IILM

Advertisement, Sales &

Promotion

Project on Advertising and sales promotion

strategies adopted by Aviation Sector.

Submitted to - Dr. Jyotsna Mukherjee From

Brijesh Kumar Singh

PGP20095884
Contents
Introduction......................................................................................................................................3
Importance...................................................................................................................................4
Presence Scenario........................................................................................................................5
Classification & Types................................................................................................................6
Advantages..................................................................................................................................7
Four P’s...........................................................................................................................................8
Product.........................................................................................................................................8
Price.............................................................................................................................................9
Promotion..................................................................................................................................11
Integrated Marketing Communication...................................................................................11
PEST Analysis: The Indian Airline Industry.................................................................................13
Political Factors.........................................................................................................................13
Economic Factors......................................................................................................................14
Social Factors.............................................................................................................................15
Technological Factors................................................................................................................15
FIVE PRODUCT LEVELS...........................................................................................................17
The Core Service:......................................................................................................................17
The Supplementary Services:....................................................................................................17
The Augmented Service:...........................................................................................................18
Future Service:...........................................................................................................................18
Extended Marketing Mix...............................................................................................................19
People........................................................................................................................................19
Physical Evidence......................................................................................................................20
Process.......................................................................................................................................21
Segmentation.................................................................................................................................22
Marketing strategies - Air- India...................................................................................................23
FUTURE PROSPECTS OF INDIAN AIRLINE SECTOR..........................................................25
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.
Importance

Growing tourism:
Due to growth in tourism, there has been an increase in number of the
international and domestic passengers. The estimated growth of domestic passenger
segment is at 50% per annum and growth for international passenger segment is 25%.
Airlines play an important role in international tourism. Developing airline services helps
the nation to cash on tourism as more than 85% of the foreign tourist arrives by air.

Improving Infrastructure:
We all know that India's air transport infrastructure is out-of-date. In fact the
overall situation is critical. A recent report by McKinsey suggests that half of India's
highly qualified graduates are located in cities without international airports. Without
massive change, infrastructure will not be able to handle growth. We must move quickly
now.
 Benefit all—the government, the airport, shippers, passengers, local communities
and airlines
 Result in greater efficiency—lower costs
 Result in better service levels

Globalization:
Globalization has improved the lives of many in developing nations. Globalization
in of its self is the trading of goods and services of a local economy into an integrated
global economy. Technological advances have made this practice more feasible within
the last 50 years. The major milestones were the development of the internet and
increased transportation technology. These two advances made the world coined "flat"
and set the stage for higher living standards.
Presence Scenario

Revolutionized by privatization along with active participation of the foreign

investors, the Indian airline industry has experienced phenomenal transformation over
the last couple of years. From being a service catering to the needs of the privileged
group only it is now well within the reach of middle class population. This has been the
result of increased competition in the Indian aviation industry due to the presence of a
wide variety of private and public airlines with their low price tags. It was further helped
by the entry of Air Deccan, the first budget airline in India, offering unbelievable tariffs
to the customers.
In the financial year 2006-07 there has been a significant 22.3 present growth in
passenger traffic in the domestic airports while the aircraft movement recorded a
growth by 14.2 present.
In terms of the number of flights Jet Airways secures the top position with 8,168
flights operating till June 2007. Indian Airlines is in second position with 7,562 flights.
Sahara (3,225 flights), Air Deccan (2,889 flights), Spice Jet (483 flights) and Kingfisher
Airlines (367 flights) come thereafter in the list of domestic and national carrier
operators.
Classification & Types
The Indian airline sector can be broadly divided into the following main
categories:
1. Scheduled air transport service, which includes domestic and international
airlines.
2. Non-scheduled air transport service, which includes charter operators and air
taxi operators.
3. Air cargo service, which includes air transportation of cargo and mail.

Scheduled air transport service: It is an air transport service undertaken between two
or more places and operated according to a published timetable. It includes:

1. Domestic airlines, which provide scheduled flights within India and to select
international destinations. Air Deccan, Spice Jet, Kingfisher Airline and IndiGo are some
of the domestic players in the industry.
2. International airlines, which operate scheduled international air services to and from
India.

