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2010

AMIT KUMAR

IBS Hyderabad

08BS0000256

“COMPETITIVE AIRLINES” -An analysis of the strategies followed by airlines in

India with special focus on low-cost airlines

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FINAL REPORT

“COMPETITIVE AIRLINES”

An analysis of the strategies followed by Airlines in India with special focus on low-cost airlines

Submitted to

Prof. Sriram Rajann

IBS Hyderabad

Submitted by

Amit Kumar

08BS0000256

Batch – 2010

Mob: 9603981105

E-mail: amitkumar2973@gmail.com

DATE OF SUBMISSION: January 6, 2010

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AUTHORISATION

This report is submitted as partial fulfilment of the requirement of MBA program of IBS Hyderabad. The report on the title “COMPETITIVE AIRLINES-An analysis of the strategies followed by Airlines in India with special focus on low-cost airlines“ is an original work and has not been submitted to any other institution or university for the award of any degree or diploma.

Place: Hyderabad

Date: January 06, 2010 AMIT KUMAR

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ACKNOWLEDGEMENT

Apart from individual efforts, the success of any project depends largely on the encouragement of many others involved directly and indirectly. I take this opportunity to express my heartfelt gratitude to the people who have been influential in the progress of this project.

I consider it my pleasant duty to acknowledge my deep sense of gratitude to my Faculty Guide- Prof.Sriram Rajann for his continuous guidance and direction to the exercise.

I am equally thankful to my friends for their valuable and timely inputs in the progress of the project.

Date: 06.01.2010

Place: Hyderabad

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TABLE OF CONTENTS

PROJECT DESCRIPTION…………………………………………………………………….5

OBJECTIVE OF THE PROJECT…………………………………………………………….6

RESEARCH METHODOLOGY……………………………………………………………..7

INDIAN AVIATION INDUSTRY……………………………………………………………9

- EVOLUTION……………………………………………………………………………….09

- PESTE ANALYSIS…………………………………………………………………………13

- PORTER’S FIVE FORCE ANALYSIS………………………………………………..19

- SWOT ANALYSIS…………………………………………………………………………22

- PORTER STRATEGIES…………………………………………………………………..24

JET AIRWAYS……………………………………………………………………………………25

KINGFISHER AIRLINES………………………………………………………………………27

SPICEJET………………………………………………………………………………………….29

INDIGO…………………………………………………………………………………………….31

PARAMOUNT AIRWAYS……………………………………………………………………32

GO AIR……………………………………………………………………………………………..33

DECODING THE SURVEY……………………………………………………………………34

QUESTIONAIRRE……………………………………………………………………………….42

APPENDIX…………………………………………………………………………………………44

- MODELS……………………………………………………………………………………….44

- REPORT………………………………………………………………………………………..45

REFERENCES………………………………………………………………………………………53

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PROJECT DESCRIPTION

Since its maiden flight in the chilled winters of December 1912, from Karachi to Delhi, Indian aviation Industry has traversed a long journey evolving synchronously and has metamorphosed into one of the most competitive airline industry in the globe. From being a privilege of the hedonist class, it has transformed into a more utilitarian way of travelling and is catering to more value seeking functionalist and pragmatist class of consumers too, in the form of no frill low cost airlines. The hegemony of the government owned monopoly of the sector has been thwarted long back with the effect of open sky policy of April 1990. As a repercussion, a plethora of airlines has pullulated and has transformed the arena into adrenaline gushing venture. As the percentage of fliers among the Indian population is only a paltry 0.8% and in order to survive and grow the airlines have been devising various strategies. It would be interesting to extricate the intriguing strategies adopted by these players parrying and pummeling the opponents. The study aims at learning the financial, marketing and operational strategies the airlines in India are following, albeit with a clinical approach. The project shall envelope studying the airlines industry in India in relation to various business models and also come up with suggestions, whose implementation would be in favour of the sector. The project aims at analyzing individual brands in the industry and chooses their strong points and come up with an idle hypothetical brand. A market survey of the existing fliers is planned to know their likings and disliking.

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OBJECTIVE OF THE PROJECT To have a holistic study of the industry, analyze the current

scenario in perspective of models such as Porter’s 5 Force Model, Ansof’s Model, SWOT analysis etc., thus gain a multidimensional insight of the industry.

To study business models of the existing airline majors in the country.

To list up various strategies adopted in the industry by various players and have a clinical study of them.

A market survey of the existent fliers in order to know their taste and preferences.

To come up with constructive ideas for the benefit of the industry.

To study the Indian Aviation Industry

To study the industry in various marketing models.

To study the major branding strategies.

To study the flier preferences.

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RESEARCH METHODOLOGY

I have decided to do the project in two parts. The first part of the project is

comprised of the study of the Indian Aviation Industry as a whole and the second

part deals with the fliers perception regarding different brands of airlines and

different facilities with them.

The first part of the project i.e. descriptive study comprises an overall study of the

Indian Aviation Industry, the different brands of airlines, the strategies followed

by them besides learning the various applications of marketing concepts in the

industry. It will greatly be done with the assistance of the secondary sources such

as the available books, research papers, the company websites and magazines.

The second part of the project will try to bring out the brand preferences and the

components of the brands and their services that made them score over the

other brands. This shall be done by firsthand experience gained through the

meetings with the existing fliers. Self administered questionnaire would be the

tool in the implementation of the programme.

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THE GAME PLAN

SURVEY DESIGN

For the purpose of studying the population sample of 50 will be chosen among

the fliers. Population will not be segmented on any basis for the purpose.

RESEARCH INSTRUMENT

The work will be carried out through self administered questionnaires. The

questionnaire will include both open ended and close ended questions.

DATA COLLECTION

The data which will be collected for the study can be broadly classified into two

categories:

Primary Source: It includes questionnaires, interviews and word of mouth.

Secondary source: It includes company records, past data records, internet

sources and books. As the project entails analysis of existing strategies a lot

of secondary source of data is to be banked upon.

DATA ANALYSIS

The data will be analyzed by using mathematical techniques. Various statistical

tools would be considered and used to accomplish the job.

Primary Sources

Secondary Sources

Books

Internet

Research Papers

Word of mouth

Personal Interviews

Questionnaires

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THE INDIAN AVIATION INDUSTRY

Evolution

The history of civil aviation in India started with its first commercial flight on February 18, 1911.

It was a journey from Allahabad to Naini made by a French pilot Monseigneur Piguet covering a

distance of about 10 km. Since then efforts were on to improve the health of India's Civil

Aviation Industry. The first domestic air route between Karachi and Delhi was opened in

December 1912 by the Indian State Air Services in collaboration with the Imperial Airways, UK

as an extension of London-Karachi flight of the Imperial Airways.

The aviation industry in India gathered momentum after three years with the opening of a

regular airmail service between Karachi and Madras by the first Indian airline, Tata Sons Ltd.

However this service failed to receive any backing from the Indian Government.

At the time of independence nine Air Transport Companies were operational in the Indian

Territory. Later the number reduced to eight when the Orient Airways shifted its base to

Pakistan. The then operational airlines were Tata Airlines, Indian National Airways, Air service

of India, Deccan Airways, Ambica Airways, Bharat Airways and Mistry Airways.

With an attempt to farther strengthen the base of the aviation sector in India, the Government

of India together with Air India (earlier Tata Airline) set up a joint sector company, Air India

International, in early 1948. With an initial investment of Rs. 2 crore and a fleet of three

Lockheed constellation aircrafts, Air India started its journey in the Indian aviation sector on

June 8, 1948 in Mumbai (Bombay)-London air route.

For many years since its inception the Indian Aviation Industry was plagued by inappropriate

regulatory and operational procedures resulting in either excessive or no competition.

Nationalization of Indian Airlines (IA) in 1953 brought the domestic civil aviation sector under

the purview of Indian Government. Government's intervention in this sector was meant for

removing the operational limitations arising out of excess competition. In 1953, the Air

Corporation Act nationalized all existing airline assets and established the Indian Airline

Corporation and Air India International for domestic and international air services respectively.

These two companies enjoyed monopoly power in the industry until 1991, when private airlines

were given permission to operate charter and non scheduled services under the ‘Air Taxi’

scheme to boost tourism. These carriers were not allowed at the time, to fly scheduled flights

or issue air tickets to passengers. As a result, a number of private players including Jet Airways,

Air Sahara, Modiluft, Damania Airways, NEPC airlines and East West Airlines commenced

domestic operations. In 1994, following the repeal of the Air Corporation Act, private players

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were permitted to operate scheduled services. Ultimately the carriers with more efficient

operations and strategies survived and by 1997, only Jet Airways and Air Sahara made the cut

from the original group.

The next big change in the industry came in late 2003 with the emergence of India’s first no-frill

airlines, Air Deccan. It revolutionized the industry, offering fares as low as INR 500 (USD 10

roughly), compared with Full Service fares offered by the incumbents, averaging about INR

3000 or more. Since then, Spice Jet (restructured Royal Airways and Modiluft), Go Airways and

Kingfisher Air have also entered the industry. Paramount Airways is another player, though it is

positioned on the other end of the spectrum, as an ‘all business class’ airline. With the further

advent of online ticket sales through companies such as makemytrip.com, prices have crashed

and tickets are available for as little as INR 0.99. In fact, now many airline tickets can be bought

for a price comparable to an upper class railway ticket for the same route.

