Analysis of Airline Industry

ANALYSIS OF AIRLINE INDUSTRY: MARKETING SERVICE PERSPECTIVE
ANALYSIS OF
AIRLINE
INDUSTRY:
MARKETING
SERVICE
PERSPECTIVE
On the subject Service marketing
Semester-3
Submitted to:-
Dr.Renuka Garg
Submitted by:-
Aftab Ankleshwaria,01
Arpit Bansal,02
Shweta Dastidar,06
Jaysingh panwar,14
Marketing,Sec-A
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Project Summary
Project Title : To analyse the airline industry through service marketing
perspective
Executed at : Department of Business and Industrial Management
Veer Narmad South Gujarat University
Surat
Internal : Dr.Renuka Garg
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Guide(s)
Abstract : The purpose of this paper is to analyse and study the present
scenario of airline industry.The paper also tries to bring out
different service scape,promotional techniques,marketing mix etc.
to compete with each other in different segments and their
various other strategies to attract ,retain and grow customers.
Confidentiality Statement
Information provided here in need not necessarily represent the product described and is provided
for illustrative purpose only. All information contained in or disclosed by this document is
subjective to research. The information contained herein will be held in confidence, and will not
be reproduced, disclosed or used either in whole or in part, for any purpose other than its intended
purpose, without prior permission from the marketers.
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Table of contents
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Chapter 1
Introduction
HISTORY OF INDIAN AVIATION INDUSTRY:
The first commercial flight in India was made on February 18, 1911, when a French pilot
Monseigneur Piguet flew airmails from Allahabad to Naini, covering a distance of about 10 km in
as many minutes.
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Tata Services became Tata Airlines and then Air-India and spread its wings as Air-India
International. The domestic aviation scene, however, was chaotic. When the American Tenth Air
Force in India disposed of its planes at throwaway prices, 11 domestic airlines sprang up,
scrambling for traffic that could sustain only two or three. In 1953, the government nationalized
the airlines, merged them, and created Indian Airlines. For the next 25 years JRD Tata remained
the chairman of Air-India and a director on the board of Indian Airlines. After JRD left, voracious
unions mushroomed, spawned on the pork barrel jobs created by politicians. In 1999, A-I had 700
employees per plane; today it has 474 whereas other airlines have 350.
For many years in India air travel was perceived to be an elitist activity. This view arose from the
“Maharajah” syndrome where, due to the prohibitive cost of air travel, the only people who could
afford it were the rich and powerful.In recent years, however, this image of Civil Aviation has
undergone a change and aviation is now viewed in a different light - as an essential link not only
for international travel and trade but also for providing connectivity to different parts of the
country. Aviation is, by its very nature, a critical part of the infrastructure of the country and has
important ramifications for the development of tourism and trade, the opening up of inaccessible
areas of the country and for providing stimulus to business activity and economic growth.
OVERVIEW OF THE INDUSTRY
Airlines Industry in India is one of the fastest growing airlines industries in the world. Post-
liberalization, airlines industry in India has undergone a rapid transformation. From being
primarily a government-owned industry, the Indian airlines industry is now dominated by
privately owned airlines and low cost carriers.
In 1990 government adopted open-sky policy. Indian Airlines, which had dominated the Indian
air travel industry, began to lose market share to Jet Airways and Sahara. Today, Indian airlines
industry is dominated by private airlines and these include low cost carriers such as Deccan
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Airlines (now a part of Kingfisher), GoAir, SpiceJet, etc, which have made air, travel affordable.
The following chart shows the market share of various airlines:
Source: www.domain-b.com
A detailed analysis of the present Air traffic scenario is presented in the Annexure #01 attached.
Airline industry in India is plagued with several problems like high airlines turbine fuel (ATF)
prices, rising labor costs and shortage of skilled labor, rapid fleet expansion, and intense price
competition among the players. But one of the major challenges facing Indian airlines industry is
infrastructure constraint.
Chapter 2
Literature Review
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Chapter 3
Flower of Service
A visual framework for understanding the supplementary service elements that surround and add
value to the product core
CORE PRODUCT
The core product of the airlines industry is the service of transporting passengers and goods to
different destinations. This is supplemented by various other services mentioned ahead.
SUPPLEMENTARY SERVICES
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Information
Upto date information regarding flight schedules, ticket fares, promotion schemes, new policies
and systems, etc are available to customers.
Consultation
Airlines are suggesting and designing products like packaged tours to the customer.
Also, providing the customer with various options regarding the route of flight, in-flight cuisine
& benefits asks them to play a role of consultant.
Order taking
The order taking procedure is essentially the booking procedure of the airlines. The important
aspect to be noted here is that the procedure should be smooth, easily understood and fast.
Also provision of instantly updated information about availability of seats and fares is
required.
Hospitality & Caretaking
With the increased competition today hospitality has emerged as a key-differentiating factor. It
is tested right from the time of booking till the post flight help extended. It also includes
safeguarding the baggage.
Billing & payment
Billing options available to the customer are plenty including credit card & travelers cheque.
Airlines use the open account system with their corporate clients. Frequent fliers are also
given special payment privileges.
Safe keeping
• While visiting the service site , customer often need assistance with their personal
possession like baggage handling , transport and storage.
• Exception
• It involve suplimentary services that falls outside the routine of normal service dilivery.
Like women with child given front seat.
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CHAPTER 4
C O M P E T I T I V E A N A LY S I S
Product level analysis