Non-scheduled air transport service: It is an air transport service other than the
scheduled one and may be on charter basis and/or non-scheduled basis. The operator is
not permitted to publish time schedule and issue tickets to passengers.

Air cargo services: It is an air transportation of cargo and mail. It may be on scheduled
or non-scheduled basis. These operations are to destinations within India. For operation
outside India, the operator has to take specific permission of Directorate General of Civil
Aviation demonstrating his capacity for conducting such an operation.
At present, there are 2 scheduled private airlines (Jet Airways and Air Sahara), which
provide regular domestic air services along with Indian Airlines. In addition there are 47
non-scheduled operators providing air-taxi/non-scheduled air transport services.

Apart from this, the players in airline industry can be categorized in three groups:

 Public players

 Private players
  Start up players.

There are three public players: Air India, Indian Airlines and Alliance Air. The private
players include Jet Airways, Air Sahara, Kingfisher Airlines, Spice Jet, Air Deccan and
many more. The startup players are those planning to enter the markets. Some of them
are Omega Air, Magic Air, Premier Star Air and MDLR Airlines

Advantages

1. Foreign equity allowed: Foreign equity up to 49 per cent and NRI (Non-Resident
Indian) investment up to 100 per cent is permissible in domestic airlines without any
government approval. However, the government policy bars foreign airlines from
taking a stake in a domestic airline company.

2. Low entry barriers: Nowadays, venture capital of $10 million or less is enough to
launch an airline. Private airlines are known to hire foreign pilots, get expatriates or
retired personnel from the Air Force or PSU airlines in senior management positions.
Further, they outsource such functions as ground handling, check-in, reservation,
aircraft maintenance, catering, training, revenue accounting, IT infrastructure, loyalty
and programme management. Airlines are known to take on contract employees
such as cabin crew, ticketing and check-in agents.

3. Attraction of foreign shores: Jet and Sahara have gone international by starting
operations, first to SAARC countries, and then to South-East Asia, the UK, and the US.
After five years of domestic operations, many domestic airlines too will be entitled to
fly overseas by using unutilised bilateral entitlements to Indian carriers.

4. Rising income levels and demographic profile: Though India's GDP (per capita) at
$3,100 is still very low as compared to the developed country standards, India is
shining, at least in metro cities and urban centres, where IT and BPO industries have
made the young generation prosperous. Demographically, India has the highest
percentage of people in age group of 20-50 among its 50 million strong middle class,
with high earning potential. All this contributes for the boost in domestic air travel,
particularly from a low base of 18 million passengers.
5. Untapped potential of India's tourism: Currently India attracts 3.2 million tourists
every year, while China gets 10 times the number. Tourist arrivals in India are
expected to grow exponentially, especially due to the open sky policy between India
and the SAARC countries and the increase in bilateral entitlements with European
countries, and US.

6. Glamor of the airlines: No industry other than film-making industry is as glamorous

as the airlines. Airline tycoons from the last century, like J. R. D. Tata and Howard
Hughes, and Sir Richard Branson and Dr. Vijaya Mallya today, have been idolized.
Airlines have an aura of glamour around them, and high net worth individuals can
always toy with the idea of owning an airline. All the above factors seem to have
resulted in a "me too" rush to launch domestic airlines in India.

Four P’s
Product

The airline industry is a service that satisfies customer needs for travelling. In the
airline industry the customers can be divided into two segments, business and leisure.
While the airline industry started out as a luxury item, business travel has changed this
industry to a necessity. As we further become a global economy and communication
between international companies intensifies, travel needs continue to increase. The
leisure traveller has always had the need for the airline industry. Satisfying the
customer needs today involves competitive rates, convenient booking of flights and
benefits with those flights.

