IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS
(A Market Competitor Analysis)
Submitted to Bangalore University In partial fulfillment of the requirements for the award of the degree of Masters of Business Administration

Under the guidance of
External Guide Mr. U. Harish Shenoy Area Manager - Karnataka Jet Airways Bangalore By Internal Guide Dr, K.V. Prabhakar, Adjunct Professor, M.P.B.I.M – B.V.B Bangalore

Miss Tejal Arun Savur
(Reg no. 02XQCM6062)

M.P. Birla Institute of Management,
Associate Bharatiya Vidya Bhavan,
No 53, Race Course Road, Bangalore 560001. September– October 2004

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DECLARATION

I hereby declare, that this dissertation titled, “IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS – A Market Competitor Analysis’ is a bonafide study, completed under the guidance and supervision of Dr. K.V. Prabhakar, Adjunct Faculty, MPBIM-BVB, and Mr.U.Harish Shenoy, Area Manager, Jet Airways, Bangalore, in partial fulfillment of the requirements for the award of MASTERS OF BUSINESS ADMINISTRATION Degree at Bangalore University. I further declare that this dissertation is the result of my own efforts and that it has not been submitted to any other university or institute for the award of a degree or diploma or any degree or other similar title of recognition.

Place: Bangalore Date: 13 September 2004 Miss Tejal Arun Savur 02XQCM6062 MBA, 4th Sem MPBIM - BVB

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ACKNOWLEDGEMENT
I am extremely grateful to all those who have shared their views, opinions, ideas and experiences which have significantly improved my research work embodied in this dissertation.

I like to express my sincere thanks to Mr.U.Harish Shenoy, Area Manager – Karnataka, Jet Airways, for his untiring guidance throughout my research journey. I have been benefited greatly from the excellent advices extended by him, without which this dissertation would not have seen the light.

I am indebted to the Airport authorities, who have been very understanding and encouraging throughout my research work. Very special thanks to the travel agencies for their kind co-operation. I would also like to express thanks to the entire staff at Jet Airways, Double Road Branch, for their constant support.

I am grateful to Dr. K.V. Prabhakar, Marketing Head, MPBIM, for his valuable suggestions which added value to this research work.

I would be failing in my duty, if I do not extend my sincere gratitude towards our beloved Principal, Dr.N.S. Malavalli and our esteemed and respected Directors, Sri. R. Thothadri and Sri. A. Krishnamurthy for their support.

Finally I would like to extend my warm respects and regards to my family, friends and well-wishers for their constant support and valuable suggestions.

-

Miss Tejal Arun Savur

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CONTENT SHEET
Particulars Executive Summary Chapter 1: Chapter 2: Chapter 3: Chapter 4: Chapter 5: Chapter 6: Chapter 7: Chapter 8: BACKGROUND SCENARIO AVIATION INDUSTRY PROFILE OF JET AIRWAYS LITERATURE SURVEY RESEARCH METHODOLOGY RESEARCH FINDINGS MAJOR FINDINGS OF THE RESEARCH RECOMMENDATIONS (Including Suggestions for further Research) ANNEXURE: Questionnaires Customer Survey Travel Agency Survey Select Bibliography List of Travel Agencies contacted Collateral 66 - 79 Page No. 1-2 3-5 6 - 11 12 - 23 24 - 26 27 - 30 31 – 54 55 - 55 56 - 65

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LIST OF TABLES AND GRAPHS
Title Pie-Chart showing the sample segment traveling by Air-Deccan Pie-Chart showing the target segment with regards to Profession/Occupation. Conical Pyramid showing the first-time flying approval. Bar Graph showing the first –time flying experience approval. Bar-Pyramid showing the customer perceptions to Air-deccan flight services with respect to on-time performances.(Based on Age) Column graph showing the customer perceptions to Air-deccan flight services with respect to on-time performances.(Based on Profession) Pie-chart showing the destination of travel – Based on the Profession Conical Pyramid showing the mode of transport preferred Pie-chart showing the professional preference towards Jet Airways Horizontal bar graph showing the importance of low air fares Pie-chart showing change in number of passengers due to introduction of no-frills airlines Line graph showing proportion of passengers booked in a sector Pie-chart showing sensitivity of passengers towards price Donut Graph showing the percentage increase in number of passengers Pie chart showing prior means of transportation for the new passengers Daily monitor of Flight arrival and departure timings A Comparison of fares 45 46 48 51 52 53 54 37 39 40 41 43 36 Page No 31 32 33 34

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EXECUTIVE SUMMARY
Jet Airways – the Market Leader of the Indian Domestic Aviation Industry launched its service on 23rd May 1993. It was set up with the objective of becoming the most preferred domestic airline in the country by providing high quality and reliable air travel in India. Over the past 11 years Jet Airways has been striving towards maintaining its position as the market leader and has had to withstand and weather many a challenging and tough times, especially the slump in the aviation industry on the whole, due to the 9/11 attacks. Recently, an issue of concern for Jet Airways has been a new entrant into the industry – one which cannot be under-estimated – one that is using a completely different approach towards the industry – one which could pose as a threat to the Market Leader if not analyzed and scrutinized in the initial stages itself. Air Deccan – India’s first low cost no frills carrier has launched its service on August 25th, 2003 from its hub at Bangalore. Currently since the airline is operating 2 aircrafts from its hub in Bangalore to Mangalore and Hubli (operations started on August 25th 2003) and Chennai, Coimbatore and Hyderabad (operations started on September 30th 2003). Air Deccan is currently facing initial operational hitches and its operations other than between BLR-IXE are not streamlined. Air Deccan has postponed its second aircraft’s operations three times. Though once Air Deccan launches its full operations in the coming future, first in South India and then throughout the country, with a fleet of 6 aircrafts and 75 flights daily, it can be a major threat to Jet Airways in the highly price sensitive Indian market. The research work in this dissertation is an attempt to quantify this threat and counter the effect of Air Deccan on Jet Airways’ seat factor

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To this effect, an exploratory and conclusive research was carried out on a sample of 120. This sample was split into two parts 1. Passengers who have actually traveled by Air Deccan – 100 people 2. Travel Agencies who contribute to over 60% of the revenue for Jet Airways in Bangalore City – 20 travel agencies. The responses were generated with the help of two separate questionnaires for each sample type, which contained both quantitative and qualitative questions. These were administered in person at the airport in the case of the passenger survey. In the case of travel agency survey, they were administered either in person at the travel agency or through a telephonic conversation in case the concerned person was unavailable for a one-to-one interaction. The conclusion drawn from the perceptions of the sample clearly stated that Air Deccan was only catering to the needs to Small Scale Businessmen and Entrepreneurs who had to travel to Belgaum, Hubli, etc on work and were willing to compromise on quality for the sake of the saving some money and time. Also students and housewives who were occasional fliers found Air Deccan to be more cost effective than traveling by train or bus. Most passengers of Air Deccan were previously traveling to their destination through train or bus. They had upgraded themselves to traveling by air as the prices of both were more or less the same. This means that the core passengers of Jet Airways – the Corporates, Professionals and International Fliers still continue to prefer and support Jet Airways which is a more reliable and professional airline. They are very satisfied with the services provided by Jet Airways and they would not be sensitive to the changes in price. Strategies to strengthen its position have been recommended to Jet Airways for retaining their current passengers by direct marketing and by attracting the new passenger segment Air Deccan is creating.

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NEED AND SIGNIFICANCE OF THE STUDY In this ever-competitive and ever-changing world, absolutely nothing is constant. One has to be well aware of one’s competitors – as the market follows the rule of SURVIVAL OF THE FITTEST. It has become a must, to ensure that one is always a step above the rest – even if it means being marginally better than that one’s competitors. It has been established, over the years that Jet Airways has been the leader of the Indian Domestic Airline Industry, with whopping share of close to 46 – 48% of the market. Many small-scale players had to perish, as they were not able to face the competition from the market leader. They succumbed to the enormous pressure of survival and had no choice but to liquidate. With this as a background, one player (Air Deccan) has tried to make an entry into this fierce aviation market. Recently there has been an advent of a new type of Airline – A “NO FRILLS” Airline - The first one of its kind in a totally different league altogether has decided to adopt a frontal attack on the market leader and thereby assuming the market challengers role. The attack posed by the market challenger has scaled new dimensions in the Indian civil aviation industry with regards to price sensitivity. The Unique Selling Proposition strategy of the Market Challenger has been to provide Air travel that fits common man’s pocket and thereby leveraging the cost of travel over other modes of transport like train, road – within common man’s reach

Air Deccan Business Model
Air Deccan’s business plan is to ply short haul flights between cities, hitherto unconnected by airlines in Andhra Pradesh, Karnataka and Tamil Nadu from Bangalore, Chennai and Hyderabad. The cities identified by the airline include Hubli, Belgaum, Tirupati, Rajamundry, Vijayawada, Puttaparthi, Mysore, Hampi, Salem, Tuticorn, Coimbatore and Mangalore.

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Air Deccan aircraft fleet will eventually comprise of six old ATR-42-320s with an average age of 7 years, dry leased for 5 years. Currently they have started operations with 1 aircraft only, as the other aircraft has not been cleared by DGCA. In November 2003 they completed role out with 6 aircrafts. Each aircraft was expected to do 12 block hours per day and have an estimated turnaround time of 20 minutes. ATR will provide spares pool to Air Deccan from France within 48 hours during time of need. These spares are besides a spare parts stock of $3 million already positioned by the airline at their base. The target customers are business travelers mainly from the Small Office House Office (SOHO) segment and personal visits/leisure travelers. The airline aims to ply same day return flights to facilitate the SOHO business travelers, such that they save on accommodation expenses. Media reports suggest Karnataka government has issued a directive for officers who hold the rank of tahsildar or above should travel by Air Deccan for official purpose. Tamil Nadu and Andhra Pradesh government may also issue similar directives, which will guarantee traffic for the airline to sustain operations in its initial phase and eventually help it to grow. The Andhra Pradesh government has also aided Air Deccan’s operations by completely wavering off sales tax on ATF. Air Deccan has cut its distribution costs to 3%, compared to Jet Airways 15%. This reduction has been possible since Air Deccan does not have any CRS/GDS, but alternately they seem to be maintaining a local server which can be accessed through their website and payment necessarily has to be made by a credit card. The passenger has the option of booking a ticket on the Internet using his credit card or he can directly buy a ticket at the terminal at the airport before departure. Tickets can also be booked through a travel agent who will use his credit card on behalf of the passenger. A few local travel agents have already been issued credit cards through an arrangement with ICICI Bank, while others will be provided with the same shortly.

