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“COMPETITIVE AIRLINES” -An analysis of the strategies followed by airlines in India with special focus on low-cost airlines
AMIT KUMAR IBS Hyderabad
FINAL REPORT “COMPETITIVE AIRLINES” An analysis of the strategies followed by Airlines in India with special focus on low-cost airlines
Submitted to Prof. Sriram Rajann IBS Hyderabad Submitted by
Amit Kumar 08BS0000256 Batch – 2010 Mob: 9603981105
E-mail: email@example.com DATE OF SUBMISSION: January 6, 2010
This report is submitted as partial fulfilment of the requirement of MBA program of IBS Hyderabad. The report on the title “COMPETITIVE AIRLINES-An analysis of the strategies followed by Airlines in India with special focus on low-cost airlines“ is an original work and has not been submitted to any other institution or university for the award of any degree or diploma. Place: Hyderabad Date: January 06, 2010 AMIT KUMAR
Apart from individual efforts, the success of any project depends largely on the encouragement of many others involved directly and indirectly. I take this opportunity to express my heartfelt gratitude to the people who have been influential in the progress of this project. I consider it my pleasant duty to acknowledge my deep sense of gratitude to my Faculty Guide- Prof.Sriram Rajann for his continuous guidance and direction to the exercise. I am equally thankful to my friends for their valuable and timely inputs in the progress of the project. Date: 06.01.2010 Place: Hyderabad
TABLE OF CONTENTS
PROJECT DESCRIPTION…………………………………………………………………….5 OBJECTIVE OF THE PROJECT…………………………………………………………….6 RESEARCH METHODOLOGY……………………………………………………………..7 INDIAN AVIATION INDUSTRY……………………………………………………………9 - EVOLUTION……………………………………………………………………………….09 - PESTE ANALYSIS…………………………………………………………………………13 - PORTER’S FIVE FORCE ANALYSIS………………………………………………..19 - SWOT ANALYSIS…………………………………………………………………………22 - PORTER STRATEGIES…………………………………………………………………..24 JET AIRWAYS……………………………………………………………………………………25 KINGFISHER AIRLINES………………………………………………………………………27 SPICEJET………………………………………………………………………………………….29 INDIGO…………………………………………………………………………………………….31 PARAMOUNT AIRWAYS……………………………………………………………………32 GO AIR……………………………………………………………………………………………..33 DECODING THE SURVEY……………………………………………………………………34 QUESTIONAIRRE……………………………………………………………………………….42 APPENDIX…………………………………………………………………………………………44 - MODELS……………………………………………………………………………………….44 - REPORT………………………………………………………………………………………..45 REFERENCES………………………………………………………………………………………53
Since its maiden flight in the chilled winters of December 1912, from Karachi to Delhi, Indian aviation Industry has traversed a long journey evolving synchronously and has metamorphosed into one of the most competitive airline industry in the globe. From being a privilege of the hedonist class, it has transformed into a more utilitarian way of travelling and is catering to more value seeking functionalist and pragmatist class of consumers too, in the form of no frill low cost airlines. The hegemony of the government owned monopoly of the sector has been thwarted long back with the effect of open sky policy of April 1990. As a repercussion, a plethora of airlines has pullulated and has transformed the arena into adrenaline gushing venture. As the percentage of fliers among the Indian population is only a paltry 0.8% and in order to survive and grow the airlines have been devising various strategies. It would be interesting to extricate the intriguing strategies adopted by these players parrying and pummeling the opponents. The study aims at learning the financial, marketing and operational strategies the airlines in India are following, albeit with a clinical approach. The project shall envelope studying the airlines industry in India in relation to various business models and also come up with suggestions, whose implementation would be in favour of the sector. The project aims at analyzing individual brands in the industry and chooses their strong points and come up with an idle hypothetical brand. A market survey of the existing fliers is planned to know their likings and disliking.
OBJECTIVE OF THE PROJECT
To have a holistic study of the industry, analyze the current scenario in perspective of models such as Porter’s 5 Force Model, Ansof’s Model, SWOT analysis etc., thus gain a multidimensional insight of the industry. To study business models of the existing airline majors in the country. To list up various strategies adopted in the industry by various players and have a clinical study of them. A market survey of the existent fliers in order to know their taste and preferences. To come up with constructive ideas for the benefit of the industry. To study the Indian Aviation Industry
To study the industry in various marketing models.
To study the major branding strategies.
To study the flier preferences.
I have decided to do the project in two parts. The first part of the project is comprised of the study of the Indian Aviation Industry as a whole and the second part deals with the fliers perception regarding different brands of airlines and different facilities with them. The first part of the project i.e. descriptive study comprises an overall study of the Indian Aviation Industry, the different brands of airlines, the strategies followed by them besides learning the various applications of marketing concepts in the industry. It will greatly be done with the assistance of the secondary sources such as the available books, research papers, the company websites and magazines. The second part of the project will try to bring out the brand preferences and the components of the brands and their services that made them score over the other brands. This shall be done by firsthand experience gained through the meetings with the existing fliers. Self administered questionnaire would be the tool in the implementation of the programme.
THE GAME PLAN
SURVEY DESIGN For the purpose of studying the population sample of 50 will be chosen among the fliers. Population will not be segmented on any basis for the purpose. RESEARCH INSTRUMENT The work will be carried out through self administered questionnaires. The questionnaire will include both open ended and close ended questions. DATA COLLECTION The data which will be collected for the study can be broadly classified into two categories: Primary Source: It includes questionnaires, interviews and word of mouth. Secondary source: It includes company records, past data records, internet sources and books. As the project entails analysis of existing strategies a lot of secondary source of data is to be banked upon. DATA ANALYSIS The data will be analyzed by using mathematical techniques. Various statistical tools would be considered and used to accomplish the job. Primary Sources
Questionnaires Personal Interviews Word of mouth
Research Papers Internet
THE INDIAN AVIATION INDUSTRY
The history of civil aviation in India started with its first commercial flight on February 18, 1911. It was a journey from Allahabad to Naini made by a French pilot Monseigneur Piguet covering a distance of about 10 km. Since then efforts were on to improve the health of India's Civil Aviation Industry. The first domestic air route between Karachi and Delhi was opened in December 1912 by the Indian State Air Services in collaboration with the Imperial Airways, UK as an extension of London-Karachi flight of the Imperial Airways. The aviation industry in India gathered momentum after three years with the opening of a regular airmail service between Karachi and Madras by the first Indian airline, Tata Sons Ltd. However this service failed to receive any backing from the Indian Government. At the time of independence nine Air Transport Companies were operational in the Indian Territory. Later the number reduced to eight when the Orient Airways shifted its base to Pakistan. The then operational airlines were Tata Airlines, Indian National Airways, Air service of India, Deccan Airways, Ambica Airways, Bharat Airways and Mistry Airways. With an attempt to farther strengthen the base of the aviation sector in India, the Government of India together with Air India (earlier Tata Airline) set up a joint sector company, Air India International, in early 1948. With an initial investment of Rs. 2 crore and a fleet of three Lockheed constellation aircrafts, Air India started its journey in the Indian aviation sector on June 8, 1948 in Mumbai (Bombay)-London air route. For many years since its inception the Indian Aviation Industry was plagued by inappropriate regulatory and operational procedures resulting in either excessive or no competition. Nationalization of Indian Airlines (IA) in 1953 brought the domestic civil aviation sector under the purview of Indian Government. Government's intervention in this sector was meant for removing the operational limitations arising out of excess competition. In 1953, the Air Corporation Act nationalized all existing airline assets and established the Indian Airline Corporation and Air India International for domestic and international air services respectively. These two companies enjoyed monopoly power in the industry until 1991, when private airlines were given permission to operate charter and non scheduled services under the ‘Air Taxi’ scheme to boost tourism. These carriers were not allowed at the time, to fly scheduled flights or issue air tickets to passengers. As a result, a number of private players including Jet Airways, Air Sahara, Modiluft, Damania Airways, NEPC airlines and East West Airlines commenced domestic operations. In 1994, following the repeal of the Air Corporation Act, private players
were permitted to operate scheduled services. Ultimately the carriers with more efficient operations and strategies survived and by 1997, only Jet Airways and Air Sahara made the cut from the original group. The next big change in the industry came in late 2003 with the emergence of India’s first no-frill airlines, Air Deccan. It revolutionized the industry, offering fares as low as INR 500 (USD 10 roughly), compared with Full Service fares offered by the incumbents, averaging about INR 3000 or more. Since then, Spice Jet (restructured Royal Airways and Modiluft), Go Airways and Kingfisher Air have also entered the industry. Paramount Airways is another player, though it is positioned on the other end of the spectrum, as an ‘all business class’ airline. With the further advent of online ticket sales through companies such as makemytrip.com, prices have crashed and tickets are available for as little as INR 0.99. In fact, now many airline tickets can be bought for a price comparable to an upper class railway ticket for the same route. In December 2004, Indian scheduled carriers with a minimum of 5 years of continuous operations and a minimum fleet size of 20 aircrafts, were permitted to operate scheduled services to internationals destinations. On January 11, 2005 the government designated four scheduled Indian carriers (Air India, Indian Airlines, Jet Airways and Air Sahara) to operate international services to and from Singapore, Malaysia, Thailand, Hong Kong, the UK and the USA. As a consequence today we have, eight private scheduled operators viz., Jet Airways(India) Ltd., Jet Lite Airlines Ltd., Kingfisher Airlines, Deccan Aviation (P) Ltd., Spicejet, Paramount Airways Pvt. Ltd , Go Airways, and Inter Globe Aviation Ltd.(IndiGo) were operating as Scheduled Private Airlines. In addition to these private airlines, two more airlines namely Alliance Air, subsidiary of Indian Airlines and Air India Express, subsidiary of Air India also commenced their operations in 1996 -97 and 2005-06 respectively. Air India, Air India Express, Jet Airways and Jet Lite Airlines Ltd as the designated airlines of the Government of India under various bilateral air services agreements have been authorized to operate long and medium haul scheduled international air services. Recently Kingfisher too have started international flights. Market share of these airlines as on April 2009 – (source: DGCA)
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Sector structure/Market size
The Indian aviation industry is one of the fastest growing aviation industries in the world. The government's open sky policy has led to many overseas players entering the market and the industry has been growing both in terms of players and number of aircrafts. Today, private airlines account for around 75 per cent share of the domestic aviation market. India is the 9th largest aviation market in the world. According to the Ministry of Civil Aviation, around 29.8 million passengers traveled to/from India during 2008, an increase of 30 per cent on previous year. It is predicted that international passengers will grow up to 50 million by 2015. Further, due to enhanced opportunities and international connectivity, 69 foreign airlines from 49 countries are flying into India.
