tejal arun savur-jet airways

IMPACT OF AIR DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS

A Market Competitor Analysis for Jet Airways, Sept – Oct 2004 6


(A Market Competitor Analysis)

Submitted to

Bangalore University

In partial fulfillment of

the requirements for the award

of the degree of

Masters of Business Administration

Under the guidance of

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

By

Miss Tejal Arun Savur

(Reg no. 02XQCM6062)

M.P. Birla Institute of Management,

Associate Bharatiya Vidya Bhavan,

No 53, Race Course Road,

Bangalore 560001.

September– October 2004



DECLARATION

I hereby declare, that this dissertation titled, “IMPACT OF AIR

DECCAN OPERATIONS ON JET AIRWAYS OPERATIONS – A

Market Competitor Analysis’ is a bonafide study, completed under the

guidance and supervision of Dr. K.V. Prabhakar, Adjunct Faculty,

MPBIM-BVB, and Mr.U.Harish Shenoy, Area Manager, Jet Airways,

Bangalore, in partial fulfillment of the requirements for the award of

MASTERS OF BUSINESS ADMINISTRATION Degree at Bangalore

University.

I further declare that this dissertation is the result of my own efforts

and that it has not been submitted to any other university or institute for the

award of a degree or diploma or any degree or other similar title of

recognition.

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



ACKNOWLEDGEMENT

I am extremely grateful to all those who have shared their views, opinions,

ideas and experiences which have significantly improved my research work

embodied in this dissertation.

I like to express my sincere thanks to Mr.U.Harish Shenoy, Area Manager

– Karnataka, Jet Airways, for his untiring guidance throughout my research

journey. I have been benefited greatly from the excellent advices extended by him,

without which this dissertation would not have seen the light.

I am indebted to the Airport authorities, who have been very

understanding and encouraging throughout my research work. Very special thanks

to the travel agencies for their kind co-operation. I would also like to express

thanks to the entire staff at Jet Airways, Double Road Branch, for their constant

support.

I am grateful to Dr. K.V. Prabhakar, Marketing Head, MPBIM, for his

valuable suggestions which added value to this research work.

I would be failing in my duty, if I do not extend my sincere gratitude towards

our beloved Principal, Dr.N.S. Malavalli and our esteemed and respected

Directors, Sri. R. Thothadri and Sri. A. Krishnamurthy for their support.

Finally I would like to extend my warm respects and regards to my family,

friends and well-wishers for their constant support and valuable suggestions.

- Miss Tejal Arun Savur



CONTENT SHEET

Particulars Page No.

Executive Summary 1 - 2

Chapter 1: BACKGROUND SCENARIO 3 - 5

Chapter 2: AVIATION INDUSTRY 6 - 11

Chapter 3: PROFILE OF JET AIRWAYS 12 - 23

Chapter 4: LITERATURE SURVEY 24 - 26

Chapter 5: RESEARCH METHODOLOGY 27 - 30

Chapter 6: RESEARCH FINDINGS 31 – 54

Chapter 7: MAJOR FINDINGS OF THE RESEARCH 55 - 55

Chapter 8: RECOMMENDATIONS 56 - 65

(Including Suggestions for further Research)

ANNEXURE: 66 - 79

Questionnaires

Customer Survey

Travel Agency Survey

Select Bibliography

List of Travel Agencies contacted

Collateral



LIST OF TABLES AND GRAPHS

Title Page No

Pie-Chart showing the sample segment traveling by Air-Deccan 31

Pie-Chart showing the target segment with regards to Profession/Occupation. 32

Conical Pyramid showing the first-time flying approval. 33

Bar Graph showing the first –time flying experience approval. 34

Bar-Pyramid showing the customer perceptions to Air-deccan flight services

with respect to on-time performances.(Based on Age) 36

Column graph showing the customer perceptions to Air-deccan flight services

with respect to on-time performances.(Based on Profession) 37

Pie-chart showing the destination of travel – Based on the Profession 39

Conical Pyramid showing the mode of transport preferred 40

Pie-chart showing the professional preference towards Jet Airways 41

Horizontal bar graph showing the importance of low air fares 43

Pie-chart showing change in number of passengers due to

introduction of no-frills airlines 45

Line graph showing proportion of passengers booked in a sector 46

Pie-chart showing sensitivity of passengers towards price 48

Donut Graph showing the percentage increase in number of passengers 51

Pie chart showing prior means of transportation for the new passengers 52

Daily monitor of Flight arrival and departure timings 53

A Comparison of fares 54



EXECUTIVE SUMMARY

Jet Airways – the Market Leader of the Indian Domestic Aviation Industry

launched its service on 23rd May 1993. It was set up with the objective of

becoming the most preferred domestic airline in the country by providing high

quality and reliable air travel in India.

Over the past 11 years Jet Airways has been striving towards maintaining its

position as the market leader and has had to withstand and weather many a

challenging and tough times, especially the slump in the aviation industry on the

whole, due to the 9/11 attacks.

Recently, an issue of concern for Jet Airways has been a new entrant into the

industry – one which cannot be under-estimated – one that is using a completely

different approach towards the industry – one which could pose as a threat to the

Market Leader if not analyzed and scrutinized in the initial stages itself.

Air Deccan – India’s first low cost no frills carrier has launched its service on

August 25th, 2003 from its hub at Bangalore. Currently since the airline is

operating 2 aircrafts from its hub in Bangalore to Mangalore and Hubli

(operations started on August 25th 2003) and Chennai, Coimbatore and

Hyderabad (operations started on September 30th 2003). Air Deccan is currently

facing initial operational hitches and its operations other than between BLR-IXE

are not streamlined.

Air Deccan has postponed its second aircraft’s operations three times. Though

once Air Deccan launches its full operations in the coming future, first in South

India and then throughout the country, with a fleet of 6 aircrafts and 75 flights

daily, it can be a major threat to Jet Airways in the highly price sensitive Indian

market. The research work in this dissertation is an attempt to quantify this threat

and counter the effect of Air Deccan on Jet Airways’ seat factor



To this effect, an exploratory and conclusive research was carried out on a

sample of 120. This sample was split into two parts

1. Passengers who have actually traveled by Air Deccan – 100 people

2. Travel Agencies who contribute to over 60% of the revenue for Jet

Airways in Bangalore City – 20 travel agencies.

The responses were generated with the help of two separate questionnaires for

each sample type, which contained both quantitative and qualitative questions.

These were administered in person at the airport in the case of the passenger

survey. In the case of travel agency survey, they were administered either in

person at the travel agency or through a telephonic conversation in case the

concerned person was unavailable for a one-to-one interaction.

The conclusion drawn from the perceptions of the sample clearly stated that Air

Deccan was only catering to the needs to Small Scale Businessmen and

Entrepreneurs who had to travel to Belgaum, Hubli, etc on work and were willing

to compromise on quality for the sake of the saving some money and time. Also

students and housewives who were occasional fliers found Air Deccan to be

more cost effective than traveling by train or bus.

Most passengers of Air Deccan were previously traveling to their destination

through train or bus. They had upgraded themselves to traveling by air as the

prices of both were more or less the same.

This means that the core passengers of Jet Airways – the Corporates,

Professionals and International Fliers still continue to prefer and support Jet

Airways which is a more reliable and professional airline. They are very satisfied

with the services provided by Jet Airways and they would not be sensitive to the

changes in price. Strategies to strengthen its position have been recommended

to Jet Airways for retaining their current passengers by direct marketing and by

attracting the new passenger segment Air Deccan is creating.



NEED AND SIGNIFICANCE OF THE STUDY

In this ever-competitive and ever-changing world, absolutely nothing is constant.

One has to be well aware of one’s competitors – as the market follows the rule of

SURVIVAL OF THE FITTEST. It has become a must, to ensure that one is

always a step above the rest – even if it means being marginally better than that

one’s competitors. It has been established, over the years that Jet Airways has

been the leader of the Indian Domestic Airline Industry, with whopping share of

close to 46 – 48% of the market. Many small-scale players had to perish, as

they were not able to face the competition from the market leader. They

succumbed to the enormous pressure of survival and had no choice but to

liquidate. With this as a background, one player (Air Deccan) has tried to make

an entry into this fierce aviation market. Recently there has been an advent of a

new type of Airline – A “NO FRILLS” Airline - The first one of its kind in a totally

different league altogether has decided to adopt a frontal attack on the market

leader and thereby assuming the market challengers role. The attack posed by

the market challenger has scaled new dimensions in the Indian civil aviation

industry with regards to price sensitivity. The Unique Selling Proposition strategy

of the Market Challenger has been to provide Air travel that fits common man’s

pocket and thereby leveraging the cost of travel over other modes of transport

like train, road – within common man’s reach

Air Deccan Business Model

Air Deccan’s business plan is to ply short haul flights between cities, hitherto

unconnected by airlines in Andhra Pradesh, Karnataka and Tamil Nadu from

Bangalore, Chennai and Hyderabad. The cities identified by the airline include

Hubli, Belgaum, Tirupati, Rajamundry, Vijayawada, Puttaparthi, Mysore, Hampi,

Salem, Tuticorn, Coimbatore and Mangalore.



Air Deccan aircraft fleet will eventually comprise of six old ATR-42-320s with an

average age of 7 years, dry leased for 5 years. Currently they have started

operations with 1 aircraft only, as the other aircraft has not been cleared by

DGCA. In November 2003 they completed role out with 6 aircrafts. Each aircraft

was expected to do 12 block hours per day and have an estimated turnaround

time of 20 minutes. ATR will provide spares pool to Air Deccan from France

within 48 hours during time of need. These spares are besides a spare parts

stock of $3 million already positioned by the airline at their base.

The target customers are business travelers mainly from the Small Office

House Office (SOHO) segment and personal visits/leisure travelers. The airline

aims to ply same day return flights to facilitate the SOHO business travelers,

such that they save on accommodation expenses. Media reports suggest

Karnataka government has issued a directive for officers who hold the rank of

tahsildar or above should travel by Air Deccan for official purpose. Tamil Nadu

and Andhra Pradesh government may also issue similar directives, which will

guarantee traffic for the airline to sustain operations in its initial phase and

eventually help it to grow. The Andhra Pradesh government has also aided Air

Deccan’s operations by completely wavering off sales tax on ATF.

Air Deccan has cut its distribution costs to 3%, compared to Jet Airways 15%.

This reduction has been possible since Air Deccan does not have any CRS/GDS,

but alternately they seem to be maintaining a local server which can be accessed

through their website and payment necessarily has to be made by a credit card.

The passenger has the option of booking a ticket on the Internet using his credit

card or he can directly buy a ticket at the terminal at the airport before departure.

Tickets can also be booked through a travel agent who will use his credit card on

behalf of the passenger. A few local travel agents have already been issued

credit cards through an arrangement with ICICI Bank, while others will be

provided with the same shortly.



Travel agents earn a commission of 5% per booking; this commission is over and

above the listed fare. Also each passenger has to pay a transaction fee of INR 25

per seat booked over and above the fare. Eventually Air Deccan also plans to

sell tickets as a commodity through retail chains such as Shopper’s Stop and

Food World.

Air Deccan’s founder Capt. Gopinath also plans to fly to Dubai and Singapore,

subject to government regulations. The broad estimated financials for Air Deccan

have been provided in Annexure II. This low cost airline has a grand business

plan and considering it is not a new player since it already has a full fledged

charter helicopter service in place it will soon prove to be a worthy competitor.

