Indian Aviation

Introduction•With a growth rate of 18 per cent per annum, the Indian aviation industry isone of the fastest growing aviation industriesin the world.

•India’s civil aviation sector has evolved over time. On February 18, 1911 India‘s first commercial airplane flew between Allahabad and Naini.

•In 1912, India‘s first commercial international flight operated by the erstwhile Imperial Airways took place and connected Delhi to Karachi and beyond. In 1932, J.R.D. Tata flew an air mail service airplane, after which Tata Airlines ventured intoscheduled air transport services.

International ScenarioIn 1998, approximately 500 alliances existed between airline companies. Some of these alliances were to the point of a merger (Market Share of World Airlines Traffic, 2003). The scene today is dominated by a few multilateral alliances. Top three, Star, Skyteam and Oneworld together account for over 60% of the total international traffic.

Oneworld

American Airlines, British Airways, Aer Lingus, Cathay Pacific, Finnair, Iberia, Lanchile, Quantas

Star

United Airlines, Lufthansa, Air Canada, Air New Zeland, ANA, Asiana, Austrian, bmi British, midland, LOT Polish Airlines, Mexicana, SAS, Singapore, Spanair, Thai Airways, Varig, US Airways, TAM

SkyTeam

Air France, Delta Airlines, Aeromexico, Alitalia, CSA Czech Airlines, Korean Air, Northwest, Continental, KLM

Government RegulationsPrivate sector is allowed to operate scheduled and non-scheduled services.Open skies policy for cargo services.Min Capital Requirements & Fleet SizeRoute Dispersal GuidelinesForeign equity participation up to 49 per cent and investment by Non-Indian Residents(NRIs), Overseas Corporate Bodies (OCBs) up to 100% is allowed

•Benefits accruing to State carriers as they are the only domestic carriers allowed to flyto the Gulf.

•Minimum Requirement of Domestic Flying for 5 Years & Min fleet of 20 aircrafts is amust for seeking permission to fly internationally.

•Foreign airlines are not permitted to pick up equity. Foreign financial institutions andother entities who seek to hold equity in the domestic air transport sector shall not have foreign airlines as their share holders.

Market StructureThe aviation industry in India, especially with regard to passenger airlines, follows a strictly oligopoly-type structure with the characteristics.

It is an industry dominated by a small number of large firms.

The firm sells either identical or differentiated products (the only differentiation here being in service quality and frills offered).

The industry has significant barriers to entry (which holds true both with respect to regulations and huge capital investment required)

Market Implication

Indian passenger airlines market is characterized by following:

• Few number of firms contributing to majority of the market share.• Products are differentiated in terms of service quality and offerings.•Marginal Revenue = Marginal Cost (MR = MC).• p=MC•Entry Barriers•Firm is a price setter•Long run Profit >=0•Strategic dependent on individual rival firm’s behaviour.

Indian Aviation Market – A differentiated Oligopoly

Study of consumer demand in industry

Potential Market

•Potentially, India is a very large corporate and luxury travel market.

•Potentially, it is also a very low-fare market.

•India also has largely blocked but significant markets in the north in China.

•India, unlike other major travel hubs in region, is an original market both for originating and turnaround traffic.

•India is also a potential transit hub in more than one direction.

Factors affecting consumers demand perception

Following factors make the demand function of consumers:

PriceServicePromotional SchemesLoyalty ProgrammesFlight SchedulesComfort with the brandCorporate tie-ups.

Role of Air transport in the Economy

Recent research by Oxford Economics reveals that the direct contribution of aviation sector in India to its GDP is 0.5% for the year 2009. If the Catalytic impact of Civil Aviation is included, the contribution to GDP is 1.5%. Total number persons employed in Civil Aviation sector is estimated to be 1.5 Million and if we include the catalytic impact then it is 10 million persons. Globally for every $ 100 of output produced and every 100 jobs generated by air transport in the economy trigger additional demand of approximately $325 worth of output and 610 jobs in other industries.7 During the year 2010-11, air transport carried 54 Million domestic passengers and 37 Million International passengers besides transporting 1.7 Million Metric tonnes of domestic and international cargo. Air transport is crucial for the distribution of high value to weight products and also for goods that are to be transported speedily.