The Indian Civil Aviation market grew at a compound annual growth rate (CAGR) of 18 per cent, and was worth US$ 5.6 billion in 2008. Airlines recorded a double-digit growth in air traffic in August 2009, according to data released by the industry regulator Directorate General of Civil Aviation (DGCA). Domestic airlines flew 3.67 million passengers in August 2009, as against 2.92 million in the corresponding period last year—an increase of 26 per cent. The Centre for Asia Pacific Aviation (CAPA) forecasted that domestic traffic will increase by 25 per cent to 30 per cent till 2010 and international traffic growth by 15 per cent, taking the total market to more than 100 million passengers by 2010. By 2020, Indian airports are expected to handle more than 100 million passengers including 60 million domestic passengers and around 3.4 million tonnes of cargo per annum. Moreover, significant measures to propel growth in the civil aviation sector are on the anvil. The government plans to invest US$ 9 billion to modernize existing airports by 2010. The government is also planning to develop around 300 unused airstrips. India ranks fourth after US, China and Japan in terms of domestic passengers volume. The number of domestic flights grew by 69 per cent from 2005 to 2008. The domestic aviation sector is expected to grow at a rate of 9-10 per cent to reach a level of 150-180 million passengers by 2020. The industry witnessed an annual growth of 12.8 per cent during the last 5 years in the international cargo handled at all Indian airports. The airports handled a total of 1020.9 thousand metric tonnes of international cargo in 2006-07.
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Further, there has been an increase in tourist charter flights to India in 2008 with around 686 flights bringing 150,000 tourists. Also, there has been an increase in non-scheduled operator permits – 99 in 2008 as against 66 in 2007.
Low cost services
Major full-service carriers have converted around half their capacity into low-cost services, which has resulted in bringing down the average fares of airlines as a whole by about 30 per cent and thereby increasing demand from the domestic passenger market. Kingfisher Airlines and Jet Airways have converted around half their capacity into low-cost services. While, government carrier Air India plans to launch a low-cost model in the domestic skies. It already has a low-cost airline called Air India Express which operates on international routes. Jet Airways has also increased the number of low-cost seats in the system by around 50 per cent. Low cost carriers (LCCs) such as Indigo and Spice Jet have increased the total number of seats by 40 per cent and 53 per cent, respectively, in the past year. SpiceJet is also working on a plan to start international operations next year, making it the third private Indian carrier after Jet Airways and Kingfisher to fly overseas.
The Indian aviation sector is likely to see clear skies ahead in the years to come. Passenger traffic is projected to grow at a CAGR of over 15 per cent in the next 5 years. The Vision 2020 statement announced by the Ministry of Civil Aviation, envisages creating infrastructure to handle 280 million passengers by 2020. Investment opportunities of US$ 110 billion envisaged up to 2020 with US$ 80 billion in new aircraft and US$ 30 billion in development of airport infrastructure. Associated areas such as maintenance repair and overhaul (MRO) and training offer high investment potential. A report by Ernst & Young says the MRO category in the aviation sector can absorb up to US$ 120 billion worth of investments by 2020. Aerospace major Boeing forecasts that the Indian market will require 1,000 commercial jets in the next 20 years, which will represent over 3 per cent of Boeing Commercial Airplanes’ forecasted market worldwide. This makes India a US$ 100 billion market in 20 years.
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The literature on marketing provides one, particularly useful, model for the study of a firm’s Marketing Environment. This model proposes that the relevant factors should be divided into the categories of Political, Economic, Social, Technological and Environmental. These factors are not mutually exclusive but then the classification helps in understanding each ones influence. Following are the factors Political factors Economic factors Social factors Technological factors Environmental factors
POLITICAL FACTORS The political situation of the country has a direct impact over the aviation industry of the country. The policies taken up at this level such as the nationalization of the carriers, open sky policy, and taxation all have impact on the marketing policies of the carriers. Open Sky Policy and Deregulations Throughout its history, the airline industry has been constrained by decisions made by politicians and governments. Governments have controlled where airlines can fly, and aspects of their product planning and pricing policies. They have also had a major involvement in the industry through the ownership of airlines. Finally, political decisions have often affected the extent, nature and geographical distribution of demand. In recent years India has open up its sky to the foreign players. It has signed up with nations all over the world (though not all of them) to allow use of their respective airspace for the commercial flights. It has led to increase in the number of players in the sector and has beefed up the competition. Currently there are 76 carriers from 49 countries operating as an outcome of ‘Open Sky policy’. In 1953, the Air Corporation Act led to nationalization of the airlines. It changed the landscape of the airline industry in India. It was in 1994 that the Air Corporation Act was repealed and thus this allowed private operators to operate in the domestic airline and aviation industry. Today FDI up to 49% into airlines and 100% for airports. A brief of the various decisions taken by the government in deregulation of the sector and opening to the foreign policy.
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Aviation Policy Many policies supporting infrastructure are now in place. 100 per cent FDI under automatic route is permissible for Greenfield airports. For existing airports, FDI up to 74 per cent is permitted through automatic approvals and up to 100 per cent through special permission (from FIPB). Private developers allowed to setup captive airstrips and general airports 150 km away from an existing airport. 100 per cent tax exemption for airport projects for a period of 10 years. 49 per cent FDI is permissible in domestic airlines under the automatic route, but not by foreign airline companies. 100 per cent equity ownership by Non-Resident Indians (NRIs) is permitted. 74 per cent FDI is permissible in cargo and non-scheduled airlines. The Indian government plans to set up an Airport Economic Regulatory Authority to provide a level playing field to all players. Major Investments Over the past year, various companies have shown an interest in the Indian aviation industry. Investment in airport infrastructure was over US$ 5 billion in 2008 and will go up US$ 9 billion by 2013, of which close to US$ 6.8 billion is expected to come through public private partnerships (PPP) model, according to a study by research firm Frost & Sullivan. Tata Advanced System Limited (TAS), a unit of the Tata Group, will set up a US$ 113.63 million helicopter manufacturing unit at the Aerospace Special Economic Zone (SEZ) in Adhibatla village near the Hyderabad international airport. Further, the company has formed a joint venture with US-based Sikorsky Aircraft to make aerospace components in India. US aircraft maker, Boeing Co, will deliver 100 planes worth US$ 17 billion over the next four to five years to India. Changi Airports International is ready to enter into joint ventures with more Indian companies in developing airports. The company, which has picked up a 26 per cent stake for US$ 20 million in Bengal Aerotropolis Pvt Ltd (BAPL) is looking at other opportunities. State-owned aerospace firm Hindustan Aeronautics Limited (HAL) has signed an agreement with Boeing to supply flaperons for the Boeing's 777 series commercial jetliners. It is understood that HAL will supply 600 units of flaperons to Boeing which will be delivered in phases by 2019.