Thus we need to position a plan of action to retain our passengers before they

shift to Air Deccan.

Since this new entrant has just entered the market, Jet Airways (Market Leader)

feels the need to re-assess this airline – to judge whether it could have any

impact on them. This comes in the light of the varying tastes and preferences

occurring across various demographic segments of air travelers (age &

profession). Even though the player is very small, it becomes highly imperative to

analyze the stakes involved. Jet Airways acknowledges the efforts of this airline

and finds it crucial to analyze the strengths and weaknesses of this new entrant –

to ensure its hold on the market is not dissolved.

The foregoing analysis establishes the need for a research on the impact of Air

Deccan on Jet Airways. The main focus of the research is on Market Competitor

Analysis. This analysis would form as a base for Jet Airways to examine the

impact that Air Deccan throws on its market share with suitable SWOT Analysis

(an integral component of Market Competitor Analysis), Jet Airways must design

the “Counter Attack” Strategy



AVIATION INDUSTRY

Overview of the Aviation Industry

The Civil Aviation occupies a significant place in the transport management of

today’s world. It plays an important role in pricing decisions also. The

operational expenses are found increasing fast to improve the quality of services

or to follow safety norms. The air transport authorities find it difficult to rationalize

the fare and freight structures since the falling occupancy ratio is found throwing

a big impact on the revenue position. The users expect a lot for the charges they

pay and are not in a position to pay more. However the ministry of Civil Aviation

bears the responsibility of rationalizing the fare and freight structures in such a

way that the revenue position is increased.

The setting of International pricing is found much more complicated since it is not

only on Air India to set fare and freight structures. The International Airport

Authority of India, International Air Transport Association (IATA), & International

Civil Aviation is some of the important organizations playing a decisive role in

making the pricing decisions for the international air transport business. IATA

divides the world in to three areas, such as:

• Area 1

• Area 2

• Area 3

In the Area 1, the countries are North and South American continents, islands

adjacent there to like Greenland, Bermuda, West Indies, Caribbean area,

Hawaiian island, Midway.

In the Area 2, the countries like Europe, Africa, Islands thereto like Ascensian,

the part of Asia situated west including Iran.

In the Area 3, the countries are remaining part of Asia and island adjacent

thereto East Indies, Australia, New Zealand, Islands of Pacific Ocean.



The Airline Industry

The airline industry has never had it so bad, in India or abroad. Because of

recession in the economy, most of the airlines were in loss and now the attacks

on the World Trade Center and Pentagon in the United States has worsened the

situation. According to recent study, it is understood that forty percent of the

people have cancelled their plans and sixty percent have postponed their trips

indefinitely. Leisure travel was dead but now is slowly recovering.

The airline industry is a multi-dimensional industry which offers intangible

services like passenger services, cargo services, mail services etc. The services

of airline industry are commercial as well as social. The sophistication of airline

industry technologies determines the quality of services or standard specification

Aircraft Manufacturers

It is quite interesting to note that there are only two aircraft’s manufacturers for

the whole world with so many bustling airlines around. These two largest giants

are: -

• Boeing

• Airbus



Boeing

The Boeing Company is the world’s leading aerospace company, with its

heritage mirroring the history of flight. It is the largest manufacturer of satellites,

commercial jetliners, and military aircraft’s. The company is also a global market

leader in missile defense, human space flight, and launch services. In terms of

sales, Boeing is the largest U.S. exporter. Total company revenues for 2000

were $51 billion.

Airbus

Airbus is the first European Company, one of the aircraft’s manufacturers in the

market for large commercial airlines. It designs and builds sells and supports

aircraft’s of 100 seats or more.

Indian Commercial Aviation Industry

The Indian aviation industry has two distinct sectors - Commercial and Military.

Commercial aviation includes passenger airlines and cargo planes, international

air services, air taxi and charter operations being major functions. Indian air

Force and the aviation arms of the Navy and Army are included.

Commercial airlines have a typical organizational structure. This includes airlines

operations, maintenance, marketing and finance divisions. The role of the

operations division is to conduct day to day activities of the airline, overseeing

the pilots and flight attendants, the flight dispatches, flight schedulers and ground

crew. Engineering and technical division handles the maintenance of avionics

and mechanics of the aircraft’s, they perform daily inspections, carry out routine

repairs etc.



The marketing function involves selling services of the airline, creating market

strengths, and supply through advertising, charting new programmes / services,

attracting customers and controlling ticket reservations and managing material

purchases. The finance division is concerned with managing the money flow.

Interior decorators are other professionals who work for airlines. They are

assigned the task of decorating passenger lounges at airports and also aircraft’s

interiors. Uniforms of pilots, aircrew, check in personnel and others are designed

by fashion designers.

Commercial aircraft’s operate from the civil airports while military aircraft’s

operate from military airfields and in exceptional circumstances from civil

aerodromes. Airports are large and have its own security and rescue services,

fire department, retail outlets, restaurants, construction and maintenance teams,

warehouses for cargo and an independent transport system.

A very important part of the airline industry is the aircraft’s manufacturers. While

most of the commercial aircraft’s are bought from foreign manufactures the

Hindustan Aeronautics Ltd. as well as the National Aeronautics Ltd. are the main

Indian manufacturers. Though their major work is related to maintenance these

units have manufactured some indigenous airplanes.

In the manufacturing sector work physicists, biologists, engineers,

mathematicians, design engineers, technicians, accountants, lawyers and

administrative staff. Industries supplying components and electronics also

employ a range of specialists. Manufacturers of parachutes, skydiving

equipment’s are the other equipment’s.



DGCA -The Director General of Civil Aviation in India governs the commercial

aviation industry. It controls, standardizes, gives licenses of aircrews and

investigates any incidents and accidents. It also certifies the airworthiness of

aircraft’s.

Indian Airline Industry

The news on the domestic front, however, is bad and has been grim for the past

six months; recession has eaten in to business travel in a big way and practically

killed leisure travel. Osama bin Laden’s action in the U.S. has hit the Indian travel

industry below the belt. It has become the least preferred destination. The Airline

industry already feeling the pinch of the general economic slow down and the

slump in the Information Technology industry. With war clouds hovering over the

region, the airline industry appears to be in jitters.

“When there is a big contract to be signed, and normally eight people would go

now only two are traveling” says Asgar Ali, director of Universal Express Travels

and Tours, whose business has dwindled by nearly 35-45 percent.

The recession is not solely responsible for the airlines suffering red ink.

Reasons for the Recent Recession in the Indian Domestic Airline Industry:

¾ There is too much capacity to Delhi, Calcutta, Mumbai and

Bangalore sectors. Indian Airlines shuttles together with Jet

Airways flights added up to 2,000 seats a day to Delhi, besides the

Air Sahara and Air India’s discounted flights.



¾ The Mumbai-Bangalore sector also suffers from excess capacity.

The total current capacity is almost is almost 1,800 seats often

making aircraft’s travel lighter by as much as 40 percent. The extra

seats may have come in two years late.

¾ For, when the domestic and global economy was scaling new

heights each day. Flights between Mumbai and Bangalore or

between Delhi and Mumbai were operating with a highly profitable

eighty percent load.

¾ By the time Airlines woke up to the reality of the need for more

seats and obtained necessary schedules and permissions, the

recession had set in emptying out the flights.

¾ The much hyped disinvestments in flagship carrier – Indian Airlines

is finally off.

¾ The finance ministry has given its had to the infusion of funds came

into force as there was no bidder for the national carrier and the

airline could not be run anymore without upgrading and

modernizing its feet.



COMPANY PROFILE

Jet Airways is the biggest success story in the Indian aviation industry and

one of the fastest growing airlines in the world. They began operations with

the mission of becoming the most preferred domestic airline in the country.

Today, it's a matter of pride with which they are widely recognized as "India's

Best and world-class Domestic Airline".

Where did Jet Airways start?

On May 5, 1993, Jet Airways was set up with the objective of becoming the most

preferred domestic airline in the country by providing high quality and reliable air

travel in India. A very high percentage of the Indian domestic air traffic comprised

business travelers. Therefore, the focus from the very beginning was to emerge

as the "Businessman's Preferred Airline". This led to a product and service

design that aimed at world class norms in professional service and efficiency,

beginning with the choice of aircraft itself.

Their operations began with a fleet of four Modern Generation Boeing 737-300

aircraft. The operation of these aircraft marked the first time they had flown

Indian skies. They used the training facilities of Ansett (Australia) for the training

and conversion of their pilots and engineers. To help them achieve world class

norms in service, Speed wing (a British Airways subsidiary), assisted in

conducting a programme on Customer Service Excellence for staff across

functions at all levels.

To ensure accurate and efficient reservation systems, they even tied up with and

are co-hosted with SABRE - one of the world's best reservations systems.

Within three months of operation, they also became an associate member of

IATA, parties to the IATA multilateral interline agreement and a member of the

IATA clearing house.



How has Jet Airways grown?

Commerce in 1967, Naresh Goyal joined the travel business with the GSA for

Lebanese International Airlines. Between 1967 and 1974 he underwent extensive

training in all facets of the travel business through his association with several

foreign airlines. He also traveled overseas extensively on business during this

period.

With the experience, expertise and technical know-how thus acquired, in

May 1974, Naresh Goyal founded Jet air (Private) Limited with the objective of

providing Sales and Marketing representation to foreign airlines in India. He was

involved in developing studies of traffic patterns, route structures, operational

economics and flight scheduling, all of which has made him an authority in the

world of aviation and travel. In 1991, as part of the ongoing diversification

programme of his business activities, Naresh Goyal took advantage of the

opening of the Indian economy and the enunciation of the Open Skies Policy by

the Government of India, to set up Jet Airways (India) Private Limited, for the

operation of scheduled air services on domestic sectors in India.

Now in its tenth year, Jet Airways has emerged as India's largest private

domestic airline and has been acclaimed by frequent travellers as the most

preferred carrier offering the highest quality of comfort, courtesy and standards of

in-flight and ground service and reliability of operations. It currently has a market

share of around 45 - 46 per cent and operates a fleet of 31 Boeing and eight

ATR72-500 turbo-prop aircraft. Jet Airways has won several national and

international awards, including the 'Market Development Award' for 2001

awarded by Air Transport World

Naresh Goyal, the founder Chairman of Jet Airways,

India's premier domestic airline has had over 35 years

experience in the Civil Aviation Industry. He is the recipient of

several national and international awards. After graduating in



PERFORMANCE CHARACTERISTICS:

¾ Jet Airways is known as India’s “World Class Domestic Airline”. When

one flies with them, one can be sure to receive the finest service from the

time one books the ticket to the time one reaches the destination and

leaves the airport.

¾ Jet Airways operates over 250 flights daily to 41 destinations across the

country. The rapid expansion of their route network has earned them the

prestigious Air Transport World Award 2001 for Market Development.

¾ Jet Airways has also won the prestigious H&FS award for the domestic

airline for the year 2001 four times.

¾ They also pride themselves in having the youngest fleet of aircraft in

India, consisting of the modern 737-400/700/800 and the ATR 72-500.

¾ Jet Airways is proud to be one of the few airlines in the world to receive

the ISO 9001 certification for their in-flight services. Jet Airways

strives to provide service of the highest standard to their customers, both

on ground and in-flight.

