Airlines: Service Industry
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Topic Executive summary Service marketing Unique characteristics of service industry Marketing mix for service industry Airline industry Introduction to airline industry History of industry Structure of the industry Indian aviation industry Players in the airline industry Airport infrastructure Development of civil aviation in India Civil aviation policy Infrastructure development Airport privatization Alliance strategy Recent development Case study- Jet airways
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Airlines: Service Industry SUMMARY We owe it to the Wright brothers for having invented airplanes. The Wright brothers could not have imagined how airplanes would change the way people live & do business. The airline industry has witnessed a sea change from two wheeler bi-planes to the Boeing 747's that are visible in our skies today. The passage of time has witnessed competition grow from leaps to bounds. Today airplanes are present in every country around the world with expectation of a few places. Even the industry has been growing year on year It was JRD Tata who made the first move to build up an airline industry in India. He with the help of Neville Vincent, a former RAF pilot, went ahead and drew a plan for the operation of first flight from Karachi to Mumbai with single stopover at Ahmedabad. This is how Tata Airlines was born which was donated to Indian Government. On 28 th May 1953, Air Corporation Act – 1953, the government of India nationalized the airlines industry. In accordance with this act, the two air corporations, viz. Indian Airlines Corporation and Air India International were established. In 1994 the monopoly was ended and Indian skies were opened for any carriers who fulfills the statutory requirement The Indian aviation industry can be broadly classified into two main segments - Civil and Cargo. In fact, the birth of civil aviation is attributed to air cargo and mail. In the beginning, mail and air cargo were the important elements of air carrier services than passengers. The major players in the Indian context are Air India in the international segment and Indian Airlines, Jet Airways and Sahara in the domestic segment. Over the years, the aviation sector in India has evolved and today it is on the threshold of a major shake out with the divestment of the Indian government's stake in Air India and Indian Airlines on the cards. A number of
Airlines: Service Industry domestic and foreign parties have evinced interest in the divestment process. Recently, foreign airlines like Virgin Atlantic of Britain and Singapore Airlines have also entered the Indian skies. The Indian aviation sector till recently was highly regulated by the government. As recently as the eighties saw the introduction of some new initiatives like the air taxi scheme, whose main objective was to boost tourism. Domestic and international passenger traffic in India is projected to grow annually at 12.5% and 7% respectively over the next decade. At the same time, domestic and international cargo traffic is expected to grow at 4.5% and 12% respectively. By the year 2005, Indian airports are likely to handle 60mn international passengers and 300,000 tons of domestic and 1.2mn tons of international cargo.
public relations and personal selling). Service marketing managers have found that the traditional four P's of marketing are inadequate to describe the key aspects of the service marketer's job.). Each target segment will have a separate marketing mix. The traditional marketing mix is said to consist of the following elements of the total offering to consumers: the product (the basic service or good. including packaging. tailored to meet the specific needs of consumer in the individual segment.not generally a real issue for most services. attendant services etc. 7 P’s of Service Marketing
Price Produc t
The product mix
. the place where the product is made available (or distribution channels . except perhaps for repair and maintenance). concepts & features which marketing management put together to best appeal to their target market segments. its price.Airlines: Service Industry MARKETING MIX FOR SERVICES MARKETING The marketing mix refers to the blend of ideas. and promotion (marketing communication: advertising.
since there are price variations because variations in the level of demand. It the service mix .Airlines: Service Industry The product here refers to Airline service offering. It will always be necessary to inform prospective consumers about new products & services. to remind. quality of seats & interior decoration. it is to design promotions aimed at channel customers to complement end user promotion. there is passenger services . but other issue may also need this type of communication to consumers. Although service products are essentially intangible. • Attractiveness of the offering in terms of pyhsical features such as consumers have high expectation. there are certain pyhsical characteristics which consumer assess in their evaluation of product choice.
The pricing : Pricing in airlines is a fairly complex issues. cargo services. The promotional mix The aims of promotion fall into three main categories: to inform. especially in the off-peak season. It is vitally important to recognisse that promotion. when
. may not always be aimed at potential consumer or end user of service. or marketing communications generally.g Airlines will need to promote their services to tour operaters as well as end user. & to pursuade. In many business areas. associated level of services such as. particularly due to seasonality. & the mail services. entertainment. Similarly consumers may need to get reminded about all these types of issues. the food & drinks offered . information to build consumer confidence & to reduce fears.for e. new uses. price changes. full description of service offering. • Facilities available. image building.
whilst also operating direct marketing. I. bellhops. they utilise more than one method of distribution. restaurant wait staff
.T has been widely adopted such as on-line booking system. It is important to includde pricing tactics which exploit price sensitivities fully. knowledge ability and helpfulness of the hotel staff . a person's stay at a hotel can be greatly affected by the friendliness. Whichever distribution strategy is selected. It differentiates service levels & offer higher price ‘ value added ‘services. Airlines will always faced by high levels of fixed costs. For example. The Distribution: In Airlines. leading to variants of cost-plus pricing or ROI as key determinants of pricing levels.in most cases the lowest paid people in the organization. For these reason. For channels to be effective they need realiable updated information. channel management plays a key role. housekeeping staff.Airlines: Service Industry every Airlines gives price discounts & competition is tough. Some marketers suggest that the unique requirements of selling services require the manager attend to three additional P's.for e. as in business class air travel. People: Many services require personal interactions between customers and the firm's employees and these interactions strongly influence the customer's perception of service quality.g they sell tickets through travel agents & sell seats on flights to tour operators . physical evidence and process. One's impression of the hotel and willingness to return are determined to a large extent by the brief encounters with the front-desk staffs. These are people.
other customers who are being served there can also influence one’s satisfaction with a service. In fact. crying children in a nearby seat on an airplane and commercial bank customers whose lengthy transactions take up the teller's are all examples of unpleasant service conditions caused by a firm's other patrons. perhaps even more important. many of which take place outside the direct control of the hotel management. Ill mannered restaurants customers at the next table. job redesign and systems to reward and recognize outstanding achievement are among the issues that a successful service manager must address. management faces a tremendous challenge in selecting and training all of these people to do their jobs well. these employees must believe in what they are doing and enjoy their work before they can. perhaps even more important. human resources management policies and practices are considered to be of particular strategic importance for in delivering highquality services. and. Establishing a customer-oriented culture throughout the firm and empowering employees to provide quality service cannot be established merely by putting up inspiring posters.
. Management leadership. provide good service to customers. and. in motivating them to care about doing their jobs and to make an extra effort to serve their customers. Because services are often experienced at the provider's facilities. The term "internal marketing" has been coined to characterize the sets of activities a firm must undertake to woo and win over the hearts and minds of its employees to achieve service excellence. the average hotel patron has very little contact with the hotel supervisors and managers.Airlines: Service Industry and so on. in motivating them to care about doing their jobs well. After all. Therefore. For this reason. The "people" component of the service marketing mix also includes the management of the firm's customer mix. in turn.
Determining the desirable customer mix for a service.that is.Airlines: Service Industry On the other hand.can greatly affect a customer's satisfaction with a service experience. Physical surroundings and other visible cues can have a profound effect on the impressions customers form about the quality of the service they receive. the comfort of seating and the physical layout of a service facility . The "services cope" . such as nightclubs or sporting events. Physical Evidence This element of the expanded marketing mix addresses the "tangible" components of the service experience and firm's image referred earlier. the background music. all physical evidence must be designed to be consistent with the "personality" that the firm wishes to project in the marketplace. including clothes and grooming. the ambience. Service firms should design these items with extreme care. the right mix of customers can greatly increase the enjoyment of experience . they can be incorporated into the firm's marketing communications to help reduce customer anxiety about committing to the purchase. at entertainment services. A customer who buys a television set is not particularly concerned about the manufacturing process that made it. since they will play a major role in influencing a customer's impression of the firm.for example. the flow and progress of the production process is more important for services than it is for goods. Promotional materials and written correspondence provide tangible reassurance. The appearance of the staff. Process Of Service Production Because customers are often involved in the production of services. But the customer at a fine restaurant is not merely interested in the end result .of being
. segmenting the market into compatible groups and managing customer arrivals to avoid conflict and enhance the service experience are essential components of service management. The entire experience of arriving at the restaurant . may be used as important clues.the cessation of hunger. In particular.
the accuracy of bank statements and the ease of getting redress if mistakes are found all affect the person's attitudes about doing further business with the bank and his or her willingness to recommend it to others. Therefore. The speed and sensitivity of the approval process. ordering. For this reason.is important. A customer who applies for a loan at a bank evaluates the purchase not only by the amount of the loan received and the interest rate paid. marketing and operations are closely related in service management. receiving and eating the meal .Airlines: Service Industry seated.
