Marketing management

A report on

AIRLINE INDUSTRY IN INDIA

PRESENTED BY GROUP AMIT PATIL NIRLIPTA DAS PANCHANAN INGLE TANISHA LAL GANESH RAJ SUMIT SONI 42005 42015 42025 42035 42045 42055

INTRODUCTION Aviation industry in India has the potential to grow because

16 Millions Indians are travelling by rail daily 19 Millions Indians are travelling by air yearly

Due to bilateral air traffic agreements, the international air traffic increased by 17%.Only 1% of the Indian population have used the airplane at least once(Air Deccan: 40% of our passenger are first time travellers) 450 500 Million. Indians are potential air travellers. There were only TWO players in post independence era.All airlines were merged either into Indian Airlines or Air India (Air Corporations Act,1953). Government monopoly for next 40 years (till 1991).Huge entry barriers for private players.

CURRENT SCENARIO The liberalization of aviation industry in India has precipitated the boom for domestic and international passenger carriers. The domestic passenger and cargo traffic recorded a growth rate of 44.6% and 8.7%, and the international passenger and cargo traffic recorded growth rates of 15.8% and 13.8% respectively during 2006-071. The Airport Authority of India (AAI) manages total 122 airports in the country, which include 11 international airports, 94 domestic airports and 28 civil enclaves. Top 5 airports in the country handle 70% of the passenger traffic of which Delhi and Mumbai together account for more than 50%. The latest data compiled by Airports Authority of India (AAI) shows that all the airports handled 90.44 million passengers during the calendar year 2006 compared with 67.95 million handled during the same period in the previous year2. The substantial growth of Indian aviation industry is mostly due to: (i) low fares offered by Low Cost Carriers (LCC) like Deccan, Spicejet, GoAir etc; and (ii) Scheduled domestic air services are now available from 75 airports as against just 50 earlier so it is evident that Indian airline industry is Growing vigorously at a rate of 25-30% and is expected to continue International Players making a beeline to enter this emerging market

 Carriers operating in India has grown from two state-owned players in 1991 to more than ten today Numbers of Flights operating: 2500 per day

Some Major Players

MAJOR PLAYERS Players in Indian aviation industry can be categorized in three groups: Public players - Air India, Indian and Alliance Air Private players - Air Deccan, Air Sahara, GoAir Airlines, IndiGo Airline, Jagson Airline, Jet Airways, Kingfisher Airline, Paramount Airways, SpiceJet Airlines Start up players - Omega Air, Magic Air, Premier Star Air and MDLR Airlines

SWOT ANALYSIS OF AIRLINE INDUSTRY

STRENGTHS In Apr-Dec 06, the domestic market has grown at about 46%, from 62000 to 91000 pax per day, over and above growth of 25% in Apr-Dec 05 over 04 In Dec 06, domestic market witnessed average daily carriage of around 114,000 passengers per day another first for the industry

Indian aviation market has been booming domestic at 46%, and international at 17%, over the past 2 3 years 6 new airlines, almost all operating on the LCC model Strong capacity growth in the domestic market, mainly in the LCC segment Strong economic growth

WEAKNESSES LCCs and other new entrants together now command a market share of around 46% Legacy carriers forced to match low LCC fares, during a time of escalating costs The bottom-line lower yields for all operators

Gaps in Infrastructure Airlines paying for these strategic gaps in many ways Higher fuel consumption - long holding times, on ground and in the air Lower utilisation of aircraft - slot constraints and air traffic congestion Sub-optimal route network strategies, due to lack of night parking stands at major airports and navigational aids at many of the smaller airports

High input costs ATF prices in India continue to be far higher than global rates, making ATF account for 35-40% of operating cost, as against global average of 20-25% High basic rates aggravated by high taxes imposed by State Govt.s ATF cost / kilolitre : US$ 755 in Delhi US$ 780 in Mumbai US$ 455 in Singapore US$ 497 in Dubai

OPPORTUNITIES A large & growing potential market The 4th largest & 2nd fastest growing economy in the world - GDP growth of 9.2% in Q3 2006 Over 300 million strong middle class Disposable incomes expected to increase at an average of 8.5% p.a. till 2015 (Price Waterhouse Coopers, 2005) Estimated 50 million premium railway passengers per annum 390 million strong domestic tourism market, growing at ~13% Foreign tourist inflows of 4.43 million, also growing at ~13%

