The Indian Aviation Industry

AVIATION
INDUSTRY
INDIA

Submitted to Vibha
Madam

Submitted by :
 The Indian Aviation Industry

Harendra N.
Purohit 22
Kiran Singh 30

Introduction
Air India was set up by J.R.D. Tata, who ran it successfully until it was
nationalized in 1953. In the 1960s the “Maharaja”, as the national flag-
carrier was affectionately known, was flying to 32 destinations (it now flies to
46 destinations) and making profits. For many years in India air travel was
perceived to be an elitist activity. This view arose from the “Maharajah”
syndrome where, due to the prohibitive cost of air travel, the only people
who could afford it were the rich and powerful. In recent years, however, this
image of Civil Aviation has undergone a change and aviation is now viewed
in a different light - as an essential link not only for international travel and
trade but also for providing connectivity to different parts of the country.
Aviation is, by its very nature, a critical part of the infrastructure of the
country and has important ramifications for the development of tourism and
trade, the opening up of inaccessible areas of the country and for providing
stimulus to business activity and economic growth. Until less than a decade
ago, all aspects of aviation were firmly controlled by the Government.

In the early fifties, all airlines operating in the country were merged into
either Indian Airlines or Air India and, by virtue of the Air Corporations Act,
1953 this monopoly was perpetuated for the next forty years. The
Directorate General of Civil Aviation controlled every aspect of flying
including granting flying licenses, pilots, certifying aircrafts for flight and
issuing all rules and procedures governing Indian airports and airspace.
 The Indian Aviation Industry
Finally, the Airports Authority of India was entrusted with the responsibility
of managing all national and international airports and administering every
aspect of air transport operation through the Air traffic Control.
With the opening up of the Indian economy in the early Nineties, aviation
saw some important changes. Most importantly, the Air Corporation Act was
repealed to end the monopoly of the public sector and private airlines were
reintroduced. Domestic liberalization took off in 1986, with the launch of
scheduled services by new start-up carriers from 1992. A number of foreign
investors took an interest. Modiluft closed after failing to meet financial
obligations to lessors and its technical partner, Lufthansa. In 1996-1998,
Tata and SIA tried to launch a domestic carrier, but the civil aviation minister
had publicly stated his opposition on numerous occasions (Airline Business
1998).

The Indian government introduced the open sky policy for domestic players
in 1991 and partial open sky policy for international players only in
November 2004. Increasing liberalisation and deregulation has led to an
increase in the number of players. The industry comprises three types of
players full cost carriers, low cost carriers (LCC) and many start-up airlines
that are making/planning an entry.

Present Indian Scenario

It is a phase of rapid growth in the industry due to huge build-up of capacity
in the LCC space, with capacity growing at approximately 45% annually. This
has induced a phase of intense price competition with the incumbent full
service carriers (Jet, Indian, Air Sahara) dis- counting up to 60-70% for
certain routes to match the new entrants ticket prices. This, coupled with
costs pressures (a key cost element, ATF price, went up approximately 35%
in recent months, while staff costs are also rising on the back of shortage of
trained personnel), is exerting bottom-line pressure.

The growth in supply is overshadowed by the extremely strong demand

growth, led primarily by the conversion of train/bus passengers to air travel,
as well as by the fact that low fares have allowed passengers to fly more
frequently. There has, therefore, been an increase in both the width and
 The Indian Aviation Industry
depth of consumption. However, the regulatory environment, infrastructure
and tax policy have not kept pace with the industry’s growth.

Enactment of the open sky policy between India and Saarc countries,
increase in bilateral entitlements with the EU and the US, and aggressive
promotion of India as an attractive tourism spot helped India attract 3.2
million tourists in 2004-05. This market is growing at 15% per annum and
India is expected to attract 6 million tourists by 2010. Also, increasing per
capita income has led to an increase in disposable incomes, leading to
greater spend on leisure and holidays and business travel has risen sharply
with increasing MNC presence. Smaller cities are also well connected now.
Passenger traffic has increased and over 21 million seats have been sold,
resulting in a growth of over 50%. The Indian travel market is expected to
triple to $51 billion by 2011 from $16.3 billion in 2005-06.

