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LITERATURE REVIEW

India is one example economy that has an aviation sector that operates a thriving LCC market
segment. Since the year 2003, several low-cost carrier airlines have entered the Indian market to
offer their services (Vasigh & Fleming, 2016). Europe and America have traditionally enjoyed
supremacy when it comes to Low-cost Carrier (LCC) aviation operations (Vasigh & Fleming,
2016). However, this phenomenon is spreading to other parts of the world creating competition
for the models employed in Europe and America (Budd & Ison, 2013).

Today, the LCC market has operators such as Go Air, Spice Jet, Air Asia India, JETLITE, and
INDIGO. In fact, the low-cost carriers occupy over 65% of the market in India. Therefore, the
market is very competitive and some airlines have sought consolidation or convergence in terms
of product and pricing (Kumar & Natarajan, 2015). It is also noted that most of these airlines are
experiencing difficult times in terms of profitability. Fuel is a major item in the expenditure of
airlines and it is estimated to take at least half of all operational costs (Lück, 2016). To cut costs
and maintain profitability, some airlines have sought consolidation in the post-2007 period.
Example acquisitions to achieve this strategy include the purchase of Air Sahara by Jet Airlines
and Deccan by Kingfisher.

The entry of several LCCs in the pre-2007 period could have contributed greatly to the current
state of the industry. Even with low pricing and consolidation to achieve cost advantages, the
LCCs in India have been struggling to ensure profitability. In the 2012-13 periods, the LCCs
made a loss of at least Rs. 10,000 crores and the debts in the industry were estimated at Rs780
crores (CAPA, 2013). In this period, only Go Air and INDIGO were profitable. This has major
indications for the operating environment in India. The high cost of fuel, operational costs, and
economic slump are some of the reasons these airlines aren’t profitable (CAPA, 2013). This
prompts management in these airlines to analyse their operations and find potential areas for
operational improvements. In understanding the strategic direction that these airlines need to
take, it is first important to understand the characteristics of the LCCs and the market they
operate in
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When looking at major Indian airlines, low-cost carriers dominate the market in the country.
Low-cost airlines make up over 80% of the domestic market, relegating full-service airlines to a
sliver of the market. This is not a new phenomenon, as seen by the fall of Jet Airways and the
struggles of Air India. 

The aviation market in India was not always led by low-cost airlines. Indian aviation has a long
and interesting history, which has seen it once being home to state-owned airlines to the bustling
rivalry of today. The aviation boom in India started in the early 1990s, thanks to market
liberalization policies.

Airlines such as Jet Airways and the now-defunct ModiLuft (which later became SpiceJet) came
up during this time. At this time, full-service carriers (FSCs) were the norm in India, while the
few budget airlines were considered outliers.

The low-cost surge in India began in the early 2000s, with the launch of carriers such as SpiceJet
and IndiGo. The new entrants quickly began threatening the market position of Jet Airways and
Air India with their lower fares and strong advertising. By the early 2010s, low-cost carriers
(LCCs) had taken the lead over full-service airlines, a lead which would only continue to grow.

Price sensitivity
The main reason for the success of low-cost airlines in India has been simple: lower fares. The
Indian market is notoriously price-sensitive, which means passengers are willing to take
whichever airline gets them to their destination the cheapest. Airline loyalty and inflight services
all take a backseat to ticket prices, making India a unique market in this regard.

This price-sensitivity strongly works in favor of low-cost airlines. With lower expenses across
the board, ranging from lesser staff to a no-frills inflight service, airlines can offer cheaper fares.
These cheaper fares have allowed airlines to maintain high load factors, over 90% in some cases,
and remain profitable.

By comparison, full-service carriers struggle in the Indian market. The high costs of airlines such
as Air India and Vistara lead to higher fares, making the airlines uncompetitive. While these
airlines do offer services such as inflight entertainment and meal services, passengers much
prefer cheaper tickets. Full-service carriers have continuously lost money in the past few years,
and Jet Airways even collapsed in 2019 due to the pressure.

Unlike larger countries, such as the US, India also does not have many long domestic flights
(known as transcontinental routes). The longest direct flight within India is just over 3 hours,
which does not necessitate a premium cabin. More importantly, business hubs are concentrated
in a few regions of India, which are all within two hours of each other. This means business
travel, which is a huge revenue driver for FSCs, is largely missing in India. The rest of the
market, as we know, is quite price-sensitive.
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Connectivity
Another avenue where low-cost airlines shine in India is the connectivity these airlines offer.
Due to their high revenues, airlines such as IndiGo and SpiceJet have been able to order a
massive number of planes and maintain large fleets. The access to more planes allows airlines to
provide more daily flights, new routes, and more connections on high-frequency routes.