Air Cargo Freight carriage in India currently around 4200 tons per day

CAGR of 15% over the past 2 years Fuelled by a fast growing economy, supported by a strong industrial base Forecast to grow at 11.4% p.a. till 2011-12 With tax proposed on aircraft lease rentals for leases concluded after 1st April07. Increasing manpower costs due to shortage of technical personnel

GOVERNMENT APPROACH.
The Foreign Direct Investment limit in Air Transport Services (Domestic Airlines) has been increased from 40% to 49% and is soon expected to be increased further. However, the NRI`s and Persons of Indian Origin (PIO) have been allowed 100% FDI. o Tourist charter guidelines liberalized; o Fleet expansion plans of Air India/Indian Airlines approved o Restructuring of Delhi and Mumbai airport and work on development of Greenfield airports at Bangalore and Hyderabad undertaken2

THREATS Increase in Competition Excess capacity could lead to price wars Oil Price Extremely vulnerable to oil price fluctuations due to government regulations on price hedging Regulatory risk A collapse of the current coalition government could trigger significant changes in Indias economic liberalization and deregulation policies

STRATEGIC GROUPS Basis Full range carriers with medium price Low cost carriers with low price Very high service with high price Good service with medium price Description Jet, Indian, King Fisher and other full range carriers Air Deccan, Spice Jet, Go Air, Indigo and other Low cost carriers Taj airways, Club one airways Kingfisher, Jet airways

a) Full range carriers with medium price Strength Weakness

Wide coverage of services provided Less number of International destinations

Opportunities

Threats

Greatest potential to capture and lead The new comers with low fares in market

Examples: Jet, Indian, King Fisher and other full range carriers b) Low cost carriers with low price Strength Great facilities and technology Opportunity Growing business class Weakness No service for economic class Threats The low fare luxury service providers

Example: Air Deccan, Spice Jet, Go Air, Indigo and other Low cost carriers c) Very high service with high price Strength Better service due to high fare. Weakness Less coverage within country

Opportunity Attractive for The growing middle class Example: Taj airways, Club one airways

Threat The low cost luxury service providers

d) Good service with medium price Strength Weakness

Low fare as compared to higher service Very new in industry provider. Better services than lcc. Targeting to the middle class customers. Opportunities Huge potential to capture market Threats Extra cost burden

Examples: Kingfisher, Jet airways

MARKET SHAREOF DIFFERENT AIRLINES IN INDUSTRY IN 2006

JET AIRWAYS MARKET LEADER

31% OF MARKET SHARE (After Acquisition of AIR SAHARA) PUBLIC LIMITED COMPANY WITH THE FLEET OF 55 AIRCRAFTS IN-FLIGHT SERVICES ARE ISO 9001:2000 CERTIFIED

Business Strategy: Jet Airways

Maintain market leadership in the domestic market Develop two equally strong pillars: domestic and international operations Consistently provide a superior product to our passengers Seamless connectivity spanning domestic and international routes Improving cargo revenue potential -domestic and international Reduce unit cost of operations Focus on reducing operating costs (specifically fuel) Reduction in selling and distribution cost (on-line bookings) Re-negotiation of agreements with various service providers

Market leadership
Market leadership has become such a typical pursuit that its implications are hardly accorded much thought. In the context of aviation, this can mean being under constant siege from all sides - competitors, clientele and bureaucracy and an indefinite overhang of pressure to retain the top spot. Jet Airways has done all of the above and continues to, in Indian aviation's most important as well as tumultuous years. Its humble beginnings are difficult to imagine in light of its current dominance of domestic aviation and its encouraging head start on the international front.

Domestic Endurance
Being a domestic private carrier in the early '90s was considered both, tantamount to subversive competition to Indian Airlines ostensibly antagonising the authorities and a financial misadventure. The '90s saw many start-ups fall by the way side, while Jet Airways emerged from the meltdown as an airline with a focus on key business routes. It took the lead in identifying new stations and consolidated with a market share that has grown consistently till it took market leadership from Indian Airlines in the early half of the decade and has held it ever since. The airline followed a strategy of a steady expansion of domestic routes, scheduling flights between metros with a strategic focus on the business traveller with a sophisticated product and on-time performance. A focus on the maximum utilisation of assets, similar to the approach of Low Cost Carriers (LCCs) in Europe and the US, helped the airline. Jet Airways was also the first Indian carrier to look at the capital markets by floating a

minority stake of 20 per cent on the Mumbai stock exchange in 2005, in order to fuel expansions and reduce exposure to debt.