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European passenger plane maker Airbus SAS will move 20 per cent of its engineering and design activities to low-cost countries, a majority of it to India, by 2012. Airport Infrastructure Mumbai and Delhi airports have already been privatized and are being upgraded at an estimated investment of US$ 4 billion over 2006-16.Greenfield airports are operational at Bangalore and Hyderabad. These are built by private consortia at a total investment of over US$ 800 million. A second Greenfield airport being planned at Navi Mumbai is going to be developed using public-private partnership (PPP) mode at an estimated cost of US$ 2.5 billion. 35 other city airports are proposed to be upgraded. The city side development will be undertaken through PPP mode. Over the next five years, AAI has planned a massive investment of US$ 3.07 billion—43 per cent of which will be for the three metro airports in Kolkata, Chennai and Trivandrum, and the rest will go into upgrading other non-metro airports and modernizing the existing aeronautical facilities. An investment of US$ 623 million will be made by industries in the Aerospace and Precision Engineering Special Economic Zone at Adibatla, Ranga Reddy district. The country's first special economic zone (SEZ) dedicated to the aerospace industry has been inaugurated in Belgaum district, Karnataka. The SEZ—promoted by Quest Global, an aerospace engineering and manufacturing company—was undertaken at an investment of US$ 32.5 million. [Nov 16] Abolishment of Taxes Foreign Travel Tax (FTT) Rs500 and 15% inland air travel tax (IATT) charged on Basic airfare has been abolished by the government w.e.f from January 9, 2004 to reduce fares. Reduction on Excise Duty From January 9, 2004, the excise duty on ATF was reduced from 16 to 8 per cent. The average domestic price of ATF is 99 per cent higher than prices in foreign countries and affects domestic airlines drastically as ATF accounts for 30 to 40 per cent of operating costs. Landing Charges abolished Landing charges for aircraft with less than 90 seats were abolished and landing charges for larger aircraft have been reduced by 15% with effect from February 11, 2004.
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The demand for air travel is characterized by very high income elasticity. Therefore, as the world economy grows, so the demand for air travel can be expected to increase too. This continuing growth gives both enormous opportunities and great challenges to the airline industry. The opportunities come with the chance to exploit a growing market, something which would be the envy of managers in many other industries. The challenges are to accommodate the growth through suitable infrastructure development and without unacceptable environmental consequences, and to exploit the demand whilst achieving the stable profits which the industry has so often found elusive. Besides a clear pattern of growth, growth rates are uneven through time. Just as one would expect, air transport industry growth rates are tied closely to those in the world economy. If growth in the economy is rapid in a particular year, so is the increase in air travel demand. Periods of economic stagnation see a significant slowing of the rate of increase in demand. This pattern has immense strategic and marketing implications. It is not sufficient for carriers to implement policies which allow for profits during prosperous periods if these same policies result in heavy losses or bankruptcy during the downturns in the trade cycle. The rising income of the Indians will see a rise in the air travelers, however the recent recession showed up we must be cautious in capacity increment. The down turn had led to losses worth millions due to inadequate capacity utilization.
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SOCIAL FACTORS Trends in social factors will have widespread consequences for airline marketing – indeed, in some senses, this is the most significant component of the PESTE analysis model as far as marketing policies are concerned. Change in Lifestyle The changing demographics have profound effect on the marketing strategies of the airlines. The Indian population is going through a transition phase. The high percentage of youth coupled with increasing job avenues certainly hints at the growing income and the aspirations. There have been rise in the old aged population also due to medical breakthroughs. And the society is more open to embrace new ideas of single parent children, nuclear families, live in relationships, childless couples, etc. All these calls for newer approaches to design of promotional strategies. For example, Spice Jet has taken special initiative to take care of child travelers without guardians. Rise in Leisure travel There has been a significant rise in the number of the tourists in the country. India had acquired a total 5.5 million tourists traversing the country. Number of foreign tourists has seen a growth of 5.6% whereas the domestic tourists’ numbers have seen a growth o 8.5%. This is seen as a huge booster to the airlines industry. The Female business Traveler Female population has shown a higher numbers in the business scenario. The growing numbers have led to call for the decrease in sexually provocating skimpy clad air hostesses. Moreover there has been rise in the number of male steward among the cabin crew. This meant there has been a change in the attitude towards the crew staff. TECHNOLOGICAL FACTORS Technology is one of the most important and interesting factor which can be both an ally as well as an enemy. Technology has enabled aviation sector to soar greater heights with more efficiency. Larger aircrafts like the Boeing 787 can take up to 840 passengers reducing the per capita fuel consumption whereas Embraer with greater are just the idle for shorter distances. The CAT technology employed in International airports of the country has helped the pilots to take off and move in even during the low visibility hours. But then some of the technological developments have posed to be fierce competitors.
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Video Conferencing Video conferencing has enabled to make real time meetings possible at the minimum of cost. This has helped the organizations to cut down on the cost. But that leaves the aviation industry of greater challenge to attract the business travelers. Internet Internet has enabled to provide real time information of flight schedules and availability. It has also enabled check in facility. Even some of the airlines are providing internet facility over the flight however internet has raised questions over the distribution channel commission. Surface Transport Investment The investment in the surface transport has lead to major losses of domestic passengers. With the plans in anvil to launch high speed bullet trains in some corridors, if that comes to reality that shall take away a major portion of the revenue. ENVIRONMENTAL FACTORS As the concerns for the environment grows with the rise in global temperatures. It becomes obvious that the airlines are criticized all over the world by the pro environmentalists. Government too in order charges higher taxes in order to dissuade the short distance travelers from taking the air routes. There are high ATF charges. On the other hand the available infrastructure is not conducive to handle the burgeoning airlines
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Porter’s Five forces Analysis
Threat of New Entrants Aviation industry is highly cost intensive. Besides it has to go through a number of regulatory compliance before it gets an excusatory order. The factors which make entry of new entrants in the Indian Aviation sector a difficult task are the following • • The capital requirement- An airline is required to have capitalization of minimum thirty crores without which it is not allowed to takeoff. Expected retaliation-The market is concentrated in the hands of a few players thus any new player would to face stiff competition and retaliation from the existing players such as Jet Airways and Indian. • • • Inadequate airport infrastructure often makes it difficult for the new entrants to get right flying slot time. Shortage of pilots and high fuel costs also pose a threat as the existing demands itself are not being fulfilled. Exit barriers-The high capital requirement makes it difficult for the companies to exit the market but being a growing industry the existing players are willing to acquire and make exit for an operator less difficult.
Power of Buyers • The power of buyers is low because they are large in number and highly fragmented. The increasing GDP and the introduction of low cost airlines has not only increased the existing number of buyers but opened the doors for a huge opportunity of growth. However the power is not as low as it could be because of minimal switching cost and alternatives available. A customer does not have to incur cost to move from one airline to another he might incur a cost if he has signed a contract otherwise no costs are involved which increases the power of the buyers. Along with this the various options available between airlines and even other modes of transport helps the buyers. • Further there is no differentiation among the players in the same segment example the differences between Air Deccan and Spice Jet is minimal.
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Power of Suppliers The power of the suppliers is limited and thus their power is high. • • Concentration of suppliers-The suppliers of pilots and ATF are highly concentrated which increases their power. Switching costs-If we look at the aircrafts there are only two suppliers Boeing and Air Bus thus the options available with the airlines to switch between is very limited and thus the switching costs are high but sometime the competition between the two manufacturers reduces the costs to some extent. Brand value-Less number of suppliers results in a high brand value which works in their favor and increases their bargaining power. • Forward integration-The airlines also face a threat of forward integration. Though such an instance has not taken place in the past it may take place in the future as the suppliers have or know about most or the technical aspects of the industry. There is an acute shortage of pilots which makes the industry dependent on them. High fuel costs-Fuel accounts for nearly 35% of the total cost and the cost of fuel is increasing rapidly posing a threat to the company’s profits.
Availability of Substitute • • Product for product substitution-Consumers has various options in terms of airlines to choose from. They may also switch to other modes of transport such as road and rail. Substitution for need- With the advent of technology options such as video conferencing and conference calls reduces the need to travel thus the option of substitution of need in present but it is marginal as it is not possible to totally do away with traveling.
Competitive Rivalry The competition in the industry in high but the intensity of the competition has been reduced as it is an expanding market. • The number of airlines is increasing which increases the level of competition among airlines. Earlier when we thought of airlines the only name would be Indian Airlines but today the list is long and growing with new carriers like Goair trying to make a mark in the industry. More over six new low cost airlines are expected to come up. High fixed costs and input constraints also add to the competitive pressures in the industry.
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Like every industry mergers and acquisitions take place here too which increases competitive rivalry between airlines which in turn force more airlines to opt for mergers and acquisitions thus forming a viscous circle of competition.
Low level of differentiation between the services offered by the different airlines increases the risk of switching and thereby adds to the competition. The industry is expected to grow at 22% which actually gives scope to the existing players and new ones to operate and reduces the extent of competition.
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Strength Lower air fares Tourism in India Growing outbound travel in India Growth potential Liberalization of sector Modernization of non metro airports Rising share of low cost carriers Fleet expansion by state owned carriers The opening up of new international routes by Indian government Establishment of new airports and restructuring of old airports
Weakness Poor infrastructure at airports. Acute shortage of trained pilots and technicians. Stiff rules and regulations for operation. High operational cost for airlines. High security threats in the subcontinent. Training infrastructure incompatible both in terms of quality and quantity. Shortage of qualified instructors due migration to schedule operation. Pressure on quality standard of inducted pilots. Infrastructural constraints.