Some of the problems with this industry are personally experienced by the
customers. The airlines have a difficult time being punctual and this has become the
norm in the industry, although some companies try to avoid it. The industry is highly
susceptible to situations that result in declines in air travel, such as political instability,
regional hostilities, recession, fuel price escalation, inflation, adverse weather
conditions, consumer preferences, labour instability or regulatory oversight.
 Airlines are now in the commodity business as the public demands low-priced
transportation. It has moved from elite to a common form of transportation. Today's
travellers know how to surf the web for bargains through a myriad of sites such as
Orbitz, Expedia, Travelocity, Hotwire, and Cheaptickets. As a commodity, airlines cannot
increase prices to increase profits, so their only choice is to cut operating costs such as
labour costs.

Amid the competition, airlines have refocused their attention on the customers.
The industry still heavily targets frequent flyers, as members can earn miles through
travelling, car rentals, hotels, and credit card use. On overseas flights, business class
seats convert to real flat beds. Soon passengers will have internet access during flights.
Airlines are also catering to the consumer by offering mostly organic menus, while
others are offering meals-to-go before boarding. For travellers pressed for time, many
airlines offer fast check-in, online at home before leaving for the airport; or self-service
check-in kiosks where passengers identify themselves with a credit card, print their own
boarding pass, change their seat, and purchase meal coupons.

Price

The following are the pricing strategies:

Premium Pricing:
The airlines may set prices above the market price either to reflect the image of quality
or the unique status of the product. The product features are not shared by its
competitors or the company itself may enjoy a strong reputation that the 'brand image'
alone is sufficient to merit a premium price.

Value for Money Pricing:

The intention here is to charge the average price for the product and emphasize that it
represents excellent value for money at this price. This enables the airline to achieve
good levels of profit on the basis of established reputation.
Cheap Value Pricing:
The objective here is to undercut the competition and price is used to trigger the
purchase immediately. Unit profits are low, but overall profits are achieved. Air India
and Indian Airlines have slashed their prices to meet the competition of private airlines
so that they can consolidate their position in the market.

Airlines usually practice differential pricing. There are three classes: The First Class, The
Executive or Business Class and The Economy Class. Fares for each class are different
since the facilities provided and the comfort and luxury level is different in each class.
Seasonal fares are also fixed, fares rise during the peak holiday times.

Low-cost Pricing:
With the advent of the low-cost airlines in the Indian aviation industry, a different low-
cost flying concept has come up. Since these low-cost airlines are trying to woo the
customers by providing air travel in exceptionally low prices, a price-band kind of pricing
has to be designed.

In low-pricing strategies, the airlines provide very low prices for the flight tickets. Also,
they prices are made cheaper by booking the tickets long before the flight date.

APEX Fares:
In this scheme, people are given very cheap rates only if tickets are booked at least
before the specified time period. But the draw-back here is that if the booking is
cancelled, a substantial amount of money is not returned.
Promotion

Integrated Marketing Communication

A successful product or service means nothing unless the benefit of such a service can be
communicated clearly to the target market. An organisations promotional mix can consist
of:

 Advertising

 Public Relations

 Sales Promotion

 Personal Selling

 Direct Mail

 Internet / E-commerce

In airline industry all the above methods are use for promotion purpose.

The aims of promotion fall into three main categories: to inform, to remind, & to
persuade. It will always be necessary to inform prospective consumers about new
products & services, but other issue may also need this type of communication to
consumers; new uses, price changes, information to build consumer confidence & to
reduce fears, full description of service offering, image building. Similarly consumers
may need to get reminded about all these types of issues, especially in the off-peak
season.

It is vitally important to recognize that promotion, or marketing communications

generally, may not always be aimed at potential consumer or end user of service. In many
business areas, it is to design promotions aimed at channel customers to complement end
user promotion. For e.g. Airlines will need to promote their services to tour operators as
well as end user.
Place

In Airlines, they utilise more than one method of distribution. For e.g. they sell tickets through
travel agents & sell seats on flights to tour operators, whilst also operating direct marketing.
Whichever distribution strategy is selected, channel management plays a key role. For channels
to be effective they need reliable updated information. For these reason, I.T has been widely
adopted such as on-line booking system.