Brand image through International windfall

International flights stand out as the airline's biggest strategic milestone in so much as the move gave the airline a global scale and exposure. Jet Airways was the first private airline of India to fly to international destinations in March 2004 with flights between Chennai and Colombo, after it was cleared by the Government of India to operate scheduled services to international destinations. Subsequently, the airline looked at Europe, when in December 2004, the Government of India allowed private Indian carriers to fly to any international destination world-wide with the exception of Gulf countries. Today, it operates daily international flights to Colombo, Kathmandu, Singapore, Kuala Lumpur and London (Heathrow) and will soon start serving Bangkok, Brussels and Newark. Jet Airways seized the opportunity, positioning the Boeing 737-700/800 series for destinations such as Singapore and Kuala Lumpur and leased Airbus A340-300E wide-body aircraft for non-stop flights to London (Heathrow). It also placed more order for wide- body aircraft with an eye on more long-haul flights to Europe and North America. The airline realised the potential of a second-tier city like Amritsar, operating from there to London and then started flights from Ahmedabad to London. It took Jet Airways more than two years to get the necessary clearances from US authorities to fly to the United States. The US State Department gave the go ahead on November 15, 2006. With a view of operating over 10 daily flights through Brussels in the next two years, Jet Airways has chosen the European city as its hub for flights to North American cities, including New York, Chicago and Los Angeles and Canadian capital, Toronto. It is taking delivery of 10 777-300ERs and 10 A330-200s through October 2008. Jet Airways has also taken the lead in introducing many of the key international conveniences. Web check-ins introduced in late 2005 became instantly popular with frequent business travellers and later check-in kiosks were also launched. In April 2007, Jet Airways launched a new livery with the arrival of its first Boeing 777 and third Airbus A330 aircraft.

Trendsetter attitude
Jet Airways in its typically 'trendsetter attitude' created India's first domestic full service and low cost model by announcing the launch of a subsidiary airline, Jetlite, which will be positioned between low cost and full-service. Jet aircraft and major destinations are not its only focus. The airline, along with six others, recently obtained permission to operate an 80-seater aircraft, which will not only widen its network to include more tertiary cities but save it valuable costs by way of landing charges and sales tax on ATF, both of which are waived by the government for such aircraft as they connect the country's vital hinterland to major cities. Going back to the topic of the typical pursuit of market leadership, in the aviation industry, it means much more than general statistics. Jet Airways has seemingly been aware of this, selling itself on the basis of brand above price, amidst a fully blown fare war among its peers, managing eventually the best yields in the business, introducing Indian passengers to some international conveniences and in the process, retaining that typical pursuit without fuss. Other Strategies 9

Best customer Service Serve both business and economic class Acquired Sahara airlines thus getting stronger hold in market. Several Schemes to acquire and retain customers - Regular customers enjoys discounted fare

Innovation Leader Jet Airways wins Most innovative product launch award. (Sept 2007)

--Investment in IT, Research on Customer protective mechanism, Outsourcing by omnitech.

AIR DECCAN - COST LEADER

Air Deccan Strategy- Leader in LCC

Advertisement through print, radio and billboards In flight magazine for revenue generating In flight shopping scheme called Brand for less AVA Merchandising Tie-up with Caf Coffee Day ICICI-Travel agent purchase card Tie-ups with HPCL and Reliance Web World

The Indian aviation market expected to grow at 20% annually for the next ten years. Air Deccan is targeting 18% market share by 2013 Air Deccan is positioning itself as a low cost carrier

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Indian Rupees (INR)

Secto r Rail Fare (Return) 2 AC Sleeper DelhiMumbai DelhiBangalore Mumbai Bangalore 410 0 570 0 300 0 Journey time 17 hours 35 hours 23 hours 3 months Air Deccan fare (Return) 2 1 months month 425 6 545 2 824 8 495 2 3 Journey days time 644 1hr. 45 8 min. 964 2hr. 30 8 min. 544 1hr. 35 8 min.

Re 1

665 6 365 6

Offers no in-flight service Single class aircraft configuration Internet booking and cheap fares Offering non-trunk short-haul routes and attracting high-end railway traffic through comparable fares

Target market: Upper middle class in short term and lower middle class aggressively in long term

MARKET CHALLENGER- KINGFISHER

Kingfishers Marketing Strategy

Co-branding/Strategic partnerships with like-minded brands is an aggressive strategy of Kingfisher to promote its guest loyalty programme. The company is used to spend close to Rs 40 crore on various media and below-theline marketing activities every year. The company has also launched Kingfisher First, which is a print campaign to promote its first class service. The company is also planning a series of online promos to boost traffic in certain sectors such as Mumbai-Kolkata. They are running online contests to boost traffic on these sectors and are also looking at partnering with premium hotels. KINGFISHER Airlines has announced special fares for all personnel serving in the Indian Armed Forces, the Union Government, State governments, and employees of all public sector units in the country. The immediate families of these personnel - parents, spouses and dependent children are also eligible for these reduced and special fares.