In December 2004, Indian scheduled carriers with a minimum of 5 years of continuous

operations and a minimum fleet size of 20 aircrafts, were permitted to operate scheduled

services to internationals destinations. On January 11, 2005 the government designated four

scheduled Indian carriers (Air India, Indian Airlines, Jet Airways and Air Sahara) to operate

international services to and from Singapore, Malaysia, Thailand, Hong Kong, the UK and the

USA.

As a consequence today we have, eight private scheduled operators viz., Jet Airways(India) Ltd.,

Jet Lite Airlines Ltd., Kingfisher Airlines, Deccan Aviation (P) Ltd., Spicejet, Paramount Airways

Pvt. Ltd , Go Airways, and Inter Globe Aviation Ltd.(IndiGo) were operating as Scheduled Private

Airlines. In addition to these private airlines, two more airlines namely Alliance Air, subsidiary of

Indian Airlines and Air India Express, subsidiary of Air India also commenced their operations in

1996 -97 and 2005-06 respectively. Air India, Air India Express, Jet Airways and Jet Lite Airlines

Ltd as the designated airlines of the Government of India under various bilateral air services

agreements have been authorized to operate long and medium haul scheduled international air

services. Recently Kingfisher too have started international flights.

Market share of these airlines as on April 2009 – (source: DGCA)

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Sector structure/Market size

The Indian aviation industry is one of the fastest growing aviation industries in the world. The

government's open sky policy has led to many overseas players entering the market and the

industry has been growing both in terms of players and number of aircrafts. Today, private

airlines account for around 75 per cent share of the domestic aviation market.

India is the 9th largest aviation market in the world. According to the Ministry of Civil Aviation,

around 29.8 million passengers traveled to/from India during 2008, an increase of 30 per cent

on previous year. It is predicted that international passengers will grow up to 50 million by

2015. Further, due to enhanced opportunities and international connectivity, 69 foreign airlines

from 49 countries are flying into India.

Growth

The Indian Civil Aviation market grew at a compound annual growth rate (CAGR) of 18 per cent,

and was worth US$ 5.6 billion in 2008. Airlines recorded a double-digit growth in air traffic in

August 2009, according to data released by the industry regulator Directorate General of Civil

Aviation (DGCA).

Domestic airlines flew 3.67 million passengers in August 2009, as against 2.92 million in the

corresponding period last year—an increase of 26 per cent.

The Centre for Asia Pacific Aviation (CAPA) forecasted that domestic traffic will increase by 25

per cent to 30 per cent till 2010 and international traffic growth by 15 per cent, taking the total

market to more than 100 million passengers by 2010.

By 2020, Indian airports are expected to handle more than 100 million passengers including 60

million domestic passengers and around 3.4 million tonnes of cargo per annum.

Moreover, significant measures to propel growth in the civil aviation sector are on the anvil.

The government plans to invest US$ 9 billion to modernize existing airports by 2010. The

government is also planning to develop around 300 unused airstrips.

India ranks fourth after US, China and Japan in terms of domestic passengers volume. The

number of domestic flights grew by 69 per cent from 2005 to 2008. The domestic aviation

sector is expected to grow at a rate of 9-10 per cent to reach a level of 150-180 million

passengers by 2020.

The industry witnessed an annual growth of 12.8 per cent during the last 5 years in the

international cargo handled at all Indian airports. The airports handled a total of 1020.9

thousand metric tonnes of international cargo in 2006-07.

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Further, there has been an increase in tourist charter flights to India in 2008 with around 686

flights bringing 150,000 tourists. Also, there has been an increase in non-scheduled operator

permits – 99 in 2008 as against 66 in 2007.

Low cost services

Major full-service carriers have converted around half their capacity into low-cost services,

which has resulted in bringing down the average fares of airlines as a whole by about 30 per

cent and thereby increasing demand from the domestic passenger market.

Kingfisher Airlines and Jet Airways have converted around half their capacity into low-cost

services. While, government carrier Air India plans to launch a low-cost model in the domestic

skies. It already has a low-cost airline called Air India Express which operates on international

routes.

Jet Airways has also increased the number of low-cost seats in the system by around 50 per

cent.

Low cost carriers (LCCs) such as Indigo and Spice Jet have increased the total number of seats

by 40 per cent and 53 per cent, respectively, in the past year.

SpiceJet is also working on a plan to start international operations next year, making it the third

private Indian carrier after Jet Airways and Kingfisher to fly overseas.

Road Ahead

The Indian aviation sector is likely to see clear skies ahead in the years to come.

Passenger traffic is projected to grow at a CAGR of over 15 per cent in the next 5 years.

The Vision 2020 statement announced by the Ministry of Civil Aviation, envisages

creating infrastructure to handle 280 million passengers by 2020.

Investment opportunities of US$ 110 billion envisaged up to 2020 with US$ 80 billion in

new aircraft and US$ 30 billion in development of airport infrastructure.

Associated areas such as maintenance repair and overhaul (MRO) and training offer high

investment potential. A report by Ernst & Young says the MRO category in the aviation

sector can absorb up to US$ 120 billion worth of investments by 2020.

Aerospace major Boeing forecasts that the Indian market will require 1,000 commercial jets in

the next 20 years, which will represent over 3 per cent of Boeing Commercial Airplanes’

forecasted market worldwide. This makes India a US$ 100 billion market in 20 years.

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PESTE Analysis

The literature on marketing provides one, particularly useful, model for the study of a firm’s

Marketing Environment. This model proposes that the relevant factors should be divided into

the categories of Political, Economic, Social, Technological and Environmental. These factors are

not mutually exclusive but then the classification helps in understanding each ones influence.

Following are the factors -

Political factors

Economic factors

Social factors

Technological factors

Environmental factors

POLITICAL FACTORS

The political situation of the country has a direct impact over the aviation industry of the

country. The policies taken up at this level such as the nationalization of the carriers, open sky

policy, and taxation all have impact on the marketing policies of the carriers.

Open Sky Policy and Deregulations

Throughout its history, the airline industry has been constrained by decisions made by

politicians and governments. Governments have controlled where airlines can fly, and aspects

of their product planning and pricing policies. They have also had a major involvement in the

industry through the ownership of airlines. Finally, political decisions have often affected the

extent, nature and geographical distribution of demand.

In recent years India has open up its sky to the foreign players. It has signed up with nations all

over the world (though not all of them) to allow use of their respective airspace for the

commercial flights. It has led to increase in the number of players in the sector and has beefed

up the competition. Currently there are 76 carriers from 49 countries operating as an outcome

of ‘Open Sky policy’.

In 1953, the Air Corporation Act led to nationalization of the airlines. It changed the landscape

of the airline industry in India. It was in 1994 that the Air Corporation Act was repealed and

thus this allowed private operators to operate in the domestic airline and aviation industry.

Today FDI up to 49% into airlines and 100% for airports. A brief of the various decisions taken

by the government in deregulation of the sector and opening to the foreign policy.

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Aviation Policy

Many policies supporting infrastructure are now in place.

100 per cent FDI under automatic route is permissible for Greenfield airports.

For existing airports, FDI up to 74 per cent is permitted through automatic approvals

and up to 100 per cent through special permission (from FIPB).

Private developers allowed to setup captive airstrips and general airports 150 km away

from an existing airport.

100 per cent tax exemption for airport projects for a period of 10 years.

49 per cent FDI is permissible in domestic airlines under the automatic route, but not by

foreign airline companies. 100 per cent equity ownership by Non-Resident Indians (NRIs)

is permitted.

74 per cent FDI is permissible in cargo and non-scheduled airlines.

The Indian government plans to set up an Airport Economic Regulatory Authority to

provide a level playing field to all players.

Major Investments

Over the past year, various companies have shown an interest in the Indian aviation industry.

Investment in airport infrastructure was over US$ 5 billion in 2008 and will go up US$ 9 billion

by 2013, of which close to US$ 6.8 billion is expected to come through public private

partnerships (PPP) model, according to a study by research firm Frost & Sullivan.

Tata Advanced System Limited (TAS), a unit of the Tata Group, will set up a US$ 113.63

million helicopter manufacturing unit at the Aerospace Special Economic Zone (SEZ) in

Adhibatla village near the Hyderabad international airport. Further, the company has

formed a joint venture with US-based Sikorsky Aircraft to make aerospace components

in India.

US aircraft maker, Boeing Co, will deliver 100 planes worth US$ 17 billion over the next

four to five years to India.

Changi Airports International is ready to enter into joint ventures with more Indian

companies in developing airports. The company, which has picked up a 26 per cent

stake for US$ 20 million in Bengal Aerotropolis Pvt Ltd (BAPL) is looking at other

opportunities.

State-owned aerospace firm Hindustan Aeronautics Limited (HAL) has signed an

agreement with Boeing to supply flaperons for the Boeing's 777 series commercial

jetliners. It is understood that HAL will supply 600 units of flaperons to Boeing which will

be delivered in phases by 2019.

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European passenger plane maker Airbus SAS will move 20 per cent of its engineering

and design activities to low-cost countries, a majority of it to India, by 2012.

Airport Infrastructure

Mumbai and Delhi airports have already been privatized and are being upgraded at an

estimated investment of US$ 4 billion over 2006-16.Greenfield airports are operational

at Bangalore and Hyderabad. These are built by private consortia at a total investment

of over US$ 800 million.

A second Greenfield airport being planned at Navi Mumbai is going to be developed

using public-private partnership (PPP) mode at an estimated cost of US$ 2.5 billion.