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Travel agents earn a commission of 5% per booking; this commission is over and above the listed fare. Also each passenger has to pay a transaction fee of INR 25 per seat booked over and above the fare. Eventually Air Deccan also plans to sell tickets as a commodity through retail chains such as Shopper’s Stop and Food World. Air Deccan’s founder Capt. Gopinath also plans to fly to Dubai and Singapore, subject to government regulations. The broad estimated financials for Air Deccan have been provided in Annexure II. This low cost airline has a grand business plan and considering it is not a new player since it already has a full fledged charter helicopter service in place it will soon prove to be a worthy competitor. Thus we need to position a plan of action to retain our passengers before they shift to Air Deccan. Since this new entrant has just entered the market, Jet Airways (Market Leader) feels the need to re-assess this airline – to judge whether it could have any impact on them. This comes in the light of the varying tastes and preferences occurring across various demographic segments of air travelers (age & profession). Even though the player is very small, it becomes highly imperative to analyze the stakes involved. Jet Airways acknowledges the efforts of this airline and finds it crucial to analyze the strengths and weaknesses of this new entrant – to ensure its hold on the market is not dissolved. The foregoing analysis establishes the need for a research on the impact of Air Deccan on Jet Airways. The main focus of the research is on Market Competitor Analysis. This analysis would form as a base for Jet Airways to examine the impact that Air Deccan throws on its market share with suitable SWOT Analysis (an integral component of Market Competitor Analysis), Jet Airways must design the “Counter Attack” Strategy

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AVIATION INDUSTRY
Overview of the Aviation Industry The Civil Aviation occupies a significant place in the transport management of today’s world. It plays an important role in pricing decisions also. The operational expenses are found increasing fast to improve the quality of services or to follow safety norms. The air transport authorities find it difficult to rationalize the fare and freight structures since the falling occupancy ratio is found throwing a big impact on the revenue position. The users expect a lot for the charges they pay and are not in a position to pay more. However the ministry of Civil Aviation bears the responsibility of rationalizing the fare and freight structures in such a way that the revenue position is increased. The setting of International pricing is found much more complicated since it is not only on Air India to set fare and freight structures. The International Airport Authority of India, International Air Transport Association (IATA), & International Civil Aviation is some of the important organizations playing a decisive role in making the pricing decisions for the international air transport business. IATA divides the world in to three areas, such as: • • • Area 1 Area 2 Area 3

In the Area 1, the countries are North and South American continents, islands adjacent there to like Greenland, Bermuda, West Indies, Caribbean area, Hawaiian island, Midway. In the Area 2, the countries like Europe, Africa, Islands thereto like Ascensian, the part of Asia situated west including Iran. In the Area 3, the countries are remaining part of Asia and island adjacent thereto East Indies, Australia, New Zealand, Islands of Pacific Ocean.

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The Airline Industry The airline industry has never had it so bad, in India or abroad. Because of recession in the economy, most of the airlines were in loss and now the attacks on the World Trade Center and Pentagon in the United States has worsened the situation. According to recent study, it is understood that forty percent of the people have cancelled their plans and sixty percent have postponed their trips indefinitely. Leisure travel was dead but now is slowly recovering. The airline industry is a multi-dimensional industry which offers intangible services like passenger services, cargo services, mail services etc. The services of airline industry are commercial as well as social. The sophistication of airline industry technologies determines the quality of services or standard specification

Aircraft Manufacturers It is quite interesting to note that there are only two aircraft’s manufacturers for the whole world with so many bustling airlines around. These two largest giants are: • • Boeing Airbus

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Boeing The Boeing Company is the world’s leading aerospace company, with its heritage mirroring the history of flight. It is the largest manufacturer of satellites, commercial jetliners, and military aircraft’s. The company is also a global market leader in missile defense, human space flight, and launch services. In terms of sales, Boeing is the largest U.S. exporter. Total company revenues for 2000 were $51 billion. Airbus Airbus is the first European Company, one of the aircraft’s manufacturers in the market for large commercial airlines. It designs and builds sells and supports aircraft’s of 100 seats or more.

Indian Commercial Aviation Industry The Indian aviation industry has two distinct sectors - Commercial and Military. Commercial aviation includes passenger airlines and cargo planes, international air services, air taxi and charter operations being major functions. Indian air Force and the aviation arms of the Navy and Army are included. Commercial airlines have a typical organizational structure. This includes airlines operations, maintenance, marketing and finance divisions. The role of the operations division is to conduct day to day activities of the airline, overseeing the pilots and flight attendants, the flight dispatches, flight schedulers and ground crew. Engineering and technical division handles the maintenance of avionics and mechanics of the aircraft’s, they perform daily inspections, carry out routine repairs etc.

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The marketing function involves selling services of the airline, creating market strengths, and supply through advertising, charting new programmes / services, attracting customers and controlling ticket reservations and managing material purchases. The finance division is concerned with managing the money flow. Interior decorators are other professionals who work for airlines. They are assigned the task of decorating passenger lounges at airports and also aircraft’s interiors. Uniforms of pilots, aircrew, check in personnel and others are designed by fashion designers. Commercial aircraft’s operate from the civil airports while military aircraft’s operate from military airfields and in exceptional circumstances from civil aerodromes. Airports are large and have its own security and rescue services, fire department, retail outlets, restaurants, construction and maintenance teams, warehouses for cargo and an independent transport system. A very important part of the airline industry is the aircraft’s manufacturers. While most of the commercial aircraft’s are bought from foreign manufactures the Hindustan Aeronautics Ltd. as well as the National Aeronautics Ltd. are the main Indian manufacturers. Though their major work is related to maintenance these units have manufactured some indigenous airplanes. In the manufacturing sector work physicists, biologists, engineers,

mathematicians, design engineers, technicians, accountants, lawyers and administrative staff. Industries supplying components and electronics also Manufacturers of parachutes, skydiving employ a range of specialists.

equipment’s are the other equipment’s.

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DGCA -The Director General of Civil Aviation in India governs the commercial aviation industry. aircraft’s. Indian Airline Industry The news on the domestic front, however, is bad and has been grim for the past six months; recession has eaten in to business travel in a big way and practically killed leisure travel. Osama bin Laden’s action in the U.S. has hit the Indian travel industry below the belt. It has become the least preferred destination. The Airline industry already feeling the pinch of the general economic slow down and the slump in the Information Technology industry. With war clouds hovering over the region, the airline industry appears to be in jitters. “When there is a big contract to be signed, and normally eight people would go now only two are traveling” says Asgar Ali, director of Universal Express Travels and Tours, whose business has dwindled by nearly 35-45 percent. The recession is not solely responsible for the airlines suffering red ink. It controls, standardizes, gives licenses of aircrews and investigates any incidents and accidents. It also certifies the airworthiness of

Reasons for the Recent Recession in the Indian Domestic Airline Industry: ¾ There is too much capacity to Delhi, Calcutta, Mumbai and Bangalore sectors. Indian Airlines shuttles together with Jet Airways flights added up to 2,000 seats a day to Delhi, besides the Air Sahara and Air India’s discounted flights.

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¾

The Mumbai-Bangalore sector also suffers from excess capacity. The total current capacity is almost is almost 1,800 seats often making aircraft’s travel lighter by as much as 40 percent. The extra seats may have come in two years late.

¾

For, when the domestic and global economy was scaling new heights each day. eighty percent load. Flights between Mumbai and Bangalore or between Delhi and Mumbai were operating with a highly profitable

¾

By the time Airlines woke up to the reality of the need for more seats and obtained necessary schedules and permissions, the recession had set in emptying out the flights.

¾

The much hyped disinvestments in flagship carrier – Indian Airlines is finally off.

¾

The finance ministry has given its had to the infusion of funds came into force as there was no bidder for the national carrier and the airline could not be run anymore without upgrading and modernizing its feet.

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COMPANY PROFILE
Jet Airways is the biggest success story in the Indian aviation industry and one of the fastest growing airlines in the world. They began operations with the mission of becoming the most preferred domestic airline in the country. Today, it's a matter of pride with which they are widely recognized as"India's Best and world-class Domestic Airline".

Where did Jet Airways start? On May 5, 1993, Jet Airways was set up with the objective of becoming the most preferred domestic airline in the country by providing high quality and reliable air travel in India. A very high percentage of the Indian domestic air traffic comprised business travelers. Therefore, the focus from the very beginning was to emerge as the "Businessman's Preferred Airline". This led to a product and service design that aimed at world class norms in professional service and efficiency, beginning with the choice of aircraft itself. Their operations began with a fleet of four Modern Generation Boeing 737-300 aircraft. The operation of these aircraft marked the first time they had flown Indian skies. They used the training facilities of Ansett (Australia) for the training and conversion of their pilots and engineers. To help them achieve world class norms in service, Speed wing (a British Airways subsidiary), assisted in conducting a programme on Customer Service Excellence for staff across functions at all levels. To ensure accurate and efficient reservation systems, they even tied up with and are co-hosted with SABRE - one of the world's best reservations systems. Within three months of operation, they also became an associate member of IATA, parties to the IATA multilateral interline agreement and a member of the IATA clearing house.

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How has Jet Airways grown? Naresh Goyal, the founder Chairman of Jet Airways, India's premier domestic airline has had over 35 years experience in the Civil Aviation Industry. He is the recipient of several national and international awards. After graduating in Commerce in 1967, Naresh Goyal joined the travel business with the GSA for Lebanese International Airlines. Between 1967 and 1974 he underwent extensive training in all facets of the travel business through his association with several foreign airlines. He also traveled overseas extensively on business during this period. With the experience, expertise and technical know-how thus acquired, in May 1974, Naresh Goyal founded Jet air (Private) Limited with the objective of providing Sales and Marketing representation to foreign airlines in India. He was involved in developing studies of traffic patterns, route structures, operational economics and flight scheduling, all of which has made him an authority in the world of aviation and travel. In 1991, as part of the ongoing diversification programme of his business activities, Naresh Goyal took advantage of the opening of the Indian economy and the enunciation of the Open Skies Policy by the Government of India, to set up Jet Airways (India) Private Limited, for the operation of scheduled air services on domestic sectors in India. Now in its tenth year, Jet Airways has emerged as India's largest private domestic airline and has been acclaimed by frequent travellers as the most preferred carrier offering the highest quality of comfort, courtesy and standards of in-flight and ground service and reliability of operations. It currently has a market share of around 45 - 46 per cent and operates a fleet of 31 Boeing and eight ATR72-500 turbo-prop aircraft. Jet Airways has won several national and international awards, including the 'Market Development Award' for 2001 awarded by Air Transport World

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PERFORMANCE CHARACTERISTICS:
¾ Jet Airways is known as India’s “World Class Domestic Airline”. When one flies with them, one can be sure to receive the finest service from the time one books the ticket to the time one reaches the destination and ¾ leaves the airport. Jet Airways operates over 250 flights daily to 41 destinations across the country. The rapid expansion of their route network has earned them the ¾ ¾ ¾ prestigious Air Transport World Award 2001 for Market Development. Jet Airways has also won the prestigious H&FS award for the domestic airline for the year 2001 four times. They also pride themselves in having the youngest fleet of aircraft in India, consisting of the modern 737-400/700/800 and the ATR 72-500. Jet Airways is proud to be one of the few airlines in the world to receive the ISO 9001 certification for their in-flight services. Jet Airways strives to provide service of the highest standard to their customers, both ¾ on ground and in-flight. They pride themselves on having an unbeatable record of on-time flights and providing world-class frequent flyer benefits to their customers, through their alliances with British Airways, KLM Royal Dutch Airlines and ¾ Northwest Airlines. They were the first airline in India to receive the World Travel Market Global Award, the world's premier global travel event in London. And Citibank Diners Club has chosen them as India's best domestic airline for ¾ their excellence in service. Today, they are India's most preferred airline for their consistent performance.

