Project on AirlinesSECTOR

Aviation Industry

Dhaval .B. Shah {WRO 0280699}Jimit .C. Doshi {WRO 0280567}

ICAIICAI Bhawan

November 17th-December 25th {5.00 pm. To 9.00 pm.}

CONTENTS

Introduction

History of Civil Aviation Industry

The New Policy

Changing Pattern of Government Regulations

Recent Developments in Civil Aviation

Domestic Air Carriers

Airport Infrastructure

Low Cost Airlines: A Preview

PEST Analysis

Segmentation Strategy

7 P’s of Marketing Mix

Case Study – King Fisher Airlines

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“The commercial use of aircrafts for the carrying of persons, mail and cargo and the name

generally used in the aviation industry to describe the operations of fortified air carriers is

known as the airlines/aviation industry.” Aviation means ‘Flying in the Air’ or the ‘Art of

Flying’.

Airlines are one of the fastest growing industries in the world. It is occupying a significant

place in the transport management of today’s world. Both from passengers and goods oper-

ation, the air transportation services have been playing an incremental role.

Tale of the Airplane

WRIGHT BROTHERS.

The Wrights began their efforts to invent the airplane by carefully studying what others had

done before. They studied the various hot air balloons trips and decided to make the air-

crafts. The Wrights followed the example set by Lilienthal and continued by Chanute of be-

ginning with the glider. The Wrights also choose to pattern their aircraft after the Chanute-

Herring biplane, a sturdy and relatively successful biplane glider. Lilienthal's data on the lift

of wing surfaces were used in their design of the 1900 and 1901 gliders.

By careful study, the Wrights identified the best features of past aircraft and employed aero-

nautical theory about the lift of wings to design their first craft. Although it did not perform as

expected, it was among the best gliders that had ever been built.

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H istor y of Indian A viatio n S ector

Travel by air in the modern sense began in India only in 1877, when Joseph

Lyna took off from the Lalbagh Gardens in Bombay, and ascended to an altitude of about

7,500 feet and landed at Dadra. In the years that followed, there was a tremendous devel-

opment of air transportation in India as in any other countr ies due to techno log ica l

advances and cooperat ion from the government.

India also has the distinction of organizing the first flight by an aero plane in

the world in February 1911. This flight piloted by French pilot M. Picquet flew from Alla-

habad to Naini.

However, it took more than 20 years for the country to have its own airline.

In October 15, 1932, Tata Son’s Ltd – which later become Air India International –

commenced weekly airmail service with a Puss Moth aircraft between Karachi and

Madras via Ahmedabad and Bombay, covering over

1,300 miles. Later two more airlines – Indian National Airways in 1933 and

Air Services of Indian in 1937 came up.

At the time of independence, the number of air transport companies, which

were operating within and beyond the frontiers of the company, carrying both air

cargo and passengers, was nine. It was reduced to eight, with Orient Airways shifting to

Pakistan. These airlines were: Tata Airlines, Indian National Airways, Air service of

India, Deccan Airways, Ambica Airways, Bharat Airways and Mistry Airways.

In early 1948, a joint sector company, Air India International Ltd., was established by the

Government of India. Its first flight took off on June 8, 1948 on the Mumbai (Bombay)-Lon-

don air route. The joint venture was headed by J.R.D. Tata, a visionary who had founded

the first India airline in 1932 and he had himself piloted its inaugural flight.

The Government then nationalized the airlines industry in 1953, with enactment

of Air Corporation Act, and assets of nine existing air companies were transferred to

the two new corporations – Air India International and the Indian Airlines. After 40

years, in 1994 Air Corporation Act was repealed ending the monopoly of the national

air corporations and enabling entry of private operators.

Today, India occupies an eminent position in the civil aviation sector with a

large fleet of aircrafts. In all, 56 airlines are operating scheduled air services to and

through India and 22 foreign airlines are flying over Indian Territory. There are over

450 airports and 1091 registered aircraft in the country. In addition to the three public

sector airlines Air India, Indian Airlines, Alliance Air - there are three private operators

-Jet Airways, Sahara India Airlines & Air Deccan. There are also 41 non-sched-

uled air transport operators. Additionally 34 applicants have been granted NOC by the

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Ministry of Civil Aviation for setting up non-scheduled air transport operation.

Estimates show that the domestic and international passenger traffic in India is pro-

jected to grow annually at 12.5% and 7% respectively over the next decade. Indian air-

ports are likely to handle 60mn international passengers and 300,000 tons of do-

mestic and 1.2mn tons of international cargo.

The aviation industry in India has grown by leaps and bounds in recent years in terms of

kilometers flown as well as customers serviced. The economy of a country is substantially

determined by the quality of air transport. The airlines today have made themselves more

popular among its customers by various marketing tactics like:

Reduced costs of air tickets for frequent flyers.

E-ticketing i.e. virtually eliminating the need for agents. Reynar and Easy jet two of

UK’s low cost carriers have eliminated travel agents completely and sell all their tick-

ets online.,

Selling tickets through online auctions,

Various freebies and accommodation offers provided at lower rates.

Improved and interactive staff.

Increase in aircraft capacity

C hangin g Patter n o f Government Regulations

In India is perhaps the most s t r ik ing example of the progress made in the liberalization

of the Indian economy, a process that began a decade ago. Civil air transport business

which hitherto had been the Government's monopoly has been completely liberalized, as

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a result of which private airlines have been flourishing.

The process of disinvestment of Government equity in national carriers has been

initiated, private participation for airports has been further liberalized and the bilat-

eral for operation of international services are being further encouraged. This in turn has

opened up immense opportunities for investment in the civil aviation sector in In-

dia. The steps taken by the government are as follows:

1. Investments Opportunities Foreign Equity

Foreign Equity up to 40% and NRI investment up to 100% is permitted in domes-

tic air transport services. Equity from foreign airlines is not permitted directly or

indirectly.

2. Disinvestment of the Government Equity in airlines

Government of India decided to disinvest partly its shareholding in both Air India and In-

dian Airlines, presently wholly owned companies of the Government. But with general

elections round the corner this issue has been put on the backburner with constant op-

position from various sections of the society.

3. Entry-Exit barriers removed

Barriers to entry and exit from this sector have been removed. Only pre-entry

scrutiny to verify financial soundness, maintenance, security and safety aspects of

operations and human resource development proposals is done. Choice of aircraft type

and size left to the operator.

4. Private participation in Airports

Foreign equity participation is allowed in ventures for airports, up to

74% automatic approvals and up to100% with special permission. Participation is also

open to foreign airport authorities.

A variety of fiscal incentives has been provided to airport project, as decided by

Government from time to time. They are as follows:

100% deduction in profits for purposes of Income Tax for first five years.

30% deduction in profits for Income Tax purposes for next five years.

Full deduction to run for continuous 10 out of 20 fiscal years of assessee's

choice.

40% of profits from infrastructure also deductible for financial institutions providing

long term finance for airport infrastructure projects.

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5. Bilateral for operation of international air services

The Government has been more liberal in granting additional entitlements

to foreign airlines both in terms of capacity as well as in terms of points of call. The ex-

ist ing air services agreement with United States of America is an extremely liberal

one as it allows any number of US airlines to operate services from/to India. US airlines

are also allowed to decide the size of aircraft and their frequencies.

6. Taxes and Tariffs

In order to facilitate acquisition of aircraft Government of India has reduced

tariffs for import of aircraft from 8% to Nil. Even aircraft taken on lease do not attract

customs duties. India also has a liberal Corporate Tax/Income Tax regime for air-

lines and encourages investment by allowance of high depreciation rates.

7. Civil Aviation Policy

Having drawn up a successful growth model for the civil aviation sector, the Gov-

ernment is now engaged in evolving a comprehensive and integrated new civil aviation

policy, some of the major highlights of which are:

All players and stakeholders are assured of a level playing field.

Private participation is encouraged and opportunities are created for in-

vestors to realize adequate returns on their investments.

Rapid up gradation of airport infrastructure to world class is encouraged with

priority to the busiest airports and those handling international flights.

International cooperation in aviation and development in tune with interna-

tional trends and best practices, consistent with airspace sovereignty

is promoted.