35 other city airports are proposed to be upgraded. The city side development will be

undertaken through PPP mode.

Over the next five years, AAI has planned a massive investment of US$ 3.07 billion—43

per cent of which will be for the three metro airports in Kolkata, Chennai and

Trivandrum, and the rest will go into upgrading other non-metro airports and

modernizing the existing aeronautical facilities.

An investment of US$ 623 million will be made by industries in the Aerospace and

Precision Engineering Special Economic Zone at Adibatla, Ranga Reddy district.

The country's first special economic zone (SEZ) dedicated to the aerospace industry has

been inaugurated in Belgaum district, Karnataka. The SEZ—promoted by Quest Global,

an aerospace engineering and manufacturing company—was undertaken at an

investment of US$ 32.5 million. [Nov 16]

Abolishment of Taxes

Foreign Travel Tax (FTT) Rs500 and 15% inland air travel tax (IATT) charged on Basic airfare has

been abolished by the government w.e.f from January 9, 2004 to reduce fares.

Reduction on Excise Duty

From January 9, 2004, the excise duty on ATF was reduced from 16 to 8 per cent. The average

domestic price of ATF is 99 per cent higher than prices in foreign countries and affects domestic

airlines drastically as ATF accounts for 30 to 40 per cent of operating costs.

Landing Charges abolished

Landing charges for aircraft with less than 90 seats were abolished and landing charges for

larger aircraft have been reduced by 15% with effect from February 11, 2004.

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ECONOMIC FACTORS

The demand for air travel is characterized by very high income elasticity. Therefore, as the

world economy grows, so the demand for air travel can be expected to increase too. This

continuing growth gives both enormous opportunities and great challenges to the airline

industry. The opportunities come with the chance to exploit a growing market, something

which would be the envy of managers in many other industries. The challenges are to

accommodate the growth through suitable infrastructure development and without

unacceptable environmental consequences, and to exploit the demand whilst achieving the

stable profits which the industry has so often found elusive. Besides a clear pattern of growth,

growth rates are uneven through time. Just as one would expect, air transport industry growth

rates are tied closely to those in the world economy. If growth in the economy is rapid in a

particular year, so is the increase in air travel demand. Periods of economic stagnation see a

significant slowing of the rate of increase in demand. This pattern has immense strategic and

marketing implications. It is not sufficient for carriers to implement policies which allow for

profits during prosperous periods if these same policies result in heavy losses or bankruptcy

during the downturns in the trade cycle. The rising income of the Indians will see a rise in the

air travelers, however the recent recession showed up we must be cautious in capacity

increment. The down turn had led to losses worth millions due to inadequate capacity

utilization.

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SOCIAL FACTORS

Trends in social factors will have widespread consequences for airline marketing – indeed, in

some senses, this is the most significant component of the PESTE analysis model as far as

marketing policies are concerned.

Change in Lifestyle

The changing demographics have profound effect on the marketing strategies of the airlines.

The Indian population is going through a transition phase. The high percentage of youth

coupled with increasing job avenues certainly hints at the growing income and the aspirations.

There have been rise in the old aged population also due to medical breakthroughs. And the

society is more open to embrace new ideas of single parent children, nuclear families, live in

relationships, childless couples, etc. All these calls for newer approaches to design of

promotional strategies. For example, Spice Jet has taken special initiative to take care of child

travelers without guardians.

Rise in Leisure travel

There has been a significant rise in the number of the tourists in the country. India had acquired

a total 5.5 million tourists traversing the country. Number of foreign tourists has seen a growth

of 5.6% whereas the domestic tourists’ numbers have seen a growth o 8.5%. This is seen as a

huge booster to the airlines industry.

The Female business Traveler

Female population has shown a higher numbers in the business scenario. The growing numbers

have led to call for the decrease in sexually provocating skimpy clad air hostesses. Moreover

there has been rise in the number of male steward among the cabin crew. This meant there has

been a change in the attitude towards the crew staff.

TECHNOLOGICAL FACTORS

Technology is one of the most important and interesting factor which can be both an ally as

well as an enemy. Technology has enabled aviation sector to soar greater heights with more

efficiency. Larger aircrafts like the Boeing 787 can take up to 840 passengers reducing the per

capita fuel consumption whereas Embraer with greater are just the idle for shorter distances.

The CAT technology employed in International airports of the country has helped the pilots to

take off and move in even during the low visibility hours. But then some of the technological

developments have posed to be fierce competitors.

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Video Conferencing

Video conferencing has enabled to make real time meetings possible at the minimum of cost.

This has helped the organizations to cut down on the cost. But that leaves the aviation industry

of greater challenge to attract the business travelers.

Internet

Internet has enabled to provide real time information of flight schedules and availability. It has

also enabled check in facility. Even some of the airlines are providing internet facility over the

flight however internet has raised questions over the distribution channel commission.

Surface Transport Investment

The investment in the surface transport has lead to major losses of domestic passengers. With

the plans in anvil to launch high speed bullet trains in some corridors, if that comes to reality

that shall take away a major portion of the revenue.

ENVIRONMENTAL FACTORS

As the concerns for the environment grows with the rise in global temperatures. It becomes

obvious that the airlines are criticized all over the world by the pro environmentalists.

Government too in order charges higher taxes in order to dissuade the short distance travelers

from taking the air routes. There are high ATF charges. On the other hand the available

infrastructure is not conducive to handle the burgeoning airlines

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Porter’s Five forces Analysis

Threat of New Entrants

Aviation industry is highly cost intensive. Besides it has to go through a number of regulatory

compliance before it gets an excusatory order. The factors which make entry of new entrants in

the Indian Aviation sector a difficult task are the following -

• The capital requirement- An airline is required to have capitalization of minimum thirty

crores without which it is not allowed to takeoff.

• Expected retaliation-The market is concentrated in the hands of a few players thus any new

player would to face stiff competition and retaliation from the existing players such as Jet

Airways and Indian.

• Inadequate airport infrastructure often makes it difficult for the new entrants to get right

flying slot time.

• Shortage of pilots and high fuel costs also pose a threat as the existing demands itself are

not being fulfilled.

• Exit barriers-The high capital requirement makes it difficult for the companies to exit the

market but being a growing industry the existing players are willing to acquire and make

exit for an operator less difficult.

Power of Buyers

• The power of buyers is low because they are large in number and highly fragmented. The

increasing GDP and the introduction of low cost airlines has not only increased the existing

number of buyers but opened the doors for a huge opportunity of growth.

• However the power is not as low as it could be because of minimal switching cost and

alternatives available. A customer does not have to incur cost to move from one airline to

another he might incur a cost if he has signed a contract otherwise no costs are involved

which increases the power of the buyers. Along with this the various options available

between airlines and even other modes of transport helps the buyers.

• Further there is no differentiation among the players in the same segment example the

differences between Air Deccan and Spice Jet is minimal.

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Power of Suppliers

The power of the suppliers is limited and thus their power is high.

• Concentration of suppliers-The suppliers of pilots and ATF are highly concentrated which

increases their power.

• Switching costs-If we look at the aircrafts there are only two suppliers Boeing and Air Bus

thus the options available with the airlines to switch between is very limited and thus the

switching costs are high but sometime the competition between the two manufacturers

reduces the costs to some extent.

• Brand value-Less number of suppliers results in a high brand value which works in their

favor and increases their bargaining power.

• Forward integration-The airlines also face a threat of forward integration. Though such an

instance has not taken place in the past it may take place in the future as the suppliers have

or know about most or the technical aspects of the industry.

• There is an acute shortage of pilots which makes the industry dependent on them.

• High fuel costs-Fuel accounts for nearly 35% of the total cost and the cost of fuel is

increasing rapidly posing a threat to the company’s profits.

Availability of Substitute

• Product for product substitution-Consumers has various options in terms of airlines to

choose from. They may also switch to other modes of transport such as road and rail.

• Substitution for need- With the advent of technology options such as video conferencing

and conference calls reduces the need to travel thus the option of substitution of need in

present but it is marginal as it is not possible to totally do away with traveling.

Competitive Rivalry

The competition in the industry in high but the intensity of the competition has been reduced

as it is an expanding market.

• The number of airlines is increasing which increases the level of competition among

airlines. Earlier when we thought of airlines the only name would be Indian Airlines but

today the list is long and growing with new carriers like Goair trying to make a mark in the

industry. More over six new low cost airlines are expected to come up.

• High fixed costs and input constraints also add to the competitive pressures in the industry.

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• Like every industry mergers and acquisitions take place here too which increases

competitive rivalry between airlines which in turn force more airlines to opt for mergers

and acquisitions thus forming a viscous circle of competition.

• Low level of differentiation between the services offered by the different airlines increases

the risk of switching and thereby adds to the competition.

• The industry is expected to grow at 22% which actually gives scope to the existing players

and new ones to operate and reduces the extent of competition.

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SWOT Analysis

Strength

Lower air fares

Tourism in India

Growing outbound travel in India

Growth potential Liberalization of sector

Modernization of non metro airports

Rising share of low cost carriers

Fleet expansion by state owned carriers

The opening up of new international routes by Indian government

Establishment of new airports and restructuring of old airports

Weakness

Poor infrastructure at airports.

Acute shortage of trained pilots and technicians.

Stiff rules and regulations for operation.

High operational cost for airlines.