. The importance of the process is true even for less 'sensual" experiences. the interaction with the bank officers. The pace of the process and the skill of the provider are both apparent to the customer and fundamental to his or her satisfaction with the purchase. when designing service production processes. enjoying the ambiance. particular attention must be paid to customer perceptions of that process.
Airlines: Service Industry
4 of 1991. resulting in the establishment of Jet Airways and Air Sahara. Even the industry has been growing year on year. courier services. beginning 1990 private airline companies were allowed to operate air taxi services.5% in 2005 from 0. The Wright brothers could not have imagined how airplanes would change the way people live & do business. convert Indian Airlines and Air India to limited company and enable private participation in the national carriers. However. These changes in the Indian aviation policies resulted in the increase of the share of private airline operators in domestic passenger carriage to 68.
. clearing & forwarding agents etc As of October 30. The passage of time has witnessed competition grow from leaps to bounds. Technology has also made a significant contribution to the airline industry.Airlines: Service Industry
INTRODUCTION We owe it to the Wright brothers for having invented airplanes. over the years technological advances have been incorporated into the science of flying airplanes. Today airplanes are present in every country around the world with expectation of a few places. In 1994 the Air Corporation Act of 1953 was repealed with a view to remove monopoly of air corporations on scheduled services. enable private airlines to operate scheduled service. The industry has also propelled the growth of ancillary services like travel agents. cargo handling. The airline industry has witnessed a sea change from two wheeler bi-planes to the Boeing 747's that are visible in our skies today. 2007 the total fleet size of commercial airlines in India was 439.
On 28th May 1953. consequent to the coming into force of the Air Corporations Act. in 1994. A second scheme was prepared. viz . the wheel had turned a full circle as the Air Corporation Act.Airlines: Service Industry HISTORY OF INDUSTRY Nevill Vincent. was turned down. This. Sir Dorab Tata.50.000.25. The Government finally agreed and thus was born Tata Airlines that later became Air India. It was through providence that he met JRD Tata. Indian Airlines Corporation and Air India International. This time the guarantee asked was Rs. Rs. That ended the monopoly of the Corporations on scheduled air transport services. In accordance with this Act. The team then tried a third time. 1953. a former RAF pilot came to India from Britain in 1929. 1953 was repealed with effect from 1st March 1994.100. The Tata-Vincent combine was naturally disappointed but not dismayed. So they went ahead and drew plans for the operation for the first flight from Karachi to Mumbai with a single stopover at Ahmedabad. after 40 years.000 for the second year and no guarantee at all from the third year onwards. to. or across India. However. pleasantly surprised all by giving the scheme his okay. the first Indian to secure an A-license within the shortest number of hours. Vincent worked out a scheme. the Government of India nationalized the airlines industry. Peterson. This scheme was rejected too. the director of Tata Sons and also JRD's mentor.000 for the first year. All that they asked was a guarantee from the government for a year for the sum of Rs. secured JRD's approval and together they presented it to Mr. the then chairman of Tata Sons. the two air corporations. on a brainstorming tour to survey a number of possible routes. The operation of scheduled air transport services was under the monopoly of these two Corporations and the Act prohibited any person other than the Corporations or their associates to operate any scheduled air transport services from. were established and the assets of all the then existing airline companies (nine) were transferred to the two new Corporations. however.
. This time they offered to donate an air service to the Government of India with no strings attached.
Airlines: Service Industry Air transport in India is now open to any carrier who fulfills the statutory requirements for operation of scheduled services.
Air India Air-India Express Air India Regional Blue Dart Aviation Club One Air Kingfisher Red Deccan Aviation GoAir IndiGo Airlines Jagson Airlines Jet Airways Jet Lite Kingfisher Airlines MDLR Airlines Paramount Airways SpiceJet Hi Flying Group
CALLSIGN AIR INDIA
COMMENCED OPERATIONS October 1932 September 2007
AIC AXB LLR BDA DKN DKN GOW IGO JGN JAI RSH KFR PMW SEJ HFA
AI IX CD BZ DN DN G8 6E JA 9W S2 IT 9H I7 SG H9
EXPRESS INDIA April 2005 BLUE DART DECCAN DECCAN GOAIR IFLY JAGSON JET AIRWAYS LITEJET KINGFISHER MDLR PARAWAY SPICEJET HIFLY May 1994 August 2005 August 2003 December 1997 June 2004 August 2006 November 1991 May 1993 April 2007 May 2005 March 2007 October 2005 May 2005 December 2005
STRUCTURE OF THE INDUSTRY Types of Airline Certification
under it's statutory authority. who maintain the planes.Airlines: Service Industry All airlines hold two certificates from the federal government: a fitness certificate and an operating certificate. Operations
. Commuter airlines that use aircraft with a seating capacity of 60 or fewer seats or a maximum payload capacity of no more than 18. flight operations. Line personnel generally fall into three broad categories: engineering and maintenance. Basically. The requirements cover such things as the training of flight crews and aircraft maintenance programs. obtain only cargoservice authority. however. How Major Airlines Are Structured • Line Personnel
These include everyone directly involved in producing or selling an airline’s services . ramp-service agents. These three divisions form the heart of an airline and generally account for 85 percent of an airline’s employees. the flight attendants. are issued by the Federal Aviation Administration (FAA) under Part 121 of the Federal Aviation Regulations (FARs). All majors.the mechanics. The Department of Transportation (DOT) issues fitness certificates . the pilots. who book and process the passengers. airport check-in and gate personnel.called certificates of public convenience and necessity . etc. the certificate establishes that the carrier has the financing and the management in place to provide scheduled service. Operating certificates. and sales and marketing. Some airlines. the reservation clerks. security guards. The certificate typically authorizes both passenger and cargo service. who fly them. which spell out numerous requirements for operating aircraft with 10 or more seats. who serve passengers and perform various inflight safety functions. on the other hand.000 pounds can operate under the alternative authority of Part 298 of DOT’s economic regulations. nationals and regionals operate with a Part 121 certificate.
called the maintenance base. An airplane costs its owner money every minute of every day.
. these facilities perform routine maintenance and stock a large supply of spare parts. during and after each flight to ensure safety. following a review of all factors affecting a flight.Airlines: Service Industry This department is responsible for operating an airline’s fleet of aircraft safely and efficiently. fuel requirements and both the amount and distribution of weight onboard the aircraft. it is vital to an airline’s financial success that aircraft are properly maintained Airlines typically have one facility for major maintenance work and aircraft modifications. preserve the airline’s valuable physical assets (its aircraft). larger airlines sometimes have more than one maintenance base. routes the flight may follow. Called major maintenance stations. Maintenance programs keep aircraft in safe. by keeping planes in excellent condition. Their job is to release flights for takeoff. These include the weather. It is in charge of all flight-crew training. Weight must be distributed evenly aboard an aircraft for it to fly safely. ensure passenger comfort. working order. Maintenance Maintenance accounts for approximately 11 percent of an airline’s employees and 10-15 percent of its operating expenses. where aircraft are likely to be parked overnight. and ensure maximum utilization of those assets. Smaller maintenance facilities are maintained at an airline’s hubs or primary airports. but makes money only when it is flying with freight and/or passengers aboard. and it establishes the procedures crews are to follow before. Therefore. both initial and recurrent training for pilots and flight attendants. Dispatchers also are part of flight operations. It schedules the aircraft and flight crews and it develops and administers all policies and procedures necessary to maintain safety and meet all FAA operating requirements.
whether an airline does the work itself or relies on outside vendors. These maintenance facilities generally are called maintenance stations. reservations and customer service. These tasks could include aircraft cleaning. keeping the jobs in house at their hubs and other key stations. who sell approximately 80 percent of all airline tickets. As explained in the next chapter. Security measures The government will most probably accept the recommendations of the technical up gradation committee. airport security. scheduling. food service and in some instances.Airlines: Service Industry A third level of inspection and repair capability is maintained at airports. Schedules change less often.