¾ They pride themselves on having an unbeatable record of on-time flights

and providing world-class frequent flyer benefits to their customers,

through their alliances with British Airways, KLM Royal Dutch Airlines and

Northwest Airlines.

¾ They were the first airline in India to receive the World Travel Market

Global Award, the world's premier global travel event in London. And

Citibank Diners Club has chosen them as India's best domestic airline for

their excellence in service.

¾ Today, they are India's most preferred airline for their consistent

performance.



CORPORATE MISSION STATEMENT

� Jet Airways will be the most preferred domestic airline in India. It will be

the automatic first choice carrier for the traveling public and set standards,

which other competing airlines will seek to match.

� Jet Airways will achieve this pre-eminent position by offering high quality

of service and reliable, comfortable and efficient operations.

� Jet Airways will be an airline which is going to upgrade the concept of

domestic airline travel - be a world class domestic airline.

� Jet Airways will achieve these objectives whilst simultaneously ensuring

consistent profitability, achieving healthy, long-term returns for the

investors and providing its employees with an environment for excellence

and growth.

BUSINESS SLOGAN:

The business slogan of jet airways sends a clear message to its

customers reminding them about experiencing air travel the Jet-way.

“The Joy of Flying”

The yellow rose provided to all its customers during the course of the flight

is their way of establishing a long and cherished Customer relationship.



ACHIEVEMENTS / AWARDS:

In their constant endeavor to attain and maintain the highest standards of

service, they have been recognized and appreciated by many acclaimed

authorities.

August 2003 ‘The Oscar of Branding’

January 2003 January 2003 Business world Award as a

"Most Respected Company for 2003"

October 2002 TTG Travel Award 2002 for

“Best Domestic Airline.”

September 2002 H&FS – Best Domestic Airline of the Year 2001

for excellence in hospitality.

February 2001 Air Transport World’s Market Development Award

March 2000 H&FS – Best Domestic Airline of the Year 1999

for excellence in hospitality.

January 2000 Vocational Excellence Award by

Rotary Club of Mumbai North End

December 1998 H&FS – Best Domestic Airline of the Year 1998

for excellence in hospitality



November 1998 The International Brand Summit

1996-97 Best Airline of the Year 1996-97 Award conducted by

IATA Agents Association, Calicut

November 1997 Best Domestic Airline Award for Service Excellence

- Key to Competitiveness.

September 1997 H&FS Award by the Rangaswamy Tourism

Foundation associated with the

Karnataka State Tourism Development Corporation.

December 1996 H&FS - Best Domestic Airline of the Year Award for

Excellence in hospitality (From Press Release)

November 1996 The World Travel Market Global Award by

Reed Exhibition Companies in conjunction with

Trav Talk for their contribution to travel and tourism

in the respective media sponsor regions worldwide.

October 1996 The Great Management Show Award for punctuality,

safety, quality of service and customer orientation

September 1996 Citibank Diners Club Blue Moon Award

for Service Excellence

October 1994 Service Excellence Award at an International seminar

called 'Global Managers in Jurassic Park'

hosted by Global Managers



OPERATIONAL CHARACTERISTICS:

Jet Airways Fleet

Jet Airways' current fleet consists of B737 New and Next-Generation

aircraft and the modern turbo-prop ATR72-500 aircraft. CFM 56 engines power

all the Boeing aircraft while the ATR aircraft are powered by Pratt and Whitney

127 engines. The average age of the fleet is 3 years making Jet Airways the

operator of the youngest aircraft fleet in Asia. It has a total of 31 fleets in service

at present. The details are given

B 737 - 800

Total in Service Capacity Engines Cruise

Speed Length Wing Span

13 Club Première-28

Economy Class-126 CFM56 7B24

871 kmph

39.5m 34.3m

B 737 - 700




Economy Class-102 CFM56 7B22

871 kmph

33.6m 34.3m

B 737 - 400




Economy Class-112 CFM56 3C1

815 kmph

36.4m 28.9m

ATR 72 - 500



08 Economy Class-62 PW127F 511

kmph 27.17m 27.0m



NETWORK

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



GLOBAL ALLIANCES & PARTNERS

In Jet Airways efforts to provide their customers with a world-class

traveling experience, they have extended themselves to their partners with whom

they alliance. In order to offer the finest quality of service, they have alliances

with some of the best airlines, hotels, cellular service providers and car rental

services such as:

� International Airline Partners

9 KLM Royal Dutch Airlines

9 Northwest Airlines

9 British Airways

� Hotel Partners

9 The Park Hotels

9 The Oberoi Group

9 The Leela Hotels and Resorts

9 Radisson Hotels & Resorts Worldwide

9 ITC Hotels

� Telecom Partners

9 BPL Mobile

� Car Partners

9 AVIS

� Commercial & Consumer Banks

Citibank

� Through Check-in Partners

� Interline Partners



DIVISIONAL CHART OF JET AIRWAYS (MARKETING DIVISION)

MD – Managing Director CEO – Chief Executive Officer GM – General Manager AM – Area Manager SM – Sales Manager RM – Reservation Manager DO – Duty Officer CSA – Customer Service Assistants

CEO

GM (East)

SM RM

MD

GM (West)

GM (North)

AM (East) AM (West)

AM (North)

Asst.SM

Asst.RM

DO

CSA

Superior

Sr. Sales

Sales Exe.

SM RM

Asst.SM

Asst.RM

DO

CSA

Superior

Sr. Sales

Sales Exe.

GM (South)

AM (South)

SM RM

Asst.SM

Asst.RM

DO

CSA

Superior

Sr. Sales

Sales Exe.

SM RM

Asst.SM

Asst.RM

DO

CSA

Superior

Sr. Sales

Sales Exe.



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

Jet Airways' In-flight Services have been officially ISO 9001-2000 certified for

meeting world-class standards. Whilst confirming that Jet Airways had complied

with ISO criteria, the external certifying body Det Norske Veritas (DNV) has

complimented the Airline for its customer focused approach and the wealth of

internal data, which indicated that it "listened to the voice of the customer".

Jet Airways formulated a Quality Management System for In-flight Services in

February 2001 as part of a comprehensive exercise to implement ISO in select

operational areas. Qualteam Consultants were selected to assist in the

certification process. A core group led by a Management Representative of Jet

Airways was constituted to ensure that the quality management system

developed by In-flight Services would meet ISO requirements.

This group identified core processes as well as sub-processes required to

support in-flight operations. It met with respective departments within In-flight

Services to 'flowchart' all the processes and develops the Process Manual. The

Quality Manual, which is the apex document, was also developed during this

period.

To ensure that the Quality Policy, Objectives and Processes were understood

and complied with, all In-flight Staff were given a half-day training. Det Norske

Veritas was selected as the external certification body, based on its reputation in

the auditing of service organizations. The audit held from March 01 to 18, 2002

examined documented processes through an intensive examination at In-flight

Services Headquarters in Mumbai and also at the crew bases in Mumbai, Delhi

and Chennai.



JET PRIVILEGE SCHEMES

Jet Airways believes in providing one with the best experiences possible,

including the best benefits and privileges. Jet Airways is the first airline in India to

introduce a multi-tier frequent flyer program, with different levels of privileges

depending on the number of miles and flights one accumulates. The program

gets as rewarding as one makes it, since it depends on one’s membership

status, which is upgraded when one qualifies with the necessary number of

miles.

The 3 schemes available on Jet Privilege are: -

9 JP Blue: After first flight

9 JP Silver: 30,000 miles or 30 flights

9 JP Gold: 60,000 miles or 60 flights

CONCESSIONAL FARES

Since Jet Airways cannot completely slash down their prices, they have come out

with an innovative manner in which to attract customers. They offer a wide

variety of concessional fares to passengers which encourage them to fly with Jet

Airways.

Some concessional schemes available are: -

9 Student concessions

9 Senior Citizen concession

9 Cancer Patients

9 Armed Forces concessions

9 Youth fare

9 Apex fares

9 Super-apex fares



Rewriting the rules

AirAsia’s Tony Fernandes: The new hero of the Asian low-cost airlines business

Next week, the Centre for Asia Pacific Aviation is organising a symposium on

low-cost airlines in the capital. One of the star-speakers will be Tony Fernandes,

the charismatic 39-year-old CEO of AirAsia, one of the most successful low-cost

operators in South-east Asia. Till two years ago, no one in the airline business

had even heard of him. But now, Fernandes makes headlines just about

everywhere he goes. That's because the Malaysian proved wrong all those who

said low-fare airlines could not succeed in the region. And that took some

courage. Drawing up a business plan wasn't easy, especially since he knew next

to nothing about the aviation business. Trawling through the Internet and meeting

a range of business associates, including Conor McCarthy, a former director with

Ryanair, Fernandes was able to eventually build a plan for a low-cost carrier with

operations in Malaysia. He modelled his carrier after low-cost carriers in other

parts of the world. Prime Minister Mahathir Mohamad gave the venture his

blessings. But he refused to give out any new airline licence, insisting that

Fernandes would have to buy out an existing operator.

That's how Fernandes ended up with AirAsia, which has a fleet of just two A-

300s and a tiny route network. The rest is history. AirAsia has ferried more than

3.6 million passengers since January 2002 and expects to carry more than 3

million this year. It has a domestic market share of 30 per cent. What's more,

almost all of it has come from market expansion as Malaysia Airlines has not

seen any drop in domestic passenger numbers.

Air Asia’s: Rewriting Rules



Inside his 20th floor office in the Air-India Building, chairman and managing

director V. Thulasidas is readying a new master plan to revive the airline's

fortunes. For the past few years, Air-India (AI) has been steadily losing market

share to international airlines like British Airways, KLM, Emirates and Singapore

Airlines. Despite being the national carrier, its market share of outbound traffic

from India has come down to just 20 per cent from 40 per cent in the 1970s.

(India's outbound traffic has been growing at 10 per cent, much faster than the

inbound traffic.) If that weren't enough, now low-fare airlines are eyeing the

Indian market. The plan is to now allow Air India Express to operate an all-

economy service on short-haul flights of 3-5 hours to destinations in the Middle

East and South-east Asia, while AI focusses on premium quality traffic on

medium- and long-haul flights. AI will also offer full-service flights to select places

in the Middle East and South-east Asia. Over time, AI will vacate these traditional

Middle East sectors and evolve into a truly international airline. "We will acquire

more aircraft, and upgrade our service. The idea is to grow in size and improve

quality," says Thulasidas. Meanwhile, the key to the Air-India Express strategy is

to lower costs by driving efficiency. Air India Express will not have any business

class, since that typically goes empty on these routes. (AI will cater to the little

business class traffic to Dubai and Singapore from Mumbai.) The budget airline

will also have more seats. The Boeing 737-800, which it will take on dry lease,

will have 181 seats as against 145 seats in Indian Airlines' Airbus 320s. And it

will offer point-to-point service and ensure quick turnarounds, to save on hotel

and layover allowances for the crew. In fact, manpower costs will be lower than

that of AI. For that, the employees will be hired on different terms: the pilots and

cabin crew would be on contract. Also, new aircraft will offer better fuel economy.