High security threats in the subcontinent.

Training infrastructure incompatible both in terms of quality and quantity.

Shortage of qualified instructors due migration to schedule operation.

Pressure on quality standard of inducted pilots.

Infrastructural constraints.

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Opportunities

The number of air travelers is about 0.8 per cent of the population

India's civil aviation passenger growth, at 20 per cent, is among the highest in the world.

India's civil aviation ministry expects 100 million passengers by 2020.

India anticipates doubling of passenger traffic over the next decade.

Economic Growth

Vibrant middle class: Increasing Consumerism and Affordability ”common man

Under-penetrated markets

Growth in Tourism

Currently domestic passenger market is growing at 50%

Threats

Government Regulations; though the govt. is making changes in the regulations, it needs

to move at a much faster pace on this.

Aviation in India is over regulated and needs to free itself from govt. shackles.

Inadequate infrastructure.

Acute shortage of Pilots and maintenance engineers.

Security and safety.

Low profit margins and high operating costs.

Other faster means of transportation

24 | P a g e

PORTER STRATEGIES

STRATEGIC ADVANTAGE

Uniqueness perceived by the customer Low cost position

Industry wide

STRATEGIC TARGET

Particular segment

Overall Cost Leadership

A Cost Leader firm has a set of clear requirements it must satisfy if it is to be successful. Firstly,

it must achieve, and then sustain, significantly lower operating costs than its rivals. If it loses its

cost advantage, it will be in serious difficulties. Secondly and crucially, it must correctly identify

what its customers are prepared to give up, and what they are not prepared to give up, in order

to gain access to cheap prices. Eg. SpiceJet, Jetlite.

Focus

The concept of Focus is one where a firm chooses to give up all the potential benefits of

synergy by concentrating on one activity. Their aim is to achieve such expertise in this one area

that they will be able to hold off the challenge of those who are benefiting from synergies in

either the Cost Leader or Differentiation sectors. Eg. Paramount Airways on business travelers.

Differentiation

The concept of differentiation holds on that the product or service should be designed in such a

way that the user perceive it to be different from its competitors. This would increase the

change cost and thus help in charging even a premium.eg Jet Airways.

DIFFERENTIATION OVERALL COST LEADERSHIP

FOCUS

25 | P a g e

INTRODUCTION

Jet Airways is a Mumbai based airline promoted by Mr. Naresh Goyal, is the second largest

airline in the country after the government owned Air India and the market leader in the

domestic airways. It operates more than 400 daily flights to 65 destinations worldwide. With Jet

Konnect and Jet Lite (formerly Air Sahara), it caters to all categories.

Strategies

Started as Jetair private limited, by leasing 4 Boeing 737-300 it received scheduled airlines

status in 1995. It went for inorganic growth by the acquisition of Air Sahara for 14.5 billion

rupees on April 12, 2007 and renamed it Jet Lite. It also helped in market penetration as Jet Lite

was directed to serve lower class segments. Today it has 84 aircraft under its service. The airline

runs on hub and spoke model.

Jet started operations in International routes since March 2004 when it had its first

international flight between Chennai and Colombo. Currently Jet Airways serves 21 destinations

in 17 countries across Asia, Europe and North America.

During the recent recession in 2008 the company got into alliance with Kingfisher Airlines,

agreed upon code sharing on both domestic and international flights, joint fuel management to

reduce expenses, common ground handling, joint utilization of crew and sharing of similar

frequent flier programs.

Codeshare agreements

It has code share agreement with a number of airlines like Air Canada, All Nippon Airways,

American Airlines, Brussel Airlines, Etihad Airways, Jet Lite, Malaysia Airlines, Qantas and Virgin

Atlantic. Similarly it has marketing agreements with a number of airlines.

Services

The premiere class shown here on the left is available on International

flights configured in herringbone pattern and is equipped with 15.4 inch

flat screen LCD TV. USB ports and laptop chargers are available. On the

domestic arena the business class seats have the massager.

The First class service (see the picture on right) available in the airlines has

been recently rated by Skytrax as the 14th best in the world. These are the

first fully enclosed suite provided by any Indian airline. They are equipped

with 21 inch LCD screen and AVOD besides all the features of premiere

class. They have received 3 star rating for its service by skytrax.

The Economy class is provided with 10.5 inch LCD and AVOD. All the three classes feature Mood

Lighting that adjusts itself to the time of the day.

26 | P a g e

The Jet Lite division has withdrawn the complimentary food service

and has implemented buy on board. Unlike the parent airline Jet lite

has its hub at New Delhi. The airline is also into charter flights and

helicopter service.

Jet Konnect airways is the other low cost no frill airline by the Jet airways group. To

complement the Jet Lite service it focuses more on southern states.

In Flight Entertainment

All the Jet Airways flight provide, “Jet Screen”, which offers audio-video on demand

programming. It has over 100 movies, 80 TV programmes, 11 audio channels and a CD library of

125 titles. The system operates via individual touch screen monitors at each seat, and is

available in all classes.

Airport Lounges

Jet Airways Lounges are offered to First and Première Class passengers, along with Jet Privilege

Platinum, Gold or Silver card members. The international lounge at Brussels has showers,

business centre, entertainment facilities and children's play areas. Lounges are located in

Bangalore, Chennai, Kolkata, Delhi, Hyderabad, Jaipur, Mumbai.

Marketing Strategies

Frequent Flier Programme

Known as JetPrivilege it helps to redeem points earn for miles traversed.

Jet Mall

This is the unique mall provided by the Jet Airways to shop souvenirs at 30000 feet.

Jet Wings

Jet Wings is the inflight magazines.

Jet Travel

Jet has alliance with a number of hotels Such as Leela and Taj where the passengers can get

discounts if they are privilege members of the Jet.

They provide special service for infants, olds, medical emergencies, expectant mothers and

animals. Check in can be done by SMS, on Net, and Kiosks. Their Website has the option to

choose from a plethora of language to cater to understanding of people from different parts of

world.

27 | P a g e

INTRODUCTION

Kingfisher Airlines is a Bangalore based Airline owned by the United Breweries Group led by

Vijay Mallaya. The only Indian and the one of the six in the world to have received the 6 stars

rating for its services by the Skytrax operates more than 400 flights a day connecting 72

destinations the world over.

Strategies

It started the business on May 2005, with dry leasing of 4 new Airbus

A320-200.Today the group has into its umbrella 69 aircrafts and is

committed to become the country’s largest in the nearest future. It is

again based on the hub and spoke model. Kingfisher was the first

Indian Airline to introduce in-flight entertainment in every seat. Kingfisher Airlines' fleet

currently consists of ATR42, ATR 72 and Airbus A320 family aircraft for domestic and short haul

services and Airbus A330-200s for international long-haul services. The average age of its fleet

as of January 2009 was 2.3 years. During the recent recession it went into codesharing alliance

with Jet Airways.

Services

Both on domestic and international routes there are the Kingfisher First and Kingfisher Class.

Kingfisher first is the higher premium one. Kingfisher First passengers

are provided with recliner seats which bend up to 125 degrees for the

domestic routes and 180 degrees in the international routes. All of them

are provided with personal television with AVOD screen 16 channels of

Live TV, Bose noise cancellations headphones, a wide collection of

Bollywood and Hollywood movies.

Kingfisher Class is the lower version of the Kingfisher First with reduced services however it too

has the entertainment facilities though with a much smaller range of choices.

After Kingfisher Airlines acquired Air Deccan, its name was changed

to Simplifly Deccan and subsequently to Kingfisher Red. Kingfisher

28 | P a g e

Red is Kingfisher Airline's low-cost class on domestic routes. Passengers are given

complimentary in-flight meals and bottled water. A special edition of Cine

Blitz magazine is the only reading material provided.

Kingfisher Elite is the charter service provider to individual clients. This is

provided via helicopters and charter plains. On the right is the picture of

the bar of a Kingfisher elite aircraft.

Airport Lounges

Kingfisher Lounges are offered to Kingfisher First passengers, along with King Club Silver and

King Club Gold members. Lounges are located in India at Bangalore, Chennai, Delhi, Hyderabad

and Mumbai.

Marketing Strategies

The Frequent-flyer program of Kingfisher Airlines is called the King Club in which

members earn King Miles every time they fly with Kingfisher or its partner

airlines, hotels, car rental, finance and lifestyle businesses. There are four levels

in the scheme: King Club Base, Red, Silver and Gold levels. Members can redeem points for over

a number of schemes. Gold and Silver members enjoy access to the Kingfisher Lounge, priority

check-in, excess baggage allowance, bonus miles, and 2 Kingfisher First upgrade vouchers for

Gold membership.

Kingfisher allows booking of tickets as well as inquiry of flights

through mobile. It has co branded with American Express on

corporate tickets and allowed 8 % rebate on the ticket charges.

They have also special packages for the corporate travelers.

Kingfisher Holidays in association with Kingfisher Airlines provide holiday package to its

passengers.

The Little wings programme is designed for the kids that focus on their entertainment through

comics, magazines, interactive games, etc.

Iconic Power

Kingfisher Airlines believes in the iconic power of the personality and so

for the promotion always uses the celebrities. Vijay Malaya himself

maintains a celebrity aura. The website maintains that Vijay Malaya

himself listen to the grievances of the passengers.

Its brand endorsers are Yana Gupta and Deepika Padukone.

