For the exclusive use of A. Lubis, Ph.D, 2023.

W19367

AIR FRANCE: THE LOAD FACTOR PUZZLE IN BUSINESS CLASS

Ratan Kumar, Kirti Sharma, and Shiv S. Tripathi wrote this case solely to provide material for class discussion. The authors do not
intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names
and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.

Copyright © 2019, Management Development Institute Gurgaon and Ivey Business School Foundation Version: 2019-07-23

It was November 2016, and Suraj Nayar, marketing head of Air France India, reflected on the two-day
meeting for national executives that he had just attended. The meeting had been organized to brainstorm
options for the growth and profitability of Air France India, in an effort to provide the company with a
new direction. Air France India had done quite well in the economy-class air travel segment; however, its
passenger load factor1 was very low in the business-class travel segment.

The national-level meeting had been attended by more than 30 managers, all from middle and senior
management. Top management of Air France, the parent organization of Air France India, had planned an
aggressive expansion drive in the Indian subcontinent from 2016 to 2020 and had provided clear
guidelines to Air France India management for improving the company’s market share in this segment.

Before the meeting, Nayar had been concerned about some questions related to the future course of Air
France India. Which group of business-class travellers should Air France India focus on to add new
customers? How should it acquire new customers in the high-yield business-class segment? Should Air
France work alone toward customer acquisition, bring partners on board, or utilize both of these routes?
These were the questions he had raised for discussion at the meeting.

THE INDIAN AVIATION MARKET

With 81 million trips, India’s domestic aviation market grew over 20.3 per cent from January to
December 2015—the highest growth rate recorded in the world. India was on its way to becoming the
third-largest aviation market by 2020.2 The combined capacity of Indian airports was 220.04 million
passengers in 2015. According to the Directorate General of Civil Aviation, international passenger traffic
in India had a compound annual growth rate of 9.52 per cent from 2006 to 2014 and was expected to
reach 60 million by fiscal year 2017 and 131 million by 2030.3 In 2014–15, a total of 190 million air
passengers travelled through India, including 45.7 million international passengers. International air
passenger traffic in India saw annual growth of 5.85 per cent in 2014–15. Europe and the United States
1
passenger load factor = the average number of passengers per flight ÷ the average number of seats per flight
2
“India on Way to Become the Third Largest Aviation Market by 2020: FICCI-KPMG India Aviation Report” FICCI Media
Division, press release, accessed May 15, 2019, http://ficci.in/PressRelease/2321/ficci-press-march17-aviation.pdf.
3
Directorate General of Civil Aviation, Handbook on Civil Aviation Statistics, 2014–15 (New Delhi, India: Directorate General
of Civil Aviation, 2015), accessed August 4, 2017, http://dgca.nic.in/pub/Handbook_2014-15.pdf.

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
 For the exclusive use of A. Lubis, Ph.D, 2023.

Page 2 9B19A032

together contributed 16 per cent to the total inbound and outbound international passengers travelling to
or from India. Foreign tourist arrivals comprised 25.58 per cent of total international passenger arrivals.
Between July 2014 and July 2015, the country’s domestic air passenger demand increased by 28.1 per
cent, which surpassed the increase of 10.9 per cent in domestic air travellers in China and of 5.9 per cent
in the United States during the same period. According to the International Air Transport Association,
global passenger traffic (also known as revenue passenger kilometres)4 saw a 6.5 per cent increase in
demand in 2015 compared with 2014, which was the highest growth since the post-global financial crisis
rebound in 2010. India had the highest revenue passenger kilometres growth in 2015, with 25 per cent
year-on-year growth, followed by 8.2 per cent in China and 4.9 per cent in the United States.5

In India, the international air travel market was dominated by international carriers, although Indian
airline companies were increasing their market share gradually. From 2004 to 2005, international airlines
had a 71.1 per cent market share, while Indian airlines had a 28.9 per cent market share of total
international air passenger traffic to and from India. In 2014–15, international airlines had a 63 per cent
market share, while Indian airlines had a 37 per cent market share6 (see Exhibit 1).

