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Air Deccan

Earlier known as Air Deccan the airline is operated by Deccan Aviation.

Air Deccan, which started its operations in 23 August 2003 with the vision to empower
every Indian to fly by providing the lowest airfares and connectivity to unconnected
towns and cities, as an India’s first low-cost carrier, is a business unit of Deccan
Aviation Private Limited, India's largest private heli-charter company. Led by Capt. G. R.
Gopinath decided to pool in their vast experience and knowledge of aviation and
geography to launch India's first Private sector helicopter charter company. Deccan
Aviation was started in 1997 with one helicopter, it was having a fleet of 10 helicopters
and 2 fixed wing aircraft deployed across eight bases. It used to connect 55 destinations
in India with 265 flights daily, making it the second largest domestic airline in India.

New Identity (Merger)

Kingfisher Airlines parent company United Breweries Group's acquired 26% of

Air Deccan parent Deccan Aviation (ATW Online, June 1), including, the offer to acquire
an additional 20% of Deccan will be priced at the same INR155 ($3.82) per share. The
initial stake cost UBG INR5.46 billion. UBG will be the largest shareholder in Deccan.
The combined fleet of 71 A320 family and ATR aircraft will operate 537 flights to 69
Indian cities, on 19 December 2007 Air Deccan and Kingfisher Airlines decided to
merge.
Kingfisher effectively got merge with Deccan Aviation following which Deccan
Aviation is renamed as 'Kingfisher Airlines'. The merger took place on April 2008; Vijay
Mallya is now the Chairman and CEO of the new company, while G. R. Gopinath is a
vice-chairman. The move also allowed Kingfisher to bypass the 5 year wait to fly to
international destinations. It is believed that Deccan will fly to the Gulf and Southeast
Asia, while Kingfisher will reserve Europe and North America. The company is currently
owned by Deccan Aviation (52%) and the United Breweries Group 46%Entry and
Expansion of Air Deccan.
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Air Deccan’s Strategic Assets and Core Competencie

Support Functions Which Work as Strategic Assets for the Company

is
Information Technology and Human Resource as Core
Competencies.

Air Deccan’s two support functions, Information Technology (IT)

and Human resources (HR) have played a crucial role in the airline’s
growth path and have also been major contributory factors in its success.
Information Technology (IT).
The manner in which Air Deccan utilized technology to its advantage
was instrumental to its success. The carrier not only used technology as a
medium to reduce costs, but also used it to enhance operational efficiency and
increase revenues. As noted, Air Deccan opted out of the third-party GDS reservation
systems used by other airlines. In doing so, the carrier required rapid implementation of
its own customer reservation systems (CRS). Since Air Deccan did not have adequate
skills and competencies to develop such a system on its own, it made the strategic
decision to outsource it to a third party. Outsourcing offered Air Deccan a distinct
advantage. For the reservation system Air decaan were searching for ideal
vendor for developing Internet-based reservation system. This was because
the online booking channel was expected to become one of the carrier’s
major revenue earners and InterGlobe Technology Quotient met all of the
airline’s criteria, The IT solution comprised three significant parts—the
reservation engine, the inventory engine and the departure control system.

 The entire IT solution developed by InterGlobe was up and running in a short

span of 40 days, no mean feat by any standards. The CRS deployed by Air
Deccan enabled the airline to: Save approximately 20% in distribution costs.

 Monitor yield management through available seat occupancy data Connect

different geographies Improve cash flow via pre-payments Reduce collection
and administrative costs.

 The airline’s IT infrastructure also provided web connectivity for various

points of sales. Thus, the carrier was not dependent on SITA’s29 (third-party
vendor) communication links, which offered limited connectivity and were
also far more expensive. Therefore, Air Deccan had far greater market reach
as compared to other airlines.

Human Resources (HR)

Air Deccan recorded an impressive employee growth rate; this

achievement was a clear indication of the efficient support that the airline
received from its HR division. Air Deccan favoured a ‘lean-and-mean’
approach to recruiting and staffing employees in various Departments, its
head count has increased proportionally to match its exponential growth.
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 As of January 2006, security personnel accounted for 21.7% of the carrier’s employees
followed by its cabin crew and engineers, who accounted for 20.4% and 19%,
respectively.

The Indian aviation industry, like other industries, is facing the constant
challenge of dealing with employee attrition.

 As of January 2006, Air Deccan had an annual attrition rate of 15–20%. Recently, the
DGCA passed a new rule, which required pilots to give a six-month notice before
leaving an airline. This has resulted in a significant decrease in pilot attrition.