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CORPORATE MISSION STATEMENT
™ Jet Airways will be the most preferred domestic airline in India. It will be the automatic first choice carrier for the traveling public and set standards, which other competing airlines will seek to match. ™ Jet Airways will achieve this pre-eminent position by offering high quality of service and reliable, comfortable and efficient operations. ™ Jet Airways will be an airline which is going to upgrade the concept of domestic airline travel - be a world class domestic airline. ™ Jet Airways will achieve these objectives whilst simultaneously ensuring consistent profitability, achieving healthy, long-term returns for the investors and providing its employees with an environment for excellence and growth.

BUSINESS SLOGAN:
The business slogan of jet airways sends a clear message to its customers reminding them about experiencing air travel the Jet-way. “The Joy of Flying”

The yellow rose provided to all its customers during the course of the flight is their way of establishing a long and cherished Customer relationship.

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ACHIEVEMENTS / AWARDS:
In their constant endeavor to attain and maintain the highest standards of service, they have been recognized and appreciated by many acclaimed authorities.

August 2003 January 2003

‘The Oscar of Branding’ January 2003 Business world Award as a "Most Respected Company for 2003"

October 2002

TTG Travel Award 2002 for “Best Domestic Airline.”

September 2002

H&FS – Best Domestic Airline of the Year 2001 for excellence in hospitality.

February 2001 March 2000

Air Transport World’s Market Development Award H&FS – Best Domestic Airline of the Year 1999 for excellence in hospitality.

January 2000

Vocational Excellence Award by Rotary Club of Mumbai North End

December 1998

H&FS – Best Domestic Airline of the Year 1998 for excellence in hospitality

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November 1998 1996-97

The International Brand Summit Best Airline of the Year 1996-97 Award conducted by IATA Agents Association, Calicut

November 1997

Best Domestic Airline Award for Service Excellence - Key to Competitiveness.

September 1997

H&FS Award by the Rangaswamy Tourism Foundation associated with the Karnataka State Tourism Development Corporation.

December 1996

H&FS - Best Domestic Airline of the Year Award for Excellence in hospitality (From Press Release)

November 1996

The World Travel Market Global Award by Reed Exhibition Companies in conjunction with Trav Talk for their contribution to travel and tourism in the respective media sponsor regions worldwide.

October 1996

The Great Management Show Award for punctuality, safety, quality of service and customer orientation

September 1996

Citibank Diners Club Blue Moon Award for Service Excellence

October 1994

Service Excellence Award at an International seminar called 'Global Managers in Jurassic Park' hosted by Global Managers

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OPERATIONAL CHARACTERISTICS:
Jet Airways Fleet Jet Airways' current fleet consists of B737 New and Next -Generation aircraft and the modern turbo-prop ATR72-500 aircraft. CFM 56 engines power all the Boeing aircraft while the ATR aircraft are powered by Pratt and Whitney 127 engines. The average age of the fleet is 3 years making Jet Airways the operator of the youngest aircraft fleet in Asia. It has a total of 31 fleets in service at present. The details are given
B 737 - 800 Total in Capacity Service 13 Club Première-28 Economy Class-126 Engines Cruise Speed Length 39.5m Wing Span 34.3m

CFM56 871 7B24 kmph

B 737 - 700

Total in Capacity Service 12 Club Première-20 Economy Class-102

Engines

Cruise Speed

Length 33.6m

Wing Span 34.3m

CFM56 871 7B22 kmph

B 737 - 400

Total in Capacity Service 08 Club Première-24 Economy Class-112

Engines

Cruise Speed

Length 36.4m

Wing Span 28.9m

CFM56 815 3C1 kmph

ATR 72 - 500

Total in Capacity Service 08 Economy Class-62

Engines

Cruise Speed

Length

Wing Span

PW127F 511 kmph

27.17m 27.0m

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NETWORK

Jet Airways operates over 250 flights daily to 41 destinations across the country.

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GLOBAL ALLIANCES & PARTNERS
In Jet Airways efforts to provide their customers with a world-class traveling experience, they have extended themselves to their partners with whom they alliance. In order to offer the finest quality of service, they have alliances with some of the best airlines, hotels, cellular service providers and car rental services such as: ™ International Airline Partners 9 Northwest Airlines 9 British Airways ™ Hotel Partners 9 KLM Royal Dutch Airlines

9 The Park Hotels

9 The Oberoi Group

9 The Leela Hotels and Resorts 9 ITC Hotels ™

9 Radisson Hotels & Resorts Worldwide

Telecom Partners

9 BPL Mobile

™

Car Partners 9 AVIS

™

Commercial & Consumer Banks Citibank

™ ™

Through Check-in Partners Interline Partners

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DIVISIONAL CHART OF JET AIRWAYS (MARKETING DIVISION)
MD – Managing Director CEO – Chief Executive Officer GM – General Manager AM – Area Manager SM – Sales Manager RM – Reservation Manager DO – Duty Officer CSA – Customer Service Assistants

MD

CEO

GM (North) AM (North)
SM RM

GM (East) AM (East)
SM RM

GM (South) AM (South)
SM RM SM

GM (West) AM (West)
RM

Asst. SM

Asst. RM

Asst. SM

Asst. RM

Asst. SM

Asst. RM

Asst. SM

Asst. RM

Sr. Sales

Sales Exe. DO

Sr. Sales

Sales Exe. DO

Sr. Sales

Sales Exe. DO

Sr. Sales

Sales Exe. DO

Supe rior

Supe rior

Supe rior

Supe rior

CSA

CSA

CSA

CSA

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

JET AIRWAYS IN-FLIGHT SERVICES IS ISO 9001:2000 CERTIFIED

Jet Airways' In -flight Services have been officially ISO 9001-2000 certified for meeting world-class standards. Whilst confirming that Jet Airways had complied with ISO criteria, the external certifying body Det Norske Veritas (DNV) has complimented the Airline for its customer focused approach and the wealth of internal data, which indicated that it "listened to the voice of the customer". Jet Airways formulated a Quality Management System for In-flight Services in February 2001 as part of a comprehensive exercise to implement ISO in select operational areas. Qualteam Consultants were selected to assist in the certification process. A core group led by a Management Representative of Jet Airways was constituted to ensure that the quality management system developed by In-flight Services would meet ISO requirements.

This group identified core processes as well as sub-processes required to support in-flight operations. It met with respective departments within In-flight Services to 'flowchart' all the processes and develops the Process Manual. The Quality Manual, which is the apex document, was also developed during this period. To ensure that the Quality Policy, Objectives and Processes were understood and complied with, all In-flight Staff were given a half-day training. Det Norske Veritas was selected as the external certification body, based on its reputation in the auditing of service organizations. The audit held from March 01 to 18, 2002 examined documented processes through an intensive examination at In-flight Services Headquarters in Mumbai and also at the crew bases in Mumbai, Delhi and Chennai.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

JET PRIVILEGE SCHEMES
Jet Airways believes in providing one with the best experiences possible, including the best benefits and privileges. Jet Airways is the first airline in India to introduce a multi-tier frequent flyer program, with different levels of privileges depending on the number of miles and flights one accumulates. The program gets as rewarding as one makes it, since it depends on one’s membership status, which is upgraded when one qualifies with the necessary number of miles. The 3 schemes available on Jet Privilege are: 9 JP Blue: After first flight 9 JP Silver: 30,000 miles or 30 flights 9 JP Gold: 60,000 miles or 60 flights

CONCESSIONAL FARES
Since Jet Airways cannot completely slash down their prices, they have come out with an innovative manner in which to attract customers. They offer a wide variety of concessional fares to passengers which encourage them to fly with Jet Airways. Some concessional schemes available are: 9 Student concessions 9 Cancer Patients 9 Youth fare 9 Senior Citizen concession 9 Armed Forces concessions 9 Apex fares

9 Super-apex fares
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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

Air Asia’s: Rewriting Rules

Rewriting the rules AirAsia’s Tony Fernandes: The new hero of the Asian low-cost airlines business Next week, the Centre for Asia Pacific Aviation is organising a symposium on low-cost airlines in the capital. One of the star-speakers will be Tony Fernandes, the charismatic 39-year-old CEO of AirAsia, one of the most successful low-cost operators in South-east Asia. Till two years ago, no one in the airline business had even heard of him. But now, Fernandes makes headlines just about everywhere he goes. That's because the Malaysian proved wrong all those who said low-fare airlines could not succeed in the region. And that took some courage. Drawing up a business plan wasn't easy, especially since he knew next to nothing about the aviation business. Trawling through the Internet and meeting a range of business associates, including Conor McCarthy, a former director with Ryanair, Fernandes was able to eventually build a plan for a low-cost carrier with operations in Malaysia. He modelled his carrier after low-cost carriers in other parts of the world. Prime Minister Mahathir Mohamad gave the venture his blessings. But he refused to give out any new airline licence, insisting that Fernandes would have to buy out an existing operator. That's how Fernandes endd up with AirAsia, which has a fleet of just two Ae 300s and a tiny route network. The rest is history. AirAsia has ferried more than 3.6 million passengers since January 2002 and expects to carry more than 3 million this year. It has a domestic market share of 30 per cent. What's more, almost all of it has come from market expansion as Malaysia Airlines has not seen any drop in domestic passenger numbers.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

Air India’s Revival Path :

Inside his 20th floor office in the Air-India Building, chairman and managing director V. Thulasidas is readying a new master plan to revive the airline's fortunes. For the past few years, Air-India (AI) has been steadily losing market share to international airlines like British Airways, KLM, Emirates and Singapore Airlines. Despite being the national carrier, its market share of outbound traffic from India has come down to just 20 per cent from 40 per cent in the 1970s. (India's outbound traffic has been growing at 10 per cent, much faster than the inbound traffic.) If that weren't enogh, now low-fare airlines are eyeing the u Indian market. The plan is to now allow Air India Express to operate an alleconomy service on short-haul flights of 3-5 hours to destinations in the Middle East and South-east Asia, while AI focusses on premium quality traffic on medium- and long-haul flights. AI will also offer full-service flights to select places in the Middle East and South-east Asia. Over time, AI will vacate these traditional Middle East sectors and evolve into a truly international airline. "We will acquire more aircraft, and upgrade our service. The idea is to grow in size and improve quality," says Thulasidas. Meanwhile, the key to the Air-India Express strategy is to lower costs by driving efficiency. Air India Express will not have any business class, since that typically goes empty on these routes. (AI will cater to the little business class traffic to Dubai and Singapore from Mumbai.) The budget airline will also have more seats. The Boeing 737-800, which it will take on dry lease, will have 181 seats as against 145 seats in Indian Airlines' Airbus 320s. And it will offer point-to-point service and ensure quick turnarounds, to save on hotel and layover allowances for the crew. In fact, manpower costs will be lower than that of AI. For that, the employees will be hired on different terms: the pilots and cabin crew would be on contract. Also, new aircraft will offer better fuel economy.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