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Opportunities The number of air travelers is about 0.8 per cent of the population India's civil aviation passenger growth, at 20 per cent, is among the highest in the world. India's civil aviation ministry expects 100 million passengers by 2020. India anticipates doubling of passenger traffic over the next decade. Economic Growth Vibrant middle class: Increasing Consumerism and Affordability ”common man Under-penetrated markets Growth in Tourism Currently domestic passenger market is growing at 50% Threats Government Regulations; though the govt. is making changes in the regulations, it needs to move at a much faster pace on this. Aviation in India is over regulated and needs to free itself from govt. shackles. Inadequate infrastructure. Acute shortage of Pilots and maintenance engineers. Security and safety. Low profit margins and high operating costs. Other faster means of transportation
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STRATEGIC ADVANTAGE Uniqueness perceived by the customer Low cost position
OVERALL COST LEADERSHIP
STRATEGIC TARGET FOCUS Particular segment
Overall Cost Leadership A Cost Leader firm has a set of clear requirements it must satisfy if it is to be successful. Firstly, it must achieve, and then sustain, significantly lower operating costs than its rivals. If it loses its cost advantage, it will be in serious difficulties. Secondly and crucially, it must correctly identify what its customers are prepared to give up, and what they are not prepared to give up, in order to gain access to cheap prices. Eg. SpiceJet, Jetlite. Focus The concept of Focus is one where a firm chooses to give up all the potential benefits of synergy by concentrating on one activity. Their aim is to achieve such expertise in this one area that they will be able to hold off the challenge of those who are benefiting from synergies in either the Cost Leader or Differentiation sectors. Eg. Paramount Airways on business travelers. Differentiation The concept of differentiation holds on that the product or service should be designed in such a way that the user perceive it to be different from its competitors. This would increase the change cost and thus help in charging even a premium.eg Jet Airways.
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Jet Airways is a Mumbai based airline promoted by Mr. Naresh Goyal, is the second largest airline in the country after the government owned Air India and the market leader in the domestic airways. It operates more than 400 daily flights to 65 destinations worldwide. With Jet Konnect and Jet Lite (formerly Air Sahara), it caters to all categories. Strategies Started as Jetair private limited, by leasing 4 Boeing 737-300 it received scheduled airlines status in 1995. It went for inorganic growth by the acquisition of Air Sahara for 14.5 billion rupees on April 12, 2007 and renamed it Jet Lite. It also helped in market penetration as Jet Lite was directed to serve lower class segments. Today it has 84 aircraft under its service. The airline runs on hub and spoke model. Jet started operations in International routes since March 2004 when it had its first international flight between Chennai and Colombo. Currently Jet Airways serves 21 destinations in 17 countries across Asia, Europe and North America. During the recent recession in 2008 the company got into alliance with Kingfisher Airlines, agreed upon code sharing on both domestic and international flights, joint fuel management to reduce expenses, common ground handling, joint utilization of crew and sharing of similar frequent flier programs. Codeshare agreements It has code share agreement with a number of airlines like Air Canada, All Nippon Airways, American Airlines, Brussel Airlines, Etihad Airways, Jet Lite, Malaysia Airlines, Qantas and Virgin Atlantic. Similarly it has marketing agreements with a number of airlines. Services The premiere class shown here on the left is available on International flights configured in herringbone pattern and is equipped with 15.4 inch flat screen LCD TV. USB ports and laptop chargers are available. On the domestic arena the business class seats have the massager. The First class service (see the picture on right) available in the airlines has been recently rated by Skytrax as the 14th best in the world. These are the first fully enclosed suite provided by any Indian airline. They are equipped with 21 inch LCD screen and AVOD besides all the features of premiere class. They have received 3 star rating for its service by skytrax. The Economy class is provided with 10.5 inch LCD and AVOD. All the three classes feature Mood Lighting that adjusts itself to the time of the day.
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The Jet Lite division has withdrawn the complimentary food service and has implemented buy on board. Unlike the parent airline Jet lite has its hub at New Delhi. The airline is also into charter flights and helicopter service. Jet Konnect airways is the other low cost no frill airline by the Jet airways group. To complement the Jet Lite service it focuses more on southern states. In Flight Entertainment All the Jet Airways flight provide, “Jet Screen”, which offers audio-video on demand programming. It has over 100 movies, 80 TV programmes, 11 audio channels and a CD library of 125 titles. The system operates via individual touch screen monitors at each seat, and is available in all classes. Airport Lounges Jet Airways Lounges are offered to First and Première Class passengers, along with Jet Privilege Platinum, Gold or Silver card members. The international lounge at Brussels has showers, business centre, entertainment facilities and children's play areas. Lounges are located in Bangalore, Chennai, Kolkata, Delhi, Hyderabad, Jaipur, Mumbai.
Frequent Flier Programme Known as JetPrivilege it helps to redeem points earn for miles traversed. Jet Mall This is the unique mall provided by the Jet Airways to shop souvenirs at 30000 feet. Jet Wings Jet Wings is the inflight magazines. Jet Travel Jet has alliance with a number of hotels Such as Leela and Taj where the passengers can get discounts if they are privilege members of the Jet. They provide special service for infants, olds, medical emergencies, expectant mothers and animals. Check in can be done by SMS, on Net, and Kiosks. Their Website has the option to choose from a plethora of language to cater to understanding of people from different parts of world.
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Kingfisher Airlines is a Bangalore based Airline owned by the United Breweries Group led by Vijay Mallaya. The only Indian and the one of the six in the world to have received the 6 stars rating for its services by the Skytrax operates more than 400 flights a day connecting 72 destinations the world over. Strategies It started the business on May 2005, with dry leasing of 4 new Airbus A320-200.Today the group has into its umbrella 69 aircrafts and is committed to become the country’s largest in the nearest future. It is again based on the hub and spoke model. Kingfisher was the first Indian Airline to introduce in-flight entertainment in every seat. Kingfisher Airlines' fleet currently consists of ATR42, ATR 72 and Airbus A320 family aircraft for domestic and short haul services and Airbus A330-200s for international long-haul services. The average age of its fleet as of January 2009 was 2.3 years. During the recent recession it went into codesharing alliance with Jet Airways. Services Both on domestic and international routes there are the Kingfisher First and Kingfisher Class. Kingfisher first is the higher premium one. Kingfisher First passengers are provided with recliner seats which bend up to 125 degrees for the domestic routes and 180 degrees in the international routes. All of them are provided with personal television with AVOD screen 16 channels of Live TV, Bose noise cancellations headphones, a wide collection of Bollywood and Hollywood movies. Kingfisher Class is the lower version of the Kingfisher First with reduced services however it too has the entertainment facilities though with a much smaller range of choices.
After Kingfisher Airlines acquired Air Deccan, its name was changed to Simplifly Deccan and subsequently to Kingfisher Red. Kingfisher
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Red is Kingfisher Airline's low-cost class on domestic routes. Passengers are given complimentary in-flight meals and bottled water. A special edition of Cine Blitz magazine is the only reading material provided. Kingfisher Elite is the charter service provider to individual clients. This is provided via helicopters and charter plains. On the right is the picture of the bar of a Kingfisher elite aircraft. Airport Lounges Kingfisher Lounges are offered to Kingfisher First passengers, along with King Club Silver and King Club Gold members. Lounges are located in India at Bangalore, Chennai, Delhi, Hyderabad and Mumbai. Marketing Strategies The Frequent-flyer program of Kingfisher Airlines is called the King Club in which members earn King Miles every time they fly with Kingfisher or its partner airlines, hotels, car rental, finance and lifestyle businesses. There are four levels in the scheme: King Club Base, Red, Silver and Gold levels. Members can redeem points for over a number of schemes. Gold and Silver members enjoy access to the Kingfisher Lounge, priority check-in, excess baggage allowance, bonus miles, and 2 Kingfisher First upgrade vouchers for Gold membership. Kingfisher allows booking of tickets as well as inquiry of flights through mobile. It has co branded with American Express on corporate tickets and allowed 8 % rebate on the ticket charges. They have also special packages for the corporate travelers. Kingfisher Holidays in association with Kingfisher Airlines provide holiday package to its passengers. The Little wings programme is designed for the kids that focus on their entertainment through comics, magazines, interactive games, etc. Iconic Power Kingfisher Airlines believes in the iconic power of the personality and so for the promotion always uses the celebrities. Vijay Malaya himself maintains a celebrity aura. The website maintains that Vijay Malaya himself listen to the grievances of the passengers. Its brand endorsers are Yana Gupta and Deepika Padukone.