Air India’s Revival Path :



In the fast changing Indian Aviation scenario, Air Sahara has unassailably

established itself as one of the leading players in the Indian Aviation industry. It

has constantly brought in new initiatives and has today developed into a

wholesome airline, which offers benefits and services unmatched by any other

domestic operator. Today, the Airline is on the threshold of a new dawn of

success and consolidation. THE much anticipated farewar has broken out across

Indian skies. A little before Rono Dutta announced the Air Sahara 'surprice'

package, Indian Airlines (IA) extended a host of promotional fares and Air

Deccan came up with a much-misunderstood offer: the Rs 500 Mumbai-Delhi

ticket. The Air Sahara surprice is a 30-day advance return fare that's 36 per cent

less than the 30-day advance apex fare. IA's 'metro non-metro Scheme' lets

travellers pay Rs 1,000 for the non-metro leg of a flight, if it includes a metro leg.

Air Deccan will shift to dynamic pricing next week where, the earlier you book a

ticket, the cheaper the fare (Rs 500- 8,000 for a Bangalore-Delhi ticket). But

others say the fall is due to competitive pressure. Though they feel, Air Deccan,

with a couple of flights a day, won't be an immediate threat. "If Sahara leads a

backlash, other airlines will be sucked into a fare war," says Kapil Kaul, senior

vice-president (Indian sub-continent), Centre for Asia Pacific Aviation. There are

rumours that Sahara will offer walk-in fares that are 10-15 per cent more than

those of Air Deccan, though Dutta does not mention any such plan yet.

The battle has just begun……And its good news for the “AIR FLIERS”

• More details regarding the Backlash of the price war in the Indian Aviation

Industry is explained in detail in the Annexure section. ------

“AVIATION INDUSTRY: THE NEW LOW-COST WARRIORS”

AIR SAHARA Rono Dutta: On a Revival Path



RESEARCH METHODOLOGY

RESEARCH PARADIGM:

Any Research follows the Research paradigm that includes three important

stages

A TYPICAL RESEARCH PROCESS INVOLVES:

1. Identifying the problem/ opportunity and defining research objectives

2. Developing the research design

3. Collecting the data (or information)

4. Process and Analyzing the data (or information)

5. Presenting the research findings (or report)

DEVELOPING A RESEARCH DESIGN:

The marketing researcher develops research design, which basically indicates

the procedure and cost of conducting the research study. It contains:

� Information type

� Sources of data

� Research methods

� Sampling Plan

� Methods of contacts

� Data collection methods (i.e. Research Instruments)

Research Methodology undertaken for the project:

Problem Stage 1

Method Stage 2

Solution Stage 3



PROBLEM STATEMENT:

“The Impact of Air Deccan, the New Entrant to the Indian Domestic Airways

Industry on Jet Airways, the Market Leader”.

OBJECTIVES OF THE STUDY:

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

¿ To analyze passengers’ perception of Jet Airways vis-à-vis Air Deccan.

¿ To identify the ever changing tastes and preferences of the passengers

especially relating to price.

¿ To analyze the perceptions of travel agents.

TYPE OF RESEARCH:

The research process adopted for the study is a typical Customer Research

process which is ideally exploratory and conclusive in nature.

SAMPLING TECHNIQUE:-

¿ Random Sampling.

¿ Systematic Sampling.

Random Sampling has been adopted for Passengers:

¿ At the Airport.

(100 customers)

Systematic Sampling has been adopted for Travel Agents:

¿ Approved list of Travel Agencies provided by Jet Airways.



(20 travel agencies)

SAMPLE DESCRIPTION:

The target population includes two parts namely:

¿ All the passengers from Bangalore City who have availed/ availing the

services of Air Deccan.

¿ Travel agencies in Bangalore City who form 60% of Jet Airways ticket

sales in City.

Appropriate samples have been drawn from the target population

SAMPLE SIZE:-

The sample size is restricted to:

¿ 100 passengers.

¿ Top 20 travel agencies.

INSTRUMENTATION TECHNIQUE:

¿ Structured Questionnaires and Telephonic interview sessions have been

used as instrumentation techniques to carry out the work-assignment.

¿ Telephonic interview schedules have been drawn for those sample units

that could not be contacted directly for response generation.

¿ Since our research investigation is highly quantitative, we could not

subject the data to rigorous statistical treatment. In overview, the

qualitative research is as significant as quantitative.



Primary Data collection:

Primary data collection refers to data collection through,

¿ Through structured questionnaires for Passengers.

¿ Through structured questionnaires for Travel Agents.

¿ Through personal interviews with the Passengers.

¿ Through personal interviews with the Travel Agents.

Secondary Data collection:

This refers to indirect means of data collection through,

¿ Browsing through the internet

¿ Company intranet

¿ Newspapers

¿ Journals, Travel Magazines

LIMITATIONS OF THE STUDY

� Research investigations are beset with Time and Resource constraints.

� Research investigations are based on company information and

information generated through passenger response and travel agency

responses.

� Research is limited to the Bangalore city only, and also it is limited to

passengers of Air-Deccan only.

� Hence limitations of generalization become obvious.



DATA ANALYSIS AND INFERENCES

Passenger’s Perception

Personal Details - Age: Demographic profiling of the sample segment with

regards Age factor revealed the following statistics

Age20 - 30 ye a rs 7630 - 40 ye a rs 2250 - 50 ye a rs 2TOTAL 100

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

76%

22%2%

20 - 30 years30 - 40 years50 - 50 years

(Source: Field Investigation)

¾ Most people are observed to be in the age group of 20 years to 30

years. This segment is as huge as 76% of the total target sample

interviewed.

¾ Youths have been traveling in almost all the flights.

(At least 2 youths in each flight).

¾ Families with four members going on a vacation/ holiday are found

in all the Air Deccan flights.

¾ Hence it was seen that the general passenger crowd is a casual

fun-loving and a try-first time crowd and not the business class.



(2) Personal Details - Occupation: Demographic profiling of the sample segment

with regards Profession/Occupation factor revealed the following statistics:

Pie-Chart showing the target segment with regards to Profession/Occupation.

27%

59%

0%1% 0%

11%

2%

Corporate

PSU

Self Employed

Entrepreneur

Student

Designer

Housewife


¾ No Corporate & Public Sector Managerial persons are traveling by

Air Deccan.Most of the entrepreneurs are willing to try Air Deccan

as an alternative way to travel.

¾ Self Employed people who are looking to a cheaper way to travel

are found in abundance.

¾ Adventurous people who intend to experience services provided.

¾ Many college-going students are availing their services.

¾ Some people, knowing the recent unfortunate spate of events

encountered by Air Deccan, still desire to give a chance to this

Airline.

OccupationCorporate 0PSU 0Self Employed 27Entrepreneur 59Student 11Designer 1Housewife 2TOTAL 100



(3) Is this your first flight with Air Deccan?

� A positive response was observed 48% of the times across all the across all

the age groups put together.

� Most passengers have travelled by Air Deccan earlier (52%).

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

Deccan flights.

a ge ye s no TOTAL20 - 30 ye a rs 41 35 7630 - 40 ye a rs 7 15 2250 - 50 ye a rs 0 2 2

TO TA L 48 52 100

First flight w ith Air De cca n

Conical Pyramid showing the first-time flying approval.

0

5

10

15

20

25

30

35

40

45

20 - 30 years 30 - 40 years 50 - 50 years

yes

no


• Persons in the age group of 20 to 30 years seem to be traveling for

the first time whereas people in the age group of 30 to 40 years

have previously traveled by this no frills airlines.

• There are not too many people in the age group of 40 to 50 years

and of the two both have previously traveled b Air Deccan.



First-time fliers across the Profession

profession yes no TOTALCorporate 0 0 0PSU 0 0 0Self Employed 23 4 27Entrepreneur 11 48 59Student 11 0 11Designer 1 0 1Housewife 2 0 2TOTAL 48 52 100

First flight with Air Deccan

Bar Graph showing the first –time flying experience approval.

0

10

20

30

40

50

Corporate SelfEmployed

Student Housewife

yes

yes

no


• Based on the profession, we can safely say that a majority of the

entrepreneurs enjoy travelling by Air Deccan. As 11% of them are first-

time fliers and another 48% are repeat fliers with air-deccan.

• Whereas the self-employed youths are still testing waters, they just

want to figure out whether this method of flying is really worth while or

not.

• It can be deduced that the positive approval of air-deccan flying

experience majority comprises of the student, entrepreneur and the

self-employed class.



Reasons sighted for flying with Air Deccan:

¾ Most people are adventurous enough to try out this new Airline.

¾ It is more of enthusiasm to travel through air-deccan than measure and

Gauge the service expectation of the new airways player.

¾ Many desire to see whether this is a smart way of cost cutting

while traveling by air.

¾ Others feel this is an affordable/ cheaper way of traveling by air.

¾ Some people desire to experience a journey by Air, which is

otherwise not so affordable.

¾ Some are drawn by the destinations which could be covered in

less than an hour by air, which would otherwise take them at least

ten hours to twelve hours by road or rail.

¾ Some are forced to take Air Deccan as that sector is not yet being

covered by the other Airlines.

¾ Most passengers possess the zeal and enthusiasm to experience

what the new domestic airline has to offer.

¾ They are willing to forego the in-flight services at the cost of

traveling by an economical airline.

¾ Some have personal reasons for travel/ emergency travel which is

catered to in an inexpensive manner by Air Deccan.



(4) What is your perception of Air Deccan flight/ services/ on time

performance?

age Excellent Good Average Poor TOTAL20 - 30 years 4 57 15 0 7630 - 40 years 5 11 6 0 2250 - 50 years 0 1 1 0 2TOTAL 9 69 22 0 100

Perceptions

Bar-Pyramid showing the customer perceptions to Air-deccan flight

services with respect to on-time performances.(Based on Age)

0

10

20

30

40

50

60

70

80

20 - 30 years 30 - 40 years 50 - 50 years

PoorAverageGoodExcellent


¾ Most passengers having heard so much about the airline feel that

the Air Deccan will be/ is a good experience.

¾ Most common answer is “It should be okay”.

¾ Another common answer is “What can we expect at such a

reasonable price? Anything provided will be considered a bonus”.

¾ Passengers who are willing to rate Air Deccan perceived it to be

average to good.

¾ Another response is that “When it comes this affordable, other

service parameters can take a back seat”.



Based on the profession, the responses received were as follows:

profe ssion Ex ce lle nt Good Ave ra ge Poor TOTALCorpora te 0 0 0 0 0PSU 0 0 0 0 0Se lf Em ploye d 23 4 0 27Entre pre ne ur 9 33 17 0 59Stude nt 11 0 0 11De signe r 0 1 0 1House w ife 0 1 1 0 2TOTAL 9 69 22 0 100

Pe rce ptions

Column graph showing the customer perceptions to Air-deccan flight

services with respect to on-time performances.(Based on Profession)

0% 20% 40% 60% 80% 100%

Corporate

PSU

Self Employed

Entrepreneur

Student

Designer

Housewife

Excellent

Good

Average

Poor


• The self employed are satisfied with the experience with Air Deccan

– they graded it as Good.

• Entrepreneurs on the other hand are very much pleased with Air

Deccan and graded it as “Excellent”.

• The students feel that this mode of travel in the best thing to

happen to India.



(5) What do you have to say about Air Deccan?