AIR SAHARA Rono Dutta: On a Revival Path

In the fast changing Indian Aviation scenario, Air Sahara has unassailably established itself as one of the leading players in the Indian Aviation industry. It has constantly brought in new initiatives and has today developed into a wholesome airline, which offers benefits and services unmatched by any other domestic operator. Today, the Airline is on the threshold of a new dawn of success and consolidation. THE much anticipated farewar has broken out across Indian skies. A little before Rono Dutta announced the Air Sahara 'surprice' package, Indian Airlines (IA) extended a host of promotional fares and Air Deccan came up with a much-misunderstood offer: the Rs 500 Mumbai-Delhi ticket. The Air Sahara surprice is a 30-day advance return fare that's 36 per cent less than the 30-day advance apex fare. IA's 'metro non -metro Scheme' lets travellers pay Rs 1,000 for the non-metro leg of a flight, if it includes a metro leg. Air Deccan will shift to dynamic pricing next week where, the earlier you book a ticket, the cheaper the fare (Rs 500- 8,000 for a Bangalore-Delhi ticket). But others say the fall is due to competitive pressure. Though they feel, Air Deccan, with a couple of flights a day, won't be an immediate threat. "If Sahara leads a backlash, other airlines will be sucked into a fare war," says Kapil Kaul, senior vice-president (Indian sub-continent), Centre for Asia Pacific Aviation. There are rumours that Sahara will offer walk-in fares that are 10-15 per cent more than those of Air Deccan, though Dutta does not mention any such plan yet. The battle has just begun……And its good news for the “AIR FLIERS” • More details regarding the Backlash of the price war in the Indian Aviation Industry is explained in detail in the Annexure section. -----“AVIATION INDUSTRY: THE NEW LOW-COST WARRIORS”

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

RESEARCH METHODOLOGY
RESEARCH PARADIGM: Any Research follows the Research paradigm that includes three important stages

Problem Stage 1

Method Stage 2

Solution Stage 3

A TYPICAL RESEARCH PROCESS INVOLVES: 1. Identifying the problem/ opportunity and defining research objectives 2. Developing the research design 3. Collecting the data (or information) 4. Process and Analyzing the data (or information) 5. Presenting the research findings (or report) DEVELOPING A RESEARCH DESIGN: The marketing researcher develops research design, which basically indicates the procedure and cost of conducting the research study. It contains:

” Information type ” Sources of data ” Sampling Plan ” Research methods ” Methods of contacts

” Data collection methods (i.e. Research Instruments) Research Methodology undertaken for the project:

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

PROBLEM STATEMENT: “The Impact of Air Deccan, the New Entrant to the Indian Domestic Airways Industry on Jet Airways, the Market Leader”.

OBJECTIVES OF THE STUDY:

¿ To determine the influence of Air Deccan on Jet Airways.

¿ To analyze passengers’ perception of Jet Airways vis-à-vis Air Deccan. especially relating to price.

¿ To identify the ever changing tastes and preferences of the passengers ¿ To analyze the perceptions of travel agents.

TYPE OF RESEARCH: The research process adopted for the study is a typical Customer Research process which is ideally exploratory and conclusive in nature.

SAMPLING TECHNIQUE:¿ Random Sampling. ¿ Systematic Sampling. Random Sampling has been adopted for Passengers: ¿ At the Airport. (100 customers) Systematic Sampling has been adopted for Travel Agents:

¿ Approved list of Travel Agencies provided by Jet Airways.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

(20 travel agencies)

SAMPLE DESCRIPTION: The target population includes two parts namely: services of Air Deccan. sales in City. Appropriate samples have been drawn from the target population ¿ All the passengers from Bangalore City who have availed/ availing the ¿ Travel agencies in Bangalore City who form 60% of Jet Airways ticket

SAMPLE SIZE:The sample size is restricted to: ¿ 100 passengers. ¿ Top 20 travel agencies.

INSTRUMENTATION TECHNIQUE:

¿ Structured Questionnaires and Telephonic interview sessions have been ¿ Telephonic interview schedules have been drawn for those sample units ¿ Since our research investigation is highly quantitative, we could not subject the data to rigorous statistical treatment. In overview, the qualitative research is as significant as quantitative. that could not be contacted directly for response generation. used as instrumentation techniques to carry out the work-assignment.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

Primary Data collection: Primary data collection refers to data collection through, ¿ Through structured questionnaires for Passengers. ¿ Through personal interviews with the Passengers.

¿ Through structured questionnaires for Travel Agents. ¿ Through personal interviews with the Travel Agents.

Secondary Data collection: This refers to indirect means of data collection through, ¿ Browsing through the internet ¿ Company intranet ¿ Newspapers

¿ Journals, Travel Magazines

LIMITATIONS OF THE STUDY

™ Research investigations are beset with Time and Resource constraints.

™ Research investigations are based on company information and information generated through passenger response and travel agency ™ Research is limited to the Bangalore city only, and also it is limited to ™ Hence limitations of generalization become obvious. passengers of Air-Deccan only. responses.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

DATA ANALYSIS AND INFERENCES Passenger’s Perception
Personal Details - Age: Demographic profiling of the sample segment with regards Age factor revealed the following statistics

Age 20 - 30 ye a rs 30 - 40 ye a rs 50 - 50 ye a rs TO TAL

76 22 2 100

Pie-Chart showing the sample segment traveling by Air-Deccan

22%

2% 20 - 30 years 30 - 40 years 50 - 50 years 76%

¾

(Source: Field Investigation)

Most people are observed to be in the age group of 20 years to 30 years. This segment is as huge as 76% of the total target sample interviewed. Youths have been traveling in almost all the flights. (At least 2 youths in each flight). Families with four members going on a vacation/ holiday are found in all the Air Deccan flights. Hence it was seen that the general passenger crowd is a casual fun-loving and a try-first time crowd and not the business class.

¾ ¾ ¾

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

(2)

Personal Details - Occupation: Demographic profiling of the sample segment

with regards Profession/Occupation factor revealed the following statistics:

Occupation Corporate PSU Self Employed Entrepreneur Student Designer Housewife TOTAL

0 0 27 59 11 1 2 100

Pie-Chart showing the target segment with regards to Profession/Occupation.
1% 11% 0% 0% 2% 27% Corporate PSU Self Employed Entrepreneur Student Designer Housewife 59%

¾

(Source: Field Investigation)

No Corporate & Public Sector Managerial persons are traveling by Air Deccan.Most of the entrepreneurs are willing to try Air Deccan as an alternative way to travel. Self Employed people who are looking to a cheaper way to travel are found in abundance. Adventurous people who intend to experience services provided. Many college-going students are availing their services. Some people, knowing the recent unfortunate spate of events encountered by Air Deccan, still desire to give a chance to this Airline.

¾ ¾ ¾ ¾

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

(3)

™ A positive response was observed 48% of the times across all the across all ™ Most passengers have travelled by Air Deccan earlier (52%). Deccan flights.
F irst flig ht w ith Air De cca n ye s no 41 35 7 15 0 2 48 52

Is this your first flight with Air Deccan? the age groups put together.

™ This also means that the repeat customer crowd was pretty good with the Air-

a ge 20 - 30 ye a rs 30 - 40 ye a rs 50 - 50 ye a rs TO TA L

T O TAL 76 22 2 100

Conical Pyramid showing the first-time flying approval.

45 40 35 30 25 20 15 10 5 0 20 - 30 years 30 - 40 years 50 - 50 years yes no

(Source: Field Investigation)

Persons in the age group of 20 to 30 years seem to be traveling for the first time whereas people in the age group of 30 to 40 years have previously traveled by this no frills airlines.

There are not too many people in the age group of 40 to 50 years and of the two both have previously traveled b Air Deccan.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

First-time fliers across the Profession
profession Corporate PSU Self Employed Entrepreneur Student Designer Housewife TOTAL First flight with Air Deccan yes no 0 0 0 0 23 4 11 48 11 0 1 0 2 0 48 52 TOTAL 0 0 27 59 11 1 2 100

Bar Graph showing the first –time flying experience approval.

50 40 30 20 10 0 Corporate yes Self Employed Student Housewife yes no

(Source: Field Investigation)

Based on the profession, we can safely say that a majority of the entrepreneurs enjoy travelling by Air Deccan. As 11% of them are firsttime fliers and another 48% are repeat fliers with air-deccan.

Whereas the self-employed youths are still testing waters, they just want to figure out whether this method of flying is really worth while or not.

It can be deduced that the positive approval of air-deccan flying experience majority comprises of the student, entrepreneur and the self-employed class.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

Reasons sighted for flying with Air Deccan: ¾ ¾ Most people are adventurous enough to try out this new Airline. It is more of enthusiasm to travel through air-deccan than measure and Gauge the service expectation of the new airways player. ¾ Many desire to see whether this is a smart way of cost cutting while traveling by air. ¾ ¾ Others feel this is an affordable/ cheaper way of traveling by air. Some people desire to experience a journey by Air, which is otherwise not so affordable. ¾ Some are drawn by the destinations which could be covered in less than an hour by air, which would otherwise take them at least ten hours to twelve hours by road or rail. ¾ Some are forced to take Air Deccan as that sector is not yet being covered by the other Airlines. ¾ Most passengers possess the zeal and enthusiasm to experience what the new domestic airline has to offer. ¾ They are willing to forego the in-flight services at the cost of traveling by an economical airline. ¾ Some have personal reasons for travel/ emergency travel which is catered to in an inexpensive manner by Air Deccan.

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(4)

What is your perception of Air Deccan flight/ services/ on time Perceptions age Excellent Good Average Poor TOTAL 4 57 15 0 76 20 - 30 years 5 11 6 0 22 30 - 40 years 0 1 1 0 2 50 - 50 years TOTAL 9 69 22 0 100 Bar-Pyramid showing the customer perceptions to Air-deccan flight services with respect to on-time performances.(Based on Age)

performance?

80 70 60 50 40 30 20 10 0 20 - 30 years 30 - 40 years 50 - 50 years Poor Average Good Excellent

¾ ¾ ¾ ¾ ¾

(Source: Field Investigation)

Most passengers having heard so much about the airline feel that the Air Deccan will be/ is a good experience. Most common answer is “It should be okay”. Another common answer is “What can we expect at such a reasonable price? Anything provided will be considered a bonus”. Passengers who are willing to rate Air Deccan perceived it to be average to good. Another response is that “When it comes this affordable, other service parameters can take a back seat”.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

Based on the profession, the responses received were as follows:
profe ssion Corpora te PSU S e lf Em ploye d Entre pre ne ur S tude nt De signe r House w ife TOTAL P e rce ptions Ex ce lle nt Good Ave ra ge P oor TOTAL 0 0 0 0 0 0 0 0 0 0 23 4 0 27 9 33 17 0 59 11 0 0 11 0 1 0 1 0 1 1 0 2 9 69 22 0 100

Column graph showing the customer perceptions to Air-deccan flight services with respect to on-time performances.(Based on Profession)

Housewife Designer Student Entrepreneur Self Employed PSU Corporate 0% 20% 40% 60% 80% 100% Excellent Good Average Poor

(Source: Field Investigation)

• • •

The self employed are satisfied with the experience with Air Deccan – they graded it as Good. Entrepreneurs on the other hand are very much pleased with Air Deccan and graded it as “Excellent”. The students feel that this mode of travel in the best thing to happen to India.

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(5)

What do you have to say about Air Deccan?

