5) How will an assessment of rival firm reactions shape Air Asia Indias pricing

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.

3. Fuel Conservation methods- Fuel consists of 40%-50% of the

operational costs of airlines in India so it is imperative to look for methods
to cut down fuel consumption. This can be done by using newer types of
aircraft such as the Airbus A320 neo which is 15% more fuel efficient than
the previous type.
4. Sale and leaseback- The sale and lease back model of acquiring aircraft
has a huge impact on the cash flows of the airline as demonstrated by
rivals such as Indigo. This provides them with the much needed
operational cash which is required on a daily basis for running an airline.
5. Turnaround time and maximum aircraft utilisation- Reducing
turnaround time to a minimum helps in improving the aircraft utilization
per day which helps in bringing down cost. This reduction in cost can be
passed to the customer.
6. Distribution Strategy- Air Asia India should sell its inventory through
online travel portal exclusively since the cost of transactions through the
online medium is much less than doing it manually.
7. Integrating local operations with the global one- Air Asia India can
provide the option to consumers in tier 2 cities flying abroad to take an Air
Asia India flight to a metro city and then take an Air Asia Bhd. flight to
their final destination. This integration can be hugely beneficial for both
the parties involved.
8. Retailing- The airline can also focus on providing a range of different
products and services before , during and after the flight in order to
increase their secondary revenues.