After four decades of control, Civil Aviation sector has been liberalized with a

view to draw benefits of efficiency, safety and quality in service. Government has

also opened doors to foreign participation in investment in this sector.

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Recent Developments in Civil Aviation 

Civil Aviation:

The different types of civil aviation are:

Domestic airlines (Indian Airlines) International airlines (Air India, Lufthansa) Chartered airlines (Evergreen, Deccan Aviation) Private helicopter services (Pawn Hans) Corporate aircraft (Reliance) Transport (Fed EX owns planes)

 Airports:

     The airplanes don’t own the airports. These are controlled by the agencies like Airports Authority of India. AAI maintains the airports in India. Airlines get the routes and landing rights. These can be either used by them or swapped (e.g. Air India gave unused Delhi-Lon-don route to Virgin) 

Classes:

Passengers can avail different types of classes in airlines: Economy class Business class First class

The difference lies in various facilities like reclining seats etc. There is a significant difference in prices.

Marketing:

Airlines use conventional marketing methods for attracting customers. E.G.

Advertising – The Singapore Girl campaign of Singapore Airlines PR- Public Relations by Richard Branson of Virgin Brand Mascot- Maharaja of Air India Schemes—Frequent flyer programmes of various airlines

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PEST Analysis: The Indian Airline Industry  

      A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firm's control and sometimes present themselves as threats. For this reason, some say that "pest" is an appro-priate term for these factors. Let us look at the PEST analysis of the Indian aviation sector: 

1) P - Political Factors

      In India, one can never over-look the political factors which influence each and every in-dustry existing in the country. Like it or not, the political interference has to be present every-where. Given below are a few of the political factors with respect to the airline industry: 

The airline industry is very susceptible to changes in the political environment as it has a great bearing on the travel habits of its customers.  An unstable political envi-ronment causes uncertainty in the minds of the air travelers, regarding traveling to a particular country.

Overall India’s recent political environment has been largely unstable due to interna-tional events & continued tension with Pakistan.

The recent Gujarat riots & the government’s inability to control the situation have also led to an increase in the instability of the political arena.

The most significant political event however has been September 11. The events oc-curring on September had special significance for the airline industry since air-planes were involved. The immediate results were a huge drop in air traffic due to safety & security concerns of the people.

International airlines are greatly affected by trade relations that their country has with others. Unless governments of the two countries trade with each other, there could be restrictions of flying into particular area leading to a loss of potential air traffic (e.g. Pakistan & India)

Another aspect is that in countries with high corruption levels like India, bribes have to be paid for every permit & license required. Therefore constant liasoning with the minister & other government official is necessary.

 The state owned airlines suffer the maximum from this problem. These airlines have to make several special considerations with respect to selection of routes, free seats to minis-ters, etc which a privately owned airline need not do. The state owned airlines also suffers from archaic laws applying only to them such as the retirement age of the pursers & hostesses, the labour regulations which make the management less flexible in taking deci-sion due to the presence of a strong union, & the heavy control &interference of the govern-ment. This affects the quality of the service delivery & therefore these airlines shave to think of innovative service marketing ideas to circumvent their problems & compete with the pri-vate operators.   

2) E- Economic Factors

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      Business cycles have a wide reaching impact on the airline industry. During recession, airline is considered a luxury & therefore spending on air travel is cut which leads to reduce prices. During prosperity phase people indulge themselves in travel & prices increase.  

      After the September 11 incidents, the world economy plunged into global recession due to the depressed sentiment of consumers. In India, even a company like Citibank was forced to cut costs to increase profits for which even the top level managers were given first class railway tickets instead of plane tickets.

      The loss of income for airlines led to higher operational costs not only due to low de-mand but also due to higher insurance costs, which increased after the WTC bombing. This prompted the industry to lay off employees, which further fuelled the recession as spending decreased due to the rise in unemployment.   

      Even the SARS outbreak in the Far East was a major cause for slump in the airline in-dustry. Even the Indian carriers like Air India was deeply affected as many flights were can-celled due to internal (employee relations) as well as external problems, which has been dis-cussed later.  

3)S- Social Factors

      The changing travel habits of people have very wide implications for the airline industry. In a country like India, there are people from varied income groups. The airlines have to rec-ognize these individuals and should serve them accordingly. Air India needs to focus on their clientele which are mostly low income clients & their habits in order to keep them satisfied. The destination, kind of food etc all has to be chosen carefully in accordance with the tastes of their major clientele.

      Especially, since India is a land of extremes there are people from various religions and castes and every individual traveling by the airline would expect customization to the great-est possible extent. For e.g. A Jain would be satisfied with the service only if he is served jain food and it should be kept in mind that the customers next to him are also jain or at least vegetarian.

      Another good example would be the case of South West Airlines which occupies a solid position in the minds of the US air travelers as a reliable and convenient, fun, low fare, and no frills airline. The major element of its success was the augmented marketing mix which it used very effectively. What South West did was it made the environment inside the plane very consumer friendly. The crew neither has any uniform nor does it serve any lavish foods, which indirectly reduces the costs and makes the consumers feel comfortable. 

4)T-Technological Factors

      The increasing use of the Internet has provided many opportunities to airlines. For e.g. Air Sahara has introduced a service through the internet, wherein the unoccupied seats are auctioned one week prior to the departure.

      Air India also provides many internet based services to its customer such as online ticket booking, updated flight information & handling of customer complaints.

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      USTDA (US trade & development association) is funding a feasibility study and work-shops for the Airports Authority of India as part of a long-term effort to promote Indian avia-tion infrastructure. The Authority is developing modern communication, navigation, surveil-lance, and air traffic management systems for India's aviation sector that will help the coun-try meet the expected growth and demand for air passenger and cargo service over the next decade.

      A proposal for restructuring the existing airports at Delhi, Mumbai, Chennai and Kolkata through long-term lease to make them world class is under consideration. This will help in at-tracting investments in improving the infrastructure and services at these airports. Setting up of new international airports at Bangalore, Hyderabad and Goa with private sector participa-tion is also envisaged.

      A good example of the impact of technology would be that of AAI, wherein with the help of technology it has converted its obsolete and unused hangars into profit centers. AAI is now leasing these hangars to international airlines and is earning huge profits out of it. AAI has also tried to utilize space that was previously wasted installing a lamination machine to laminate the luggage of travelers. This activity earns AAI a lot of revenue.

      These technological changes in the environment have an impact on Air India as well. Better airport infrastructure, means better handling of airplanes, which can help reduce maintenance cost. It also facilitates more flights to such destinations.

   Segmentation: The Airline Industry 

      Most airlines use a very traditional segmentation strategy, dividing passengers into busi-ness travelers and economy travelers (mostly leisure travelers). The common strategy is to squeeze as much profit as possible from business class passengers who are attracted by superior services and corresponding high prices and, at the same time, to try and fill the rest of the seats and ensure growth by attracting economy class passengers with lower fares. Following are the popular segments:

1) Business passengers

      They are crucial for airlines' profitability. With less spare time and more cash in their pockets, they agree to pay a premium price for a premium service.

      Today business passengers account for approximately 48% of passengers, and these 48% contribute 66% of airlines' revenue. The premium prices they pay provide wider and more comfortable seats, better choice of meals and seats, luxurious lounges.

      Airlines can choose from a multitude of premium services to offer to business travelers. Some of these extras range from seats equipped with faxes and telephones, to gambling machines, showers, massage services and suit ironing services in the recently introduced arrival lounges.

      Business passengers believe it is worth extra money if they can save time and arrive looking fresh for an important meeting. Business passengers will avoid transit flights even if a longer flight could save them money. But amongst other perks, flexible reservation ser-vices are probably the most important to them. Reservations for business trips are often made just a couple of days in advance. A no penalty cancellation policy is also very impor-tant to business passengers.

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      The best way to reach business travelers is through printed advertising. Business news media, such as "The Economist" or "The Wall Street Journal" are some of the best publica-tions through which airlines can reach business travelers. Many airlines design special pro-motional programs that target corporate bookers and meeting planners, who are responsible for business trips reservations. Frequent flyer programs are an added bonus for business passengers. 