International travel to and from India had increased sharply as a result of an increase in India’s middle-
class population, rapid economic growth, the rising aspirations of middle-class Indian consumers, a fall in
the price of aircraft turbine fuel, and an increase in tourism due to visa reforms and increased promotion
of Incredible India.7 A change in attitude toward the exploration of new travel destinations and the
increased disposable income of the middle- and upper-class Indian population contributed to an increase
in more frequent international air travel per person. This increase in international air travel was also
facilitated by the Indian government’s e-Tourist visa policy (also called Electronic Travel Authorization),
which was issued for short-duration visits related to business, medical treatment, meeting family and
friends, and tourist travel, and, by February 2016, was extended to travellers from 150 countries.

Further fuelling the demand for air travel were new technologies, including bookings through mobile
applications (apps) using e-wallets, heavy discounts, and cash back for online bookings on travel web portals
such as Expedia, MakeMyTrip, and Goibibo. Due to this increased demand, the Indian aviation industry
entered a path of expansion driven by low-cost carriers (LCCs), foreign direct investment in domestic airlines,
modernization and expansion of airports, the Indian government’s increased emphasis on regional
connectivity,8 and various information technology interventions. However, the challenges facing the industry
included high taxes on aircraft turbine fuel; the devaluation of India’s currency, the rupee; competitive fares;
and high-interest rates. India had developed world-class airports due to the public–private partnership between
the private sector and the Airport Authority of India; however, airlines remained primarily concerned with
airport tariffs, land acquisitions, capacity expansion of airports, and various government approvals.

THE EVOLUTION OF TRAVEL CLASSES IN AIRLINES

With the advent of airline services in the 1920s, air travel was initially restricted to affluent people
because of the high costs of airfares. Due to the long duration of travel at the time and the high cost of
4
Revenue passenger kilometres = number of revenue-paying passengers × number of kilometres travelled.
5
International Air Transport Association (IATA), Air Passenger Market Analysis, December 2015, 2016, accessed August 4,
2017, www.iata.org/whatwedo/Documents/economics/passenger-analysis-dec-2015.pdf.
6
“Annual Growth of Scheduled International Passengers and Freight Carried by all Scheduled Domestic and Foreign Airlines to and
from India Since 2004-2005,” Directorate General of Civil Aviation, accessed August 4, 2017, http://dgca.nic.in/Pub/Pub14-
15/PDF/INTERNATIONAL%20OPERATIONS/1.01%20(INTERNATIONAL%20OPERATIONS).Pdf.
7
Incredible India referred to the marketing campaign by India’s Ministry of Tourism to promote India as a tourist destination.
8
Tommy Wilkes, “India Plans 2 Percent Flight Tax to Fund Regional Air Travel Boost,” Reuters India, October 30, 2015,
accessed August 4, 2017, http://in.reuters.com/article/india-airlines-idINKCN0SO0IQ20151030.

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
 For the exclusive use of A. Lubis, Ph.D, 2023.

Page 3 9B19A032

tickets, airlines provided comfortable and extravagant services, including fold-down beds. However, with
the development of the airline industry, airlines introduced large planes that could carry more people,
resulting in a reduction in the cost per passenger.

To create differentiation, airlines resorted to splitting the seating space available on a plane into two categories:
first class, with a very high price for affluent flyers, and economy class, with low prices, which made travel by
air affordable to many more people. In the 1970s, airlines began to increasingly adapt to a customer-focused
approach; however, it was considered quite uncomfortable and unpleasant to travel long distances in economy
class. On the other hand, the cost of the first class was prohibitively high for economy flyers.