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SpiceJet is a low-cost airline based in Delhi, India. It began service in May 2005 and by 2008, it was India's second-largest low-cost airline in terms of market share. SpiceJet was earlier known as Royal Airways, a reincarnation of ModiLuft. It is promoted by Ajay Singh and the Kansagra family. The Airlines has its base at Delhi and covers the major 18 airports throughout the length and breadth of the country with its fleet of 21 aircrafts. SpiceJet was voted as the best low-cost airline in South Asia and Central Asia region by Skytrax in 2007. Spicejet also wins World Travel market 2009 award. Strategies SpiceJet marked its entry in service with Rs. 99 fares for the first 99 days, with 9,000 seats available at this rate. This deal was followed up with a Rs. 999 promotional scheme on select routes. Their marketing theme is ‘offering low, everyday spicy fares’ and great guest services to price conscious travelers. Their aim is to compete with the Indian Railways passengers travelling in air conditioned coaches. SpiceJet too follows the hub and spoke model. On July 15, 2008 Billionaire Wilbur Ross suggested he would invest $80 million (about Rs 345 crore) in the low cost airline. The board of directors of SpiceJet accepted an offer in-principle from the US-based PE firm that would make available about Rs 345 crore to SpiceJet, a joint statement issued by SpiceJet and WL Ross & Co. They have tried to achieve better efficiency by quickly imbibing the learning curve and experience curve among the crew. For the same they have utilised the service of only single type of aircraft namely Boeing 737. Boeing 737-800 (189 passengers)
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Spicejets on-time performance is amongst the best in India and coupled with a Technical Dispatch Reliability of 99.6%, makes it an airline with least cancellations. SpiceJet passengers are insured against a premium (included in the fare) of Rs 129 of any accidents, flight delays, baggage loss, flight cancellation, accidental medical reimbursements, etc with the Tata AIG. This has helped the organization to decrease the loss out of the above mentioned circumstances. Marketing Strategies Spicejet has tied up with the finest hotels that bring you a host of great offers.It includes hotels such as Sheraton, Golkonda, Trident, Ista, Maidens, Rain Tree, The Park and the Kenilworth Goa. To avail the programme on need to member of Privelege Pass. For the service men and women SpiceJet gives special discount upto 100% discount on base fare. Corporate Benefit Program addresses the business traveler's needs. The program is a customized program designed to provide maximum cost savings to the organization while offering loads of benefits for the individual business traveler. The tickets are provided at discounted price of up to 50% and are coupled with various other incentives on volume basis. Similarly volume based incentives are also available for group bookings. SpiceJet has tied up with State Bank of India and its debit card can be used to book tickets. In this context it is to be mentioned that most of the airlines provide the booking facilities only against credit cards. It has appointed i-Vista Digital Solutions to handle its online marketing initiatives. Services SpiceJet does not provide complimentary food, however they have the facility to buy on board. Mineral water is provided free of charge. There are no entertainment facilities. One of the most innovative programme started by SpiceJet is that they take care of the unaccompanied minor from the take off airport to the destination airport without any extra charge. This means now one can even leave there young ones also under the guardianship of SpiceJet. The website provides all the information regarding PNR status, flight status, bookings, and also web check in, besides the promotional offers and corporate governance activities.
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IndiGo is a private domestic low-cost airline based in Gurgaon, Haryana, India. It operates domestic services linking 17 destinations. Its main base is Delhi's Indira Gandhi International Airport. IndiGo Air is owned by an Indian named Mr Rahul Bhatia. The airline commenced operations on 4 August 2006 and today it has 23 aircrafts to its fleet. Strategies Indigo connects to 17 destinations all within India. They have only Airbus A320 – 200 under its fleet to garner quicker from the learning and experience curve. They have the youngest fleet in India with an average age of only 2 year as on April 2009. Large expansion plan is on anvil. IndiGo placed an order for 100 Airbus A320 family aircraft during the 2005 Paris Air Show. The total order was worth US $6 billion, one of the highest by any domestic carrier during the show. The carrier has set a target of serving approximately 30 Indian cities by 2010 with a fleet size of 40 A320 and A321 aircraft. The airline will receive all 100 A320 family aircraft by 2016. The Indian Government has approved the airline's aircraft import plan "in principle". It focuses on the Eastern region much more than others. Services Being a low cost carrier, IndiGo does not offer a complimentary meal service to its passengers. However, it does offer a buy-on-board food service where items such as sandwiches, parathas, cookies, nuts and soft drinks can be purchased. Mineral water is provided free of charge. They emphasize on the punctuality and have been maintaining the best record in the industry in that aspect. On time performance MONTH PERCENTAGE 85.7 MAY’09 86.9 JUN’09 86.5 JUL’09 88.3 AUG’09 88.4 SEP’09 They have tried to keep things simple by cutting the cost in every possible manner. They focus only on their core business and have refrained from any tie ups with business of other spheres like hotel and travel. As recognition of their feat in passing the benefits of to the consumers it has been recognised by a number of organizations. This is the only other airline to provide tickets on debit cards Indigo bagged the NDTV Profit Business Leadership Award 2009 in the category of Aviation. Indigo also won the CNBC AWAAZ Travel Award ‘09 and was adjudged the best low cost carrier.
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Paramount Airways is an airline based in Chennai, India. It operates scheduled services, mainly targeting business travelers. Its hub is Chennai International Airport. It is promoted by Mr.Thiagarajan who is a Pilot and a keen Aviation enthusiast. He hails from a illustrious Industrial family from South India that have been Pioneers in the field of Textiles. Strategies In India the Government does not levy landing charges on aircrafts of capacity below 90 passengers. Paramount airways has taken the point well off for its benefit. They are the first in the country to employ the New Generation Embraer 170/190 aircraft. These crafts are often been abbreviated as e-jets too. They are shorter than the normal aircraft that are employed in the business, and with great fuel efficiency makes it idle for the short hauls. In addition they escape the landing charges as they accommodate only 88 passengers. Paramount Airways connects point to point and unlike the others have targeted cities with lower air traffic. These help to save on the costly fuel wasted due to congestion. They operate in 12 cities of the country. Starting in 2005, currently they have a fleet size of 5 with an average age of 3.4 years which are due to enlarge once they start the international services from the year 2011. To meet the target they have already placed order for 10 Airbus A321. To meet the financial needs they have loaned from the European Central Bank. They are the only Airline in India to offer Full Business Class service at prices comparative to Normal Economy class fares of other Airlines. Their focus is to provide unparalleled comfort and convenience. It focused initially in South India and holds share of market leader in the region. Services They don’t have any middle seats and provide larger space than the competitors in the same category. They provide a wide variety of to satiate the palate. The dishes have been design taking in consideration various tastes and nutritional requirements. The website provides detail on that. Marketing strategies Paramount has started the Paramount Royal membership which allows the fliers to redeem points earned corresponding the mileage. Accrued points can be redeemed for free air travel, benefits, privileges and upgrades across Paramount Airways flights. They provide e check in facility, booking of tickets by credit cards. They have also tied up with a number of hotels of all ranges and help the fliers to book them online through their website. They have won the “Arch of Europe” award recently.
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Wadia Group owned, GoAir is a low cost airline based in Mumbai. It operates domestic passenger services to 11 cities with 385 weekly flights. Its main base is Chhatrapati Shivaji International Airport, Mumbai. GoAir took the wings on 9 June, 2005. Strategy It started by leasing of Airbus A 320. Today it has 8 A320s in its fleet. Choosing a single type of aircraft has helped them get efficiency quicker. It also follows hub and spoke model. They have tied up with TATA AIG to cover insurance for all its passengers for all delays, accidents, cancellations, baggage loss, etc. GoAir has outsourced all reservation and passenger managemnt functions to Radixx International of Orlando. Services Being no-frills airlines, Go does not offer a complimentary meal service to its passengers. However, it does offer a buy-on-board food service where items such as sandwiches, parathas, cookies, nuts and soft drinks can be purchased. Mineral water is provided free of charge. However for the business class they provide complimentary food. They also allow up to 35 kgs of free baggage which is one of the highest in the sector. Marketing Strategies GoAir invests a lot into brand promotion. GoAir airliners come in green, orange, blue, and pink. This has been done consciously to grab the attention of people. They have also roped in Preity Zinta to become the brand ambassador of the airline. GoAir is positioned as ‘The Smart People's Airline’. Its captivating theme, ‘Fly Smart’ is aimed at offering passengers a consistent, quality-assured and time-efficient service. It’s unique product portfolio comprises of some of the most innovative offerings in the industry including GoSave, GoFlexi, GoHappy and a bundle of Red Eye flights. From time to time they launch variety of offers to boost the sale of tickets. For group bookings they give special discounts. They also give special discounts to Defence, Paramilitary and police personnel. They also help in booking of buses and hotels through their websites. It has the distinction of least cancelled flight – 0.9% between June and November 2009.