The product offered by airlines is essentially a service, although it can be supplemented by a
number of physical products too. The services offered are:
➢ In-flight services
➢ On ground services
The services provided inside the flight include the core service of travel, crew, ambience and
comfort, in-flight entertainment etc. This is highly variable across competitors as per brand and
different classes of travel.
The on-the-ground services include a convenient airport with car parking facilities, waiting
lounges, duty free' shopping quick and efficient checking of baggage, efficient service at
reservation counter, transport to the airplane, etc. Although the physical infrastructure part of the
on ground services are usually maintained by the airports authority but airlines like Kingfisher
have gone a step ahead to make separate lounges for their customers to make them feel special.
SHOSTACK’S MODEL
Intro
Various product levels at which the airlines compete are:
THE CORE BENEFIT

It is the benefit which the customer is actually buying. In our case it is the service of traveling or
transportation of goods.
THE BASIC PRODUCT

At this level the core benefit is converted into a basic service package. This includes from buying
the ticket to reaching the destination. The low cost airlines like Indigo, GoAir, Spicejet offer the
product at this level and compete on the basis of price.
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THE EXPECTED PRODUCT
This includes a set of services and products that the consumer normally expects to receive along
with the core benefit. For example: In flight snacks, comfortable seats, on time departure and
arrival etc. The low cost model of airlines labels these addition services as ‘frills’ and tries either
to eliminate or charge separately for these.
THE AUGMENTED PRODUCT
An augmented product exceeds customer’s expectations. For example: Serving hot food, warm
and friendly crew, provision of in flight entertainment etc. Jet Airways, Kingfisher Class, Air
India IC compete in this segment.
THE POTENTIAL PRODUCT
At this level all possible augmentations are offered and the companies try to encompass new and
innovative ways to satisfy customers. Where Emirates airline offers onboard shower spas for the
first class customers, Thai Airways offers a limousine service at the airport and Virgin Atlantic
offers an onboard massage.
As the level moves from the core benefit to the potential product, the competition moves from
price to service and experience of the customer.
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Brand positioning
In a highly competitive scenario it is imperative for any airline to build its brand and have a
focused marketing strategy.
POSITIONING OF A FEW AIRLINE BRANDS OPERATING IN INDIA
Kingfisher Airlines - Full Frills - True Value Carrier
The Brand Kingfisher has been made synonymous with `Good Times’ in India. Coherent and
clear positioning has also enabled Kingfisher Airlines to differentiate itself in a market.
Kingfisher has implemented this positioning by making service and hospitality their main
focus.
Spicejet - McDonalds of the skies
SpiceJet seeks to position itself as an innovative, modern, safe and customer friendly airline.
The airline's philosophy is to make air travel accessible to a growing market of time and cost
conscious consumers yet at the same time open newer markets.
Jet Airways
Jet Airways is positioned as a global airline with the highest international standards but with a
touch of India. They have retained many of the familiar elements of our corporate identity, but
have contemporized them to make the brand more relevant to global markets.
Air Deccan - Simplifly Deccan - Kingfisher Red
Air Deccan had substantial brand equity among the consumers and had became synonymous
with low-cost travel in India. The rebranding followed an exhaustive market study which
showed that although the brand was closely associated with pioneering the low-cost airline
business, it was perceived as a carrier that was consistently late and suffered serious service
issues.
The brand’s makeover by Kingfisher to first Simplify Deccan and then to Kingfisher Red has
also brought a change in its positioning. It is now being positioned between a full service and
low cost carrier.
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Chapter 5
Brand model for airlines
Branding of airline industry has to be based on delivering on its promises, long term customer
engagement and continuous innovation in its services. For the airlines to build a brand image
consistent with these, the following brand model proposed:
1) Brand Expectation - Making an authentic promise
This promise is a reflection of the brand’s identity and its differentiation from other
brands. Kingfisher airlines for example clearly promise its guests an unparalleled
experience in the skies. Air deccan (when it existed) promised the lowest fares.
2) Brand Experience - Keeping the word
The promise has to be kept as literally as possible. For example Virgin Airlines in the US
promises to “reinvent air travel” and does a great job in not just meeting them but
exceeding them too.
3) Brand Expression - Engaging the customer
It refers to extending the engagement with the customer beyond the flight hours. The
engagement should ensure constant touch with them. For example: few airlines give away
their headphones and in-flight magazines to passengers, which they subsequently share
with more people. Low cost carriers lose out on this opportunity to invest in engagement
with the customer.
4) Brand Externalities - Dealing with industry uncertainty
The externalities could be as small as a flight being delayed to a pilot union strike or a
government regulation to a plane crash. Nonetheless, all need to be handled effectively to
maintain the brand image. For example: Airlines like Jet Airways and Singapore Airlines
have been upgrading to newer, more fuel efficient planes in good times to hedge fuel costs
to counter the rising oil prices.
5) Brand Extensibility - Staying consistent over time
Delivering an experience requires meticulous planning and persistence. An opinion blog

