Mkt Stratedy Assignment

8/4/2019 Mkt Stratedy Assignment

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AN

ASSIGNMENT

ON

Airline industry in India

Submitted To:- Submitted By:-

Prof.Hitesh Manocha Uma Shankar Roy

IIPM Faculty Roll No.:- 86

New Delhi Year2010-12

The Indian Institute of Planning & Management

(NEW DELHI)


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INTRODUCTION

Airline Industry in India is one of the fastest growing aviation industries in the

world. With the liberalization of the Indian aviation sector, airline industry in India

has undergone a rapid transformation. From being primarily a government-owned

industry, the Indian airline industry is now dominated by privately owned full

service airlines and low cost carriers. Private airlines account for around 75% share

of the domestic aviation market. Earlier air travel was a privilege only a few could

afford, but today air travel has become much cheaper and can be afforded by a

large number of people.

The origin of Indian civil aviation industry can be traced back to 1912, when the

first air flight between Karachi and Delhi was started by the Indian State Air

Services in collaboration with the UK based Imperial Airways. In 1932, JRD Tata

founded Tata Airline, the first Indian airline.

Airline organizations can be classified into a number of segments depending on the

nature and degree of services they provide. Major Indian carriers are pressing their

feet on the accelerator to reach an acme of service level by the year 2010 when

their fleet strength will meet 500 to 550. In the previous two years more than 135

aircrafts have been introduced to keep up with the increasing number of passenger

traffic in Indian aerospace. A number of domestic airline groups have emerged in a

reasonably short span of time to make the market furiously competitive.


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REASONS FOR:-

WHY INDIAN AIRLINE INDUSTRY IS NOT IN A GOOD SHAPE?

1) A capital intensive industry with high fixed costs: A business is consideredcapital intensive depending on the ratio of capital required to the amount of labor.The airline industry is considered among the top of the high capital intensiveindustries. Airline industry also has high fixed costs as compared to revenues. Thisputs the industry to higher risk because in case it is not able to attain an economyof scale or if there is a downturn in sales, the high fixed cost cant be covered andthe business becomes unprofitable. Such a condition to some extent is alsoprevalent in automobile industry, but for an airline it becomes very critical.

2) Low profitability: Every time fuel costs rise, or a new tax is imposed, or a staffstrike happens; or there is an inability to raise the fare proportional to the risinginput costs, their profitability is hit hard. Such an unexpected hit hurts theexpansion plans and the whole fiscal planning goes haywire. Due to combinationsof high fixed costs, low profitability, and high competition, a lot of airlines have

gone bankrupt and keep getting bankrupt. Also, this has resulted in new businessstructure: where there are holding companies or PE firms controlling them andairlines becoming merely operating units without much decision controls. In somemarkets very few airlines have remained without filing for bankruptcy.

3) High vulnerability to the state of the economy: global slowdown or recession:Airline industry is too much dependent on the global economic scenario. Everytime an economic slowdown or recession happens, flyers go for cheaper options

like trains or road; there are few tourists travelling; fewer business travels planned;and airlines have to run with empty seats. As a result, they face severe liquiditycrisis.

Fuel makes 35-40% of costs of an airline, higher than this for low-cost-airlines,and any global crisis impacts the fuel prices too. Like any political turmoil in theoil producing nations causes the prices to go high above the roof. E.g. Jet fuel


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prices which were about USD 83 in August 2010 in Singapore are now USD 129 ataround March 10, 2011 (Source: moneycontrol.com). This is 55.4% higher in only8 months! Analysts are predicting that global airlines net profits will half this yearin 2011, due to rising oil prices (due to crisis in Egypt, Libya and others).

4) Nationalization of Airlines: Many countries have national airlines.Governments own and operate these airlines. At times they have nationalizedprivate airlines to be able to have a national carrier. For example in India, theairline industry was pioneered by Tata Airlines in 1932 as a division of Tata Sons.But after independence, the government of India acquired majority stakes in AirIndia. Air transportation industry was nationalized in 1953, with domesticoperations transferred to Indian Airlines.

5) Frequent bailouts: A similar situation prevails in India where governmentsupports the national carrier Air India, no matter how much loss it makes. Analystshave been critical of this practice of dumping tax-payers money into the airlineindustry just for the sake of preventing bankruptcy. But so far, governments havealways come to the rescue of the industry. This is a unique thing with the airlineindustry.

6) High barrier to entry and regulations in the markets: Typically airlines arehighly regulated due to political, economic and safety concerns. In such regulatedmarkets, new airlines find it difficult to come up and establish them. Also, due torestrictive practices new airlines find it difficult to obtain slots at airports.