Comparison India is not unique in requiring significant ownership stakes by citizens or overseas

Indians in its air carriers. The European Union, Australia and United States also have domestic ownership requirements. Some of the reasons stated for these upper limits on foreign ownership include public orsecurity interests

MARKET LEADER

MARKET LOOSER

• IndiGo is a private, low-cost airline based in Gurgaon, India  Since commencing operations, it has established itself as one of India's leading airlines using its model of efficient, low-cost operations and by attracting customers with low fares. IndiGo is India's largest carrier by market share as on August 2012

• As of March 2012 it is the only airline in India making profits The country’s youngest airline has become its largest.

• According to the latest figures released by the DGCA, IndiGo, with 27 per cent market share in July this year, has edged past Jet, which managed 26.6 per cent share.

• IndiGo has consistently maintained its image as a friendly, hip airline. Everything starting from its logo to its banner advertisements tells us something that makes us smile. The vehicles it uses to carry luggage are labeled “Cargo”, in sync with the name “IndiGo”. The air-sickness bag says “Get Well Soon”.

• Instead of an in-flight magazine, it has a shopping catalogue with interesting IndiGo branded curios. The picture on the left shows a USB drive with a disclaimer: “This item can   cause jealousy”! IndiGo’s on-your-face communication has effectively broken clutter and grabbed the attention of all. In today’s turbulent airline industry this is perhaps what has kept IndiGo soaring high.

• IndiGo has also very successfully positioned its cabin-crew profile by associating a glamour quotient with it. Advertisements seeking new crew members communicate the message that the crew are not merely plain air-hostesses, but are as glamorous as supermodels. This creates an aspirational value in the minds of job applicants. The “Miss IndiGo” badges sported by the air-hostesses assure passengers time and again that the crew serving them is indeed special.

– Dr. Vijay Mallya is the Chairman and CEO of Kingfisher Airlines.

– Kingfisher launched its airline services in May 2005.

Marketing strategy

• Kingfisher Airlines is the first carrier in the country to offer live in-flight entertainment.

• Kingfisher Airlines Ltd & Dish TV have joined hands to provide live in-flight entertainment on Kingfisher aircraft .

• The service would enable airline’s customers to book air travel ticket after securing ‘ngpay’ application on their GPRS-enabled mobile handsets

• On the promotional front, Kingfisher has signed up the latest diva of Bollywood Ms.Deepika Padukone as the Brand Ambassador

STRENGHTS: Strong Brand value & Reputation in the minds ofcustomers. Quality of the service. First airline to have new fleet of airbuses.

WEAKNESSESS: High Ticket prices.

OPPORTUNITIES: The expanding tourism Industry.Untapped Air cargo market Under penetrated Domestic Market

THREATS:Competitors. Fuel Price Hike. Economic Slowdown/Recessions

SWOT analysis

Pricing Strategy

Price and quantity are determined by the interaction of demand and supply in the market. However, given the large number of buyers, firms can decide prices at which they will sell tickets.

Implements third-degree price discrimination. That is, fare restrictions screen customers and segment them by their sensitivity to price and potentially by their demand uncertainty.  For instance, Indian Airlines apex fares (for booking one week or three weeks in advance).

The low cost airlines follow this different pricing strategy. Customers booking early with carriers such as Air Deccan will normally find much lower prices if they are prepared to commit themselves to a flight by booking early, on the justification that consumer’s demand for a particular flight becomes more inelastic the nearer to the time of the service.

The term ‘‘revenue management’’ is commonly used to describe most aspects of airlines’ pricing and seat-inventory control decisions.

Formally, revenue management describes a process of setting fares for each route (origin and destination pair) and each set of restrictions (nonstop, time-of-day, day-of-week, refundable, advance purchase, first class or coach, and Saturday-night stay over) and limiting the number of seats available at each fare.