When asked the question about the personal opinions about the air services, the

responses have been variant; some of the most common are as follows:

¾ Some are fearful whether any technical snags will take place

when the flight is on course. This fear arose due to the recent spate

of unfortunate events encountered by Air Deccan.

¾ Whether the flight takes off and lands on time does not matter as

much as their reaching the destination safely.

¾ They expect the in-flight services to be average.

¾ Passengers are caught by surprise that even water has to be paid

for in this Airline.

¾ Many just want to try out the Airline and experience the thrills

and pleasure of flying.

¾ Passengers feel on the whole the flight should be average to good.

¾ Many have “No Comments” as they prefer to play it safe and

observe the wait and watch, until then enjoy the ride.

The interesting aspect of the comments is that there are no remarkable negative

comments about the air-Deccan service or for that matter any comparison about

the on-time performance and the In-flight services which all other service fliers

offer to their customers.



(6) Have you previously travelled to the present destination?

profession yes no totalCorporate 0 0 0PSU 0 0 0Self Employed 27 0 27Entrepreneur 59 0 59Student 11 0 11Designer 1 0 1Housewife 2 0 2TOTAL 100 0 100

Travelled to mangalore

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

yes

0%

59%27%

0%1%

2%

11%

Corporate

PSU

Self Employed

Entrepreneur

Student

Designer

Housewife


¾ Here again the unanimous answer obtained was a “Yes”

¾ All passengers had traveled earlier by various means of

commuting, to the present destination.



If yes, what mode of transport did you use?

profe ssion airline bus train totalCorpora te 0PSU 0Se lf Em ploye d 3 5 19 27Entre pre ne ur 32 27 59Stude nt 6 5 11De signe r 1 1House w ife 2 2TOTAL 3 45 52 100

m ode of trans port

0%

20%

40%

60%

80%

100%

Corporate SelfEmployed

Student Housew ife

train

bus

airline


¾ All passengers have earlier traveled to the present destination by the various

means of commuting.

¾ A majority of passengers have earlier been traveling with the other

competitive Airlines, existing in the industry.

¾ Most of these passengers have (temporarily) switched from the leader - Jet

Airways to Air Deccan due to the financial constraints.

¾ Others upgraded themselves from trains to Air Deccan.

¾ It is observed that a rail journey would cost them almost as much as a ticket

on Air Deccan.

¾ No one has earlier traveled by bus, even though buses ply regularly.

¾ None use the other means of commuting like car travel, etc. as they do not

find it very convenient.

¾ On the whole only other Airline travelers and Rail travelers are finding Air

Deccan a healthy option.



(7) Have you previously flown with Jet Airways?

profe ssion y es no tota lCorpora te 0 0 0PSU 0 0 0Se lf Em ploye d 27 0 27Entre pre ne ur 59 0 59Stude nt 11 0 11De signe r 1 0 1House w ife 2 0 2TOTAL 100 0 100

Travelled w ith Jet

27%

0%

59%

11% 1%0%

2%

CorporatePSUSelf EmployedEntrepreneurStudentDesignerHousewife


¾ Almost all the Air Deccan passengers have experienced a journey

with Jet Airways.

¾ Barring a negligible few, all passengers have the pleasure of flying

with Jet Airways.



If yes, how would you compare the services provided in Jet Airways with

Air Deccan?

¾ All passengers are experiencing Air Deccan for the very first time

and are not sure what to say.

¾ They are very satisfied with the services provided by Jet Airways

and graded it to be Excellent.

¾ They feel that Jet Airways deserves to be the Market Leader as it

always provides the best – in all aspects – flight/ services/ on time

performance/ ground staff/ etc.

¾ Jet Airways has never left any scope for error/ complaint/

dissatisfaction as far as their services are concerned.

¾ Passengers are aware that these excellent services provided by

Jet Airways come at a high price, and that it is well justified.

¾ Still the passengers find the price very steep, especially for

regular travel or even for vacation/ holiday.

Hence it is observed that the steep pricing of the Jet travel is the main concern

for the customers travelling by air.



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

them?

profession yes no totalCorporate 0 0 0PSU 0 0 0Self Employed 12 15 27Entrepreneur 56 3 59Student 11 0 11Designer 1 0 1Housewife 2 0 2TOTAL 82 18 100

Lower fare reason for shift

0 10 20 30 40 50 60

Corporate

PSU

Self Employed

Entrepreneur

Student

Designer

Housewife

noyes


¾ Almost all (around 99%) of the passengers responded positive.

¾ A majority feel that Air Deccan is definitely more reasonable than

Jet Airways, or any other airline.

¾ A negligible few (about 1%) responded negative

¾ This minority are forced to travel by Air Deccan, as those sectors

are not yet covered by the Jet Airways and the other Airlines.



Reasons for switching could be:

¾ Passengers are very happy and content with the services

provided by Air-Deccan and such an affordable customer price.

¾ The mode of air-travel has given a new dimension after the launch

Of the air-deccan services.

¾ If not for the comparatively higher fare of Jet Airways, they would

have never switched to Air Deccan.

¾ Passengers find Air Deccan to be reasonable and their fares

“easy on the pocket”.

¾ Most people feel that after a long time now, finally an air-service

that can cater to the needs of common man too. The perceptions

about the air travel being expensive seem to be fading fast.

¾ They are willing to compromise on the services rendered to them.

¾ Cost of traveling by an airline is being given a higher priority than

the services rendered by it.

¾ Finally a service that can fit the common man’s pocket, yet deliver

him travel to the destination at the comfort of an air-travel.



Travel Agencies’ Perception

(1) Due to introduction of flights by Air Deccan and Air Sahara, is there any

change in Passenger Numbers:

y es no total2 18 20

Due to A D & A S has there been c hange in no of pas s engers

10%

90%

yesno


¾ Unanimously all travel agents strongly resented this notion.

¾ All have stated that the competitors have not affected the number

of passengers flying with Jet Airways.

¾ They feel that Jet Airways have regular travelers who would never

compromise for any other Airline.

¾ Agents also feel that people wishing to travel International sectors

would always opt for Jet Airways, which is known for its on-time

performance.

¾ They also feel that it would be only the casual fliers whom Jet

Airways would be losing out on, as they would be willing to

compromise based of the air fare.



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

From:

Origin (Say Bangalore – BLR)

To:

Destination (Say Mangalore – IXE)

no of passengersfrequency3 14 25 26 28 3

10 314 115 520 1

TOTAL 20

proportion of passengers booked between origin

(bangalore) and destination (mangalore)

0

1

2

3

4

5

6

1 2 3 4 5 6 7 8 9

Series1




Analysis on the number of passengers traveling to BLR – IXE – BLR

¾ On an average 2 passengers to 3 passengers per week are

booked in the Bangalore – Mangalore – Bangalore sector traveling

with Air Deccan.

¾ On an average 15 passengers to 20 passengers per week are

booked in the Bangalore – Mangalore – Bangalore sector traveling

with Jet Airways.

¾ Most travel agents complain that Air Deccan has not yet provided

online facility to reserve tickets on their airline.

¾ A handful of travel agents are authorized and allowed to book

tickets on Air Deccan

¾ Others are forwarding all the customers who were enquiring about

Air Deccan to the nearest travel agent who would help them.

¾ Almost all of them are in the process of getting authorization/

permission from Air Deccan to allow online booking.

¾ They are eagerly waiting for the authorization/ permission, as they

do not want to lose out on the customers who are enquiring about

the Air Deccan, and who wish to fly with this new Airline.



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

y es 10average 1

no 9

TO TA L 20

P as s engers are s ens it ive to pric e

50%

5%

45%yes

average

no


¾ This question really made the travel agent ponder – does the price

really affect?

¾ The travel agencies close to residential areas are more number of

casual fliers and irregular fliers.

¾ These agencies rate their region to be extremely sensitive to

change in airline fares.



¾ They feel that their customers would prefer to travel by a more

reasonable airline.

¾ The travel agencies situated in the “hub” of the city have regular

fliers as well as casual fliers.

¾ These agencies rate their region to be average as far as reactions

to change in price are concerned.

¾ They do not feel that their customers would be affected much by

changes in price.

¾ The travel agencies situated in the “heart” of the city have

international fliers, regular fliers and casual fliers.

¾ These agencies rate their region as not at all affected by change

in the airline fares.

¾ They feel that for their customers on time performance was of

greatest importance and customers would not compromise on that

aspect.

¾ Making this region not at all affected by change in price and the

airline fares.



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

Air Deccan and Air Sahara?

Air Deccan:

¾ All the travel agents unanimously agree that Air Deccan would

pose no threat to Jet Airways.

¾ It is not even a month since Air Deccan has been introduced

whereas Jet Airways has been in the industry for ten years!

¾ Air Deccan has been suffering from bad luck as two of its flights

suffered from technical snags after take off.

¾ Luckily for Air Deccan, all passengers have been safely grounded

and upgraded to Jet Airways at no extra cost.

Air Sahara:

¾ Air Sahara is a potential rival of Jet Airways.

¾ Jet Airways must beware and defend its position.

¾ Better strategies must be formulated to counter those of Air Sahara.

¾ If no action is taken immediately, Air Sahara may emerge leader.

¾ Air Sahara is trying to win over passengers with its “homely” touch

as against the “professional” touch of Jet Airways.

¾ Air Sahara is having a competitive edge due to its pricing

strategies.

(Source Personal Enquiry Notes)



(5) Is there any new passengers coming in the airline market?

yes no total19 1 20

Is there an increase in number of passengers

95%

5%yesno


¾ Travel Agencies feel that in the recent past there has been an

alarming increase in the number of new customers/ passengers.

Reasons:

¾ Increase in the standard of living.

¾ Substantial increase in the purchasing power of citizens.

¾ Increase in disposable income.

¾ Status issue or status symbol.

¾ Requirement to satisfy the social needs – Maslow’s theory of

hierarchy needs.



If yes, what mode of transport did they previously use?

¾ Travel agents feel that the recent increase in number of

passengers, are those who were earlier traveling by train.

¾ Rail fares are almost as much as the competitive schemes offered

by Airlines.

¾ Hence passengers prefer to upgrade themselves from train to

airlines.

¾ No passenger is found earlier traveling by bus.

Airline 0Train 18Bus 1TOTAL 19

Mode of transportation used earlier by them

0%

95%

5%

AirlineTrainBus




DAILY MONITOR: 9W V/S COMPETITION STATISTICS.

AIRLINE FLT NO. SECTOR STD STA

JET AIRWAYS 9W 801 Bangalore ---> Chennai 950 10359W 3526 Bangalore ---> Chennai 1400 15009W 446 Bangalore ---> Chennai 1610 16559W 486 Bangalore ---> Chennai 1955 20409W 3508 Bangalore ---> Chennai 2050 21509W 3517 Bangalore ---> Coimbatore 1900 19559W 496 Bangalore ---> Hyderabad 915 10159W 3523 Bangalore ---> Hyderabad 1505 16359W 512 Bangalore ---> Hyderabad 1850 19509W 3513 Bangalore ---> Mangalore 1015 11209W 3524 Bangalore ---> Mangalore 1040 1145

AIR SAHARA S2 307 Bangalore ---> Chennai 1005 1050S2 123 Bangalore ---> Chennai 2210 2255S2 211 Bangalore ---> Hyderabad 825 925

AIR DECCAN - Bangalore ---> Coimbatore 600 -- Bangalore ---> Hyderabad 1510 -- Bangalore ---> Belgaum 1545 -- Bangalore ---> Madurai 1055 -- Bangalore ---> Hubli 615 -- Bangalore ---> Mangalore 930 -- Bangalore ---> Chennai 815 -- Bangalore ---> Chennai 1300 -- Bangalore ---> Chennai 1930 -

(Source: Personal Enquiry Notes)

Observations - On-time performance:

¾ All the Jet Airways flights were on-time.