about Kingfisher Airlines said “The amazing observation on Kingfisher is that all the
employees (cabin crew, ground staff and others) project a consistent and common
kingfisher brand image and lifestyle which is 'live king style and fly good times'. This is
proved by very pleasant approach and attitude of its employees towards all customers.
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Chapter 6
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C O S T U M E R S E G M E N TAT I O N A N D T H E I R
DISTINCTIVE CHARACTERISTICS
On the basis of usage
Passenger
BUSINESS PASSENGERS
They are very important for the profitability of the airline. They are willing to pay a premium
price. Business passengers believe that it is worth extra money if they can save time and arrive
looking fresh for an important meeting. A flexible reservation services is very critical to them as
most of their tickets are not booked in advance and also have a chance of cancellation. The best
way to reach Business passengers is through Business media such as The Economic Times or
CNBC. Also since they are frequent fliers they would certainly look for certain extra facilities.
LEISURE TRAVELERS
They are a totally different market and the most important consideration for them is price. They
won’t pay premium prices and would agree to change several planes during their trip. Despite
providing low margins they are very crucial for every airline. Since business customers are small
in size and therefore to fill the flight Economy passengers are essential.
The allocation of business and economy class seats on a plane is determined through a process
called yield management. A good yield manager knows the approximate proportion of business
and leisure travelers for each flight in advance, based on sophisticated statistical models.
Freight
AIR CARGO SERVICE
With exports and imports increasing this has become a major source of revenues for airlines. In
the domestic segment with the need for an increase in the turnaround time airline has been used as
a source of carrier.
Most airlines therefore need to target both these segments.
On the basis of geography
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Major travelers in India are located in some of the major cities and a small customer base in other
cities. Therefore Flight schedules should be made such that the needs of these smaller cities could
also be catered. Example flights can be made on routes such as Delhi- Bagdogra- Kolkata. This
not only enhances the seat utilization but also generates extra revenues.
On the basis of behavior

