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Report on
“Civil Aviation Industry”
Presented to
Prof. Mitesh Jayswal
S.V. Institute of Management, Kadi
Hemchandracharya North Gujarat University, Patan
Semester – IV
In
Master of Business Administration Programme
By
Priyank Shah
Mrunal Vaza
Shruti Velani
Nandha Sachin
Dhimant Vyas
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CHAPTER 1. ROLE OF CIVIL AVIATION IN THE ECONOMY
PREAMBLE
Indian economy is one of the fastest growing in the world. Its GDP growth rate is 7 to 8 % with a GDP of rupees 177000 crore, which is the fourth largest in the world. India, the 12th largest economy in the world possesses a foreign exchange reserve of USD.177.00 billion. The country is fast adapting to industrialization, the speed of which is measured as the second fastest in the world. The major industries of India are automobiles, cement, chemicals, consumer electronics, food processing, machinery, mining, petroleum, pharmaceuticals, steel, transportation equipment, and textiles. In the post liberalization era the country has capitalised on its vast pool of educated, English speaking manpower to become a major power in outsourcing, Information Technology, financial and biomedical technology research, banking & insurance, and real estate development.
HISTORY
The first commercial flight in India was made on February 18, 1911, when a French pilot Monseigneur Piguet flew airmails from Allahabad to Naini, covering a distance of about 10 km in as many minutes.
Tata Services became Tata Airlines and then Air-India and spread its wings as Air-India International. The domestic aviation scene, however, was chaotic. When the American Tenth Air Force in India disposed of its planes at throwaway prices, 11 domestic airlines sprang up, scrambling for traffic that could sustain only two or three. In 1953, the government nationalized the airlines, merged them, and created Indian Airlines. For the next 25 years JRD Tata remained the chairman of Air-India and a director on the board of Indian Airlines. After JRD left, voracious unions mushroomed, spawned on the pork barrel jobs created by politicians. In 1999, A-I had 700 employees per plane; today it has 474 whereas other airlines have 350.
For many years in India air travel was perceived to be an elitist activity. This view arose from the “Maharajah” syndrome where, due to the prohibitive cost of air travel, the only people who could afford it were the rich and powerful.
In recent years, however, this image of Civil Aviation has undergone a change and aviation is now viewed in a different light - as an essential link not only for international travel and trade but also for providing connectivity to different parts of the country. Aviation is, by its very nature, a critical part of the infrastructure of the country and has important ramifications for the development of tourism and trade, the opening up of inaccessible areas of the country and for providing stimulus to business activity and economic growth.
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Until less than a decade ago, all aspects of aviation were firmly controlled by the Government. In the early fifties, all airlines operating in the country were merged into either Indian Airlines or Air India and, by virtue of the Air Corporations Act, 1953; this monopoly was perpetuated for the next forty years. The Directorate General of Civil Aviation controlled every aspect of flying including granting flying licenses, pilots, certifying aircrafts for flight and issuing all rules and procedures governing Indian airports and airspace. Finally, the Airports Authority of India was entrusted with the responsibility of managing all national and international air ports and administering every aspect of air transport operation through the Air Traffic Control. With the opening up of the Indian economy in the early Nineties, aviation saw some important changes. Most importantly, the Air Corporation Act was repealed to end the monopoly of the public sector and private airlines were reintroduced.
Role of Aviation Industry in India GDP
The Role of Aviation Industry in India GDP in the past few years has been phenomenal in all respects. The Aviation Industry in India is the most rapidly growing aviation sector of the world. With the rise in the economy of the country and followed by the liberalization in the aviation sector, the Aviation Industry in India went through a complete transformation in the recent period.
With the entry of the private operators in this sector and the huge cut in air prices, air travel in India were popularized.
On February 18, 1911, the first commercial flight was made from Allahabad to Naini by a French pilot named Monseigneur Pigue
Role of Aviation Industry in India GDP-Growth Factors
The growth in the Indian economy has increased the Gross Domestic Product above 8% and this high growth rate will be sustained for a good number of years
Air traffic has grown enormously and expected to have a growth which would be above 25% in the travel segment
In the present scenario around 12 domestic airlines and above 60 international airlines are operating in India
With the growth in the economy and stability of the country India has become one of the preferred locations for the trade and commerce activities
The growth of airlines traffic in Aviation Industry in India is almost four times above international average
Aviation Industry in India have placed the biggest order for aircrafts globally
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Aviation Industry in India holds around 69% of the total share of the airlines traffic in the region of South Asia
Role of Aviation Industry in India GDP-Future Challenges
Initializing privatization in the airport activities Modernization of the airlines fleet to handle the pressure of competition in
the aviation industry
Rapid expansion plans for the major airports for the increased flow of air traffic
Immense development for the growing Regional Airports
Role of Aviation Industry in India GDP-FDI Policy
The Reserve Bank of India (RBI) announced that foreign institutional investors might have shareholdings more than the limited 49% in the domestic sector.
Airports Foreign equity up to 100% is allowed by the means of automatic
approvals pertaining to establishment of Greenfield airports
Foreign equity up to 74% is allowed by the means of automatic approvals pertaining to the existing airports
Foreign equity up to 100% is allowed by the means of special permission from Foreign Investment Promotion Board, Ministry of Finance, pertaining to the existing airports
REASONS FOR BOOM IN AVIATION INDUSTRY
1. Foreign equity allowed: Foreign equity up to 49 per cent and NRI (Non-Resident Indian) investment up to 100 per cent is permissible in domestic airlines without any government approval. However, the government policy bars foreign airlines from taking a stake in a domestic airline company.
2. Low entry barriers: Nowadays, venture capital of $10 million or less is enough to launch an airline. Private airlines are known to hire foreign pilots, get expatriates or retired personnel from the Air Force or PSU airlines in senior management positions. Further, they outsource such functions as ground handling, check-in, reservation, aircraft maintenance, catering, training, revenue accounting, IT infrastructure, loyalty and programme management. Airlines are known to take on contract employees such as cabin crew, ticketing and check-in agents.
3. Attraction of foreign shores: Jet and Sahara have gone international by starting operations, first to SAARC countries, and then to South-East Asia, the
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UK, and the US. After five years of domestic operations, many domestic airlines too will be entitled to fly overseas by using unutilised bilateral entitlements to Indian carriers.
4. Rising income levels and demographic profile: Though India's GDP (per capita) at $3,100 is still very low as compared to the developed country standards, India is shining, at least in metro cities and urban centres, where IT and BPO industries have made the young generation prosperous. Demographically, India has the highest percentage of people in age group of 20-50 among its 50 \million strong middle class, with high earning potential. All this contributes for the boost in domestic air travel, particularly from a low base of 18 million passengers.
5.Untapped potential of India's tourism: Currently India attracts 3.2 million tourists very year, while China gets 10 times the number. Tourist arrivals in India are expected to grow exponentially, especially due to the open sky policy between India and the SAARC countries and the increase in bilateral entitlements with European countries, and US.
6.Glamor of the airlines: No industry other than film-making industry is as glamorous as the airlines. Airline tycoons from the last century, like J. R. D. Tata and Howard Hughes, and Sir Richard Branson and Dr. Vijaya Mallya today, have been idolized. Airlines have an aura of glamour around them, and high net worth individuals can always toy with the idea of owning an airline. All the above
Overview
Air Traffic: The Airport Authority of India (AAI) manages total 122 Airports in the country, which include 11 International Airports, 94 domestic airports and 28 civil enclaves. Top 5 airports in the country handle 70% of the passenger traffic of which Delhi and Mumbai together alone account for 50%. Passenger and cargo traffic has growth at an average of about 9% over the last 10 years.
Growth: Estimated domestic passenger segment growth is at 12% per annum. Anticipated growth for International passenger segment is 7% while the growth for International Cargo is likely to grow at a healthy rate of 12%.
Privatization: Privatization of International Airports is in offing through Joint Venture route. Three Greenfield airports are getting developed at Kochi, Hyderabad and Bangalore with major shareholding of private sector. The work on Bangalore airport is likely to commence shortly. Few selected non-metro airports are likely to be privatized.100% foreign equity has also been allowed in construction and maintenance of airports with selective approval from Foreign Investment Promotion Board.
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Air movements: The total aircraft movements handled in October 2003 has shown an increase of 15.4 percent as compared to the aircraft movement handled in October 2002. The international and domestic aircraft movements increased by 15.4 percent each during the period under review. The reason for increase in aircraft movements is due to increase of operation of smaller aircraft by airlines and the introduction of new airlines viz., Air Deccan in southern region and international airlines (Air Canada, Polar Air Cargo, Qatar Airways (Freighter), Turkish Airways, Air Slovakia at IGI Airport with effect from October 2003.
Passenger Traffic: International and Domestic passenger traffic handled in October 2003 has increased by 15.4 percent and 6.7 percent over the period of October 2002 leading to an overall increase of 9.4 percent. The total passenger increased by 9.2 percent, 7.6 percent, 8.9 percent and 17.0 percent respectively at five international airports six developing international airports, eight custom airports and 26 Domestic airports.
Cargo Traffic: The total cargo traffic handled in October 2003 has shown an increase of 3.5 percent as compared to the cargo handled in October 202. The international and domestic cargo traffic increased by 4.3 percent and 2.1 percent respectively during the period.
During the month of October 2003, 5346 thousand aircraft movements (excludes defence & other non-commercial movements), 40.33 lakh passengers and 88.59 thousand tones of cargo were handled at all the airports taken together.
OPEN SKIES POLICY
Need for Open Skies Policy
A recurring demand often voiced by interested parties is that, in order to promote Travel & Tourism, India should adopt an Open Skies policy. It is argued that the current policy restricts the access of foreign airlines. As a result potential tourists are not offered a choice of airlines or seats when travelling to India. This problem is exacerbated during the holiday season when it is difficult, if not impossible, to get a seat either into the country or out of it. It is argued, therefore, that India should adopt an Open Skies approach to any foreign carrier wanting to fly into India, which literally means allowing them unlimited service, capacity and points of call.
Meaning of ‘Open Skies’
At the outset we must point out that the concept of 'Open Skies' is much misunderstood in its meaning and implications. Strictly speaking Open Skies means unrestricted access by any carrier into the sovereign territory of a country without any written agreement specifying capacity, ports of call or schedule of services. In other words an Open Skies policy would allow the foreign airline of
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any country or ownership to land at any port on any number of occasions and with unlimited seat capacity. There would be no restriction on the type of aircraft used, no demand for certification, no regularity of service and no need to specify at which airports they would land. Defined in this manner, it is not surprising that Open Skies policies are adopted only by a handful of countries, most commonly those that have no national carriers of their own and that have only one or two airports. No sovereign country of any eminence practices Open Skies least of all the European Union, UK, USA, Japan, Australia or countries in South East Asia.
Bilateral Treaties
However, almost 99 per cent of Members of the International Civil Aviation Organization (ICAO) follow the system of negotiated bilateral treaties determining the aviation relations between two sovereign Contracting parties. In fact, the bilateral aviation regime is considered the fundamental basis for a disciplined and regulated aviation system between the nations of the world. It provides not only regularity of operations through scheduled services but also stipulates the basis of ownership, number of seats to be utilized, type and certification of aircraft and visiting ports of call. The Bilateral Agreements also protect the different kinds of aviation Freedoms granted to contracting parties by specifying the reciprocal rights to be enjoyed by each.
Indian Bilateral Treaties
India has signed over 180 Bilateral Agreements with different countries. In 2002 the total number of seats available was 38.09 million. Of this, the capacity operated was approximately 19.174 million seats. Since the average size of traffic to and from the country is slightly in excess of approximately 14 million passengers, normally the contracted rights should suffice the traffic demand.
Utilization of Bilateral Treaty Contracts
It is in the actual utilization of the contracted seats that the problem arises. Of the contracted amount, 50 per cent are to be utilized by the national carrier and 50 per cent by the airline owned by the contracting country. However, whilst the foreign carriers are in a position to use over 70 per cent of their entitlement, the national carrier is only able to utilize 29.4 per cent of their share. It is this shortfall that creates pressure on seats, particularly during peak tourism national carriers do not have sufficient aircrafts to be able to utilize the bilateral rights available to the country and enter into commercial and code sharing arrangements to maximize revenue. Whilst this does improve their profitability in the short run, it has a long-term adverse effect in that it deprives the country of much needed air bridges to bring in tourists and carry trade.
