Airline Industry in India - Marketing Mangement

8/6/2019 Airline Industry in India - Marketing Mangement

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INTRODUCTION

Aviation industry in India has the potential to grow because -

16 Millions Indians are travelling by rail daily

19 Millions Indians are travelling by air yearly

Due to bilateral air traffic agreements, the international air traffic increased by17%.Only 1% of the Indian population have used the airplane at least once(AirDeccan: 40% of our passenger are first time travellers)450 500 Million.Indians are potential air travellers.

There were only TWO players in post independence era.All airlines weremerged either into Indian Airlines or Air India (Air Corporations Act,1953).

Government monopoly for next 40 years (till 1991).Huge entry barriers forprivate players.

CURRENT SCENARIO

The liberalization of aviation industry in India has precipitated the boomfor domestic and international passenger carriers. The domestic passenger and

cargo traffic recorded a growth rate of 44.6% and 8.7%, and the internationalpassenger and cargo traffic recorded growth rates of 15.8% and 13.8%respectively during 2006-071. The Airport Authority of India (AAI) managestotal 122 airports in the country, which include 11 international airports, 94domestic airports and 28 civil enclaves. Top 5 airports in the country handle70% of the passenger traffic of which Delhi and Mumbai together account formore than 50%. The latest data compiled by Airports Authority of India (AAI)shows that all the airports handled 90.44 million passengers during the calendaryear 2006 compared with 67.95 million handled during the same period in the

previous year2. The substantial growth of Indian aviation industry is mostly dueto:(i) low fares offered by Low Cost Carriers (LCC) like Deccan, Spicejet,

GoAir etc; and(ii) Scheduled domestic air services are now available from 75 airports as

against just 50 earlier so it is evident that Indian airline industry is

Growing vigorously at a rate of 25-30% and is expected to continue

International Players making a beeline to enter this emerging market

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Carriers operating in India has grown from two state-owned players in1991 to more than ten today

Numbers of Flights operating: 2500 per day

MAJOR PLAYERS

Players in Indian aviation industry can be categorized in three groups:

Public players - Air India, Indian and Alliance Air

Private players - Air Deccan, Air Sahara, GoAir Airlines, IndiGo Airline, JagsonAirline, Jet Airways, Kingfisher Airline, Paramount Airways, SpiceJet Airlines

Start up players - Omega Air, Magic Air, Premier Star Air and MDLR Airlines

SWOT ANALYSIS OF AIRLINE INDUSTRY

STRENGTHS

In Apr-Dec 06, the domestic market has grown at about 46%, from 62000 to 91000pax per day, over and above growth of 25% in Apr-Dec 05 over 04

In Dec 06, domestic market witnessed average daily carriage of around 114,000passengers per day another first for the industry

Some Major Players

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Indian aviation market has been booming domestic at 46%, and international at17%, over the past 2 3 years

6 new airlines, almost all operating on the LCC model Strong capacity growth in the domestic market, mainly in the LCC segment Strong economic growth

WEAKNESSES

LCCs and other new entrants together now command a market share of around 46% Legacy carriers forced to match low LCC fares, during a time of escalating costs The bottom-line lower yields for all operators

Gaps in Infrastructure

Airlines paying for these strategic gaps in many ways

Higher fuel consumption - long holding times, on ground and inthe air

Lower utilisation of aircraft - slot constraints and air traffic

congestion Sub-optimal route network strategies, due to lack of night parking

stands at major airports and navigational aids at many of thesmaller airports

High input costs

ATF prices in India continue to be far higher than global rates, making ATF accountfor 35-40% of operating cost, as against global average of 20-25%

High basic rates aggravated by high taxes imposed by State Govt.s

ATF cost / kilolitre : US$ 755 in Delhi US$ 780 in Mumbai US$ 455 in Singapore US$ 497 in Dubai

OPPORTUNITIES

A large & growing potential market

The 4th largest & 2nd fastest growing economy in the world - GDP growth of 9.2% inQ3 2006

Over 300 million strong middle class Disposable incomes expected to increase at an average of 8.5% p.a. till 2015 (Price

Waterhouse Coopers, 2005) Estimated 50 million premium railway passengers per annum 390 million strong domestic tourism market, growing at ~13% Foreign tourist inflows of 4.43 million, also growing at ~13%

Air Cargo

Freight carriage in India currently around 4200 tons per day

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CAGR of 15% over the past 2 years

Fuelled by a fast growing economy, supported by a strong industrial base

Forecast to grow at 11.4% p.a. till 2011-12

With tax proposed on aircraft lease rentals for leases concluded after 1stApril07.

Increasing manpower costs due to shortage of technical personnel

GOVERNMENT APPROACH.