In 1979, Qantas Airlines introduced the business-class category, between first class and economy class,
which was quickly adopted by other airlines. Gradually, airlines increased their business-class seats to
cater to the increased demand for this category, which also reduced the number of first-class seats to just a
few seats in most airlines. In the 1990s, some airlines introduced a fourth category—premium economy
class—a category midway between economy class and business class. The aim of this new class was to
provide passengers with more space and increased comfort than economy class, but at a lower price than
business class. Due to the continuous decline of international first class and the considerably smaller
degree of innovation in premium economy class, the number of business-class seats on airlines increased
significantly. Gradually, airlines started focusing on a gamut of innovations to attract flyers to business
class and to meet or exceed their wide range of service expectations (see Exhibit 2).

BUSINESS CLASS

Since 1979, when business-class travel started, airlines have experimented with the offerings in this class,
including introducing bigger seats that opened into fully flat beds, menus designed by celebrity chefs,
individual entertainment systems, and airport lounges exclusively for business-class travellers. The
business class came to be preferred by holiday travellers, business people, and senior managers, as its flat-
bed seating allowed passengers to rest and to therefore experience less jet lag and be ready to start their
vacation or go straight to work or to a meeting after reaching their destination. The flat-bed seats also
helped to prevent deep vein thrombosis,9 as passengers were able to move and stretch easily. Business-
class passengers could also expect preference in boarding and disembarking to save time, a full-course
meal on board, fewer crying babies, and fewer anxious first-time flyers. Business-class travel also enabled
passengers to earn extra miles on their journey compared with economy-class travellers.

Due to corporate business travellers’ expectations of more comfort during air travel with lower prices than first
class, the demand for business-class seating increased significantly. These corporate business travellers were
loyal to specific airline brands and were price-insensitive. As a result, airlines started making contractual deals
with larger businesses, organizations, and even government bodies in an effort to win a significant share of
their air travel spending. Profit margins were much higher in business class than in economy class. On average,
a business-class seat cost the airline 1.5 times more than an economy class seat. However, the price of a
business-class ticket to the passenger remained two to four times that of an economy class ticket.10

9
Deep vein thrombosis was a potentially fatal condition, in which one or more clots form in a deep vein, usually in the leg or
arm. One cause of deep vein thrombosis was immobility for an extended period of time.
10
Manu Kaushik, “Flying in Class,” Business Today, December 7, 2014, accessed August 4, 2017,
www.businesstoday.in/magazine/features/premium-airlines-business-class-air-travel-vistara-air-one /story/212395.html.

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
 For the exclusive use of A. Lubis, Ph.D, 2023.

Page 4 9B19A032

AIR TRAVELLERS

Worldwide, 3.5 billion passengers travelled by various airlines in 2015;11 however, more than half of the
world population had not travelled by air even once in their lifetime. Airline passengers had their own
reasons for travelling, including managing their own business or a company’s business, connecting with
loved ones, or enjoying a leisure or adventure trip. For some passengers, boarding a plane was fun and
entertaining, while for many others, travelling represented an opportunity to sit in a calm environment and
stay connected to work.

Worldwide (domestic and international), in 2013–14, the passenger load factor (PLF) was 78.1 per cent in
February 2013, reached 83.8 per cent, its highest level that year, in August 2013, and then dropped to 77.7 per
cent in January 2014. Similarly, in 2014–15, the PLF was 78.5 per cent in February 2014, 84.7 per cent in
August 2014, and 78.8 per cent in January 2015.12 Break-even load factors saw a decrease over the years from
64.8 per cent in 2012 to 64 per cent in 2014, although, in 2000, it was only 59 per cent and afterward saw an
upward trend.13 Net profit per departing passenger was $6.5014 in 2010, which decreased to $2 in 2012 and
then rose to $5.1 in 2014. A similar trend occurred in terms of return on investment (ROI) in the aviation
sector worldwide, where ROI was 6.4 per cent in 2010, 4.9 per cent in 2012, and 5.9 per cent in 2014.15

In 2007, New Zealand Airlines commissioned Synovate Research Solutions to conduct a study to
determine air travellers’ attitudes, needs, and commitment to their airlines and other competitor airlines.
Based on a study of more than 1,000 passengers, the study identified the following five typologies of air
travellers: positivists, socialites, cocooners, disengaged, and territorialists.16

Positivists were planners and organizers. Fidgety and excited, they perceived flying to be a part of the
holiday trip and they wanted the fun to start immediately; highly engaged and involved in flying.