Bargain Hunters
They are the ones who are the most sensitive to price. They have nil loyalty and would travel by
any carrier. They are the least profitable consumer segment in the market. Therefore a company
should not spend amount on bargain buyers. Rather they would be automatically attracted if you
have the most competitive prices in the market.
Relationship Buyers
They are the ones who look for long term relationship with the airline. They are one of the most
profitable segment as they are relationship builders and not much likely to jump from one airline
to another. But for retaining them a certain level of expected and augmented service should be
provided to them. They don’t mind paying a premium.
Therefore on the basis of segmentation the above desirability of services should be offered.
Chapter 7
Pricing
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Pricing is the value perceived by the customer. Pricing decisions cannot be made in isolation of
product. Product and pricing decisions are made together. Deregulation in airline pricing has
given the companies an edge to charge fares.
Pricing Environment
With the advent of sophisticated systems for managing the sale of seats it is easier to develop
sound pricing policies. Seats are sold on first-come first-serve basis, so passengers get cheaper
fares by booking earlier. Airlines adjust prices as per demand and there is no difference in
conditions.
Selecting the price objective

When Airlines put in capacity (seats) and frequency (flights) between any two points, they market
research the route in order to arrive at the total potential for that segment. Size of the market is
determined to decide the price. Pricing or fare levels are arrived at after taking into consideration
various factors like type of aircraft, configuration of aircraft (number of seats), density of route,
competitor activity and minimum breakeven cost.
PREMIUM PRICING:
The airlines may set prices above the market price benefited by its ‘brand-image’ to reflect the
quality of their service. Example: Jet Airways, Kingfisher, Indian Airlines, etc charge a premium
price for providing frills and extra comfort to the customer. They provide options like first class,
executive and economy. A trip from Mumbai to New Delhi will cost anywhere between Rs 6000
to Rs 23000 depending on the class and time of flight.
VALUE FOR MONEY PRICING:
Low Cost Airlines like Air Deccan, Spicejet, Indigo, Goair, etc go for value for money to charge
lower by operating cost cuts. Low cost carrier model go for dynamic pricing strategy. They
follow low and simple fare structure .They point-to-point links between primary and secondary
airports with high frequency. The airlines provide basic services and just one class. 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 by volume. Prices are as low as Rs 4000 which
includes mostly the tax component.
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Determining Demand
This industry is highly price sensitive. With the development of Global Distribution Systems the
customer can assess all the tariffs; they shop on internet where it is easy to compare ticket price,
flight time and number of stops in route. In case of recessionary periods when supply exceeds
demand, airlines find it difficult to fill seats and pricing becomes extremely important to gather
market share. For example, for a flight leaving to a business destination on a Monday morning,
very few seats will be sold at low prices. Almost all the tickets will be sold at high fares and
bookings sold at relatively shorter time.
Estimating costs
The aviation turbine fuel (ATF) and staff( flight, ground, reservation and ticketing staff) form the
major part of the operating cost. Other part includes navigation, landing and parking costs, repair
and maintenance. Apart from operating costs there is insurance, Inland Aviation travel Tax(IATT)
and Passenger Service Fee (PSF).
Analyzing competitor’s costs, prices and offers

LCC reduces their prices by having high seat density, reducing costs by providing no frill. They
also go for uniform aircrafts to share parts; they go for high airtime and generate revenue through
alternate resources. Full Service Providers charge extra premium for extra services like in-flight
cuisines, magazines, entertainment, the flexibility and comfort provided to the customers.
Adapting Prices
PRICE DISCOUNTS AND ALLOWANCES
Price discounts need to be carefully done otherwise it may result in diluting the revenue of airlines
and affecting their brand-image. Discounts are given on off-peak flights which might go empty if
not filled. Discounts can also be given by provided fewer services to the customer.
DIFFERENTIAL PRICING
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.
Though all the passengers get the same tangible product features but the intangible features like
flexibility is different. This justifies differential pricing.
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Initiating and Responding to Price Changes