The difference between low-cost and full-service private airlines is drastic. For example, IndiGo
operates a fleet of 250 aircraft, offering 1500 daily flights, as compared to Vistara’s fleet of 41
aircraft and 200 daily flights. Similarly, IndiGo services 87 destinations (63 domestic and 24
international), while Vistara flies to 36 destinations (31 domestic and 5 international).

The airline has managed to reach this level of connectivity mainly due to its large fleet and high
revenues. Even key business routes, such as Delhi to Mumbai, are led by low-cost airlines due to
the flexibility they offer with multiple daily flights. The flexibility is more appealing to many
business travelers over a premium experience on a two-hour flight.

Air India has not been included in this comparison because, as a flag carrier, the airline offers
important routes to a number of low-demand cities. This, combined with vast subsidies from the
government, is what has allowed the airline to continue flying despite heavy losses. However,
this is set to change in the coming years as Air India heads for privatization.

Is there hope for full-service airlines?

The situation for FSCs in India looks quite grim on the surface. LCCs dominate much of the
domestic market and show little sign of letting up in the coming years. However, there is one
market that could FSCs can look to for success: international flights. The country is now primed
for a new international airline, which will most likely be a full-service one.

The collapse of Jet Airways in 2018, in part due to competition at home, left a massive gap in the
market for international flights. Overnight, India was left with only a single long-haul airline
which faced its own struggles. The area where nearly all low-cost carriers refuse to wade into is
long-haul flying (for now at least), giving FSCs a clear chance to find success in India.

This means both Vistara and a newly-privatized Air India could find widespread success with a
booming international operation. Long-haul flights out of India have been led by the Middle East
Three, but travelers generally prefer non-stop flights. As Vistara takes delivery of its
Dreamliners, we could see competition, and success, on international routes.
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The future
The future of Indian aviation looks very interesting. The growing number of passengers has
made India the fastest-growing market in the world, and that trend is set to continue. Low-cost
airlines will likely continue to dominate the domestic market with their low fares. However, full-
service carriers will look to pivot to long-haul, international operations instead. India has a high
demand for international travel, especially VFR (visiting friends and relatives) traffic, which
means there is clear scope for success.

Given that people in India are extremely value conscious, it’s no surprise that penetration of low-
cost carriers (LCCs) in the domestic aviation market is arguably the highest in the world. LCCs
offer a no-frills experience that target flyers willing to sacrifice comforts such as free food.
In April this year, LCCs in India led by IndiGo captured nearly 80% of the domestic aviation
market, according to data from the Directorate General of Civil Aviation (DGCA). IndiGo alone
commanded 50% of the market.
In the U.S., home to the world’s largest LCC, Southwest, the market penetration of LCCs is
about 31%, according to an article published by Anna.aero, an aviation news and analysis
website. Incidentally, Puerto Rico in the Caribbean Islands has an LCC market penetration of
58.6%, the highest in the Americas.
In Europe, Macedonia has the largest LCC penetration at 65%, followed by Slovakia (62.3%),
Hungary (61.7%) and Romania (60.7%), according to another Anna.aero report.
Closer to home, in Southeast Asia, aviation consultancy firm CAPA estimates that Indonesia,
Thailand and Malaysia have a domestic LCC market penetration of 60%, 56% and 53%,
respectively. Amar Abrol, former CEO of AirAsia India, in a recent interview with Fortune
India, said that LLCs are all about “the volume game”. “That is why the back of the plane
[economy class] has more people than the front of the plane [business class]. Simple logic.”

Just 11 years ago, full-service airlines (FSAs) in India such as Jet Airways (grounded for want of
funds to run operations), Kingfisher Airlines (now defunct) and Indian (now Air India)
accounted for over 50% of the domestic air travel market. Unlike LCCs, FSAs offer free food
and beverages, in-flight entertainment, and other amenities.

 “The definition of LCC varies in context to India. There is no pure-play LCC in the country,”
says Agarwal. “In India, LCCs are actually low-fare carriers.” For instance, LCCs in India offer
free check-in baggage of up to 15 kgs, carry-on luggage, and offer free water on board. As per
DGCA regulations free water is a must, which is why when Iceland’s ultra low-cost carrier
WOW Air launched operations to India it had to offer free water in Indian airspace. Earlier this
year in March, the airline shut down after it failed to get funds to run operations.