Under the present bilateral system, the utilization of the traffic rights on international routes to and from India, as negotiated by the Government of India,
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is restricted to the two Government owned 'national' carriers - namely Air India and Indian Airlines and either or both these carriers are the Indian designated carriers under the various Air services Agreements. The Operating Permits restrict the privately owned carriers, such as Jet Airways and Air Sahara, to operate only domestic routes within India.
Civil Aviation Policy in India
In the context of a multiplicity of airlines, airport operators (including private sector), and the possibility of oligopolistic practices, there is a need for an autonomous regulatory authority which could work as a watchdog, as well as a facilitator for the sector, prescribe and enforce minimum standards for all agencies, settle disputes with regard to abuse of monopoly and ensure level playing field for all agencies. The CAA was commissioned to maintain a competitive civil aviation environment which ensures safety and security in accordance with international standards, promotes efficient, cost-effective and orderly growth of air transport and contributes to social and economic development of the country.
Objectives of Civil Aviation Ministry
To ensure aviation safety, security Effective regulation of air transport in the country in the liberalize
environment Safe, efficient, reliable and widespread quality air transport services are
provided at reasonable prices Flexibility to adapt to changing needs and circumstances To provide all players a level-playing field Encourage Private participation Encourage Trade, tourism and overall economic activity and growth Security of civil aviation operations is ensured through appropriate
systems, policies, and practices Private Sector Participation and the Civil Aviation Policy
Private sector participation will be a major thrust area in the civil aviation sector for promoting investment, improving quality and efficiency and increasing competition.
Competitive regulatory framework with minimal controls encourages entry and operation of private airlines/ airports.
Encouragement of private sector investment in the construction, upgradation and operation of new and existing airports including cargo related infrastructure.
Rationalization of various charges and price of ATF/AVGas will be undertaken to render operation of smaller aircraft viable so as to
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encourage major investment in feeder and regional air services by the private sector.
Training Institutes for pilots, flight engineers, maintenance personnel, air-traffic controller, and security will be encouraged in private sector.
Private sector investment in non-aeronautical activities like shopping complex, golf course, Entertainment Park, aero-sports etc. near airports will be encouraged to increase revenue, improve viability of airports and to promote tourism. CAA will ensure that this is not at the cost of primary aeronautical functions, and is consistent with the security requirements.
Government will gradually reduce its equity in PSUs in the sector. Government will encourage employee participation through issue of
shares and ESOP
Security
Strict national civil aviation security programme to safeguard civil aviation operations against acts of unlawful interference have to be established through regulations, practices and procedures, which take account of the safety, regularity and efficiency of flights. A good safety record is a judgment of past performance but does not guarantee the future, although it is a useful indicator. While pilot error is said to be on the decline, factors of fatigue, weather, congestion and automated systems have complicated safety. Airline operators, pilots, mechanics, flight attendants, government regulators and makers all have a stake in making aviation as safe as possible. The International Air Transport Association (IATA), the International Civil Aviation Organization (ICAO), manufacturers and others bodies cooperate in this aim. As world air traffic is expected to double or more by 2020, the accident rate must be reduced in order to avoid major accidents occurring more frequently around the globe.
Maintenance
Private sector participation is encouraged in existing maintenance infrastructure of Indian Airlines and Air India like Jet Engine Overhaul Complex (JEOC) and new maintenance facilities including engine overhaul and repairs with up to 100 % foreign equity.
Indian Airlines has major maintenance facilities for all the types of aircraft in IAL fleet i.e. Airbus-300, Airbus-320, Boeing-737 and Dornier-228. The Engineering Department is responsible for maintenance of aircraft and is answerable to Director General of Civil Aviation (DGCA) in maintaining the Quality Control. The Maintenance of the aircraft is carried out at four major bases located at Delhi, Mumbai, Calcutta and Hyderabad.
Sahara also has its own NDT Shops, wheels and brake assembly shop, battery charging shop, avionics shop and seat repair shop. It is the only private domestic
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airline to have its own hangar for aircraft maintenance. It is also the only private domestic airline to have self maintenance capability.
Air Deccan, Bangalore-based airline, has decided to set up its engineering and maintenance facility for Airbus-320 operations, basing two of a fleet of 11 Airbus jets here. They have also sought land from the Airports Authority of India to build an exclusive hangar to carry out 300 and 500-hour checks, apart from C-Checks and line maintenance.
AIRPORT INFRASTRUCTURE
In India, airports were totally owned and managed by central government or the armed forces. The Airport Authority of India (AAI), a body functioning under the Ministry of Civil Aviation was responsible for managing the airports in India. It owns 122 airports, 61 of which are operational. The breakdown is as follows:
11 international 94 civil and
27 civil enclaves at defence airfields.
The AAI operate most aspects of the airport (including air traffic control) and procure most of their equipment directly (via global/local tenders). India’s airports handle 42 million passengers, of which the four Metro gateway airports (Delhi, Mumbai, Kolkata and Chennai) account for 47% of revenue and 66% of the passengers.
Until 2000, there were five major international airports, - Mumbai, Kolkata, Delhi, Chennai and Trivandrum. But the GoI announced a further six airports including Amritsar, Bangalore, Hyderabad, Cochin during the course of 2002.
According to projections, Indian air passenger traffic was estimated to grow to 100 million passengers by 2012 from 36.98 million in 1998-99. Growth projections in the cargo front were also promising. Airport infrastructure is linked to development of India's international competitiveness and her ability to attract foreign investments. The policy opened the doors of private investment in this sector, including investments from foreign airport authorities.
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FOREIGN EQUITY PARTICIPATION
The three-member enquiry committee, led by former petroleum secretary T S Vijayaraghavan, has suggested that 100 per cent foreign investment, including by foreign airlines, should be allowed in non-scheduled services such as chartered aircraft and helicopter operations.
As of now, foreign airlines are not permitted to pick up equity directly or indirectly in domestic air companies. Foreign equity upto 40% and NRI/OCB investment upto 100% is permissible in the domestic air transport services.
Under the current policy, if a foreign airline operates in India the responsibility to ensure safety of the aircraft vests with the country in which it is registered and is outside the purview of the Director General of Civil Aviation (DGCA). "Such an operation is termed `cabotage' and is not permitted anywhere," the report said.
Indian operators can, however, lease aircraft from foreign companies, but the government only permits "dry-lease," which requires the aircraft to be registered in India and certified by the DGCA as airworthy. Wet lease with foreign registration and crew is only allowed in exceptional circumstances.
The US National Commission to Ensure a Strong and Competitive Airline Industry (1993) envisaged the long-term development of more liberal cross border airlines investment. However, as a short-term measure it advocated ‘expanded access to international capital markets by allowing larger investments from foreign investors under the current bilateral system’. It also proposed that foreign investors be able to hold up to 49 per cent of the voting equity in US airlines, up from the then (and still current) limit of 25 per cent.
Any increase in the cost of equity capital flows through to the choice of debt versus equity and thereby distorts capital structures. Airlines should have flexibility in financing their operations and developing their corporate structures. The existence of a cap on foreign ownership limits this flexibility.
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CHAPTER 2. PASSENGER AIRLINES – MAJOR PLAYERS
MARKET SHARE CONCENTRATION
Indian domestic Market Share(%)
22.724.2
14.719.2
14.6
18.614.5
10.610.38.110.35
7.18.1
4.44.7
1.31.5
0
20
40
60
80
100
120
1Q07 1Q08
Paramount
GoAir
Jetlife
IndiGo
Spicejet
Kingfisher
Deccan
Air India
JetAirways
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Market Share
27%
18%
17%
13%
12%
8%3% 2% Kingfisher
Jet Airways
Air India
Indigo
Spice
Jetlight
Go Air
Paramount
Source: Economic Times, Saturday 28th March, Pg no. 12
Today, Airline Indigo is one of the low cost airlines and its market share is 13%. And kingfisher is the market leader with 27% market share.
MARKET STRUCTURE
The aviation industry in India, especially with regard to passenger airlines, follows a strictly oligopoly-type structure with the characteristics. (1) an industry dominated by a small number of large firms (see market shares, below) (2) firms sell either identical or differentiated products (the only differentiation here being in service quality and frills offered) , and (3) the industry has significant barriers to entry (which holds true both with respect to regulations and huge capital investment required).
Indian Aviation Market – A differentiated Oligopoly
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Each seller in an imperfectly competitive market faces a negatively sloped demand curve for his product, permitting him some control of the price of his product. In an oligopoly, a few firms produce the same product, while in monopolistic competition, many firms produce differentiated but similar products. In a differentiated oligopoly, a few firms produce products different enough for each firm to have its own downward sloping demand curve. As with a perfectly competitive firm or a monopoly, the differentiated oligopoly firm produces at a profit maximizing level of output where marginal cost equals marginal revenue. The firm finds the price it will charge customers at the profit maximizing level of output (Qm) from the demand curve, and sets price to Pm. As we can see, the firm is earning economic profits since price exceeds average total cost at the profit maximizing level of output.
SERVICE V/S PRICE GRAPH
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1. INDIAN AIRLINES
Indian Airlines was founded in 1953. Today, together with its fully owned subsidiary Alliance Air, it is one of the largest regional airline systems in Asia with a fleet of 62 aircraft(4 wide bodied Airbus A300s, 41 fly-by-wire Airbus A320s, 11 Boeing 737s, 2 Dornier D-228 aircraft and 4 ATR-42).
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It has many firsts to its credit, including introduction of the wide-bodied A300 aircraft on the domestic network, the fly-by-wire A320, Domestic Shuttle Service, Walk-in Flights and Flexi-fares.
The airlines network spans from Kuwait in the west to Singapore in the East and covers 75 destinations - 57 within India and 20 abroad. The Indian Airlines international network covers Kuwait, Oman, UAE, Qatar and Bahrain in West Asia, Thailand, Singapore, Yangon and Malaysia in South East Asia and Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and Maldives in the South Asian sub-continent.
Indian Airlines is presently fully owned by the Government of India and has total staff strength of around 18562 employees. Its annual turnover, together with that of its subsidiary Alliance Air, is well over Rs.4000 crores (around US$ 1 billion).
Indian Airlines flight operations centre around its four main hubs- the main metro cities of Delhi, Mumbai, Calcutta and Chennai. Together with its subsidiary Alliance Air, Indian Airlines carries a total of over 7.5 million passengers annually.
2. AIR SAHARA
Air Sahara has established itself as one of the leading players in the Indian Aviation industry. Air Sahara is part of the multi-crore Sahara India Pariwar. Sahara India Pariwar has interests in Public Deposit Mobilization, Media & Entertainment, Housing & Infrastructure, Tourism, Consumer Products and Information Technology. Starting on a modest scale and a capital of only Rs.2000 in 1978, Sahara India Pariwar has traversed a long way to become an icon in Indian entrepreneurship.
Air Sahara began operations on December 3, 1993 following the Indian government's decision to open the skies to the private sector. It operated with a fleet of only two Boeing 737-200s. Today, its fleet includes advanced aviation technology New Generation Boeings 737-700s and 737-800s and Classics 737-400s and a fleet of 7 Canadair Regional Jets. The fleet also includes four highly advanced Helicopters (Dauphin and Ecureuil), which provide efficient charter services. Offering 119 flights with 11800 seats on a daily basis, Air Sahara flies to various destinations in India, which include important cities like Delhi, Bangalore, Mumbai, Kolkata, Lucknow, Hyderabad, Pune, Chennai and others. The airline has recently added Colombo, Srinagar, Coimbatore, Ahmedabad, Jaipur, Gorakhpur, Allahabad, Bhubaneshwar, Ranchi and Kochi to its route network. Air Sahara also operates flights to Dibrugarh, Guwahati, Varanasi, Patna and Goa.
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The airline is currently undergoing a complete overhaul and restructuring exercise. Air Sahara has redefined itself in terms of an efficient and punctual airline with a high record of on-time-performance and dispatch reliability. Efforts are being made to increase connectivity and offer convenient timings.
A major investment programme has been launched for the modernization and enhancement of its fleet. Fleet review and route rationalization have become the focus points of Air Sahara's strategy. Five new Boeings have been added to the fleet in the last one year. These were used to add new destinations and increase frequency on existing routes. In the second phase of its expansion four Canadair Regional Jets have been added to the fleet this year serve on regional routes.