Channel structures vary somewhat by the nature of the service

 Internet booking system

 Telephone reservation system.
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 India’s recent political environment has been largely unstable due to
international events & continued tension with Pakistan. The Gujarat riots & the
government’s inability to control the situation have also led to an increase in the
instability of the political arena.

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.

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 level managers 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.
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.

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.
These technological changes in the environment have an impact on Air India as well.
Better airport infrastructure, means better handling of airplanes, which can help reduce
maintenance cost. It also facilitates more flights to such destinations.
FIVE PRODUCT LEVELS

The Core Service:

The core service of the airlines industry is to transport goods and services to various
destinations. As the needs of the people increased the entire system became more
organized and formal. After this stage comes the various supplementary services.

The Supplementary Services:

The airline industry has many players they had a brand name like ‘Air India’,’ Jet
Airways’,’ British Airways’. All of them had some common services to offer like
connecting flights, through check-in, tele check in, food on board, and complementary
gifts etc.

Different classes like economy class, business class were introduced. Air concessions are
given to school students, old people etc. Singapore airlines were the first to introduce
small 8” television screen for every passenger. The freebies are actually win-win deals
between airlines and other services.

Sahara, for example, offers its passengers a ‘business-plan’ on two-way economy class
ticket, which includes a night’s stay with breakfast, STD facility for 3 minutes and
boardroom facility at the Park Hotel, New Delhi. To Delhi based fliers to Mumbai, it
offers a night’s stay with breakfast, airport transfers and VIP amenities at The Orchid,
Mumbai. For business class, the plan includes a stay at The Leela, with buffet breakfast
and late checkout.
All these added service helps the customer to decide upon which airlines he wants to
travel. As competition increased and the customers wanted more the next phase
evolved and that is the augmented service.
The Augmented Service:

This phase is where the customer’s expectations are met; the service providers kept
working on new methods to meet the ever-changing customers’ demands. The players
introduced online booking, which was very convenient for the service users.

British Airways business class has showers; it’s more spacious and comfortable. Sahara
airlines offer its passengers six different types of cuisine like vegetarian, fat free, diabetic
etc. They also have auction going on board. Virgin airlines have gambling on board, they
also have body massage to offer to their passengers. Air Emirates has something called
cab service, they have customized pick up and drop cab service.

This phase is the most crucial one; with increased competition service will become the
final differentiation.

Future Service:

As mentioned above the customer needs keep changing, the future is unknown. The
customers may be looking in for more frequent inexpensive air travel, something like air
taxis, supersonic speed. This decreases the time thus reducing the cost.
Extended Marketing Mix

Marketers suggest that the unique requirements of selling services require the
organization attend to three additional P's. These are people, physical evidence and
process.

People
The people section of the Marketing Mix is the most important section of the extended
Marketing Mix. It is broken up into three sections: Employees, Consumers and the
Company.

Do we have enough employees to provide a good service? ; Do they have the necessary
personal and professional skills? , Do they understand the brand-values? , Are they
enough motivated or too tired?
Those are questions that airlines companies have to ask themselves, and which answers
are going to have important consequences in the type of service provided.

The analysis of the buyer behaviour is really interesting in this sector. Every individual
have different needs and expectations in this market, so segmentation and positioning
will be also fundamental. Furthermore, it’s normally an industry where, the user follows
all the steps of the buyer behaviour in the selection and purchase of the service. Special
importance have the Information Search by the customer (which is normally more
complete than in other purchases) and beliefs and attitudes, which are the most
important challenges of this analysis because normally have an important weight in the
final decision of the customer. In a market as competitive as this one, a personal bad
experience or just a non favourable belief or attitude can determine the user's choice
forever. That's why the Brand Image is also fundamental for this kind of Companies.

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.
Therefore, management faces a tremendous challenge in selecting and training all of
these people to do their jobs well, and, perhaps even more important, in motivating
them to care about doing their jobs well, and to make an extra effort to serve their
customers. After all, these employees must believe in what they are doing and enjoy
their work before they can, in turn, provide good service to customers.

