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The Indian Aviation Industry:Price Wars and More


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In 1930,Indian business house Tatas,set Tata airline

In 1953, the Air Corporations Act 1953 came intoforce and all the assets of the then existing nine

airline companies were transferred to twocorporations - Indian Airlines Corp. (IA) and AirIndia International (Air India).

In 1993, the Air Corporations Act 1953 was

abolished, which put an end to the monopoly in thescheduled air transport services market.


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March 1994,govt approved open skiespolicy and along with 8 private carriers

entered in market

JA,SAHARA,INDIANINTERNATIONALARCHANA,EAST-

WEST,NPEC,MODILUFT AND DAMANIA

In 1995, . The AAI offered infrastructural

facilities to all airlines. At this point of time,there were 449 airports.


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Damania airline, was sold to NEPC in September1995.NEPC airline, landed in serious financial

problems and the company defaulted on payments.East West airline was eventually closed down in

August 1996.ModiLufts airline, the world's most expensiveairline, was into problems right from the start.


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WHY failures ?Damania, established by a poultry-farm owner ,NOTFINANCIAL STRONG., NEPC ran into problems after the acquisition when theSEBI revealed that the deal was an UNFAIR TRADE

PRACTICE. , serious financial problems and the companydefaulted on payments.East-West airline, OWED $3mn TO PLM EQUIPMENTas lease rentals and change in government regulations was

also reason.ModiLufts airline mistake was that they HIRED THEMOST EXPENSIVE AIRLINE in the world to give us aircraftand services".


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The reasons were aplenty lack of experience in the business,

lack of proper planning and poor promoter support. Lack of professional expertise required in theaviation industry.financially extremely weak in market.

Poor management

Cont


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The SurvivorsIt was JA,IA and SAHARA

Despite the intense marketing efforts of variouscompanies, by mid-2001, only JA and SAHARA

managed to stay along with IA in the Indian market.

SAHARA ,operated in 12 sectors with a fleet strengthof 9, all of which were Boeing Aircrafts.. All the carriers hired planes at international prices

and their maintenance was also undertaken byglobal companies at international rates. The only

'Indian advantage' was the availability cheap labor.


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Cont

MARKET SHARE(2000-01)

Airlines Market Share(%) Aircrafts Owned

IA 51 57

JA 42 33

Sahara 7 9


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AirFare

WAR


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INDIAN AIRLINES

Indian Airlines came up with a new apex

fare slab for purchase of tickets in eight

sectors, 28 days in advance two days less than

those offered by Air Sahara and Jet Airways.

The D-28 fares would be available for sale on

one way or round trips as against round trip

fares offered by Air Sahara.


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What is Apex?

Apex IS ADVANCE PURCHASE EXCURSION FARE. It is a non-

cancellable return fare offered at a heavy discount on the

conditions:

Tickets are purchased at least 21 days in advance

Minimum gap between departures range from one to six weeks.

Maximum gap between departures is 12 to 24 weeks.

There are no stopovers.


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Led to increase in the number of customers.

Loss of airline companies minimized as with the

increase of passengers the aircraft ran to their full

capacity.

It brought a veritable boom in tourism sector.

It was able to lure the middle class people who

preferred to travel by trains.

Effects of APEX


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First Airlines to start innovative Pricing modelrather than APEX Model.

Sixer and Super Sixer Schemes in 2002 Six refers

to the six zones for 25k.These schemes offered more to

the customers than their competitors.

Square Drive Scheme ( Family Pack) 4k-2.5k

Steal a Seat - Bidding process started from Base

price Re 1/-

AIRSAHARA


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Key characteristics of low cost airlines High seating density and load factors

Uniform aircraft types (usually the 737-300)

Direct booking (internet/call centre - no sales commissions)

No frills such as free food/drinks, lounges or air miles

Simple systems of yield management (pricing)

Use of secondary airports to cut charges and turnaround times


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CONSUMER BUYING BEHAVIOR

India Airlines Monopoly for a long time

Competition in 90s

Bought new aircrafts

Modern aircrafts

Modern airport terminals

Still losing market share

What went wrong

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WHAT DO WE OBSERVE Importance of understanding consumer behavior Organization need to understand

Why customers buy?

When customers buy?

What customers buy?

What are the factors influencing his buying?

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CONSUMER BEHAVIORHIGH INVOLVEMENT PRODUCTS

Characteristics

Price Complex features

Large differences between alternatives

High perceived risks

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CONSUMER BEHAVIORLOW INVOLVEMENT PRODUCT

Characteristics

Less reflection of buyers self conceptAlternatives within the same product class are similar

Frequent brand switching behavior

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PSYCHOLOGICAL FACTORSThese are: Motivations

Learning

Perceptions

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MOTIVATION Example : CRICKCITEMENT SCHEME adopted bySahara.

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LEARNING Lure of rewardsExample

- Holiday trip to Goa

See attractive offer of Taj holidays

Visit Goa

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PERCEPTIONS Daily exposed to information Newspaper

Internet

Television Friends

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Human being see or hear only what they want toanticipate

This is perception

Issues related to perception

Selection attention

Selection distortion Selection retention

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Selective attention

Do we pay need to all advertisements

We skip manyWhy?

We pay selective attention to certain stimuli

We pay attention to things which we feel will help us Marketers try to understand this

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Selection distortion

When we see messages

We add our own values/beliefs

Filter the original message

Distort

ExampleFeviquick advertisement

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CONSUMER BEHAVIOR

Selection retention How many advertisements you saw yesterday are able

to recall?

Very few

Results show less than 5%

Marketers need to create message in a manner whichcustomers are able to recall?

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SWOT ANALYSIS

Strengths

Liberal environment

Modern Fleet

High Quality Signs of economic growth

Political Stability


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WeaknessAirport infrastructure

Airways Infrastructure

High Cost Structure Skilled Resources


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Opportunities Market Growth

Geographic Location

Lower costs, higher Quality


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ThreatsAggressive approach of Railways

Slowdown in the economy affecting the tourism


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Conclusion

The price cutting schemes will be feasible aslong as external factors for pricing are under

control

Government should encourage privateparticipation


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Documents

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