Airlines went for a price cut with the entry of Air Deccan in 2003. It was done to retain their
market share. In a price sensitive market like airlines increasing the price might lead to
considerable drop in market share so any major price increases are done in coordination with
competitor airlines. Price increase leads to higher profits.
Chapter 8
Marketing Strategies
Marketing Communications
The users of air services typically include business executives, cine artists, politicians and
domestic and international tourists. Hence, creativity becomes an important criterion. With the
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looming worldwide financial crisis, airlines are facing financial crunch and it has become
imperative to use different components of marketing communication optimally:
Advertising
Advertising should be done keeping in my mind the quality and nature of the target audience as
well as level of expectations. Advertisement slogans, message and campaigns need to be
proactive. Air India has been facing the image problem but advertising may be efficacious in
transmitting the facts and removing the image problem.
COMPETITIVE ADVERTISING BETWEEN AIRLINES: GOAIR VS KINGFISHER VS JET AIRWAYS
Sales Promotion
Many domestic low cost carriers (LCC) like Indigo, Go-Air mainly advertise the low base ticket
prices and promote advance bookings to avoid poor occupancy. Also to improve the brand recall,
promotional incentives are given out e.g. Indigo has a crazy assortment of gifts being handed out
which includes LCD TVs, Refrigerators, laptops, mobile handsets, etc.
Public Relations
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Strengthening public relations activities is essential to promote the business airlines or airways.
The Public Relations Officer, Receptionists, Travel Agents, Travel Guides, Media people are
some of the important people who publicize the business. But, the most crucial point in this is the
co-operation of media as it directly affects the brand image manifold.
Telemarketing
Booking counters, enquiries, reception counters, users’ complaints cell, announcers are found
playing an incremental role in promoting the air business because most of the travelers make an
impression about the airlines depending upon the tele-support that they get while using the airlines
service.
In-flight advertising
This concept which is originated overseas has recently been identified as an effective promotion
medium in which audience is hundred percent captive. This is achieved through airing
advertisements during entertainment programs on television sets installed on the aircraft. Other
than advertising via television screens, advertisers hop on board and communicate through latest
ad films inside and outside the aircraft. Kingfisher Red, formerly Air Deccan had partnered with
Cutting Age Media to effectively communicate through this non-traditional niche media.
Chapter 9
Supply chain / Inbound logistics

Primary activities – Inbound logistics
• Aircraft acquisition
○ Airlines must negotiate deals with aircraft manufacturers to acquire planes.
• Route selection
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○ Flight routes are selected as per desire, and deals negotiated with the airports.
Airports are selected for their prime location to allow consumers to get to their
desired location. This entails the scheduling of flights and crew.
• Passenger services system
○ Software which allows the airlines to function "comprehensive passenger

reservations, inventory control, fares, ticketing, and departure control functions".
This allows airlines to reduce their costs of wages, paper transactions and
maximize utilization.
• Stock control
○ Airlines must store and handle fuel, food, and drinks. Stock is managed to ensure
reductions in stock turnover, thus reducing costs and wastage.
• Crew scheduling
○ Crew scheduling problems at the planning level are typically solved in two steps:
first by creating working patterns, and then assigning these to individual crew and
second by a set-partitioning model.
Chapter 10
Positioning of a few airline brands operating in India
 Kingfisher Airlines - Full Frills - True Value Carrier
 The Brand Kingfisher has been made synonymous with `Good Times’ in India.
Coherent and clear positioning has also enabled Kingfisher Airlines to differentiate
itself in a market. Kingfisher has implemented this positioning by making service
and hospitality their main focus.
 Spicejet
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 SpiceJet seeks to position itself as an innovative, modern, safe and customer

friendly airline. The airline's philosophy is to make air travel accessible to a
growing market of time and cost conscious consumers yet at the same time open
newer markets.
 Jet Airways
 Jet Airways is positioned as a global airline with the highest international standards
but with a touch of India. They have retained many of the familiar elements of our
corporate identity, but have contemporized them to make the brand more relevant
to global markets.
 Air Deccan - Simplifly Deccan - Kingfisher Red
 Air Deccan had substantial brand equity among the consumers and had became
synonymous with low-cost travel in India. The rebranding followed an exhaustive
market study which showed that although the brand was closely associated with
pioneering the low-cost airline business, it was perceived as a carrier that was
consistently late and suffered serious service issues.
 The brand’s makeover by Kingfisher to first Simplify Deccan and then to