The entry barriers are low in deregulated markets, with dozens of airlines startingup from nowhere in no time. Deregulation increases the competition and promotesmore players to enter the market.

7) Low switching costs for customers: It is very hard for airlines to develop aloyal customer base, particularly in markets like India. This is why all majorairlines have been enthusiastically running Frequent Flyer Programs and othercustomer loyalty schemes. For a flyer, it is just a click of a button to go book on a


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competitors flight. And airline customers are often very sensitive about service.Once the flight is delayed or service is unsatisfactory, they can make a resolve ofnot flying by that airline again. This is because the high competition in the airlinemarket has given the flyers too many options and almost no switching costs. Thecustomers also gain because of the prevailing price wars.

8) Being central to globalization: Due to its central role, the airline industry hasgrown with and can be identified with globalization. It facilitates global trade,international business, tourism, and hence helps economic growth of all nations. Itis hard to imagine if todays world would be as much globalised, or l ocalized,without fast, efficient and convenient airlines.

9) Unprecedented safety concerns: Because of the nature of air travel, the risksare high and in case of accidents the human casualty mounts. So the airlineindustry has to maintain strict safety standards and cant be relaxed even for amoment. In many accidents the reason is found to be human error, which makesthe case for stringent norms very strong. The 9/11 terror attacks in the New Yorkin the year 2001 brought another angle to the already stringent safety concerns.The airlines have to maintain very high personal checking system to avoid repeatof terror activities. Even before 9/11, airplanes were used for terror activities many

a time. For example the hijacking of aircrafts has been a common tactics used byterrorist groups, and they even try to bomb or blast the planes. (e.g. Kandaharhijack of IC-814 in 1999 and Air India Emperor Kanishka bombing in 1985)

Apart from accidents and terror threats, the air route has also been used bycriminals, smugglers and traffickers for their activities and hence safety andsecurity is always a concern for airlines.

10) Alliances and optimization: If we look at the competition in the US marketwhich was deregulated quite early, we would realize how smaller players havefound it too hard to survive competing against big airlines. For example, MidwayAirlines was a small carrier tried to compete against US Airways and EasternAirlines and it failed miserably. Ultimately it had to file for bankruptcy. It is saidthat Southwest survived because it avoided the markets dominated by big playerslike American and United.


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SWOT ANALYSIS OF THE INDIAN AIRLINE INDUSTRY

SWOT means the strengths, weakness, threats and opportunities. This is oneof the essential requirements of any organization and the foundation forunderstanding the industry of that particular organization. The continuousvolatile environment of the aviation industry has been analysed with respectthe extended marketing mix ( product, price, place, promotion, process,people and physical evidence). While individual airlines each analyze andmake decisions based on their own situations, there are overall industrysimilarities that all airlines face, with each endeavoring to maximize strengthsand opportunities while minimizing weaknesses and threats.

STRENGTH

A major strength of any airline is the product itself (air travel). Despitedownturns, over time air travel continues to grow, not only due to populationgrowth, but also due to an increased propensity to fly.

The entry of low-cost carriers pioneered by Air Deccan helped greatly reducethe costs involved in flying. This helped attract consumers for whom air travelwas only a dream. Now a number of low-cost airlines are operating in India,namely Go Airways, Spice Jet, and Kingfisher Air, and they have a majorshare of the Indian aviation industry.

Indian labour costs are an advantage, at $30-35 per man-hour. This compareswith $55-60 in South-East Asia and Middle East and even higher in the USAand Europe.

The change in lifestyle of people and growth in the disposable income hasresulted in an increase in leisure travelers for the past few years; 5 years back

85% were business travelers.


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WEAKNESS

All the major players in the aviation industry focus on particular regionsrather than focusing on India as a country. For example Air Deccan focusesexclusively on south Indian market while Go Air focuses on southern andwestern India.

The unplanned location of airport and the lack of proper infrastructurefacilities at the airport. Though the government has tied up with privatecompanies such as GMR and has upgraded airports such Delhi and Banglorebut still there is a long way to go.

Airlines have a high "spoilage" rate compared to most other industries. Once a

flight leaves the gate, an empty seat is lost and non-revenue producing.

OPPORTUNITIES

Government allows 100% FDI via the automatic route for the green fieldairports. Also, foreign investment up to 74% is permissible through directapprovals while special permissions are required for 100% investment. Privateinvestors are allowed to establish general airports and captive airstrips whilekeeping a distance of 150 km from the existing ones. About 49% FDI isallowed for investment in domestic airlines via the automatic route. However,this option is not available for foreign airline corporations. Complete equityownership is granted to NRIs (Non Resident Indians). Foreign directinvestment up to 74% is allowed for non-scheduled and cargo airlines. Thus,all these policies promote foreign investment in this industry.