. Subcontractors While major airlines typically do most of their own work. maintenance work. Airlines might contract out for all of this work or just a portion of it. it is common for them to farm out certain tasks to other companies. but far more often than when the government regulated the industry. Sales and Marketing This division encompasses such activities as pricing. pricing and scheduling in particular can make or break an airline. Airlines use sophisticated computer reservation systems to advertise their own fares and schedules to travel agents and to keep track of the fares and schedules of competitors. airline prices change frequently in response to supply and demand and to changes in the prices of competitors’ fares. including food service. where a carrier has extensive operations. However. ticket and cargo sales. set up to look into the different aspects of air security. and both have become more complicated since deregulation. advertising. Travel agents. the carrier remains responsible for meeting all applicable federal safety standards. fueling. use the same systems to book reservations and print tickets for travelers. although less than at its hubs. While all of them are important.
Lucknow. Vadodara. Imphal and Indore. There are 71 domestic airports. These airports are in Bhubaneswar. it is learnt THE INDIAN AVIATION INDUSTRY AIRPORT INFRASTRUCTURE There are a total of 449 airports/airstrips in the country. Twenty of them are currently in operation. Mumbai airport is the busiest in India and handles about 30% of the total passenger traffic in the country. Calicut. They can cater to limited international traffic. Mumbai. Amritsar. International Airports: These are available for scheduled international operations by Indian and foreign carriers. These include airports Bangalore (CE). Yet another type of airports are known as Model Airports. Hyderabad. Chennai. Calcutta and Thiruvananthapuram fall into this category. Jaipur. supposed to be the "most fool-proof" security arrangement to identify suspicious traits among passengers. Varanasi. security personnel have been trained in passenger profiling. which fall in the category of 'Other' Domestic Airports. The
. Goa (CE). Guwahati.500 feet and are capable of handing A320 type Airbuses.Airlines: Service Industry For international flights Air India & Indian airlines. if required. Tiruchirapally. Coimbatore. Ahmedabad. Delhi. Agra (CE). Airports are presently classified as international and domestic airports. Domestic Airports: In this category fall those airports which have custom and immigration facilities for limited international operations by national carriers and for foreign tourist and cargo charter flights. but the airlines have to be prepared to pay the price of having the sky on board. The government is willing to spare more highly trained commands. Patna. Presently. These have a minimum runway length of 7. There are also 28 civil enclaves (CE) in Defense airfields. Nagpur.
Airlines: Service Industry Chhatrapati Shivaji international airport's share of the country's international traffic is around 40%.
Airlines: Service Industry Airports Authority Of India The Airports Authority of India (AAI) was formed after the merger of International Airports Authority of India and the National Airports Authority by way of the Airports Authority Act (No.55 of 1994). It came into existence on 1st April 1995. AAI manages 5 international airports, 87 domestic airports and 28 civil enclaves. It provides air traffic services over the entire Indian airspace and adjoining oceanic areas. The AAI also undertakes assignments like airport feasibility studies, airport design project implementation, project supervision and manpower training. The AAI has undertaken consultancy projects in Libya, Algeria, Yemen, Maldives, Nauru and Afghanistan. DEVELOPMENT OF CIVIL AVIATION IN INDIA Travel by air in the modern sense began in India only in 1877, when Joseph Lyna took off from the Lalbagh Gardens in Bombay, and ascended to an altitude of about 7,500 feet and landed at Dadra. In the years that followed, there was a tremendous development of air transportation in India as in any other countries due to technological advances and cooperation from the government. In 1920, the Indian Air board was set up as a part of the Department of Industries and Labour to provide safe navigation and landing places and live up to its International Commitments. With a view to draw up a plan in anticipating the post-war needs for civil air transport, the government of India appointed in 1943 the Reconstruction of Air Services Committee under the chairmanship of the Director of Civil Aviation. Captain F.C. Tymms, M.C., (later Sir Frederick Tymms). Armed with vast technical and administrative experience and an alarming capacity for work, Sir Frederick submitted by September 1943, a series of carefully thought out papers on all aspects of post-war aviation. Accepting the basic recommendation of the Tymm’s report, the government appointed a Committee in 1944 under the chairmanship of Sir Mohammad Ushman, a
Airlines: Service Industry member of the Post and Air Department to follow up the Tymms plan. After a critical examination of the development of civil aviation in India, USA and European countries, the Committee suggested certain measures for the construction of new aerodromes and air routes by recommending that more local air services be started and that India should participate in the establishment of governmental assistance in the form of subsidy atleast in the initial stage, and introduction of the system of licensing for air carrier companies. However it had not suggested any ceiling on the number of such licenses as recommended by the Tymms Committee. The cabinet after much discussion and deliberation decided to nationalize the civil air transport scheduled carriers and to create two monopoly corporations in the public sector. In March 1953, India’s Parliament passed the Air Corporation Act, which received the assent of the President on 20 th May. The main provisions of the Act were that: “There shall be transferred to and vested in: Indian Airlines, the undertaking of all the existing Air Companies (other than Air India International Limited) and Air India International, the undertaking of the Air India International Limited (AIIC)”. The saga of Indian Airlines began on the 1st of August 1953, following the amalgamation of eight private airlines. The journey began with a modest fleet but high aspirations and over the years, Indian Airlines innovated and upgraded its fleet to emerge as one of the largest domestic airlines in the world. Today, Indian Airlines, along with its subsidiary airline, Alliance Air, provides an extensive network, which encompasses the whole of India - a geographical area equivalent to Western Europe, besides reaching out to 17 International Stations.
A manifold increase in system seat capacity from 3.
. security and safety aspects of operations. It has thus emerged as a proud symbol of modern India.Airlines: Service Industry In the last four decades. Equity from foreign airlines will not be allowed directly. in domestic air transport services.700 seats per day. Existing companies in which equity is held by foreign airlines will be advised to disinvest this equity. Foreign equity upto 40% and investment by non-resident Indians (NRIs) or overseas corporate bodies' (OCBs) upto 100% will be permitted in domestic air transport services. The highlights of the policy are as follows. or indirectly. air traffic services and carriage of passengers and goods by air. Spread of network from 23.18. 000 million in 1997-98. CIVIL AVIATION POLICY The Ministry of Civil Aviation is the main central agency responsible for the formulation of national policies and programs for development and regulation of Civil Aviation and for devising and implementing schemes for orderly growth and expansion of Civil Air Transport..30.4 million in 1997-98. Some of the highlights of this glorious period of evolution include: Increase in passenger carriage from 0.070 seats per day in 1955 to 35. There will be a scrutiny of applications to verify financial soundness and maintenance. Entry and exit barriers have been removed. Growth of assets from Rs. Indian Airlines has progressed by leaps and bounds and built an excellent track record of manpower and infrastructural development.000 kilometres in 1997-98.000 kilometres in 1953 to 1.21 million to Rs. Its functions also extend to overseeing the provisions of airport facilities.5 million in 1954-55 to 8. The Government recently approved a new policy to promote private investments in the Aviation Sector.
000 kg and from Rs.9mn) to Rs. INFRASTRUCTURE DEVELOPMENTS Private sector is now allowed in building airports. Goa and Bangalore. All scheduled operators are required to deploy 10 per cent of their capacity in NorthEast. New aviation policy to be implemented this year Mr.50mn (US$ 1. These airports are capital-intensive projects that have to be run efficiently to make them commercially profitable. load factor.9mn) for aircraft of all-up weight below 40. past track record and financial soundness. to help the developer make investment decisions. Jammu and Kashmir. Andaman and Nicobar Islands and Lakshadweep. The Government has also decided to concentrate on developing existing airports rather than on new airports. private operators' proposals to induct new capacity will be considered. The Mumbai project. Mumbai.000 kg.100mn (US$ 2. To achieve economies of scale. the minimum fleet size for a scheduled operator has been raised from the existing three aircraft to five.7mn) for all-up weight exceeding 40. Also the minimum amount of shareholders' funds has been increased from the existing Rs. based on the demand.300mn (US$ 8. for instance. The AAI is investing Rs.4bn
.4mn) to Rs. will cost an estimated Rs.16bn (US$457mn).Airlines: Service Industry The choice of aircraft type and size is left to the operator. Total capacity requirements in the air transport sector are being projected for a period of at least five years on an annual basis. Shahnawaz Hussain has announced that the Aviation Policy would also focus on the need for setting up joint ventures to develop smaller airports. lease out the bigger airports and improve the existing aviation infrastructure. In the distribution of this capacity. Among the private sectoraided airports to be developed in the next five years are Hassan (Karnataka). while preference will be given to Indian Airlines according to its fleet augmentation plan.4.100mn (US$ 2.