29 | P a g e

INTRODUCTION

SpiceJet is a low-cost airline based in Delhi, India. It began service in May 2005 and by 2008, it

was India's second-largest low-cost airline in terms of market share. SpiceJet was earlier known

as Royal Airways, a reincarnation of ModiLuft. It is promoted by Ajay Singh and the Kansagra

family. The Airlines has its base at Delhi and covers the major 18 airports throughout the length

and breadth of the country with its fleet of 21 aircrafts. SpiceJet was voted as the best low-cost

airline in South Asia and Central Asia region by Skytrax in 2007. Spicejet also wins World Travel

market 2009 award.

Strategies

SpiceJet marked its entry in service with Rs. 99 fares for the first 99 days, with 9,000 seats

available at this rate. This deal was followed up with a Rs. 999 promotional scheme on select

routes. Their marketing theme is ‘offering low, everyday spicy fares’ and great guest services to

price conscious travelers. Their aim is to compete with the Indian Railways passengers travelling

in air conditioned coaches. SpiceJet too follows the hub and spoke model.

On July 15, 2008 Billionaire Wilbur Ross suggested he would invest $80 million (about Rs 345

crore) in the low cost airline. The board of directors of SpiceJet accepted an offer in-principle

from the US-based PE firm that would make available about Rs 345 crore to SpiceJet, a joint

statement issued by SpiceJet and WL Ross & Co. They have tried to achieve better efficiency by

quickly imbibing the learning curve and experience curve among the crew. For the same they

have utilised the service of only single type of aircraft namely Boeing 737.

Boeing 737-800 (189 passengers)

30 | P a g e

Spicejets on-time performance is amongst the best in India and coupled with a Technical

Dispatch Reliability of 99.6%, makes it an airline with least cancellations.

SpiceJet passengers are insured against a premium (included in the fare) of Rs 129 of any

accidents, flight delays, baggage loss, flight cancellation, accidental medical reimbursements,

etc with the Tata AIG. This has helped the organization to decrease the loss out of the above

mentioned circumstances.

Marketing Strategies

Spicejet has tied up with the finest hotels that bring you a host of

great offers.It includes hotels such as Sheraton, Golkonda, Trident, Ista, Maidens, Rain Tree, The

Park and the Kenilworth Goa. To avail the programme on need to member of Privelege Pass.

For the service men and women SpiceJet gives special discount upto

100% discount on base fare.

Corporate Benefit Program addresses the business traveler's needs. The program is a

customized program designed to provide maximum cost savings to the organization while

offering loads of benefits for the individual business traveler. The tickets are provided at

discounted price of up to 50% and are coupled with various other incentives on volume basis.

Similarly volume based incentives are also available for group bookings.

SpiceJet has tied up with State Bank of India and its debit card can be

used to book tickets. In this context it is to be mentioned that most of

the airlines provide the booking facilities only against credit cards.

It has appointed i-Vista Digital Solutions to

handle its online marketing initiatives.

Services

SpiceJet does not provide complimentary food, however they have the facility to buy on board.

Mineral water is provided free of charge. There are no entertainment facilities.

One of the most innovative programme started by SpiceJet is that they take care of the

unaccompanied minor from the take off airport to the destination airport without any extra

charge. This means now one can even leave there young ones also under the guardianship of

SpiceJet.

The website provides all the information regarding PNR status, flight status, bookings, and also

web check in, besides the promotional offers and corporate governance activities.

31 | P a g e

Introduction IndiGo is a private domestic low-cost airline based in Gurgaon, Haryana,

India. It operates domestic services linking 17 destinations. Its main base

is Delhi's Indira Gandhi International Airport. IndiGo Air is owned by an

Indian named Mr Rahul Bhatia. The airline commenced operations on 4

August 2006 and today it has 23 aircrafts to its fleet.

Strategies

Indigo connects to 17 destinations all within India. They have only Airbus A320 – 200 under its

fleet to garner quicker from the learning and experience curve. They have the youngest fleet in

India with an average age of only 2 year as on April 2009. Large expansion plan is on anvil.

IndiGo placed an order for 100 Airbus A320 family aircraft during the 2005 Paris Air Show. The

total order was worth US $6 billion, one of the highest by any domestic carrier during the show.

The carrier has set a target of serving approximately 30 Indian cities by 2010 with a fleet size of

40 A320 and A321 aircraft. The airline will receive all 100 A320 family aircraft by 2016. The

Indian Government has approved the airline's aircraft import plan "in principle". It focuses on

the Eastern region much more than others.

Services

Being a low cost carrier, IndiGo does not offer a complimentary meal

service to its passengers. However, it does offer a buy-on-board food

service where items such as sandwiches, parathas, cookies, nuts and soft

drinks can be purchased. Mineral water is provided free of charge.

They emphasize on the punctuality and have been maintaining the best record in the industry

in that aspect. On time performance

MONTH PERCENTAGE

MAY’09 85.7

JUN’09 86.9

JUL’09 86.5

AUG’09 88.3

SEP’09 88.4

They have tried to keep things simple by cutting the cost in every possible manner. They focus

only on their core business and have refrained from any tie ups with business of other spheres

like hotel and travel. As recognition of their feat in passing the benefits of to the consumers it

has been recognised by a number of organizations. This is the only other airline to provide

tickets on debit cards

Indigo bagged the NDTV Profit Business Leadership Award 2009 in the category of Aviation.

Indigo also won the CNBC AWAAZ Travel Award ‘09 and was adjudged the best low cost carrier.

32 | P a g e

INTRODUCTION

Paramount Airways is an airline based in Chennai, India. It operates

scheduled services, mainly targeting business travelers. Its hub is Chennai

International Airport. It is promoted by Mr.Thiagarajan who is a Pilot and

a keen Aviation enthusiast. He hails from a illustrious Industrial family from

South India that have been Pioneers in the field of Textiles.

Strategies

In India the Government does not levy landing charges on aircrafts of capacity below 90

passengers. Paramount airways has taken the point well off for its benefit. They are the first in

the country to employ the New Generation Embraer 170/190 aircraft. These crafts are often

been abbreviated as e-jets too. They are shorter than the normal aircraft that are employed in

the business, and with great fuel efficiency makes it idle for the short hauls. In addition they

escape the landing charges as they accommodate only 88 passengers. Paramount Airways

connects point to point and unlike the others have targeted cities with lower air traffic. These

help to save on the costly fuel wasted due to congestion. They operate in 12 cities of the

country.

Starting in 2005, currently they have a fleet size of 5 with an average age of 3.4 years which are

due to enlarge once they start the international services from the year 2011. To meet the target

they have already placed order for 10 Airbus A321. To meet the financial needs they have

loaned from the European Central Bank. They are the only Airline in India to offer Full Business

Class service at prices comparative to Normal Economy class fares of other Airlines. Their focus

is to provide unparalleled comfort and convenience. It focused initially in South India and holds

share of market leader in the region.

Services

They don’t have any middle seats and provide larger space than the competitors

in the same category. They provide a wide variety of to satiate the palate. The

dishes have been design taking in consideration various tastes and nutritional

requirements. The website provides detail on that.

Marketing strategies

Paramount has started the Paramount Royal membership which allows the fliers to redeem

points earned corresponding the mileage. Accrued points can be redeemed for free air travel,

benefits, privileges and upgrades across Paramount Airways flights.

They provide e check in facility, booking of tickets by credit cards.

They have also tied up with a number of hotels of all ranges and help the fliers to book them

online through their website.

They have won the “Arch of Europe” award recently.

33 | P a g e

INTRODUCTION Wadia Group owned, GoAir is a low cost airline based in Mumbai. It operates domestic

passenger services to 11 cities with 385 weekly flights. Its main base is Chhatrapati Shivaji

International Airport, Mumbai. GoAir took the wings on 9 June, 2005.

Strategy

It started by leasing of Airbus A 320. Today it has 8 A320s in its fleet. Choosing a single type of

aircraft has helped them get efficiency quicker. It also follows hub and spoke model. They have

tied up with TATA AIG to cover insurance for all its passengers for all delays, accidents,

cancellations, baggage loss, etc. GoAir has outsourced all reservation and passenger

managemnt functions to Radixx International of Orlando.

Services

Being no-frills airlines, Go does not offer a complimentary meal service to its passengers.

However, it does offer a buy-on-board food service where items such as sandwiches, parathas,

cookies, nuts and soft drinks can be purchased. Mineral water is provided free of charge.

However for the business class they provide complimentary food. They also allow up to 35 kgs

of free baggage which is one of the highest in the sector.

Marketing Strategies

GoAir invests a lot into brand promotion. GoAir airliners come in green,

orange, blue, and pink. This has been done consciously to grab the

attention of people. They have also roped in Preity Zinta to become the

brand ambassador of the airline. GoAir is positioned as ‘The Smart

People's Airline’. Its captivating theme, ‘Fly Smart’ is aimed at offering

passengers a consistent, quality-assured and time-efficient service. It’s unique product

portfolio comprises of some of the most innovative offerings in the industry including GoSave,

GoFlexi, GoHappy and a bundle of Red Eye flights. From time to time they launch variety of

offers to boost the sale of tickets. For group bookings they give special discounts. They also give

special discounts to Defence, Paramilitary and police personnel. They also help in booking of

buses and hotels through their websites.

It has the distinction of least cancelled flight – 0.9% between June and November 2009.