Investment opportunities of US$ 110 billion are being envisaged up to 2020with US$ 80 billion towards new aircraft and US$ 30 billion towards thedevelopment of airport infrastructure, according to the InvestmentCommission of India.


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Technology advances can result in cost savings, from more fuel efficientaircraft to more automated processes on the ground. Technology can alsoresult in increased revenue due to customer-friendly service enhancementslike in-flight Internet access and other value-added products for which acustomer will pay extra.

THREATS

One of the basic weaknesses in the aviation industry is the fuel costs whichare 70% higher than International standards. The fuel bill is 40% of operatingcost. Aviation Turbine Fuel (ATF) prices in India is around Rs. 37,800 perkilo litre against Rs.21,800 in the Average International Markets.

Also 20% of the Operational Budget is spent on training pilots. Furthermore,landing and parking charges are 78% higher than the international average.

There is a shortage of skilled manpower which includes pilots, cabin crew andground staff. Also there is high attrition rate among the skilled manpowerwithin the aviation industry.


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PEST Analysis: The Indian Airline Industry

A PEST analysis is an analysis of the external macro-environment that affects all

firms. P.E.S.T. is an acronym for the Political, Economic, Social, and

Technological factors of the external macro-environment. Such external factors

usually are beyond the firm's control and sometimes present themselves as threats.

For this reason, some say that "pest" is an appropriate term for these factors. Let us

look at the PEST analysis of the Indian aviation sector:

Political Factors

In India, one can never over-look the political factors which influence each and

every industry existing in the country. Like it or not, the political interference has

to be present everywhere. Given below are a few of the political factors with

respect to the airline industry:

The airline industry is very susceptible to changes in the political environment as it

has a great bearing on the travel habits of its customers. An unstable political

environment causes uncertainty in the minds of the air travellers, regarding

travelling to a particular country.

Overall Indias recent political environment has been largely unstable due to

international events & continued tension with Pakistan. The Gujarat riots & the

governments inability to control the situation have also led to an increase in the

instability of the political arena.


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The most significant political event however has been September 11. The events

occurring on September had special significance for the airline industry since

airplanes were involved. The immediate results were a huge drop in air traffic due

to safety & security concerns of the people.

International airlines are greatly affected by trade relations that their country has

with others. Unless governments of the two countries trade with each other, there

could be restrictions of flying into particular area leading to a loss of potential air

traffic (e.g. Pakistan & India).

Another aspect is that in countries with high corruption levels like India, bribes

have to be paid for every permit & license required. Therefore constant liasoning

with the minister & other government official is necessary. The state owned

airlines suffer the maximum from this problem. These airlines have to make

several special considerations with respect to selection of routes, free seats to

ministers, etc which a privately owned airline need not do. The state owned airlines

also suffers from archaic laws applying only to them such as the retirement age of

the pursers & hostesses, the labour regulations which make the management less

flexible in taking decision due to the presence of a strong union, & the heavy

control &interference of the government. This affects the quality of the service

delivery & therefore these airlines have to think of innovative service marketing

ideas to circumvent their problems & compete with the private operators.


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Economic Factors

Business cycles have a wide reaching impact on the airline industry. During

recession, airline is considered a luxury & therefore spending on air travel is cut

which leads to reduce prices. During prosperity phase people indulge themselves in

travel & prices increase.

After the September 11 incidents, the world economy plunged into global

recession due to the depressed sentiment of consumers. In India, even a company

like Citibank was forced to cut costs to increase profits for which even the top levelmanagers were given first class railway tickets instead of plane tickets.

The loss of income for airlines led to higher operational costs not only due to low

demand but also due to higher insurance costs, which increased after the WTC

bombing. This prompted the industry to lay off employees, which further fuelled

the recession as spending decreased due to the rise in unemployment.

Even the SARS outbreak in the Far East was a major cause for slump in the airline

industry. Even the Indian carriers like Air India was deeply affected as many

flights were cancelled due to internal (employee relations) as well as external

problems, which has been discussed later.


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Social Factors

The changing travel habits of people have very wide implications for the

airline industry. In a country like India, there are people from varied income

groups. The airlines have to recognize these individuals and should serve them

accordingly. Air India needs to focus on their clientele which are mostly low

income clients & their habits in order to keep them satisfied. The destination, kind

of food etc all has to be chosen carefully in accordance with the tastes of their

major clientele.