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DECODING THE SURVEY INTRODUCTION
The survey for the purpose was conducted in Kolkata Domestic Airport in between April 04, 2009 and April 11, 2009. The sample was picked up from Dumdum Airport, Kolkata. The sample size is 50 with respondents between 17 and 55 years of age. The average age of the respondents is 33.4 years and the median age is 35 years. The income of the respondents varied from a yearly income of Rs. 2,75,000 to Rs. 15,00,000. The average income of the respondent is Rs. 5,17,000 and the median income is Rs.4,46,000. The respondents were chosen without any class differentiation. The survey was conducted through structured questionnaire besides a lot of informal discussion was done with respondents. DEMOGRAPHIC PROFILE OF THE SAMPLE Sample Size :50 Location : Dumdum Airport, Kolkata Age : Maximum – 55 years Minimum – 17 years Mean - 33.4years Median - 35 years Income: Maximum – Rs.1500000 Minimum - Rs. 275000 Average - Rs.517000 Median - Rs. 446000
LIMITATIONS OF THE STUDY
The results obtained from the survey and the outcomes along with suggestions and recommendations have been presented in the following pages. However at this stage of the report it is needed to keep the following limitations of the study in mind. A sample size of only 50 may or may not elucidate the true picture prevailing in the population. Hence the results must not be generalized for the whole population. It is believed that the respondents have revealed the true views. However any false details on the part of the respondent will spoil the picture. Comparison of only Low Cost airlines has been considered while other has not been taken into consideration which could have given some more reasons. The study will reflect the scenario present only in the present economic scenario which is going through extreme volatile conditions and may change with the change in market conditions. The sample chosen are of the above mentioned area and the findings will reflect the scenario of that area only.
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1. What is your preferred mode of travel between distant cities in India?
Preferred mode of Travel
Others Airlines Coach Rail Car 4 8 21 0 17
Others Car 0% 8%
Airlines 34% Coach 16% Rail 42%
From the sample of 50, 21 people equivalent to 42%, preferred railway as the mode of travel to transverse long distant cities within the country. Railways are preferred because unlike airports they are situated inside the cities. This helps in better connectivity. Moreover they escape the hassle of reporting much ahead the departure time to comply all the security check ups, besides railways being much cheaper. This situation is particularly true for distances around 500 kms. Superfast trains like Shatabdi Express and Rajdhanis help in commuting at much cheaper rate with comfort and saves time related to pre departure issues. Airlines are preferred over larger distances as it definitely saves a great amount of time and people find it worth paying in that case. In addition one more important point to be considered is that that as the taxes and air fuel surcharge for all the distances remain the same in India, over the long distances the price seems to be much more economical. Car And Coaches are neither cheap nor as comfortable as the other two. However for distances around 500 kms it is still preferred for going on vacations and family visits as it provide people with greater convenience. As other long distance mode of travel like waterways airships are not popular I the country and even we can consider them to be nonexistent we did not find any respondent using those mode.
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2. How would you categorize yourself in terms of air travel?
40% 28% 32%
Business Traveler 14
Leisure/ personal 16
32% or 16 of the respondents acknowledged that they use airway for leisure and personal reasons. As it has tipped the number of business travelers, it’s a good sign that shows that the average residual income of the Indians is increasing. In the recent years leisure or vacation has turned up to be an important factor pushing up the number. The success of Incredible India campaign has turned India into a major tourist destination. In addition to that HR policies of organizations have recognized recreation, leisure as an important employ motivation factor. They are also paying up for the employee vacations. This has also given fillip to the growth factor. On the other hand this may have been because of cutting on air travel by organizations due to recession. Decrease in business travel might have helped leisure/ personal factor to dominate the scene.
3. Which class do you usually travel in by air?
Business 26% First 8% Economy 66%
Low cost airlines have revolutionized the travel industry. It has made air travel within the reach of middle class. No surprise we find 66% of the respondent are travelling by economy class. This low cost no frill service gives the middle class value for the money. Even the organizations are utilizing the service. This has helped them to reduce the cost. Business class is preferred by rich and the top level executives. First class is again utilized by higher class.
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4. How many times did you travel by air in the last one year?
Count your numbers
30 20 10 0 1 to 5 6 to 10 11 to 20 21 to 30 31 and above
1 to 5 24
6 to 10 11
11 to 20 8
21 to 30 5
31 and above 2
We find around half the sample has travelled by air less than 5 times in the last one year and around two third has is under the double digit number. This proves that Indians still does not use air travel as frequently as people in America and Europe. The double digit number is touched mainly by the persons who are travelling due to business reasons. Again higher frequency is generally touched by the business class and first class travelers. So these classes are more profitable and CRM techniques must be employed to serve them better. Having a team to attend to the organizational travelers is important as they are the more frequent travelers.
5. What factors do you consider before buying a ticket?
1 2 3 4 5
Price of the Quality and Ticket service
Safety and Availability reliability of seat
As most of the sample was favoring the economy class it’s obvious it was the money that was the prime factor. Lowering of fares has resulted in zooming of numbers of fliers. Airlines often employ several promotional methods to lure the customers. Quality of service is again very important especially for those who travel by business and first class. Comfortability and legspace are important aspect under this service factor. Location of airport arrives at a third distant evaluation choice. But it is an important factor when one considers a distance around 500 kms or so. Under such circumstances there may not be much difference between the travel time of airline and other mode of transport. Safety and reliability is an important factor considered by all. As most of the airlines maintained a high safety standard it is the reliability that draws the attention. No wonder some of the airlines are boisterous in reflecting their on time performance. Availability of seat is of least consideration.
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6. How do you book your airline tickets?
Airline company office Internet 6% 22% Travel agent 72%
Travel agent 36
Airline company office 3
Travel agents are the most important medium of ticket booking in the country. This is reflected in the survey also. Because travel agents give big concessions to the customers from their commissions it is favored by the customers. Moreover Travel agents also help in proper selection of airlines as they have up to date information about all the offers and schemes given by the airlines at any point of time. To gain same amount of information it would require a lot of time collecting the data. Besides internet providing 24 hour booking facility, the presence of online agents such as makemytrip.com, yatra.com has helped internet to gain popularity.
7. How do you rate the Indian low cost airlines on the following parameters against their peers worldwide?
30 25 20 15 10 5 0 Poor Satisfaction Good Pricing 13 10 4 14 9 6 Safety Quality 5 2 Very Good 3 1 0 Excellent 28 26 24
In all the categories most of the respondents have conveyed to be just satisfied. This translates that if foreign players join the competition then it may pose a threat to the Indian Players. Air Asia is already planning to launch service in the country. Pricing is a big factor. With the cheaper fuel in other countries foreign players have an advantage. In this case government can help by reducing the taxes and ATF charges. Most of the Indian LCA players are using aircraft which are not old enough to replace. But then perhaps it has been influenced by tarnished image of the old players. However the lack of quality trained pilot is a concern for the country. This has resulted into skidding of air planes on runways as the pilots are not trained enough. Also the airports infrastructure is to be blamed as they are not equipped with latest technology. Service wise some foreign have clearly identified as benchmarks. Indian Players need to catch up with them.
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8. Rank the following qualities 1 being the most desired and 5 being the least desired among the cabin staff.
1 3 2 5 4
Grooming or Friendliness Appearance of staff
cabin staff Total service presence consistency throughout flight
Friendliness and Staff Attitude came up to be the most desired qualities. It is obvious that the airline industry is gives a lot of training to its staff to help them imbibe this qualities. A well groomed with right attitude and friendly staff can become a great factor in retaining the customers. They are the face of the airlines and their interactions have immense impact in the brand image of the organization. Cabin staff presence throughout the flight may not be required as the distance is not too large within the country. However it is desired they help out when called.
9. Given below are few desired qualities of on board products. Rank them.
1 2 3 4
Cleanliness is the most desired quality by the fliers. They don’t like left over glasses and pet bottles of water. This is often the phenomenon in non one go flight. Seating comfort has been placed by the respondents second on the list. Leg space, seat texture, seat width are taken in to consideration. As the distance between two cities in India do not take a long time onboard catering is not of much important aspect. However they appreciate good reading materials as that help in recreation and passing time.
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10. Please list up the names of the low Cost Airlines in India. TOMAS
1 3 2 4 7 5
This question was designed to know the top of the mind brand among the fliers. Though Jet Airways and Kingfisher have the largest market shares in the domestic market, it was surprise to note that Spice jet has topped the chart when the respondents were asked to write the names of Low Cost Airlines of India. The probable reason could have been umbrella branding. Jet Connect and Jet lite still has not been able to differentiate itself from its parent brand Jet Airways. In fact it was a Jet airway that was coming to the mind of the respondents. Similarly Kingfisher Red has not been able to come out of shadow of its parent brand. This is benefit for the low cost divisions of these two companies but then may also dilute the brand image of parent companies in long period. Paramount Airways came rank 5, probably because the frequency of flights of Paramount Airways in Eastern India is low. Spice jet has maintained the distinction because of its focus strategy to portray the image of low cost airline only.