The Foreign Direct Investment limit in Air Transport Services (Domestic Airlines) hasbeen increased from 40% to 49% and is soon expected to be increased further. However, theNRI`s and Persons of Indian Origin (PIO) have been allowed 100% FDI.

o Tourist charter guidelines liberalized;

o Fleet expansion plans of Air India/Indian Airlines approved

o Restructuring of Delhi and Mumbai airport and work on development of

Greenfield airports at Bangalore and Hyderabad undertaken2

THREATS

Increase in Competition Excess capacity could lead to price wars

Oil Price Extremely vulnerable to oil price fluctuations due to government regulations

on price hedging

Regulatory risk A collapse of the current coalition government could trigger significant

changes in Indias economic liberalization and deregulation policies

STRATEGIC GROUPS

Basis Description

Full range carriers withmedium price

Low cost carriers with lowprice

Very high service with highprice

Good service with mediumprice

Jet, Indian, King Fisher and other fullrange carriers

Air Deccan, Spice Jet, Go Air, Indigo

and other Low cost carriers

Taj airways, Club one airways

Kingfisher, Jet airways

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a) Full range carriers with medium price

Strength

Wide coverage of services provided

Weakness

Less number of Internationaldestinations

Opportunities

Greatest potential to capture and leadin market

Threats

The new comers with low fares

Examples:

Jet, Indian, King Fisher and other full

range carriers

b) Low cost carriers with low price

Strength

Great facilities and technology

Weakness

No service for economic class

Opportunity

Growing business class

Threats

The low fare luxury service providers

Example:Air Deccan, Spice Jet, Go Air, Indigo and other Low cost carriers

c) Very high service with high price

Strength

Better service due to high fare.

Weakness

Less coverage within country

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Opportunity

Attractive for The growing middleclass

Threat

The low cost luxury service providers

Example:

Taj airways, Club one airways

d) Good service with medium price

Strength

Low fare as compared to higher serviceprovider.Better services than lcc.

Targeting to the middle class customers.

Weakness

Very new in industry

Opportunities

Huge potential to capture market

Threats

Extra cost burden

Examples:

Kingfisher, Jet airways

MARKET SHAREOF DIFFERENT AIRLINES IN INDUSTRY IN 2006

JET AIRWAYS MARKET LEADER

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31% OF MARKET SHARE (After Acquisition of AIR SAHARA)

PUBLIC LIMITED COMPANY WITH THE FLEET OF 55 AIRCRAFTS

IN-FLIGHT SERVICES ARE ISO 9001:2000 CERTIFIED

Business Strategy: Jet Airways

Maintain market leadership in the domestic market Develop two equally strong pillars: domestic and international operations Consistently provide a superior product to our passengers Seamless connectivity spanning domestic and international routes Improving cargo revenue potential -domestic and international Reduce unit cost of operations

Focus on reducing operating costs (specifically fuel)Reduction in selling and distribution cost (on-line bookings)Re-negotiation of agreements with various service providers

Market leadership

Market leadership has become such a typical pursuit that its implications are hardlyaccorded much thought. In the context of aviation, this can mean being under constant siegefrom all sides - competitors, clientele and bureaucracy and an indefinite overhang of pressureto retain the top spot. Jet Airways has done all of the above and continues to, in Indianaviation's most important as well as tumultuous years. Its humble beginnings are difficult toimagine in light of its current dominance of domestic aviation and its encouraging head starton the international front.

Domestic Endurance

Being a domestic private carrier in the early '90s was considered both, tantamount tosubversive competition to Indian Airlines ostensibly antagonising the authorities and afinancial misadventure. The '90s saw many start-ups fall by the way side, while Jet Airwaysemerged from the meltdown as an airline with a focus on key business routes. It took the leadin identifying new stations and consolidated with a market share that has grown consistentlytill it took market leadership from Indian Airlines in the early half of the decade and has heldit ever since. The airline followed a strategy of a steady expansion of domestic routes,scheduling flights between metros with a strategic focus on the business traveller with asophisticated product and on-time performance. A focus on the maximum utilisation of

assets, similar to the approach of Low Cost Carriers (LCCs) in Europe and the US, helped theairline. Jet Airways was also the first Indian carrier to look at the capital markets by floating a

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minority stake of 20 per cent on the Mumbai stock exchange in 2005, in order to fuelexpansions and reduce exposure to debt.