 Air Deccan’s HR division focuses on recruiting young professionals with little work
experience straight from their university campuses.

This initiative paid off as it substantially reduced attrition. Thus, the

airline had a committed and enthusiastic youthful work force, which
accepted challenges cheerfully and delivered.

Air Deccan’s Business Model

Air Deccan was the first Indian airline to follow a ‘no-frills, low-cost’
business model. Its success lay in the fact that though the model was
inspired by successful low-cost airlines in other countries.

 Customized to suit Indian conditions.

 The airline’s target passengers comprised leisure, small business and corporate
customers.

 Belonging to the middle class and cost-conscious customers of the affluent class.

 The Carrier’s airfares were comparable to railways’ upper-class fares.

Air Deccan had succeeded in attracting approximately 25–30% of

upper-class train passengers. This led to an increase in first-time fliers, which
in turn resulted in an increase in the market size.

Air Deccan offered fares which were approximately 30% lower than those
offered by full-service airlines. In order to provide low-cost fares and remain
profitable, the carrier adopted several measures.
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 Reduced its operational costs by simplifying its operations.

 By using technology and by outsourcing processes.

 The airline did not provide additional services (such as free meals) to its
customers. It focused on providing basic transportation services to its
customers in an efficient manner.

Air Deccan’s Business Strategies

As a pioneer in the low-cost aviation sector, Air Deccan was
determined to make a mark for itself. A mix of strategies contributed to its
success.

 High Aircraft Utilization :-

High aircraft utilization was the first of Air Deccan’s strategies as it

would directly result in high revenue generation.

 Reducing the airline’s turn-around time. By doing this, the carrier

automatically increased its number of flying hours, which in turn resulted in
an increased number of seats available.

 Air Deccan meticulously planned other processes Such as aircraft selection,

flight scheduling, ground handling and route selection to Increase utilization
rates.

 Route Planning : -

It’s a planned operational route. The carrier operates from six bases,
which are located in the metropolitan cities of Mumbai, Delhi, Chennai,
Kolkata, Bangalore and Hyderabad and are connected by trunk routes. These
bases are connected to other regional locations through regional routes. Air
Deccan followed the worldwide low-cost carrier strategy of flying on point-to-
point routes. It did not time its flights to connect with its other flights or with
other airlines’ flights; thereby eliminating waiting time between flights. This
strategic move contributed significantly towards reducing the carrier’s
operational and logistics costs.
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 Dynamic Pricing : -

In the dynamic pricing model, seats which were booked well in

advance had lower fares, whereas the seats booked closer to the travel date
had higher fares. This helped the airline to maximize its revenues from ticket
sales as well as maintain high seat occupancy. This balance of load factor
and yield enabled the carrier to augment its revenues.

 Cost reduction : -

The carrier did not indulge in incurring frivolous expenditure.

Therefore, unlike its competitors, Air Deccan refrained from incurring
expenditures on fancy offices, lounges and frequent flier program. The airline
followed a ‘lean-and-mean’ staffing model and maintained a low employee-to
aircraft ratio in comparison to others in the business. Air Deccan significantly
reduced its infrastructure usage fees because the landing fees for smaller
aircraft were almost 50% lower than the fees for larger aircraft.

Merger of Air Deccan into Kingfisher Airlines

The merger of Air Deccan into Kingfisher Airlines has given quite a bit of relief to
the Indian aviation industry. The two airlines have different set of business models. In
addition, they cater to totally different passenger segments. Kingfisher Airlines is
confident that they will be able to tap synergies and make the merger successful.
It is worth mentioning in this regard that when there is any financially weak
player, there is price dilution. In other words, the weaker players pay more attention to
cash generation as compared to profitability, and that have an impact on the overall
financial health of the industry. Kingfisher Airlines is planning to minimize the number of
Airbus A320 planes. In my opinion, UB Group will save around Rs 250 crore annually as
a result of combined operations and higher revenues. Another good thing about this
merger is that the combined airline will integrate critical departments such as
maintenance, flight operations, cabin crew, airport terminal services and marketing
support. According to experts, the advantage of the merger will begin to kick at
September / October 2008. This merger is good for both the company as per industrial
view and as far as Air Deccan is concerned, they wouldn’t have got best partner than
Kingfisher Airlines.
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Southwest Airlines