When asked the question about the personal opinions about the air services, the responses have been variant; some of the most common are as follows: ¾ Some are fearful whether any technical snags will take place when the flight is on course. This fear arose due to the recent spate of unfortunate events encountered by Air Deccan. ¾ Whether the flight takes off and lands on time does not matter as much as their reaching the destination safely. ¾ ¾ They expect the in-flight services to be average. Passengers are caught by surprise that even water has to be paid for in this Airline. ¾ Many just want to try out the Airline and experience the thrills and pleasure of flying. ¾ ¾ Passengers feel on the whole the flight should be average to good. Many have “No Comments” as they prefer to play it safe and observe the wait and watch, until then enjoy the ride. The interesting aspect of the comments is that there are no remarkable negative comments about the air-Deccan service or for that matter any comparison about the on-time performance and the In-flight services which all other service fliers offer to their customers.

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(6)

Have you previously travelled to the present destination?

Travelled to mangalore profession Corporate PSU Self Employed Entrepreneur Student Designer Housewife TOTAL yes 0 0 27 59 11 1 2 100 no 0 0 0 0 0 0 0 0 total 0 0 27 59 11 1 2 100

Pie-chart showing the destination of travel – Based on the Profession

yes 11% 1% 0% 0% 2%

Corporate PSU Self Employed Entrepreneur Student Designer Housewife

27% 59%

(Source: Field Investigation)

¾ ¾

Here again the unanimous answer obtained was a “Yes” All passengers had traveled earlier by various means of commuting, to the present destination.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

If yes, what mode of transport did you use?
profe ssion Corpora te PSU S e lf Em ploye d Entre pre ne ur S tude nt De signe r House w ife TOTAL
100% 80% 60% 40% 20% 0% Corporate Self Employed Student Housew ife train bus airline

m ode of trans port airline bus

train

3

5 32 6 2 45

19 27 5 1 52

3

total 0 0 27 59 11 1 2 100

¾ All passengers have earlier traveled to the present destination by the various ¾ A majority of passengers have earlier been traveling with the other ¾ Most of these passengers have (temporarily) switched from the leader - Jet ¾ Others upgraded themselves from trains to Air Deccan. on Air Deccan. Airways to Air Deccan due to the financial constraints. competitive Airlines, existing in the industry. means of commuting.

(Source: Field Investigation)

¾ It is observed that a rail journey would cost them almost as much as a ticket ¾ No one has earlier traveled by bus, even though buses ply regularly. find it very convenient.

¾ None use the other means of commuting like car travel, etc. as they do not ¾ On the whole only other Airline travelers and Rail travelers are finding Air Deccan a healthy option.

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(7)

Have you previously flown with Jet Airways?

Travelled with Jet no profe ssion y es 0 Corpora te 0 PSU 27 S e lf Em ploye d 59 Entre pre ne ur 11 S tude nt 1 De signe r 2 House w ife 100 TOTAL

total 0 0 0 0 0 0 0 0 0 0 27 59 11 1 2 100

11%

1%

2% 0% 0% 27% Corporate PSU Self Employed Entrepreneur Student Designer

59%

Housewife

(Source: Field Investigation)

¾ ¾

Almost all the Air Deccan passengers have experienced a journey with Jet Airways. Barring a negligible few, all passengers have the pleasure of flying with Jet Airways.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

If yes, how would you compare the services provided in Jet Airways with Air Deccan? ¾ All passengers are experiencing Air Deccan for the very first time and are not sure what to say. ¾ They are very satisfied with the services provided by Jet Airways and graded it to be Excellent. ¾ They feel that Jet Airways deserves to be the Market Leader as it always provides the best – in all aspects – flight/ services/ on time performance/ ground staff/ etc. ¾ Jet Airways has never left any scope for error/ complaint/ dissatisfaction as far as their services are concerned. ¾ Passengers are aware that these excellent services provided by Jet Airways come at a high price, and that it is well justified. ¾ Still the passengers find the price very steep, especially for regular travel or even for vacation/ holiday.

Hence it is observed that the steep pricing of the Jet travel is the main concern for the customers travelling by air.

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(8)

Is the lower fare on Air Deccan the reason you chose to fly with

them?
Lower fare reason for shift yes no 0 0 0 0 12 15 56 3 11 0 1 0 2 0 82 18

profession Corporate PSU Self Employed Entrepreneur Student Designer Housewife TOTAL

total 0 0 27 59 11 1 2 100

Housewife Designer Student Entrepreneur Self Employed PSU Corporate 0 10 20 30 40 50 60 no yes

(Source: Field Investigation)

¾ ¾ ¾ ¾

Almost all (around 99%) of the passengers responded positive. A majority feel that Air Deccan is definitely more reasonable than Jet Airways, or any other airline. A negligible few (about 1%) responded negative This minority are forced to travel by Air Deccan, as those sectors are not yet covered by the Jet Airways and the other Airlines.

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

Reasons for switching could be: ¾ Passengers are very happy and content with the services provided by Air-Deccan and such an affordable customer price. ¾ The mode of air-travel has given a new dimension after the launch Of the air-deccan services. ¾ If not for the comparatively higher fare of Jet Airways, they would have never switched to Air Deccan. ¾ Passengers find Air Deccan to be reasonable and their fares “easy on the pocket”. ¾ Most people feel that after a long time now, finally an air-service that can cater to the needs of common man too. The perceptions about the air travel being expensive seem to be fading fast. ¾ ¾ They are willing to compromise on the services rendered to them. Cost of traveling by an airline is being given a higher priority than the services rendered by it. ¾ Finally a service that can fit the common man’s pocket, yet deliver him travel to the destination at the comfort of an air-travel.

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Travel Agencies’ Perception
(1) Due to introduction of flights by Air Deccan and Air Sahara, is there any change in Passenger Numbers:

Due to A D & A S has there been c hange in no of pas s engers y es no total 2 18 20

10%

yes no

90%

(Source: Field Investigation)

¾ ¾ ¾ ¾

Unanimously all travel agents strongly resented this notion. All have stated that the competitors have not affected the number of passengers flying with Jet Airways. They feel that Jet Airways have regular travelers who would never compromise for any other Airline. Agents also feel that people wishing to travel International sectors would always opt for Jet Airways, which is known for its on-time performance. They also feel that it would be only the casual fliers whom Jet Airways would be losing out on, as they would be willing to compromise based of the air fare.

¾

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

(2) From:

What is the proportion of passengers booked (on a weekly basis):

Origin (Say Bangalore – BLR) To: Destination (Say Mangalore – IXE)
proportion of passengers booked between origin (bangalore) and destination (mangalore) no of passengersfrequency 3 1 4 2 5 2 6 2 8 3 10 3 14 1 15 5 20 1 TOTAL 20

6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 Series1

(Source: Field Investigation)

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IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

Analysis on the number of passengers traveling to BLR – IXE – BLR ¾ On an average 2 passengers to 3 passengers per week are booked in the Bangalore – Mangalore – Bangalore sector traveling with Air Deccan. ¾ On an average 15 passengers to 20 passengers per week are booked in the Bangalore – Mangalore – Bangalore sector traveling with Jet Airways. ¾ Most travel agents complain that Air Deccan has not yet provided online facility to reserve tickets on their airline. ¾ A handful of travel agents are authorized and allowed to book tickets on Air Deccan ¾ Others are forwarding all the customers who were enquiring about Air Deccan to the nearest travel agent who would help them. ¾ Almost all of them are in the process of getting authorization/ permission from Air Deccan to allow online booking. ¾ They are eagerly waiting for the authorization/ permission, as they do not want to lose out on the customers who are enquiring about the Air Deccan, and who wish to fly with this new Airline.

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(3) How sensitive do you think are the passengers in your region to price?

P as s engers are s ens itive to pric e y es 10 average 1 no 9 TO TA L 20

45%

yes 50% average no

5%

(Source: Field Investigation)

¾

This question really made the travel agent ponder – does the price really affect?

¾

The travel agencies close to residential areas are more number of casual fliers and irregular fliers.

¾

These agencies rate their region to be extremely sensitive to change in airline fares.

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¾

They feel that their customers would prefer to travel by a more reasonable airline.

¾

The travel agencies situated in the “hub” of the city have regular fliers as well as casual fliers.

¾

These agencies rate their region to be average as far as reactions to change in price are concerned.

¾

They do not feel that their customers would be affected much by changes in price.

¾

The travel agencies situated in the “heart” of the city have international fliers, regular fliers and casual fliers.

¾

These agencies rate their region as not at all affected by change in the airline fares.

¾

They feel that for their customers on time performance was of greatest importance and customers would not compromise on that aspect.

¾

Making this region not at all affected by change in price and the airline fares.

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(4)

What do you feel will be the impact in the near future because of the

Air Deccan and Air Sahara? Air Deccan: ¾ ¾ ¾ ¾ All the travel agents unanimously agree that Air Deccan would pose no threat to Jet Airways. It is not even a month since Air Deccan has been introduced whereas Jet Airways has been in the industry for ten years! Air Deccan has been suffering from bad luck as two of its flights suffered from technical snags after take off. Luckily for Air Deccan, all passengers have been safely grounded and upgraded to Jet Airways at no extra cost.

Air Sahara: ¾ ¾ ¾ ¾ ¾ ¾ Air Sahara is a potential rival of Jet Airways. Jet Airways must beware and defend its position. Better strategies must be formulated to counter those of Air Sahara. If no action is taken immediately, Air Sahara may emerge leader. Air Sahara is trying to win over passengers with its “homely” touch as against the “professional” touch of Jet Airways. Air Sahara is having a competitive edge due to its pricing strategies.
(Source Personal Enquiry Notes)

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(5)

Is there any new passengers coming in the airline market?

Is there an increase in number of passengers yes no total 19 1 20

5% 95%

yes no

(Source: Field Investigation)

¾

Travel Agencies feel that in the recent past there has been an alarming increase in the number of new customers/ passengers.

Reasons: ¾ ¾ ¾ ¾ ¾ Increase in the standard of living. Substantial increase in the purchasing power of citizens. Increase in disposable income. Status issue or status symbol. Requirement to satisfy the social needs – Maslow’s theory of hierarchy needs.

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If yes, what mode of transport did they previously use? ¾ ¾ ¾ ¾ Travel agents feel that the recent increase in number of passengers, are those who were earlier traveling by train. Rail fares are almost as much as the competitive schemes offered by Airlines. Hence passengers prefer to upgrade themselves from train to airlines. No passenger is found earlier traveling by bus.