Socialites were social but needy. They could not entertain themselves and thus needed external
stimulation and direction. They tended to be highly involved in the flight and looked for the airline to
entertain them.

Cocooners considered the flight to be a necessary part of the trip, but not the trip itself. They had an
attitude of zoning out (i.e., “let me get there and let me entertain myself”). They took care of themselves
and preferred a quiet cabin away from families.

Disengaged flyers were often exhausted and considered air travel to be a means of getting from A to B.
They did not like flying, were very difficult to please, and travelled with a complete lack of enthusiasm.
Territorialists wanted to be left alone and developed a close relationship with their space. They were
highly involved in the flight, but selfishly (i.e., it is all about them). This segment was weighted toward
frequent flyers.

11
International Air Transport Association, IATA Annual Review 2015, June 2015, accessed August 4, 2017,
www.iata.org/about/Documents/iata-annual-review-2015.pdf.
12
International Civil Aviation Organization (IACO), May 2016: Air Transport Monthly Monitor: World Results and Analyses for
MAR 2016. Total Scheduled Services (Domestic and International), accessed August 4, 2017,
www.icao.int/sustainability/Documents/Monthly%20Monitor_Latest/MonthlyMonitor_latest.pdf.
13
International Air Transport Association, op. cit.
14
All currency amounts are in US$ unless otherwise specified.
15
Ibid.
16
Christopher Dickey, “How Airlines Can Make Flying More Comfortable,” Newsweek, June 19, 2011, accessed May 15,
2019, www.newsweek.com/how-airlines-can-make-flying-more-comfortable-67895.

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
 For the exclusive use of A. Lubis, Ph.D, 2023.

Page 5 9B19A032

AIR FRANCE

On October 7, 1933, a merger of five airlines (Air Orient, Air Union, Compagnie Générale
Aéropostale, Compagnie Internationale de Navigation Aérienne, and Société Générale des Transports
Aériens) gave birth to Air France, which later became a major European carrier. By December 2015, it
had operations in 80 countries, covering 179 destinations. It had a fleet of 344 aircraft, with a total of
63,995 Air France Group employees. The company had three core businesses: passenger operations,
cargo (freight transport), and maintenance (aircraft repair and maintenance). The company’s strengths
included its services to Charles de Gaulle Airport in Paris, which was a powerful European hub for
airlines; a balanced network; an optimized airline fleet; its membership in SkyTeam Airline Alliance (a
global alliance with 20 member airlines); a trans-Atlantic joint venture agreement with Delta Air Lines;
an innovative product offer, a customer-centred strategy; and a strict cost-control strategy.

AIR FRANCE IN INDIA

In 1933, after the merger of five airline companies to form Air France, the new airline entity operated one
weekly flight from Paris to Saigon with three intermediary stopovers in India—in Jodhpur, Allahabad,
and Calcutta. It started weekly Paris–Delhi flights in 1955 and Paris–Mumbai flights in 1967 (the
Mumbai service replaced the Calcutta service). In 1973, the Mumbai–Paris flights increased to three
flights weekly. In the 1960s, Air France faced problems related to the limited economic and cultural
relationship between France and India and the limited amount of foreign currency that Indian travellers
were allowed to carry onboard due to strict limitations imposed by the Indian government. Air France
used this situation as an opportunity, and provided free accommodation services to Indian customers at
intermediary stopovers before reaching their final destination. This offering led to a considerable increase
in the flow of Indian travellers on Air France.