Brand image through International windfall

International flights stand out as the airline's biggest strategic milestone in so much asthe move gave the airline a global scale and exposure. Jet Airways was the first private airline

of India to fly to international destinations in March 2004 with flights between Chennai andColombo, after it was cleared by the Government of India to operate scheduled services tointernational destinations. Subsequently, the airline looked at Europe, when in December2004, the Government of India allowed private Indian carriers to fly to any internationaldestination world-wide with the exception of Gulf countries. Today, it operates dailyinternational flights to Colombo, Kathmandu, Singapore, Kuala Lumpur and London(Heathrow) and will soon start serving Bangkok, Brussels and Newark.

Jet Airways seized the opportunity, positioning the Boeing 737-700/800 series fordestinations such as Singapore and Kuala Lumpur and leased Airbus A340-300E wide-bodyaircraft for non-stop flights to London (Heathrow). It also placed more order for wide- body

aircraft with an eye on more long-haul flights to Europe and North America. The airlinerealised the potential of a second-tier city like Amritsar, operating from there to London andthen started flights from Ahmedabad to London. It took Jet Airways more than two years toget the necessary clearances from US authorities to fly to the United States. The US StateDepartment gave the go ahead on November 15, 2006. With a view of operating over 10 dailyflights through Brussels in the next two years, Jet Airways has chosen the European city as itshub for flights to North American cities, including New York, Chicago and Los Angeles andCanadian capital, Toronto. It is taking delivery of 10 777-300ERs and 10 A330-200s throughOctober 2008.

Jet Airways has also taken the lead in introducing many of the key internationalconveniences. Web check-ins introduced in late 2005 became instantly popular with frequent

business travellers and later check-in kiosks were also launched. In April 2007, Jet Airwayslaunched a new livery with the arrival of its first Boeing 777 and third Airbus A330 aircraft.

Trendsetter attitude

Jet Airways in its typically 'trendsetter attitude' created India's first domestic fullservice and low cost model by announcing the launch of a subsidiary airline, Jetlite, whichwill be positioned between low cost and full-service. Jet aircraft and major destinations are

not its only focus. The airline, along with six others, recently obtained permission to operatean 80-seater aircraft, which will not only widen its network to include more tertiary cities butsave it valuable costs by way of landing charges and sales tax on ATF, both of which arewaived by the government for such aircraft as they connect the country's vital hinterland tomajor cities. Going back to the topic of the typical pursuit of market leadership, in theaviation industry, it means much more than general statistics. Jet Airways has seemingly beenaware of this, selling itself on the basis of brand above price, amidst a fully blown fare waramong its peers, managing eventually the best yields in the business, introducing Indian

passengers to some international conveniences and in the process, retaining that typicalpursuit without fuss.

Other Strategies

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Best customer Service

Serve both business and economic class

Acquired Sahara airlines thus getting stronger hold in market.

Several Schemes to acquire and retain customers - Regular customers enjoys

discounted fare

Innovation Leader

Jet Airways wins Most innovative product launch award. (Sept 2007)

--Investment in IT, Research on Customer protective mechanism, Outsourcing by omnitech.

AIR DECCAN - COST LEADER

Air Deccan Strategy- Leader in LCC

Advertisement through print, radio and billboards

In flight magazine for revenue generating

In flight shopping scheme called Brand for less AVA Merchandising

Tie-up with Caf Coffee Day

ICICI-Travel agent purchase card

Tie-ups with HPCL and Reliance Web World

The Indian aviation market expected to grow at 20% annually for the next ten years.

Air Deccan is targeting 18% market share by 2013

Air Deccan is positioning itself as a low cost carrier

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Offers no in-flight service

Single class aircraft configuration

Internet booking and cheap fares

Offering non-trunk short-haul routes and attracting high-end railway traffic throughcomparable fares

Target market: Upper middle class in short term and lower middle class aggressively inlong term

MARKET CHALLENGER- KINGFISHER

Kingfishers Marketing Strategy

Co-branding/Strategic partnerships with like-minded brands is an aggressive strategyof Kingfisher to promote its guest loyalty programme.

The company is used to spend close to Rs 40 crore on various media and below-the-line marketing activities every year.

The company has also launched Kingfisher First, which is a print campaign topromote its first class service.

The company is also planning a series of online promos to boost traffic in certainsectors such as Mumbai-Kolkata. They are running online contests to boost traffic onthese sectors and are also looking at partnering with premium hotels.

KINGFISHER Airlines has announced special fares for all personnel serving in theIndian Armed Forces, the Union Government, State governments, and employees ofall public sector units in the country.

The immediate families of these personnel - parents, spouses and dependent children -are also eligible for these reduced and special fares.

Indian Rupees(INR)

Sector

2 AC -Sleeper

Journeytime

3months

2months

1month

3days

Journeytime

Delhi-Mumbai

4100

17hours

4256

5452

6448

1hr. 45min.

Delhi-Bangalore

5700

35hours

Re1

6656

8248

9648

2hr. 30min.