Besides, Indian LCCs operate in the country’s main airports, as there aren’t any secondary
airports. “If you take Europe, LCCs don’t operate from a main airport. Southwest, too, does not
fly into the main airports in the U.S., only to smaller secondary airport where the cost structure is
lower,” says Agarwal. “In reality, the operating environment makes it very difficult to be
genuinely low cost,”.
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Indian LCCs and FSAs such as Air India and Vistara differ in two aspects: free on-board meals
and frequent flyer programmes made available by FSAs. However, “IndiGo actually includes a
meal [covered by the fare] for corporate customers”, points out Agarwal. Besides, more often
than not, IndiGo’s ticket prices are higher than FSAs’—a reason why CAPA India estimates that
IndiGo “could be on track to report a profit of $400 to $500 million” in FY20.

Nair, Palacios and Ruiz (2011) tried to identify the best suitable business model for airlines.
The study threw light on available methods of comparing airline business model and presented
the ground work for a quantitative model of comparing airlines business models. It concluded
that the quantitative method can be a useful tool for business model analysis when two airlines
are merged.

Sharma and Kumar (2011) studied the impact of low cost strategies and deregulation on civil
aviation industry in India. The study examined the impact of LCC’s on fares, cost and
profitability. These strategies resulted into growing number of passengers and revenue for both
airlines and airports. It concluded that these strategies and their impact will provide an insight of
the key variables for assessing the competition among the airlines.

Singh (2011) studied Indian airlines Industry in respect of fare, load factor and yield to
deteriorate the market conditions. The study was aimed at calculating the relative performance of
different Indian domestic airline industry using Data Envelopment Analysis. In the study
multiple inputs and outputs were used to construct performance indices. It found that Indigo, Jet
Airways, Go Air and Air India Express are the most efficient while Kingfisher is the least
efficient. The study concluded that the airlines need to have strong management strategies for
effective performance.

Agarwal (2012) conducted a study on the Indian Aviation Industry in respect of its contribution
in GDP. It stated that aviation sector improves employment opportunities and also provides a
platform domestic and international trade. It found that there has been increase in numbers of
companies and airline passengers but it also suffers from poor infrastructure. It concluded that
there is higher instability in air passenger traffic in India. Some of the major challenges like high
operating cost, high tax on Aviation Turbine Fuel (ATF), poor infrastructure and investment
hurdles were also discussed.

Augustine (2012) checked the viability of public private partnership model for the Air India and
found that public private partnership through disinvestment may not be a viable option in case of
Air India. It was suggested that public private model should be applied to the airline instead of
privatization through disinvestment. Airlines could take the benefits of private sector efficiency
and public sector credibility with the help of public private partnership as the study suggested.
Further, the study recommended the option of Public private participation for the revival of Air
India.
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Kanthe (2012) discussed various challenges faced by Indian aviation sector. The study was
completely theoretical in nature. Firstly, the author explained the theoretical framework
regarding the aviation industry in India and the aviation companies were found to be in a
situation where they were facing the challenges like increased fuel prices, shortage of employees,
safety issues, reducing trend of returns and the lack of accompanying capacity and infrastructure.
Further, the stiff competition was found as another factor which negatively affected the
performance of Aviation Companies.

Khan, Dutt and Bansal (2012) examined the structure of the aviation industry in India and the
entrepreneurial challenges that it has thrown up. It also gave light on all phases of liberalization.
The study described that civil aviation sector was suffering from so many problems like poor air
traffic management, inadequate infrastructure, safety issues, rising fuel cost, environment
degradation and low level of customer satisfaction. The study was based on secondary data. It
concluded that liberalization has led the civil aviation sector to grow but also increased the level
of competition.

One of the major highlights in 2016 for the global aviation sector will be the aviation reforms in India.
This has been revealed by OAG, the Official Airline Guide, one of the market leaders in aviation
intelligence, information and analytical services. The aviation sector is one of the fast growing sectors of
Indian economy. Tony Tyler, Director-General and CEO of International Air Transport Association
(IATA) has stated that the global world is focusing on Indian aviation, starting from manufacturers,
businessmen, airlines, global businesses, tourism boards to individual travellers and shippers. According
to him, if there is a common goal among all stakeholders in the aviation sector of India, a bright future
can be expected. The compound annual growth rate (CAGR) of total aircraft movements was 3.3% and of
passengers 5.6% during FY11 to FY14. In the next five years too, in terms of the aircraft movements,
passengers and freights, the aviation sector is expected to grow, according to the Airports Authority of
India (AAI). The job market in this sector is also expected to improve in 2015 with a number of new
airlines coming up. Globally, it stands ninth in the civil aviation market. It ranks fourth in domestic
passenger volume. It has been reported that by 2020 the civil aviation market in the country will become
the world’s third largest and is expected to be the largest by 2030. This sounds really good. From an over-
regulated and under-managed sector, the aviation industry in India has now changed to a more open,
liberal and investment-friendly sector, especially after 2004.
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The civil aviation sector in India has moved into a new era of expansion. Some major factors
contributing to this are:

1) Strong economic growth

2) Entry of low cost carriers (LCC)

3) Increased FDI inflows in domestic airlines

4) Higher disposable incomes

5) Increased tourist inflow

6) Cutting edge information technology (IT)

7) Interventions Modern airports

8) Sustained business growth and

9) Supporting Government policies

Some major threats

1) A global economic slowdown negatively impacts

2) Leisure, optional and business travel.
3) The continuous rise in the price of fuel is a major
4) Threat. A terrorist attack anywhere in the world can
5) Negatively impact air travel.
6) Government intervention can lead to new costly rules.
7) Operation of new airlines

Opportunities

1) Offers Aircraft manufacturing

2) Improvement of Airport infrastructure
3) Airport and ground support equipment
4) Maintenance Repair Operations (MRO) facilities
5) Ground handling services
6) Trained manpower
7) Air cargo and fuel hedging etc.
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Problems facing the aviation sector High operational costs

1) High cost of aviation turbine fuel

2) High service tax and other charges
3) Shortage of maintenance facilities
4) Competition from foreign airlines
5) Congestion at airports
6) Lack of qualified pilots and technical manpower etc.

Civil aviation minister Ashok GajapathiRaju said that in 2015, six airlines would start
operations. There is n launching of new airlines even if most of the airlines are reported to have
incurred losses and a few are struggling to stay afloat. Even while, the state of the existing
domestic airlines is not impressive in the sense that a few of them remai aviation professionals
and investors are not hesitating launching new airlines on regional and pan-India routes.

The seven major airlines that India has at present are Air India, IndiGo, Jet Airways, SpiceJet,
GoAir, Air Costa and AirAsia India, in which around 60 million domestic passengers travel
annually. In 2014, we saw the launch of AirAsia India. AirAsia is the first foreign airline to set
up a subsidiary in India and is an Indo-Malaysian low cost carrier. In 2015, the first new airline
to take off is Vistara, based in New Delhi. It commenced operations on January 9, 2015. This
Indian airline, a joint venture between Tata Sons and Singapore Airlines, operates 14 daily
flights with three Airbus A320 aircraft. Among other start-ups preparing for launch are Air
Pegasus, Air One, Flyeasy, Premier Airways. Air Pegasus is promoted by Bangalore-based
ground handling firm Deccor Aviation, Air One runs charter services, Flyeasy will be a regional
airline with Bangalore as its base, and Premier Airway by NRI engineer UmapathyPinaghapani
and slated to launch in mid-2015. International Journal of Recent Scientific Research Vol. 8,
Issue, 6, pp. 17527-17531, June, 2017 Cutting edge information technology (IT) A global
economic slowdown negatively impacts leisure, optional and business travel. The continuous rise
in the price of fuel is a major nywhere in the world can Government intervention can lead to new
costly rules. Improvement of Airport infrastructure Airport and ground support equipment
Maintenance Repair Operations (MRO) facilities Lack of qualified pilots and technical
manpower etc. Civil aviation minister Ashok GajapathiRaju said that in 2015, six airlines would
start operations. There is no threat in launching of new airlines even if most of the airlines are
reported to have incurred losses and a few are struggling to stay afloat. Even while, the state of
the existing domestic airlines is not impressive in the sense that a few of them remain in debt,
aviation professionals and investors are not hesitating India routes. The seven major airlines that
India has at present are Air India, IndiGo, Jet Airways, SpiceJet, GoAir, Air Costa and AirAsia ,
in which around 60 million domestic passengers travel annually. In 2014, we saw the launch of
AirAsia India. AirAsia is the first foreign airline to set up a subsidiary in India and is Malaysian
low cost carrier. In 2015, the first new take off is Vistara, based in New Delhi. It commenced
operations on January 9, 2015. This Indian airline, a joint venture between Tata Sons and
Singapore Airlines, operates 14 daily flights with three Airbus A320 aircraft. for launch are Air
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Pegasus, Air One, Flyeasy, Premier Airways. Air Pegasus is promoted based ground handling
firm Deccor Aviation, Air One runs charter services, Flyeasy will be a regional airline with
Bangalore as its base, and Premier Airways will headed by NRI engineer UmapathyPinaghapani
and slated to launch in mid-2015.

Indian aviation industry is dominated by the Low Cost Carriers (LCC). These players can be classified
into three major categories.