¾ Almost all the Air Sahara flights were on-time.

¾ Most of the Air Deccan flights were delayed.

¾ A few Air Deccan flights suffered from technical snags.



A COMPARISON OF THE FARES

SECTOR AIR DECCAN JET AIRWAYS

Bangalore ---> Chennai Rs. 1676 Rs. 3405Bangalore ---> Hyderabad Rs. 2323 Rs. 4905Bangalore ---> Madurai Rs. 2459 No flightsBangalore ---> Coimbatore Rs. 1624 Rs. 2720Bangalore ---> Belgaum Rs. 2876 No flightsBangalore ---> Mangalore Rs. 1911 Rs. 3110Bangalore ---> Hubli Rs. 2328 No flights

(Source: Personal Enquiry Notes)

Observations - Fares:

¾ Air Deccan fares are very competitive and reasonable.

¾ Jet Airways fares are justified.

¾ Air Deccan fares are at least half of the Jet Airways fares.



MAJOR FINDINGS OF RESEARCH

¾ Jet Airways has been rated as the “Best Indian Domestic Airline”.

¾ It has been recognized as the most “time conscious and professional”

airline.

¾ Passengers are extremely satisfied and delighted with the services

provided by this Airline.

¾ They have tapped the international fliers, as these passengers prefer to

travel by Jet Airways for connecting flights within India.

¾ Jet Airways is slowly broadening its base to international destination. It

now has a regular flight to Colombo, Sri Lanka.

¾ Their Apex and Super Apex scheme is a runaway success. These tickets

are almost always sold out!

¾ Air Sahara can prove to be a threat for Jet Airways in the near future.

¾ The advantage for Jet Airways is its wide market coverage.

¾ The advantage for Air Sahara is its other benefits.

¾ Jet Airways will continue to reign as the market leader in the near future.

(Visualization on the basis of the current scenario)



RECOMMENDATIONS

Since our recommendations have emerged from SWOT Analysis, we give below

the SWOT Analysis, followed by the recommendations:

SWOT ANALYSIS

Operational Strategy

Air Deccan’s strategy is to provide fares at almost half that of other airlines, to

attract and retain passenger share. Considering their expenditure is almost 95%

of that of Jet Airways on their ATR fleet, how do they propose to achieve such

low fares?

This has been possible as hey have identified other sources of revenue by virtue

of their no frills model and as they are not brand conscious. The revenue sources

for Air Deccan could be: -

� Revenue generated by selling in-flight food,

� Revenue received by marketing other brands (currently by using aircraft

body as advertising space) and eventually maybe by in-flight marketing

promotions.

On the other hand they have also reduced costs such as fuel cost, distribution

cost and communication cost. Their long term strategy is the mass volume

strategy where they will acquire passenger volumes to match their capacity

deployed and cost per unit will considerably reduce and consequently revenue

per unit will increase.

The key elements of their strategy in terms of its Strengths, Weaknesses,

Opportunities and Threats have been discussed below along with their impact on

Jet Airways.



STRENGHS:

1. Very low operational (fleet commonality, no in-flight service and low fuel

consumption) and distribution costs are an integral part their business plan.

IMPACT - Jet Airways, on the other hand has high costs on both these fronts

which will make it difficult if not impossible for us to cut costs and

thus match fares with Air Deccan. Moreover Jet Airways cannot

change its pricing policy for a select few sectors, which are

common between Air Deccan and Jet Airways, as it will have a

network wide, and long term impact. For instance if they match Air

Deccan’s fare on metro sectors such as Hyderabad – Chennai or

Bangalore - Chennai, then passengers will want a proportionate

decrease in fares on Delhi – Mumbai or Kolkotta – Chennai. Also

once fares are reduced to Air Deccan’s level and assuming they

manage to oust them from these sectors, Jet Airways will not be

able to hike their fares to their original level.

2. They have categorical knowledge of the aviation business by virtue of their

running a charter business, thus they have the necessary political and

commercial contacts in the industry.

IMPACT - Thus Jet Airways cannot use its incumbent status in the market to

topple or inconvenience Air Deccan in its initial period. For instance

customer handling or on-time performance where Jet Airways could

have been better than Air Deccan will only be a short term feature.

As the learning curve for Air Deccan will be very steep as they only

have to extrapolate their experience in the charter service to mass

volumes. Air Deccan’s political contacts has already smoothened

its path by the sales tax waiver and guaranteed passenger traffic.



3. Fares are very low on all sectors compared to other domestic airlines – they

are just marginally higher than first class railway tickets. For example Bangalore

– Mangalore fare on Air Deccan in INR 1875 and on Jet Airways it is INR 3310.

IMPACT - The Indian airline passenger market is very price sensitive and loss

of passengers on the sectors Jet Airways shares in common with

Air Deccan is an absolute certainty in the coming future, especially

once Air Deccan’s operations smoothen out. Though so far their

passenger loads are not very good, but one can see an

improvement in their current loads compared to the initial week

4. Internet booking and eventually sale of tickets through chains such as

Shoppers’ Stop and Food World gives the passengers flexibility to book tickets at

their convenience and also increases the reach of the airline to the middle class

an estimated 40% of the urban population in metros.

IMPACT - This mass reach will increase the air passengers by converting

them from train travelers and will also convert some current Jet

Airways passengers from the SOHO and leisure segment.

WEAKNESSES:

1. Air Deccan is not currently operationally sound either in terms of its capacity or

efficiency. It has already had one AOG in its first month of operation due to

engine trouble.

IMPACT - Jet Airways can use its internationally acclaimed operational

excellence and past track record to keep its current passengers

loyal. A little impetus by using direct marketing is a must.

2. Since Air Deccan is using an all ATR fleet even on metro sectors.

IMPACT - A few Jet Airways flights on the metro sectors are Boeing operated,

which is another fact, which can be highlighted to their passengers

through direct marketing to retain these passengers.



3. In-flight services such as food and entertainment (magazine, newspaper, Jet

Wings, Jet Kids etc.) are missing in Air Deccan flights.

IMPACT - Even drinking water is available for a price on Air Deccan. Though

these services have more of a notional value, which can be off-set

by the low fare Air Deccan is offering, during this primary survey

suggestions from the passengers are missing this aspect. Thus Jet

Airways needs to highlight again the “pleasure and comfort of flying

with Jet Airways” to their passengers. To their corporate travelers,

direct marketing should highlight these value added services such

as relaxation time in their busy schedules.

4. Average age of the fleet is 7 years, which can be perceived as a safety threat

by the passengers.

IMPACT - Jet Airways should soothe the passengers’ perception by

highlighting that safety of their passengers is of prime importance to

Jet Airways, which is why it maintains an average fleet of 3.13

years and will continue to in the future also. This fact again can be

used to the advantage of Jet Airways.

5. Air Deccan does not have any loyalty programmes or any accrued benefits for

its customers.

IMPACT - This again is an aspect which can be offset by the low fare Air

Deccan is offering but should be highlighted as the “rewards” of

flying with Jet Airways to their passengers. The passengers need to

be reminded that they will lose the currency Jet Airways offers its

passengers in the form of miles, if they fly by Air Deccan. This can

be used to retain regular flyers.



OPPORTUNITIES:

1. There is a vast untapped travel market which is hitherto untapped by airlines,

primarily due to high fares for air travel, which Air Deccan can easily tap.

IMPACT - Once these train travelers are converted into air travelers, Jet

Airways can also hope to increase its market share by converting

these passengers to their apex and super-apex passengers. Strong

promotions will be in order to get these passengers to fly by Jet

Airways and also an efficient yield management system will have to

be put in place to ensure seat allocation to apex and super apex

utilizes the availability of these passengers to the maximum.

2. Air Deccan is prominently traveling to small cities such as Hubli, Rajamundhry,

Vijayawada, Tuticorn etc. which so far have low or no air connectivity.

IMPACT - Since Jet Airways business model does not include these

destinations, they are not a major concern. But Air Deccan also

plans use Hyderabad, Chennai and Bangalore, as hubs to these

smaller cities and inter-connect between these hubs. Currently Air

Deccan is also flying to Mangalore, which is an important

destination to Jet Airways. This overall Air Deccan route map is a

compounded problem for Jet Airways. Thus it is imperative for Jet

Airways to stake its claim on destinations important to it in the

beginning itself by retaining its passengers.

Another threat is that eventually Air Deccan will also start flying to

Jet Airways’ other feeder routes such as Port Blair, Trivandrum etc.

Once the passengers – either one-time or frequent – shift to Air

Deccan, Jet Airways will lose them permanently. Direct marketing

promotions and increase in capacity of apex and super apex

classes will have to be used to this effect.



3. Owing to the low connectivity in these cities mentioned above, Air Deccan can

get various benefits from State governments. It already has gotten a complete

sales tax waiver from the Andhra Pradesh State government, a section of

guaranteed passengers in the form of government employees from Karnataka

government etc. These incentives can magnify manifold once its operations pick

up and start connecting to cities across India.

IMPACT - Jet Airways being a premiere carrier will not be allowed the same

incentives primarily since they will not travel to such smaller cities,

thus they will not be competing with Air Deccan on equal footing.

This gap, which will increasingly benefit Air Deccan, will continue to

widen with time. Thus before Air Deccan can gain financial and

operational muscle, Jet Airways has to remove it from destinations

critical to Jet Airways’ operations.

THREATS:

1. The Indian airline passenger has so far been used to superior service such as

in-flight food, quick travel time and comfortable passage and hence he might not

be so easily convinced to travel the low-frills way.

IMPACT - In this scenario Jet Airways can continue to be the market leader as

their service standards and operational excellence are unmatched.

Though in the long run this factor might be inconsequential, but Jet

Airways should try to gain mileage in the current phase by pointing

out their service standards to passengers (using direct marketing)

2. An old fleet leading to frequent technical snags and lack of initial financial

muscle will forbid Air Deccan from hiring superior talent either as pilots or as

engineers and can lead to a permanent damage to its image.

IMPACT - Jet Airways will then have to deal with one less competitor, before it

gains popularity or a foothold in the airline business - This maybe a

long shot.



OVERALL CONCLUSIONS

Based on the above SWOT analysis, we can draw the following overall

conclusions regarding the Market Challenger – Air Sahara and the New Entrant –

Air Deccan.

AIR DECCAN

¾ Air Deccan, the new entrant, will not pose any threat to Jet Airways.

¾ It has been labeled as the most “reasonable and economical” domestic

airline.

¾ Air Deccan has created a niche for itself.

¾ It caters to only a small segment of people, which will form a negligible

part of the total number of passengers.

AIR SAHARA

¾ Air Sahara has taken position as the “market challenger”.

¾ It is developing a very “homely and caring” image for itself.

