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strategy?
A)The Indian aviation industry is mostly dominated by the Low Cost Carriers
(LCC) which have a huge market share in the industry. If we look at the market
structure 60% of the market is controlled by LCCs. This makes the industry a
highly competitive because of the market being highly price conscious.
If we study the reactions by rival firms they opt for either one of the two
following strategies1. Maintain status quo- On price cuts by competitors , only those airlines
can afford to maintain status quo which are providing an additional service
to the customer or has some differentiating factor compared to other
airlines. This can be done only by the FSAs (Full Service Carriers) since
LCCs will simply lose passengers if they keep their price points static.
2. Similar cut in price- Being an oligopolistic market, when a rival firm cuts
fare, other LCCs have no option but to get into a price war with them to
retain passengers. This price war creates a vicious circle in the airline
industry in which LCCs which have higher costs of operations simply
cannot sustain their operations.
Air Asias StrategyGiven the rival firm reactions above, it is imperative for Air Asia India to
maximize efficiency and bring down cost of operation to as low as possible. This
is important since in case of a fare war with other airlines, Air Asia India can take
advantage of its low cost of operations and still be profitable. Also, with the
relaxation of FDI rules in the aviation industry in India , it is imperative that new
airlines will enter India. Therefore, it is extremely important for Air Asia India to
stay competitive so that its operations become sustainable and it can take on
competition from both the domestic as well as the foreign rivals.
6) What strategies should Air Asia follow to survive and grow in the Indian
aviation industry?
A) In order to survive and grow in the Indian aviation industry a relentless focus
on cost cutting is required so that fares are kept low and high volumes are
achieved. This can be done through the following methods1. Using the same type of aircraft- Air Asia should stick to using a single
type of aircraft (Airbus A320) for all its routes which brings down the
maintenance and operation costs considerably since manpower need not
be trained to work on different kinds of aircrafts which pushes up costs.
2. Explore underserved routes- Serving certain underserved routes such
as between tier 1/tier 2 to the metros can be beneficial in terms of
providing passengers to Air Asia.