The "people" component of the service marketing mix also includes the management of
the firm's customer mix. Because services are often experienced at the provider's
facilities, other customers who are being served there can also influence one’s
satisfaction with a service. For e.g. crying children in a nearby seat on an airplane or ill
mannered customer are all examples of unpleasant service conditions caused by a firm's
other patrons.

Physical Evidence

The service is intangible because unlike a product it can't be experienced before it is

delivered. It is the ability and environment in which a service is delivered. Because it is
intangible customers are at greater risk when deciding whether to use a service, so to
reduce this risk, and improve success, potential customer are offered the chance to see
what the service would be like with the use of testimonials, demonstrations etc. Physical
layout is not only relevant to its promotional materials, but also to the layout and
structure of the organization, and websites. Customers have far higher expectations and
therefore they select the particular service which they know will satisfy their want.

Promotional materials and written correspondence provide tangible reassurance; they

can be incorporated into the firm's marketing communications to help reduce customer
anxiety about committing to the purchase. Service firms should design these items with
extreme care, since they will play a major role in influencing a customer's impression of
the firm. In particular, all physical evidence must be designed to be consistent with the
"personality" that the firm wishes to project in the marketplace.

They can offer to the consumer more than a fly: additional services, and so they focus
their promotional efforts in communicating that to the potential user.
Process

The customer service department of any airline company deal with a number of
processes involved in making marketing effective in an organisation e.g. processes for
handling customer complaints, processes for identifying customer needs and
requirements, processes for handling requirement etc.

Example of Jet (Entire Process)

Purchasing process

According to epinions.com, travelers' overall purchasing experiences with Jet have been
very positive. People like how easy it is to choose from the different one-way fares
online to make up a round-trip reservation. Some travelers prefer to use Jettelephone
reservation agents for purchasing their tickets. Overall, these reservation agents have
been described as very courteous and helpful.

Destination Choices

We found many negative reviews on epinions.com when it came to Jet destination

offerings. Several people complained that Jet doesn't offer service (either non-stop or
connecting) to enough destinations. Some complained about Jet operating out of
smaller, less convenient airports (like Poona and Nasik). People also complained that Jet
only offers limited flights per day to some destinations, making travel less convenient
for some.

Overall Customer Service

Based on our findings at epinions.com, Jet customer service is very highly regarded.
Although some people have had unpleasant experiences, almost everyone who gave an
opinion raved about the service from Jet flight attendants, gate agents,
ticketing/reservation agents, and even the pilots.
The 7 Ps - price, product, place, promotion, people, process and physical evidence
comprise the modern marketing mix that is particularly relevant in service industry, but
is also relevant to any form of business where meeting the needs of customers is given
priority.

Segmentation
Segmentation involves finding out what kinds of consumers with different needs
exist. In the airline industry, for example, some consumers look for only price, while
others are much more concerned about other features and services provided. In
general, it holds true that "You can't be all things to all people," and experience has
demonstrated that firms that specialize in meeting the needs of one group of consumers
over another tend to be more profitable.

Generically, there are three approaches to marketing:

In the undifferentiated strategy, all consumers are treated as the same, with firms not
making any specific efforts to satisfy particular groups. This may work when the product
is a standard one where one competitor really can't offer much that another one can't.
Usually, this is the case only for commodities.

In the concentrated strategy, one firm chooses to focus on one of several segments that
exist while leaving other segments to competitors. For example, Deccan Airlines focuses
on price sensitive consumers who will forego meals and assigned seating for low prices.
In contrast, most airlines follow the differentiated strategy: They offer high priced
tickets to those who are inflexible in that they cannot tell in advance when they need to
fly and find it impractical to stay over a Saturday. These travellers usually business
travellers pay high fares but can only fill the planes up partially. The same airlines then
sell some of the remaining seats to more price sensitive customers who can buy two
weeks in advance and stay over.

Note that segmentation calls for some tough choices. There may be a large number of
variables that can be used to differentiate consumers of a given product category; yet,
in practice, it becomes impossibly cumbersome to work with more than a few at a time.
Thus, we need to determine which variables will be most useful in distinguishing
different groups of consumers.