Public Players

1. Air India

2. Alliance Air- Air India Regional

Private Players

1. Jet Airways

2. Indigo

3. Spice Jet

4. Go Air

Also in 2014 the industry has saw entry of five new players. These new players are

1. JET Etihad deal has been finalized (FDI)

2. Tata-Singapore airlines Ltd

3. Air Costa (Part of LEPL Group)

4. Tata-Air Asia Ltd

5. Air Pegasus Ltd

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Low cost carriers have changed the competitive dynamics of the short-haul market forever. They
have revolutionised the way of doing business in aviation by adopting a fresh approach on both
strategic and operational issues. Simplicity has become their universal principle over network
airlines and subsequently they have achieved substantial cost advantages which are passed onto
the consumer as lower fares. Network airlines have found it difficult to reshape their structural
barriers and have been slow to incorporate the components that low cost carriers deemed very
significant in impacting their operating margins. However, a restructuring of their internal
weaknesses should spur initiatives to design long-term strategies to address those shortcomings.
Network airlines rely on producing value-adding and consumerdriven product differentiation
beyond the basics of the low cost carrier product. To further differentiate themselves network
airlines need to focus on: customer satisfaction; develop long term mutually beneficial
relationships with both passengers and corporations; collaborate with a wide range of bipartisan
partners; retain differentiated flight products that add value; and to incorporate strategies that
other network carriers deemed paradigmatic. Network carriers should resist reducing costs
associated with value-added services and need to become innovative in generating alternative
revenue streams.

The airline industry is facing evolutionary change. Full service airlines have been the world’s
dominant airline business model for decades but they now stand at a critical juncture as a new
airline force is reshaping the competitive dynamics of the short-haul market. Events, such as
SARS, 9/11 and the Asian currency crisis, had a significant effect on the operations of the full
service carriers but, with time, the traffic on international routes gradually recovered and profits
returned. However, a far more serious threat was unfolding in the short-haul market - it was
becoming a permanent problem and was causing major concern to airline managers across the
world. Low cost carriers had reengineered the design of the traditional airline business model
and were capturing significant chunks of the short-haul air transport market worldwide. By
March 2006, they had secured 8% of the intra-Asian market, and 23% and 27% of the intra-
European and US domestic markets respectively. In other parts of the world, low cost carriers
have also being growing quickly: Gol gained 25% of the Brazilian market; Air Deccan claimed
10% in India; Virgin Blue acquired 30% in Australia; while Air Arabia had taken 6% of the Intra
Gulf market by 2006. OAG (December, 2006) calculated that the total number of low cost carrier
seats worldwide was up by 16% over the year 2005/06 and there appears to be no stopping the
continuous growth, year after year, of these budget carriers. To reflect the speed at which these
low cost carriers are growing, the number of European routes served by low cost carriers in 2000
can be compared against the number of routes served in 2006 and is shown below in Figure 1
and Figure 2. In 2000, the bulk of the traffic was centred around Ireland and the UK, largely
because Ryanair and easyJet had set up their initial bases in this region. However, by 2006 the
low cost carrier route network had grown substantially as there were 48 low cost carriers
operating out of 22 States in Europe and this resulted in an enormous increase in capacity
(Eurocontrol 2006, p17). This type of low cost carrier growth typifies what has occurred in the
US and Asia. Low cost carriers have also been synonymous with strong financial performance as
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many of the best performing budget carriers had operating margins that were on average three
times that of the network airlines in 2005, and this has attracted investors, thereby allowing these
carriers to become well capitalised. This has allowed the low cost carriers to plan for the future
and retain their double digit annual growth rate by procuring large orders for new aircraft. In
Europe for example, Aviation Strategy (March 2005) declared that the four leading low cost
carriers, easyJet, Ryanair, Air Berlin and SkyEurope, had over 330 narrow-body aircraft on firm
order by early 2005, while the total narrow-body order at European full service airlines stood at
just 26.

The number stood at 68 percent at the beginning of the year. Vistara – the only private full-
service carrier (FSC) — after the fall of Jet Airways, decided to  induct some of its future
aircraft in all economy configuration.The airline is already operating one such aircraft.
Over the years, LCCs have been snatching more and more passengers from the FSCs. India
might soon end up with one private FSC, Vistara. Air India, the government-owned other
FSC is up for privatisation in the next couple of weeks.
In the early days of operations, Vistara revealed that its research pointed that food was one
of the decisive factors for air travellers in India. But to an independent observer, the three-
class layout of its aircraft, meal preferences, juices and Starbucks coffee in premium coffee
seemed expensive for the Indian market. Slowly but surely, the airline scaled down its food
offering, an area which every FSC in the past has looked to cut costs to rein in ballooning
losses.
Vistara is not the first airline to do so. Over the last decade or so, FSCs in India tried every
trick in the book — and sometimes outside the book — to take on the steady growth of
LCCs. Yet, two large FSCs – Kingfisher Airlines and Jet Airways — had to shut down. Air
India survives only because of government benevolence.