2)Leisure Travelers

      They represent a totally different market. The most important consideration for most of them is the price. The lower the airfare, the more people will fly the respective airline.

      By and large, with the exception of wealthy travelers, this segment will not pay extra for premium services and will agree to change several planes during their trip if this option costs less than a direct flight.

      Despite lower margins provided by this segment, leisure travelers are very important to an airline's bottom line. Part of the reason is that technological progress in the area of tele-conferencing and increased use of the internet for business communications is expected to reduce the number of business travelers. Thus, airlines are counting on the leisure segment to provide further growth.

      How can airlines benefit from the growth opportunities in the leisure segment without los-ing immediate profit opportunities in the business segment? This is a tough issue in airline marketing management. By improving services and reducing prices for economy class pas-sengers, airlines risk that some business passengers will switch to economy class.   

      This has already happened with Japan Airlines, for example, which was forced to elimi-nate business class seats on some of its flights. On the other hand, if an airline focuses on business class passengers, it risks losing its economy class passengers to another airline.

      Since business class passengers are not many, a company relying mostly on business travelers will often end up flying half-empty planes, losing the potential revenue generated by lower priced economy seats.

      On the other hand, few airlines catering solely to economy class passengers can be suc-cessful because a low fare carrier must fill the entire plane if it is to generate revenue from its low-margin operations.

  The allocation of business and economy class seats on a plane is determined through a process called yield management. A good yield manager knows the approximate proportion of business and leisure travelers for each flight in advance, based on sophisticated statistical models.

 Thus he/she tries to sell early, the economy seats at a cheaper price, while keeping enough seats reserved for business travelers, who usually book at the last minute. Keeping just the right amount of business seats reserved is important: selling too few economy seats in ad-vance may result in a less-than-full plane while selling too many economy seats may result in a full plane, but with insufficient revenue to gain a profit.

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      This kind of segmentation serves airlines well enough when implemented within one company. It would be very difficult for any single airline to target just one of these two seg-ments - business or leisure - successfully.

      There are exceptions - small regions that serve destinations where the majors do not fly, for example, are in a better position to implement a low price policy. They can even get busi-ness travelers to fly them despite the lack of premium services because no other airline would get them there. Southwest is a classic example, proving that low cost carriers can thrive.

      Major international carriers, however, need to target both the business and the leisure segments they may also target different ethnic and geographical segments differently, de-pending on the markets from which they draw the majority of their customers.

      For example, even though Japan Airlines advertise extensively to the American public, their message -"Your needs. Your Airline," seems to work best for the traditional Japanese audience.

      Inside one country, two national carriers may also focus on different destinations, which is the case with Canadian Airlines and Air Canada. Passengers' tastes determine airlines' strategies. While British Airways focuses on comfort and luxury, valued by European pas-sengers, Air Canada equips its business class seats with plugs for laptops and telephones, appreciated by North American business travelers.

MARKETING STRATEGIES

Airlines formulate their Marketing Strategies keeping in mind the 7 P’S of the Marketing Mix

 The 7P’s of Marketing Mix 

1) Product Mix  

    Getting the product right is the single most important activity of marketing. If the product isn't what the market wants, no amount of price adjustment or brilliant promotion will encour-age consumers to buy it. The airline product is quite a complex one since it comprises of a service of incorporating the temporary user of airline seat and certain tangible products such as free flight bags or a free bottle of duty free spirit to encourage booking. 

The airline product includes of two types of services:

1. on the ground services,

2. In-flight services.

The on-the-ground services include a convenient airport with car parking facilities, duty free' shopping quick and efficient checking of baggage, efficient service at reservation counter, transport to the airport, etc. 

      The service provided inside is intangible and is highly variable. The airhostesses are trained to provide polite, warm and courteous service. The courteous service that the repre-sentatives at the baggage counter, reservation counter provide goes a long way in develop-ing customer loyalty. The travel agents of the airline.

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Differentiating the Product

      It is important to recognize that what es also need to be efficient and polite.  the con-sumers are demanding are not products, or features of products but the benefits they offer. Producing added benefits thus helps the marketer to distinguish one product from another. Good design or style of service can form the basis of differentiation. This enables the com-pany to create a personality for its service. The design and decor of the aircraft provides op-portunities to personalize their product as well as periodically to update them when differenti-ation under IATA regulations was virtually excluded, nonetheless, certain airlines were able to develop distinct personalities. Eagle Airlines created an entirely new market between New I York and Bermuda, for e.g. by developing an image of a friendly airline distinctive from other airline serving the route. A similar style was evident in Richard Branson's Virgin Air-ways.   LEVELS OF PRODUCT 

FOUR PRODUCT LEVELS 

1) The Core Service

      The core service of the airlines industry is to transport goods and services to various destinations.  

2) The Supplementary Services

      The airline industry has many players they had a brand name like ‘Air India’,’ Jet Air-ways’,’ British Airways’. All of them had some common services to offer like connecting flights, through check-in, tele check in, food on board, and complementary gifts etc.

      Different classes like economy class, business class were introduced. Air concessions are given to school students, old people etc. Singapore airlines were the first to introduce small 8”television screen for every passenger. The freebies are actually win-win deals be-tween airlines and other services. 

      All these added service helps the customer to decide upon which airlines he wants to travel. As competition increased and the customers wanted more the next phase evolved and that is the augmented service.  

3) The Augmented Service

      This phase is where the customer’s expectations are met; the service providers kept working on new methods to meet the ever-changing customers’ demands. The players intro-duced online booking, which was very convenient for the service users.

      For Eg. British Airways business class has showers; it’s more spacious and comfortable. Sahara airlines offer its passengers six different types of cuisine like vegetarian, fat free, dia-betic etc.

This phase is the most crucial one; with increased competition service will become the final differentiation.   

4)Future Service

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       As mentioned above the customer needs keep changing, the future is unknown. The customers may be looking in for more frequent inexpensive air travel, something like air taxis, super sonic speed. This decreases the time thus reducing the cost.

The diagrammatical representation of the core and supplementary services in

the airline industry is shown below:

                               

 

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CoreTRANSPOR

T

TICKETS

COMPLEMENTARY GFITS

BRAND NAME (Air India, Jet Airways)

FOOD

CONCESSIONS

CONNECTI

NG FLIGHTS

COMFORT/ SPACE

MULTI-CUISINEAUC-

TION

2) Price Mix

      Price plays as much a tool of marketing as promotion plays a critical role in the market-ing mix. The concept of 'fair price' is paramount. Buyers judge whether a product is fairly priced by seeing whether it represents value for money. Pricing can be classified in three ways. 

DIVISION OF FARES:

The final fares charged to the passengers include the following components:

o Basic fares o Insurance o Inland Aviation Travel Tax (IATT). o Passenger Service Fee (PSF)

   The basic fares include the operating cost incurred by the airlines and the profit margin. The major constituents of the operating cost in respect of domestic airlines in India are the Aviation Turbine Fuel (ATF) the basic raw material for this service industry, varies 30-40 % depending on aircraft utilization; Navigation, Landing & Parking costs 7-10%; Repair and Maintenance 13%, Manpower 12%; Acquisition/ Depreciation & Insurance 13% and balance other expenses. 

Pricing Strategies 

a)Premium Pricing:

       The airlines may set prices above the market price either to reflect the image of quality or the unique status of the product. The product features are not shared by its competitors or the company itself may enjoy a strong reputation that the 'brand image' alone is sufficient to merit a premium price.

b)Value for Money Pricing:

       The intention here is to charge the average price for the product and emphasize that it represents excellent value for money at this price. This enables the airline to achieve good levels of profit on the basis of established reputation.

c)Cheap Value Pricing:

    The objective here is to undercut the competition and price is used to trigger the purchase immediately. Unit profits are low, but overall profits are achieved. Air India and Indian Air-lines have slashed their prices to meet the competition of private airlines so that they can consolidate their position in the market. 

   Airlines usually practice differential pricing. There are three classes: The First Class, The Executive or Business Class and The Economy Class. Fares for each class are different since the facilities provided and the comfort and luxury level is different in each class. Sea-sonal fares are also fixed, fares rise during the peak holiday times. 