The internal resources generated at present being inadequate. It has passed the initial planning and the land acquisition stage. Association
.7mn) to develop model airports in 12 cities.1bn) plan to modernize and expand its airspace infrastructure to meet the demand growth projected for the coming five years. The project is expected to cost around Rs. equity will account for Rs. navigational and surveillance systems as an immediate measure.40bn (US$1. which generates large West Asia-bound traffic. The first phase will involve upgradation of conventional communication. the Kochi International Airport has progressed the furthest.3mn). and the rest by non-resident Indians.7mn) in the first phase.7mn) finally. The AAI has also drawn up a Rs. In the first phase. A similar method may be adopted for development of airports in Rajasthan and Goa that are popular tourist destinations. 26% of which the government of the State of Kerala holds. Part financing of facilities through a tax paid by embarking international air passengers is an idea being tried out at Kozhikode. and go up to around Rs. with state-of-the-art equipment. The second will be a transition from the present ground-based ATS systems to satellite-based CNS/ATM by the year 2000. users (airline firms) and contractors. Among airport construction projects with private participation. The growth strategy envisages not only better passenger facilities but also improved navigational and communication systems.6bn (US$45. as well as from commercial. the AAI plans to enhance revenues through rationalization of the tariff structure.3bn (US$85.Airlines: Service Industry (US$125.640mn (US$18. Term loans and short-term borrowings for working capital from banks will fund the rest of the project. banks.1. cargo and duty-free shops.
It's true that there is risk in privatization of airports. Today it has over 230 members from more than 130 nations in every part of the globe. At its foundation IATA had 57 members from 31 nations. The international scheduled air transport industry is now more than 100 times larger than it was in 1945. for four airports which the government has decided to privatize. To begin with. as it for funds. practices and procedures developed within IATA. Calcutta and Chennai through long lease and new developments at existing airports and Greenfield airports through private initiative. IN APRIL 1945. AIRPORT PRIVATIZATION The Airport Authority of India. 87 Domestic airports and 28 civil enclaves at defense airfields.The International Air Transport Association. reliable. secure and economical air service . It is the prime vehicle for inter-airline cooperation in promoting safe.Airlines: Service Industry IATA . CUBA.was founded in Haryana. Few industries can match the dynamism of that growth. management talent and its adherence to the government procedures. which manages five international airports. There are apprehensions that private enterprises are profit motivated and with privatization users may not get quality services at affordable prices. since airports essentially provide public utility services in monopolistic situations. Government policies provide for privatization of airports at Delhi. is facing an uphill task. mostly in Europe and North America. revenue figures
.The International Air Transport Associations History: IATA . traffic figures for the past 10 years and figure projections. which would have been much less spectacular without the standards. consultants should immediately put the website details of assets.for the benefit of the world's consumers. Mumbai.
In the first instance state governments should develop techno -economic feasibility reports for airport projects through experienced organizations / consultants of repute. which could be transferred to state governments. This would enable potential investor to start preparatory work on their due diligence investigations. Thus. These airports should be commercialized by exploiting the commercial potential of airport lands. commitment to minimum investments for development of airport facilities. reliability and cost effectiveness are not met. These should be discussed with the aviation industry and finalized. etc. This authority through its statutory powers and intervene if standards of airport services in terms of safety. some of these airports may in the next few years reach a stage when they can also be privatized. operational standards to meet our national and international obligations. profit & loss for last 10 Years. business plans. Government should set up a regulatory Authority whose main functions would be economic regulation and operational safety audit. increased productivity and improved cost recoveries. cost containment. Some of the states are taking initiative for development of Greenfield airports and they should be assisted by the Ministry of Civil Aviation in adopting more professional approach. details of manpower. Private entrepreneurs are not likely to be interested in such airports. local bodies or tourism agencies who are in an advantageous
. which are not financially viable. clauses to deal with emergency situations.Airlines: Service Industry existing and projected. Consultants should immediately develop draft terms and conditions governing lease of these airports clearly bringing out obligations of new managements in terms of service levels. capital investment programs etc. termination in event of breach. There are some other airports with AAI. Airport Authority of India (AAI) has a large number of airports where the traffic volumes are low.
Sharing is where an airline flies on behalf of the other on a particular sector. Foreign investors do not want to investment in aviation sector in India. The impact of these global handshakes is being felt by smaller airlines.consistent policies of government and to some extent inflated fear of corruption in India. It's therefore essential that sectors like aviation be left in hands of professional managers and the role of bureaucracy should be only custodial and regulatory. an alliance involves 1) Extensive code sharing and the frequent flier plans Code. ALLIANCE STRATEGY Alliances in various manifestations have come to stay and airlines around the world are spending agonizing hours deciding who they will marry and on what terms. undue interference. The Indian example is that of Indian Airlines and Air India that share
.We need to have a model tailored to Indian Conditions. non. The funding pattern should be such that the investment made is beneficial to the investors due to monopoly nature of airport business. As a strategy. as about 70 percent of the large carriers have become a part of the various groupings. rules and regulations in tune with the political philosophy and psychology of local travelers. keeping in view the local laws. Multilateralism in the field of aviation would mean any airline could fly anywhere in the world without being bound by bilateral agreements like that exist at present. It is conceded that privatisation is not likely to remove all the hiccups in the development of aviation sector . The basic reason for all these alliances and equity partnerships is that the competition is growing and the World Trade Organization (WTO) is spurring the move towards “open skies” in the real sense of the word. due to abnormal delays in decision making.Airlines: Service Industry position to operate and manage them more cost effectively. No individual airline can match the reach and the connectivity of the large groupings and the smaller carriers can only watch as the globe is carved up among the various mega alliances.
2) It also involves co-ordination of schedules to maximize loads By this it implies that the two airlines that were earlier competing with each other on a particular route compete no longer because of the alliance. then a passenger from Colombo can be issued a ticket from Colombo to New Delhi. This is
. Effective scheduling of flights does this. 4) Joint pricing As stated above the passenger from Colombo to Delhi can be issued one single ticket though he shall be availing of the services of two airlines.Airlines: Service Industry codes in the Delhi-Mumbai as well as in the Gulf sector. When a domestic airline goes into an alliance with an International airline then the scheduling is done in such a way that the domestic flight can act as a connecting flight for the passengers of the international flight. They instead time their flights so that their payload is maximized and they do not compete against each other. The miles earned on domestic flights can be redeemed on international flights. The frequent flier programmes are yet another advantage. The passenger who flies on any of these airlines is eligible for the “Jet Privilege” card subject to the fulfillment of terms and conditions. The Jet Airways has an alliance with KLM/Northwest and the British Airways. For example if Air Lanka has got scheduled flights from Colombo to Mumbai. The Indian example of such an alliance is that of Jet Airways with KLM/Northwest and British Airways. 3) Route planning In route planning the alliance partners join hands for a particular route or a combination of routes. By this not only the domestic airline has an increased load factor but the international airline also has an increased load factor through better connectivity. From Mumbai to Delhi the alliance partner will carry the passenger.
7) Joint purchasing by the alliance partners The benefit of scale and bargaining powers can provide great synergies and the cost reduction to the partners. as a large amount of capital is not blocked for this. 6) Integration of information technology This is yet another highlight of a successful alliance. The partners can have joint reservation.
. Benefit To Passenger Easy connections across the globe An easy connection across the globe is made possible as the passenger has the advantage of flying to such locations where the international flights do not operate. check in and check out systems and can also use the information technology infrastructure of the alliance partner.Airlines: Service Industry called as joint pricing where in one of the partner issues a ticket on behalf of the other. For example the “Gold Card” holder of Jet Airways is eligible to avail of the lounge services of KLM/Northwest and British Airways. Lounge access at various airports The advantage of the frequent flier program is also that the passenger who holds the frequent flier status is eligible for availing of the lounge services of the alliance partner as well. 5) Inventory management In the aviation industry the inventory costs form a major part of the cost. The alliance partners maintain common set of inventories and this helps in the reduction of the inventory costs. In such a case the alliance partner provides the connecting services (provided it has the same in that region). The inventories are quite expensive as well.