Especially, since India is a land of extremes there are people from various religions

and castes and every individual travelling by the airline would expect

customization to the greatest possible extent. For e.g. A Jain would be satisfied

with the service only if he is served jain food and it should be kept in mind that the

customers next to him are also Jain or at least vegetarian.

Another good example would be the case of South West Airlines which occupies a

solid position in the minds of the US air travelers as a reliable and convenient, fun,

low fare, and no frills airline. The major element of its success was the augmented

marketing mix which it used very effectively. What South West did was it made

the environment inside the plane very consumer friendly. The crew neither has any

uniform nor does it serve any lavish foods, which indirectly reduces the costs and

makes the consumers feel comfortable.


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Technological Factors

The increasing use of the Internet has provided many opportunities to airlines. For

e.g. Air Sahara has introduced a service, through the internet wherein the

unoccupied seats are auctioned one week prior to the departure.

Air India also provides many internet based services to its customer such as online

ticket booking, updated flight information & handling of customer complaints.

USTDA (US trade & development association) is funding a feasibility study and

workshops for the Airports Authority of India as part of a long-term effort to

promote Indian aviation infrastructure. The Authority is developing modern

communication, navigation, surveillance, and air traffic management systems for

India's aviation sector that will help the country meet the expected growth and

demand for air passenger and cargo service over the next decade.

A proposal for restructuring the existing airports at Delhi, Mumbai, Chennai and

Kolkata through long-term lease to make them world class is under consideration.

This will help in attracting investments in improving the infrastructure and services

at these airports. Setting up of new international airports at Bangalore, Hyderabad

and Goa with private sector participation is also envisaged.

A good example of the impact of technology would be that of AAI, wherein with

the help of technology it has converted its obsolete and unused hangars into profit

centers. AAI is now leasing these hangars to international airlines and is earning

huge profits out of it. AAI has also tried to utilize space that was previously wasted

installing a lamination machine to laminate the luggage of travelers. This activity

earns AAI a lot of revenue.


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PORTER's 5 FORCES ANALYSIS

1. Threat of New Entrants. At first glance, we might think that the airlineindustry is pretty tough to break into, but don't be fooled. We'll need to look

at whether there are substantial costs to access bank loans and credit. Ifborrowing is cheap, then the likelihood of more airliners entering theindustry is higher. The more new airlines that enter the market, the moresaturated it becomes for everyone. Brand name recognition and frequentfliers point also play a role in the airline industry. An airline with a strongbrand name and incentives can often lure a customer even if its prices arehigher.

2. Power of Suppliers. The airline supply business is mainly dominated byBoeing and Airbus. For this reason, there isn't a lot of cutthroat competitionamong suppliers. Also, the likelihood of a supplier integrating vertically isn'tvery likely. In other words, we probably won't see suppliers starting to offerflight service on top of building airlines.

3. Power of Buyers. The bargaining power of buyers in the airline industry isquite low. Obviously, there are high costs involved with switching airplanes,but also take a look at the ability to compete on service. Is the seat in oneairline more comfortable than another? Probably not unless we are analyzinga luxury liner like the Concord Jet.

4. Availability of Substitutes. What is the likelihood that someone will driveor take a train to his or her destination? For regional airlines, the threat might

be a little higher than international carriers. When determining this weshould consider time, money, personal preference and convenience in the airtravel industry.

5. Competitive Rivalry. Highly competitive industries generally earn lowreturns because the cost of competition is high. This can spell disaster whentimes get tough in the economy.


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Consumer Analysis

Reliability is most important to customers. Reliability is performing promised

service dependably and accurately. If we don't deliver on our promise we can lose

customers and our credibility will be damaged. It takes a long time for a company

to build up a reputation for reliability, and only a short time to be branded as

"unreliable".

Security in airline industry is a very important issue. Terrorist threats and narcotics

are the main threats in Indian airports. The airlines and the security screening

people they contract with have a simple choice employ more staff so as to

process their passengers more efficiently, or lay off staff and cause their passengers

to spend more time waiting to check in than they actually spend on the flight itself.

Tangible - Tangibles refers to physical facilities and facilitating goods. Examples

of tangibles would be distinctive materials such as brochures and the cleanliness of

the facilities. Tangible is what makes you different than competitors. Customer can

see for themselves and then decide whether to go for the service or not.

Responsiveness - Responsiveness is the willingness to help customers promptly.

Avoid having customers waiting for no apparent reason. Responsiveness is very

important because if we provide customers with what they need in a timely fashion

they will be satisfied. Nobody likes to wait. Replying to a customer request


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promptly is a good example of responsiveness. If customers see that the company

is willing to help, this will cause loyalty and it will let them know that we are

concerned about them.