In 1971, Southwest Airlines was formed by Rollin King and Herb Kelleher in an
effort to start an airline company with low fares that gets their passengers to their
destination in a timely manner and that is fun to fly on. Southwest was started in Texas
as a commuter airline between Dallas, San Antonio and Houston. Today, Southwest
Airline is now a major airline, in fact, the fourth largest airliner in the United States that is
trading under the Symbol LUV on NYSE. It took on many marketing strategies in the
beginning to try enter the market and gain some market visibility including having flight
hostesses dress in colorful hot pants and white knee-high boots, giving passengers free
alcoholic beverages on flights, devising plans to lower turnaround time, and cutting
fares.
The mission of Southwest Airlines is dedication to the highest quality of customer
service delivered with a sense of warmth, friendliness, individual pride, and company
spirit. Southwest Airlines' successful and profitable business model has been driven by
several strategies: high aircraft utilization; standard fleet; charismatic leadership; low
fare carrier; excellent customer service practice; attractive frequent flier program;
innovative and creative marketing program; performance focused organizational culture;
strategic human resources management and a lean operations. And all this services
among 58 cities (59 airports) in the United States.

Strategic Assets and Competencies

Human Resource Management and Employees Loyalty: -

Southwest treats its employee’s right. The airline adopted the first profit-sharing
plan in the U.S. airline industry in 1973. Through this plan, its employees own at least
10 percent of the company stock. It has a highly motivated workforce. The employee
retention rate is 92.3%. Its corporate culture really stands out.
Southwest fully utilizes its resources and capabilities to make up its core
competencies. It focuses on short-haul, point-to-point routes, no-frills service and less-
crowded airports. It minimizes turnaround times and keeps its planes in the air longer
than its competitors. The design of these best-fit activities, the superior management
skills and the employees’ commitment are its core competencies. They demonstrate
three characteristics which are (1) it is valuable to the customers; (2) it is applicable in a
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variety of markets; and (3) it is difficult for competitors to imitate. That is why they
result in a sustainable, competitive advantage.

Leadership Southwest Airlines:-

Leadership is the key to successful management

The principal aim of management is to maximize the output of a company

through administrative implementation. Management usually consists of people who are
experienced in their field, and who have worked their way up the company. A manager
knows how each layer of the system works and may also possess a good technical
knowledge. In the management analysis of Southwest Airlines, one area that stands out
is the leadership role played by its founder, Herb Kelleher. Kelleher is not just a
manager, he is an extraordinary leader. It is said that managers think incrementally,
while leaders think radically. The managers do things by the book and follow company
policy, while leaders follow their own intuition, which may in turn be of more benefit to
the company.
Southwest Airlines’ unique approach to management starts at the top of the
organizational chart. When Herb Kelleher was President, Chairman and CEO, there
was no doubt about who was in charge at Southwest. Herb Kelleher's management
style has been described as a combination of thriftiness and Robin Williams-style
humour and wackiness. He was a highly visible leader whose 16-hour workdays and
unflagging energy set an example for other employees

Culture:-

Southwest's organizational culture was shaped by Kelleher's leadership.

Kelleher's personality had a strong influence on the culture of Southwest, which
epitomized his spontaneity, energy, and competitiveness. Southwest's culture had three
themes: love, fun, and efficiency. Kelleher treated all the employees as a "lovely and
loving family". Kelleher knew the names of most employees and insisted that they
referred to him as Herb or Herbie. Kelleher's personality charmed workers and they
reciprocated with loyalty and dedication. Friendliness and familiarity also characterized
the company's relationships with its customers

Hiring and Training for Relational Competence:-

Southwest places a great deal of importance on hiring people with the right
attitude--people with relational competence--you can't be an elitist. Through training
and "job exchange or "Walk a Mile" employees become familiar with other aspects of
the work process or jobs they aspire to move into.
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Business Strategies

 Low Cost and No Frills.

The reason for Southwest Airline's success is due to their low-cost model. The
Southwest Airlines consists solely of Boeing 737s and offers only coach seats.
Southwest Airlines don’t offer in-flight meals, only peanuts and other snacks. Southwest
is simple and direct at the goal of their service; "a primarily short-haul airline that flies
directly from city to city, with just one type of plane--the Boeing 737 - and the lowest
costs".

 Air Fare Structure.

Air fare structure that was consistently the simplest and most straight forward of
any of the major U.S. airlines. All of Southwest’s different fare options could easily be
perused at the company’s Web site, and the company’s restrictions on tickets were
more lenient than those of its rivals.

 Gradual Expansion into New Geographic Markets.

Southwest generally added one or two new cities to its route schedule annually,
preferring to saturate the market for daily flights to the cities/airports it currently served
before entering new markets. In selecting new cities, Southwest looked for city pairs
that could generate substantial amounts of both business and leisure traffic.
Management believed that lots of flights were appealing to business travellers looking
for convenient flight times and the ability to catch a later flight if they unexpectedly ran
late.