Air Sahara has introduced initiatives such as Steal-a-seat flexi fare options, Sixer/Super Sixer and Square Drive/Super Four. The Sixer initiative recently won the 'The Pacific Asia Travel Association' (PATA) award for the year 2003, at Bali, Indonesia.
Air Sahara's frequent flyer programme called Cosmos offers faster accruals, lower redemption bars and requires no minimum balance for redemption.
3. JET AIRWAYS
In May 1974, Naresh Goyal founded Jetair (Private) Limited with the objective of providing Sales and Marketing representation to foreign airlines in India.
In 1991, as part of the ongoing diversification programme of his business activities, Naresh Goyal took advantage of the opening of the Indian economy and the enunciation of the Open Skies Policy by the Government of India, to set up Jet Airways (India) Private Limited, for the operation of scheduled air services on domestic sectors in India.
Jet Airways has emerged as India's largest private domestic airline and has been acclaimed by frequent travellers as the most preferred carrier offering the highest quality of comfort, courtesy and standards of in flight and ground service and reliability of operations. It currently has a market share of 46.7% per cent and operates a fleet of Boeing and ATR72-500 turbo-prop aircraft.
Jet Airways has been voted India's 'Best Domestic Airline' consecutively and won several national and international awards, including the 'Market Development Award' for 2001 awarded by Air Transport World.
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Vision:
“Best Airline in the world.”
Mission:
Jet Airways going to upgrade the concept of domestic airline travel to that of a LI world-class airline.
4. AIR DECCAN
Air Deccan is a unit of Deccan Aviation Private Limited, India's largest private heli-charter company. Formed in 1995, Deccan Aviation Private Limited has carved a niche for itself in the Indian aviation scene with its reputation for providing speedy and reliable heli-services for company charters, tourism, medical evacuation, off-shore logistics and a host of other services.
Vision:
Empower every Indian to fly
Mission:
To demystify air travel in India by providing reliable, low cost and safe travel to the common man by constantly driving down the air fares as an ongoing mission.
The company has a modern fleet of ATR-42-320 aircraft, one of the finest and most efficient Turbo-Prop aircraft flying. ATR is a European joint venture between Alenia Aeronautica and EADS. The ATR 42 has become a reference aircraft amongst airlines around the world, by offering a safe, easy to maintain and comfortable aircraft operating on the regional market with the best economics on short haul sectors. To date, ATR has sold over 650 aircraft to more than 100 operators in 73 countries all around the world.
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The company has adopted a 'lean-and-mean' approach to staffing and aims at maintaining a low aircraft-to-employee ratio. A good work culture coupled with a skilled workforce is the backbone of the company.
5. SPICEJET:
Vision:
To ensure that flying is no longer only for CEOs and business travelers, but for everyone.
Mission :
To become India’s preferred low-cost airline, delivering the lowest air fares with the highest consumer value, to price sensitive consumers
SpiceJet is the second largest low-cost airline in India.The company was originally promoted by the SK Modi Group under the name ModiLuft. It was acquired by Royal Holding Services (Kansagra family) in 2000 and restarted operations in May 2005. SpiceJet flies a single aircraft type fleet (Boeing 737), which allows for greater efficiency in maintenance, and supports its low-cost structure. Currently, it has a fleet of 14 Boeing 737-800 aircrafts in single-class configuration with 189 seats. It flies to 15 destinations, and plans to include two more by next month. The airline’s new fleet of aircraft is backed by cuttingedge technology, and infrastructure. It has maintenance support from KLM and state-of-the-art technology from world leaders like Star Navigation, Russel Adams and Tech Log. SpiceJet has a partnership with Navitaire, the world’s renowned low-cost support system for reservations and revenue management for providing ebooking and e-ticketing services.
SpiceJet is one of the focussed low-cost carriers (LCC) in India. We believe the airline is best positioned to breakeven given its low costs and improving yields in a changing industry scenario. It plans to ramp up its fleet size, a move that would help it manage costs more effectively. We initiate coverage on the company with an OUTPERFORMER rating.
6. AIR ONE
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The AIR ONE airline is a low cost airline with four Boeing 737 planes at an investment of $300million. AIR ONE believes in dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, sense of warmth, and Company Spirit with returns to the shareholders.
Mission :
The mission of Air one is dedication to the highest quality of Customer Service
delivered with a sense of warmth, friendliness, individual pride, and Company Spirit with returns to the shareholders.
Goals
Financial Goals
To have a public stock offering by the year 2010 To Obtain return on equity at least between 15-20% To be among top three aviation companies in market revenue in
nearly four years
Non Financial Goals
Customer satisfaction to maximum To come up with new service time to time
AIR ONE PRINCIPLE
Simple product — which means no free meals, economy seating, online reservations, no frequent flier programmes
Positioning — targeting business and price- —conscious passengers
Low operating costs Low operating costs.
COST STRUCTURE OF FULL SERVICE ARLINE AND LOW COST AIRLINE
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Airfares in India are among the highest in the world. For instance, a typical Delhi-Bangalore round trip costs Rs 18,000 - the same as it would from Delhi to Singapore.
Opportunities for Airlines
DOMESTIC AIR PASSENGER INCREASING (IN MILLIONS)
Domestic passenger traffic, which increased at a cagr of 4% over fy97-04, has moved into high growth trajectory with a 30% cagr during fy04-07. we expect a 26% cagr in demand for domestic air travel over the next 5 years.
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AIRPORT DEVELOPMENT PROGRAMME
The anticipated investment in airport development during the 11th Five Year Plan (2007-11) is over Rs 40,000 crore.
INCREASE IN USE FOR LEISURE
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CHAPTER 3. CHARACTEISTICS OF BUYER
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STUDY OF CONSUMER DEMAND IN THE INDUSTRY
The Potential Market
While formulating the national strategy one must remember a few aspects of Indian Passenger Aviation Market -
a. Potentially, India is a very large corporate and luxury travel market.
b. Potentially, it is also a very large low-fare market.
c. India also has largely blocked but significant markets in the north in China.
d. India, unlike other major travel hubs in the region, is an original market both for originating and turnaround traffic.
e. India is also a potential transit hub in more than one direction.
In Aviation circles India has become Asia's hot growth market and in the words of SIA CEO it is, along with China, one of the two "locomotives" for growth in the continent. Thus to enter in to an open skies agreement when India has nothing more to offer than land for airports and the so called cheap blue and white collar labour will tantamount to accepting a second class economic citizenship in the comity of nations.
GROWING THE MARKET
Airbus Industries Research shows that there is a cut-off point beyond which the preferred mode of travel changes. Thus small distance journeys are convenient by road while longer journeys are preferred by rail and air. The data should actually be viewed in terms of time involved rather than the distance since technological development in any field can impact the time taken for same travel. As has already happened in Europe, high speed trains have reduced the need for short haul services while the multi-lane smooth highways have similarly increased the distance up to which one can comfortably travel by road.
While data for similar preference change in the mode of travel is not available for India, some assumptions are possible. It can, for example, be safely assumed that in the current Indian context bus journeys of say up to 4-5 hours duration are quite easeful even though often stretched up to 10 hours and sometimes even overnight due to non-availability and/or inadequacy of train services.
To a business traveller, overnight journeys by train are quite comfortable although given the economic situation even 24 hour journeys are quite acceptable. Beyond that, given the distances within the country any one would prefer to hop on a flight provided it is offered as an alternate travel service and
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not something only for the corporate world. For this to succeed, the low cost travel will have to be both with predictable pricing and longevity of offer beyond the gimmickry of attention getting news. This is the only way to enlarge the pie and aim at strata beneath the upper crust.
Other substitutes
The issue of affordability of domestic air travel has been well addressed in the Naresh Chandra Committee Report on Aviation. While the goal of affordability is absolutely well placed, the assumption that the lowering of tariffs, taxes and charges alone; for fuel, landing or travel, is the answer that needs careful examination. Even if these charges constitute a significant part of the fare, they need to be evaluated in the context of competition and monopoly. At home, considering road and rail as the competition, the charges for fuel should be viewed as a similar cost composition for all modes of travel. To reduce fuel charges for any one sector while enhancing or retaining them at the same level for the others will distort the field. This, particularly when airlines have, and can have, the freedom of picking up fuel from other competing nations. Fuel charges at home, therefore, should be viewed as a part of the overall petroleum pricing policy. This is important since petroleum, as fuel is common to many industry groups apart from being a raw material for some. Incidentally, how much of what product is extracted from the available crude is as much a matter of choice as is it a matter of the quality of crude.
Low-fare Airlines
Despite reports of low budget airlines loosing their momentum due largely to the incumbent firms’ crushing the competition with even lower fares whenever a low cost upstart invaded its market, low-fare will always remain the basic market. This is amply proven by the success of Southwest in the US and Ryanair and Easyjet in Europe.
To any buyer of service or goods, price and quality are always two key considerations. No doubt there is a class of air passengers who will only look at the bonuses, be that in the form of Frequent Flyer Miles during peak season or extra cushioning of the seat. These are generally the corporate travellers where someone else is footing the bill. There is also an occasional traveller who, being in distress will not look at the price during emergency. While the corporate travellers are a distinct segment and will be serviced fully, obviously civil aviation will have to look beyond them if it hopes to expand the market. In the US, the low fare airlines have almost a 30% share of the entire passenger aviation and in the recent past Southwest, the leading Low-fare US airlines has outperformed even the largest US airlines in passenger kilometres.
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Latest news reports indicate that the low cost airlines are the price leaders now. Recently, Southwest Airlines initiated a round of fare cuts and the bigger airlines had to respond.
CONSUMER PERCEPTION
There is an one survey in order to find the consumer perception about airlines. The following results have been culled out from the survey of 116 individuals. The sampling method was a mix of purposive and stratified random sampling and attempted to duplicate the general consumer profiles of the population (as based on preliminary secondary data). The age group of the sample was between 18 and 58, across gender, location, and socio-economic class (mapped on education and occupation, with a majority of the sample in SEC A and B+).
The region-wise spilt up of the sample is as follows:
The areas covered in the survey are -
1. Brand Awareness2. Airlines usage –
a. Frequency
b. Brands
c. Purpose
d. Circuits
e. Class
3. Factors affecting consumer perception
4. Promotional Scheme Preferences
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5. Brand parameter preferences
6. Circuits flown
BRAND AWARENESS STUDY
Indian Airlines ranks number one in brand awareness. This could be attributed to its long stay in the market and continued support from the government. Today, Indian Airlines has become synonymous with reliability and efficiency. Jet Airways is offering stiff competition and ranks second in the list. Sahara is providing value-add services and is following closely. The concept of a low-cost, no-frills airline is being merged into having high quality, low-cost carriers. Air Deccan, following the low-cost airlines model, being a relatively new entrant in the market, comes in lowest currently on brand awareness.
Usage of Airlines
Indian Airlines, mostly used by government employees, recorded the highest usage followed by Jet Airways. Although most consumers rated Jet Airways high on price, it still ranks second in usage and this could be attributed to its excellent service and promotion schemes. Similar data for the entire population reflects a higher usage of Jet Airways than IA, and a lower usage of Sahara, which is a possible implication of the sample location being concentrated in almost equal proportion in Lucknow (which has a higher price sensitive population) as other major metros.
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Frequency of Usage
As indicated in the graph below, a majority the population flies relatively infrequently (as compared to the developed markets). Passengers travelling on business were found to be more frequent users, while those flying on holidays and emergencies were those that tended to make up the segment that flew less than once a year.
Note – As purposive sampling was undertaken at Lucknow Airport, the sample population of ‘never’ is not representative of the population, even in the given SECs).
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FLIGHT CLASS AND OCCASION OF USE
Although the occasion of use indicates that maximum usage is for business, the flight class graph indicates that the proportion travelled by business class is very small in comparison to that travelled by economy class. This indicates that most business travellers are flying Economy class as well. Further, the second important occasion of usage is for emergencies and time-critical travels.
CIRCUITS FLOWN:
The most frequently flown circuit is that between major metros, followed by other state capitals and Delhi-Mumbai. Delhi and Mumbai airports accounts for roughly half of passengers flown, and metro airports account for 66% of the passengers flown (and 47% of revenues, as per secondary data).