Kingfisher Airlines and Jet Airways both operated a low-cost subsidiary. These airlines
tried operating certain sectors with a low-cost offering, operating non-peak hour flights as
LCC offering and peak hour flights as FSC offering, reverting to a full-service model and
then offering a fare class without meals and more. It is heartening to see that Vistara isn’t
trying any of this, but merely going to operate certain sectors with only economy class on
offer.
In a recent reply in Rajya Sabha, the minister of state in the aviation ministry said more
than 7 lakh business class seats remained vacant in Air India in the year 2018-19. The
number stood at close to 6 lakh the previous year.
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India – a low fare market

Since liberalisation of Indian aviation in the early 1990s, India has always been a low fare
market. The growth was modest in the initial years with load factors ranging in the 60s and
70s as the fares were high.
Once the LCC revolution started, the fares dropped drastically as LCCs tried adopting the
global revenue management technique of having early bookers at cheaper fares and then
building on. However, there was a problem.
Indians have always been loyal to one thing – low fares and discounts! Except on a few
occasions, the traffic dropped when fares went up and traffic went up when fares went
down. As capacity kept increasing, airlines started to look for bums on seats to get some
revenue and kept dropping the fares.
This led to a mismatch between the costs and fares for an airline. Unlike the west, where
LCCs operate to secondary airports to save costs, charge for frills like meals, seats, bags
and even water, India is a constrained market. Water is to be given free and the propensity
to buy seat is still lower. Airlines have been thus focusing on lowering unit costs, in the
absence of ability to increase fares!
Going by Vistara’s decision and historic finances of Kingfisher and Jet Airways, it is clear
that there are markets in India where selling premium class of service is a challenge and
FSCs on most routes outside the metros have to price closure to LCCs to attract traffic.
Is it time to re-look at the model?
Air India has moved to offering only one choice of meal to its economy class passengers.
Likewise, Vistara has scaled down its meal service for economy class and already has a
buy-on-board service for one fare class. Can India have a model where there is Business
Class – with all the frills and then there is an economy class where the passengers have to
purchase food?
Food may not be very expensive for the airline, but it is elaborate – from contracting to
deciding and rotating the menu and loading it to the aircraft with buffer and special meals
loaded, it makes it costly. Airlines typically have 30 percent extra food as they do not know
the preference and mix of the guest they are flying on a particular day.
Over the last few years, airlines in India have reduced fresh food on offer and have opted
for food that has longer shelf life, helping reduce wastage and save costs.
Airlines could potentially reduce the cabin crew as the service levels will not have to be the
same as current! This will also help the airlines compete better with LCCs, have faster
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turnarounds and possibility of additional ancillary revenue. The average flight time within
India is between one to two hours with the maximum stretching up to three hours!
No matter the service, FSCs will continue to offer a loyalty programme irrespective of the
class of service, the overhead of loyalty programme will remain. However, Jet Airways has
shown that loyalty programme can be valued separately and could well be used to raise
cash. As Air India goes for privatisation, the new owner – if an airline — may merge its
loyalty programme and help reduce costs.

Who else does it?

American and European carriers have long moved to a differential way of service.
European carriers, for example, do not have a business class seat. They have rows of
economy class seats, most of the times with higher leg room and in case of a 3x3 seating
like is the case with most aircraft in India, the middle seat is kept empty. The difference in
business class? An empty middle seat and a meal, unlike economy where meal is not served
but only water, cold drinks, juices and tea or coffee is served. Again this service in the
economy class varies from airline to airline, with some airlines offering a cookie or a
muffin to go along with the non-alcoholic drink with a full menu available for buying on
board.
While most American carriers have a business class seat, the economy class sees a
complimentary cookie or similar snack. With the expanse of the country, the US carriers
fly for over three hours on many routes and yet do not serve meals and have them as a buy
on board option in the economy class.
Both these mature markets have moved to a limited service in Economy. In India, Jet
Airways tried this for a while. A dual-class aircraft operating Jet Konnect service offering
full service in Business class and buy-on-board in economy. However, Jet Airways had
multiple other models and challenges going on at the same time, limiting its success and its
financial costs were so high that benefits realized from such unique ways were hardly seen.