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d)Low-cost Pricing:

      With the advent of the low-cost airlines in the Indian aviation industry, a different low-cost flying concept has come up. Since these low-cost airlines are trying to woo the customers by providing air travel in exceptionally low prices, a price-band kind of pricing has to be de-signed. 

      In low-pricing strategies, the airlines provide very low prices for the flight tickets. Also, they prices are made cheaper by booking the tickets long before the flight date. 

e)APEX Fares

In this scheme, people are given very cheap rates only if tickets are booked atleast before the specified time period. But the draw-back here is that if the booking is cancelled, a sub-stantial amount of money is not returned. 

3) Place Mix 

     Marketing-channel distributions are among the most critical decisions facing the manage-ment. The companies chosen channel ultimately affect all the other marketing decisions.

     "Marketing channels are sets of ‘interdependent’ organizations involved in the process of making the service available for consumption".

     Understanding what, where, why, when, and how the target market buy, is the first step in designing the marketing channel. The marketer must understand the service output levels desired by the target market and types and levels of services that the people want and ex-pect when they purchase the service.  

Distribution channels 

The Four methods of distribution are as following:

Consolidation: The direct sale of tickets from airport to the passenger on the airline desk.

Tour Operator/ Travel Agent: Customers approach travel agents or tour operators who book the tickets from the airline and take commission. E.g. SOTC

Affiliated with companies: As the name defines, airlines gets affiliated with compa-nies who carry all its trips with a same airline who in turn gives special discounts or offers in return.

Direct through home leased system, e.g. Phone, fax, email and also online e-booking

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4) Promotion Mix 

     The formulation of an ideal promotion mix is essential to inform sense and persuade the users. In the Indian perspective, we need more creative efforts because the potential users

in a majority of the cases don’t prefer to use air services. The business magnets, executives, politicians, actors, high spending tourists etc are some of the users of the air services. The users appears to be more conscious, aware of their rights and in a majority of the cases are found to be sophisticated and therefore the promotional efforts have to be cre-

ative. Many airlines are facing financial crunch, it is pertinent that they make optimum use of different components of promotions. They are as follows : 

a)Advertising

  Airlines need creative advertisements to promote their business. In the view  of  rising  cost  of  inputs  and  the  increasing  impact  of  worldwide economic  depression  on  the  air-lines,  advertisements  should  be  budget optimistic vis-à-vis optimal. The telecast media and print media are important for promoting the air business.

  The airlines have to make sure that whatever strategic decision they make to  promote  the  businesses  are  in  a  position  to  establish  an  edge  over competitor’s promotional mea-sures. Also the airlines should keep in mind the quality and the nature of the target markets and the level of expectations.

  This is essential to make advertisements proactive for the expansion of business. They are also required to assign due weight age to the efforts made for projection of positive image.

  We can’t deny the fact that both Indian airlines and Air India have been facing image prob-lems. The ads may be efficacious in transmitting the facts and removing the image problem. It is also essential that while advertising airlines should also keep in mind the image of our country, the scenic beauty, tourist attractions, rich cultural heritages or which would attract number of tourists. While advertising it is impact generating that one should select an oppor-tune moment of flight is an  attractive scene of take off, and so on. Airlines can also use broadcast media. The domestic flights should use radios because due to increasing access to FM. 

b)Publicity

  Publicity is an important component of promotion mix. It is a process of persuasive commu-nication. It is very instrumental in  sensitizing the persuasion  process  provided  the  media  people,  public  relations  officers provide their help. Strengthening the PR activities is essen-tial to promote airlines business. The PRO, Receptionist, Travel agents, Media people are very important people in   publicizing  the business. The marketing professionals can seek the cooperation of media people by organizing dinners, meetings, get together, press confer-ence etc, also giving them small gifts and motivating them to publish news items which are in favor of airlines. 

c)Sales promotion

  The sales promotion measures are meant for both the related sources channel sing and us-ing the business, such as the travel agents, tour operators and all of them who process the services and the passengers and business houses who use the services.

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  The travel agents contribute a lot to the promotion of airlines business and therefore the need to think of them in their favor on their priority basis. In addition the tour operators, the frontline staff also must be given priority. Hence they  should be offer some incentives this will motivate them to promote the product. The user also deserves incentives.

The incentives may be in the form of confessional services, a small gift etc.

E.g. EMIs, which allow customers to pay in installments.   d) Judo Tactics

 ‘Easy Jet’

A] GO flight which was supposed to be the media event for BA resulted into a Disaster be-cause ‘easy Jet’ bought 10 tickets of the flight and gave free coupons of easyJet to the 148 passengers.

B] Awareness on the wing of its Rivals: Contest on web offering FREE flight vouchers for guessing how much BA’s GO would lose during the year.   

e) Word of mouth

 ‘Customer Loyalty Ladder’

This happens to be an important constituent of the promotion mix in which the promoters act as a hidden sales force. The satisfied groups of users, opinion leaders narrate outstanding merits or salient features of services used by them.

     If you travel by Air India and are satisfied with the services offered by them then it is natu-ral that you will share your experiences with your friend’s relatives, they trust in you and therefore the stimulation process is on. The moment your friends and relatives get an oppor-tunity to travel they find Air India their first choice.

     Ads may be ineffective, publicity may also be ineffective but word of mouth can never be ineffective   5) People Mix 

  In the service industry, service personnel come in direct contact with their customers in the course of production and consumption of the services.

     Because people provide most services, the selection, training, and motivation of employ-ees can make a huge difference in attaining customer satisfaction. Ideally, employees should exhibit competence, caring attitude, responsiveness,  initiative,  problem  solving  ability,  and  goodwill.  Many service organizations trust their people enough to empower their front-line personnel to resolve customer problems.

     The airhostess in any airline come in contact with the customers in the process of provid-ing the service, while the cock-pit crew are employees who contribute to the service product but do not come in direct contact with the customers.

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     The physical presence and the percentage of time the customer is present  reflect  the  customer  contact  and  extent  of  contact  respectively. Services with high contact are more difficult to control and manage because of the degree of variability in the quality, demand and nature of service.

     The service contact personnel in the airline industry is an airhostess who  is  expected  to  possess  a  pleasing  personality  with  polite  service handling. While on the other hand the cock pit crew, being categorized as a low  contact  personnel,  require  possessing  high  analytical  and  technical attributes. In the airline industry, there is also the ancillary service personnel, the travel agent who helps to create the service exchange but is not a part of the service.

     While delivering services, airlines ensure that the service is delivered as promised and this is often totally with in the control of the front-line staff. This ensures some amount of reli-ability. This in turn affects the degree

Of responsiveness sought from customers. The quality of service that the front-lone staff provides is highly depended on his/her ability to communicate their credibility. Air-lines deliver caring and  individualized attention to customers through their airhostesses. Empathy implies that these personnel will listen, adapt, and be flexible in delivering what in-dividual customers need. Also the appearance of an employee are important aspects as it forms the tangible dimensions of quality along with other factors like service quality, decor etc.

     To start off, airlines hire the right personnel with essential requirements. They recruit the right people and develop, and train them to deliver quality service. These employees are provided with effective and sufficient support systems and are motivated in a manner, they stick to the organization. They are more treated as customers, rather than employees. For example, Delta Airlines recruits an employee, and moulds him to cater to their demands. These employees are sent to places like the US and Frankfurt on a 21 day training pro-gramme. The successful completion of this training motivates the staff to stay on with the air-line. They are provided with offers such as one-month bonus or some incentive, on the achievement of the sales target.   6) Process Mix 

   The process of airline service lays emphasis on  the involvement of channels, front line staff, travel agency offices, offices of the tour operators or so form where the services flow & reach to the ultimate users.

     The  process  begins  at  the  time  of  reservation  goes   on  to  the confirmation  of  seats.  For  e.g.:  Computer  reservation  system  of  Indian Airlines enables any reservation request from anywhere in the world to be auctioned in minutes. The reservation facility is ac-cessible through all-major computerized reservation system of the world.

     By giving details of where to book and how to book airlines help in providing quality ser-vices to the customers. They also offer concession, by not charging any cancellation charges and also giving them the option to make a change in the reservation status if he re-quests so on the presentation of ticket, all these facilities go a long way in increasing pas-senger convenience.