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SCHEME PREFERENCE:
With the entry of new players in the market, airlines are competing for passengers on non-price parameters. This increases the product differentiation in order to decrease elasticity of demand in the market. Given the key differentiators that substitute for price, consumers have rated Apex fares as their most preferred scheme. Indian Airlines, Jet and Air Sahara offer apex fares. Next most preferred to Apex fares is the frequent flyer program, a trend noticed predictably in the high frequency repeat users and those travelling on business.
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FACTORS AFFECTING CONSUMER PERCEPTION
We identified the following factors that make the demand function of consumers. Based on our hypothesis, a choice parameter weight was arrived at by asking the sample to rank the following parameters on a Likert scale -
a) Price
b) Service
c) Promotional Schemes
d) Loyalty programmes
e) Flight Schedules
f) Comfort with the brand
g) Corporate tie-ups
CONSUMER CHOICE PARAMETERS
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Price appears to be most important factor for the consumer followed by service provided and flight schedules.
Indian Airlines has been rated high on most parameters while Jet Airways, although rated low on price, is rated highest in most other factors. Air Deccan, which has been ranked best on prices, has succeeded in its mission to provide reliable low-cost air-travel to common man by constantly driving down air-fares.
Air Sahara’s many services such as In-flight entertainment and Wings n' Wheels coach service, exclusive business lounges being operated at departure halls at airports in a number of cities, providing for business and refreshment services has made it second most popular under services. It has taken the lead in introducing novel initiatives such as Steal-a-seat flexi fare options, Sixer/Super Sixer and Square Drive/Super Four.
Air Sahara's frequent flyer program called Cosmos has also become a great hit with the passengers, though it still ranks almost on par or lower on customer perception than the schemes offered by Jet and IA (see promo schemes and loyalty programs), essentially due to lower customer awareness levels.
Corporate tie-ups were a trend significant by their absence on the brand preference parameters. While the only major tie-ups were by Indian Airlines with government agencies, these were not perceived as strictly ‘corporate’ tie-ups. This segment is hence a possible opportunity which can be explored as a non-price differentiator, given the large frequency of use by business travellers.
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CHAPTER 4. 7P’s Of MAJOR PLAYER
JET AIRWAYS:
Jet Airways (India) Private Limited is India’s leading private airline. It boasts a market share of about 45 percent. Jet operates a relatively young fleet of Boeing 737 jets and ATR72 turboprops. It carries about seven million passengers a year. Its reputation for punctuality and outstanding service attracts a large proportion of business travelers. Jet’s founder and chairman is Naresh Goyal, an Indian expatriate living in London. Jet Airways, completed forteen years of operations on May 05, 2007, they have pioneered benchmarks such as automated ticketing at travel agency locations, automated flight alerts on GSM mobile phones, Tele-check in, Return Tele-check-in, Through Check-in, City Check-in, satellite ticketing at orporate houses and the unique three-tier frequent fliern programme, Jet Privilege, in the domestic skies to make travel pleasant and quicker. Jet Airways operates over 255 flights daily to 41 destinations across the ountry.
Jet Airways today operates one of the youngest aircraft fleet in the world with an average age of 3.31 years. The fleet consists of 33 Classic and Next-Generation Boeing 737-400/700/800 aircraft and eight Modern 62-seater ATR 72-500 turbo-prop aircraft. The Airline offers Club Premiere (Business Class) in addition to Economy Class on most of its Boeing 737 flights.
Jet Airways will be the most preferred domestic airline in India. It will be the automatic first choice carrier for the travelling public and set standards, which other competing airlines will seek to match. Jet Airways will achieve this pre-eminent position by offering a high quality of service and reliable, comfortable and efficient operations. Jet Airways will be an airline, which is going to upgrade the concept of domestic airline travel—be a world-class domestic airline. Jet Airways will achieve these objectives whilst simultaneously ensuring consistent profitability, achieving healthy, long-term returns for the investors and providing its employees with an environment for excellence and growth.
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Fleet Plan
Jet Airways – Financial Performance:
Annual Revenues –
Rs.9481.5 crores (2007-08)
Rs.7401 crores (2006-07)
Profit(Loss) After Tax –
Rs.253 crores loss (2007-08)
Rs.27 crores profit (2006-07)
All Other Domestic Players showed loss(2006-07)
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STP ANALYSIS
Primary Segments (Geographic) - Domestic & International
Customer Segments
First class, Premiere(Business) class & Economy class
Target Segments
Premiere(Business) class
Business travelers, contribute 48% of passengers & 66% of revenues, ready to pay higher prices, last time booking, don’t like transit
ECONOMY CLASS
Leisure travelers, prefer low cost airlines, ready for transit if there is cost advantage, large % of passengers Seat Allocation – Yield Management Technique
POSITIONING – High value for High price
UNIQUE SELLING PRICE – Customer relationship and Punctuality
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PRODUCT AND SERVICE
Level Of Product
Given that business travellers account for over 80% of the domestic air traffic in India, schedules are carefully designed to provide same day return trips between significant city pairs, e.g. Delhi-Mumbai, Mumbai-Bangalore, etc. The airline provides a business class service on almost all its flights operated by 737 aircraft. The Club Premiere cabin, with wider seats and greater seat pitch, exclusive ground check-in facilities, etc. is today regarded as one of the best. In-flight meals are served course by course, on specially designed Noritake crockery. Dedicated loungesat airports enable Club Premiere passengers to experience in-flight hospitality on the ground. Jet Airways woos the economy passenger not through discounts but by adding value, such as being the first domestic airline to offer Tele Checkin, City Check-in, Through Check-in and One
Time Check-in facilities. Economy passengers enjoy more than 50 different menus offered across different routesm and at different times of the day. Jet Airways’ frequent flier programme, Jet Privilege is comparable with the best in
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the world. The Jet Privilege Programme has many ‘Firsts’ to its credit in the Indian domestic airline market. Launched in July 1994, the JP Programme was repackaged and relaunched in its current avatar in December 1999. Jet Privilege was the first domestic frequent flyer programme in India to launch a three-tiered programme (Blue, Silver and Gold) to recognize the differences in customer segments. It has the widest alliances with international airlines for earning and redemption of miles, including British Airways and KLM-Northwest, besides premium hotel chains, car rental services and financial services. With a membership of over300,000, it is the largest and fastest growing loyalty programme in the country.Jet Escapes holiday packages have been developed in conjunction with leading hotel chains to promote the domestic leisure market. This, along with Apex and Super Apex fares, for advanced bookings at lower rates, has encouraged up-gradation of passengers from rialto air travel. Jet Kids, a branded in-flight product for children, is a reflection of the Jet Airways philosophy that every passenger is equally important to the airline. Other alliances and the use of technology have seen Jet Airways lead the market with value-added services. The Citibank-Jet Airways co-branded card is a unique product that encourages subscribers to earn miles while dining or shopping. Jet Mobile service provides mobile phone users with up-dates on flight schedules and flight timings. Charters are a new and growing contributor to the airline’s business. Several high profilecompanies (MasterCard, Louis Vuitton, etc.) and individuals (Bill Clinton and his entourage) have chartered Jet Airways flights for their domestic travels and conferences. Jet Airways Cargo, having carried over 77,000 tons of cargo between April 2002 and March 2003, is a growing business for the airline.
ON GROUND SERVICES
At Jet Airways, service on the ground is as important as service in the air. Whether it is the process of booking ticket or checking in for flight, Jet Airways ensures that every need on the ground is met.
Check-in options
Jet Airways offer multiple check-in options.
Airport Lounges
Jet Privilege Silver, Gold or Platinum card member or a Club Premiere passenger, can relax and enjoy complimentary snacks and beverages in jet Airways’ plush airport lounges.
24-Hour Helpdesk
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Coach Services
Airport Authority of India (A. A. I.) operates shuttle coaches for transit passengers from domestic to international airport and vice-versa at Mumbai and Delhi airports.
Complimentary Chauffeur Drive
A service specially for PREMIERE passengers traveling between Mumbai/Delhi and London (Heathrow).
In-Flight Services
Jet Airways continually endeavours to better its services, both on the ground and in the air. From crew, whose priority is passengers’ comfort to the safety standards enforced to ensure that one is free of worry. Jet Airways in-flight meals are designed keeping in mind the varied customers and also provide Finest gourmet dining
Class of Service
Jet Airways operates two classes of service – Club Premiere and Economy class.
In-flight Convenience In-flight meals In-flight Entertainment eMagazine Top of the line seating
Special Services
Jet Airways understands that some of their passengers have special needs. It is their constant effort to meet these needs to the best of their ability.
Infant and Child Care
Special attention is always given to younger patrons of Jet Airways.
Wheel Chair Assistance
Handicapped and infirm passengers can also look forward for a comfortable, safe and hassle free journey
Expectant Mothers
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Expectant Mothers till 36 weeks of pregnancy can be permitted to fly on Jet Airways flights.
Privacy that you can share, Service with a personal touch
Unaccompanied Minors
Parents / guardians can be rest assured regarding their ability to look after their children whilst traveling with Jet Airways
Medical Emergencies
Traveling with Pets
Carriage of pets are permitted only on Jet Airways Boeing 737 aircraft
Carriage of stretcher
Jet Airways now accept stretchers on all domestic flights operated by Jet Airways
Jet Mobile
Flight Delays/ Cancellations due to Fog/ Weather
Jet Airways realizes that disruptions / delays and cancellations of flights can cause inconvenience to the passengers and therefore it is equipped to resolve these issues via a dual approach of systemized tracking of flight updates and a formal hotel accommodation policy for the passengers.
Jet Kids
Jet Kids is a special programme for the younger patrons, children between the ages 2 to 12 years, of Jet Airways.
Jet Mail
Jet Airways is a periodic newsletter, which keeps one updated with all the latest at Jet Airways and its partner promotion.
Cargo
Jet Airways has been on the forefront in the transportation and handling of general and special cargo. With a fleet of 62 modern and next generation aircraft, Jet Airways provides seamless connections throughout the world on its own and partner airlines network. The cargo product ranges from carriage of fresh flowers, household pets, life saving drugs, valuables and all other general goods. A special care service for human remains is specially designed for support at times
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of need. Jet Airways ensures the delivery of services with the most amount of care to reach the customers’ delight.
Safety and Comfort
Safety is of vital importance. Hence, great emphasis is laid on the maintenance of our aircraft. Staff of 560 engineers and technicians, with 5 to 20 years of aviation experience, ensure that Jet Airways conform to international safety standards so that passengers’ favourite airline is also their safe airline.
PROMOTION
The first advertising campaign was released in 1993. However, even before this, to reflect the brand position, ‘A world class airline for business travellers’, the identity needed to reflect the professionalism and warmth. This was built in to the Jet Airways logo design and the choice of colors, where blue represents professionalism and ochre the warmth. The corporate symbol is a graphic representation of an aircraft’s tail-wings speeding past the sun.The sign-off or tag line evolved from research findings, key being that the domestic air traveler perceived flying as a joyless, necessary evil. An integral part of the launch strategy was for Jet Airways to hold out and deliver the promise that domestic air travel with the airline would be a joy. This led to the familiar line, ‘The Joy of Flying’, which was also incorporated into the logo unit. Based on a research commissioned in 1998 the new strategy was developed to make the brand more ‘warm and caring’. The brand property or central theme to this new strategy was the yellow rose, and the entire communications programme was developed around this. The campaign was rolled out on Valentine’s Day, 14 February 1999, with each passenger travelling that day on a Jet Airways flight receiving a yellow rose on boarding.The focus had changed, from the airline to the passenger. This period also saw the introduction of the new uniform. While continuing to stress on the professional, young, modern look, the uniform design uses a floating diya (a traditional Indianlamp) in its print. The diya is depicted in motion to signify progress. Over the last four years, theuniform has become a very visible and significant feature of the brand.
OFFERS
Companion Free Offer, One Fare, Concessional fares, JetPrivilege Offers, Jet Airways Citibank Credit Cards, Corporate Deal Offers, International Specials, Camp Rock contest, Festival specials, Student specials,Surprises etc.
Advertising and Branding
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Hoardings Brand Ambassadors Sponsorships Event Organization
BRAND VALUES
The core focus of the brand is to be a world-class airline. Towards this end it strives to offer passenger a world-class product, be it the world’s latest aircraft, a world-class in-flight service or a business class product comparable to the best in the world. It endeavours to ensure that the customer can depend on the clockwork-like regularity of Jet Airways’ operations; and it promises to deliver a highly professional and efficient brand experience – pre-flight, in-flight and post-flight.