We might thus decide, for example, that the variables that are most relevant in
separating different kinds of airlines consumers are:

(1) Preference for price,

(2) Preference for combination of price and other features,
(3) Consumers not worried at all about price: Looking for privacy or luxury
(4) Willingness to pay for brand names

We now put these variables together to arrive at various combinations. Several different
kinds of variables can be used for segmentation.

Demographic variables essentially refer to personal statistics such as income, gender,

education, location (rural vs. urban, East vs. West), ethnicity, and family size. Jet
Airways; for instance, has found that people from western region (India) on the average
prefer vegetarian meal whereas people from east prefer non-vegetarian meal.

Taking this a step farther, it is also possible to segment on lifestyle and values. Some
consumers want to be seen as similar to others, while a different segment wants to
stand apart from the crowd. Another basis for segmentation is behaviour. Some
consumers are "brand loyal" i.e., they tend to stick with their preferred brands even
when a competing one is on sale.

Marketing strategies - Air- India

 Captive traffic : Travel by government officials, PSUS and just about anybody funded

by the government e.g. universities is compulsory by Air India . This is the basic

income of Air India.

 Buy Key Decision Makers : Air India provides a jumbo 747 or Airbus A310 to the

President, Prime Minister and VP’s and their entourage, specially outfitted as a flying
 hotel for their overseas trips. An identical standby aircraft is also provided. In the

whole planet, only the President of the US gets similar luxury. This lavish perk is a

major reason why Air - India gets away with a lot of subsidies.

 Officials lower in the hierarchy: Like ministers, secretaries etc. get upgradations in

class of travel and various facilities like car and hotel stay. Full use is made of the

Centaur hotels which belong to Air -India.

 Buy Opinion Makers : Similar perks are extended to media persons. Many of them

are given passes for domestic travel. Air India’s domestic network covers all the major

cities.

 Frequent Flyer Programme : Air India and Indian Airlines have a joint frequent flyer

programme. Recently, Air France has also been added. Essentially, travel on domestic

routes is worth a 5% discount and international travel is worth 10%.

 Heavy Discounts: Since there are in built disincentives to travel by Air India, they

resort to heavy discounts to keep the show going e.g. take a free companion in first

and business class. This is an effective discount of 50% but given to the Traveller, not

the organization that pays for the travel. Similar discounts are given in economy class.
FUTURE PROSPECTS OF INDIAN AIRLINE SECTOR

Consolidation in the aviation industry: Consolidation will ease competition and

give pricing power to the dominant players and as a result of higher fares even smaller
players like Spice Jet stand to benefit. The air fares for Spice Jet are expected to increase
by 7.4% and 3.6% during FY08E and FY09E respectively.

Due to booming economy, it is believed that the growth in the aviation industry
will continue in the scenario of increased airfares. Generally it is believed that the
aviation sector in any country grows at twice the growth rate of its GDP. In India, the
GDP is growing at more than 7-8% per annum, which makes the growth rate in the
aviation sector to be in excess of 15%. Aviation industry in India is expected to grow at a
much better rate than this because the industry is at a nascent stage with lower base
and low penetration.

Strong passenger growth to boost top-line and profit: Strong passenger growth
would lead to 86% CAGR (Compound Annual Growth Rate) growth in revenues for the next
two years. Increased passenger volume would also help in spreading fixed cost over
larger passenger base there by bringing down per unit cost.

Domestic Passengers: In the last three years, the number of passengers travelling
by air has more than doubled with industry carrying 34mn passenger during FY07. On
back of conversion of upper class rail passengers to air travel and the surging tourism
industry we expect the number of people travelling by air to increase at a CAGR of 25%
to 67mn by FY10E. We expect the revenue passengers for Spice Jet to increase from
2.8mn in FY07 (12 months) to 6.8mn in FY09E, a CAGR of 58%. The expected growth in
revenue passenger is on account of aggressive increase in fleet size from 11 aircrafts in
FY07 to 23 aircrafts by FY09E.