   Then facilities at the airport, the baggage handling, flight information, etc. also helps in de-livering quality service and making travel a pleasure.

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   In the aircraft the meal service, in-flight entertainment, reading material, in-flight amenities, etc. help the customers, the travelers to have an enjoyable and convenient travel.

     All these procedures form a part of the total process designed to deliver quality service. Airlines are making every effort to constantly redefine service procedures to enhance service satisfaction levels.  

7) Physical Mix 

 Physical Evidence refers to the environment in which the service is delivered and where the service industry and customer interact. The aircraft by itself, the seating configuration meant to be comfortable and spacious, and the in-flight food provide physical evidence to the airline service.

     The Boeing Company and The Airbus Industry are the best commercial aircraft makers and almost all airline industries make  use of  one of  these airlines. The seating is such that it is comfortable and there is enough leg space.

   The in-flight food is another, important aspect, a wide selection of meals is  offered  to  the  passengers.  Passengers  are  requested  to  indicate  their reference at the time of reserva-tion itself. Delta Airlines has introduced new sleeper seats with electric controls for reclining lumbar support, leg rest extension, expanded seat back height for a more insulated environ-ment etc. thus providing highly comfortable seating.

Booking offices, ticket counters, etc. must be spacious and well designed with good looks. Further the air crafts must be given good exteriors and must be maintained wel1.

The aircraft must have elegant interiors and must be incorporated with all basic facilities. The aircrafts must have  well designed seats with more leg room especially in the business class.

     Domestic lounges are enhanced with good  interiors and basic amenities which will make it an ideal place to conduct business, entertain or relax. 

     The jet logo prominently displayed on each of its aircrafts, is used a cue to trigger of a re-minder of the customer’s experience at Jet & also of all the values that jet airways stands for.

  The physical evidence would also include the other facilities in the aircraft. Some of the big-ger aircrafts have more than the usual facilities on board. These sort of tangible clues act as identification marks for the airline & help the customer to evaluate on airline from another.  

To provide safe and efficient operations, set industry standards, provide excellent customer service developing a well trained and highly motivated workforce. We aim to revolutionize the way India flies.

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ABOUT KINGFISHERS

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Kingfisher Airlines is India's first and

only private airline to commence operations with a brand new fleet of aircraft. Kingfisher Air-

lines offers Full Service at True Value and promises an unparalleled experience to the Indian

air traveler. For the first time in the Indian skies, Kingfisher Airlines offers world-class in-flight

entertainment with personal video screens for every seat. There’s a wide selection of 5 video

channels and 10 audio channels available on-board. Also on offer are extra-wide seats and

spacious legroom, delicious gourmet meals, international-class cabin crew and a whole host

of comforts and delights. Kingfisher Airlines also facilitates doorstep delivery of tickets on

guest request. Fly the Good Times with Kingfisher Airlines.

SERVICES PROVIDED BY KINGFISHER AIRLINES

In-flight entertainment to take-off with

Personalized screens and headphones broadcasting 5 video channels

and the exclusive Kingfisher Radio – 10 audio channels to make your journey an entertain-

ing experience.

Feeling comfortable, now?

You will, with the seats we’ve got in store for you. Indulgently wide, plenty of legroom and

adjustable headrests. Our superbly groomed flight attendants will ensure that you’re well

taken care of.

Bon appetite

A special selection of food and beverages are available on board.

The little details

The Kingfisher Class experience begins even before you step on board. When you book

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your ticket online in the comfort of your home or office. At spacious terminals. At the conve-

nient self Check-in counters.

OTHER FEATURES OF KINGFISHERS

Information

Customers can avail of information literally at their fingertips today with KINGFISHER starting its own website which gives complete details to the customer & also entertains queries. In case of airline industry, up to date information regarding flight schedules, ticket fares, information about promotion schemes etc available to customers.

It also includes providing information to employees regarding new policies affecting the airline & equipping them with enough information, which the customers might demand. Ex-tensive training is provided to in-flight attendants regarding handling customer queries, knowledge about the airplane itself, knowledge about cuisine etc.

Consultation

KINGFISHER is moving more actively into the role of consultant today. They are doing away with the travel agents & designing & selling packaged tours to consumers directly.

In this aspect they often act as consultants to the customer, by giving him advice & sug-gestions regarding the type of plan he can choose, the benefits he will get the mode of travel he should choose etc.

Another aspect to consultation is when the customer approaches the airline regarding traveling to particular destination, they gives him a variety of choices of routes that he can take.

In some cases also design special menus & benefits in consultation with its frequent fliers by keeping in constant touch with them & asking them for suggestion as to what they want in their airline which will make their experience more comfortable.

Order taking

The order taking procedure is essentially the booking procedure. The important aspect to be noted here is that the procedure is smooth, easily understood & fast. Reservation of air-line tickets is now easy and reliable since it is fully computerized. There are 24 hours reser-vations. Passengers can specify their seat preferences at the time of reservation.

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KINGFISHER uses the telephone, fax, and email methods of booking. The emphasis here is on fast booking & at the same time getting the required information form the cus-tomer. This is done by establishing a standard reservation procedure & format thus reducing the risk of inconsistent service delivery. The online booking system also facilitates better or-der taking & processing.

The scheduling aspect assumes importance as reservations on the wrong flight to the wrong place are likely to be unpopular.

Hospitality & Caretaking

With the increased competition today in the airline industry & the increasing similarity of services offered by each airline, hospitality has emerged as a key-differentiating factor be-tween one airline & the other.

The hospitality aspect of KINGFISHER is tested right form the time of the reservation (courtesy of the booking official) to the airline’s desk at the airport to the actual in-flight travel (the attitude of the flight attendants) to the post flight help extended.

Safekeeping

The safekeeping issue is that of safeguarding the customer’s baggage. Baggage al-lowances are offered about 30 kgs of check-in baggage is allowed. The customers entrust his baggage to KINGFISHER & it is then their responsibility to keep it in a proper condition.

Children and infants usually travel along with their parents and guardian. In case of un-accompanied minors, customer service staff renders all assistance like checking in and es-corting up to the aircraft and handing over to the senior-most cabin attendant on board the flight. He is looked after on board the flight right up to the point flight reaches the destination and he is received by his guardian.

Exceptions

Special requests – They very often receive special requests form customers with regards to meal preferences, special amenities for elderly people or children., medical needs etc. these needs have to considered & acceded to wherever possible.

Billing & payment

The billing procedure is simple. The options available to the customer are plenty includ-ing credit card & travelers Cheques. KINGFISHER use the open account system with their corporate clients. Frequent fliers are also given special payment privileges.

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TYPES OF CUSTOMERS OF KINGFISHER

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Business passengers

They are crucial for KINGFISHER’profitability. With less spare time and more cash in

their pockets, they agree to pay a premium price for a premium service.

Today business passengers account for approximately 48% of passengers, and

these 48% contribute 66% of their revenue. The premium prices they pay provide wider and

more comfortable seats, better choice of meals and seats, luxurious lounges.

KINGFISHER has a multitude of premium services to offer to business travelers.

Some of these extras range from seats equipped with faxes and telephones, to gambling

machines, showers, massage services and suit ironing services in the recently introduced

arrival lounges.

Business passengers believe it is worth extra money if they can save time and arrive

looking fresh for an important meeting. Business passengers will avoid transit flights even if

a longer flight could save them money. But amongst other perks, flexible reservation ser-

vices are probably the most important service being offered to them. Reservations for busi-

ness trips are often made just a couple of days in advance. A no penalty cancellation policy

is also very important to business passengers.

Leisure Travelers / Passengers

They represent a totally different market. The most important consideration for most

of them is the price. The lower the airfare, the more people will fly. By and large, with the ex-

ception of wealthy travelers, this segment don’t not pay extra for premium services and don’t

agree to change several planes during their trip if this option costs less than a direct flight.

Despite lower margins provided by this segment, leisure travelers are very important

to their bottom line. Part of the reason is that technological progress in the area of tele-con-

Aviation Industry 28

TYPES OF CUSTOMERS

BUSSINESS PASSENGERS LEISURE PASSENGERS

ferencing and increased use of the internet for business communications is expected to re-

duce the number of business travelers. Thus, KINGFISHER is counting on the leisure seg-

ment to provide further growth.