Kingfisher Red has also brought a change in its positioning. It is now being
positioned between a full service and low cost carrier.
Chapter 11
Servuction Model
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7Ps of marketing
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SERVICE QUALITY MODEL
Effective services marketing is a complex undertaking involving many different skills and
tasks. Executives of services organizations have long been confused about how to complicated
topic in an organized manner. This text was designed around one approach: viewing service in
a structured, integrated way called service quality model.
The gaps model position the key concepts, strategies and decisions in services marketing in a
manner that begins with the passenger and builds the organization’s tasks around what is
needed to close the gap between passenger expectation and perceptions. The integrated gaps
model of service quality, which was first overviewed in the part 1 opener, is shown in fig.
The central focus of the gaps model is the passenger gap, the difference between passenger
expectation and perceptions. Firms need to close this gap-between what passengers expect and
receive-in order to satisfy their passenger and build long-term relationships with them. To
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close this all-important passenger gap, the model suggests that four other gaps-the provider
gaps-need to be closed.
The following four provider gaps, shown below the horizontal line in fig. are the underlying
causes behind the passenger gap:
Gap 1: Between management perception and passenger’s Expect
Gap 2: Between Passenger-driven service design and standards and Company perceptions of
passenger expectation
Gap 3: Between service delivery and external communications
Gap 4: Between perceived service and expected service

Gap 5: Between Service delivery and Passenger-driven service design and standards
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Bibliography
 Marketing Services by Christopher Lovelock,Jochen Wirtz and Jayanta

Chatterjee,Pearson Education
 Measuring Service quality of Airline by Mohammad Mehdi Bozorgi ,2004
 http://books.google.co.in/books?id=cVu4E4eB5lAC&dq=airline+marketing
 http://www.iloveindia.com/economy-of-india/aviation-industry.html
 • Low-fare Airlines, (2004, July 8) - www.economist.com.
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ANALYSIS OF AIRLINE INDUSTRY: MARKETING SERVICE PERSPECTIVE

Project Title : To analyse the airline industry through service marketing

Internal : Dr.Renuka Garg

HISTORY OF INDIAN AVIATION INDUSTRY:

and systems, etc are available to customers.

Hospitality & Caretaking

Billing & payment

Product level analysis

Various product levels at which the airlines compete are:

THE CORE BENEFIT

THE BASIC PRODUCT

THE EXPECTED PRODUCT

THE AUGMENTED PRODUCT

THE POTENTIAL PRODUCT

POSITIONING OF A FEW AIRLINE BRANDS OPERATING IN INDIA

Kingfisher Airlines - Full Frills - True Value Carrier

Spicejet - McDonalds of the skies

Air Deccan - Simplifly Deccan - Kingfisher Red

1) Brand Expectation - Making an authentic promise

2) Brand Experience - Keeping the word

3) Brand Expression - Engaging the customer

4) Brand Externalities - Dealing with industry uncertainty

5) Brand Extensibility - Staying consistent over time

Delivering an experience requires meticulous planning and persistence. An opinion blog

On the basis of usage

AIR CARGO SERVICE

Most airlines therefore need to target both these segments.

On the basis of geography

On the basis of behavior

Selecting the price objective

VALUE FOR MONEY PRICING:

Analyzing competitor’s costs, prices and offers

PRICE DISCOUNTS AND ALLOWANCES

Initiating and Responding to Price Changes

COMPETITIVE ADVERTISING BETWEEN AIRLINES: GOAIR VS KINGFISHER VS JET AIRWAYS

Supply chain / Inbound logistics

○ Airlines must negotiate deals with aircraft manufacturers to acquire planes.

• Passenger services system

○ Software which allows the airlines to function "comprehensive passenger

 Kingfisher Airlines - Full Frills - True Value Carrier

 SpiceJet seeks to position itself as an innovative, modern, safe and customer

 Air Deccan - Simplifly Deccan - Kingfisher Red

 The brand’s makeover by Kingfisher to first Simplify Deccan and then to

SERVICE QUALITY MODEL

a structured, integrated way called service quality model.

causes behind the passenger gap:

Gap 1: Between management perception and passenger’s Expect

Gap 3: Between service delivery and external communications

Gap 4: Between perceived service and expected service

 Marketing Services by Christopher Lovelock,Jochen Wirtz and Jayanta

 Measuring Service quality of Airline by Mohammad Mehdi Bozorgi ,2004

 • Low-fare Airlines, (2004, July 8) - www.economist.com.

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