In 1974, Air France began flights from India to the new Paris-Charles de Gaulle Airport. By the summer of
1981, two out of three Mumbai–Paris flights were non-stop flights. The first non-stop flight from Delhi to
Paris was offered in 1982. Air France started daily flights from India in 1987 (with three flights a week from
Mumbai and four flights a week from Delhi), which was increased to two daily flights in 2002, including
one from Mumbai and one from Delhi. In 2005, Air France started its service to three other Indian cities,
Chennai, Bangalore, and Hyderabad. By March 2016, in partnership with Koninklijke Luchtvaart
Maatschappij (KLM) airlines (which was merged with Air France in 2004), Air France offered a total of 27
weekly flights between Europe and India, serving Delhi, Mumbai, and Bangalore (with its own weekly 17
direct flights) and Hyderabad (seven weekly flights operated by KLM, which was a sister concern of Air
France). Air France India had personalized its services for Indian customers, such as providing information
to passengers in the national language of Hindi, and offering Indian tea (chai) and Indian dishes as the main
meal in all travel classes. For in-flight entertainment, it offered Indian films in the original Hindi versions
and Indian daily newspapers and magazines in all classes on flights from India.

Air France had a reputation in the market for its premium quality, excellence, sophistication, upgrades,
and up-to-date innovation. By offering Flying Blue (Air France’s frequent flyer program), the airline
provided a French experience with a focus on elevating travel to an art. However, Indian flyers perceived
the company as an “expensive airline” compared with other competitor carriers, such as Jet Airways,
Lufthansa, British Airways, and Emirates Airways (see Exhibit 3). In financial year 2015–16, the
company had a passenger load factor of 90 per cent in the economy-class segment and 79 per cent in the
business-class segment (see Exhibit 4).

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
 For the exclusive use of A. Lubis, Ph.D, 2023.

Page 6 9B19A032

Indian travellers using Air France tended to be business-oriented (56 per cent), and their main travel
destination was Europe. France was the most popular destination among the European countries, followed
by the United Kingdom and Germany. Approximately 56 per cent of business-class customers flew for
business reasons; however, a small percentage of customers also flew for leisure, especially those who
enjoyed flying in luxury and wanted to maintain their social status and those who wanted to ensure a
comfortable flight for their elderly parents. Frequent-flyer benefits with priority access and lounge access
were also important for business travellers. Furthermore, emotional drivers contributed more than rational
drivers to the choice of Air France (60 per cent). For company executives who had a corporate
relationship with Air France, “connection and transit time” was a priority over the fares.

BUSINESS CLASS ON AIR FRANCE INDIA

Air France, known for its comfort and luxury travel, provided exclusive spaces for both rest and
entertainment in its business-class cabins. Each seat could transform into a spacious bed up to 2 metres (6.5
feet) in length, one of the longest in the market, and could take on the shape of the body to provide quality
sleep. Each business-class passenger was provided a hypoallergenic feather pillow, a pure wool blanket, and
a “comfort and well-being” kit that included a moisturizer from Clarins (a renowned skin care company).
Each meal consisted of a tasty appetizer, a seasonal salad, a selection of cheese, and a dessert trio. On flights
longer than 10.5 hours, business-class passengers had access to two reserved bar areas equipped with buffets
to enjoy refreshments and meals, relax, and chat with other passengers without disturbing the peace and
calm of the cabin. For those who preferred to work during the flight, business class offered a power outlet to
plug in a laptop or other electronic devices, a reading lamp that could be oriented so as not to bother one’s
neighbours, noise-cancelling headphones, a personal telephone to make calls via satellite, and express light
meals after takeoff. In summer 2016 (from March 2016 to September 2016), Air France (excluding KLM)
had a combined capacity of 41,287 business-class seats, with availability of 12,088 business-class seats on
flights from Delhi to Europe, 16,979 business-class seats on flights from Mumbai to Europe, and 12,220
business-class seats on flights from Bangalore to Europe.