34 | P a g e

DECODING THE SURVEY

INTRODUCTION

The survey for the purpose was conducted in Kolkata Domestic Airport in between April 04, 2009 and April 11, 2009. The sample was picked up from Dumdum Airport, Kolkata. The sample size is 50 with respondents between 17 and 55 years of age. The average age of the respondents is 33.4 years and the median age is 35 years. The income of the respondents varied from a yearly income of Rs. 2,75,000 to Rs. 15,00,000. The average income of the respondent is Rs. 5,17,000 and the median income is Rs.4,46,000. The respondents were chosen without any class differentiation. The survey was conducted through structured questionnaire besides a lot of informal discussion was done with respondents.

LIMITATIONS OF THE STUDY

The results obtained from the survey and the outcomes along with suggestions and recommendations have been presented in the following pages. However at this stage of the report it is needed to keep the following limitations of the study in mind. A sample size of only 50 may or may not elucidate the true picture prevailing in the

population. Hence the results must not be generalized for the whole population. It is believed that the respondents have revealed the true views. However any false details

on the part of the respondent will spoil the picture. Comparison of only Low Cost airlines has been considered while other has not been taken

into consideration which could have given some more reasons. The study will reflect the scenario present only in the present economic scenario which is

going through extreme volatile conditions and may change with the change in market conditions.

The sample chosen are of the above mentioned area and the findings will reflect the scenario of that area only.

DEMOGRAPHIC PROFILE OF THE SAMPLE

Sample Size :50

Location : Dumdum Airport, Kolkata

Age :

Maximum – 55 years

Minimum – 17 years

Mean - 33.4years

Median - 35 years

Income:

Maximum – Rs.1500000

Minimum - Rs. 275000

Average - Rs.517000

Median - Rs. 446000

35 | P a g e

1. What is your preferred mode of travel between distant cities in India?

From the sample of 50, 21 people equivalent to 42%, preferred railway as the mode of travel to

transverse long distant cities within the country. Railways are preferred because unlike airports

they are situated inside the cities. This helps in better connectivity. Moreover they escape the

hassle of reporting much ahead the departure time to comply all the security check ups,

besides railways being much cheaper. This situation is particularly true for distances around 500

kms. Superfast trains like Shatabdi Express and Rajdhanis help in commuting at much cheaper

rate with comfort and saves time related to pre departure issues. Airlines are preferred over

larger distances as it definitely saves a great amount of time and people find it worth paying in

that case. In addition one more important point to be considered is that that as the taxes and

air fuel surcharge for all the distances remain the same in India, over the long distances the

price seems to be much more economical. Car And Coaches are neither cheap nor as

comfortable as the other two. However for distances around 500 kms it is still preferred for

going on vacations and family visits as it provide people with greater convenience. As other

long distance mode of travel like waterways airships are not popular I the country and even we

can consider them to be nonexistent we did not find any respondent using those mode.

Car 8%

Rail42%Coach

16%

Airlines 34%

Others0%

Car

Rail

Coach

Airlines

Others

4

21

8

17

0

Preferred mode of Travel

36 | P a g e

2. How would you categorize yourself in terms of air travel?

Business Traveler Leisure/ personal Both

14 16 20

32% or 16 of the respondents acknowledged that they use airway for leisure and personal

reasons. As it has tipped the number of business travelers, it’s a good sign that shows that the

average residual income of the Indians is increasing. In the recent years leisure or vacation has

turned up to be an important factor pushing up the number. The success of Incredible India

campaign has turned India into a major tourist destination. In addition to that HR policies of

organizations have recognized recreation, leisure as an important employ motivation factor.

They are also paying up for the employee vacations. This has also given fillip to the growth

factor. On the other hand this may have been because of cutting on air travel by organizations

due to recession. Decrease in business travel might have helped leisure/ personal factor to

dominate the scene.

3. Which class do you usually travel in by air?

Economy Business First

33 13 4

Low cost airlines have revolutionized the travel industry. It has made air travel within the reach

of middle class. No surprise we find 66% of the respondent are travelling by economy class. This

low cost no frill service gives the middle class value for the money. Even the organizations are

utilizing the service. This has helped them to reduce the cost. Business class is preferred by rich

and the top level executives. First class is again utilized by higher class.

28%

32%

40%

Self ReflectionBusiness Traveler Leisure/ personal Both

Economy66%

Business26%

First8%

Which Class?

37 | P a g e

4. How many times did you travel by air in the last one year?

1 to 5 6 to 10 11 to 20 21 to 30 31 and above

24 11 8 5 2

We find around half the sample has travelled by air less than 5 times in the last one year and around two third has is under the double digit number. This proves that Indians still does not use air travel as frequently as people in America and Europe. The double digit number is touched mainly by the persons who are travelling due to business reasons. Again higher frequency is generally touched by the business class and first class travelers. So these classes are more profitable and CRM techniques must be employed to serve them better. Having a team to attend to the organizational travelers is important as they are the more frequent travelers.

5. What factors do you consider before buying a ticket?

As most of the sample was favoring the economy class it’s obvious it was the money that was

the prime factor. Lowering of fares has resulted in zooming of numbers of fliers. Airlines often

employ several promotional methods to lure the customers. Quality of service is again very

important especially for those who travel by business and first class. Comfortability and

legspace are important aspect under this service factor. Location of airport arrives at a third

distant evaluation choice. But it is an important factor when one considers a distance around

500 kms or so. Under such circumstances there may not be much difference between the travel

time of airline and other mode of transport. Safety and reliability is an important factor

considered by all. As most of the airlines maintained a high safety standard it is the reliability

that draws the attention. No wonder some of the airlines are boisterous in reflecting their on

time performance. Availability of seat is of least consideration.

0

10

20

30

1 to 5 6 to 10 11 to 20 21 to 30 31 and above

Count your numbers

Price of the Ticket

Quality and service

Airport location

Safety and reliability

Availability of seat

1 23

45

38 | P a g e

6. How do you book your airline tickets?

Internet Travel agent Airline company office

11 36 3

Travel agents are the most important medium of ticket booking in the country. This is reflected in the survey also. Because travel agents give big concessions to the customers from their commissions it is favored by the customers. Moreover Travel agents also help in proper selection of airlines as they have up to date information about all the offers and schemes given by the airlines at any point of time. To gain same amount of information it would require a lot of time collecting the data. Besides internet providing 24 hour booking facility, the presence of online agents such as makemytrip.com, yatra.com has helped internet to gain popularity.

7. How do you rate the Indian low cost airlines on the following parameters

against their peers worldwide?

In all the categories most of the respondents have conveyed to be just satisfied. This translates that if foreign players join the competition then it may pose a threat to the Indian Players. Air Asia is already planning to launch service in the country. Pricing is a big factor. With the cheaper fuel in other countries foreign players have an advantage. In this case government can help by reducing the taxes and ATF charges. Most of the Indian LCA players are using aircraft which are not old enough to replace. But then perhaps it has been influenced by tarnished image of the old players. However the lack of quality trained pilot is a concern for the country. This has resulted into skidding of air planes on runways as the pilots are not trained enough. Also the airports infrastructure is to be blamed as they are not equipped with latest technology. Service wise some foreign have clearly identified as benchmarks. Indian Players need to catch up with them.

Internet 22%

Travel agent 72%

Airline company office

6%

13

26

9

20

10

28

6 5

1

4

24

14

53

0

5

10

15

20

25

30

Poor Satisfaction Good Very Good Excellent

Pricing

Safety

Quality

39 | P a g e

8. Rank the following qualities 1 being the most desired and 5 being the least

desired among the cabin staff.

Friendliness and Staff Attitude came up to be the most desired qualities. It is obvious that the

airline industry is gives a lot of training to its staff to help them imbibe this qualities. A well

groomed with right attitude and friendly staff can become a great factor in retaining the

customers. They are the face of the airlines and their interactions have immense impact in the

brand image of the organization. Cabin staff presence throughout the flight may not be

required as the distance is not too large within the country. However it is desired they help out

when called.

9. Given below are few desired qualities of on board products. Rank them.

Cleanliness is the most desired quality by the fliers. They don’t like left over glasses and pet

bottles of water. This is often the phenomenon in non one go flight. Seating comfort has been

placed by the respondents second on the list. Leg space, seat texture, seat width are taken in to

consideration. As the distance between two cities in India do not take a long time onboard

catering is not of much important aspect. However they appreciate good reading materials as

that help in recreation and passing time.

Grooming or Appearance

Friendliness of staff

Staff attitude

cabin staff presence

throughout flight

Total service consistency

3

12

54

Seating Comfort Cleanliness Onboard Catering

Reading materials

2

1

4

3

40 | P a g e

10. Please list up the names of the low Cost Airlines in India.

This question was designed to know the top of the mind brand among the fliers. Though Jet

Airways and Kingfisher have the largest market shares in the domestic market, it was surprise

to note that Spice jet has topped the chart when the respondents were asked to write the

names of Low Cost Airlines of India. The probable reason could have been umbrella branding.

Jet Connect and Jet lite still has not been able to differentiate itself from its parent brand Jet

Airways. In fact it was a Jet airway that was coming to the mind of the respondents. Similarly

Kingfisher Red has not been able to come out of shadow of its parent brand. This is benefit for

the low cost divisions of these two companies but then may also dilute the brand image of

parent companies in long period. Paramount Airways came rank 5, probably because the

frequency of flights of Paramount Airways in Eastern India is low. Spice jet has maintained the

distinction because of its focus strategy to portray the image of low cost airline only.

