CASE STUDY ON SERVICE MARKETING

AIR DECCAN Implementing the low-cost Model in India

Submitted by: Shubhomay Das (10DM011)

WHAT IS A LOW COST AIRLINE? A low-cost carrier is an airline that offers low fares but eliminates all non-essential services. The typical low-cost carrier business model is based on: A single passenger class A single type of airplane (reducing training and servicing costs) A simple fare scheme Free seating (which encourages passengers to board early) Flying to cheaper, less congested secondary airports that gives access to the unreserved regional population Short flights and fast turnaround times (allowing maximum utilization of planes) "Free" in-flight catering services are eliminated, and replaced by optional paid-for inflight food and drink. AIR DECCAN Implementing the Low cost Model in India BACKGROUND As aviation industry was increasing at fast rate there was strong competition between various players. Air Deccan introduced the concept of low cost air carrier and was initially quite successful in implementing it. The target customer of Air Deccan was generally unsatisfied customer of Indian Airlines who did not put much emphasis on service but were price conscious. The service attracted frequent air travellers. The case has the following issues: Studying the structure of the Indian aviation industry. Developing an understanding on the operations of low cost carriers in India. Examining the capability of low cost business model in the Indian aviation industry. Understanding the target market and the promotional strategy of a low cost airline in India and draw a comparison with that of full service airline. Studying the challenges that a low-cost airline company might face in the Indian context.

ANALYSIS: Air Deccan's business model was inspired by the globally successful low cost model pioneered by the US-based Southwest Airlines in the 1970s of Texas. In the initial stages of the company, many of the established carriers in the market (Indian Airlines, Jet Airways and Sahara) would have stopped the company from its growth and not expected it to reach the level it has reached now. Suddenly, the company has appeared as a big threat on the screen of these well-established players. The existing theory is that running an airline requires large funding. Unlike air services, Air Deccan did not provide any food on board. It shows interest on NO-frills flying. However, it sold foods and beverages, waters on its flights for a price. The company felt that for short distance domestic flights, most passengers did not want food. It was felt that there was huge growth potential for Low Cost Airlines in India. They have done this through a clever combination of innovation and outsourcing. More importantly, from a strategic perspective, it gives powerful evidence to how technology can be a key factor in changing the industry dynamics, even in what were once considered fairly stable or conservative industries. Despite a middle class population, only few of them used air transport. A key reason for the low volume of air travel was primarily the high airfares. The perception is that air travel is essentially for the rich class, who can afford to pay a high price for the convenience of air travel. Low cost carriers usually operate on low operational costs, appropriate positioning and no-frills services to harness only those customers who value cheap fares. Low operating costs are ensured through cost containment on all aspects of the airline's operation such as by contracting non-core activities, lower airport fees, shorter time on the ground through quick turnarounds, simple boarding processes, higher percentage of on-line sales of tickets thus, reducing commission payable to travel agents, more number of seats on the aircraft by optimally utilizing space on the aircraft, elimination of business class section on the flight, and ensuring that the flights run to full capacities. Unlike legacy airlines, low-cost airlines do not use the traditional hub and spoke model. They offer no inter-line arrangements for seamless passenger transition or baggage handling from one airline to another. Innovations to achieve tight operational cost control through many innovative practices. Most of the tickets sold to passengers are through the Internet. A lower turnaround time of 15 minutes from landing to take-off of an aircraft ensures that Air Deccan aircraft are air-borne for a much longer time each day. In contrast, other airlines have turnaround times of 30 to 50 minutes. This translates into higher frequency of flights, more flying time per day of the aircraft and consequently more passengers flown per day by each aircraft. The advertisement everyone can fly Air Deccan positioned itself as low cost carrier. It has taken good control of every parameters that there target customers need. Competitions from other players were there but Air Deccan had made a strong foothold in aviation industry.

SWOT Analysis of Air Deccan:STRENGTHS Cost Differentiation: - Cost differentiation is key to profitability for airlines because airlines have found it extremely difficult to increase their revenues in the current environment. It includes of: - No Frills, More seat per aircraft, Quicker turnaround time, WEAKNESS Limited sectors: - At present, Air Deccan flies to very limited sectors. This makes it easier for the competition to unleash killer price cuts in these few sectors. It is always simpler to drop prices if you are trying to take on a company with just three planes. So, if Deccan can survive the price war for the first year or so and scale up, it will soon reach a size where Jet and the rest cannot undercut without losing massively in the bargain. Time performance: - Limited aircraft also means unavailability of standby planes in the event of operational problems. At present, Air Deccan is not known for maintaining a good on-time performance. This will over time, erode brand equity and alienate the timeconscious business traveler. Shaping up on-time performance records by eliminating sources of teething troubles is critical. This is more important as carriers like Jet Airways have received awards for their flight dispatch reliability and on time records, which they use as a USP. OPPORTUNITIES Huge Market: - In a country of a billion people, the Indian aviation industry is weak. The country have 12 million people who travel by air every year against 3 million passengers who fly everyday in the US, even though its population is one-fourth that of India. The number of daily flights in India averages just about 400 a day, as against 40,000 flights a day in the US. India's 200-million middle-class population is equal to that of the whole of Europe. Even if it is assumed that only one-fourth of that large middle-class could afford and would be willing to travel by air, it would call for at least a 5-6-fold increase in capacity. This points to a huge opportunity for Air Deccan and the aviation industry in general. However, this large market is recognized by all and is the reason why new players are waiting to enter the Industry to exploit this potential. It is pertinent to note that the number of air travelers in India has grown 34% during the first 9 months of 2004-05 as compared to the same period last year, as per estimates of Amadeus Worldwide. Product differentiation: - At present, Air Deccan differentiates its no frills product by offering less features at substantially low fares. However, this strategy will become generic with the entry of low cost carriers waiting in the wings. At that stage, low cost competition will each need to try and be different. Limited product differentiation is an opportunity, but must be approached with extreme caution.

THREATS Price of oil: - Oil price hikes spare no airline. Aviation turbine fuel (ATF) cost and other operational costs (all government controlled) are the same for all airlines, whether it is a low cost airline or not. This adds significantly to costs of carriers like Air Deccan, especially since fuel costs as a percentage of total costs are higher at 26% for low cost airlines, compared to 20% for full service airlines. Competition: - Air Deccan is still a new, small player in the Indian skies. They are vulnerable to price cuts by large players with deep pockets. Aviation experts are betting that IA, Jet and Sahara could start a debilitating price war to push the fledgling no frills airlines off the game permanently.

CONCLUSION: Air Deccan was successful in starting a low cost carrier and was able to carry forward the initiative that it has undertaken.