Joint marketing and frequent flier programs co-operation is another popular measure to tie-up.
.For cargo.This is another amorphous term wherein airline tie-up for long-term commercial gains. Indian Airlines and Jet Airways are already in other alliances like codesharing. Other common ways are Code.India and Indian Airlines on domestic flights to Delhi and flights to the Gulf.Airlines: Service Industry Times have changed to an extent that carriers. This primarily means that the miles earned on domestic Indian routes can be redeemed on international flights. 2. Strategic partnership. who were bitter rivals once. where it has a joint co-operation with British Airways and KLM /Northwest. a method that is actually going out of vogue these days. the most drastic measure is taking an equity stake.In this the airlines agree to take up a certain percentage of seats on another carrier on a particular route. Air-India. The latest example is that of Singapore Airline taking a 49 percent stake in Richard Branson’s “Virgin Atlantic”. A corollary of this is the joint utilization of reservation. they can also have Cargo Code Shares between them. sharing revenues and profits. Though no Indian carrier is yet a part of the giant global alliances. This sort of relationship usually ends up in equity partnership or more permanent commercial arrangements. Block cargo schemes. through check in and operational systems. Jet Airways and KLM / Northwest. 3. Of course. Block seat arrangements. Airlines hold hands with each other in several ways depending on their needs. Other ways of alliance between the airlines for greater synergies: 1.Sharing where an airline flies on behalf of the other on a particular sector. are now talking about joint sales incentives. An example is Jet Airways frequent flier program “Jet Privilege”. airlines have block cargo undertaking to provide a certain tonnage to another carrier. joint frequent flier programs. Examples in India are Air-India and Air Lanka on flights to Delhi. Air.
Airlines: Service Industry
S. Economic.Airlines: Service Industry
PEST Analysis: The Indian Airline Industry
A PEST analysis is an analysis of the external macro-environment that affects all firms.T. For this reason. Social. is an acronym for the Political. Let us look at the PEST analysis of the Indian aviation sector:
In India. o International airlines are greatly affected by trade relations that their country has with others. The immediate results were a huge drop in air traffic due to safety & security concerns of the people. P. o Overall India’s recent political environment has been largely unstable due to international events & continued tension with Pakistan. o The recent Gujarat riots & the government’s inability to control the situation have also led to an increase in the instability of the political arena. An unstable political environment causes uncertainty in the minds of the air travellers. regarding travelling to a particular country. and Technological factors of the external macro-environment. Given below are a few of the political factors with respect to the airline industry: o The airline industry is very susceptible to changes in the political environment as it has a great bearing on the travel habits of its customers. one can never over-look the political factors which influence each and every industry existing in the country. the political interference has to be present everywhere. The events occurring on September had special significance for the airline industry since airplanes were involved. Such external factors usually are beyond the firm's control and sometimes present themselves as threats. Unless governments of the two countries trade
. some say that "pest" is an appropriate term for these factors. Like it or not. o The most significant political event however has been September 11.E.
the world economy plunged into global recession due to the depressed sentiment of consumers. bribes have to be paid for every permit & license required.Airlines: Service Industry with each other. which increased after the WTC bombing. there could be restrictions of flying into particular area leading to a loss of potential air traffic (e. Therefore constant liasoning with the minister & other government official is necessary. Pakistan & India) o Another aspect is that in countries with high corruption levels like India.
Business cycles have a wide reaching impact on the airline industry. During recession. The state owned airlines suffer the maximum from this problem. free seats to ministers. This prompted the industry to lay off employees. airline is considered a luxury & therefore spending on air travel is cut which leads to reduce prices. During prosperity phase people indulge themselves in travel & prices increase. This affects the quality of the service delivery & therefore these airlines shave to think of innovative service marketing ideas to circumvent their problems & compete with the private operators. etc which a privately owned airline need not do. & the heavy control &interference of the government.
. even a company like Citibank was forced to cut costs to increase profits for which even the top level managers were given first class railway tickets instead of plane tickets. The state owned airlines also suffers from archaic laws applying only to them such as the retirement age of the pursers & hostesses. In India. the labour regulations which make the management less flexible in taking decision due to the presence of a strong union.g. After the September 11 incidents. These airlines have to make several special considerations with respect to selection of routes. The loss of income for airlines led to higher operational costs not only due to low demand but also due to higher insurance costs.
A Jain would be satisfied with the service only if he is served jain food and it should be kept in mind that the customers next to him are also jain or at least vegetarian. fun. The airlines have to recognize these individuals and should serve them accordingly. which indirectly reduces the costs and makes the consumers feel comfortable.
. low fare. and no frills airline. Air India needs to focus on their clientele which are mostly low income clients & their habits in order to keep them satisfied. The major element of its success was the augmented marketing mix which it used very effectively. which has been discussed later. Even the SARS outbreak in the Far East was a major cause for slump in the airline industry.
The changing travel habits of people have very wide implications for the airline industry. Even the Indian carriers like Air India was deeply affected as many flights were cancelled due to internal (employee relations) as well as external problems. Another good example would be the case of South West Airlines which occupies a solid position in the minds of the US air travelers as a reliable and convenient.g. The crew neither has any uniform nor does it serve any lavish foods. What South West did was it made the environment inside the plane very consumer friendly. In a country like India. For e. since India is a land of extremes there are people from various religions and castes and every individual travelling by the airline would expect customization to the greatest possible extent. there are people from varied income groups. kind of food etc all has to be chosen carefully in accordance with the tastes of their major clientele. Especially.Airlines: Service Industry which further fuelled the recession as spending decreased due to the rise in unemployment. The destination.
Air India also provides many internet based services to its customer such as online ticket booking. means better handling of airplanes. Chennai and Kolkata through long-term lease to make them world class is under consideration. AAI is now leasing these hangars to international airlines and is earning huge profits out of it. A good example of the impact of technology would be that of AAI. wherein the unoccupied seats are auctioned one week prior to the departure. and air traffic management systems for India's aviation sector that will help the country meet the expected growth and demand for air passenger and cargo service over the next decade. which can help reduce maintenance cost. AAI has also tried to utilize space that was previously wasted installing a lamination machine to laminate the luggage of travelers.g. Mumbai. For e. This activity earns AAI a lot of revenue. It also facilitates more flights to such destinations. navigation.Airlines: Service Industry The increasing use of the Internet has provided many opportunities to airlines. This will help in attracting investments in improving the infrastructure and services at these airports. Hyderabad and Goa with private sector participation is also envisaged. Better airport infrastructure. These technological changes in the environment have an impact on Air India as well. A proposal for restructuring the existing airports at Delhi. Setting up of new international airports at Bangalore. surveillance. updated flight information & handling of customer complaints. wherein with the help of technology it has converted its obsolete and unused hangars into profit centers. USTDA (US trade & development association) is funding a feasibility study and workshops for the Airports Authority of India as part of a long-term effort to promote Indian aviation infrastructure. Air Sahara has introduced a service through the internet.
. The Authority is developing modern communication.
and these 48% contribute 66% of airlines' revenue. at the same time. The premium prices they pay provide wider and more comfortable seats. Airlines can choose from a multitude of premium services to offer to business travelers.Airlines: Service Industry
Segmentation: The Airline Industry
Most airlines use a very traditional segmentation strategy.
They are crucial for airlines' profitability. Reservations for business trips are often made just a couple of days in advance.
. better choice of meals and seats. flexible reservation services are probably the most important to them. But amongst other perks. A no penalty cancellation policy is also very important to business passengers. With less spare time and more cash in their pockets. massage services and suit ironing services in the recently introduced arrival lounges. dividing passengers into business travelers and economy travelers (mostly leisure travelers). Business passengers will avoid transit flights even if a longer flight could save them money. The common strategy is to squeeze as much profit as possible from business class passengers who are attracted by superior services and corresponding high prices and. to try and fill the rest of the seats and ensure growth by attracting economy class passengers with lower fares. Business passengers believe it is worth extra money if they can save time and arrive looking fresh for an important meeting. they agree to pay a premium price for a premium service. Today business passengers account for approximately 48% of passengers. showers. luxurious lounges. to gambling machines. Some of these extras range from seats equipped with faxes and telephones.
Thus. This has already happened with Japan Airlines. airlines are counting on the leisure segment to provide further growth. By improving services and reducing prices for economy class passengers. such as "The Economist" or "The Wall Street Journal" are some of the best publications through which airlines can reach business travelers. The lower the airfare. On the other hand. who are responsible for business trips reservations.