KEY PLAYERS IN INDIAN INDUSTRY

Airlines on International Routes

• Air India is the national flag carrier airline of India with a network of
passenger and cargo services worldwide. It is one of the two state-
owned airlines in the country, the other being Indian Airlines. Air India
 The Indian Aviation Industry
has 44 world-wide destinations. The airline has been profitable in most
years since its inception. In the financial year ending March 31, 2006,
Air India has made a net profit of Rs.97 million; earned a revenue of
Rs.87,480 million - representing a growth of almost 15 per cent over
the previous year.
• Air Sahara is a privately owned airline operating scheduled services
connecting all metropolitan centres in India. The airline was
established on 20 September1991 and began operations on 3
December1993 with two Boeing 737-200 aircraft as Sahara Airlines. The
uncertainty over the airline's fare has caused its share of the domestic
Indian air transport market, from approximately 11% in January 2006
to a reported 8.5% in April. Sahara Airlines was rebranded as Air
Sahara on 2 October 2000.
• Indian is India's state owned primarily domestic airline, under the
federal Union Ministry of Civil Aviation The Company was formerly
known as Indian Airlines. On December 7, 2005 the company was
rebranded as Indian as a part of a program to revamp the company
image in preparation for an IPO. Indian Civil Aviation Minister, Praful
Patel, announced Government of India's plan to merge Air India and
Indian into one giant airline consisting of 130-140 aircraft. This could
take place anytime from the end of 2006 to the middle of 2007. If
these airlines merge then they will be in direct competition with other
air giants like British Airways, Air France, Air Canada, Lufthansa, KLM,
JAL, American Airlines, and QANTAS
• Jet Airways a “regular” airline which offers normal economy and
business class seats. Jet Airways, along with Air Sahara, is the only
airline which survived the dismal period of 1990s when many private
airlines in India were forced to close down. Jet Airways is an airline
based in India serving domestic and international routes. The airline
operates over 300 flights to 43 destinations across the. It currently
controls about 32% of India's aviation market

Market share of key players in the Indian aviation sector

Name of the players Market
Share
Kingfisher Airlines and Kingfisher Red (previously Air Deccan) 28%
Jet Airways and Jet Lite (previously Air Sahara) 25%
Air India and Indian (previously Indian Airlines) 16%
IndiGo 14%
SpiceJet 12%
GoAir 3%
 The Indian Aviation Industry
Paramount Airways 2%

MDLR Airlines 0.004%

 The Indian Aviation Industry

AIRLINES ON DOMESTIC ROUTES

• SpiceJetis a low-cost airline. Their marketing theme "offering low

'everyday spicey fares' and great guest services to price conscious
travelers". Their aim is to compete with the Indian Railways
passengers travelling in AC coaches.
• Air Deccanis an airline based in Bangalore, India. It was India's first
low-cost carrier, and as of May 2006, connects 55 cities within India.
Air Deccan has grown rapidly since it first started air operations in
2003, and despite its almost disastrous maiden inaugural flight (which
caught fire), it continued to grow. The growing Indian economy and the
increasing number of middle-class people in India has greatly helped
its growth.
 The Indian Aviation Industry
• GoAir The People’s Airline, a low cost carrier promoted by The Wadia
Group is a domestic budget airline based in Mumbai, Indiaestablished
in June 2004. It’s a relatively small player as compared to other low
cost airlines.
• Kingfisher Airlinesis an airline based in Bangalore, India.
Services started on 9 May2005, following the lease of 4 Airbus A320
aircraft. It initially operates only on domestic routes. The airline
promises to suit the needs of air travellers and to provide reasonable
air fares.Kingfisher are pushing for an amendment of the present
Indian government rule which requires an airline to fly a minimum of
five years on domestic routes before it can start flying overseas.
• IndiGo Airlines is a new and a private domestic airline based in
India.IndiGo placed an order for 100 Airbus A320 aircraft during the
2005Paris Air Show. The total order was worth US $6 billion; one of the
highest by any domestic carrier during the show. The new low-fare
carrier has started operations from August 4, 2006.
The Indian Aviation Industry
 The Indian Aviation Industry

ROLE OF AVIATION INDUSTRY IN INDIAN

GDP

The Aviation Industry in India is the most rapidly growing

aviation sector of the world. With the rise in the economy
of the country and followed by the liberalization in the
aviation sector, the Aviation Industry in India went
through a complete transformation in the recent period.
Indian GDP –Trend Of Growth Rate

1960-1980 : 3.5%
1980-1990 : 5.4%
1990-2000 : 4.4%
2000-2009 : 6.4%

Contribution of Various Sectors in GDP

The contributions of various sectors in the Indian GDP for 1990-1991 are as follows:

Agriculture: - 32%

Industry: - 27%
Service Sector: - 41%
 The Indian Aviation Industry
The contributions of various sectors in the Indian GDP for 2005-2006 are as follows:

Agriculture: - 20%
Industry: - 26%
Service Sector: - 54%

The contributions of various sectors in the Indian GDP for 2007-2008 are as follows:

Agriculture: - 17%
Industry: - 29%
Service Sector: - 54%

It is great news that today the service sector is contributing more than half of the Indian GDP. It takes India one step
closer to the developed economies of the world. Earlier it was agriculture which mainly contributed to the Indian
GDP.