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PLACE
With over 370 flights daily to 60 destinations, we connect a place every 5 minutes. Jet Airways has come a long way since its first flight in 1993. It's one of the fastest growing airlines in the world, and now it's all set to change the way you fly - for the better! Jet Airways operates flights to 18 international destinations, offering you a better choice in the skies.
PROGRAM
Membership tiers – Blue, Blue Plus, Silver, Gold & Platinum
Personalized web access JP Miles - 13 quarters validity Bonus JPMiles on e-Services Additional baggage allowance Guaranteed reservations up to 24 hrs. prior to departure Waiver on cancellation fees Membership Tier Bonus
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Earning & Redeeming JP Miles
Eg: Chennai to Thiruvananthapuram (Earn Mile-383 & Redeem Mile-6894) Airline Partners - Air France, American Airlines, ANA, Austrian
Airlines,Brussels Airlines, Cathay Pacific, Dragonair, Etihad Airways, Gulf Air, JetLite, KLM, Lufthansa, Northwest Airlines , Qantas, South African Airways, SWISS, United Airlines and Virgin Atlantic.
PRICE
Economy & Club Premiere Fare Discounted fare for senior citizens & defense personnel Advance Passenger Excursion/ APEX Fares One Fare Night Saver Fares Check Fares US Dollar Fares & Visit India Fares
PEOPLE
Employees
Pilot, Cabin Attendants, Engineers, Customer Service Agents, Securities, Marketing, Sales & Reservation employees
Customers
PARTNERS
Airline Partners - Air France, American Airlines, ANA, Austrian Airlines,
Brussels Airlines, Cathay Pacific, Dragonair, Etihad Airways, Gulf Air, JetLite, KLM, Lufthansa, Northwest Airlines , Qantas, South African Airways, SWISS, United Airlines and Virgin Atlantic.
Code Share Partners - Air Canada, All Nippon Airways, American Airways,Brussels Airlines, Etihad Airways and Qantas
Co-Brand Cards – CitiBank
Conversion Partners - BarclayCard, CitiBank, Deutsche Bank AG, HDFC Bank,HSBC, ICICI Bank, SBI Card & Tata Cards
Car Rental Partners - Avis, Hertz
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Hotel Partners - Global Hotel Alliance, Hilton Family Hotels, Hyatt Hotels &Resorts, InterContinental Hotel Groups, ITC etc.
Lifestyle Partners - Globus and Golf Fee Card International
Publishing Partners - Fortune, The Economist and TIME
Retail Partners - Ferns n Petals
Telecommunication - Matrix Cellular Services
COMPETITORS
International market - British Airways & South West Airlines
Domestic market - King fisher, Indian Airlines, GoAir, Spicejet & Indigo
CORPORATE SOCIAL RESPONSIBILITY
Magic Box
Fund raising inside the flight for disaster relief, education & healthcare for poor and programmes to prevent exploitation of women
Flights of Fantasy
Underprivileged children and children with special needs are taken on specially organized flights (on Children’s Day)
PROCESS
People Processing
People physically enter the service system to receive the service. Aircraft is the service factory where service is delivered.
Possession Processing
Cargo Luggage & Courier
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PHYSICAL EVIDENCE
Servicescape
Services cape usage – Interpersonal Complexity of Servicescape – Elaborate
Flight
Offices - Org. & Ticket Booking Agents Virtual Servicescape
Information - Reg. the org., flight schedules, ticket fares, promotion schemes etc.Through website, call service, sms, employees etc.
Consultation - Reg. the choices of class, routes to a destination & special
menus for frequent fliers
Order taking - Booking - through phones, fax and internet - Ticket Office, Call Centres, Company Website & Agents
Hospitality - Most important differentiating factor (from ticket booking to post flight help)
Safe keeping - Luggage & Children
Exceptions - Special requests reg. meal preferences, special amenities for elderly people or children, medical needs etc.
Billing - Charges split, E-mail bills etc.
Payment - Credit card, Travellers cheque, Special payment privileges for frequent fliers
STRENGTH:
Market driver Experience exceeding 14 year Only private airline with international operation Market leader Largest fleet size
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WEAKNESSES
Loosing domestic market share Old fleet with average age around .79 years Scope for improvement inin-flight service Weak brand promotion
JET AIRWAYS VS. DOMESTIC PLAYERS (2006) JET AIRWAYS VS. DOMESTIC PLAYERS (2006)
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JET AIRWAYS VS. INTERNATIONAL PLAYERS (2006)
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KINGFISHER:
PRODUCT
Check in services Transfer services Lounge comfort,space, washroom, dining option Comfort : blanket, pillows Inflight Entertainment Quality of meal served Baggage delivery Cabin staff services
PRICE
Economy & Club Premiere Fare Discounted fare for senior citizens & defense personnel Advance Passenger Excursion/ APEX Fares One Fare Night Saver Fares Check Fares US Dollar Fares & Visit India Fares
Origin Destination Flight No. Depart ArriveAircraft
Type Fares
Starting
Mumbai Chandigarh IT 605 14:50 17:05 A319
Rs 4585 + taxes, fees
and Surcharges
Chandigarh Mumbai IT 600 11:00 13:15 A319
Rs 4585 + taxes, fees
and Surcharges
Mumbai Ahmedabad IT 134 5:15 6:15 A 319
Rs 2925+ taxes, fees
and Surcharges
Ahmedabad Mumbai IT 135 9:00 10:00 A 319 Rs 2925+ taxes, fees
and
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Surcharges
Mumbai Ahmedabad IT 136 19:10 20:10 A 319
Rs 2925+ taxes, fees
and Surcharges
Ahmedabad Mumbai IT 137 22:55 00:05 A 319
Rs 2925+ taxes, fees
and Surcharges
PEOPLE
Employees
Pilot, Cabin Attendants, Engineers, Customer Service Agents, Securities, Marketing, Sales & Reservation employees
Customers
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PROMOTION
Roc k Ethos 2009 in association with KINGFISHER
if there ever could be a one-day indigenous Indian ‘Woodstock’, this certainly was it.” and “…probably the biggest ever tribute paid to indigenous Metal Music in India.”
And now, Rock Ethos is back with 20 bands performing their original music on one stage over 2 days. Bands performing: Catalyst, Culminant, Schikados, Eccentric Pendulum, Whitenoiz, Stond, Illuminati, Galeej Gurus, Kryptos, Infernal Wrath, 5 A.m., Abandoned Agony, Today’s Special, Shamans, Theorized, Divine Connection, Motherjane, Myndsnare, Bhayanak Maut .
Apart from head banging to the music, you can also try out the bungee jumping, tattoo studio, paintball arena and the gaming zone at the venue. Not to mention, KINGFISHER will be available throughout the day.
KINGFISHER PubRockFest 2007 Bangalore Schedule
Promotion through endorsement on the Force One India Formula One cars
Collaboration With NDTV Good Times Lifestyle Channel
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Promotion with Top Models like Yana Gupta
Announcing the KINGFISHER PubRockFest 2007
KINGFISHER Pubrockfest 2007 presented by Rock Street Journal,a seven city 30 gig rock festival kicks off on the 15th of July at Turquoise Cottage, New Delhi with performances by Delhi’s Nu-Metal gods Joint Family, Mumbai’s metal core outfit Amidst The Chaos and a new Industrial Metal band from Delhi that’s beginning to make an impression called Frequency.
The festival, with six gigs each in Delhi & Mumbai, two in Hyderabad, and four each in Pune, Bangalore, Kolkata & Chennai will showcase a mix of established and emerging talent from India. From world renowned Jazz-rock fusion artists like the Amit Heri Group, to world class home grown blues acts like Soulmate to old school metallers Kryptos – the festival promises to be one big party…and YOU ARE INVITED!
Kingfisher Airlines Announces Mega Consumer Promotion around Kingfisher Airlines Tennis Open 2006
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PLACE:
PHYSICAL EVIDENCE:
SEATS OF ECONOMIC CLASS
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1st Five star Airine in India
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Information - Reg. the org., flight schedules, ticket fares, promotion schemes etc.Through website, call service, sms, employees etc.
Consultation - Reg. the choices of class, routes to a destination & special
menus for frequent fliers
Order taking - Booking - through phones, fax and internet - Ticket Office, Call Centres, Company Website & Agents
Hospitality - Most important differentiating factor (from ticket booking to post flight help)
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Safe keeping - Luggage & Children
Exceptions - Special requests reg. meal preferences, special amenities for elderly people or children, medical needs etc.
Billing - Charges split, E-mail bills etc.Mobile
Payment - Credit card, Travellers cheque, Special payment privileges for frequent fliers
Coupon, AirPass, KingMobile
PROCESS
People Processing
People physically enter the service system to receive the service. Aircraft is the service factory where service is delivered.
Possession Processing
Cargo Luggage & Courier
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CHAPTER 5. STRATEGY OF MAJOR PLAYERS
Air India is one of the oldest and India’s national flag carrier; it was set up on October 15th 1932 by its founder JRD Tata who is also the father of civil aviation in India. He ran AI successfully until it got nationalized in 1953. In the 1960s the “Maharaja”, as the national flag-carrier was affectionately known, was flying to 32 destinations and making profits. For many years in India air travel was perceived to be an elitist activity. This view arose from the Maharajah syndrome where, due to the high-priced cost of air travel, the only people who could afford it were the rich and powerful. There was a monopoly in the past but in recent years however the image has been drastically changed, now there are many players. Presently AI is flying 146 destinations, internationally well known and growing day by day and fighting for market share along with many competitors. The following analyst report analyses and recommends on AI only in the Indian Aviation context and till the year 2005-06 as the financials of 2006-07 are not available.
(http://home.airindia.in)
Objective: “to create world class airline in public sector in close cooperation with
all its employees”.
Performance in relation to key success factors
Excellent in flight service- According to renowned skytrax international rating, AI has got 3star rating, due to its inefficient in flight service, low rating in service efficiency, in flight entertainment, unenthusiastic and poor attitude of staff, low on problem solving, low in seat comfort in economy and average rating on cleanliness, quality of meals, food served.
Source : www.airlinequality.com
Commitment to customer service/Reliability- The AI staff is not professional being a government employee, there are so many delays in flights at regular basis, low rating in check in checkout, arrival assistance, consistency in staff and baggage delivery etc makes customer rethink about their reliability and commitment. (Satish& Bharathi, 2007)
Reputation- Inefficient in flight service, and lack of reliability its reputation is on stake.The aircrafts are not maintained properly, staff not good as compared to private and international airlines.
source: www.airlinequality.com
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Value for money- AI being a full service airline in a monopoly situation in India charges high money, but as compared to international airlines it does charge right kind of rates but due to the poor quality of services it offers customers forget about its rate and choose other airlines. Tourism India, 2007
Cost Control- This aspect being a major issue for AI as its costs are way too high, being a full service airline and due to major other reasons like number of staff this airline is amusing as compared to other airlines like seen in the chart, other reason is common with other airline which is ATF a major cause for concern.
Control on Debt- Looking into debt equity ratio which according to industry average is 3.08 but air India’s ratio is 7.35 in 2006 and was always high since 2002 except 2005. This can affect the thinking process of lenders and shareholders, if compared with jet their ratio in 2006 is only 2.0 which is very good.
People- This aspect can make an airline become the best than its competitors but AI lacks in this majorly detailed information in the human resource section.
ORGANIZATIONAL STRATEGIES
Porter generic strategies
According to Porter (1980) generic strategies (Lynch, 2003), AI comes under differentiation and focused cost leadership due to the following reasons:
AI along with jet airways has the monopoly in Indian international market as they are the only ones who fly international routes.AI is differentiated as it offers expanded network, for example gulf regions are still not open for Jet Airways but AI has a monopoly there. (Ministry of civil aviation reports, 2006)
AI is the national flag carrier of India. It has brand name which is represented by its mascot called Maharajah which impersonates India and its culture. This feature really differentiates it from other industry players.
AI last point of differentiation is it being the oldest airline as per the year 2006 it’s seventy four years old. It really makes it a well known brand, creates trust in the minds of its customers due to its long operation and its service to its customers. (Tourism India, 2007)
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Air India’s has new subsidiary AI Express being the country’s only international low cost carrier which also operates in domestic market. This strategy of AI can be called as focused cost leadership as they are marketing middle class passengers who want to travel internationally at a low cost. (Tourism India, 2007)
It has many differentiated aspects like being a national carrier, oldest airline and its monopoly in Indian international market and AI can be also called focused differentiation as it majorly focuses on international travel market instead of domestic.