PRICE ANALYSIS

Price plays as much a tool of marketing as promotion plays a critical role in the marketing

mix. The concept of 'fair price' is paramount. Buyers judge whether a product is fairly priced

by seeing whether it represents value for money. Pricing can be classified in three ways.

DIVISION OF FARES:

The final fares charged to the passengers include the following components:

Basic fares

Insurance

Inland Aviation Travel Tax (IATT).

Passenger Service Fee (PSF)

The basic fares include the operating cost incurred and the profit margin. The major con-

stituents of the operating cost in respect are the Aviation Turbine Fuel (ATF) the basic raw

material for this service industry, varies 30-40 % depending on aircraft utilization; Navigation,

Landing & Parking costs 7-10%; Repair and Maintenance 13%, Manpower 12%; Acquisition/

Depreciation & Insurance 13% and balance other expenses.

How are fares arrived at?

In capacity (seats) and frequency (flights) between any two points, market research the route

in order to arrive at the total potential for that segment. In other words, the capacity and fre-

quency is tailored to the size of the market. Accordingly, the pricing structure is also arrived

at. Pricing or fare levels are arrived at after taking into consideration various factors; type of

aircraft, configuration of aircraft (number of seats), density of route, competitor activity, and

minimum breakeven cost.

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In order to achieve the breakeven seat factor and thereafter maximize loads, they

embark upon a series of marketing activities. These will vary from a publicity campaign

highlighting various facets of the Product, to sales, service, punctuality, ideal departure and

arrival timings, connections and so on. In short, the entire focus is to increase the yield and

load factor (seat factor). The yield or the bottom line is the income generated from ticket

sales less costs incurred on the route.

Why do fares fall?

When the yield drops or the seat factor falls, there is an immediately alerted to en-

quire into the causes for this. This leads to a fare war wherein the airline either tries to pro-

tect its market share or responds to another airline which tries to increase its own market

share.

VARIOUS PRICING STRATEGIES

Premium Pricing:

KINGFISHER sets prices above the market price either to reflect the image of quality or the

unique status of their product. The product features which are not shared by its competitors.

The company itself enjoy a strong reputation that the 'brand image' alone is sufficient to

merit a premium price.

Value for Money Pricing:

The intention here is to charge the average price for the product and emphasize that it rep-

resents excellent value for money at this price. This enables them to achieve good levels of

profit on the basis of established reputation.

Cheap Value Pricing:

The objective here is to undercut the competition and price is used to trigger the purchase

immediately. Unit profits are low, but overall profits are achieved. KINGFISHER have

slashed their prices to meet the competition of other private airlines so that they can consoli-

date their position in the market.

KINGFISHER usually practice differential pricing. There are three classes: The First Class,

Aviation Industry 30

The Executive or Business Class and The Economy Class. Fares for each class are different

since the facilities provided and the comfort and luxury level is different in each class. Sea-

sonal fares are also fixed, fares rise during the peak holiday times.

Low-cost Pricing:

With the advent of the low-cost airlines in the Indian aviation industry, a different low-cost fly-

ing concept has come up. Since these low-cost airlines are trying to woo the customers by

providing air travel in exceptionally low prices, a price-band kind of pricing has to be de-

signed.

In low-pricing strategies, KINGFISHER provide very low prices for the flight tickets. Also, the

prices are made cheaper by booking the tickets long before the flight date.

APEX Fares:

In this scheme, people are given very cheap rates only if tickets are booked at least before

the specified time period. But the draw-back here is that if the booking is cancelled, a sub-

stantial amount of money is not returned.

ANALYSIS OF TICKET BOOKING PATTERN OF KINGFISHER

IN 2007 AND 2008

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INCREASE AND EXPECTED INCREASE IN THE TWO MAJOR SOURCES OF INCOME OF KINGFISHER

1) INCREASE IN CARGO (MILLION TONNES)

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(DOMESTIC)

INCREASE IN PASSENGER REVENUE (%)

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Thus it is very clear that over the years KINGFISHER has shown a tremendous increase in

its revenue.

COMPARITIVE EARNING OF OTHER AVIATION INDUSTRY IN INDIA AGAINST KING-FISHER IN THE YEAR 2006

(Rs. IN CRORE)

COMPARATIVE EARNING OF KINGFISHER AGAINST OTHER INTERNATIONAL AVAITION INDUSTRY IN THE YEAR 2006

(Rs. IN CRORE)

Aviation Industry 34

For KINGFISHER Mumbai to Dehli sector has been the major source of revenue. It has ac-

counted for 11.3% of its total revenue. It is not only a revenue generating sector but also a

major profit generating sector for kingfisher. Hence they all provided the best facilities like

best seats, best terminals, frequent flights, best scheduled flights between Mumbai and

Dehli. There has been a 70% increase in the number of flights between the two cities

QUARTERLY SCHEDULE OF OPERATING REVENUE OF KINGFISHER

(Rs. IN MILLIONS)

DOMESTIC

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MARKET SHARE OF KINGFISHER AND OTHER AVIATION INDUSTRIES IN INDIA

IN THE YEAR 2008

KINGFISHER V/S JET AIRWAYS

(MALLYA V/S GOYAL)

On October 28, at a ceremony to unveil Air Deccan's new-look aircraft in Mumbai, On Octo-

ber 28, at a ceremony to unveil Air Deccan's new-look aircraft in Mumbai, chairman of

United Breweries group and Kingfisher Airlines, Vijay Mallya, said with characteristic flourish:

"We have given the full service carriers a run for their money. Now, we will give the low cost

carriers a run for theirs."

Though he did not refer to any one airline, it was clear his statement was directed at Jet Air-

ways and Jetlite (formerly Air Sahara). Ever since Mallya launched Kingfisher in May 2005,

making it number one in India has been a foregone conclusion; it's the world's biggest carri-

ers he wants to take on.

Kingfisher's meteoric rise has taken rival and unquestioned number one domestic carrier in

the country, Jet Airways, quite by surprise. Used to competing with only Sahara (never a

worthy opponent anyway), Jet enjoyed several years of unfettered success after it had

trounced Indian Airlines's monopoly and market, becoming India's premier airline since

1993.

This supremacy has now been challenged by a nimble and aggressive Kingfisher which, in

just two years and following Mallya's buyout of Air Deccan, is commanding the same market

Aviation Industry 36

share as Jet Airways and Jetlite.

He may not publicly admit it but Goyal's troubles began soon after Kingfisher took to the

skies. "If Naresh Goyal had a magic wand, he'd probably wish away the last two years. Few

things have gone right for his airline since the second half of 2005," says a close associate

who was on his board but has since resigned.

In Mallya, Goyal appears to have found his first worthy opponent. If Goyal is well connected

and knows how to keep the politicians beaming, Mallya is "not exactly an orphan".

If Goyal has managed to hire professionals and build a brand, Mallya is a past-master at

building brands. And if Jet has never had a problem raising money before, Mallya has group

United Breweries (with a market capitalisation of $5 billion) backing him.

In its initial avatar Kingfisher was aiming to be a low-fare carrier, but soon after its launch

Mallya converted it to premium service, taking Jet head-on. Mallya is spending money like

water (the airline lost Rs 400 crore in the first year) and has left no stone unturned to grab

Jet's market, launching direct advertising campaigns asking Jet fliers to convert to King-

fisher, luring them with miles, better food and a slicker, cooler yet equally efficient option.

Mallya is proving to be "maniacal" about being on time; every delay is examined threadbare

in a much dreaded early morning conference which he conducts over the telephone with his

senior executives, no matter which part of the world he's in.

When Kingfisher started, many in the industry had questioned its survival. "Not only has it

survived," says Kamal Choubey, officer on special duty to civil aviation minister Praful Patel,

"one simply cannot deny that Kingfisher's product is the best in the industry."

There are few who appreciate Jet's subtle, quiet efficiency when it's up against Kingfisher's

flamboyance. Gopal Sarma, CEO of Feedback Ventures, who accumulated 400,000 miles

on Jet Airways' frequent flier service, says he now often chooses Kingfisher simply because

its service on the ground is so superior.