Role of Aviation Industry in India GDP-Facts

• With the entry of the private operators in this sector and the huge
cut in air prices, air travel in India were popularized
• On February 18, 1911, the first commercial flight was made from
Allahabad to Naini by a French pilot named Monseigneur Piguet
 The Indian Aviation Industry
Role of Aviation Industry in India GDP-Growth Factors
• The growth in the Indian economy has increased the Gross Domestic
Product above 8% and this high growth rate will be sustained for a
good number of years
• Air traffic has grown enormously and expected to have a growth which
would be above 25% in the travel segment
• In the present scenario around 12 domestic airlines and above 60
international airlines are operating in India
• With the growth in the economy and stability of the country India has
become one of the preferred locations for the trade and commerce
activities
• The growth of airlines traffic in Aviation Industry in India is almost four
times above international average
• Aviation Industry in India have placed the biggest order for aircrafts
globally
• Aviation Industry in India holds around 69% of the total share of the
airlines traffic in the region of South Asia

Role of Aviation Industry in India GDP-Future

Challenges
• Initializing privatization in the airport activities
• Modernization of the airlines fleet to handle the
pressure of competition in the aviation industry
• Rapid expansion plans for the major airports for the
increased flow of air traffic
• Immense development for the growing Regional
Airports
Role of Aviation Industry in India GDP-FDI Policy
The Reserve Bank of India (RBI) announced that foreign
institutional investors might have shareholdings more
than the limited 49% in the domestic sector.
• Airports
 The Indian Aviation Industry
 Foreign equity up to 100% is allowed by the
means of automatic approvals pertaining to
establishment of Greenfield airports
 Foreign equity up to 74% is allowed by the
means of automatic approvals pertaining to the
existing airports
 Foreign equity up to 100% is allowed by the
means of special permission from Foreign
Investment Promotion Board, Ministry of
Finance, pertaining to the existing airports
• Air Transport Services
 Up to 49% of foreign equity is allowed by the
means of automatic approvals pertaining to the
domestic air transport services
 Up to 100% of NRI investment is allowed by the
means of automatic approvals pertaining to the
domestic air transport service
 The Indian Aviation Industry