Market Penetration
Companion free scheme- To promoting high yield traffic, AI has re-launched this scheme between India- USA/Canada/UK/Europe. This scheme is valid on IATA published fares in all classes for both one way and round trip.
Student fares- Passengers on student visa can avail special discounted fares for travel like from India to many destinations for travel. Students can also avail discounts on excess baggage.
Auction through IndiaTimes.com- AI auctioned seats of economy class through indiatimes.com a leading internet portal, this scheme has also been used for some domestic sectors as well.
Flying Returns Program- The flying returns is a frequent flyer program. This program is spread across 19 countries, it is designed to recognize and reward frequent flyers. Various benefits and privileges are provided to the members.
Aircraft Cabin Up gradation- The up gradation of its old carrier like A310-300 bypainting, seat refurbishment and upgrading entertainment system to solid state digital audio system which provides improved sound quality and other features.
Market Extension
Medical Tourism- AI has tied up with M/s Vedic India to tap growing medical tourism market, Medical packages including airfares are offered to all those who are willing to undergo treatment in India.
New Product Development
The Maharajah Club (TMC) and The Leading Edge Club (LEC) - TMC and LEC are two elite clubs of air India. Membership to both the clubs is by invitation
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only with certain criteria laid down. Members enjoy exclusive value added benefits and of value added partnership alliances.
E-Marketing- As Iata wants to discontinue conventional paper ticketing, AI is working on it and according to project it will also invest in E-Marketing.
Wi-Fi Internet Access- In the mumbai maharaja lounge and the transit lounge wifi internet access is provided along with network printing facility.
SMS Alert in case of Rescheduling of Flights- Arrangements have been made to generate SMS messages automatically to all Indian mobile numbers indicated in PNRs to alert passengers in case of rescheduling of flights.
Wholesale Travel Discounts- A special scheme is their for passengers traveling frequently to south east Asia by offering them substantial saving on bulk purchase of tickets for travel.
ATC Mode-S Elementary Surveillance and Enhanced Surveillance Functionality- AI on installing these to ground station, which will enhance better control of aircraft navigation.
Diversification
AI Express of AI is for new market that is the middle class who wants to travel internationally and is definitely a new product as it is a low cost, low fare and no frill carrier.
AI besides AI Express has more fully owned subsidiaries which offer other services such as Hotel Corporation of India, AI Air Transport Services Limited and AI Engineering Service Ltd. (Ministry of civil aviation reports, 2006)
Growth Methods/ Operations - The fleet size of AI in 2001-02 was 29 which have grown up to 30 in 2006-07 which shows growth from previous years and AI has future plans to expand their fleet size drastically. However in the present scenario on comparisons with its full service players like jet, the fleet size is less.
The number of flights per day operated by AI in international routes is 64 which is the highest among its competitors and domestic is 30 per day which is relatively low.
However we can also see the growth in the passenger traffic and passenger load factor on all routes and services over past five years which has gone up to 43.62 lakh. The destinations which AI flies have increased from 32 to 46 presently. (Source: Ministry of civil aviation reports,2008)
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Human Resource
AI needs to reconsider at its HR policies. The numbers of employees per aircraft in AI are 418 which are way too high as compared to others industry players. According to Startrax rating (www.airlinequality.com) the staff is really unprofessional and even blogs state that staffs arerude, non consistent, poor check in etc. Since it’s a government organization staff is too laid back not being afraid of losing their jobs, they ask for commissions from passengers which are not acceptable at all. (IndiaToday, 2000).
The attrition among pilots and cabin crew is as high as 46 per cent. Moreover, maximum attrition is observed in employees in age group of 26 to 30 years with experience of two to four years.In employees view, AI according to naukrihub survey of aviation sector’s best employers has ranked it at second position after Jet airways, with a balance scorecard having all the aspects rated,
Marketing
AI is using all forms of strategy to sell. On comparing its strategies with the other players, it can be said that they are update with the market and are marketing the product well by giving good packages and deals to the customers; however all this is started when other airlines have already implemented them, AI just follows.
STRENGTH:
1. Strong brand name
2. Oldest Airline
3. Monopoly in certain international routes
4. Government backup
5. Rights to travel 96 destinations.
6. Established infrastructure
7. It has prime parking space/slots.
WEAKNESSES
1. Poor HR Strategies
2. High Competition, Loss of market share
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3. High cost , poor cost control
4. Inefficient usage of resources
5. Bad Reputation, Poor Services
6. Poor Aircraft maintenance
7. Highest manpower ratio to aircraft
8. Low feet size
9. Poor reservation services
10. Named as Indo Gulf Airline
11. Corruption in company
Fleet size increase and invest in aircraft maintenance
AI is in a vacuum, the market is growing, its fleet is aging, and other airlines have started flowing into India, it desperately needs to acquire more fleet which should be a mix of wide and narrow body planes, and other updated versions should be purchased. The ageing fleet needs to be maintained by combining it to first class catering which will help in image building. AI should propose a float for MRO i.e. Maintenance, Repair and Overhaul to maintain its old fleet. This can be immediately started by firstly focusing on maintenance, and then purchasing in future.
REFRESH AND REBRAND THE COMPANY
AI and IA should get merged as; it will help it in expanding the fleet, rebranding the airline. They should redesign crew uniforms and retrain their employees. As AI really needs a fresh start, all the old methods needs to be changed or removed specially in area of HR policies with the help of this merger. They should be saving millions of dollars by creating operational synergies in network integration, information technology integration, improvement in schedules, the passenger loyalty program, marketing, ground handling and purchasing aircraft, and by getting rid of half of their employees. It can effectively deliver the classic hub and spoke system done by successful airlines. They will also help in saving costs by choosing better contracts for insurance, oil contracts etc. It will also bring in new product and new environment in AI. The only caution AI and IA needs to take are at the time of rationalization of staff and while changing the HR policy which needs to be done very importantly, if they do it well, the merged entity will bring in huge success.
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FOLLOW DIFFERENTIATION
AI needs to differentiate its product, as there is so much competition in the market. It can differentiate by serving non stop flights to routes which are not provided by others, flights to wide range of destinations as AI has the rights to follow so many destinations, it needs to use it to its benefit. They should be able to attract passengers from SAARC, Africa and Central Asia to fly them to other parts, instead of being just an Indo gulf airline as it is also leading to inefficient usage of resources, by expanding fleet and destination by more code share arrangements and by joining Star alliance which is already under process. They need to highlight customer service as their USPs by provide best catering and good maintenance of rest room which will help go a long way in attracting customers; they need to give dual importance to domestic and international routes and combine both of their strengths. They need better trained staff to ensure better results through excellent customer service, punctuality, making the staff more accountable by rewarding points, etc. Air India needs to do innovative marketing, competitive pricing instead of just following marketing tactics of other players, the decision making needs to be quicker.
EXAMINE EACH AND EVERY ASPECT OF ITS FUNCTIONING
AI is known for indifferent passenger handling over years; it should set up a strategic business unit (SBU) for ground handling at airports. All airport functions that Air India used to perform like security and baggage handling would be done by this SBU and its focus would be on customer care and it can help them build the long lost trust in the eyes of customers. A-I should also reform its notorious reservation system and analyze its yield planning which should eliminate the scope of overpriced commission to travel agents as it would stop fictitious block bookings which lead to an artificial overbooking of AI flights, even though there aren't enough passengers. It needs to be regularly monitored by specific staff whose job description includes monitoring as their primary job; they should have processes to monitor each and every staff’s productivity as the services provided by AI staff is non tolerable. They should be better utilization level of its fleet, their ROCE % is also gone down and it is causing major loss in market share.
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SPICE JET:
SpiceJet is one of the focussed low-cost carriers (LCC) in India. We believe the airline is best positioned to breakeven given its low costs and improving yields in a changing industry scenario. It plans to ramp up its fleet size, a move that would help it manage costs more effectively. We initiate coverage on the company with an OUTPERFORMER rating.
“Once you get hooked on the airline business, it's worse than dope.”
SpiceJet is the second largest low-cost airline in India.The company was originally promoted by the SK Modi Group under the name ModiLuft. It was acquired by Royal Holding Services (Kansagra family) in 2000 and restarted operations in May 2005. SpiceJet flies a single aircraft type fleet (Boeing 737), which allows for greater efficiency in maintenance, and supports its low-cost structure. Currently, it has a fleet of 14 Boeing 737-800 aircrafts in single-class configuration with 189 seats. It flies to 15 destinations, and plans to include two more by next month. The airline’s new fleet of aircraft is backed by cuttingedge technology, and infrastructure. It has maintenance support from KLM and state-of-the-art technology from world leaders like Star Navigation, Russel Adams and Tech Log. SpiceJet has a partnership with Navitaire, the world’s renowned low-cost support system for reservations and revenue management for providing ebooking and e-ticketing services.
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MARKETING STRATEGY :
Entered with Rs. 99 fares for first 99 days offering ‘low everyday spicey fares’ Aims to compete with Indian Railway’s AC segment Aims at future fleet expansion to increase market share Use New Air bus A320-200 Aircraft
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CHALLENGES FOR SPICE JET:
Small fleet structure Small load efficiency compared to Air Deccan Competition with new entrants Market share of East-central India High attrition rate
LCCs transform industry dynamics
The advent of low-cost carriers (LCCs) has revolutinised Indian aviation. The Centre for Asia Pacific Aviation (CAPA) has predicted the domestic traffic, currently at 35.3 million passengers, would grow at 25%-30% annually until 2010, taking the overall market to more than 70 million passengers.
Lowest cost among peers
SpiceJet follows the pure LCC model. This has helped it achieve the lowest cost in the industry – its per unit cost is 20% lower than peers in the LCC segment, and 40% lower than players in the full-service carrier (FSC) segment. We believe this would help it achieve breakeven ahead of others inan improving yield scenario.
SpiceJet focuses on a few destinations, and maximises frequencies between them. This helps the company amortise the fixed costs of setting up bases at airports over a larger number of seats. At present, the airline operates from16 airports, and plans to increase the number to 18 by the end of FY08E, and further to 22 by FY09E.
Number of destinations to increase
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PHASED CAPACITY EXPANSION
SpiceJet has unveiled a phased capacity expansion plan to meet its growth objectives. It started operations with a fleet of 3 aircrafts, which it has nowincreased to 14. It plans to add another 12 by FY10E, which will take the total to 26. During the time when the domestic market was mired by over capacity and fierce competition, SpiceJet was able to increase its market share, while maintaining its load factor. With an average age of 2 years, its fleet is also among the youngest in the country.
PLANNED FLEET EXPANSION
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SPICEJET’S MODEL
SpiceJet’s strategy is to provide safe, reliable travel at low cost from point-to point by maximising the efficiency of all resources, keeping processes simple, and without incurring expenditure on omponents which do not support the basic function of travel.
SINGLE AIRCRAFT TYPE
The airline has a single aircraft type fleet, the Boeing 737-800, which allows for greater efficiency in maintenance, and supports its low-cost structure. The airline has a fleet of 14 new-generation Boeing 737-800 aircrafts with advanced technology and added features like blended winglets. The 737-800 is the most technologically advanced airplane in the single-aisle market. With a new wing and more powerful engines, the 737 can fly higher, faster and farther than previous models. The advanced-technology ‘Blended Winglets’ allows the airline to save on fuel, extend range, carry more pay-load
and reduce engine maintenance costs. A standardised aircraft fleet helps the airline reduce costs incurred on maintenance, spares inventory, pilots training, engineering, and supervisory activities. The 737-800s can spend more hours flying, as the new jets do not need to spend much time in maintenance.
COST LEADERSHIP GIVES IT AN EDGE OVER PEERS
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HIGH SEAT DENSITY
SpiceJet’s aircraft are configured in a single economy class having 189 seats, which is among the ighest in the industry. This is possible as the airline focuses on maximum space utilisation for nerating more revenue per aircraft. SpiceJet accommodates 21% more seats than a dual (business and economy) configuration. With costs like fuel, lease, maintenance remaining same per aircraft, its per-seat costs comes down by around 20%.
