road Transport 6
19

Others(Sleeper Class) 1
2

0 20 40 60 80 100 120

11 | P a g e
12 | P a g e
 Reasons/Objectives Analysis

Price Sensitivity High price sensitivity – Full Service Carriers

Low price sensitivity – Rail Transport

Target Market All modes of transport

Segment

Percentage of 50 % (approx)
Mercenaries

13 | P a g e
2. Which Low cost Carrier do you prefer the most?
a) Kingfisher Red
b) JetLite
c) GoAir
d) Indigo Air
e) Air India Express
f) SpiceJet

Air India Express 8

GoAir 11

JetLite 27

Indigo Air 28

SpiceJet 29

Kingfisher Red 48

0 10 20 30 40 50 60

Reasons/Objectives Analysis

Preference of Travelers Kingfisher Red

Competitive positions of the • Kingfisher Red – Market Leader

players • JetLite, Indigo Air, SpiceJet- Market
Challengers
• Air India Express, GoAir- Market
Followers

14 | P a g e
3. What is/are the reasons for your preference?

A)

 Online booking
 Check-in procedures and waiting time
 Boarding procedures and efficiency
 Cabin cleanliness and appearance
 Seat comfort
 Availability of food and beverages
 Efficiency and attention of Cabin crew
 Friendliness and Attitude of cabin crew
 On time performance

B)

 Value for money

 Easy reimbursement procedure and refunds
 Offers and Promotions
 Prices of food and beverages
 Clarity of fares

15 | P a g e
 Chart Title
Value for Money 94
Easy reimbursement procedures 20
10
Offers and Promotions 15
12
Prices of food and beverages 13
2
Clarity of fares 22
10
Friendliness and Attitude of cabin crew 14
4
71 Customer
Ontime Performance
Operator
Efficiency and attention of Cabin crew 12
4
Availability of food and beverages 22
5
Seat comfort 49
9
Cabin cleanliness and appearance 24
3
Boarding procedures and efficiency 5
Check-in procedures and waiting time 27
7
Online booking 40
14
0 10 20 30 40 50 60 70 80 90 100

Reasons/Objectives Analysis

Perceived importance of the People seek more value for their

additional services money and they consider On Time
Performance and Seat Comfort as a
Big Value Add.

Elements leading to customer 1. On Time Performance

satisfaction 2. Seat Comfort
3. Online Booking

Weight-age to monetary and Operators perceive their customers

non monetary elements to be price conscious, however
customers give more or less equal
weightage to non monetary
elements offered by the airlines

16 | P a g e
4. Rank the following criteria for selecting the airline in the order of importance:

CRITERIA RANKING
a. On time performance
b. Convenient flight timings
c. Price

Chart Title

22
Convenient Flight Timings
35

4
Ontime performance Operator
33 Column2

74
Price
32

0 10 20 30 40 50 60 70 80

Reasons/Objectives Analysis

Identification of dis-satisfier and their It indicates that price is not the main
order deciding factor in selecting a LCC.

17 | P a g e
5. Does the brand name and its advertisements influence your choice of the Low Cost Carrier?
a) Yes
b) No

46%
54%

Reasons/Objectives Analysis

 Level of importance of Brand Data shows branding is an

visibility influential factor.
Extent of expenditure to be Moderate as 54% customers
incurred on branding and consider it important.
advertising by airlines
 

18 | P a g e
6. Would you shift to another operator if you have to pay a:
a) Higher price for additional services
b) Lower price for lesser services

Higher price for

additional
services
46%
54%
Lower price for
lesser services

Reasons/Objectives Analysis

 Price sensitivity Relatively high

Importance of additional services in LCC Relatively low

Changes to be incorporated in the LCC Scope for enhancing passenger volume

services (w.r.t price and services by introducing 2-3 classes catering to
provided) different needs.

19 | P a g e
 7. Which parameter are you willing to compromise on for a lesser price?
a) Flight timings
b) Seating space
c) Baggage allowance
d) In flight service (cabin crew, food and beverages etc)

Chart Title

38
(cabin crew, food and beverages etc)
43

35
Baggage allowance
25 Operator
Customer
9
Seating space
9

18
Flight timings
21

0 5 10 15 20 25 30 35 40 45 50

Reasons/Objectives Analysis

 Services perceived as the ones that Operators have correctly identified

customers are willing to forego. the factors which customers are
willing to compromise / not
compromise for a lesser price

20 | P a g e
8. Would you change your preferred airline for a marginal increase in its price?
a) Yes
b) No
c) May be

May be depends on:

Depends on:
• Availability
• Time of Travel May be Yes
• Cheaper Fare 23% 29%
• Additional Services
• Difference in Price
• Seating Space

No
48%

Reasons/Objectives Analysis

 Price sensitivity v/s Brand loyalty Passengers are loyal to their

Customer Perceived Value for a brand
preferred airline regardless of a
marginal increase in price
Total customer benefit is higher than
the total customer cost and thus
customers stick with their preferred
airline.

21 | P a g e
 9. Would you prefer to fly with a Full Service Carrier over a Low Cost Carrier if the difference
in prices is not very significant?
A. Yes
B. No

If YES please select the difference (in Rs) that you are willing to pay

a) 500-1000
b) 1000-1500
c) 1500-2000
d) 2000-2500

If selected Yes
No 15
2000-2500 6

1500-2000 5

1000-1500 45
Yes 110

500-1000 54

0 20 40 60 80 100 120 0 10 20 30 40 50 60

Reasons/Objectives Analysis

 Price sensitivity Low

Percentage of customer LCC may
lose because of price reduction by
FSC and/or reduction by LCC
Extent to which customers are
ready to pay additional money for
FSC
88% people are ready to switch to
FSC if price difference is less
significant.
Only for less significant price
difference customers are ready to
switch from LCC to FSC.