Mode of transportation used earlier by them Airline Train Bus TOTAL 0 18 1 19

5% 0% Airline Train Bus 95%

(Source: Field Investigation)

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DAILY MONITOR: 9W V/S COMPETITION STATISTICS.
AIRLINE FLT NO. SECTOR STD STA

JET AIRWAYS

9W 801 9W 3526 9W 446 9W 486 9W 3508 9W 3517 9W 496 9W 3523 9W 512 9W 3513 9W 3524

Bangalore ---> Chennai Bangalore ---> Chennai Bangalore ---> Chennai Bangalore ---> Chennai Bangalore ---> Chennai Bangalore ---> Coimbatore Bangalore ---> Hyderabad Bangalore ---> Hyderabad Bangalore ---> Hyderabad Bangalore ---> Mangalore Bangalore ---> Mangalore

950 1400 1610 1955 2050 1900 915 1505 1850 1015 1040

1035 1500 1655 2040 2150 1955 1015 1635 1950 1120 1145

AIR SAHARA

S2 307 S2 123 S2 211

Bangalore ---> Chennai Bangalore ---> Chennai Bangalore ---> Hyderabad

1005 2210 825

1050 2255 925

AIR DECCAN

-

Bangalore ---> Coimbatore Bangalore ---> Hyderabad Bangalore ---> Belgaum Bangalore ---> Madurai Bangalore ---> Hubli Bangalore ---> Mangalore Bangalore ---> Chennai Bangalore ---> Chennai Bangalore ---> Chennai

600 1510 1545 1055 615 930 815 1300 1930

-

(Source: Personal Enquiry Notes)

Observations - On-time performance: ¾ ¾ ¾ ¾ All the Jet Airways flights were on-time. Almost all the Air Sahara flights were on-time. Most of the Air Deccan flights were delayed. A few Air Deccan flights suffered from technical snags.

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A COMPARISON OF THE FARES

SECTOR

AIR DECCAN

JET AIRWAYS

Bangalore ---> Chennai Bangalore ---> Hyderabad Bangalore ---> Madurai Bangalore ---> Coimbatore Bangalore ---> Belgaum Bangalore ---> Mangalore Bangalore ---> Hubli

Rs. 1676 Rs. 2323 Rs. 2459 Rs. 1624 Rs. 2876 Rs. 1911 Rs. 2328

Rs. 3405 Rs. 4905 No flights Rs. 2720 No flights Rs. 3110 No flights

(Source: Personal Enquiry Notes)

Observations - Fares: ¾ ¾ ¾ Air Deccan fares are very competitive and reasonable. Jet Airways fares are justified. Air Deccan fares are at least half of the Jet Airways fares.

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MAJOR FINDINGS OF RESEARCH

¾ ¾

Jet Airways has been rated as the “Best Indian Domestic Airline”. It has been recognized as the most “time conscious and professional” airline.

¾

Passengers are extremely satisfied and delighted with the services provided by this Airline.

¾

They have tapped the international fliers, as these passengers prefer to travel by Jet Airways for connecting flights within India.

¾

Jet Airways is slowly broadening its base to international destination. It now has a regular flight to Colombo, Sri Lanka.

¾

Their Apex and Super Apex scheme is a runaway success. These tickets are almost always sold out!

¾ ¾ ¾ ¾

Air Sahara can prove to be a threat for Jet Airways in the near future. The advantage for Jet Airways is its wide market coverage. The advantage for Air Sahara is its other benefits. Jet Airways will continue to reign as the market leader in the near future. (Visualization on the basis of the current scenario)

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RECOMMENDATIONS
Since our recommendations have emerged from SWOT Analysis, we give below the SWOT Analysis, followed by the recommendations:

SWOT ANALYSIS
Operational Strategy Air Deccan’s strategy is to provide fares at almost half that of other airlines, to attract and retain passenger share. Considering their expenditure is almost 95% of that of Jet Airways on their ATR fleet, how do they propose to achieve such low fares? This has been possible as hey have identified other sources of revenue by virtue of their no frills model and as they are not brand conscious. The revenue sources for Air Deccan could be: ™ Revenue generated by selling in-flight food,

™ Revenue received by marketing other brands (currently by using aircraft body as advertising space) and eventually maybe by in-flight marketing promotions. On the other hand they have also reduced costs such as fuel cost, distribution cost and communication cost. Their long term strategy is the mass volume strategy where they will acquire passenger volumes to match their capacity deployed and cost per unit will considerably reduce and consequently revenue per unit will increase. The key elements of their strategy in terms of its Strengths, Weaknesses, Opportunities and Threats have been discussed below along with their impact on Jet Airways.
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STRENGHS: 1. Very low operational (fleet commonality, no in-flight service and low fuel consumption) and distribution costs are an integral part their business plan. IMPACT Jet Airways, on the other hand has high costs on both these fronts which will make it difficult if not impossible for us to cut costs and thus match fares with Air Deccan. Moreover Jet Airways cannot change its pricing policy for a select few sectors, which are common between Air Deccan and Jet Airways, as it will have a network wide, and long term impact. For instance if they match Air Deccan’s fare on metro sectors such as Hyderabad – Chennai or Bangalore - Chennai, then passengers will want a proportionate decrease in fares on Delhi – Mumbai or Kolkotta – Chennai. Also once fares are reduced to Air Deccan’s level and assuming they manage to oust them from these sectors, Jet Airways will not be able to hike their fares to their original level.

2. They have categorical knowledge of the aviation business by virtue of their running a charter business, thus they have the necessary political and commercial contacts in the industry. IMPACT Thus Jet Airways cannot use its incumbent status in the market to topple or inconvenience Air Deccan in its initial period. For instance customer handling or on-time performance where Jet Airways could have been better than Air Deccan will only be a short term feature. As the learning curve for Air Deccan will be very steep as they only have to extrapolate their experience in the charter service to mass volumes. Air Deccan’s political contacts has already smoothened its path by the sales tax waiver and guaranteed passenger traffic.

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3. Fares are very low on all sectors compared to other domestic airlines – they are just marginally higher than first class railway tickets. For example Bangalore – Mangalore fare on Air Deccan in INR 1875 and on Jet Airways it is INR 3310. IMPACT The Indian airline passenger market is very price sensitive and loss of passengers on the sectors Jet Airways shares in common with Air Deccan is an absolute certainty in the coming future, especially once Air Deccan’s operations smoothen out. Though so far their passenger loads are not very good, but one can see an improvement in their current loads compared to the initial week 4. Internet booking and eventually sale of tickets through chains such as Shoppers’ Stop and Food World gives the passengers flexibility to book tickets at their convenience and also increases the reach of the airline to the middle class an estimated 40% of the urban population in metros. IMPACT This mass reach will increase the air passengers by converting them from train travelers and will also convert some current Jet Airways passengers from the SOHO and leisure segment.

WEAKNESSES: 1. Air Deccan is not currently operationally sound either in terms of its capacity or efficiency. It has already had one AOG in its first month of operation due to engine trouble. IMPACT Jet Airways can use its internationally acclaimed operational excellence and past track record to keep its current passengers loyal. A little impetus by using direct marketing is a must. 2. Since Air Deccan is using an all ATR fleet even on metro sectors. IMPACT A few Jet Airways flights on the metro sectors are Boeing operated, which is another fact, which can be highlighted to their passengers through direct marketing to retain these passengers.

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3. In-flight services such as food and entertainment (magazine, newspaper, Jet Wings, Jet Kids etc.) are missing in Air Deccan flights. IMPACT Even drinking water is available for a price on Air Deccan. Though these services have more of a notional value, which can be off-set by the low fare Air Deccan is offering, during this primary survey suggestions from the passengers are missing this aspect. Thus Jet Airways needs to highlight again the “pleasure and comfort of flying with Jet Airways” to their passengers. To their corporate travelers, direct marketing should highlight these value added services such as relaxation time in their busy schedules. 4. Average age of the fleet is 7 years, which can be perceived as a safety threat by the passengers. IMPACT Jet Airways should soothe the passengers’ perception by highlighting that safety of their passengers is of prime importance to Jet Airways, which is why it maintains an average fleet of 3.13 years and will continue to in the future also. This fact again can be used to the advantage of Jet Airways. 5. Air Deccan does not have any loyalty programmes or any accrued benefits for its customers. IMPACT This again is an aspect which can be offset by the low fare Air Deccan is offering but should be highlighted as the “rewards” of flying with Jet Airways to their passengers. The passengers need to be reminded that they will lose the currency Jet Airways offers its passengers in the form of miles, if they fly by Air Deccan. This can be used to retain regular flyers.

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OPPORTUNITIES: 1. There is a vast untapped travel market which is hitherto untapped by airlines, primarily due to high fares for air travel, which Air Deccan can easily tap. IMPACT Once these train travelers are converted into air travelers, Jet Airways can also hope to increase its market share by converting these passengers to their apex and super-apex passengers. Strong promotions will be in order to get these passengers to fly by Jet Airways and also an efficient yield management system will have to be put in place to ensure seat allocation to apex and super apex utilizes the availability of these passengers to the maximum. 2. Air Deccan is prominently traveling to small cities such as Hubli, Rajamundhry, Vijayawada, Tuticorn etc. which so far have low or no air connectivity. IMPACT Since Jet Airways business model does not include these destinations, they are not a major concern. But Air Deccan also plans use Hyderabad, Chennai and Bangalore, as hubs to these smaller cities and inter-connect between these hubs. Currently Air Deccan is also flying to Mangalore, which is an important destination to Jet Airways. This overall Air Deccan route map is a compounded problem for Jet Airways. Thus it is imperative for Jet Airways to stake its claim on destinations important to it in the beginning itself by retaining its passengers. Another threat is that eventually Air Deccan will also start flying to Jet Airways’ other feeder routes such as Port Blair, Trivandrum etc. Once the passengers – either one-time or frequent – shift to Air Deccan, Jet Airways will lose them permanently. Direct marketing promotions and increase in capacity of apex and super apex classes will have to be used to this effect.

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3. Owing to the low connectivity in these cities mentioned above, Air Deccan can get various benefits from State governments. It already has gotten a complete sales tax waiver from the Andhra Pradesh State government, a section of guaranteed passengers in the form of government employees from Karnataka government etc. These incentives can magnify manifold once its operations pick up and start connecting to cities across India. IMPACT Jet Airways being a premiere carrier will not be allowed the same incentives primarily since they will not travel to such smaller cities, thus they will not be competing with Air Deccan on equal footing. This gap, which will increasingly benefit Air Deccan, will continue to widen with time. Thus before Air Deccan can gain financial and operational muscle, Jet Airways has to remove it from destinations critical to Jet Airways’ operations. THREATS: 1. The Indian airline passenger has so far been used to superior service such as in-flight food, quick travel time and comfortable passage and hence he might not be so easily convinced to travel the low-frills way. IMPACT In this scenario Jet Airways can continue to be the market leader as their service standards and operational excellence are unmatched. Though in the long run this factor might be inconsequential, but Jet Airways should try to gain mileage in the current phase by pointing out their service standards to passengers (using direct marketing) 2. An old fleet leading to frequent technical snags and lack of initial financial muscle will forbid Air Deccan from hiring superior talent either as pilots or as engineers and can lead to a permanent damage to its image. IMPACT Jet Airways will then have to deal with one less competitor, before it gains popularity or a foothold in the airline business - This maybe a long shot.

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OVERALL CONCLUSIONS

Based on the above SWOT analysis, we can draw the following overall conclusions regarding the Market Challenger – Air Sahara and the New Entrant – Air Deccan.

AIR DECCAN ¾ ¾ ¾ ¾ Air Deccan, the new entrant, will not pose any threat to Jet Airways. It has been labeled as the most “reasonable and economical” domestic airline. Air Deccan has created a niche for itself. It caters to only a small segment of people, which will form a negligible part of the total number of passengers.