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FINDINGS AND SUGGESTIONS
Though all of these Low cost Airlines are targeting the same crowd, with almost same product that is benefit for the money, but their associations and little alterations in product has led to different perceptions among the passengers. Following is the perception of individual brandKINGFISHER RED- Euphoric, sentimentalist JET LITE/JET KONNECT- functionalist, SPICEJET- pragmatist. GO AIR- pragmatist, informative. INDIGO- informative PARAMOUNT AIRWAYS- Functionalist Some of the Strategies that help in bringing down the cost of airline operation- Leasing of aircraft. It helps in acquiring the aircrafts with the latest technologies for operation with the minimum cost. - Hedging of fuel – it helps to reduce avoid the fluctuations in the price of fuel. - Code Share Agreement- it helps in maximum utilization of aircraft. - Employing E-jets- better fuel efficiency and avoid taxes in the short routes. - Scheduling flights in non peak hours. - For new organizations point to point destination is better choice of operation for bigger players it the hub and spoke model. - Pricing- the industry is price sensitive hence revenue management is an important aspect to lure in the customers. Switching is more frequent in case of low fare airlines whereas business segments are more brands loyal. - Using similar kind of aircrafts. - Outsourcing the non core activities will help in better focus in core activities. - Co-Branding helps in increasing efficiency and reducing cost. Strategic partnerships with hotel chains, tour operators, and credit card issuers are beneficial to both the parties. - Debit Cards- As low cost airlines are targeting middle class where Debit cards are more pervasive it is prudent to include debit cards also for paying the fares. - A well managed sales team and relationship managers are to be employed to establish relationship with corporate who constitutes almost a third of the fliers. - On board purchase of goods and food will help in increasing revenue and lowering cost. Some of the strategies to improve brand image- People- the recruited people are the face of the organization. Attitude, friendliness and Grooming are the desired qualities of them. - Keeping some quality magazines on board will go a long way from increasing customer satisfaction to customer delight. - International recognitions and awards help in better recognition. - Investing in internet marketing is a cheap and better way of targeting customer. - Concession in fares for the defence people, and retirees. - If it is low cost airlines one need not promote through celebrities. Ordinary people as models will help the cause.
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IBS HYDERABAD A survey on people preferences about airlines
This research is being done for academic purpose only. All the information provided shall be kept confidential. NAME:………………………………………………………………………………………………………………………………………………………. AGE:………………. OCCUPATION:……………………………….. ANNUAL INCOME:………………………………………….
CONTACT :………………………………………………………..………………………………………………………………………………………. 1. What is your preferred mode of travel between distant cities in India? Car Rail Coach Airline Others 2. How would you categorize yourself in terms of air travel? I am mostly a business traveler. I am mostly a leisure/personal traveler. I am a bit of both. 3. Which class do you usually travel in by air? Economy Business
4. How many times did you travel by air in the last one year? 1 to 5 6 to 10 11 to 20 21 to 30 31 and above 5. What factors do you consider before buying a ticket? (Please allocate a priority from 1 to 5, 1 being the most preferred and 5 being the least.) Availability of the ticket Airport location Price of the ticket Quality and Service Safety and reliability 6. How do you book your airline tickets? Please select one from each of the pair. Internet Travel Agents Travel Agents Airline company office Airline company office Internet 7. How do you rate the Indian low cost airlines on the following parameters against their peers worldwide? Poor Satisfaction Good Very good Excellent Pricing Safety Quality
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IBS HYDERABAD A survey on people preferences about airlines
8. Rank the following qualities 1 being the most desired and 5 being the least desired among the cabin staff. Grooming and Appearance Friendliness of staff Staff attitude Cabin staff presence through the flight Total service consistency
9. Given below are few desired qualities of on board products. Please assign points based on your assessments so that the total points add up to 100. The higher the number allotted to a particular sector the higher its importance is to you and vice versa. Seating comfort Cleanliness Onboard catering Reading Materials Total 100 10. Please list up the names of the low Cost Airlines in India. a………………………………………………………………………………………. b………………………………………………………………………………………. c……………………………………………………………………………………….. d………………………………………………………………………………………. e………………………………………………………………………………………. f……………………………………………………………………………………….. g………………………………………………………………………………………. h……………………………………………………………………………………….
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Airlines typically follow two types of business models: the Point to Point and the Hub-andSpoke. Point to Point Model: This model is based on flights that are provided to and from a city. Unit costs are lower in this model as aircraft are utilized more often because they do not have to wait for connecting flights, thus reducing fixed costs, which accounts for a large percentage of operating costs. Costs are spread out over many hours of flying, thereby driving down the unit cost. Low fare airline like Paramount Airways is example of airline following the point to point system. See figure below.
Hub and Spoke Model: This model is used by most of the major airlines including Jet Airways, Kingfisher, Spicejet, etc. The Hub and Spoke system allows the airlines to maximize passenger enplanements on each flight by offering connections to both domestic and international destinations. This more complicated route system provides customers with a much larger number of route options, which in turn maximizes revenue opportunities. The downside to this is the increase in aircraft wait time and lower aircraft utilization time, which increases the airlines' unit cost. See figure below.
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Highlights of the Yearly Report (2007-08) [source: DGCA]
Domestic Indian Carriers The country has twelve domestic carriers with four National Carriers and eight private scheduled operators. Of these eight, Jet Airways and Jetlite operate on international sectors as well. The fleet size of the scheduled domestic airlines increased from 305 aircrafts in 2006-07 to 81 aircrafts in 2007-08, which indicated a total increase of 24.9 % in the fleet size.
Of the 381 aircrafts, only 146 belonged to the National Carriers in 2007 -08. Presence of
Private Carriers has increased from just two airlines (Jet Airways and Paramount Airlines) till 2002 -03 to eight as on 31st March 2008. Number of aircrafts has also increased from 53 in 2002 -03 to 235. The total operating revenue of all the domestic Indian carriers was Rs.344,877.4 million during 2007-08 whereas the operating expenses for the same period was Rs.406,911.8 million resulting in overall loss of Rs.62,034.4 million. Both National and Private Carriers experienced a loss during 2007-08, the respective amounts being Rs.2529.78 crore and Rs.3673.66 crore respectively. Only 2 airlines viz., Air India Express and Paramount Airways had made a profit. Carriers engaged in Domestic Operations A total of 44.38 million passengers were carried by all the scheduled domestic Indian Carriers during the year 2007-08. The scheduled domestic traffic passengers witnessed a growth rate of 24% during 2007-08. The corresponding figure for the year 2006 -07 was 42%. The scheduled domestic cargo (including Blue Dart) grew by 14.50% during the year 2007-08. While passengers carried by the National and Private Carriers are in the ratio 1:4, that of freight carried is 1:2. Scheduled Domestic Aircraft departures per day increased from 1153 in 2006-07 to 1367 during the year 2007-08. The domestic average PAX load factor increased marginally from 68.8% in 2006-07 to 68.9% in 2007-08. This factor was 59.3% for the National Carriers as against 7 1.6% for the private carriers. The domestic average weight load factor decreased from 67.1% in 2006-07 to 65.7% in 200708. Weight load factor was 56.9% and 68.3% respectively for national and private carriers.
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The number of pilots engaged by all the d omestic Indian carriers increased from 3302 during 2006-07 to 3997 in 2007-08. The number of technical employees engaged by all the domestic Indian carriers decreased from 13343 during 2006-07 to 13308 in 2007-08. The number of cabin crew employees eng aged by all the domestic Indian carriers increased from 9774 during 2006-07 to 11696 in 2007-08.
The average no. of employees per aircraft declined from 197 in 2006-07 to 169 in 2007-08. Expenditure on personnel accounted for 17% of the total expenses in case of national carriers as aginst 9.5% for private carriers during 2007 -08.
The market share in terms of domestic passenger carried was highest for Jet Airways (22.01%) followed by Air Deccan (15.99%) and Indian Airlines (15.55%). The market share in terms of domestic freight carried was highest for Jet Airways (31.03%) followed by Indian Airlines (23.04%) and Blue Dart (17.79%).
Total passengers handled at the Airports were 116.7 million during the year 2007-08. Of these, international airports handled 103.3 million and domestic airports 13.4 million only. Total cargo (freight and mail) handled at the airports was 1.8 million.
On an average 3606 flights were handled per day by the airports in 2007 -08 with 2931
pertaining to domestic traffic and the remaining to international traffic. Mumbai airport continued to be the busiest airport during the year 2007 -08. The average no. of flights handled per day for international traffic was 169 whereas the average no. of flights handled per day for the domestic traffic was 468. This was true for cargo movement also. The three busiest airports handling international traffic during the year 2007 -08 were Mumbai, Delhi and Chennai. The three busiest airports handling domestic traffic during the year 2007 -08 were Mumbai,Delhi and Bangalore.