Mumbai -Bangalore

3000

23hours

3656

4952

5448

1hr. 35min.

Rail Fare(Return)

Air Deccan fare(Return)

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It lays stress upon

Full Service at True Value Medium-cost operation One single Kingfisher Class for all Short flights and fast turnaround times (allowing maximum utilization of aircraft)

MARKET FOLLOWERS IN INDIAN AVIATION INDUSTRY

GO AIR INDIGO SPICE JET PARAMOUNT JAGSON

STRATEGIES

Adapters whatever strategies implemented by leaders and challengers, they modify

it to serve their purposeEx. Minimization of air fares.

Better service and facilities are provided by them by studying the competing firms.

Maintain the market share

MARKET NICHER

It is the only Indian air charter company with a state-of-the-art hangar and anexclusive passenger lounge at the Chhatrapati Shivaji International Airport inMumbai. In 2004-05, Taj Air welcomed aboard 2,903 passengers notably industrycaptains, global C.E.O's, dignitaries and celebrities.

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NETWORK

In India, Taj Air covers 114 destinations while commercial aircraft fly to 71destinations.With as little as 4 hours notice, Taj Air flies to eleven destinations in India viz.Ahmedabad, Bangalore, Chennai, Cochin, Delhi, Hyderabad, Jaipur, Lucknow, Kolkata,

Mumbai and Tiruvananthapuram. For other destinations in India and overseas, departure issubject to airport formalities and landing clearances.

MARKET NICHER

Air Deccan

Helitourism

Elements of IndustryElements of Industry

Structure:Structure: PorterPorter

s Five-Forcess Five-Forces

Bu

yers

Sup

pliers

IndustryCompetit

ors

BaBargaining

Por ofSuppli

New EntrantsThreat of New

Entrants

Threat ofSubstitutes

Substitutes

Bargaini

ngPower

ofBuyers

BargainingPowerof

Suppliers

Threat of Substitutes

Intensityof Rivalry

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THREAT OF NEW ENTRANTS

Considerably high cost to enter.

Shortage parking bays at major airports.

the low availability of slots in peak hours.

No government restrictions for domestic newcomers except for some legalformalities.

BARGAINING POWER OF SUPPLIERS

Aircraft suppliers

Fleet Forecast for the India-Region 2006-2011 this study shows that there will be approx.

85% growth in the order rate of air carriers.

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There are only two major suppliers Boeing and Airbus. There are others like BritishAerospace, ATR-42, Dauphin, Dronier, Fokkar, Partenavia, deHavilland, Beechcraft, Belland Cessna.The suppliers are few and thus in better position to bargain as they always find customersfor their aircrafts.

Aviation Turbine Fuel Suppliers

IOC Hindustan Petroleum Corporation Bharat Petroleum

ONGC

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The suppliers have more power here as is evident from the fact that the ATF price has roseabout 30-35% despite of resistance from the airlines

Pilot and crew members

Pilot and crew members are highly trained staff. And not easily available. It takes a lot oftime and money to train them. Therefore the competing airline sometimes tends to skip allthese processes and simply lure manpower by offering higher incentives.

Eg- kingfisher follows this strategy.There fore bargaining power of this trained staff increases.

BARGAINING POWER OF BUYERS

Competition among the existing players

Increased Income of population internet help to buyers

THREAT OF SUBSTITUTES

Air Deccan introduced airfares almost equalling the AC II-tier train fares that ledimmediate similar response from the leading domestic airlines.

Jet airways and kingfisher offers the same quality service in the same price

THREATS OF INTENSE SEGMENT RIVALRY

All major airlines increasing the capacity by buying more aircrafts

Barriers to Exit Considerable Cost involved No Government Restrictions Loss of brand image

ConclusionThe Indian aviation Industry seems to be attractive for a new entrant after

analyzing the market in terms of competitors and other factors.Among the new low-cost carriers waiting to take wing in 2006 were Omega

air, Magic Air, East West, Indus, Premier Star Air and MDLR Airlines

REFERENCES

LUFTANSA TECHNIK

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Travelguru.comMoneycontrol.com

www.spicejet.com

http://inhome.rediff.com/money/2005/may/07spec.htm

http://www.businessworldindia.com/jan1606/coverstory01.asp

www.kingfisher.com

www.goair.com

www.airdeccan.com

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http://www.spicejet.com/http://www.businessworldindia.com/jan1606/coverstory01.asphttp://www.goair.com/http://www.airdeccan.com/http://www.spicejet.com/http://www.businessworldindia.com/jan1606/coverstory01.asphttp://www.goair.com/http://www.airdeccan.com/


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Airline Industry in India - Marketing Mangement

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