 Build Relationships with Your Suppliers.

External parties are treated to the same kind of relationship building efforts that
exist throughout Southwest Airlines. Southwest stands apart from the rest of the airline
industry in the emphasis it places on building partnerships with the airports it serves, air
traffic controllers, and aircraft manufacturers. Southwest effectively extends its sphere
of influence beyond its employees to encompass its entire value chain.

 Turnaround Time.
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Southwest serves secondary airports which are typically less congested
than other airline hub airports. This causes southwest to have high asset utilization
because aircraft stay on the ground for the minimum amount of time. This also reduces
the number of aircraft and gate facilities required that thus lowers costs. One unique
aspect of Southwest is that the aircrew themselves turnaround the aircraft during stops,
this also reduces costs, and enhances the speed of the turnaround.
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Appendix

Aviation Industry in America

A Basic Description of the Airline Industry

Industry - The nature of the service
The Airline Industry is a service industry but due to all the equipment and facilities
involved in transportation, it is easy to lose sight of that fact. Airlines perform a service
for their customers-transporting them and their belongings (or their products, in the case
of cargo customers) from one given point to another for an agreed price. The objective
is to provide a service at a price that people are willing to pay and to keep costs below
that price so that a profit can be made.

Industry - Information about Customers and Channels of Distribution

There are several types of airlines, defined by the type of service they offer, annual
revenues and the type of aircraft they use. All federal safety requirements are pegged to
aircraft size.
Major Airlines earning revenues of $1 billion or more annually in scheduled
service. They generally provide nationwide and in some cases worldwide service. There
were 12 major U.S. airlines in 1997: Delta, United, American U.S. Airways, Southwest,
Northwest, Continental, Trans World, American West, Alaska, Simmons, and Reno.
National carriers are scheduled airlines with annual revenue, which will lead to more air
service, more competition, and lower fares on many routes.

Industry - Adoption of New Governmental Regulations Affecting the Industry

Among the functions shifted to other parts, the government was the responsibility for
awarding landing rights and other privileges in foreign countries to U. Southwest was
able to negotiate a compromise called the Wright Amendment, that allowed flights from
Love Field to the four states contiguous to Texas. Airlines through the years have
earned a net profit between one and two percent compared to an average of five
percent for U. These systems help airlines and travel agents keep track of fare and
service changes, which occur much more rapidly today than they did when the
government controlled such things.

Aviation Industry in India

In 1953, the government enacted the Air Corporations Act to merge nine existing
air Companies into two, Indian Airlines, catering to the domestic market, and Air India,
servicing the international market. The government controlled all the key operations of
these entities for almost 40 years. However, in the 1970s, the US government
pioneered the deregulation of its airline industry, which led to benefits such as lower
Fares, improved productivity and better asset and capital utilization. The success of the
US government’s initiative triggered the process of deregulation and privatization of the
airline industry in several other countries also. The Indian aviation industry experienced
similar winds of change, which were further fuelled by the liberalization of the Indian
economy.
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In 1986, private players were permitted to operate only as air taxi operators. This
led a host of private carriers such as Jet Airways, Air Sahara, Modiluft, Damania
Airways, NEPC6 Airlines and East West Airlines to start their operations as air taxi
operators. In 1994, the Air Corporations Act of 1953 was revoked, allowing private
carriers to also provide scheduled services. Now the number had gone up of private air
taxi operators like Jet Airways and Air Sahara, Indigo, Spice jet, Go Air, kingfisher and
Indian Airlines operate in the country currently.

 PEST Analysis Aviation Industry

The utilization of a PEST analysis with regard to Southwest and Deccan takes
into account the political, economic, social and technological environment the industry is
embroiled in and how this has, is and will threaten to impact its operations and
profitability. It must be remembered that the number of possibilities concerning macro-
environmental aspects is almost limitless, thus concentration will be paid to those areas
perceived to have the highest impact.