A European or American Economy class would still need a sub-fleet which both the FSCs
are already operating, where the airlines either offer a separate Business class seat with
additional features on metro routes and regional international and a limited Business class
seating with middle seat empty on non-metro domestic routes or have first two or three
rows being treated as business class with additional leg room, meals and more and the rest
of the cabin being economy with no frills – similar to European FSCs.
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Every FSC in India has found it difficult to find the right mix. For Kingfisher and Jet
Airways, it was too late when they thought they had found the mix. Vistara too has tweaked
the mix far too often in five years of operations.
That opens up the possibility of radically changing the mix altogether. In a country that is
loyal to low fares and dominated by LCCs, a different mindset is needed to take them on as
a FSC.

Low-Cost Carriers (LCC) are driving growth in the Middle East aviation market, recording a
9.3% increase in seat capacity in 2019, according to CAPA Centre for Aviation. Indeed, LCC’s
share of total seat capacity across the Middle East increased from 14.9% in 2018 to 16.5% in
2019, with a larger share of the region’s airline passengers now opting to fly with no-thrills
airlines in more modest and affordable cabin surroundings.
Over the next 12 months, LCCs are predicted to continue to chip away at their bigger rivals’
market share, with Saudia’s LCC subsidiary, flyadeal, leading this trend – becoming the region’s
largest airline by seats in 2019 and recording a capacity growth of 78.1%, according to the latest
CAPA data.
In addition, Arabian Travel Market (ATM), which takes place at Dubai World Trade Centre from
April 19-22, is witnessing this trend first-hand with LCCs including flydubai,flynas and flyadeal
confirmed for the 2020 edition of the show.

India‘s civil aviation sector is much younger than other modes of transportation, and its market
structure has changed frequently over the last few decades. India‘s civil aviation sector evolved
from a market tightly controlled by the government with two air carrier service providers to a
relatively competitive market with a somewhat small number of domestic and international air
carriers. Some features of India‘s civil aviation sector include a large number of consumers
(passengers and cargo), a relatively small number of airlines with significant market share,
significant cost barriers to market entry, differentiated services, and competitive firms affecting
each other‘s business decisions. These market characteristics indicate that India‘s civil aviation
sector has an inherent oligopolistic market structure. Since within India‘s civil aviation sector,
economies of scale and scope exist; in order for each market participant to break even, the firm
must achieve a minimum efficient scale of operation.
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Today, together with the progress of technology, significant developments have been recorded in
the aviation industry as well as in all sectors. In recent years, with the introduction of the widely
air tools air transport has shown even greater sense of progress. Increased competition depending
on the development process, the search of new markets, to enter the industry of new air carriers,
tax large amounts they have paid to the operator the airport of carriers using the airport
terminals, rising fuel and staff costs, the authority restrictions and so on. Depending on the
increase in airline ticket prices, airline companies has led to different carriers seeking to enter the
business models beyond the traditional air transport in order to provide a sustainable competitive
advantage in the long term. Developments have prepared the ground for the emergence of low
cost carrier business models and business model development as an alternative to conventional
air carrier. Air transport has a delicate economic balance. So much so that economic fluctuations
and cannot be expected to remain indifferent to get competitive conjuncture. As a matter of fact,
in this case Airlines requıre various policies and strategies in terms of sustainability necessitates
the application. With the increase of in the market the competitive factor in today's business
activities, various applications have been made to provide sustainability in this ındustry. The flag
carrier airline services preferred to enter the low cost transportation market by establishing
subsidiaries beside the main carrier company in order not to sacrifice the service they offer and
to live the loss of prestige.