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Non -Scheduled Traffic
The no. of non scheduled operator increased from 66 in year 2007 to 99 in the year 2008. The total no. of aircraft with non scheduled operator permit holder increased from 229 in the year 2007 to 272 in the year 2008. This number has more than doubled in the last six years (129in 2003). Growth rate over the previous year was 10.4%. A total of 397062 passengers were carried by all non scheduled operators (excluding Pawan Hans Helicopters Limited) during the year 2007 -08. The corresponding figure for the year 200607 was 355811. The growth rate in terms of passenger carried by all the non -scheduled operators (excluding Pawan Hans Helicopters Limited) was 11.6% during the year 2007-08. The corresponding figure for the year 2006 -07 was 10.7 %. The growth rate in terms of flights operated by all the Non -Scheduled operators (excluding Pawan Hans Helicopters Limited) was 10.4% during the year 2007 -08. The no. of aircrafts leased out by Pawan Hans Helicopters Limited during the year 2007 -08 increased to 29 from 24 in the year 2006-07. A total no. of about 4.35 lac. passengers were carried by Pawan Hans during the year 2007 -08. There was a growth rate of 6.7% in terms of passengers carried by Pawan Hans Helicopters Limited during the year 200708. The revenue earned by Pawan Hans Helicopters Limited witnessed a growth rate of 24.5% during the year 2007-08. The corresponding figure for the year 2006 -07 was 6.4%.
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Terms and Definitions
Aircraft: Any machine that can derive support in the atmosphere from the reactions of the air other than the reactions of the air against the earth's surface; Aircraft departures: The number of take-offs of aircraft. For statistical uses, departures are equal to the number of landings made or flight stages flown; Aircraft kilometers performed: Aircraft kilometers equal to the sum of the product obtained by multiplying the number of flights performed on each flight stage by the stage distance; Aircraft movement: An aircraft take-off or landing at an airport. For airport traffic purposes one arrival and one departure is counted as two movements; Aircraft - type of: All aircraft of the same basic design including all modifications thereto except those modifications, which result in a change in handling or flight characteristics; Commercial air carrier: A carrier performing scheduled or non -scheduled air transport services or both, available to the public for the carriage of passengers, mail or cargo for remuneration; Distance flown per passenger: The average distance flown per passenger is computed by dividing the passenger-kilometres by the related number of passengers carried; Disembarkation: The leaving of an aircraft after a landing, except by crew or passengers counting on the next stage of the same through -flight; Domestic Flight: A flight having exclusively domestic stages, See domestic flight stage; Domestic flight stage: Domestic flight stages include all flight stages flown between points within the domestic boundaries of a State by an airline registered in that State; Domestic Scheduled airline: An airline, which operates any scheduled service wihin the boundaries of the State where t he airline is registered but which does not operate, scheduled international services; Embarkation: The boarding of an aircraft for the purpose of commencing a flight, except by such crew or passengers as have embarked on a previous stage of the same through flight; Flight commercial air transport: The operation of aircraft on one or more stages on a scheduled or non-scheduled basis, which is available to the public for remuneration and for hire; Flight stage: The operation of an aircraft from take-off to its next landing; Freight (or mail) tonne-Kilometres (performed): A metric tonne of freight or mail carried one kilometre. Freight tonne-kilometres equal the sum of the products obtained by multiplying the number of tonnes of freight, express, diplomatic bages carried on each flight stage by the stage
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distance. Cargo and freight includes express and diplomatic bags but not passenger’s baggage. Mail tonne -kilometres are computed in the same way as freight tonne-kilometres; Freight (or mail) tonnes carried (performed): The number of tonnes of freight carried is obtained by counting each tonne of freight on a particular flight (with one flight number) once only and not repeatedly on each individual stage of t hat flight. The only exception to this is for freight flown on both the international and domestic stages of the same flight, which is considered in computation both as a domestic and an international shipment or dispatch. The same principle should be used in calculating mail tonnes carried; International airport: Any airport designated by the Government of India an airport of entry and departure for foreign airline for embarkation and disembarkation of scheduled international air traffic, where the fo rmalities incident to customs, immigration, public health, agricultural quarantine and similar procedures are carried out; International Flight: A flight that contains one or more international flight stages; International flight stage: A flight stage with one or both terminals in that territory of a State, other than the State in which the airline is registered. Technical stops are not considered in classifying flight stage; International non-scheduled operator: An operator offering international service to the public on a non-scheduled basis only. Such an operator may also offer domestic services on a nonscheduled basis only; International scheduled airline: An airline, which operates any scheduled international air transport service regardless of the proportion of international service offered as compared with all other kinds of services offered; International traffic (of airports): For airport traffic purposes, international traffic means: a) passengers, freight and mail disembarked at an airport located in a country other than of the airport of embarkation, or vice versa; and b) Movements on flight of national or foreign aircraft whose origin or destination is located in the territory of a State other than th at in which the airport under consideration is located; Mail: Dispatches of correspondence and other objects tendered by and intended for delivery to postal administration; Non-scheduled air transport operator: For statistical purposes an operator is nonscheduled air transport operator if it offers air transport service to the public on a non - scheduled basis only;
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Operating expenses per traffic-unit: This is a type of financial measurement, which relates the traffic or capacity applicable to the operating expenses. It is computed by dividing the operating expenses by the tonne -kilometres performed or by the tonne - kilometres available. Operating revenue per traffic-unit: This is a type of financial measurement, which relates the traffic or capacity applicable to the operating revenues. It is computed by dividing the operating revenues by the tonne -kilometres performed or by the tonne - kilometres available. Operator: A person, organization or enterprise engaged in or offering to engage in an aircraft operations. Passengers Kilometres performed: A passengers kilometre is performed when a passenger is carried one kilometre. Calculatio n of passenger-kilometres equals the sum of the products obtained by multiplying the number of revenue passengers carried on each flight stage by the stage distance. The resultant figure is equal to the number of kilometres travelled by all passengers; Passenger load factor: Passenger-kilometres performed expressed as a percentage of seatkilometres available; Passengers carried: The number of passengers carried is obtained by counting each passenger on particular flight (wi th one flight number) once only and not repeatedly on each individual stage of that flight, with a single exception that a passenger flying on both the international and domestic stages of the same flight should be counted as both a domestic and international passenger; Passengers carried per aircraft: The average number of passengers carried per aircraft is computed by dividing passenger-kilometres by the related aircraft kilometres flown; Passenger revenue per traffic-unit: This is a type of financial measurement, which relates the passenger traffic applicable to the passenger revenues. It is computed by dividing the passenger revenues by the passenger -kilometres performed/ available. Passenger weight: For converting aircraft passenger load into weight load, the number of passengers is multiplied usually by 90 kilogrammes, which allows for the weight of the passenger plus both free and excess baggage. However, in reporting, the conversion is left to the discretion of the operator and conversion factors other than 90 kilogrammes may be used; Revenue passenger: Refers to passengers paying 25% or more of the normal applicable fare; Scheduled airline/air carrier: An air transport enterprise offering any scheduled air service;
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Scheduled services: Services provided by flights scheduled and performed for remuneration according to a published timetable, or so regular or frequent as to constitute a recognizably systematic series, which are open to use by members of the public; extra revenue flights occasioned by overflow traffic from scheduled flight; and preliminary revenue flights on planned new air services: Seat Kilometres available: Seat-kilometre is available when a seat is flown one kilometre. Seat Kilometres available are equal to the sum of the products obtained by multiplying the number of passenger seats available for sale on each flight stage by the stage distance. Seats not actually available for the carriage of passengers because of the weight of fuel or other load should be excluded in the calculations; Speed flown per aircraft: This is an average per aircraft measure computed by dividing the aircraft kilometres flown by the related aircraft hours. Stage distance flown per aircraft: The average distance flown per aircraft is computed by dividing the aircraft kilometres flown by the related number of aircraft departures. Tonne: The mass equal to 1000 kilograms. Tonne-kilometres available: A metric tonne of available payload space flown one kilometre. Tonne-kilometres available equals the sum of the products obtained by multiplying the number of tonnes available for the carriage of revenue load (passengers, freight and mail) on each flight stage by the stage distance; Tonne-kilometres performed: A metric tonne of revenue load carried one kilometre. Tonnekilometres performed equals the sum of the product obtained by multiplying the number of tonnes of revenue load carried on each flight stage by the stage distance. Traffic: For air transport purposes, traffic means the carriage of passengers, freight and mail. Weight load factor: Tonne-kilometres performed expressed as a percentage of tonne kilometres available.
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REFERENCES INTERNET SOURCES www.tcil.com (Transport Corporation Of India Ltd.) www.civilaviation.nic.in www.dgca.nic.in (Director General of Civil Aviation) www.wikipedia.org Websites of KINGFISHER, JET AIRWAYS, SPICEJET, PARAMOUNT AIRWAYS, INDIGO, Go Air. TEXTS Indian Aviation Industry – Opportunities & Challenges by Ravi Kumar V.V. ; published by ICMR Strategic Management in the Aviation Industry by D.Pitfield Journal of Transport Geography
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