Kingfisher RED

Jet Konnect

Spice jet Indigo Go Air Paramount Airways

Jet Lite

3

7

12

45

6

TOMAS

41 | P a g e

FINDINGS AND SUGGESTIONS

Though all of these Low cost Airlines are targeting the same crowd, with almost same product that is benefit for the money, but their associations and little alterations in product has led to different perceptions among the passengers. Following is the perception of individual brand-

KINGFISHER RED- Euphoric, sentimentalist JET LITE/JET KONNECT- functionalist, SPICEJET- pragmatist. GO AIR- pragmatist, informative. INDIGO- informative PARAMOUNT AIRWAYS- Functionalist

Some of the Strategies that help in bringing down the cost of airline operation- - Leasing of aircraft. It helps in acquiring the aircrafts with the latest technologies for

operation with the minimum cost. - Hedging of fuel – it helps to reduce avoid the fluctuations in the price of fuel. - Code Share Agreement- it helps in maximum utilization of aircraft. - Employing E-jets- better fuel efficiency and avoid taxes in the short routes. - Scheduling flights in non peak hours. - For new organizations point to point destination is better choice of operation for bigger

players it the hub and spoke model. - Pricing- the industry is price sensitive hence revenue management is an important

aspect to lure in the customers. Switching is more frequent in case of low fare airlines whereas business segments are more brands loyal.

- Using similar kind of aircrafts. - Outsourcing the non core activities will help in better focus in core activities. - Co-Branding helps in increasing efficiency and reducing cost. Strategic partnerships with

hotel chains, tour operators, and credit card issuers are beneficial to both the parties. - Debit Cards- As low cost airlines are targeting middle class where Debit cards are more

pervasive it is prudent to include debit cards also for paying the fares. - A well managed sales team and relationship managers are to be employed to establish

relationship with corporate who constitutes almost a third of the fliers. - On board purchase of goods and food will help in increasing revenue and lowering cost.

Some of the strategies to improve brand image-

- People- the recruited people are the face of the organization. Attitude, friendliness and Grooming are the desired qualities of them.

- Keeping some quality magazines on board will go a long way from increasing customer satisfaction to customer delight.

- International recognitions and awards help in better recognition. - Investing in internet marketing is a cheap and better way of targeting customer. - Concession in fares for the defence people, and retirees. - If it is low cost airlines one need not promote through celebrities. Ordinary people as

models will help the cause.

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IBS HYDERABAD A survey on people preferences about airlines

This research is being done for academic purpose only. All the information provided shall be kept confidential.

NAME:……………………………………………………………………………………………………………………………………………………….

AGE:………………. OCCUPATION:……………………………….. ANNUAL INCOME:………………………………………….

CONTACT :………………………………………………………..……………………………………………………………………………………….

1. What is your preferred mode of travel between distant cities in India?

Car Rail Coach Airline Others

2. How would you categorize yourself in terms of air travel?

I am mostly a business traveler.

I am mostly a leisure/personal traveler.

I am a bit of both.

3. Which class do you usually travel in by air?

Economy Business First

4. How many times did you travel by air in the last one year?

1 to 5 6 to 10 11 to 20 21 to 30 31 and above

5. What factors do you consider before buying a ticket?

(Please allocate a priority from 1 to 5, 1 being the most preferred and 5 being the least.)

Availability of the ticket

Airport location

Price of the ticket

Quality and Service

Safety and reliability

6. How do you book your airline tickets? Please select one from each of the pair.

Internet Travel Agents

Travel Agents Airline company office

Airline company office Internet

7. How do you rate the Indian low cost airlines on the following parameters against their peers

worldwide?

Poor Satisfaction Good Very good Excellent

Pricing

Safety

Quality

43 | P a g e

IBS HYDERABAD A survey on people preferences about airlines

8. Rank the following qualities 1 being the most desired and 5 being the least desired among the cabin

staff.

Grooming and Appearance

Friendliness of staff

Staff attitude

Cabin staff presence through the flight

Total service consistency

9. Given below are few desired qualities of on board products. Please assign points based on your

assessments so that the total points add up to 100. The higher the number allotted to a particular sector

the higher its importance is to you and vice versa.

Seating comfort

Cleanliness

Onboard catering

Reading Materials

Total 100

10. Please list up the names of the low Cost Airlines in India.

a……………………………………………………………………………………….

b……………………………………………………………………………………….

c………………………………………………………………………………………..

d……………………………………………………………………………………….

e……………………………………………………………………………………….

f………………………………………………………………………………………..

g……………………………………………………………………………………….

h……………………………………………………………………………………….

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APPENDIX

Airlines typically follow two types of business models: the Point to Point and the Hub-and-Spoke.

Point to Point Model:

This model is based on flights that are provided to and from a city. Unit costs are lower in this model as aircraft are utilized more often because they do not have to wait for connecting flights, thus reducing fixed costs, which accounts for a large percentage of operating costs. Costs are spread out over many hours of flying, thereby driving down the unit cost. Low fare airline like Paramount Airways is example of airline following the point to point system. See figure below.

Hub and Spoke Model:

This model is used by most of the major airlines including Jet Airways, Kingfisher, Spicejet, etc. The Hub and Spoke system allows the airlines to maximize passenger enplanements on each flight by offering connections to both domestic and international destinations. This more complicated route system provides customers with a much larger number of route options, which in turn maximizes revenue opportunities. The downside to this is the increase in aircraft wait time and lower aircraft utilization time, which increases the airlines' unit cost. See figure below.

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Highlights of the Yearly Report (2007-08) [source: DGCA]

Domestic Indian Carriers

The country has twelve domestic carriers with four National Carriers and eight private

scheduled operators. Of these eight, Jet Airways and Jetlite operate on international sectors as

well.

The fleet size of the scheduled domestic airlines increased from 305 aircrafts in 2006-07 to 81

aircrafts in 2007-08, which indicated a total increase of 24.9 % in the fleet size.

Of the 381 aircrafts, only 146 belonged to the National Carriers in 2007 -08. Presence of

Private Carriers has increased from just two airlines (Jet Airways and Paramount Airlines) till

2002 -03 to eight as on 31st March 2008. Number of aircrafts has also increased from 53 in

2002 -03 to 235.

The total operating revenue of all the domestic Indian carriers was Rs.344,877.4 million

during 2007-08 whereas the operating expenses for the same period was Rs.406,911.8 million

resulting in overall loss of Rs.62,034.4 million.

Both National and Private Carriers experienced a loss during 2007-08, the respective amounts

being Rs.2529.78 crore and Rs.3673.66 crore respectively. Only 2 airlines viz., Air India Express

and Paramount Airways had made a profit.

Carriers engaged in Domestic Operations

A total of 44.38 million passengers were carried by all the scheduled domestic Indian Carriers

during the year 2007-08.

The scheduled domestic traffic passengers witnessed a growth rate of 24% during 2007-08.

The corresponding figure for the year 2006 -07 was 42%.

The scheduled domestic cargo (including Blue Dart) grew by 14.50% during the year 2007-08.

While passengers carried by the National and Private Carriers are in the ratio 1:4, that of

freight carried is 1:2.

Scheduled Domestic Aircraft departures per day increased from 1153 in 2006-07 to 1367

during the year 2007-08.

The domestic average PAX load factor increased marginally from 68.8% in 2006-07 to 68.9%

in 2007-08. This factor was 59.3% for the National Carriers as against 7 1.6% for the private

carriers.

The domestic average weight load factor decreased from 67.1% in 2006-07 to 65.7% in 2007-

08. Weight load factor was 56.9% and 68.3% respectively for national and private carriers.

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The number of pilots engaged by all the d omestic Indian carriers increased from 3302 during

2006-07 to 3997 in 2007-08.

The number of technical employees engaged by all the domestic Indian carriers decreased

from 13343 during 2006-07 to 13308 in 2007-08.

The number of cabin crew employees eng aged by all the domestic Indian carriers increased

from 9774 during 2006-07 to 11696 in 2007-08.

The average no. of employees per aircraft declined from 197 in 2006-07 to 169 in 2007-08.

Expenditure on personnel accounted for 17% of the total expenses in case of national carriers

as aginst 9.5% for private carriers during 2007 -08.

The market share in terms of domestic passenger carried was highest for Jet Airways

(22.01%) followed by Air Deccan (15.99%) and Indian Airlines (15.55%).

The market share in terms of domestic freight carried was highest for Jet Airways (31.03%)

followed by Indian Airlines (23.04%) and Blue Dart (17.79%).

Airport Statistics

Total passengers handled at the Airports were 116.7 million during the year 2007-08. Of

these, international airports handled 103.3 million and domestic airports 13.4 million only.

Total cargo (freight and mail) handled at the airports was 1.8 million.

On an average 3606 flights were handled per day by the airports in 2007 -08 with 2931

pertaining to domestic traffic and the remaining to international traffic.

Mumbai airport continued to be the busiest airport during the year 2007 -08. The average

no. of flights handled per day for international traffic was 169 whereas the average no. of

flights handled per day for the domestic traffic was 468. This was true for cargo movement also.

The three busiest airports handling international traffic during the year 2007 -08 were

Mumbai, Delhi and Chennai.

The three busiest airports handling domestic traffic during the year 2007 -08 were

Mumbai,Delhi and Bangalore.