22 | P a g e
10. In case of air travel price hike, would you change your mode of transport to?
a) Railways
b) Road Transport
c) Will not change

W ill not change 50

Road Transport 12

Rail ways 65

0 10 20 30 40 50 60 70

Reasons/Objectives Analysis

Best substitutes for LCC For a steep price hike LCC will lose a
significant number of customers to
railways

23 | P a g e
 Employees’/ Operators’ Perspective

1. Rank the following factors in the order of its importance for setting the price per seat.

FACTORS RANK
a) On board service
b) Flight timing
c) Taxes
d) Government regulations
e) Seat spacing
f) Air turbine fuel price
g) Disposable income

     Disposable income

       Air turbine fuel price

RANK 7
   Seat spacing
RANK 6
      Government regulations RANK 5
RANK 4
      Taxes RANK 3
RANK 2
     Flight timing RANK 1

      On board service

0 2 4 6 8 10 12 14 16 18

24 | P a g e
 Combined Analysis

     Disposable income 40

       Air turbine fuel price 151
   Seat spacing 90
      Government regulations 99
      Taxes 120
     Flight timing 103
      On board service 94

Reasons/Objectives Analysis

Major Price determinants of an Cost based pricing strategy due

air ticket to High figures of Fuel, Taxes,
Govt Reg.
Importance of value adds v/s Cost drivers hold higher
cost drivers weightage in price determination

25 | P a g e
 4. Which are the top 3 costs contributing to cost per seat?
 In flight services costs
 Air craft maintenance costs
 Distribution costs
 Station costs
 Advertising and Promotion costs
 Sales and Reservations costs
 Airport charges
 Operating costs (salaries, office expenses etc)
 Fuel prices

Fuel prices 21

erating costs (salaries, office expenses etc) 16

Airport charges 10

Sales and Reservations costs 2

Advertising and Promotion costs 10

Station costs 4

Distribution costs 0

  Air craft maintenance costs 5

In flight services costs 6

0 5 10 15 20 25

Reasons/Objectives Analysis

Major determinants of cost per seat Fuel Prices, OC, Airport charges,
Advertisings & Promotions
Identification of Fixed and/or Variable Variable costs are larger contributors to
costs cost per seat
Identification of leakages and scope of Scope of Reduction in Advertising and
reduction Promotion costs

26 | P a g e
5. Does direct distribution of tickets influence the price of tickets?
a. Yes
b. No

Yes 13

No 12

0 2 4 6 8 10 12 14 16 18 20

Reasons/Objectives Analysis

Effect of direct distribution on price of Non- conclusive

tickets

6. Rank the following days according to maximum passenger volume:

27 | P a g e
 DAY RANK
MONDAY
TUESDAY
WEDNESDAY
THURSDAY
FRIDAY
SATURDAY
SUNDAY

160
120
80 171
147
115 105 35
40 64 63
0

28 | P a g e
7. Rank the following days according to maximum price of the ticket:

DAY RANK
MONDAY
TUESDAY
WEDNESDAY
THURSDAY
FRIDAY
SATURDAY
SUNDAY

160
120
80 168
143
112 111
40 73 58 38
0

29 | P a g e
Combined Analysis

160 160
120 120
80 168 143 80
111 112
40 73 58 40
38
0 0

Price Passenger Volume

Reasons/Objectives Analysis

Fluctuation of volume on different days Volume is directly proportional to price.

of the week and its effect on price Highest volumes are observed on
weekends and thus prices as well.

30 | P a g e
8. What parameter(s) do you think will make you capture additional passenger volume?

 More value addition to customers

 On time performance
 New improved aircrafts
 Introduction of New routes
 Others please specify

Others please specify 2

Introduction of New route s 16

New improved aircraft s 4

On time performance 16

More value addition to customers 14

0 2 4 6 8 10 12 14 16 18

Reasons/Objectives

Areas for scope of improvement to

capture additional passenger volume

VALUE ADD

NEW ROUTES
31 | P a g e
9. How would Low Cost Carriers ensure high aircraft utilization on unprofitable routes?

a. Offering the lowest prices in the industry

b. On time performance and high turnaround time
c. Faster check-in
d. All of the above

All of the above 9

Faster check-in 0

On time performance and high turnaround time 10

Offering the lowest prices in the industry 11

0 2 4 6 8 10 12

32 | P a g e
10. Which of the following offers and/or sales promotions do you use to attract customers?
b) Loyalty programs and membership
c) Discount on tickets
d) Corporate tie-ups
e) Cash Back offers
f) Others

Please specify:

   Others

Cash Back offers

   Corporate tie-ups

   Discount on tickets

  Loyalty programs and membership

Reasons/Objectives Analysis

Type of promotional activities Offers directly affecting the price

used by operators to attract are used more extensively
customers.

33 | P a g e
 Web Survey Snapshots on Facebook

34 | P a g e
Observational Findings

35 | P a g e
36 | P a g e
37 | P a g e
38 | P a g e
39 | P a g e
40 | P a g e
41 | P a g e
42 | P a g e
43 | P a g e
44 | P a g e
45 | P a g e
46 | P a g e
Limitations
 Head Offices of Airlines are not located in Pune city
 Operator Employees were reluctant to provide answers to the questionnaire.

47 | P a g e
Recommendations, Conclusions and Suggestions

48 | P a g e
49 | P a g e