Professional Documents
Culture Documents
Group 9 Ashish Sinha Himanshu Nigam PGP/12/177 Isma Mohammad PGP/12/178 Shivam Srivastava PGP/12/199 Suman Kumar patra PGP/12/187
Major Developments
Industry trends and developments:
Air India and Indian Airlines retained a monopoly over civil aviation in India till 1992. The first phase of deregulation in 1991
Several new airlines Damania, EastWest, Jet, Sahara, Modiluft and NEPC started operations.
Major Developments
After 2003 six new airline services, Kingfisher Airlines, SpiceJet, Air Deccan, Paramount airlines, IndiGo and GoAir Huge financial losses: But now, the industry has reported a total loss of $2 billion in the last financial year alone. Industry estimates -Air traffic in India could double to 50 million passenger journeys a year by 2010.
Passenger
Freight
Cargo airlines are divisions or subsidiaries of major players. In India, full cargo service is operated by Blue Dart Aviation and Crescent Air Cargo Our concentration is on the passenger segment.
Competing Companies
- NACIL: Air India and Indian Airlines (brand name Indian). Also Air India Express and Air India Regional - Jet Airways and Jet Lite - Kingfisher Airlines and Kingfisher Red - IndiGo - SpiceJet - GoAir - Paramount Airways - MDLR Airlines (operations suspended from Nov, 2009) - Taj Air - Deccan Aviation
IndiGo 16%
Strategic Groupings
LCC vs full service
Characteristics Types of plane used Number of seats per plane Crew involved per plane LCC Single configuration Full service Two plane configuration
150
190
24
40
Govt vs private
Dometic vs International
Private 81%
Industry Structure
All airlines are as of now battling with costs.
All major airlines in the red.
Herd behaviour:
None of the airline use fuel hedging. All airlines were caught in the fuel price run in 2008. Still, fuel hedging is absent. (Southwest airlines was not at all affected by the price surge)
Industry Structure
Government affects through two mechanisms:
Conventional wisdom (the rule of 3) dictates that we would see consolidation in the near future. In fact, we have already been witness to some consolidation.
Industry Structure
Buyer power: High
Highly price sensitive customers. Price comparison is very easy. Switching costs are very low. Strong loyalty programs are absent.
Industry Structure
Supplier power: Moderate
Key Inputs: Fuel, aircraft and labour. Aircraft: Low
Aircraft market is a duopoly (Airbus and Boeing) with stiff competition. On that front, very less supplier power. Airlines able to negotiate good lease contracta.
Labour: High
Constraint labour supply. Foreign pilots costs as much as 20% more. Labour unions are present. Strikes do take place.
Fuel: High
Public companies are the major suppliers. Govt controls the taxes.
Industry Structure
Threat of new entrants: High
Airline industry is largely deregulated. The only constraint is capital. Industry is capital intensive. As such, barrier to entry is low. Attractiveness of the industry has gone down due to heavy competition and struggling participants. High costs of airport slots is a barrier.
Industry Structure
Threat of substitutes: Low
Road: Buses, Private transport Rail: Only Indian Railways, extensive coverage Overall, threat of substitutes is low
Industry Perspectives
Cost structure: (Drivers)
Fuel cost 40% Salaries (Flight crew, pilot, copilot, navigator, flight engineers) 20% ATC services, Ground personnel services, handling passengers, catering 20% Maintenance services (labour) 20% Flight rental cost
Industry Perspectives
Life cycle position: Growth stage
Trips per capita remain low even by the standards of other developing countries. Similarly on the international front, less than 1% of Indians travel overseas each year. One of the sectors most benefited by economic growth of the country. Thus it is not difficult to see the expansion potential from such a low base as economic growth continues.
Marketing Perspectives
Product
International carriers are usually full service carriers while the domestic market is tilted towards low cost carriers
Low cost carriers are the no frill air services having lower operating costs compared to the full service carrier
Trends : Due to the economic slowdown, the overall market volumes have decreased and the customers
are opting more for low cost carriers over full service carriers People are flying less and as a result most of the carriers have to operate much under the capacity of the planes and as a result even the full service carriers have resorted to cost cutting measures
Customer Analysis
Segments
Segmentation on the basis of purpose:
Business, Leisure, Personal
Domestic v/s International passengers Segmentation on the basis on price and facilities:
Preference for price Preference for combination of price and other features Consumers not worried at all about price: Looking for privacy or luxury Willingness to pay for brand names
Customer Analysis
Buying motive
Saves time Price (LCC) Comfort and facilities (Business class and International passengers) Security (when one carries high value items) Psychological benefits (prestige)
Customer Analysis
Unmet needs
No real time information available (Delay/ cancellation), so passengers sometimes have to unnecessary wait in the airports for long time Customized meal option: While booking (frill and non frill both) travelers should be given option to choose their meals. Right now people have to have whatever the airline serves Feeder Lines: Flights are more concentrated on metro routes or tier-I cities, so small destinations are being neglected Business opportunities in other facets of aviation like helicopter tourism, sea tourism and business
The recent opening of the market to private participation and India s ability to attract foreign direct investment (FDI)
Indian participants can leverage on the advantages of lower labor costs and strategic location to make India an export hub.
High Taxes/Duties : Servicing tax is 12.5%, while there is a customs duty of 50% on spares, a VAT of 12.5% & an octroi of 4%
Thrust Areas
The industry Market share changes on a monthly basis. Managing costs. More on day to day survival. Expanding in face of mounting losses. Focus is to survive the dynamism. Future holds a lot of promise. Herd behaviour. LCC: Focus is on minimizing cost. The only variable cost component was food which has been largely eliminated. Operational efficiency through standardization, homogenous fleet and maximum airborne time for the aeroplanes.
Thrust Areas
Full service: LCC is a major competitor. Still in search for a proper definition of service. No significant differentiate. Giving price discounts is not uncommon (Super Apex and Super monsoon apex for Jet). Indian, Jet entered into co-branding agreements with AmEx and Stan Char trying to induce loyalty (mainly through direct cost advantage to consumers).
NACIL: Struggling with the makeover, integration. Still not clear, how much the government wants to intervene in this. Govt has decided to infuse new capital.
Future Outlook
CAPA Projections for year 2020 : Domestic passenger traffic to reach 160-180 million International traffic in excess of 50 million Combined throughput to touch 400-450 million traffic marks The total aircraft fleet is likely to reach 1000 with an estimated value of over US$80bn
Future Outlook
Short Term Outlook : Uncertain
Overcapacity : With a dip in demand there has been a major underutilization of the airplanes which has added to high costs Heavy losses: Poor government policies Volatility : due to high prices, overcapacity of acquired planes, diminishing load factor and high losses suffered by the airlines Weak Infrastructure