 Political

The political stability of the aviation industry was severely shaken by the terrorist
events of September 11, 2001, and this directly resulted in a catastrophic drop in
business as well as personal air travel. The preceding along with the following areas
has impacted negatively on earnings as well as profitability among the majors:
• Pricing regulations
• Wage legislation and union requirements
• Deregulation policies of 1978
• Increased emphasis on national and airport security

 Economic

The overall economic climate in United States and India prior to the events of
September 11, 2001 called for a mild recession and the airline industry was wrestling
with discount carriers. The pre 9-11 airline climate forecast a slight contraction as a
result of the reversionary climate which was dramatically impacted by the events of 9-11
and the resulting economic aftermath:

• Dramatic slowdown of the economic growth rate

• Increase in fuel costs
• Balance of trade accounts
• Inflationary and fluctuations of the dollar against the Euro, Rupee and Yen
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 Social

The emphasis on September 11th throughout these varied analysis is due to the
sweeping impact that event had on global events in all theatres. The social implications
thus shaped or amplified are as follows:

• Increased layoffs impacting all income groups

• Sharp decrease in lower and middle class travel
• Decline in airline related vacations destinations
• Negative impact of air travel safety brought on by the events of 9-11
• Decrease in general airline related travel plans by consumers
• Low-fare travel stigma attitude shift to an acceptable alternative

 Technological

The Internet’s impact on business and consumer purchasing habits heralded in a new
age of information exchange which changed the manner in which airline tickets are sold.

• Airline SABRE system

• Decrease in airline travel agencies
• Introduction of Internet airline ticket reservations and ticketing
• Entry of EBay, Yatra.com, Makemytrip.com, Travelocity, Orbitz, Cheap
tickets, Expedia and other best price shopping services
• The availability of the Internet as a consumer and business fare and flight
shopping tool

 Porter’s Five Forces

Michael Porter’s ‘Five Forces” model provides a framework to view the airline
industry from the perspective of five forces that influence it:

 Rivalry

Low-fare airlines grew up with, 1. Jet Blue, 2. Alaska, 3. Indigo, 4. America

West 5. Go Air, 6. Air Sahara, 7. Jet Lite. The remaining airlines are8. AirTran, 9.
United, 10. ATA, 11. American, 12. Delta, 13. American Eagle and 14 Atlantic
Southeast, 15. US Airways, 16. Northwest, 17. Continental, 18. Air India, 19. Jet
Airways, 20. Kingfisher and other foreign airlines. Some of the more important facets
within this category of the Five Forces model are:
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 slow market growth since 9-11

 high fixed operating costs
 low relative levels of product differentiation among the majors
 inroads of the low-fare carriers in the changing perception of air
travel
 shake out of the industry since 9-11 in terms of bankruptcies and
failures

 Threat of Substitutes

Within Porter’s model substitute services come into play when demand exceeds
supply, or vice versa. In the airline industry the excess supply has been attacked by
other low-fare carriers who have continually gained market share. Railways and road
travel too is increasing its supply.

 Buyer Power

The airline industry suffers from oversupply as well as fixed costs which served
as the foundation for low fare carriers who offer no frill flights in return for discounted
fares. This approach effectively pulled the casual traveller and spread to frequent
travellers and some classes of business travel for companies seeking to cut costs.
Buyer demand is re-shaping the airline industry as a result of these options. A tough
competition is given by railways and road services

 Supplier Power

In terms of this category, fuel is the single largest airline cost expenditure item
which affects all firms equally. Low Fare carriers by eliminating frills lower their per flight
operating costs which have and is attracting scores of travelers to their fold.

 Barriers to Entry / Threat of Entry

Traditionally, the high cost of entry in the airline industry reduced the treat of
entry by competitive companies. However the business model offered by low fare
carriers exploited the lower end segment of the market via price and provided a
foundation for the entry of Jet Blue, America West, Go Air, Indigo, Air Sahara and
others.
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Vision and Mission

Air Deccan

Vision: - To be the preferred airline of air traveller in India.

Mission
Mission: - To demystify air travel in India by providing reliable, low-cost air travel to the
Common man by constantly driving down the airfares as an ongoing mission.

Southwest Airlines

Vision: - The long term vision for Southwest is very clear. They want to operate the
safest, most reliable, most efficient airline in the world. Southwest must achieve all this
while staying true to their low-fare, low-cost Brand that they made famous. In 2007,
Southwest announced their plans to update their strategy to better equip them to
compete with more low-fare competition and overcome higher fuel prices.

Mission: - The mission of Southwest Airlines is devotion to the highest quality of

Customer Service delivered with a sense of warmth, friendliness, individual pride,
and Company Spirit. Southwest Airlines' success is primarily because they have
focused sharply on their goals. This is evident by their no-frills, low-cost model: their
goal is to provide the cheapest form of short air travel between two cities; providing
the bare necessities.
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Bibliography:-

1. http://www.southwest.com

2. www.southwest.com

3. www.flyairdeccan.net

4. www.airdeccan.net

References:-

Crafting and Executing Strategy - Thompson

1) Southwest Airlines Annual Report 2007

2) Air Deccan Share Prospectus February 2006