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Non -Scheduled Traffic

The no. of non scheduled operator increased from 66 in year 2007 to 99 in the year 2008.

The total no. of aircraft with non scheduled operator permit holder increased from 229 in the

year 2007 to 272 in the year 2008. This number has more than doubled in the last six years

(129in 2003). Growth rate over the previous year was 10.4%.

A total of 397062 passengers were carried by all non scheduled operators (excluding Pawan

Hans Helicopters Limited) during the year 2007 -08. The corresponding figure for the year 2006-

07 was 355811.

The growth rate in terms of passenger carried by all the non -scheduled operators (excluding

Pawan Hans Helicopters Limited) was 11.6% during the year 2007-08. The corresponding figure

for the year 2006 -07 was 10.7 %.

The growth rate in terms of flights operated by all the Non -Scheduled operators (excluding

Pawan Hans Helicopters Limited) was 10.4% during the year 2007 -08.

The no. of aircrafts leased out by Pawan Hans Helicopters Limited during the year 2007 -08

increased to 29 from 24 in the year 2006-07. A total no. of about 4.35 lac.

passengers were carried by Pawan Hans during the year 2007 -08. There was a growth rate of

6.7% in terms of passengers carried by Pawan Hans Helicopters Limited during the year 2007-

08.

The revenue earned by Pawan Hans Helicopters Limited witnessed a growth rate of 24.5%

during the year 2007-08. The corresponding figure for the year 2006 -07 was 6.4%.

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Terms and Definitions

Aircraft: Any machine that can derive support in the atmosphere from the reactions of the air

other than the reactions of the air against the earth's surface;

Aircraft departures: The number of take-offs of aircraft. For statistical uses, departures are

equal to the number of landings made or flight stages flown;

Aircraft kilometers performed: Aircraft kilometers equal to the sum of the product obtained by

multiplying the number of flights performed on each flight stage by the stage distance;

Aircraft movement: An aircraft take-off or landing at an airport. For airport traffic purposes one

arrival and one departure is counted as two movements;

Aircraft - type of: All aircraft of the same basic design including all modifications thereto except

those modifications, which result in a change in handling or flight characteristics;

Commercial air carrier: A carrier performing scheduled or non -scheduled air transport services

or both, available to the public for the carriage of passengers, mail or cargo for remuneration;

Distance flown per passenger: The average distance flown per passenger is computed by

dividing the passenger-kilometres by the related number of passengers carried;

Disembarkation: The leaving of an aircraft after a landing, except by crew or passengers

counting on the next stage of the same through -flight;

Domestic Flight: A flight having exclusively domestic stages, See domestic flight stage;

Domestic flight stage: Domestic flight stages include all flight stages flown between points

within the domestic boundaries of a State by an airline registered in that State;

Domestic Scheduled airline: An airline, which operates any scheduled service wihin the

boundaries of the State where t he airline is registered but which does not operate, scheduled

international services;

Embarkation: The boarding of an aircraft for the purpose of commencing a flight, except by

such crew or passengers as have embarked on a previous stage of the same through flight;

Flight commercial air transport: The operation of aircraft on one or more stages on a scheduled

or non-scheduled basis, which is available to the public for remuneration and for hire;

Flight stage: The operation of an aircraft from take-off to its next landing;

Freight (or mail) tonne-Kilometres (performed): A metric tonne of freight or mail carried one

kilometre. Freight tonne-kilometres equal the sum of the products obtained by multiplying the

number of tonnes of freight, express, diplomatic bages carried on each flight stage by the stage

49 | P a g e

distance. Cargo and freight includes express and diplomatic bags but not passenger’s baggage.

Mail tonne -kilometres are computed in the same way as freight tonne-kilometres;

Freight (or mail) tonnes carried (performed): The number of tonnes of freight carried is

obtained by counting each tonne of freight on a particular flight (with one flight number) once

only and not repeatedly on each individual stage of t hat flight. The only exception to this is for

freight flown on both the international and domestic stages of the same flight, which is

considered in computation both as a domestic and an international shipment or dispatch. The

same principle should be used in calculating mail tonnes carried;

International airport: Any airport designated by the Government of India an airport of entry

and departure for foreign airline for embarkation and disembarkation of scheduled

international air traffic, where the fo rmalities incident to customs, immigration, public health,

agricultural quarantine and similar procedures are carried out;

International Flight: A flight that contains one or more international flight stages;

International flight stage: A flight stage with one or both terminals in that territory of a State,

other than the State in which the airline is registered. Technical stops are not considered in

classifying flight stage;

International non-scheduled operator: An operator offering international service to the public

on a non-scheduled basis only. Such an operator may also offer domestic services on a non-

scheduled basis only;

International scheduled airline: An airline, which operates any scheduled international air

transport service regardless of the proportion of international service offered as compared with

all other kinds of services offered;

International traffic (of airports): For airport traffic purposes, international traffic means: a)

passengers, freight and mail disembarked at an airport located in a country other than of the

airport of embarkation, or vice versa; and b) Movements on flight of national or foreign aircraft

whose origin or destination is located in the territory of a State other than th at in which the

airport under consideration is located;

Mail: Dispatches of correspondence and other objects tendered by and intended for delivery to

postal administration;

Non-scheduled air transport operator: For statistical purposes an operator is nonscheduled air

transport operator if it offers air transport service to the public on a non - scheduled basis only;

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Operating expenses per traffic-unit: This is a type of financial measurement, which relates the

traffic or capacity applicable to the operating expenses. It is computed by dividing the operating

expenses by the tonne -kilometres performed or by the tonne - kilometres available.

Operating revenue per traffic-unit: This is a type of financial measurement, which relates the

traffic or capacity applicable to the operating revenues. It is computed by dividing the operating

revenues by the tonne -kilometres performed or by the tonne - kilometres available.

Operator: A person, organization or enterprise engaged in or offering to engage in an aircraft

operations.

Passengers Kilometres performed: A passengers kilometre is performed when a passenger is

carried one kilometre. Calculatio n of passenger-kilometres equals the sum of the products

obtained by multiplying the number of revenue passengers carried on each flight stage by the

stage distance. The resultant figure is equal to the number of kilometres travelled by all

passengers;

Passenger load factor: Passenger-kilometres performed expressed as a percentage of seat-

kilometres available;

Passengers carried: The number of passengers carried is obtained by counting each passenger

on particular flight (wi th one flight number) once only and not repeatedly on each individual

stage of that flight, with a single exception that a passenger flying on both the international and

domestic stages of the same flight should be counted as both a domestic and international

passenger;

Passengers carried per aircraft: The average number of passengers carried per aircraft is

computed by dividing passenger-kilometres by the related aircraft kilometres flown;

Passenger revenue per traffic-unit: This is a type of financial measurement, which relates the

passenger traffic applicable to the passenger revenues. It is computed by dividing the passenger

revenues by the passenger -kilometres performed/ available.

Passenger weight: For converting aircraft passenger load into weight load, the number of

passengers is multiplied usually by 90 kilogrammes, which allows for the weight of the

passenger plus both free and excess baggage. However, in reporting, the conversion is left to

the discretion of the operator and conversion factors other than 90 kilogrammes may be used;

Revenue passenger: Refers to passengers paying 25% or more of the normal applicable fare;

Scheduled airline/air carrier: An air transport enterprise offering any scheduled air service;

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Scheduled services: Services provided by flights scheduled and performed for remuneration

according to a published timetable, or so regular or frequent as to constitute a recognizably

systematic series, which are open to use by members of the public; extra revenue flights

occasioned by overflow traffic from scheduled flight; and preliminary revenue flights on

planned new air services:

Seat Kilometres available: Seat-kilometre is available when a seat is flown one kilometre. Seat

Kilometres available are equal to the sum of the products obtained by multiplying the number

of passenger seats available for sale on each flight stage by the stage distance. Seats not

actually available for the carriage of passengers because of the weight of fuel or other load

should be excluded in the calculations;

Speed flown per aircraft: This is an average per aircraft measure computed by dividing the

aircraft kilometres flown by the related aircraft hours.

Stage distance flown per aircraft: The average distance flown per aircraft is computed by

dividing the aircraft kilometres flown by the related number of aircraft departures.

Tonne: The mass equal to 1000 kilograms.

Tonne-kilometres available: A metric tonne of available payload space flown one kilometre.

Tonne-kilometres available equals the sum of the products obtained by multiplying the number

of tonnes available for the carriage of revenue load (passengers, freight and mail) on each flight

stage by the stage distance;

Tonne-kilometres performed: A metric tonne of revenue load carried one kilometre. Tonne-

kilometres performed equals the sum of the product obtained by multiplying the number of

tonnes of revenue load carried on each flight stage by the stage distance.

Traffic: For air transport purposes, traffic means the carriage of passengers, freight and mail.

Weight load factor: Tonne-kilometres performed expressed as a percentage of tonne -

kilometres available.

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REFERENCES

INTERNET SOURCES

www.tcil.com (Transport Corporation Of India Ltd.) www.civilaviation.nic.in www.dgca.nic.in (Director General of Civil Aviation) www.wikipedia.org Websites of KINGFISHER, JET AIRWAYS, SPICEJET, PARAMOUNT

AIRWAYS, INDIGO, Go Air. TEXTS

Indian Aviation Industry – Opportunities & Challenges by Ravi Kumar V.V. ; published by ICMR

Strategic Management in the Aviation Industry by D.Pitfield Journal of Transport Geography