SWOT ANALYSIS
Strengths
Liberal Environment: India's airlines operate in a liberal environment in
both the domestic and international spheres. With three major airline groups
and four smaller carriers all operating domestic routes, there is no shortage
of competition, although this factor combined with excess capacity has
tended to depress yields.
 The Indian Aviation Industry
On the international front, the Indian government has pursued an
increasingly liberal approach to bilateral air services agreements with key
overseas markets, resulting in greater access for foreign carriers. Emirates
for example, the largest foreign carrier by capacity into India, will operate
185 weekly frequencies to ten cities across the country by the end of 2009.
India's carriers have a combined international capacity share of just over
36% but face strong competition from foreign carriers, both full service and
low cost.
Modern Fleet: In light of the fact that much of the growth in Indian aviation
has occurred in the last five years, the country's airlines operate a relatively
young and modern fleet, ensuring a high quality passenger experience,
improved safety and good operational reliability.
High Quality: India's airlines offer a good quality product in each of the
operating models in existence. Jet Airways and Kingfisher Airlines are
competitive in terms of their inflight service against the leading carriers in
the world. Kingfisher for example is one just half a dozen global carriers such
as Singapore Airlines and Cathay Pacific, with a Skytrax 5 star rating. In
fact it could be argued that the full service product on domestic routes is
excessive for the sector lengths involved and results in a higher cost
structure, which the passenger does not necessarily see value in paying for.
The LCCs too, by and large, offer a comfortable, efficient and reliable
service. Until a couple of years ago, Air Deccan was one carrier that had
developed a reputation for poor on-time performance, flight cancellations
and overbooking, however since being acquired by Kingfisher, most of these
operational issues appear to have been resolved.
Economic Growth: Economic growth has historically been the primary
driver of air traffic, and the relationship has generally been even stronger in
developing countries. Between 2004 and 2007, India enjoyed four years
averaging 9% per annum GDP growth. This slowed to 6.5% in 2008, however
against the background of a global economic recession, this was a creditable
performance. The increased business confidence following the general
election result in May 2009 has eased concerns that growth may slow
further.
Political Stability: The re-election of the Congress Party, with a stronger
majority is expected to allow the new administration to push ahead with
further economic reforms, which had to date been blocked by coalition
partners. The prospect of a government which has the ability to last its full
term and pursue its agenda is extremely encouraging. In addition, Minister
Praful Patel, who was the architect of the dramatic transformation of the
aviation sector, has retained the portfolio, which brings experience and
stability to the aviation industry.
 The Indian Aviation Industry
Weaknesses
Airport Infrastructure: The rapid growth in air traffic over the last few
years exposed the deficiencies of airport infrastructure across the country.
After decades of neglect, many of India's airports were forced to operate
well above design capacity. The resulting congestion in the terminals and on
the runways delivered a poor experience for the passenger and a costly,
inefficient operating environment for the airlines. However, although a
weakness today, it is also fair to say that it is becoming less so, as the
airport modernisation program starts to deliver results, with new airports in
Bangalore and Hyderabad, and improving facilities at Delhi and Mumbai. The
upgrade of non-metro airports remains behind schedule so it may be another
3-4 years before we see good quality facilities across the country, but there
are tangible signs of improvement.
Airways Infrastructure: Although congestion on the ground is relatively
visible, another current area of weakness is the limited investment that has
taken place in improving infrastructure for air traffic management. This too
results in expensive aircraft holding patterns, indirect flight paths and sub-
optimal use of runways.
National Carrier: The state-owned carrier, Air India, is in a dire situation.
The carrier is estimated to have posted losses of close to USD1 billion in
2008/09, and morale within the bloated workforce is at a low. With no clear
direction, management instability at the top and continuing issues with the
integration of Air India and Indian Airlines, the carrier is in need of radical
restructuring. It is imperative that the government develops a turnaround
strategy for Air India as an urgent priority.
Deep Pockets: Over the last three years, India's carriers have accumulated
billions of dollars in losses and debt. Ironically, a characteristic that would
normally be considered a strength - namely deep pockets - has resulted in
carriers remaining afloat that would perhaps in other circumstances have
failed. With the backing of either the government or large corporations,
several carriers have been able to access funding that they might have been
denied on a strictly commercial basis as standalone airlines. As a result of
the intense competition which has been perpetuated, airlines have struggled
to raise fares to break even levels.
High Cost Structure: India's airlines operate in a relatively high cost
environment, primarily due to the punitive taxation structure. The greatest
impact is felt in the area of sales taxation on fuel, which can increase the
cost to 60% above the international benchmark. The limitations of airport
infrastructure also increase costs due to the fact that carriers are unable to
schedule fast turnarounds, resulting in reduced aircraft utilisation. In
addition, the fact that high quality ancillary services such as MRO and
 The Indian Aviation Industry
training are not currently available in India, means that aircraft and
personnel have to be sent overseas.

Skilled Resources: Domestic air traffic in India tripled in the five years to
2008, while international passengers doubled. This rate of growth far
outstripped the capacity to develop skilled technical and management
personnel. The gap was partly addressed by employing expatriates,
particularly as pilots, and by learning on the fly. This means there is a lack of
in-depth experience and knowledge at all levels. Furthermore, there is an
absence of high quality training infrastructure in-country to deliver the
resources to support future growth. This lack of personnel affects the
government as well and the FAA has expressed its concern at the shortage
of qualified safety inspectors within the Directorate General of Civil Aviation
(DGCA). India has been put on notice that unless this issue is addressed, it
may be relegated to a Category II nation, which would mean that Indian
carriers would not be permitted to increase services to the US.