They represent a totally different market. with the exception of wealthy travelers. Since business class passengers are not many. By and large. The most important consideration for most of them is the price. Business news media. How can airlines benefit from the growth opportunities in the leisure segment without losing immediate profit opportunities in the business segment? This is a tough issue in airline marketing management. it risks losing its economy class passengers to another airline.
. if an airline focuses on business class passengers. leisure travelers are very important to an airline's bottom line. losing the potential revenue generated by lower priced economy seats. Despite lower margins provided by this segment. a company relying mostly on business travelers will often end up flying half-empty planes. Frequent flyer programs are an added bonus for business passengers. for example. this segment will not pay extra for premium services and will agree to change several planes during their trip if this option costs less than a direct flight.Airlines: Service Industry The best way to reach business travelers is through printed advertising. airlines risk that some business passengers will switch to economy class. which was forced to eliminate business class seats on some of its flights. Part of the reason is that technological progress in the area of tele-conferencing and increased use of the internet for business communications is expected to reduce the number of business travelers. the more people will fly the respective airline. Many airlines design special promotional programs that target corporate bookers and meeting planners.
Southwest is a classic example.small regions that serve destinations where the majors do not fly. Thus he/she tries to sell early." seems to work best for the traditional Japanese audience. There are exceptions . Inside one country. their message -"Your needs. For example. Your Airline. who usually book at the last minute. which is the case with Canadian Airlines and Air Canada. the economy seats at a cheaper price. few airlines catering solely to economy class passengers can be successful because a low fare carrier must fill the entire plane if it is to generate revenue from its low-margin operations. valued by European passengers. Passengers' tastes determine airlines' strategies. Air Canada
. need to target both the business and the leisure segments they may also target different ethnic and geographical segments differently. while keeping enough seats reserved for business travelers. The allocation of business and economy class seats on a plane is determined through a process called yield management. It would be very difficult for any single airline to target just one of these two segments . even though Japan Airlines advertise extensively to the American public. for example. based on sophisticated statistical models. Keeping just the right amount of business seats reserved is important: selling too few economy seats in advance may result in a less-than-full plane while selling too many economy seats may result in a full plane. but with insufficient revenue to gain a profit. two national carriers may also focus on different destinations. are in a better position to implement a low price policy. depending on the markets from which they draw the majority of their customers. This kind of segmentation serves airlines well enough when implemented within one company. proving that low cost carriers can thrive. While British Airways focuses on comfort and luxury.Airlines: Service Industry On the other hand. Major international carriers. however. A good yield manager knows the approximate proportion of business and leisure travelers for each flight in advance.business or leisure successfully. They can even get business travelers to fly them despite the lack of premium services because no other airline would get them there.
Airlines: Service Industry equips its business class seats with plugs for laptops and telephones. appreciated by North American business travelers.
Differentiating the Product
It is important to recognize that what the consumers are demanding are not products. The airhostesses are trained to provide polite. The travel agents of the airlines also need to be efficient and polite. Producing added benefits thus helps the marketer to distinguish one product from another. If the product isn't what the market wants. duty free' shopping quick and efficient checking of baggage. warm and courteous service.Airlines: Service Industry Overall. In-flight services. The airline product includes of two types of services: 1. The on-the-ground services include a convenient airport with car parking facilities. The airline product is quite a complex one since it comprises of a service of incorporating the temporary user of airline seat and certain tangible products such as free flight bags or a free bottle of duty free spirit to encourage booking. supported by yield management techniques and a careful monitoring of the economic changes in their geographical markets. on the ground services. etc. The service provided inside is intangible and is highly variable. reservation counter provide goes a long way in developing customer loyalty. Good design or style of service can form the basis of
. no amount of price adjustment or brilliant promotion will encourage consumers to buy it. or features of products but the benefits they offer. transport to the airport. efficient service at reservation counter. airlines seem to achieve best results when they subscribe to the segmentation theory. 2. The courteous service that the representatives at the baggage counter.
Getting the product right is the single most important activity of marketing.
information about promotion schemes etc available to customers. The supplementary services are classified into eight clusters & each one is analyzed with respect to the airline industry:
This aspect of supplementary service is common for every person that needs information about the organization. upto date information regarding flight schedules.
THE FLOWER OF SERVICE
Core product surrounded by clusters of supplementary services Source: Christopher Lovelock pg. This enables the company to create a personality for its service.Airlines: Service Industry differentiation. A similar style was evident in Richard Branson's Virgin Airways. The design and decor of the aircraft provides opportunities to personalize their product as well as periodically to update them when differentiation under IATA regulations was virtually excluded. Customers can avail of this information literally at their fingertips today with every airline starting its own website which gives complete details to the customer & also entertains queries. It is important to distinguish between the core product that the customer buys and the supplementary services that accompany that product. nonetheless. Eagle Airlines created an entirely new market between New I York and Bermuda. for e.g. by developing an image of a friendly airline distinctive from other airline serving the route.
. certain airlines were able to develop distinct personalities. 233 The core service of an airline is the service of transport. In case of airline industry.
CORE PRODUCT AND SUPPLEMENTARY SERVICES
Many services products consist of a bundle that includes a variety of service elements and even some physical goods. ticket fares.
They are doing away with the travel agents & designing & selling packaged tours to consumers directly.
This aspect of supplementary services can be customized according to the needs of the customer.Airlines: Service Industry It also includes providing information to employees regarding new policies affecting the airline & equipping them with enough information. Another aspect to consultation at airlines is when the customer approaches the airline regarding traveling to particular destination. In this aspect they often act as consultants to the customer. Reservation of airline tickets is now easy and reliable since it is fully computerized. Passengers can specify their seat preferences at the time of reservation. It is more in the case of people processing and high personnel-contact services. knowledge about the airplane itself.
The order taking procedure is essentially the booking procedure of the airlines. which the customers might demand. the benefits he will get the mode of travel he should choose etc. Airlines are moving more actively into the role of consultant today. by giving him advice & suggestions regarding the type of plan he can choose. the airline gives him a variety of choices of routes that he can take. knowledge about cuisine etc. In some cases airline may also design special menus & benefits in consultation with its frequent fliers by keeping in constant touch with them & asking them for suggestion as to what they want in their airline which will make their experience more comfortable. easily understood & fast. There are 24 hours reservations. The important aspect to be noted here is that the procedure is smooth. Extensive training is provided to in-flight attendants regarding handling customer queries.
The customers entrust his baggage o the airline & it is the airline’s responsibility to keep it in a proper condition. This is done by establishing a standard reservation procedure & format thus reducing the risk of inconsistent service delivery. and email methods of booking. Children and infants usually travel along with their parents and guardian. The emphasis here is on fast booking & at the same time getting the required information form the customer. customer service staff renders all assistance like checking in and escorting up to the aircraft and handing over to the senior-most cabin attendant on board the flight. Passengers carrying international tickets are given further allowance of around an added 3Okgs Priority baggage delivery is offered to members.
Hospitality & Caretaking
With the increased competition today in the airline industry & the increasing similarity of services offered by each airline. In case of unaccompanied minors. The scheduling aspect assumes importance as reservations on the wrong flight to the wrong place are likely to be unpopular. Baggage allowances are offered about 30 kgs of check-in baggage is allowed. The online booking system also facilitates better order taking & processing.Airlines: Service Industry
Most airlines use the telephone. fax. hospitality has emerged as a key-differentiating factor between one airline & the other.
In airlines the safekeeping issue is that of safeguarding the customer’s baggage. He is looked after
. The hospitality aspect of an airline is tested right form the time of the reservation (courtesy of the booking official) to the airline’s desk at the airport to the actual in-flight travel (the attitude of the flight attendants) to the post flight help extended.
Airlines: Service Industry on board the flight right upto the point flight reaches the destination and he is received by his guardian. special amenities for elderly people or children. customers are often asked for their opinion regarding service equality..
Billing & payment
The billing procedure in airlines is simple.
. Many corporate frequent travelers are consulted when the airline decides to make any new change. The options available to the customer are plenty including credit card & travelers cheque. medical needs etc. Frequent fliers are also given special payment privileges. these needs have to considered & acceded to wherever possible Handling of customer suggestions / complaints – every airline today has a customer service center which entertains customer suggestions & complaints. Airlines use the open account system with their corporate clients. On the flight.