¾ They have adopted several flanking strategies in order to topple the

Market Leader. This includes various offers, add ons like bidding, coupons

etc



PROPOSED STRATEGY:

1. A strategy to bow beat Air Deccan from all routes where Jet Airways flies

or proposes to fly is to strengthen its position in these markets. This

strengthening of position will be as a function of retaining their current

passengers by direct marketing and by attracting the new passenger

segment Air Deccan is creating. Direct marketing, which highlights facts

such as a younger fleet, on board safety, on time performance, better

service, benefits in terms of redeemable miles etc., will be a way to re-

establish the Jet brand in the current passengers’ minds.

2. Jet Airways have to match the fares offered by Air Deccan. Since they

cannot reduce their current fares in keeping with the long term view, their

brand and product and their primary target customers – business

travelers, an alternate would be to introduce a new 3 tier apex fare

structure: –

Tier one a 5 days New Apex,

Tier two the15 day Apex and

Tier three the 30 day Super Apex.

The Apex and Super Apex schemes could be the same as they are

currently using. The New Apex Fare could offer either the Apex or Super

Apex fare depending on the sector in question, where passengers can

book only 5 days in advance and this class will allow a larger capacity

than the current apex and super apex classes allow. In this way once Jet

Airways retains their passengers they can again reduce the capacity in

this new class and get back to their current yield structure. But in the

process Jet Airways will face the risk of permanently suppressing their

yield from these sectors. Possibly market conditions do not allow them to

reduce the capacity of the new apex fare class subsequently. Introduction

of a new class is a critically called for.



3. The estimated loss in revenue on the four sectors Jet Airways have in

common with Air Deccan is quite alarming. Though they will still incur a

loss compared to their current yield on all these routes, but this loss will be

lower than if they lose their passengers to Air Deccan – forever! Also the

cost of making a passenger is higher than the cost of diluting the revenue

from this passenger.

4. The assumption in the aforesaid strategy is that in the long run Air Deccan

will withdraw from the sectors in question or may not deploy enough

capacity on these sectors to threaten Jet Airways’ position. Thus it will be

able to eliminate or reduce the presence of a potential competitor before it

becomes too big and a major threat.

5. But on the other hand Jet Airways should actively encourage Air Deccan

to serve as a feeder service to them, since many of the routes identified by

Air Deccan such as Hubli, Vishakapatnam, Vijaywada are witnessing an

increase in business activity and thus will see growth in air traffic.

6. This primary survey to gauge passenger perception on Air Deccan is very

fruitful. Also market data gathered by interaction with travel agencies is

very beneficial. Similar surveys must be compiled on a fortnightly basis

and analyzed. This market intelligence will aid Jet Airways in fine tuning

the above mentioned strategy.



DIRECTIONS FOR FURTHER RESEARCH

This research entitled Impact of Air Deccan on Jet Airways, A Market Competitor

Analysis, dealt more with the changes in tastes and preference of the Indian air

travelers with regards to price sensitivity and mode of travel preferred. However

this research has been carried out as a “testing waters” strategy in order to have

a feel of customer perceptions with regards to the new entrant and its services.

Hence this research is more strategic and a macro level focus rather than a

tactical one, and in its whole does not suffice entirely the requirements for

developing a counter offensive (responsive) attack on the market challenger.

Further research is proposed to be carried out in this category with respect to

SERVQUAL parameters; it could be carried out in the form of a multi attribute

analysis with various attributes to customer satisfaction. The company needs to

carry out a more expansive, extensive, in-depth micro level analysis of this

domain. This could be carried out again in a similar fashion with additional

attributes to service quality like:

¿ Price

¿ Hospitality

¿ In-flight services

¿ Queuing time

¿ Luggage handling

Perhaps the line of thinking on which our research investigation is based may

give scope for further research in this important area.



PASSENGER PERCEPTION SURVEY Name: _________________________ ________________________________ Age: ____________ years Occupation: �� Corporate Managerial �� Public Sector Managerial �� Self Employed �� Others (please mention) ___________ �� Entrepreneur Is this your first flight with Air Deccan? �� Yes �� No If no, previously how often have you flown with Air Deccan? _______ times. What is your perception of Air Deccan flight/ services/ on time performance? �� Excellent �� Average �� Good �� Poor What do you have to say about Air Deccan Airlines? _____________________________________________________________________________ _____________________________________________________________________________ Have you previously traveled to the present destination? �� Yes �� No If yes, what mode of transportation did you use? �� Other Airline �� Public Bus �� Train �� Others (please mention) ___________ Have you previously flown with Jet Airways? �� Yes �� No If yes, how would you compare the service in Jet Airways with Air Deccan? _____________________________________________________________________________ _____________________________________________________________________________ Is the lower fare on Air Deccan the reason you choose to fly with them? �� Yes �� No

Thank you for your excellent cooperation



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

Thank you for your excellent cooperation



SELECT BIBLIOGRAPHY

Internet sites:

www.jetairways.com

www.airsahara.net

www.indian-airlines.nic.in

www.airdeccan.net

Books

Marketing Management by Philip Kotler

Services Marketing by Christopher Lovelock and Lauren Wright

Journals

Jetwings – Jet Airways

Xpressions – Air Sahara

Business Today

Business World

Newspapers

Times of India

Economic Times

Business Standard

Business Line



LIST OF TRAVEL AGENCIES CONTACTED

1. Friends Globe Travels Ltd.

2. Thomas Cook (INDIA) Ltd.

3. Kuoni Travel (I) Pvt. Ltd.

4. International Travel House

5. Carslon Wagonlit Travels

6. P & O Travel India

7. The Travel Company Pvt. Ltd.

8. Concab Travel Services

9. Trans Pacific Tours & Travels

10. J. V. Travels

11. Travel Tours

12. Excelsior Travels

13. Travel Air Pvt. Ltd.

14. Tusker Travels Pvt. Ltd.

15. Marco Polo Travels & Tours

16. Rosenbluth International

17. Mercury Travels & Tours

18. Neptune Travels India Pvt. Ltd

19. Jagadish Air Travels Pvt. Ltd.

20. Akbar Travels of India Pvt. Ltd.



AVIATION INDUSTRY: THE NEW LOW-COST WARRIORS

The hugely successful low-cost airline model is now in India. ----- AIR DECCAN

Will it change the way Indians travel?

Captain G.R. Gopinath looks more like a mild-mannered research scientist than

the CEO of an airline - hardly the sort of person who would send shivers down a

competitor's spine. Even though he launched Air Deccan's services in September

2003, not many in the aviation industry have taken him seriously so far. That's not

surprising, given that Air Deccan operates with just seven French-made, 48-seater

ATRs, largely in the South, on routes that his bigger competitors like Jet Airways

and Air Sahara wouldn't care about. Besides, not too many people in his top

management have any real experience of the aviation business. Gopinath himself

would seem like a bit of a rolling stone, having dabbled in many things, including

the army, multi-crop farming, sericulture, agri-consultancy and then a helicopter

charter service. Not quite the combination that would inspire confidence, right?

Well, some of that perception could change soon. Next month, Air Deccan will

expand its service to high-traffic destinations like Mumbai, Delhi, Bangalore,

Hyderabad and Chennai at fares that are 30-70 per cent of the standard fare of

existing airlines. That's when aviation experts expect that Deccan could incur the

wrath of its competitors - Jet, Sahara and Indian Airlines. There's no real evidence

yet of exactly how the battle will play out, but aviation experts are betting that Jet

and Sahara could start a debilitating price war to push the fledgling airline off the

tarmac - permanently.

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



Almost as a precursor to the impending battle, intense lobbying with the civil

aviation ministry has begun. Last week, Praful Patel, the new minister of civil

aviation, met the heads of all the domestic airlines in the capital. At that meeting,

the representatives from Jet and Sahara sprung a surprise by arguing for a new

level-playing field. They wanted the government to increase the minimum equity

needed to start an airline from Rs 30 crore to Rs 250 crore-300 crore. Also, fleet

sizes ought to be at least 7-10 planes, not five, they argued.

While both Jet and Sahara were unwilling to comment on this, aviation experts say

the two operators of what the industry calls full-service airlines are trying to erect

entry barriers. After all, it could well be a matter of their survival. Anyone with even

a passing knowledge of recent aviation history will know how, the world over, low-

cost airlines have begun to radically change the rules of the business. In market

after market - be it in the US, Europe and, now, Australia and South-east Asia - the

low-cost model has expanded the market, and gained significant share. Full-

service airlines have responded in one of three ways: restructure their operations,

launch their own low-cost airline. or simply get crippled.

For the past five years, low-cost airlines have been growing at more than 40 per

cent a year, while the full-service airlines are yet to recover from the crisis that hit

them post 9/11. Many of these low-cost airlines, be it Southwest Airlines, easyJet,

Ryanair or even AirAsia, have had such a great run that they are taught as case

studies at leading business schools across the world. And the CEOs of these low-

cost airlines now see themselves as a tightly-bound community of evangelists who

have an avowed mission: to make air travel accessible to more and more people.

(See 'Rewriting The Rules'.)

Last month, Richard Branson, the founder of the Virgin Group and the man behind

Virgin Blue, invited a select group of 10 CEOs of low-cost airlines to an exotic

island off the Australian coast. Captain Gopinath was among the invitees. The idea

behind the two-day retreat: learn from each other's experiences and brainstorm on

the way forward.



Gopinath says he learned a fair deal from Virgin Blue's experience in Australia,

where the low-cost carrier has grabbed a 30 per cent share in just 3-4 years. Now,

if all goes well with his own plans in India, Air Deccan could spark off a similar

price competition - sooner than most people think. A number of people are waiting

to see how Air Deccan does. As Gopinath says: "Originally, everyone wanted to be

a full-service airline, but now everyone wants to be a low-cost carrier."

At last count, at least four companies were in the process of starting up. There is

Royal Airlines, the new avatar of ModiLuft, and AirOne and Visa, both of which are

promoted by former Indian Airlines employees. Then there is Vijay Mallya's UB

Group, which is gearing up to launch its Kingfisher Airline. "We plan to charge the

fares in such a way that we will be able to attract those people who don't want to

travel by rail, but are unable to afford air travel," says Subhash R. Gupte, executive

vice-chairman, UB Group, and ex-CEO, Air-India. There are other companies, too,

that are still testing the waters, doing their initial market studies, and waiting for the

civil aviation policy to finally reveal itself, before stepping into the fray.

The entry of these low-cost carriers will have several far-reaching implications for

the aviation sector in India and, to a wider extent, on the mass transportation

industry and domestic tourism. In a country of a billion people, the Indian aviation

industry is puny. We have 12 million people who travel by air every year against 3

million passengers who fly everyday in the US, even though its population is one-

fourth that of India. The number of daily flights in India averages just about 400 a

day, as against 40,000 flights a day in the US. Ryanair, among the low-cost

pioneers in Europe, flies 25 million people in a year and still has less than 5 per

cent market share. Closer home, in Malaysia, there are 12 million people who

travel by air yearly. Look at it another way: India's 200-million middle-class

population is equal to that of the whole of Europe. Even if we assumed that only

one-fourth of that large middle-class could afford and would be willing to travel by

air, it would call for at least a 5-6-fold increase in capacity.



Why do we have such a malnourished civil aviation sector?