Opportunities
Market Growth: Despite the rapid expansion of recent years, India has only
just scratched the surface of the potential for the aviation sector. Trips per
capita remain low even by the standards of other developing countries.
China's domestic market is more than four times the size of India's 40 million
passengers. Even, Australia, a country with a population of just 21 million,
compared with India's 1.1 billion, has a market 25% larger. Similarly on the
international front, less than 1% of Indians travel overseas each year.
Inbound visitor nunbers at 5.4 million in 2008 for the entire country, were
less than for Dubai or Singapore. It is not difficult to see the expansion
potential from such a low base as economic growth continues apace.
Geographic Location: India is ideally positioned as a major aviation hub at
the crossroads between Europe, the Middle East and Asia Pacific. The fact
that aviation was a neglected sector for so long has allowed airports such as
Dubai and Singapore to effectively establish themselves as offshore hubs for
Indian passengers, and they now have a significant head start. However, as
India's airports improve, and its airlines receive international awards for their
 The Indian Aviation Industry
service, there may be an opportunity to leverage its huge home market to
compete with these longer established hubs.
Lower Costs, Higher Quality: India has already managed to develop a
dynamic aviation sector despite, and not because of, its environment. The
improvements in airport and airspace infrastructure, the development of
indigenous training and maintenance facilities and the potential for fiscal
reform, all point to the potential for Indian aviation to increasingly operate in
a lower cost, higher quality and more efficient manner. This could in due
course lead to an opportunity for India to develop as a global outsourcing
hub in areas such as aerospace manufacturing, MRO and training.

Threats
Middle East Aviation: The carriers of the Gulf are aggressively expanding
in India, with high frequencies from multiple destinations to their hubs, from
where passengers can access extensive global networks. The ability for a
passenger for example to travel one-stop from Ahmedabad to Hamburg, or
multiple daily frequencies from Mumbai to London, connecting at an
attractive hub, is a strength which Indian carriers simply cannot match at
present. It will take time and the question is how far ahead will the Middle
East carriers be by that stage.
Terrorism: India has seen frequent terrorist activity in recent years. The
country has shown great resilience in bouncing back after each attack,
however inbound international traffic in particular is sensitive to such events.
Similarly the potential for India to develop as a global traffic and services
hub is contingent upon it being seen as a safe and attractive destination.
 The Indian Aviation Industry

PEST ANALYSIS: THE INDIAN AIRLINE

INDUSTRY
A PEST analysis is an analysis of the external macro-environment that
affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social,
and Technological factors of the external macro-environment. Such external
factors usually are beyond the firm's control and sometimes present
themselves as threats. For this reason, some say that "pest" is an
appropriate term for these factors. Let us look at the PEST analysis of the
Indian aviation sector:

POLITICAL FACTORS
In India, one can never over-look the political factors which influence
each and every industry existing in the country. Like it or not, the political
interference has to be present everywhere. Given below are a few of the
political factors with respect to the airline industry:

○ The airline industry is very susceptible to changes in the political

environment as it has a great bearing on the travel habits of its
customers. An unstable political environment causes uncertainty in the
minds of the air travellers, regarding travelling to a particular country.
○ Overall India’s recent political environment has been largely unstable due
to international events & continued tension with Pakistan.
○ The recent Gujarat riots & the government’s inability to control the
situation have also led to an increase in the instability of the political
arena.
○ The most significant political event however has been September 11. The
events occurring on September had special significance for the airline
 The Indian Aviation Industry
industry since airplanes were involved. The immediate results were a
huge drop in air traffic due to safety & security concerns of the people.
○ International airlines are greatly affected by trade relations that their
country has with others. Unless governments of the two countries trade
with each other, there could be restrictions of flying into particular area
leading to a loss of potential air traffic (e.g. Pakistan & India)
○ Another aspect is that in countries with high corruption levels like India,
bribes have to be paid for every permit & license required. Therefore
constant liasoning with the minister & other government official is
necessary.

The state owned airlines suffer the maximum from this problem. These
airlines have to make several special considerations with respect to selection
of routes, free seats to ministers, etc which a privately owned airline need
not do. The state owned airlines also suffers from archaic laws applying only
to them such as the retirement age of the pursers & hostesses, the labour
regulations which make the management less flexible in taking decision due
to the presence of a strong union, & the heavy control &interference of the
government. This affects the quality of the service delivery & therefore these
airlines shave to think of innovative service marketing ideas to circumvent
their problems & compete with the private operators.

ECONOMIC FACTORS
Business cycles have a wide reaching impact on the airline industry.
During recession, airline is considered a luxury & therefore spending on air
travel is cut which leads to reduce prices. During prosperity phase people
indulge themselves in travel & prices increase.

After the September 11 incidents, the world economy plunged into

global recession due to the depressed sentiment of consumers. In India,
even a company like Citibank was forced to cut costs to increase profits for
which even the top level managers were given first class railway tickets
instead of plane tickets.
The loss of income for airlines led to higher operational costs not only
due to low demand but also due to higher insurance costs, which increased
after the WTC bombing. This prompted the industry to lay off employees,
which further fuelled the recession as spending decreased due to the rise in
unemployment.