THE CHALLENGE

Air France India had only a 79 per cent passenger load factor in the business-class segment in 2015 (see
Exhibit 4), which posed a challenge for management. The main agenda of the national executive meeting
was to identify prospective new customers for its business-class segment and determine how to bring them
onboard Air France. After intense discussions, brainstorming sessions, the exchange of some harsh words,
one-to-one talks, and a whole lot more, team Air France India zeroed in on the following key challenges the
company was facing: capacity constraints/seat accessibility, seasonal products (first class and capacity
increases in winters only), the lack of flat beds in business class, Indian travellers’ negative perceptions of
Paris-Charles de Gaulle Airport, lack of retention of customers, overdependence on travel agents (which
accounted for 90 per cent of business), limited promotional resources compared with the rest of the industry,
and the need to connect with Indian customers without diluting either the essence of French hospitality in
Air France India services or the company’s profitability. Air France management knew that India was a
major market for the airline. There was no doubt about the growing affluence and passenger traffic in the
Indian aviation industry. Essentially, India was an LCC market, and one of the company’s key challenges
was determining how to increase profitability through the acquisition of more business-class travellers.

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
 For the exclusive use of A. Lubis, Ph.D, 2023.

Page 7 9B19A032

ROUTE AHEAD FOR AIR FRANCE INDIA

In discussions with the team, Nayar said, “Air France has the right product, our brand is one of the
premium brands of the airline industry, and still we have not been able to increase our load factor in the
business-class segment, which has been stagnant for the last two years.” This observation resulted in a
fierce argument between Nayar and the team members. Rajesh Menon, regional sales manager (North
India) screamed that Air France was offering its products at a much higher price than other Indian and
international carriers. As a result, it was difficult to convince prospective clients to travel by Air France
India. Others elaborated that the company had low penetration in the market due to low visibility in the
Indian air traveller market and very low presence on social media. Also highlighted was the company’s
high dependence on corporate clients, especially technology companies, which constituted approximately
40 per cent of its clientele. To calm down the team, Nayar replied:

The business class segment is priced quite rigidly. On an average, our business-class fares are 10–
12 per cent less than British Airways, 5–7 per cent more than Lufthansa Airline, 20–23 per cent
more than Swiss International Airlines, and 30–32 per cent more than Jet Airways.17 Last year, we
offered a discount to travellers in the business-class segment, but many made bookings even
without utilizing the discount code. So, let’s think along these lines and come up with some
concrete solutions.

After lunch, the session started with one objective: What was the route ahead? Shantanu, head of Sales,
emphasized his position:

A high dependency on channel partners, like travel agents, is not good for the company in the
long run, as it will reduce the direct interaction between our customers and the company
regarding their purchase decisions. This might result in giving more bargaining powers to channel
partners. So, the challenge is whether we should directly approach the right customers in the
high-yield business-class segment or search for partnership options with companies that have a
similar target group of customers.

The group settled down and began to discuss the available options. Nayar asked the team to identify the specific
challenges and benefits of pursuing each of these options while keeping in mind that they needed to target only
people who represented the A1 and A2 classes of the Indian socio-economic classification system.18

All managers agreed that if the company directly approached the business-class travellers, it could focus
on medical tourism in India or the budding class of young entrepreneurs.

In India, medical value travel19 was on the rise. India was expecting 3.2 million medical tourists in 2015–16,20
the majority of which were from the Middle East and African countries. By 2020, the medical tourism market
in India was expected to reach $8 billion. Another target group was the Indian community of doctors,
especially renowned doctors living and practising in metropolitan cities. They travelled abroad many times a
year to complete medical courses; learn new skills; attend conferences and seminars for learning, networking,
and liaising with their European and U.S. counterparts; and enjoy holidays with family.

17
Air France internal sources. Fares were calculated for the New Delhi–Paris route.
18
“Socio-Economic Classification–2011: The New SEC System,” The Market Research Society of India, May 3, 2011,
accessed March 11, 2019, http://mruc.net/uploads/posts/8d373188d2f2f813f7f85759aa0304f4.pdf.
19
Medical value travel referred to the trend or practice of patients looking for health-care services beyond their home country.
20
“Healthcare,” India Brand Equity Foundation, 2017, accessed March 11, 2019, www.ibef.org/download/Healthcare-
January-2017.pdf.

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
 For the exclusive use of A. Lubis, Ph.D, 2023.