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It lays stress upon Full Service at True Value Medium-cost operation One single Kingfisher Class for all Short flights and fast turnaround times (allowing maximum utilization of aircraft)

MARKET FOLLOWERS IN INDIAN AVIATION INDUSTRY

GO AIR INDIGO SPICE JET PARAMOUNT JAGSON

STRATEGIES Adapters whatever strategies implemented by leaders and challengers, they modify it to serve their purpose Ex. Minimization of air fares. Better service and facilities are provided by them by studying the competing firms. Maintain the market share

MARKET NICHER

It is the only Indian air charter company with a state-of-the-art hangar and an exclusive passenger lounge at the Chhatrapati Shivaji International Airport in Mumbai. In 2004-05, Taj Air welcomed aboard 2,903 passengers notably industry captains, global C.E.O's, dignitaries and celebrities.

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NETWORK In India, Taj Air covers 114 destinations while commercial aircraft fly to 71 destinations.With as little as 4 hours notice, Taj Air flies to eleven destinations in India viz. Ahmedabad, Bangalore, Chennai, Cochin, Delhi, Hyderabad, Jaipur, Lucknow, Kolkata, Mumbai and Tiruvananthapuram. For other destinations in India and overseas, departure is subject to airport formalities and landing clearances. MARKET NICHER Air Deccan Helitourism

Elements of Industry Structure: Porters Five-Forces

New Entrants
Threat of New Entrants

S u p p l i e r s

Bargaining Power of Suppliers

Industry Competit ors

Intensity of Rivalry Threat of Substitutes Threat of Substitutes

Bargaining u Bargaini Por ng y of Power Suppli e of Buyers r

Bar P

Substitutes

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THREAT OF NEW ENTRANTS Considerably high cost to enter. Shortage parking bays at major airports. the low availability of slots in peak hours. No government restrictions for domestic newcomers except for some legal formalities.

BARGAINING POWER OF SUPPLIERS

Aircraft suppliers Fleet Forecast for the India-Region 2006-2011 this study shows that there will be approx. 85% growth in the order rate of air carriers.

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There are only two major suppliers Boeing and Airbus. There are others like British Aerospace, ATR-42, Dauphin, Dronier, Fokkar, Partenavia, deHavilland, Beechcraft, Bell and Cessna. The suppliers are few and thus in better position to bargain as they always find customers for their aircrafts.

Aviation Turbine Fuel Suppliers IOC Hindustan Petroleum Corporation Bharat Petroleum ONGC

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The suppliers have more power here as is evident from the fact that the ATF price has rose about 30-35% despite of resistance from the airlines Pilot and crew members Pilot and crew members are highly trained staff. And not easily available. It takes a lot of time and money to train them. Therefore the competing airline sometimes tends to skip all these processes and simply lure manpower by offering higher incentives. Eg- kingfisher follows this strategy. There fore bargaining power of this trained staff increases. BARGAINING POWER OF BUYERS Competition among the existing players Increased Income of population internet help to buyers

THREAT OF SUBSTITUTES Air Deccan introduced airfares almost equalling the AC II-tier train fares that led immediate similar response from the leading domestic airlines. Jet airways and kingfisher offers the same quality service in the same price

THREATS OF INTENSE SEGMENT RIVALRY All major airlines increasing the capacity by buying more aircrafts Barriers to Exit Considerable Cost involved No Government Restrictions Loss of brand image

Conclusion
The Indian aviation Industry seems to be attractive for a new entrant after analyzing the market in terms of competitors and other factors. Among the new low-cost carriers waiting to take wing in 2006 were Omega air, Magic Air, East West, Indus, Premier Star Air and MDLR Airlines

REFERENCES
LUFTANSA TECHNIK
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Travelguru.com
Moneycontrol.com

www.spicejet.com http://inhome.rediff.com/money/2005/may/07spec.htm http://www.businessworldindia.com/jan1606/coverstory01.asp www.kingfisher.com www.goair.com www.airdeccan.com

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