Even the SARS outbreak in the Far East was a major cause for slump in
the airline industry. Even the Indian carriers like Air India was deeply
 The Indian Aviation Industry
affected as many flights were cancelled due to internal (employee relations)
as well as external problems, which has been discussed later.
SWINE FLU
SOCIAL FACTORS
The changing travel habits of people have very wide implications for
the airline industry. In a country like India, there are people from varied
income groups. The airlines have to recognize these individuals and should
serve them accordingly. Air India needs to focus on their clientele which are
mostly low income clients & their habits in order to keep them satisfied. The
destination, kind of food etc all has to be chosen carefully in accordance with
the tastes of their major clientele.
Especially, since India is a land of extremes there are people from
various religions and castes and every individual travelling by the airline
would expect customization to the greatest possible extent. For e.g. A Jain
would be satisfied with the service only if he is served jain food and it should
be kept in mind that the customers next to him are also jain or at least
vegetarian.
Another good example would be the case of South West Airlines
which occupies a solid position in the minds of the US air travelers as a
reliable and convenient, fun, low fare, and no frills airline. The major element
of its success was the augmented marketing mix which it used very
effectively. What South West did was it made the environment inside the
plane very consumer friendly. The crew neither has any uniform nor does it
serve any lavish foods, which indirectly reduces the costs and makes the
consumers feel comfortable.

TECHNOLOGICAL FACTORS
The increasing use of the Internet has provided many opportunities to
airlines. For e.g. Air Sahara has introduced a service through the internet,
wherein the unoccupied seats are auctioned one week prior to the
departure.
Air India also provides many internet based services to its customer
such as online ticket booking, updated flight information & handling of
customer complaints.
USTDA (US trade & development association) is funding a feasibility
study and workshops for the Airports Authority of India as part of a long-term
effort to promote Indian aviation infrastructure. The Authority is developing
modern communication, navigation, surveillance, and air traffic
 The Indian Aviation Industry
management systems for India's aviation sector that will help the country
meet the expected growth and demand for air passenger and cargo service
over the next decade.
A proposal for restructuring the existing airports at Delhi, Mumbai,
Chennai and Kolkata through long-term lease to make them world class is
under consideration. This will help in attracting investments in improving the
infrastructure and services at these airports. Setting up of new international
airports at Bangalore, Hyderabad and Goa with private sector participation is
also envisaged.
A good example of the impact of technology would be that of AAI,
wherein with the help of technology it has converted its obsolete and unused
hangars into profit centers. AAI is now leasing these hangars to
international airlines and is earning huge profits out of it. AAI has also tried
to utilize space that was previously wasted installing a lamination machine
to laminate the luggage of travelers. This activity earns AAI a lot of revenue.
These technological changes in the environment have an impact on Air
India as well. Better airport infrastructure, means better handling of
airplanes, which can help reduce maintenance cost. It also facilitates more
flights to such destinations.

CUstOmer segmentation and their

distinctive characteristics
On the basis of usage
BUSINESS PASSENGERS
 The Indian Aviation Industry
They are crucial for airlines' profitability. With less spare time and
more cash in their pockets, they agree to pay a premium price for a
premium service.
Today business passengers account for approximately 48% of
passengers, and these 48% contribute 66% of airlines' revenue. The
premium prices they pay provide wider and more comfortable seats, better
choice of meals and seats, luxurious lounges.
Airlines can choose from a multitude of premium services to offer to
business travelers. Some of these extras range from seats equipped with
faxes and telephones, to gambling machines, showers, massage services
and suit ironing services in the recently introduced arrival lounges.
Business passengers believe it is worth extra money if they can save
time and arrive looking fresh for an important meeting. Business passengers
will avoid transit flights even if a longer flight could save them money. But
amongst other perks, flexible reservation services are probably the most
important to them. Reservations for business trips are often made just a
couple of days in advance. A no penalty cancellation policy is also very
important to business passengers.
The best way to reach business travelers is through printed
advertising. Business news media, such as "The Economist" or "The Wall
Street Journal" are some of the best publications through which airlines can
reach business travelers. Many airlines design special promotional programs
that target corporate bookers and meeting planners, who are responsible for
business trips reservations. Frequent flyer programs are an added bonus for
business passengers.