He received a Kingfisher Gold card in the mail and has already accumulated 80,000 miles on

it. "If I call Kingfisher and ask to be put on a flight in two hours, they give me incredible ser-

vice. With the amount I travel, I appreciate things like this," he says.

Aviation Industry 37

Other than the corporate flyer, Kingfisher is trying to attract the young, upwardly mobile In-

dian who aspires to fly Kingfisher simply because he identifies with Mallya and his style

statement of living life king-size. Mallya's passion for his airline (some call it obsession) is

very clears.

In 2006, Jet's initial troubles were compounded by its messy buyout of Air Sahara which

many feel was simply a move to thwart Kingfisher from acquiring it. Against the advice of his

senior colleagues, Goyal offered Rs 2,300 crore (Rs 23 billion) for it, a pretty high price for

the airline.

"It was like a bee in his bonnet. Once he set his mind to it, he refused to back down, even

though everyone warned him it wasn't a great buy," says a senior official who has since left

Jet.

As was widely predicted, Jet's share price reacted adversely and has never recovered to

what it listed at. The company's total market capitalisation following the announcement of the

Sahara deal fell from over Rs 10,000 crore (Rs 100 billion) to Rs 4,558 crore (Rs 45.58 bil-

lion).

The moment the deal was called up, the share price recovered somewhat - a clear indication

of what the market thought of the Sahara buy, but even today it is trading below the price at

which it listed.

At roughly the same time the civil aviation ministry threw open international routes to private

carriers. Jet saw this as a natural extension to its business (and one where it enjoys first-

mover advantage) and ordered new aircraft.

With competition rising and losses deepening (in the first half of 2006-07, it totted up losses

over Rs 100 crore), it needed to raise money and the intention was to do that through foreign

currency convertible bonds (FCCB) of $400 million.

But with the share price languishing in the Rs 600-800 range, Goyal would have been forced

to dilute a larger portion of his equity than he was willing. So, the issue was postponed.

Around the same time as Jet announced its buyout of Sahara, Air Deccan listed. By then

Goyal had seen Air Sahara at close quarters and even he realised it was not worth the

money he'd committed - but withdrawing proved harder than he'd expected.

Aviation Industry 38

"As the court battle with Sahara proceeded, it was far from evident what the final judgment

would be. I think he (Goyal) chose to go in for a known position rather than an uncertain one,

which could be worse," says a Jet official, who was privy to the goings-on.

These events coincided with a bloodbath in fares in the domestic market as Air Deccan cut

prices to take on new competition, and the new competition cut prices to take on Air Deccan.

"All the players - full service or low-fare - were sucked into it, so obviously everyone started

making losses," says Kapil Kaul, CEO of Centre of Asia Pacific Aviation. With losses on do-

mestic operations rising and the launch of international operations - which will pay off only

later - most investment firms and brokerages are maintaining a "reduce" position on Jet

stock.

Says Gautam Roy, aviation analyst with Mumbai-based financial services firm Edelweiss:

"We are not very optimistic on Jet's immediate prospects. It is more a long term story." It has

now been two years since Jet has been trying to raise $400 million through some form or the

other (earlier through an FCCB, now a rights issue) and it's proved more elusive than Goyal

could have imagined.

Although Jet officials say that by end January, they should be able to raise the funds, indus-

try sources say they'll only believe it when they see it.

Kingfisher's chief financial officer, A Raghunathan, argues that this is one of Kingfisher's big

strengths vis-vis Jet. "Obviously, our own balance sheet is not strong enough. The group's

backing is a pillar for us." He says that the airline has got Rs 500 crore (Rs 5 billion) in eq-

uity, loans and guarantees from the group to raise finances.

Jet loyalists are quick to point out that using group funds to get into a sector where you bleed

is not good business sense, and that Jet has raised over $2 billion in the past from interna-

tional loans on its own strength, passing the intense scrutiny of lenders.

Then, during the middle of this year, Mallya made a calculated move, buying out Air Deccan

for what many feel is a "song", to deftly match Jet and Jetlite's marketshare.

So, while Jet's management has been struggling to make sense of what it inherited in the

Sahara deal, Mallya is capitalising on Deccan's advantages and has entered a segment

Aviation Industry 39

that's sure to give returns in India.

What has compounded problems for Jet is its chairman, Goyal's centralised style of function-

ing (according to sources he only trusts board member and confidant Vic Dungca, based in

London), leading to an exodus at the middle and senior management levels over the last two

years.

Often, major decisions exclude top officials, so the joke in Jet is that "whenever anything of

significance happens, senior officials are the last to know"! "To be an able general, you have

to carry your troops with you. That Goyal hasn't been able to do," says a former board mem-

ber of Jet.

With Kingfisher and several other career options coming up, what started off as a steady

trickle has become a virtual flood. Goyal's problems on this front intensified when four senior

executives of the airline resigned together in April 2007, including highly trusted vice presi-

dent for corporate and public affairs, Nandini Verma, who'd spent 20 years with Jet.

The latest who's planning to abandon the Jet stable and jump onto the Kingfisher band-

wagon is Charles Soon, head of airport services, who after being publicly castigated by

Goyal for a flight delay has been in a huff and is looking to quit.

Eight former employees that Business Standard spoke to said that the chairman's style of

functioning "left a lot to be desired". (Executive director Saroj K Datta and chief executive of-

ficer (CEO) Wolfgang Prock-Schauer refused to comment on this, arguing that disgruntled

employees will have grouses.) In contrast, barring erratic timings and odd schedules, United

Breweries group and Kingfisher airline executives don't have many complaints against their

chairman. Several Kingfisher senior officials are old UB hands who have spent 25-30 years

with the group.

However, as Saroj Datta puts it, people come and people go. He says that Jet's attrition rate

has been constant and that in any industry with competition and new opportunities, things

like this will happen.

"We have 10,000 employees. Even if 100 people leave, it's not very significant. We had seen

it and have been well prepared for it," says he. "Yes, people are leaving, but are loads fall-

ing?" asks a Jet source. Like rival Kingfisher, Jet Airways is a one-man show (without

Naresh Goyal or Vijay Mallya, both companies would be rudderless), making it a shared

Aviation Industry 40

weakness.

But unlike Kingfisher, which is yet to build a strong foundation, Jet already has one. It has a

phenomenal network and will expand by 20 aircraft from April 2007 to March 2008 (it now

has 70 aircraft).

According to Wolfgang Prock Schauer, the last two years have been tough for the entire avi-

ation industry in India, not just for his airline, and he doesn't think that the rise of one airline -

with India and its gigantic market - has to necessarily coincide with the fall of another.

"While things may look rosy for Kingfisher right now, Jet has been through and survived

worse," says a former Jet Airways board member, his point being that Mallya should not un-

derestimate Goyal's strengths.

Swot Analysis

Aviation Industry 41

S-STRENGTHS

HUGE BRANDNAME- One of the most important strength of kingfisher is that it has a

huge brand name. The name this company has earned for itself is enough to speak for

it. Customers have trusted this company for years.

REGIONAL CONNECTIVITY- Kingfisher is providing services to almost all part of India.

It is also providing services to many parts outside India.

EFFICIENT STAFF- Kingfisher has one of the best staff in Indian aviation industry. The

most enthusiastic, helpful, caring staff makes passengers feel at home while flying.

CAPITALISATION- Kingfisher is one of the airlines which is capable to bear losses be-

cause of the huge finance support it enjoys.

VISIONOR- kingfisher it backed by the great vision of Vijay Mallay Who can take king-

fisher to the world

THE DECCAN DEAL- - which can gives it market share, a new market segment

W-WEAKNESS

Aviation Industry 42

S W O T

STRENGTHWEAKNESS

OPPORTUNITIES

THREATS

UNDER PENETRATED MARKET- The total passenger traffic was only 50 million

as on 31st Dec 2005 amounting to only 0.05 trips per annum as compared to devel-

oped nations like United States have 2.02 trips per annum.