Page 8 9B19A032

India also had an emerging class of budding entrepreneurs, who were owners of new businesses and new
start-ups, especially foreign-educated children of rich business people. These people had a lot of new
ideas that they wanted to act on. They were young, full of energy, and had big aspirations. They were
looking to Europe and the United States as markets for their products and dreams. Owners of small and
medium-sized businesses were similar to these budding entrepreneurs in several key ways. These Indian
business travellers were judicious flyers. They chose an economy class for short and domestic trips, but
opted to travel by business class when going abroad.21 Another challenge facing the Air France team was
determining how to approach these target groups.

Taking the group in another direction, one senior executive said that Delta Airlines had entered into a
partnership with Empire State Development’s Division of Tourism in September 2015. Both used a joint
logo and Delta Air Lines displayed its own New York partners, network, and presence alongside New
York’s upstate tourism initiatives.22 Until March 2016, Air France India did not have any such partnership
with a similar type of brand that had similar target groups. There were many premium brands whose
customers were frequent flyers on airlines for their business, family, or leisure trips. Developing a
partnership with such brands, whereby they provided their company’s platform to promote the products of
another partner, could be a win–win situation for both companies. However, in the past, when Air France
had approached several luxury brands, many of these brands had not offered the airline an equal platform,
but instead had shown a more dominant position.

Many group members insisted that instead of adopting a singular approach, they could utilize both these
options, according to market conditions and available resources. However, a senior manager cautioned
that although this approach might lead to an optimal utilization of resources, it could lead to additional
challenges, including an increase in the dependency on partner companies.

It was 7:30 p.m. Still thinking about the options, Nayar explained the limited financing for promotions
and related activities to acquire new customers and retain old customers. The company had an annual
budget of only $200,000 for its pan-India operations to promote all its travel classes. Therefore, he asked
everybody to keep this constraint in mind while zeroing in on an option. Nayar was apprehensive about
what the coming days would bring for Air France. How would the airline be able to increase its market
share and its load factor in the business-class segment, as per the expectations of the company’s
management? Which customer groups should the company target? What approach should be adopted to
target those groups? Nayar was intent on finding a definitive answer to these questions.

21
“International Business Travel from India Is on Rise: British Airways,” India Infoline News Service, May 6, 2011, accessed
August 4, 2017, www.indiainfoline.com/article/print/news/international-business-travel-from-india-is-on-rise-british-airways-
5148008481_1.html.
22
Elizabeth Wolf, “NY, Delta Share the Love in Co-branding Campaign,” Delta News Hub, September 10, 2015, accessed
August 4, 2017, http://news.delta.com/ny-delta-share-love-co-branding-campaign.

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
 For the exclusive use of A. Lubis, Ph.D, 2023.

Page 9 9B19A032

EXHIBIT 1: PERCENTAGE MARKET SHARE IN INTERNATIONAL PASSENGER TRAFFIC, INDIAN

CARRIERS VERSUS OTHER CARRIERS, 2004–05 TO 2014–15

Year Indian Carriers Other Carriers

2004–05 28.9 71.1
2009–10 34.5 65.5
2010–11 36.2 63.8
2011–12 35.9 64.1
2012–13 33.8 66.2
2013–14 38.3 61.7
2014–15 37.0 63.0

Source: “Annual Growth of Scheduled International Passengers and Freight Carried by all Scheduled Domestic and Foreign
Airlines to and from India Since 2004–2005,” Directorate General of Civil Aviation, accessed August 4, 2017,
http://dgca.nic.in/Pub/Pub14-15/PDF/INTERNATIONAL%20OPERATIONS/1.01%20(INTERNATIONAL%20OPERATIONS).pdf.