LEISURE TRAVELERS
They represent a totally different market. The most important
consideration for most of them is the price. The lower the airfare, the more
people will fly the respective airline.
By and large, with the exception of wealthy travelers, this segment will
not pay extra for premium services and will agree to change several planes
during their trip if this option costs less than a direct flight.
 The Indian Aviation Industry
Despite lower margins provided by this segment, leisure travelers are
very important to an airline's bottom line. Part of the reason is that
technological progress in the area of tele-conferencing and increased use of
the internet for business communications is expected to reduce the number
of business travelers. Thus, airlines are counting on the leisure segment to
provide further growth.
How can airlines benefit from the growth opportunities in the leisure
segment without losing immediate profit opportunities in the business
segment? This is a tough issue in airline marketing management. By
improving services and reducing prices for economy class passengers,
airlines risk that some business passengers will switch to economy class.
This has already happened with Japan Airlines, for example, which was
forced to eliminate business class seats on some of its flights. On the other
hand, if an airline focuses on business class passengers, it risks losing its
economy class passengers to another airline.
Since business class passengers are not many, a company relying
mostly on business travelers will often end up flying half-empty planes,
losing the potential revenue generated by lower priced economy seats.
On the other hand, few airlines catering solely to economy class
passengers can be successful because a low fare carrier must fill the entire
plane if it is to generate revenue from its low-margin operations.
The allocation of business and economy class seats on a plane is
determined through a process called yield management. A good yield
manager knows the approximate proportion of business and leisure travelers
for each flight in advance, based on sophisticated statistical models.

Freight
Air cargo service
With exports and imports increasing this has become a major source of
revenues for airlines. In the domestic segment with the need for an increase
in the turnaround time airline has been used as a source of carrier.
Most airlines therefore need to target both these segments.
 The Indian Aviation Industry
On the basis of geography

Major travelers in India are located in some of the major cities and a small
customer base in other cities. Therefore Flight schedules should be made
such that the needs of these smaller cities could also be catered. Example
flights can be made on routes such as Delhi- Bagdogra- Kolkata. This not
only enhances the seat utilization but also generates extra revenues.

On the basis of behavior

Bargain Hunters
They are the ones who are the most sensitive to price. They have nil loyalty
and would travel by any carrier. They are the least profitable consumer
segment in the market. Therefore a company should not spend amount on
bargain buyers. Rather they would be automatically attracted if you have the
most competitive prices in the market.

Relationship Buyers
They are the ones who look for long term relationship with the airline. They
are one of the most profitable segment as they are relationship builders and
not much likely to jump from one airline to another. But for retaining them a
certain level of expected and augmented service should be provided to
them. They don’t mind paying a premium.
Thus he/she tries to sell early, the economy seats at a cheaper price,
while keeping enough seats reserved for business travelers, who usually
book at the last minute. Keeping just the right amount of business seats
reserved is important: selling too few economy seats in advance may result
in a less-than-full plane while selling too many economy seats may result in
a full plane, but with insufficient revenue to gain a profit.

COMPETITIVE ANALYSIS
Product level analysis
The product offered by airlines is essentially a service, although it can be
supplemented by a number of physical products too. The services offered
are:
➢ In-flight services
 The Indian Aviation Industry
➢ On ground services
The services provided inside the flight include the core service of travel,
crew, ambience and comfort, in-flight entertainment etc. This is highly
variable across competitors as per brand and different classes of travel.
The on-the-ground services include a convenient airport with car parking
facilities, waiting lounges, duty free' shopping quick and efficient checking of
baggage, efficient service at reservation counter, transport to the airplane,
etc. Although the physical infrastructure part of the on ground services are
usually maintained by the airports authority but airlines like Kingfisher have
gone a step ahead to make separate lounges for their customers to make
them feel special.

Core product and supplementary services

Core Product
The core product of the airlines industry is the service of transporting
passengers and goods to different destinations. This is supplemented by
various other services mentioned ahead.
SUPPLEMENTARY SERVICES
 The Indian Aviation Industry
Information
Upto date information regarding flight schedules, ticket fares, promotion
schemes, new policies and systems, etc are available to customers.

Consultation
Airlines are suggesting and designing products like packaged tours to the
customer.
Also, providing the customer with various options regarding the route of flight,
in-flight cuisine & benefits asks them to play a role of consultant.

Order taking
The order taking procedure is essentially the booking procedure of the
airlines. The important aspect to be noted here is that the procedure
should be smooth, easily understood and fast. Also provision of instantly
updated information about availability of seats and fares is required.
Hospitality & Caretaking
With the increased competition today hospitality has emerged as a key-
differentiating factor. It is tested right from the time of booking till the
post flight help extended. It also includes safeguarding the baggage.
Billing & payment
Billing options available to the customer are plenty including credit card &
travelers cheque. Airlines use the open account system with their
corporate clients. Frequent fliers are also given special payment
privileges.