AIR SAHARA ¾ ¾ ¾ Air Sahara has taken position as the “market challenger”. It is developing a very “homely and caring” image for itself. They have adopted several flanking strategies in order to topple the Market Leader. This includes various offers, add ons like bidding, coupons etc

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PROPOSED STRATEGY:
1. A strategy to bow beat Air Deccan from all routes where Jet Airways flies or proposes to fly is to strengthen its position in these markets. This strengthening of position will be as a function of retaining their current passengers by direct marketing and by attracting the new passenger segment Air Deccan is creating. Direct marketing, which highlights facts such as a younger fleet, on board safety, on time performance, better service, benefits in terms of redeemable miles etc., will be a way to reestablish the Jet brand in the current passengers’ minds. 2. Jet Airways have to match the fares offered by Air Deccan. Since they cannot reduce their current fares in keeping with the long term view, their brand and product and their primary target customers – business travelers, an alternate would be to introduce a new 3 tier apex fare structure: – Tier one a 5 days New Apex, Tier two the15 day Apex and Tier three the 30 day Super Apex. The Apex and Super Apex schemes could be the same as they are currently using. The New Apex Fare could offer either the Apex or Super Apex fare depending on the sector in question, where passengers can book only 5 days in advance and this class will allow a larger capacity than the current apex and super apex classes allow. In this way once Jet Airways retains their passengers they can again reduce the capacity in this new class and get back to their current yield structure. But in the process Jet Airways will face the risk of permanently suppressing their yield from these sectors. Possibly market conditions do not allow them to reduce the capacity of the new apex fare class subsequently. Introduction of a new class is a critically called for.

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3. The estimated loss in revenue on the four sectors Jet Airways have in common with Air Deccan is quite alarming. Though they will still incur a loss compared to their current yield on all these routes, but this loss will be lower than if they lose their passengers to Air Deccan – forever! Also the cost of making a passenger is higher than the cost of diluting the revenue from this passenger. 4. The assumption in the aforesaid strategy is that in the long run Air Deccan will withdraw from the sectors in question or may not deploy enough capacity on these sectors to threaten Jet Airways’ position. Thus it will be able to eliminate or reduce the presence of a potential competitor before it becomes too big and a major threat. 5. But on the other hand Jet Airways should actively encourage Air Deccan to serve as a feeder service to them, since many of the routes identified by Air Deccan such as Hubli, Vishakapatnam, Vijaywada are witnessing an increase in business activity and thus will see growth in air traffic. 6. This primary survey to gauge passenger perception on Air Deccan is very fruitful. Also market data gathered by interaction with travel agencies is very beneficial. Similar surveys must be compiled on a fortnightly basis and analyzed. This market intelligence will aid Jet Airways in fine tuning the above mentioned strategy.

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DIRECTIONS FOR FURTHER RESEARCH

This research entitled Impact of Air Deccan on Jet Airways, A Market Competitor Analysis, dealt more with the changes in tastes and preference of the Indian air travelers with regards to price sensitivity and mode of travel preferred. However this research has been carried out as a “testing waters” strategy in order to have a feel of customer perceptions with regards to the new entrant and its services. Hence this research is more strategic and a macro level focus rather than a tactical one, and in its whole does not suffice entirely the requirements for developing a counter offensive (responsive) attack on the market challenger. Further research is proposed to be carried out in this category with respect to SERVQUAL parameters; it could be carried out in the form of a multi attribute analysis with various attributes to customer satisfaction. The company needs to carry out a more expansive, extensive, in-depth micro level analysis of this domain. This could be carried out again in a similar fashion with additional attributes to service quality like: ¿ Price

¿ Hospitality

¿ In-flight services ¿ Queuing time ¿ Luggage handling Perhaps the line of thinking on which our research investigation is based may give scope for further research in this important area.

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PASSENGER PERCEPTION SURVEY

Name: Age:

_________________________ ____________ years

________________________________

Occupation: Corporate Managerial Self Employed Entrepreneur Is this your first flight with Air Deccan? Yes

Public Sector Managerial Others (please mention) ___________

No

If no, previously how often have you flown with Air Deccan? _______ times. What is your perception of Air Deccan flight/ services/ on time performance? Excellent Average Good Poor What do you have to say about Air Deccan Airlines? _____________________________________________________________________________ _____________________________________________________________________________ Have you previously traveled to the present destination? Yes No If yes, what mode of transportation did you use? Other Airline Public Bus Train Others (please mention) ___________ Have you previously flown with Jet Airways? Yes

No

If yes, how would you compare the service in Jet Airways with Air Deccan? _____________________________________________________________________________ _____________________________________________________________________________ Is the lower fare on Air Deccan the reason you choose to fly with them? No Yes Thank you for your excellent cooperation

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CHANGING SOUTHERN MARKET SCENARIO SURVEY

Sales Area:

________________________________________________________________

Due to introduction of flights by Air Deccan and Air Sahara, is there any change in: Number of passengers? Yes No Travel Agent’s willingness to cooperate? Yes No What is the proportion of passengers booked (on a weekly basis): From: ____________ passengers a week Origin (say Bangalore - BLR) To: ____________ passengers a week Destination (say Mangalore - IXE) How sensitive do you think are the passengers in your region to price? Extremely Not at all Average What do you feel will be the impact in the near future because of Air Deccan & Air Sahara? _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ Are there any new passengers coming in the airline market? Yes No If yes, what mode of transportation did they previously use? Other airline Public bus Train Others (please mention) ___________

Thank you for your excellent cooperation

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SELECT BIBLIOGRAPHY
Internet sites: www.jetairways.com www.airsahara.net www.indian-airlines.nic.in www.airdeccan.net

Books Marketing Management by Philip Kotler Services Marketing by Christopher Lovelock and Lauren Wright

Journals Jetwings – Jet Airways Xpressions – Air Sahara Business Today Business World Newspapers Times of India Economic Times Business Standard Business Line

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LIST OF TRAVEL AGENCIES CONTACTED

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Friends Globe Travels Ltd. Thomas Cook (INDIA) Ltd. Kuoni Travel (I) Pvt. Ltd. International Travel House Carslon Wagonlit Travels P & O Travel India The Travel Company Pvt. Ltd. Concab Travel Services Trans Pacific Tours & Travels J. V. Travels Travel Tours Excelsior Travels Travel Air Pvt. Ltd. Tusker Travels Pvt. Ltd. Marco Polo Travels & Tours Rosenbluth International Mercury Travels & Tours Neptune Travels India Pvt. Ltd Jagadish Air Travels Pvt. Ltd. Akbar Travels of India Pvt. Ltd.

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AVIATION INDUSTRY: THE NEW LOW-COST WARRIORS The hugely successful low-cost airline model is now in India. ----- AIR DECCAN

Captain Gopinath …the man who has scripted the entire tale of “Price war the new twist to air-flying”

Will it change the way Indians travel? Captain G.R. Gopinath looks more like a mild-mannered research scientist than the CEO of an airline - hardly the sort of person who would send shivers down a competitor's spine. Even though he launched Air Deccan's services in September 2003, not many in the aviation industry have taken him seriously so far. That's not surprising, given that Air Deccan operates with just seven French-made, 48-seater ATRs, largely in the South, on routes that his bigger competitors like Jet Airways and Air Sahara wouldn't care about. Besides, not too many people in his top management have any real experience of the aviation business. Gopinath himself would seem like a bit of a rolling stone, having dabbled in many things, including the army, multi-crop farming, sericulture, agri-consultancy and then a helicopter charter service. Not quite the combination that would inspire confidence, right? Well, some of that perception could change soon. Next month, Air Deccan will expand its service to high-traffic destinations like Mumbai, Delhi, Bangalore, Hyderabad and Chennai at fares that are 30-70 per cent of the standard fare of existing airlines. That's when aviation experts expect that Deccan could incur the wrath of its competitors - Jet, Sahara and Indian Airlines. There's no real evidence yet of exactly how the battle will play out, but aviation experts are betting that Jet and Sahara could start a debilitating price war to push the fledgling airline off the tarmac - permanently.

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Almost as a precursor to the impending battle, intense lobbying with the civil aviation ministry has begun. Last week, Praful Patel, the new minister of civil aviation, met the heads of all the domestic airlines in the capital. At that meeting, the representatives from Jet and Sahara sprung a surprise by arguing for a new level-playing field. They wanted the government to increase the minimum equity needed to start an airline from Rs 30 crore to Rs 250 crore-300 crore. Also, fleet sizes ought to be at least 7-10 planes, not five, they argued. While both Jet and Sahara were unwilling to comment on this, aviation experts say the two operators of what the industry calls full-service airlines are trying to erect entry barriers. After all, it could well be a matter of their survival. Anyone with even a passing knowledge of recent aviation history will know how, the world over, lowcost airlines have begun to radically change the rules of the business. In market after market - be it in the US, Europe and, now, Australia and South-east Asia - the low-cost model has expanded the market, and gained significant share. Fullservice airlines have responded in one of three ways: restructure their operations, launch their own low-cost airline. or simply get crippled. For the past five years, low-cost airlines have been growing at more than 40 per cent a year, while the full-service airlines are yet to recover from the crisis that hit them post 9/11. Many of these low-cost airlines, be it Southwest Airlines, easyJet, Ryanair or even AirAsia, have had such a great run that they are taught as case studies at leading business schools across the world. And the CEOs of these lowcost airlines now see themselves as a tightly-bound community of evangelists who have an avowed mission: to make air travel accessible to more and more people. (See 'Rewriting The Rules'.) Last month, Richard Branson, the founder of the Virgin Group and the man behind Virgin Blue, invited a select group of 10 CEOs of low-cost airlines to an exotic island off the Australian coast. Captain Gopinath was among the invitees. The idea behind the two-day retreat: learn from each other's experiences an brainstorm on d the way forward.

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Gopinath says he learned a fair deal from Virgin Blue's experience in Australia, where the low-cost carrier has grabbed a 30 per cent share in just 3-4 years. Now, if all goes well with his own plans in India, Air Deccan could spark off a similar price competition - sooner than most people think. A number of people are waiting to see how Air Deccan does. As Gopinath says: "Originally, everyone wanted to be a full-service airline, but now everyone wants to be a low-cost carrier." At last count, at least four companies were in the process of starting up. There is Royal Airlines, the new avatar of ModiLuft, and AirOne and Visa, both of which are promoted by former Indian Airlines employees. Then there is Vijay Mallya's UB Group, which is gearing up to launch its Kingfisher Airline. "We plan to charge the fares in such a way that we will be able to attract those people who don't want to travel by rail, but are unable to afford air travel," says Subhash R. Gupte, executive vice-chairman, UB Group, and ex-CEO, Air-India. There are other companies, too, that are still testing the waters, doing their initial market studies, and waiting for the civil aviation policy to finally reveal itself, before stepping into the fray. The entry of these low-cost carriers will have several far-reaching implications for the aviation sector in India and, to a wider extent, on the mass transportation industry and domestic tourism. In a country of a billion people, the Indian aviation industry is puny. We have 12 million people who travel by air every year against 3 million passengers who fly everyday in the US, even though its population is onefourth that of India. The number of daily flights in India averages just about 400 a day, as against 40,000 flights a day in the US. Ryanair, among the low-cost pioneers in Europe, flies 25 million people in a year and still has less than 5 per cent market share. Closer home, in Malaysia, there are 12 million people who travel by air yearly. Look at it another way: India's 200 -million middle-class population is equal to that of the whole of Europe. Even if we assumed that only one-fourth of that large middle-class could afford and would be willing to travel by air, it would call for at least a 5-6-fold increase in capacity.