Assurance is the ability to convey trust and confidence. Being polite and showing

respect for customers will create trust. Also having professional and

knowledgeable staff will create trust and confidence in customers. People enjoy

meeting pleasant, knowledgeable people. By being pleasant and knowledgeable to

everyone a business will present the kind of business image that draws new

business.

Empathy is the ability to be approachable. Empathy involves treating customers as

individuals. When a customer has a problem they should not be afraid to ask

questions. A company should adapt to the specials needs of a customer. Listening

to customers concerns and proving them with a positive solution is how you show

empathy.


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Recommendations

141 should be outsourced to a call center to deal with the enquiries. Non-availability of help lines has been the most common complaint of agents andpassengers. IVRS should be provided for the agents/passengers waiting fortheir call to be attended by the operator. Some of the governmentorganizations have successfully done outsourcing help lines.

With the oncoming of the Private Airlines on the country the customerawareness and aspiration of quality of service has been enhancedconsiderably. So Indian Airlines should emphasis on providing moreefficient services both on the ground and in the air as done by Jet Airways to

a large extent.

Dedicated counters should be made to handle last minute reservation,preferably for reservations being done on the day of the flight.

Ticket counters can be placed at major corporate houses which have asubstantial amount of travel budget: wherein all the information about the

schemes is available. These ticket counters are to be maintained at the

expense of Indian Airlines.

There should be internal and external audits to look in to the working ofvarious departments. An incentive scheme should be launched for the people at the front desk of

the agency such as the ticketing agents. The ticketing agents should beprovided with a unique identity number that they would have to quote on thetickets. The points would automatically credited to their account. On theaccumulation of certain number of points they will be given FOCs. Thiswill also help in checking false ticketing.

Apex-7and Apex-21fare (scheme) should be continued on account of itspopularity.

Scheme like Smart Apex fare scheme for business class passengers can beintroduced.Flexibility in Smart Apex fare scheme should be increased.


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All the promotional schemes and services should be extensively advertisedto bring awareness to make itself better known to the potential customers.They should be advertised through e-mails, corporate presentations andthrough road shows. Executive class bonanza scheme should be startedagain.

Holiday packages should be sold only through Indian Airlines bookingoffices and not through agents, as there is every chance of the agentsoffering parallel deals to the customers.

Indian Airlines should schedule more number of flights to and from stationslike Mumbai, Delhi, Chennai, andKolkat a as these sectors account for highPax load.

Indian Airlines can introduce late bird/night bird flights between metros. The check-in time should be minimal. Wherever there is likely to be long

cues more counters should be opened.

Indian Airlines as introduced by Sahara Airlines should adopt the facilityof valet services and it should be extended to all classes.

Tele reservation and computerized check-in procedure should be mademandatory.

The process of ticketing and cancellation should be made more easy,smooth and as flawless as possible as most of the respondent are not happywith the present ticketing procedure.

Delayed flight, which is a very painful experience for the travelers, shouldbe attended to as top priority because the main clientage is business men andthey are time bound.

Indian Airlines should acquire (induct) new aircraft to upgrade productquality in order to build brand image and retain passengers.

AASL should be given more autonomy so that it could conduct some of theactivities related to marketing at its own to add up


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Innovative schemes and generate in revenues. Alliance Air authoritiesshould be made in easy approach to the passengers for the grievance

handling and complaints.

The flight of Alliance Air should be made more attractive that can be in theform of a booklet as it is of the Jet Airways.

It is necessary for Alliance Air that it should reconcile the sectors and thefrequency at which it is operating so that it could reduce costs and earn moreprofit.

Alliance Air is required to add up more and more places, which have thestatus of tourist places. Service innovations like automated flight schedules,over the phones, provision for customizing meals, in-fight mail ordershopping etc. should be introduced to lure the passengers.

Indian Airlines needs to undertake aggressive marketing. Alliance Air should consolidate its market share by further improving its

service standards and adding more routes to its network .

Indian Airlines should undertake customer satisfaction surveys. IA should make provisions to add up more financial benefits for its

Passengers.

International desk of Indian Airlines should be made more accessible. Flight status should be made available through SMS.


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REFRENCE

Books:-

Principles of Services Marketing by Adrian Palmer, third edition, McGrawHill, London.

Marketing Management by Philip Kotler.

Strategic Marketing Management by Wilson and Gilligan

Strategic Marketing by David Cravens.

Mkt Stratedy Assignment

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