Simple. Since Independence, the sector has been largely a public sector

monopoly. Even when it was opened up in the early 1990s, the civil aviation policy

has remained opaque. A new policy has been in the making for over five years

now. "In the absence of a clear civil aviation policy, the government's stance on the

subject has changed every time a new minister or secretary has taken charge,"

says a Delhi-based advocate who specialises in aviation. The result: airfares in

India are among the highest in the world. For instance, a typical Delhi-Bangalore

round trip costs Rs 18,000 - the same as it would from Delhi to Singapore!

Moreover, despite the fact that India has close to 400 airstrips, airport

infrastructure is very weak for the most part. "Even a bigger airport like Mumbai

faces regular congestion and causes flight delays, even though it handles less than

half the number of flights as, say, Hong Kong. That, too, when the Hong Kong

airport operates for less than half the day because of concerns of noise pollution,"

says Shekhar Damle, president (funds business), Feedback Ventures.



It is a vicious circle. Scheduled airlines are not willing to fly to smaller towns,

primarily because they fly mostly Boeings and Airbuses, which are uneconomical

for short-haul flights. And unless there are adequate flights into these smaller

towns, getting enough private investment to modernise airports will not be feasible.

(See 'Needed: Low-cost Terminals'.) But mostly, the scheduled airlines have

preferred to concentrate on the more profitable trunk routes, because that's where

70 per cent of the traffic, which primarily comprises business travellers, originates.

Since airfares are high, most leisure travellers are forced to use an already over-

burdened train system.

The emergence of the low-cost airlines could trigger a new virtuous circle -

provided the government sees its virtue. Making air travel accessible to the

common man could well make for good politics. Talking to Businessworld, a senior

bureaucrat in the civil aviation ministry said that the department is all for low-cost

airlines. "Our mandate is two-fold - to make air travel affordable, and penetrate

deep into the country. That cannot be done without encouraging low-cost airlines."

Much will now depend on what Patel, the new minister, does to promote the low-

cost model.

Nothing in reality, though, is as cut and dried. As the Virgin Group founder Richard

Branson once famously said: "The safest way to become a millionaire is to start as

a billionaire and invest in the airline industry." The mortality rate in the airline

business is very high. That's equally true for any low-cost airline model. It requires

adequate staying power to buy aircraft and take losses in the initial years. Experts

say it takes nearly $60 million-70 million (Rs 270 crore-315 crore) to float a full-

service airline. This includes everything, even the losses that you have to sustain

for the first two years. In contrast, a low-cost airline takes $30 million (Rs 135

crore) to start up, if you want to ply the trunk routes. And if you want to be on the

feeder routes, you just need $10 million-15 million (Rs 45 crore-67.5 crore). So far,

Air Deccan has been funded through contribution by directors and cash accruals.

Gopinath and his close aide and executive director K.J. Samuel hold 26 per cent

each, while Vishnu Rawal, an old Hong Kong-based friend of Gopinath, owns 8 per

cent. Golden Ventures, promoted by an NRI Group, holds another 20 per cent.



Then, Bangalore-based Brindavan Beverages has taken up an 18 per cent stake.

Deccan has raised funds from investors (equity: Rs 30 crore) and taken a debt of

Rs 70 crore from Bank of Baroda. That adds up to Rs 100 crore.

The high mortality rates and wafer-thin margins in the airlines business make it

hard for entrepreneurs to raise money. Captain Gopinath has mandated N.M.

Rothschilds & Sons to raise $60 million-70 million to fund the expansion. He has

been jetting around the globe, presenting a business case to private equity funds

like Warburg Pincus and CDC, which have shown an interest in funding Air

Deccan. If Gopinath is able to get funding, it will be the first instance of private

equity in an airline in India. Abroad, private equity has funded airlines for a long

time. For instance, US-based Ryanair was funded by Newbridge, and Australia-

based Virgin Blue got funds from Indigo Partners and Temasek. Explains Amitabh

Malhotra, director, N.M. Rothschilds & Sons: "Investors are interested in low-cost

airlines which have a first-mover advantage. But once the market gets competitive

and crowded, investors turn to virgin markets." However, even if Gopinath gets

past that hurdle, there's still the larger question:

Will a low-cost model fly in India?

There's a simple way to understand how a low-cost airline works. Think of a

traditional airline with all its attendant frills - hot meals, frequent flyer programmes,

decent legroom, and a full complement of air-hostesses. Now delete each of these.

No meals on board means you don't need the extra space for storage. Instead, you

can add seats. In the typical Jet and Indian Airlines layouts, one could increase the

seat factor by as much as 20 per cent by pulling out the business class, reducing

the seat pitch (how far the seat can incline), and throwing out a couple of galleys.

"Now, if you can put in three extra rows, then you get (6x3) 18 seats more. In a

120-seater aircraft, if you get 18 seats more, you are up by 15 per cent," says

Cyrus Guzder, CEO, Airfreight Ltd, and a well-known aviation expert. Besides,

there's no time wasted on cleaning the aircraft. The result: quicker turnarounds at

the airports. Also, there's no need for a crew of more than six, or even four,

members.



While most full-service airlines like Jet take at least an hour to leave an airport after

landing there, Deccan can do it in 15-20 minutes for ATRs (and about 30 minutes

for its new A320 service.) So, if Deccan does six sectors a day, it can fly one

additional sector a day. This allows it to fly 20-30 per cent more than a full-service

airline. On an average, the conventional airlines fly their aircraft for 8-9 hours a

day, while a low-cost carrier is able to keep its planes airborne for 11 hours a day.

"It is only by more hours of flying that you can give a lower price," says Gopinath.

In fact, it is able to make the same revenue with fewer aircraft.

Now, squeezing out more from the capital asset simply lowers the fixed costs.

Even other costs, like costs of the crew, hangerage or even finance costs are

somewhat lower, in these airlines. All this tots up to close to 40-45 per cent less

depending, of course, on how much extra the airline can fly.

And if the airline uses the same type of aircraft in its fleet, it can move pilots and

cabin crews around, and won't have to worry about carrying spares for three

different kinds of aircraft. That generates economies of scale.

In Europe as well as the US, low-cost airlines have one more way to shave off

costs - but one that Deccan or its followers will not have in India for some time to

come. These airlines avoid flying into mainland airports and, therefore, don't incur

high parking and landing fees. So, instead of Heathrow in London, a low-fare

airline would use Luton or Stansted. India doesn't have too many secondary

airports, and this is considered a major constraint. The Naresh Chandra

Committee, however, has suggested a compromise - lower landing and parking

charges for low-cost airlines.

A low-cost airline then tries to save on distribution costs, which can be 11-15 per

cent in a conventional airline. They do this by not going through the travel agents

and the existing central reservation systems like Amadeus and Galileo. Instead,

they sell through the Internet and call centres - easyJet in Europe even has its

website address painted on its plane. These airlines don't issue a ticket, as it costs

to print, mail and process tickets. What you get instead is a booking number when

you make a reservation. Passengers have to quote this number at airport check-



ins, and present their photograph ID to collect their boarding pass.

Even the logistics model works differently. A low-cost airline offers a point-to-point

service, rather than the hub-and-spoke concept followed by conventional airlines

like Jet. In fact, a Jet aircraft would fly out from Mumbai only when all the

connecting flights come in. This is true more for interline traffic. So Jet handles

Emirates' interline traffic, and hence picks up the passenger bags and sorts them

out - a process that often causes delays. But in a point-to-point service, a

passenger travelling on two separate connecting flights isn't issued a single ticket.

"We will say, you will have to get out of the aircraft, you have to take out your bag

and again you have to check in. It is a bit of a hassle, but your bag will never get

lost. You have to carry it, but it is half the fare, so you have to do it yourself," says

Gopinath. If you miss your onward flight because the first flight was delayed,

Deccan will not owe you an explanation. "Our contract is to take you from point A

to point B, and if we don't take you from point A to point B, we refund you the

money," he adds.

On paper, it does look like a very nifty model. What's more, the model could

transpose well into India. It is partly a question of discomfort. People may not want

to sit for too long in cattle class, without meals. Which is why, globally, low cost

airlines ply on short-haul routes (which typically last 4-5 hours). "The longest flight

in this country, between Delhi and Thiruvananthapuram, is close to three hours.

Even the regional flights - to the Asean countries, fall in this band," says Kapil

Kaul, senior vice-president (Indian sub-continent), Centre for Asia Pacific Aviation.

Pricing will be crucial. UB Group's Gupte says they plan to charge fares that are at

a slight premium over train fares, but not high enough to preclude travellers from

thinking air travel. Deccan has already pitched its fares slightly higher than AC II-

class fares, but lower than AC I-class fares (See 'Indian Skies: A Fare To

Remember'). The idea: if you have return flights to a town the same day, the

traveller could come in the morning and go back in the evening. By doing so, he

manages to save on his overnight hotel bills. In the past few years, rail fares,



especially in the higher classes, have gone up. Despite that, a quarter of a million

passengers travel on AC trains every day. So if the differential isn't much, there's a

possibility that a large number of them could well upgrade.

So, what are the possible future scenarios?

Over the next few years, one can expect to see a complex system of low-cost

airlines. Depending on the amount of capital they are able to raise and the

business plan they formulate, some will ply on the trunk routes, others on the Class

A and B towns and then, some will operate purely as air taxis.

As for Deccan, Gopinath is committed to being a serious player in the high

sweepstakes game. "We don't want to be a regional airline. We want to be a

known as a national airline, going to the regions. If you want to be a major player,

you have to be a national player," he says. For the moment though, Deccan

remains a small player, flying just about 1,600-1,700 passengers a day and

expects to achieve a turnover of Rs 450 crore by end of March 2005. Jet, on the

other hand, had an operating revenue of Rs 2,876 crore in 2002-03 with a fleet

size of 41. So the critical question is: does Deccan have the deep pockets needed

to withstand a price war? Much will depend on how Jet and Sahara react. One

possibility is that they could begin offering more seats under the apex scheme

fares than the current level of 5-10 per cent.

Fortunately, a low-cost airline has the advantage of being a model that throws up

cash much faster than its full-service counterparts. So, if Deccan can survive the

price war for the first year or so and scale up, it will soon reach a size where Jet

and the rest cannot undercut without losing massively in the bargain. "It is always

simpler to drop prices if you are trying to take on a company with just three planes.

If, Air Deccan, however, scales up fast to 100 planes or so, the others cannot

undercut it without maiming themselves," says Kaul.



Even if it does scale up, there's another possibility: success will soon attract

imitators. In Europe, the original pioneers, Ryanair and easyJet, are suddenly

faced with too many new competitors in the same low-price segment, sparking off

an intense price war. "To attract customers, they are cutting prices to

unreasonable levels, impacting the profitability of the entire sector," says Nirmalya

Kumar, professor of marketing and director of the Aditya Birla India Centre at the

London Business School. Kumar, who wrote a prize-winning paper on easyJet,

says some low-cost airlines also lose their bearing and begin adding frills like

assigned seatings, hot meals and in-flight entertainment to attract some of the

more comfort-seeking customers. But that leaves them exposed to being undercut

by a new competitor who focusses exclusively on price. "Anything (like frills) that

adds costs and reduces price competitiveness is a bad trade-off. After all, if you

get them on price, you could lose them on price too," says Kumar. In the low-price

sector, only those with the lowest costs survive in the long run, and scale does

matter in delivering the lower costs. "In the short run, all sorts of dislocations

happen until the newcomers start running out of money," says Kumar.

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