DIRECT DISTRIBUTION OF TICKETS
The airline sells its tickets via the Internet or call centre route. This helps it bypass travel agents who work on commissions, and expensive GDS (global distribution system) employed by FSC for ticket reservations. The mechanism also helps in reducing working capital requirements as the company receives the money in advance prior to travel. There are no receivables, and also controls bad debts. Overall it helps the company cut its distribution costs by 10% of the revenues.
HIGH AIRCRAFT UTILISATION
A carrier aiming for the lowest possible cost of operation has to develop a schedule that would give a high annual utilisation of each aircraft in its fleet. Such a policy will lower cost as the fixed costs of the aircraft ownership or lease rentals can be spread over higher quantity of output (ASKM).
The Indian aviation industry has undergone through a major consolidation with the market leader Jet Airways acquiring Sahara Airlines, Kingfisher taking a stake in Deccan Airlines, and the government-owned Air India and Indian Airlines merging. Post consolidation, these three together have a combined
market share of around 80%.Earlier, airlines used to sell huge inventory of tickets at low or near zero prices (Re 1/- to Rs 9/- base fare per ticket) to attract traffic and gain market share. With consolidation, the large players have shifted their focus on profitability from market share. As a result, the yields per ticket have been improving and the practice of heavy discounting has declined. SpiceJet, which has the lowest cost in the industry, will be the first beneficiary, when the yields start improving.
FOCUS ON PROFITABLE ROUTES
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SpiceJet operates most of its flights between profitable metro routes to optimise its load and yield (average revenue per passenger). It currently operates from 16 destinations with more than 700 flights a week. 56% of these flights originate from Delhi, Mumbai, Hyderabad and Bangalore. During FY07,
Delhi and Mumbai accounted for around 40% of the total domestic air traffic in the country.
MARKETING STRATEGY:
LOAD FACTOR TO BE MAINTAINED ABOVE INDUSTRY AVERAGE
Ever since its launch, SpiceJet has maintained the highest load factor in the industry. In FY06, the company achieved a PLF (passenger load factor) of 86%, which declined to 78% in FY07. Heavy discounting by airlines led to this decline, even as SpiceJet continued to sell fewer tickets at very low prices. Addition of new fleet by the company and increase in the overall industry capacity also laid pressure on load factor. Going forward, we expect the company to maintain PLF
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in the range of 74%-75% relatively higher than industry levels of 65%
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A LCC is able to contain costs in areas that are under the control of the airline. Things like fuel ciost, airport handling & navigation, and maintenance charges are beyond the control of an airline. The ability of LCCs to offer tickets at lower prices has made them popular in India, where consumers are very price sensitive.
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PURE LCC MODEL -- HELPS ACHIEVE LOWEST COST PER UNIT
SpiceJet follows the pure LCC model used globally. This has helped it in achieving the lowest cost in the industry. Its per unit cost is 20% lower than other LCC competitors, and 40% lower than players in the FSC segment. Going ahead, we expect the cost per unit to reduce further on account of fleet expansion, which would absorb the high fixed cost over a larger base.
HIGH SEAT DENSITY
SpiceJet’s aircraft are configured in a single economy class having 189 seats, which is among the highest in the industry. This is possible as the airline focuses on maximum space utilisation for generating more revenue per aircraft. SpiceJet accommodates 21% more seats than a dual (business and economy) configuration. With costs like fuel, lease, maintenance remaining same per aircraft, its per-seat costs comes down by around 20%.
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HIGH AIRCRAFT UTILISATION
A carrier aiming for the lowest possible cost of operation has to develop a schedule that would give a high annual utilisation of each aircraft in its fleet. Such a policy will lower cost as the fixed costs of the aircraft ownership or lease rentals can be spread over higher quantity of output (ASKM).
SpiceJet has been consistently reporting high aircraft utilisation (around 12 hours a day), in line with international benchmarks. This is possible because of its high on-time performance (82% within 15 minutes) and a low turnaround time of 20-25 minutes as compared to 40-45 minutes takes by FSC. No loading of meals or
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complex cargo and faster check-in system helps in reducing turn around time. Overall it reduces fixed cost absorption by 15-20%.
CRUDE PRICE HIKE OFFSET BY FUEL SURCHARGE
Airline companies in India have adopted the internationally-tested method of passing on the cost of rising fuel prices to customers through fuel surcharge. SpiceJet has also been pro-actively increasing its surcharge in line with the industry to pass on the effect. This not only helped the company in avoiding a direct hit on its bottom-line, but also in improving the overall yields. Going forward, we expect the airline companies to continue with this surcharge and increase it in line with any rise in their fuel costs.
Aviation Turbine Fuel (ATF) forms a major part of the overall cost for airlines in India. It accounts for 40%-50% of total operating costs, the highest in the world. ATF prices in India are 60% higher than international prices. The major component of the ATF prices is taxes (see Exhibit 18), which account for 53% of the base price. ATF prices in India are based on the "International Import Parity Prices", and directly linked to the benchmark of Platt's publication of FOB Arabian Gulf ATF prices (AG); and do not relate to the actual cost of producing ATF in India. ATF prices for domestic operations also include freight charges from the Gulf to India, customs duty of 10% ad-valorem (which adds up to an effective rate of approx 20% inclusive of the CVD and cess), domestic transportation and other charges, excise duty of 8.24% (including cess), sales tax
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(levied by state governments) averaging across the country at 25% as add-ons to the AG prices, besides the oil companies' marketing margin, and throughput charges paid to the Airports Authority.
AIRDECCAN:
Common Man:
The Brand Ambassador for Air Deccan, the people’s airline is Mr. R.K Laxman’s ‘Common Man’
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Free Tickets:
Advertisement through print, radio and billboards In flight magazine for revenue generating In flight shopping scheme called “Brand for less” –AVA Merchandising Tie-up with Café Coffee Day ICICI-Travel agent purchase card Tie-ups with HPCL and Reliance Web World
How Air Deccan cuts How Air Deccan cuts cost?
Quicker turnaround time Lower distributions costs All economy seating configuration No free catering on board Alternative revenue channels 100% web enabled bookings – e ticketing Enhanced cash flow management
STRENGTH:
Leader in LCC segment First to target the middle class First mover advantage Highest load efficiency Flies to destinations in the hinterland A ‘Lean-and-Mean’ approach to staffing Brand Equity
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Reduced staff numbers Economies of scale
WEAKNESS:
Focuses mostly on South Indian market Image plagued by frequent breakdowns and near misses Very limited advertising Reached at the threshold of cost efficiency Promoter having lack of financial muscle No previos industrial experience
The company has a modern fleet of ATR-42-320 aircraft, one of the finest and most efficient Turbo-Prop aircraft flying. ATR is a European joint venture between Alenia Aeronautica and EADS. The ATR 42 has become a reference aircraft amongst airlines around the world, by offering a safe, easy to maintain and comfortable aircraft operating on the regional market with the best economics on short haul sectors. To date, ATR has sold over 650 aircraft to more than 100 operators in 73 countries all around the world.
The company has adopted a 'lean-and-mean' approach to staffing and aims at maintaining a low aircraft-to-employee ratio. A good work culture coupled with a skilled workforce is the backbone of the company.
AIR ONE:
Simple product — which means no free meals, economy seating, online reservations, no frequent flier programmes
Positioning — targeting business and price- —conscious passengers
Low operating costs Low operating costs.
Strategies
A Single Passenger class.Targeting Business and price –conscious passengers.
Shorthaul and point-to-point approach. No assigned seats, pay the crew best in industry,and use of less
congested airports. Employee working in multiple roles, for instance flight attendants also
cleaning the aircraft or working as gate agents.(limiting personnel costs) Removing seat back pockets to reduce weight and cleaning expense. Charging passengers for practi cally every amenity they might consume.
There are no free peanuts or beverages
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Using that traffic as a marketing tool for related services, each time a passenger books a rental car or a hotel room, our airline will learn a percentage of a sale
Promotion Strategy
Promotion will be through outdoor advertising, radio and print media. Employing public relation firm for both consumer and financial purposes Combined amount budgeted for advertising and public relations will be
held under 15% of sales. Tie up with Creamoza Coffee.
Distribution Strategy
Developing our own website containing the information about the company along with facilities of online reservation and payment.
Hotels and Restaurants. Agencies giving cars on rent. Travel insurance agencies. Tie up with Creamoza Coffee
STRENGTH & WEAKNESS
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DIFFERENTIATION
Maintaining customer database Tie up with Creamoza Coffee. Boeing Specialized engineers for maintenance so that security is ugraded.
Direct plight at non metro airport
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CHAPTER 7. RECOMMENDATION & SUGGESTION
GOVERNMENT RECOMMENDATIONS
Codesharing
Codesharing is an important tool for airlines to minimise the costs of operating services. By selling seats on a flight operated by another carrier, codesharing enables an airline to make direct cost savings by rationalising services or establishing market presence on a route without actually operating on it. Thus, both airlines may be able to save on fuel, labour and other variable costs, as well as making more effective use of aircraft and other overheads.
Cabotage
Restricting access by foreign carriers to the Indian domestic market gives the Indian carriers a solid base from which to extend into international aviation. The same applies to most other countries, with the exception of city economies such as Singapore and Hong Kong. Restricting cabotage rights for the carriage of passengers and freight to domestic airlines reduces competition on domestic routes. These restrictions help keep fares and freight rates higher than they otherwise might be, boosting domestic airline revenue at the expense of domestic consumers. Allowing foreign carriers some cabotage rights could improve competition in the domestic market. Integrating domestic and international services allows airlines to achieve:
operational synergies and efficiencies by being able to switch capacity and aircraft between the domestic and international sectors; and
network advantages such as economies of scope and traffic density as well as the marketing advantages of operating a combined domestic and international network.
The opposition to this recommendation is the view that It is most likely that foreign carriers would engage in ‘cherry picking’ i.e. carry domestic traffic on the most profitable routes. Incumbent airlines would need to counter any loss of profitability on routes affected by cabotage and this could mean a reduction in the number of services provided on these routes, or the reduction or withdrawal of services from less profitable routes, with consequential loss of amenity to passengers, including those making connections to other parts of the domestic network.
Eliminate Regulatory Structure
The regulatory structure inhibits competition in many ways. It can prevent or deter entry, constrain capacity, and limit the potential for airlines to win market
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share. A problem in assessing regulatory impacts is the structure of aviation markets. Economies of scope and traffic density favour large airlines operating many services. On the demand side, a single carrier operating a long thin route with multiple frequencies will attract better business than multiple carriers who each operate one service per week. Thus markets tend to be concentrated with a small numbers of carriers operating on most routes.
It cannot be presumed that these airlines respond to normal commercial incentives. Instead of shareholder value, they may be managed for national prestige, employment enhancement, technology transfer, or defence, which might require government subsidies. Continued use of substantial government subsidies is an obstacle to efficient air services, and has important implications for competition in a less regulated international environment.
Eliminate the fuel tax
A most regressive tax whose burden becomes larger as fuel costs increase (and airlines’ ability to pay diminishes). As an interim step – cap tax revenue and determine a better way of obtaining (e.g., a per passenger levy).
Eliminate category III restrictions
Eliminate category III restrictions and provide essential air services subsidies where required (with costs shared by national/state/local authorities). Category III mandates that an operator deploy on routes in Category-II (North-Eastern region, Jammu & Kashmir, Andaman & Nicobar and Lakshadweep) at least 10% of the capacity deployed on routes in Category-I and of the capacity thus required to be deployed on Category-II routes, at least 10% would be deployed on service or segments operated exclusively within the North-Eastern region, Jammu & Kashmir, Andaman & Nicobar and Lakshadweep. In the interim, allow airlines to transfer category III obligations to a competitor or third party operator – who could use a standard, appropriate fleet and be paid by the majors to meet their category III requirements.
Improve quality of and access to airports and hangars
Privatize or municipalize. Develop a robust traffic management system that addresses relevant technical issues and meets strategic objectives through rigorous systems engineering and large-scale integration efforts such that rising air traffic demand is supported in a safe, secure and efficient manner.
Today, Indian airlines have difficulty accessing hangars for maintenance. As a result, private operators have to do some maintenance abroad. Airline maintenance and overhaul should be an area where India could develop a major international business, leveraging its low labour costs and world-class engineering to service aircraft for other countries as well as its own.