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Why do we have such a malnourished civil aviation sector? Simple. Since Independence, the sector has been largely a public sector monopoly. Even when it was opened up in the early 1990s, the civil aviation policy has remained opaque. A new policy has been in the making for over five years now. "In the absence of a clear civil aviation policy, the government's stance on the subject has changed every time a new minister or secretary has taken charge," says a Delhi-based advocate who specialises in aviation. The result: airfares in India are among the highest in the world. For instance, a typical Delhi-Bangalore round trip costs Rs 18,000 - the same as it would from Delhi to Singapore! Moreover, despite the fact that India has close to 400 airstrips, airport infrastructure is very weak for the most part. "Even a bigger airport like Mumbai faces regular congestion and causes flight delays, even though it handles less than half the number of flights as, say, Hong Kong. That, too, when the Hong Kong airport operates for less than half the day because of concerns of noise pollution," says Shekhar Damle, president (funds business), Feedback Ventures.

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It is a vicious circle. Scheduled airlines are not willing to fly to smaller towns, primarily because they fly mostly Boeings and Airbuses, which are uneconomical for short-haul flights. And unless there are adequate flights into these smaller towns, getting enough private investment to modernise airports will not be feasible. (See ' Needed: Low-cost Terminals'.) But mostly, the scheduled airlines have preferred to concentrate on the more profitable trunk routes, because that's where 70 per cent of the traffic, which primarily comprises business travellers, originates. Since airfares are high, most leisure travellers are forced to use an already overburdened train system. The emergence of the low-cost airlines could trigger a new virtuous circle provided the government sees its virtue. Making air travel accessible to the common man could well make for good politics. Talking to Businessworld, a senior bureaucrat in the civil aviation ministry said that the department is all for low-cost airlines. "Our mandate is two-fold - to make air travel affordable, and penetrate deep into the country. That cannot be done without encouraging low-cost airlines." Much will now depend on what Patel, the new minister, does to promote the lowcost model. Nothing in reality, though, is as cut and dried. As the Virgin Group founder Richard Branson once famously said: "The safest way to become a millionaire is to start as a billionaire and invest in the airline industry." The mortality rate in the airline business is very high. That's equally true for any low -cost airline model. It requires adequate staying power to buy aircraft and take losses in the initial years. Experts say it takes nearly $60 million-70 million (Rs 270 crore-315 crore) to float a fullservice airline. This includes everything, even the losses that you have to sustain for the first two years. In contrast, a low-cost airline takes $30 million (Rs 135 crore) to start up, if you want to ply the trunk routes. And if you want to be on the feeder routes, you just need $10 million-15 million (Rs 45 crore-67.5 crore). So far, Air Deccan has been funded through contribution by directors and cash accruals. Gopinath and his close aide and executive director K.J. Samuel hold 26 per cent each, while Vishnu Rawal, an old Hong Kong-based friend of Gopinath, owns 8 per cent. Golden Ventures, promoted by an NRI Group, holds another 20 per cent.
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Then, Bangalore-based Brindavan Beverages has taken up an 18 per cent stake. Deccan has raised funds from investors (equity: Rs 30 crore) and taken a debt of Rs 70 crore from Bank of Baroda. That adds up to Rs 100 crore. The high mortality rates and wafer-thin margins in the airlines business make it hard for entrepreneurs to raise money. Captain Gopinath has mandated N.M. Rothschilds & Sons to raise $60 million-70 million to fund the expansion. He has been jetting around the globe, presenting a business case to private equity funds like Warburg Pincus and CDC, which have shown an interest in funding Air Deccan. If Gopinath is able to get funding, it will be the first instance of private equity in an airline in India. Abroad, private equity has funded airlines for a long time. For instance, US-based Ryanair was funded by Newbridge, and Australiabased Virgin Blue got funds from Indigo Partners and Temasek. Explains Amitabh Malhotra, director, N.M. Rothschilds & Sons: "Investors are interested in low-cost airlines which have a first-mover advantage. But once the market gets competitive and crowded, investors turn to virgin markets." However, even if Gopinath gets past that hurdle, there's still the larger question: Will a low-cost model fly in India? There's a simple way to understand how a low -cost airline works. Think of a traditional airline with all its attendant frills - hot meals, frequent flyer programmes, decent legroom, and a full complement of air-hostesses. Now delete each of these. No meals on board means you don't need the extra space for storage. Instead, you can add seats. In the typical Jet and Indian Airlines layouts, one could increase the seat factor by as much as 20 per cent by pulling out the business class, reducing the seat pitch (how far the seat can incline), and throwing out a couple of galleys. "Now, if you can put in three extra rows, then you get (6x3) 18 seats more. In a 120-seater aircraft, if you get 18 seats more, you are up by 15 per cent," says Cyrus Guzder, CEO, Airfreight Ltd, and a well-known aviation expert. Besides, there's no time wasted on cleaning the aircraft. The result: quicker turnarounds at the airports. Also, there's no need for a crew of more than six, or even four, members.

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While most full-service airlines like Jet take at least an hour to leave an airport after landing there, Deccan can do it in 15-20 minutes for ATRs (and about 30 minutes for its new A320 service.) So, if Deccan does six sectors a day, it can fly one additional sector a day. This allows it to fly 20-30 per cent more than a full-service airline. On an average, the conventional airlines fly their aircraft for 8-9 hours a day, while a low-cost carrier is able to keep its planes airborne for 11 hours a day. "It is only by more hours of flying that you can give a lower price," says Gopinath. In fact, it is able to make the same revenue with fewer aircraft. Now, squeezing out more from the capital asset simply lowers the fixed costs. Even other costs, like costs of the crew, hangerage or even finance costs are somewhat lower, in these airlines. All this tots up to close to 40-45 per cent less depending, of course, on how much extra the airline can fly. And if the airline uses the same type of aircraft in its fleet, it can move pilots and cabin crews around, and won't have to worry about carrying spares for three different kinds of aircraft. That generates economies of scale. In Europe as well as the US, low-cost airlines have one more way to shave off costs - but one that Deccan or its followers will not have in India for some time to come. These airlines avoid flying into mainland airports and, therefore, don't incur high parking and landing fees. So, instead of Heathrow in London, a low-fare airline would use Luton or Stansted. India doesn't have too many secondary airports, and this is considered a major constraint. The Naresh Chandra Committee, however, has suggested a compromise - lower landing and parking charges for low-cost airlines. A low-cost airline then tries to save on distribution costs, which can be 11-15 per cent in a conventional airline. They do this by not going through the travel agents and the existing central reservation systems like Amadeus and Galileo. Instead, they sell through the Internet and call centres - easyJet in Europe even has its website address painted on its plane. These airlines don't issue a ticket, as it costs to print, mail and process tickets. What you get instead is a booking number when you make a reservation. Passengers have to quote this number at airport check-

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Even the logistics model works differently. A low-cost airline offers a point-to-point service, rather than the hub-and-spoke concept followed by conventional airlines like Jet. In fact, a Jet aircraft would fly out from Mumbai only when all the connecting flights come in. This is true more for interline traffic. So Jet handles Emirates' interline traffic, and hence picks up the passenger bags and orts them s out - a process that often causes delays. But in a point-to-point service, a passenger travelling on two separate connecting flights isn't issued a single ticket. "We will say, you will have to get out of the aircraft, you have to take out your bag and again you have to check in. It is a bit of a hassle, but your bag will never get lost. You have to carry it, but it is half the fare, so you have to do it yourself," says Gopinath. If you miss your onward flight because the first flight was delayed, Deccan will not owe you an explanation. "Our contract is to take you from point A to point B, and if we don't take you from point A to point B, we refund you the money," he adds. On paper, it does look like a very nifty model. What's more, the model could transpose well into India. It is partly a question of discomfort. People may not want to sit for too long in cattle class, without meals. Which is why, globally, low cost airlines ply on short-haul routes (which typically last 4-5 hours). "The longest flight in this country, between Delhi and Thiruvananthapuram, is close to three hours. Even the regional flights - to the Asean countries, fall in this band," says Kapil Kaul, senior vice-president (Indian sub-continent), Centre for Asia Pacific Aviation. Pricing will be crucial. UB Group's Gupte says they plan to charge fares that are at a slight premium over train fares, but not high enough to preclude travellers from thinking air travel. Deccan has already pitched its fares slightly higher than AC IIclass fares, but lower than AC I-class fares (See 'Indian Skies: A Fare To Remember'). The idea: if you have return flights to a town the same day, the traveller could come in the morning and go back in the evening. By doing so, he manages to save on his overnight hotel bills. In the past few years, rail fares,

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especially in the higher classes, have gone up. Despite that, a quarter of a million passengers travel on AC trains every day. So if the differential isn't much, there's a possibility that a large number of them could well upgrade.

So, what are the possible future scenarios? Over the next few years, one can expect to see a complex system of low-cost airlines. Depending on the amount of capital they are able to raise and the business plan they formulate, some will ply on the trunk routes, others on the Class A and B towns and then, some will operate purely as air taxis.

As for Deccan, Gopinath is committed to being a serious player in the high sweepstakes game. "We don't want to be a regional airline. Wewant to be a known as a national airline, going to the regions. If you want to be a major player, you have to be a national player," he says. For the moment though, Deccan remains a small player, flying just about 1,600-1,700 passengers a day and expects to achieve a turnover of Rs 450 crore by end of March 2005. Jet, on the other hand, had an operating revenue of Rs 2,876 crore in 2002-03 with a fleet size of 41. So the critical question is: does Deccan have the deep pockets needed to withstand a price war? Much will depend on how Jet and Sahara react. One possibility is that they could begin offering more seats under the apex scheme fares than the current level of 5-10 per cent.

Fortunately, a low-cost airline has the advantage of being a model that throws up cash much faster than its full-service counterparts. So, if Deccan can survive the price war for the first year or so and scale up, it will soon reach a size where Jet and the rest cannot undercut without losing massively in the bargain. "It is always simpler to drop prices if you are trying to take on a company with just three planes. If, Air Deccan, however, scales up fast to 100 planes or so, the others cannot undercut it without maiming themselves," says Kaul.

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Even if it does scale up, there's ano ther possibility: success will soon attract imitators. In Europe, the original pioneers, Ryanair and easyJet, are suddenly faced with too many new competitors in the same low-price segment, sparking off an intense price war. "To attract customers, they are cutting prices to unreasonable levels, impacting the profitability of the entire sector," says Nirmalya Kumar, professor of marketing and director of the Aditya Birla India Centre at the London Business School. Kumar, who wrote a prize-winning paper on easyJet, says some low-cost airlines also lose their bearing and begin adding frills like assigned seatings, hot meals and in-flight entertainment to attract some of the more comfort-seeking customers. But that leaves them exposed to being undercut by a new competitor who focusses exclusively on price. "Anything (like frills) that adds costs and reduces price competitiveness is a bad trade-off. After all, if you get them on price, you could lose them on price too," says Kumar. In the low-price sector, only those with the lowest costs survive in the long run, and scale does matter in delivering the lower costs. "In the short run, all sorts of dislocations happen until the newcomers start running out of money," says Kumar.

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