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
 Page 10 9B19A032

EXHIBIT 2: FEATURES AVAILABLE IN ECONOMY CLASS, PREMIUM ECONOMY CLASS, BUSINESS CLASS, AND FIRST CLASS

Economy Class Premium Economy Class Business Class First Class

Seat pitch 29–32 36–38 50–81 69–87
(in inches)
Seat width Mostly 17–18 18–21 19–26 22–31
(in inches)
Laptop/mobile Available in few airlines In almost all airlines In all airlines In all airlines
power
Video type Not available; few On-demand TV; few offered On-demand TV; few offered On-demand TV
offered on-demand seatback TV seatback TV
television (TV)
Wi-fi No Available in very few airlines Available in very few airlines Available in many airlines
Seat type Standard Standard; few provided Most had angle-lie flat or flat- Flat-bed, open/closed suites
recliner bed seats; few provided
recliners
Specialized Premium food and wine Premium food and wine
services Few customized Premium food service service; increased cabin staff- service; more privacy in
options to-passenger ratio; separate cabins; increased
amenity kits included socks, cabin staff-to-passenger ratio;
eye masks, and toiletries amenity kits included pyjamas,
slippers, eye masks
Customers First-time air travellers, Money-conscious travellers, Higher management Owners/top management of
companies’ lower-level who want some extra comfort, employees of companies, rich companies, affluent people who
employees, students, have less disposable income, people who have high wanted to flaunt their wealth,
people with less and have a value-for-money disposable income, people on frequent-flyer customers who
disposable income attitude sponsored trips, honeymoon have been upgraded by the
couples airline

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
Note: 1 inch = 2.54 centimetres
Source: “Long-Haul Economy Comparison Chart,” SeatGuru, accessed March 11, 2019, www.seatguru.com/charts/longhaul_economy.php; “Premium Economy
Comparison Chart” SeatGuru, accessed March 11, 2019, www.seatguru.com/charts/premium_economy.php; “Business Class Comparison Chart,” SeatGuru, accessed
March 11, 2019, www.seatguru.com/charts/longhaul_business_class.php; “First Class Comparison Chart,” SeatGuru, accessed March 11, 2019,
www.seatguru.com/charts/longhaul_first_class.php.
For the exclusive use of A. Lubis, Ph.D, 2023.
 Page 11 9B19A032

EXHIBIT 3: AIR FRANCE AND COMPETITOR STATISTICS

Air France
Jet Airways British Airways Swiss Airways Lufthansa
(excluding KLM)
Business-Class Seats per Week from India
2,752 13,713 11,921 3,304 13,001
to Europe (2014)
Business-Class Seats per Week from India
2,752 12,637 11,375 3,304 13,831
to Europe (2015)
Scheduled Inbound Passenger Traffic to
India of All Travel Classes (January 2016 60,177 856,985 124,003 31,702 140,296
to March 2016)
Scheduled Outbound Passenger Traffic
from India of All Travel Classes (January 63,325 931,913 146,094 38,756 156,196
2016 to March 2016)
Economy, Premium
Economy, Premium Economy, Economy, Economy, Premium
Economy,
Travel Classes Available Economy, Business, Premium, First Business, Economy, Business,
Business/Club,
La premiere Class First Class First Class
First Class

Source: Provided by the company and also retrieved from International Traffic Data, 2016, Q1, Airline Wise International Traffic (Scheduled) Statistics for the Quarter Jan-
Mar 2016, accessed May 2019, http://dgca.nic.in/reports/stat-ind.htm.

EXHIBIT 4: AIR FRANCE INDIA PERFORMANCE, 2014–2015

2014 2015
Business class revenue (in $ millions) 21.2 25.76
Passenger load factor (Air France India) 76% 79%
Passenger load actor (KLM India) 90% 78%
Total business class passengers from India to Europe (foreign airlines only) 205,771 243,753

This document is authorized for use only by Arief Wibisono Lubis, Ph.D in 2023.
Total business class passengers from India to Europe (Air France India, including KLM and Delta) 9,059 10,579

Note: Passenger load factor = average number of passengers per flight ÷ average number of seats per flight; bottom row—Total business-class passengers from India to
Europe (Air France India, including KLM and Delta), refers to tickets booked from India only, as part of total business-class bookings.
Source: Company documents.
For the exclusive use of A. Lubis, Ph.D, 2023.