Development Process of the Low Cost Carrier Business Model After the deregulation of air
transport in the world that the then statesponsored airline liberalization process as well as the
private sector has increased competition to enter the market with the start and began to gain
importance profitability accordingly. As one of the most important consequences of the
liberalization policies have emerged and a low-cost carrier has prepared the ground for the
formation of a dynamic economy airline in this case. It emerged in 1973 and then in 1978 South
Western Pacific Southwest Airlines in America with the first low-cost carrier business model has
begun to called together today largely succeeded. Southwest, the airline has opened a new era in
transportation and has managed to gain a different perspective on the sector. Southwest has
assumed the role model of the lowcost carrier in the transportation flag. This model can be good
competition also has managed to prove that, because just before the flag carriers and national
companies while air transport market size, then the needle is completely reversed, and service
providers We call the concept rather than consumer customers and passengers started to gain
importance. Low-cost carrier business model first, although the flag was rejected by carriers,
though, agreed that after the low-cost carrier business model of a serious market share
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acquisition and the situation with maintaining the sustainability gained quite a serious structure.
Low-cost carriers, so many that make up the cost item in the aircraft service just by removing the
passenger seat rental they aims. (Routledge, 2006) On the American continent at a time when
low-cost transportation earlier start showing on the continent of Asia as the situation quite
different according to America late in the year 2002 and Jal Express, Air Do and Skymark
appeared when companies such as Citilink with low cost carrier in Japan has taken its place in
the market. Martial devastating to an element of competition encountered from Asia, America
and Europe are faced with the opposite situation, because it has a lot of respect for the
importance of Asian culture. After America, Ryanair started a low-cost carrier business model
for air transport in Europe. This is the first airline companies strategically focused situation, sell
tickets at a low price and it also has to be able to achieve by reducing costs. only sell seats
throughout the flight, the basic principle is to sell everything except wages it may be may come
from customers or demand. The main objective is to keep the maximum air planes and then to
ensure profitability. Overall, low-cost carriers prefer to use secondary airports instead of using
primary airports called central airports. This provides the advantage of lower airport tax payment
while at the same time providing flexibility in determining ticket prices. In this way the change
experienced on the continent of Asia, and has revealed a new phenomenon on the European
continent. Anymore, rather than air transport only a certain revenue level began to appeal to
almost every industry. Of course, this does not have an sufficient at first maturity in today's low-
cost carriers, while market share has reached a remarkable level. Especially when looking at
Europe, Ryanair and Air Lingus carried between 1997 and 2003 that they have managed to
increase the potential of too many passengers, and also have a global sense of competitiveness.
With the together of fall in unit cost in the low wage competition they were able to crave out say
somethings. Ryanair has provided in the Irish market to be one of the sharpest example of this
business model. While Ryanair had a capacity of 0.7 million passengers in 1991, Air Lingus has
achieved 3.7 million passengers. In the early days, Air Lingus had 70% of the market in Dublin-
London and Cork, and when it entered the Ryanair market, it managed to turn it in its favour
(Barrett,1999). 1990 year until the beginning of the 2000s from Ryanair has managed to grow
every year and on an annual basis, this rate has increased up to 30.5% in the year 2000. This
company moving 40 million passengers in 2002, has managed to become the low-cost airline
carrying the most passengers in Europe. In March 2004, 51 of the Boeing 737-800 series
crowned this success. By the year 2016, Ryanair had become the largest passenger carrier in
Europe, carrying 117 million passengers. Low-cost carriers have some common characteristics.
This situation is similar in Asia, Europe and America. First, by choosing to use a single type of
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aircraft models at a single kind of structure called aircraft fleet maintenance costs have lowered
their rates, and reduce staff training costs. (Doganis,2001) Secondly the point-to-point transport
has been adopted. National carriers in hub and spoke model, using the so-called low-cost carriers
collect deploy such a situation is not in question. Point to point transportation is the biggest
advantage to prevent the loss of time. In other modes of transportation, passengers can be missed
their connections, which causes delays and loss of revenue. They also can provide short-time
ground time in the airline field advantage in that they have to pay taxes for that use.
(Calder,2002) Third, the low-cost carriers do not deserve any trade union employees. Unionized
employees have more rights than those of unionized employees and the obligation to observe a
certain standardization of working hours creates extra costs for low-cost carriers. Accordingly,
by employing low-cost carriers in the time zone they want their employees according to their
operational intensity and time interval, are better protected from the restrictions will bring about
the union. Low-cost carriers are the way to go shortening the distance between placing more
seats into aircraft seats. Thereby increasing the amount of passenger occupancy rate is intended
to be greater. Thus, profitability is achieved by increasing the amount of income per seat.

Low Cost Carrier business model will continue to increase growth in the next 20 years as
different from other traditional airlines. Rates advantage of the low cost airline companies, the
ability to make direct flights between short distances, short ground time, the time of landing and
take Simultaneously, the flexibility offered in flight, low maintenance costs, low airport taxes
and so on. Issues such as low-cost carriers to economically compared to other traditional carrier
model will provide more sustainable competitive advantage. Low Cost carrier business model in
the outside air carriers other traditional business models in market share in the coming periods
pursuant to occur airline will decrease should take various policies and development strategies
and actions.

The primary objectives of this research are to identify the key challenges faced by India’s LCCs
through strategic analysis (e.g. SWOT and Porter’s Five Forces model) and examine the
internal/external environmental factors affecting the Indian aviation industry. Moreover, this
report will also study the characteristics of existing LCCs’ business models vis-a-vis
traditional/full-fledged players.
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