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Tourism
An efficient aviation sector is essential to support the tourism industry, which has immense employment opportunities and the tourism and airline industries with a joint proactive approach can foster tourism development and promotion in a big way. One of the prerequisites for developing tourism is 'easy access' to the tourist destinations, in terms of international and domestic connectivity and easy movement within the destination. An efficient aviation sector is essential to support tourism. Air connectivity is integral to the growth of tourism. Airlines and tourism are self dependent. The tourism market grows by itself with new connections and a popular destination attracts more flight operations. It is a win-win situation.
Direct connections would also give further impetus to tourists’ arrival. Over 40 per cent of the passenger traffic is concentrated in two main international airports namely New Delhi and Mumbai. The increase in connectivity has contributed to domestic and international tourist arrivals. The tourism and airline industries with a joint proactive approach can foster tourism development and promotion in a big way.
INDUSTRY RECOMMENDATIONS
Reduce labour costs
All major carriers need to win significant concessions from their workers. Low labour outlays would consist of a mix of reduced wages, more flexible work rules and trimmed benefits including pension.
Simplify flight operations
Low-cost carriers use just a few types of aircraft, a strategy that cuts training and maintenance expenses. Larger airlines who fly internationally, to more remote destinations require varied fleets of large and small planes. However, they can and should work toward streamlining the types of planes they fly.
Another way to simplify operations is modifying the hub-and-spoke model, which uses designated headquarter airports for transfers. Traditionally, the big airlines have sent many of their flights through hub airports at peak business-travel hours. That way, since carriers typically charge heaps more for business fares, they can get more revenues per flight. But many experts argue that it's time to give up on that model - especially as low-cost carriers increase service along heavily travelled routes.
Experts like the idea of so-called rolling hub operations, where flights are scheduled throughout the day so that an airline's assets - from employees to
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planes to hangars - can be used more efficiently. In a traditional hub system, planes and workers spend more time waiting for connecting flights to come in at peak operating times. With rolling hubs, travellers may end up waiting a little longer to get a connecting flight, but planes end up in the air for more hours of the day.
Offer more transparent pricing
The legacy carriers have long had an exotic, almost incomprehensible pricing system. However, these days, with the Internet allowing travellers to shop for the cheapest tickets easily, and low-cost airlines offering uncomplicated set prices, traditional carriers have to follow suit or risk losing more and more passengers.
Government Recommendations
Codesharing
Codesharing is an important tool for airlines to minimise the costs of operating services. By selling seats on a flight operated by another carrier, codesharing enables an airline to make direct cost savings by rationalising services or establishing market presence on a route without actually operating on it. Thus, both airlines may be able to save on fuel, labour and other variable costs, as well as making more effective use of aircraft and other overheads.
Cabotage
Restricting access by foreign carriers to the Indian domestic market gives the Indian carriers a solid base from which to extend into international aviation. The same applies to most other countries, with the exception of city economies such as Singapore and Hong Kong. Restricting cabotage rights for the carriage of passengers and freight to domestic airlines reduces competition on domestic routes. These restrictions help keep fares and freight rates higher than they otherwise might be, boosting domestic airline revenue at the expense of domestic consumers. Allowing foreign carriers some cabotage rights could improve competition in the domestic market. Integrating domestic and international services allows airlines to achieve:
operational synergies and efficiencies by being able to switch capacity and aircraft between the domestic and international sectors; and
network advantages such as economies of scope and traffic density as well as the marketing advantages of operating a combined domestic and international network.
The opposition to this recommendation is the view that It is most likely that foreign carriers would engage in ‘cherry picking’ i.e. carry domestic traffic on the
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most profitable routes. Incumbent airlines would need to counter any loss of profitability on routes affected by cabotage and this could mean a reduction in the number of services provided on these routes, or the reduction or withdrawal of services from less profitable routes, with consequential loss of amenity to passengers, including those making connections to other parts of the domestic network.
Eliminate Regulatory Structure
The regulatory structure inhibits competition in many ways. It can prevent or deter entry, constrain capacity, and limit the potential for airlines to win market share. A problem in assessing regulatory impacts is the structure of aviation markets. Economies of scope and traffic density favour large airlines operating many services. On the demand side, a single carrier operating a long thin route with multiple frequencies will attract better business than multiple carriers who each operate one service per week. Thus markets tend to be concentrated with a small numbers of carriers operating on most routes.
It cannot be presumed that these airlines respond to normal commercial incentives. Instead of shareholder value, they may be managed for national prestige, employment enhancement, technology transfer, or defence, which might require government subsidies. Continued use of substantial government subsidies is an obstacle to efficient air services, and has important implications for competition in a less regulated international environment.
Eliminate the fuel tax
A most regressive tax whose burden becomes larger as fuel costs increase (and airlines’ ability to pay diminishes). As an interim step – cap tax revenue and determine a better way of obtaining (e.g., a per passenger levy).
Eliminate category III restrictions
Eliminate category III restrictions and provide essential air services subsidies where required (with costs shared by national/state/local authorities). Category III mandates that an operator deploy on routes in Category-II (North-Eastern region, Jammu & Kashmir, Andaman & Nicobar and Lakshadweep) at least 10% of the capacity deployed on routes in Category-I and of the capacity thus required to be deployed on Category-II routes, at least 10% would be deployed on service or segments operated exclusively within the North-Eastern region, Jammu & Kashmir, Andaman & Nicobar and Lakshadweep. In the interim, allow airlines to transfer category III obligations to a competitor or third party operator – who could use a standard, appropriate fleet and be paid by the majors to meet their category III requirements.
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Improve quality of and access to airports and hangars
Privatize or municipalize. Develop a robust traffic management system that addresses relevant technical issues and meets strategic objectives through rigorous systems engineering and large-scale integration efforts such that rising air traffic demand is supported in a safe, secure and efficient manner.
Today, Indian airlines have difficulty accessing hangars for maintenance. As a result, private operators have to do some maintenance abroad. Airline maintenance and overhaul should be an area where India could develop a major international business, leveraging its low labour costs and world-class engineering to service aircraft for other countries as well as its own.
Tourism
An efficient aviation sector is essential to support the tourism industry, which has immense employment opportunities and the tourism and airline industries with a joint proactive approach can foster tourism development and promotion in a big way. One of the prerequisites for developing tourism is 'easy access' to the tourist destinations, in terms of international and domestic connectivity and easy movement within the destination. An efficient aviation sector is essential to support tourism. Air connectivity is integral to the growth of tourism. Airlines and tourism are self dependent. The tourism market grows by itself with new connections and a popular destination attracts more flight operations. It is a win-win situation.
Direct connections would also give further impetus to tourists’ arrival. Over 40 per cent of the passenger traffic is concentrated in two main international airports namely New Delhi and Mumbai. The increase in connectivity has contributed to domestic and international tourist arrivals. The tourism and airline industries with a joint proactive approach can foster tourism development and promotion in a big way.
INDUSTRY RECOMMENDATIONS
Reduce labour costs
All major carriers need to win significant concessions from their workers. Low labour outlays would consist of a mix of reduced wages, more flexible work rules and trimmed benefits including pension.
Simplify flight operations
Low-cost carriers use just a few types of aircraft, a strategy that cuts training and maintenance expenses. Larger airlines who fly internationally, to more remote
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destinations require varied fleets of large and small planes. However, they can and should work toward streamlining the types of planes they fly.
Another way to simplify operations is modifying the hub-and-spoke model, which uses designated headquarter airports for transfers. Traditionally, the big airlines have sent many of their flights through hub airports at peak business-travel hours. That way, since carriers typically charge heaps more for business fares, they can get more revenues per flight. But many experts argue that it's time to give up on that model - especially as low-cost carriers increase service along heavily travelled routes.
Experts like the idea of so-called rolling hub operations, where flights are scheduled throughout the day so that an airline's assets - from employees to planes to hangars - can be used more efficiently. In a traditional hub system, planes and workers spend more time waiting for connecting flights to come in at peak operating times. With rolling hubs, travellers may end up waiting a little longer to get a connecting flight, but planes end up in the air for more hours of the day.
Offer more transparent pricing
The legacy carriers have long had an exotic, almost incomprehensible pricing system. However, these days, with the Internet allowing travellers to shop for the cheapest tickets easily, and low-cost airlines offering uncomplicated set prices, traditional carriers have to follow suit or risk losing more and more passengers.
Get smart on fuel
With oil near $50 a barrel, airlines must be smarter about how they incorporate its price into their costs. Discount carriers such as Southwest hedge as much as 80% of their jet-fuel costs. Essentially, that means that they lock in prices on future fuel when the price drops. Small wonder Southwest is one of the few success stories in the airline business.
Stop chasing market share
Airlines need to be savvier about capacity. At the start of 2004, many planned to add more flights amid signs of an improved economy. When it became clear that demand wasn't as strong as originally forecast, most carriers still wouldn't retrench from their plans for fear of losing out if the market snapped back. Rather than scrambling to add seats in fear of missing out on the party, airlines would do well to take a more cautious approach and focus on efficiency and margins.
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From bailouts to government partnership
Although the Indian airline industry was largely deregulated in 1990, plenty of lingering rules and regulations have made it nearly impossible for carriers to be efficient. Many believe that restrictions on foreign ownership and labour laws have kept the industry from innovating. So instead of lobbying for protective measures like bailouts, airlines need to work with government to tackle longer-term projects like building more runways, running airports more efficiently, and reining in labour costs.
A new model for premium pricing
Most of the industry's improvement efforts have focused on whittling down costs. However, boosting revenues also needs to be a priority. After all, people are willing to pay more if they believe they're getting more value. Legacy carriers still offer certain advantages, especially to the business traveller including airport lounges and more comfortable seating.
With oil near $50 a barrel, airlines must be smarter about how they incorporate its price into their costs. Discount carriers such as Southwest hedge as much as 80% of their jet-fuel costs. Essentially, that means that they lock in prices on future fuel when the price drops. Small wonder Southwest is one of the few success stories in the airline business.
Stop chasing market share
Airlines need to be savvier about capacity. At the start of 2004, many planned to add more flights amid signs of an improved economy. When it became clear that demand wasn't as strong as originally forecast, most carriers still wouldn't retrench from their plans for fear of losing out if the market snapped back. Rather than scrambling to add seats in fear of missing out on the party, airlines would do well to take a more cautious approach and focus on efficiency and margins.
From bailouts to government partnership
Although the Indian airline industry was largely deregulated in 1990, plenty of lingering rules and regulations have made it nearly impossible for carriers to be efficient. Many believe that restrictions on foreign ownership and labour laws have kept the industry from innovating. So instead of lobbying for protective measures like bailouts, airlines need to work with government to tackle longer-term projects like building more runways, running airports more efficiently, and reining in labour costs.
A new model for premium pricing
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Most of the industry's improvement efforts have focused on whittling down costs. However, boosting revenues also needs to be a priority. After all, people are willing to pay more if they believe they're getting more value. Legacy carriers still offer certain advantages, especially to the business traveller including airport lounges and more comfortable seating.
CHALLENGES FOR AVIATION INDUSTRY
The growth in the aviation sector and capacity expansion by carriers have posed challenges to aviation industry on several fronts. These include shortage of workers and professionals, safety concerns, declining returns and the lack of accompanying capacity and infrastructure. Moreover, stiff competition and rising fuel costs are also negatively impacting the industry.
1. Employee shortage: There is clearly a shortage of trained and skilled manpower in the aviation sector as a consequence of which there is cut-throat competition for employees which, in turn, is driving wages to unsustainable levels. Moreover, the industry is unable to retain talented employees.
2. Regional connectivity: One of the biggest challenges facing the aviation sector in India is to be able to provide regional connectivity. What is hampering the growth of regional connectivity is the lack of airports.
3.Rising fuel prices: 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.
4.Declining yields: 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.
5. Gaps in infrastructure: Airport and air traffic control (ATC) infrastructure is inadequate to support growth. While a start has been made to upgrade the infrastructure, the results will be visible only after 2 - 3 years.
6. Trunk routes: 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 ensure that air fares are brought to realistic levels, as it will lead to better cost and revenue management, increased productivity and better services. This in turn would stimulate demand and lead to growth.
7. High input costs: Apart from the above-mentioned factors, the input costs are also high. Some of the reasons for high input costs are:-
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Withholding tax on interest repayments on foreign currency loans for aircraft acquisition. Increasing manpower costs due to shortage of technical personnel.
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