INDAIN MENTALITY- Most of the Indian people still prefer railway traveling to air-

lines. Hence Kingfisher needs to work hard in this direction to attract more passen-

gers by providing them better services for which it might have to spend more towards

customer welfare.

UNTAPPED CARGO MARKET- Air cargo market has not yet been fully taped in the

Indian markets Hence much of the earning scope is lost.

INFRASTRUCTURE CONSTRAIN- The infrastructure development has not kept

pace with the growth in aviation services sector leading to a bottleneck. There is a

huge investment requirement for physical infrastructure for airports.

EMPLOYEE SHORTAGE- There is clearly a shortage of trained and skilled man-

power in the aviation sector as a consequence of which there is cut-throat competi-

tion for employees which, in turn, is driving wages to unsustainable levels. Moreover,

the industry is unable to retain talented employees.

O-OPPORTUNITIES

EXPECTED INVESTMENT- investment of about US $30 billion will be made.

EXPECTED MARKET- Average growth of aviation sector is about 25%-30% and the

expected market size is projected to grow upto100 million by 2010.

GROWING TOURISM- Due to growth in tourism, there has been an increase in

number of the international and domestic passengers. The estimated growth of do-

mestic passenger segment is at 50% per annum and growth for international passen-

ger segment is 25%

RISISNG INCOMES- Due to the rise in income levels, the disposable income is also

higher which are expected to enhance the number of flyers.

Aviation Industry 43

T-THREATS

INCREASING FUEL PRICE- As fuel prices have climbed, the inverse relationship

between fuel prices and airline stock prices has been demonstrated. Moreover, the

rising fuel prices have led to increase in the air fares.

DECLINING YEILD- LCCs and other entrants together now command a market

share of around 46%. Legacy carriers are being forced to match LCC fares, during a

time of escalating costs. Increasing growth prospects have attracted & are likely to

attract more players, which will lead to more competition. All this has resulted in

lower returns for all operators.

TRUNK ROUTE- It is also a matter of concern that the trunk routes, at present, are

not fully exploited. One of the reasons for inability to realize the full potential of the

trunk routes is the lack of genuine competition. The entry of new players would en-

sure that air fares are brought to realistic levels, as it will lead to better cost and rev-

enue management, increased productivity and better services. This in turn would

stimulate demand and lead to growth.

HIGH INPUT COST- Apart from the above-mentioned factors, the input costs are

also high. Some of the reasons for high input costs are:-

Withholding tax on interest repayments on foreign currency loans for aircraft acquisi-

tion. Increasing manpower costs due to shortage of technical personnel.

RECOMENDATIONS

THUS FROM ALL THE ABOVE ANALYSIS OF I’SERVICES, MARKET STRUCTURE

ANALYSIS, REVENUE ANALYSIS, COMPETITON ANALYSIS, PEST ANALYSIS,

SWOT ANALYSIS WE CAN SAY THAT THE FOLLOWING ARE THE MAIN AREA

WHERE KINGFISHER NEEDS TO CONCENTRATE TO BRING ABOUT MODIFICA-

TION IN ORDER TO ENHANCE ITS BUSINESS, EARNINGS AND GOODWILL.

Due to increasing competition in the aviation industry it is important for KINGFISHER

to increase its working standard to match its competitor’s levels.

It needs to distinguish itself from the rest of its competitor by providing unique ser-

vices- like regional food, entertainment etc.

To meet the needs of passengers and to get additional customers it needs to think

from the customer’s point of view.

It needs to be consistent with its technical services (like booking system, route cho-

sen etc.) so that it does not disturb the passengers.

The technical services like the booking system, the check in timings should be the

most convenient of all other airlines.

Aviation Industry 44

Security is the key factor- the safer the airline the more preferable it is. Security

should be in both the terms that is from external sources like hijackers and also inter-

nal safety like safe landing etc.

They should provide more personalize services to passengers so that need of each

passenger is taken care of.

It should expedite the procedure of its alliance with Jet Airways, so that their flights

are more cost effective in this recession period.

The Airlines should market itself very effectively with the help of big Brand Ambas-

sadors. This will indeed popularize the brand among the masses resulting into more

business.

The Airlines should time and again declare various attractive ticketing schemes along

with gifts and discounts. This would contribute in the revenue of the airlines.

The Airlines should give special privilege and best deals to its regular customers, as

loyalty rewards.

Here are some Recommendations which Jets Airways should implement to meet its

competitors and to increase its market reputation in terms of tangible & intangible value

The efficiency should be such that aren’t any delays or cancellation of flights

which forces customers to turn towards other airlines.

Jet any appoint cabin crew which who can speak the regional language of the

place where the flight is distinct.

One Indian, one regional food option should be provided. They should also take

into consideration those food habits of senior citizens.

The method of booking tickets, the flight timings and the route should remain the

same for as long as possible. (That is that there should not be any frequent

changes.)

they should also start advertising on television, or put up some hoarding during

special offers, give regular up dates in newspapers

They can also have some famous personality as their brand ambassador (like

some movie star or some sports personality etc) to further promote their services

to local public.

Also this will help kingfisher to create a vibrant image and secure the number one

position in the market.

SUMMARISED STUDY OF THE ABOVE THROUGH POWERPOINT SLIDES.

Aviation Industry 45

P.T.O.

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Changing Govt. Pattern About Aviation Industry

Foreign Investment Opportunities

Disinvestment of Govt.

Removal of Entry Exit Barrier

Private Participation

Liberalisation of Taxes & Tariffs

Starting Civil Aviation Policy

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Case Study

Kingfisher

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About Kingfisher

• Launched in May 2005

• Chairman- Mr. Vijay Mallay

• International class crew cabin

• Whole host of comforts and Delights

Features of Kingfisher

Websites Service Provides Up-to-date Information

Provides TravellingConsultancy

Online Ticket BookingHospitality & CaringSafekeeping fo

BaggagesEasy Payment

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Passenger Analysis

• Business Passengers Regular Travelers

Can Afford Premiun Cost

They Believe Money Worth Lies in Saving of Time

They don’t Mind Long Jorunies

• Leisure Passengers Rare Travelers

Prefer Low Cost

They Believe Money Worth Lies in Other Srevices Like Food, Seat etc

They Mind Long Non Stop Jounies

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• Social Analysis

Changing traveling habits

Changing income

Religious customs attached to food etc.

• Technological Analysis

Online booking

Auction of unbookedseats at concessiionalrates

Entertaining compliants.

Price Sturcture

• Premiun Pricing

• Value For Money Pricing

• Cheap Value Pricing

• Low Cost Pricing

• Apex Princing

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Kingfisher v/s Jet Airways

• MallyaBetter condition of

flights as it’s a new entry into this sector

Excellent external financial support

Centralized WorkingDeccan deal might

help securing new market

• GoyalComparatively poor

fight conditions

Dependent on its own balance sheet

Decentralized workingSahara aquisation

helped grabbing themarket.

Has to build professional team.

Mallya’s knowladgeisn’t parallel to Goyal’s

Unable to leverage connection

Has a long build Reputation

Incompetableknowledge of Goyal

ExcellantLobbingservices an ability to laverage connection.

Aviation Industry 52

SWOT Analysis

• Strength

Huge brandname

Regional connectivity

Efficient staff

CapitalisationVisinor

Deccan deal

• Weakness

Under penetrated market

Indian mentality

Untapped CargoMarket

Infrastructure constrain

Employee storage.

• Opportunities

Expected investment

Expected market

Growing tourism

Rising income.

• Threats

Increasing fuel price

Declining yield

Trunk route

High input cost.

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Conclusion- Problem Areas

• Increase working standard to match competitors level

• Provide unique services to distinguish itself form the rest.

• Technical stability is a must.

• Security- extranal and internal safety.

Recommendations 1

RECCOMENDATIONS

Fights should be regular so rhat people don’t turn elsewhere.

Regional language should be used in flights

Flight timings, route etc should be standardized.

Must advertise their airline

Get famous brand ambassador.

Aviation Industry 54

Recommendations 2

Aviation Industry 55

RECOMMENDATIONS

Effective Advertising

Loyalty Rewards to regular customers.

Use of known Brand Ambassadors

Designing attractive Ticketing Schemes.

Get famous brand Ambassadors