Special requests – airline very often receive special requests form customers with regards to meal preferences.
’ British Airways’. old people etc. the plan includes a stay at The Leela.
.Airlines: Service Industry
LEVELS OF PRODUCT
FIVE PRODUCT LEVELS The Core Service
The core service of the airlines industry is to transport goods and services to various destinations.’ Jet Airways’. Different classes like economy class. with buffet breakfast and late checkout. As competition increased and the customers wanted more the next phase evolved and that is the augmented service. New Delhi. STD facility for 3 minutes and boardroom facility at the Park Hotel. offers its passengers a ‘business-plan’ on twoway economy class ticket. All these added service helps the customer to decide upon which airlines he wants to travel. for example. All of them had some common services to offer like connecting flights. airport transfers and VIP amenities at The Orchid. After this stage comes the various supplementary services. For business class. it offers a night’s stay with breakfast. The freebies are actually win-win deals between airlines and other services.
The Supplementary Services
The airline industry has many players they had a brand name like ‘Air India’. To Delhi based fliers to Mumbai. Singapore airlines was the first to introduce small 8”television screen for every passenger. Mumbai. and complementary gifts etc. Sahara. which includes a night’s stay with breakfast. As the needs of the people increased the entire system became more organized and formal. Air concessions are given to school students. through check-in. tele check in. business class were introduced. food on board.
super sonic speed. it’s more spacious and comfortable. which was very convenient for the service users. Virgin airlines have gambling on board. the service providers kept working on new methods to meet the ever-changing customers’ demands.
As mentioned above the customer needs keep changing. Air Emirates has something called cab service. something like air taxis. with increased competition service will become the final differentiation. the future is unknown. The customers may be looking in for more frequent inexpensive air travel.Airlines: Service Industry The Augmented Service This phase is where the customer’s expectations are met. The players introduced online booking. they also have body massage to offer to their passengers.
. British Airways business class has showers. they have customized pick up and drop cab service. This decreases the time thus reducing the cost. They also have auction going on board. diabetic etc. Sahara airlines offer its passengers six different types of cuisine like vegetarian. This phase is the most crucial one. fat free.
Airlines: Service Industry The diagrammatical representation of the core and supplementary services in the airline industry is shown below:
Core TRANSPOR T BRAND NAME (Air India. Jet CONCESSIO Airways) NS COMPLEMENTA RY GFITS
CONNECTI NG FLIGHTS
In other words.
. Acquisition/ Depreciation & Insurance 13% and balance other expenses. and minimum breakeven cost. Landing & Parking costs 7-10%. varies 30-40 % depending on aircraft utilization. Pricing can be classified in three ways. Repair and Maintenance 13%. type of aircraft. Manpower 12%. Buyers judge whether a product is fairly priced by seeing whether it represents value for money. the capacity and frequency is tailored to the size of the market. The concept of 'fair price' is paramount. Pricing or fare levels are arrived at after taking into consideration various factors.Airlines: Service Industry
Price plays as much a tool of marketing as promotion plays a critical role in the marketing mix. the pricing structure is also arrived at. Navigation.
How are fares arrived at?
When Airlines put in capacity (seats) and frequency (flights) between any two points. Passenger Service Fee (PSF) The basic fares include the operating cost incurred by the airlines and the profit margin.
DIVISION OF FARES:
The final fares charged to the passengers include the following components: Basic fares Insurance Inland Aviation Travel Tax (IATT). density of route. Accordingly. competitor activity. The major constituents of the operating cost in respect of domestic airlines in India are the Aviation Turbine Fuel (ATF) the basic raw material for this service industry. configuration of aircraft (number of seats). they market research the route in order to arrive at the total potential for that segment.
to sales. 2001 is an instant example wherein passengers simply stopped flying and several airlines went into bankruptcy. the airline embarks upon a serious of marketing activities. the airline is immediately alerted to enquire into the causes for this. In short. or the potential or total size of the market for this route is too small to sustain a profitable flight or there is too much capacity deployed by various airlines on the route
2. the entire focus is to increase the yield and load factor (seat factor). The second option is. The reasons for these can be multifarious. Prices of fuel also 48
event of September 11. This leads to a fare war wherein the airline either tries to protect its market share or responds to another airline which tries to increase its own market share.
Why do fares fall?
When the yield drops or the seat factor falls.Airlines: Service Industry In order to achieve the breakeven seat factor and thereafter maximize loads. These will vary from a publicity campaign highlighting various facets of the Product. The yield or the bottom line is the income generated from ticket sales less costs incurred on the route. ideal departure and arrival timings. Also poor economic conditions lead to shrinkage of market. It could be that the type of aircraft deployed on the route is not suitable
and hence is making cash loses. Yields may also fall due to increase in costs. It could be that the route is not profitable due to intrinsic reasons such as
a very short haul route. connections and so on. punctuality. (Increase in volume number with low fares can achieve breakeven cost)
3. Then the airline has two
1. to drop fares in order to increase the seat factor. service. increase fares to compensate for the increased costs. Extraneous reasons also contribute to non-profitability of routes.
but overall profits are achieved.
Value for Money Pricing:
The intention here is to charge the average price for the product and emphasize that it represents excellent value for money at this price.
Pricing Strategies Premium Pricing:
The airlines may set prices above the market price either to reflect the image of quality or the unique status of the product. Reduction in fares.
5. apart from the above reasons is also due to introduction of a more suitable aircraft.
.Airlines: Service Industry fluctuate and can result in sudden increase in basic costs. Competitor activities can also lead to a drop in
market share or drop in yields. This enables the airline to achieve good levels of profit on the basis of established reputation. modern. further adding to the burden. and with greater seating capacity at lower cost. Air India and Indian Airlines have slashed their prices to meet the competition of private airlines so that they can consolidate their position in the market. Unit profits are low. For example. Apart from the above. the most common cause is a reduction in fares by one airline forces the other to reduce fares. This reduction in fares could be due to any of the above three reasons enumerated above. which is fuel efficient. In other words reduction in fares is not always due to negative factors but can be due to modernization. The product features are not shared by its competitors or the company itself may enjoy a strong reputation that the 'brand image' alone is sufficient to merit a premium price. Insurance premiums have recently increased considerably.
Cheap Value Pricing:
The objective here is to undercut the competition and price is used to trigger the purchase immediately.
In this scheme. the airlines provide very low prices for the flight tickets. But the draw-back here is that if the booking is cancelled. Since these low-cost airlines are trying to woo the customers by providing air travel in exceptionally low prices.Airlines: Service Industry
Airlines usually practice differential pricing. Also. they prices are made cheaper by booking the tickets long before the flight date. a substantial amount of money is not returned. a different low-cost flying concept has come up.
With the advent of the low-cost airlines in the Indian aviation industry. There are three classes: The First Class. In low-pricing strategies. a price-band kind of pricing has to be designed. Seasonal fares are also fixed. The Executive or Business Class and The Economy Class. people are given very cheap rates only if tickets are booked atleast before the specified time period. fares rise during the peak holiday times. Fares for each class are different since the facilities provided and the comfort and luxury level is different in each class.
facts and figures about India’s airline
.Airlines: Service Industry
Airlines: Service Industry
Strong long-term growth projected for the 20-year global forecast
Airlines will need about 29.000 new airplanes
000 new airplanes delivered to a wide mix of regions and operating segments
India GDP growth has averaged 7% over the last 10 years
.Airlines: Service Industry
Airlines: Service Industry
market forces have led to contraction
.Airlines: Service Industry
Potential travel market growth is high
Liberalization significantly expanded the industry.
000 new airplanes
India’s airlines will need 1.Airlines: Service Industry
Current Market Outlook for India 2009 .