Product levels
Various product levels at which the airlines compete are:

The Core benefit

It is the benefit which the customer is actually buying. In our case it is the
service of traveling or transportation of goods.
 The Indian Aviation Industry
The basic product
At this level the core benefit is converted into a basic service package. This
includes from buying the ticket to reaching the destination. The low cost
airlines like Indigo, GoAir, Spicejet offer the product at this level and
compete on the basis of price.

The expected product

This includes a set of services and products that the consumer normally
expects to receive along with the core benefit. For example: In flight snacks,
comfortable seats, on time departure and arrival etc. The low cost model of
airlines labels these addition services as ‘frills’ and tries either to eliminate
or charge separately for these.

The augmented product

An augmented product exceeds customer’s expectations. For example:
Serving hot food, warm and friendly crew, provision of in flight
entertainment etc. Jet Airways, Kingfisher Class, Air India IC compete in this
segment.

The potential product

At this level all possible augmentations are offered and the companies try to
encompass new and innovative ways to satisfy customers. Where Emirates
airline offers onboard shower spas for the first class customers, Thai Airways
offers a limousine service at the airport and Virgin Atlantic offers an onboard
massage.
As the level moves from the core benefit to the potential product, the
competition moves from price to service and experience of the customer.
Various competitors operating at different product level in India are shown in
the diagram in Annexure # 02.

AIRLINES - PRODUCT LEVEL ANALYSIS

 The Indian Aviation Industry

MICHAEL PORTER’S FIVE FORCES

 The Indian Aviation Industry
Michael Porter’s five forces model has been used as a
framework to analyze the Indian airline industry and its
attractiveness to new and existing players

1.THREAT OF NEW ENTRANTS

Huge capital requirement: Capitalization of minimum

Rs.30Cr without which it is not allowed to takeoff
Expected retaliation: market is concentrated in the
hands of a few players thus any new player would to
face stiff competition Legislation or government
action: along with the equity restrictions for floating
an airline they also compel the airlines to operate on
uneconomical routes Inadequate airport
infrastructure: difficult for the existing airlines to
function smoothly and thus deters new ones
Shortage of pilots and high fuel costs Exit barriers

2.POWER OF BUYERS

General Indian traveler is extremely value conscious.

Growing awareness has increased expectations for
punctuality, safety and service. Minimal switching
cost and alternatives available. No differentiation
among the players in the same segment e.g. the
differences between Air Deccan and Spice Jet is
minimal. Transparent Web based comparisons in fare
structures are available which increases the power of
the customer to choose the best deal. Role of
intermediaries like travel agents diminishing
 The Indian Aviation Industry

3.POWER OF SUPPLIERS

Two major critical suppliers: • 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 companies profits.aircraft suppliers enjoy in a
duopoly and fiercely control their market shares
Acute shortage of pilots which makes the industry
dependent on them Forward integration: airlines also
face a threat of forward integration as the suppliers
have or know about most or the technical aspects of
the industry Airbus and Boeing have two radically
diverse views on the future needs of civil aviation
and this is reflected in their new product
developments. Boeing has focused on medium
capacity long haul aircraft (expecting that demand
will grow for smaller aircraft that can fly more
frequently offering a wide choice of departures in
flight schedules). Airbus has made huge investments
in the A380 which is its new large capacity-long
range super jumbo (expecting that demand will grow
for larger more fuel efficient and luxurious aircraft
that can accommodate more people per flight)

4.AVAILABILITY OF SUBSTITUTES
 The Indian Aviation Industry
Product for product substitutionConsumers have
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 needWith 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.

5.POWER OF COMPETITORS

Intense Competition amongst low cost airlines and

the full service airlines. Apex fares and promotional
schemes offered by all the full service carriers,
offering prices at lower or similar to the low cost
ticket fares are a tremendous competitive force.
Entry of additional players Mergers and acquisitions
take place here too which increases competitive
rivalry between airlines Low level of differentiation
between the services offered by the different airlines
increases the risk of switching High fixed costs and
input constraints also add to the competitive
pressures in the industry

THE OTHER SECTORS INCREASE WITH

AVIATION INDUSTRY :
• HOTEL
 The Indian Aviation Industry
• TOURISM

• COMMUNICATION
• TRAVELLING