Airlines: Service Industry
India Market Summary
State of the airline industry IATA Outlook and Information
Airlines: Service Industry
State of the Indian airline industry
Airlines: Service Industry
Domestic India capacity is down 11%
India domestic fuel prices have started to increase from March 2009
Airlines: Service Industry
King fisher vs. Jet Airways
namely JetLite (formerly Air Sahara) and Jet Airways Konnect. In a poll conducted by SmartTravelAsia. In January 1994. Jet Airways has also won a survey award for the quality of its catering from Which? magazine. It began international operations to Sri Lanka in March
. Jet Airways also operates two low-cost airlines.com in September 2008. Jet Airways was incorporated as an air taxi operator on 1 April 1992. it was voted as the world's seventh best airline overall.000 passengers. In July 2008.Airlines: Service Industry
Jet Airways is an airline based in Mumbai. It operates over 400 daily flights to 65 destinations worldwide. It is India's third largest airline after Air India and Kingfisher Airlines. making it the second largest airline in India behind Kingfisher Airlines. Which? magazine ranked Jet Airways as the world's best longhaul airline after Singapore Airlines. which was granted on 4 January 1995. In February 2009. Jet Airways had 846. India. It started Indian commercial airline operations on 5 May 1993 with a fleet of four leased Boeing 737-300 aircraft. a change in the law enabled Jet Airways to apply for scheduled airline status.
5 billion rupees (US$340 million).
Jet Airways Boeing 777-300ER at San Francisco International Airport in the airline's new livery introduced in 2007 Jet Airways and Air Sahara were the only private airlines to survive the Indian business downturn of the early 1990s. However. Jet Airways announced its plans to completely integrate JetLite into Jet Airways. and has 10. 80% of its stock is controlled by Naresh Goyal (through his ownership of Jet’s parent company. following which Jet Airways received scheduled airline status. Civil Aviation Minister Praful Patel said that the management re iewed its decision after he
. who already owned Jetair (Private) Limited. the employees have been asked to return to work. later. set up Jet Airways as a fullservice scheduled airline to compete against state-owned Indian Airlines. On 12 April 2007. Tailwinds. which provided sales and marketing for foreign airlines in India. The resulting airline would have been the country's largest but the deal fell through in June 2006.017 employees (at March 2007). Jet Airways announced that it would buy Air Sahara for US$500 million in an all-cash deal. In October 2008.
Jet Airways Airbus A340-300E at London Heathrow Airport in 2005 with the 1993-2007 livery Naresh Goyal. when all major Indian air transport providers were nationalised under the Air Corporations Act (1953). and January 1994. Jet Airways agreed to buy out Air Sahara for 14. Air Sahara was renamed JetLite. when the Air Corporations Act was repealed. making it the biggest takeover in Indian aviation history. resulting in the largest lay-off in the history of Indian aviation. In January 2006. Jet Airways laid off 1900 of its employees. Indian Airlines had enjoyed a monopoly in the domestic market between 1953.Airlines: Service Industry 2004. While the company is listed on the Bombay Stock Exchange. In August 2008. and was marketed between a low-cost carrier and a full service airline.
Airlines: Service Industry analyzed the decision with them.
. In May 2009. The new airline uses spare aircraft from Jet Airways' routes that were discontinued due to low passenger load factors. Jet Airways Konnect. Jet Airways launched another low-cost airline. joint utilization of crew and sharing of similar frequent flier programs. Jet Airways and rival K
Kingfisher Airlines announced an alliance which primarily includes an agreement on code-sharing on both domestic and international flights. joint fuel management to reduce expenses.  In October 2008. as the two have different operator codes. common ground handling. The decision to launch a new brand instead of expanding the JetLite network was taken considering the regulatory delays involved in transferring aircraft from Jet Airways to JetLite. It also uses the same operator code as Jet Airways.
Initially. Kingfisher operates more than 400 flights a day and has a network of 72 destinations.
. and an alliance with the Hilton Hotels Corporation. giving it the highest market share among airlines in India. Kingfisher entered into a multi-year partnership deal with Toyota Motorsport to be an official partner of the Toyota F1 racing team. Malaysia Airlines. Singapore Airlines and Cathay Pacific Airways. On 13 October 2008. following the dry lease of four brand new Airbus A320-200 aircraft. has a 50 percent stake in low-cost carrier Kingfisher Red. facial tissue and headphones to use with the IFE system. Its first flight was from Mumbai to Delhi. namely King Club and Jet Privilege. formerly known as Air Deccan. Kingfisher was the first Indian airline to have in-flight entertainment (IFE) systems on every seat even on domestic flights..Airlines: Service Industry Kingfisher Airlines Limited. Kingfisher Airlines carried more than a million passengers. In January 2007. Kingfisher Airlines. Kingfisher Airlines is one of six airlines in the world to have a five-star rating from Skytrax. common ground handling." The airline ushered in a new era of luxury in India's domestic aviation sector with its brand new aircraft with stylish red interiors. And in a marked departure from tradition. joint fuel management to reduce expenses. but later an alliance was formed with Dish TV to provide live TV inflight. Kingfisher Airlines also has a strategic code-sharing agreement with Jet Airways. Kingfisher has its registered office in the UB Tower in Bangalore and its head office in the Kingfisher House in Mumbai
The airline started operations on 9 May 2005. Mallya said that he is "committed to achieving our ambition of making Kingfisher Airlines India's largest private airline both in capacity and market share by 2010. joint utilisation of crew and sharing of their frequent flier programmes. Kingfisher announced its plans to raise US$ 100 million through equity. passengers were able to watch only recorded TV programming on the IFE system. At the launch of the airline. Qatar Airways. and smartly dressed crew and ground staff. In May 2009. is a major Indian airline. All passengers were given a "welcome kit" consisting goodies such as a pen. Dr. Kingfisher Airlines decided to have an on-screen safety demonstration using the IFE system. In September 2008. The alliance was formed to implement code-sharing between the two airlines on both domestic and international flights. as a result of the worsening economic scenario and the resultant drop in passenger traffic and increase in costs. with regional and long-haul international services. through one of its holding companies United Breweries Group. along with Asiana Airlines. Kingfisher chairman Vijay Mallya and his Jet Airways counterpart Naresh Goyal announced a strategic alliance after a meeting in Mumbai.
The new alliance allows members of the King Club frequent flyer programme to earn both King Miles and Hilton HHonors points when they stay at Hilton Hotels
Kingfisher Airlines Statistics Year Ended April 07 .850. the guest rewards program for the more than 3.March 09 Passengers Carried 12.000 hotels of the Hilton Hotels Corporation worldwide.Airlines: Service Industry On 12 January 2009.336 10. Kingfisher Airlines announced its alliance with Hilton HHonors.6%
.414.March 08 April 08 .359 % Change Average Load factor (%) 60%
Airlines: Service Industry
Kingfisher Vs Jet Airways • • • • • • • • • • Kingfisher is one of the latest Airlines in INDIA. In a short span of 2 years its market share has become 28% including Air Deccan. Already have training academy -Jet Airways is the experienced airline in INDIA.
. It was awarded the ‘Best New Airline Of the Year’ award. Overall growth in year 2006-07 is 16%. Domestic airlines poised to go international flights. Overall growth in year 2006-07 is 37%. Personal in-flight entertainment in every seat. Kingfisher acquired 46% share in Air Deccan.
Average entertainment services. Jet Airways has its market share 31% including Air Sahara. Jet Airways won Double Honour Travel Trade Gazette Travel award.
.Airlines: Service Industry • • • • • • Jet airways acquired Air Sahara in 2006. Jet Airways already has domestic as well as international flights. They are plan to start training academy.
79 years • Scope for improvement in in-flight service • Weak brand promotion Opportunities • Untapped air cargo market • Scope in international service and tourism Threats • Strong competitors • Fuel price hike • Overseas market competition
S. Analysis – Kingfisher Airlines Key Attraction • Market driver • Experience exceeding 14 year • Only private airline with international operation • Market leader • Largest fleet size Key Problem • Loosing domestic market share • Old fleet with average age around 4.Airlines: Service Industry S.T.W. Analysis – Jet Airways Key Attraction • First airline with full new fleet of aircraft • Brand image with Flamboyant Personality of Vijay Mallya • Unmatched in flight service • Exclusive Terminal Share Deal • Route rationalization Key Problem • Service delivery to metros and other big cities • Yet not in profit • High ticket pricing • High attrition in top brass Opportunities
Airlines: Service Industry • • • • • Under penetrated domestic market International market Untapped air cargo market Expanding tourism industry Fleet size expansion
Threats • Existing Operators • Infrastructure issue • Fuel price hike
Mukund Title of the Book: Business Strategy Publication: 2002 Publisher: ICFAI Press www. CMIE Journal Business Strategy Author: Sanjib Dutta & A.com
.com Web site of Airport Authority of India.google.Airlines: Service Industry Bibliography:• • • • • • • • • India info line.