CONTENTS

ABSTRACT INTRODUCTION LITERATURE REVIEW MAJOR PRIVATE PLAYERS SWOT ANALYSIS OF THE INDIAN AVIATION INDUSTRY CONCLUSION RECOMMENDATIONS BIBLIOGRAPHY 1 2 4 15 30 33 34 35

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ABSTRACT
The aviation industry is currently undergoing radical changes in how it operates. The discount airlines are doing okay, but no airline these days can claim to be break the sound barrier. The fuel costs are prohibitive and even if all the airlines raise fares, there is a ticket price where much of the flying public will just stop flying. And this can be seen as many airlines are retiring their less efficient aircraft and thus, taking capacity out of the market. The supply and number of airliners is being reduced out of prudent business decisions to cut non-profitable routes. The major network carriers are still suffering because the new LCC business model took away a chunk of customers. Some of these customers could still be lured back by the network carriers if the cost difference reduces. There will always be a floating population of customers who will use both kinds of service, as their needs change or as their income increase. However, each will also have their very loyal segment of customers. The network carriers will have those business customers who always require the services offered by them. The successful private airlines have ensured that the basic elements of punctuality, safety, baggage handling, housekeeping and ease of booking have been in place. In fact, airlines such as Southwest, Easy Jet and Ryan Air have achieved even greater degrees of punctuality and less number of flight cancellations than the network carriers. The basic aim of the study is to analyze the opportunity analysis in Aviation Industry. The study also examine the changes which are required in the domestic airlines and the changes with are coming up in the domestic airlines to match the growing competition from the private airlines.

INTRODUCTION
India is witnessing a boom in passenger and cargo traffic with 15% growth in passenger traffic recorded in 2010-11 at 142 mn passengers. Considering the growth in Indian economy and the need to develop aviation infrastructure, the industry requires investments worth 30 billion dollars (about Rs 135,000 crore) are required in the next 15 years. The 9th largest aviation market in the world is India. Taking the help of the statistics from the Ministry of Civil Aviation, approximately 29.8 million passengers traveled to/from India in 2008, showing a surge of 30% from 2007. The prediction stated that international passengers will touch 50 million by 2015. More opportunities in the aviation industry in India are likely to make way for about 69 foreign airlines from 49 countries. Passengers carried by domestic airlines during January - May 2011 were 24.5 million as against 21 million during the corresponding period of previous year thereby registering a growth of 17.6 per cent, according to the latest data released by the Directorate General of Civil Aviation (DGCA). For the first time, domestic traffic in a month has registered 5.5 million passengers carried with three airlines viz. Jet Airways, Kingfisher Airlines and IndiGo carrying more than 1 million passengers each in May 2011. Private carriers are anticipated to post a combined profit of US$ 350 400 million for the fiscal 2011-12, Centre for Asia Pacific Aviation (CAPA) India reported in its 2011-12 Aviation Industry outlook. Domestic capacity is also projected to grow by 12-14 per cent for the assessment period. Then in the airline manufacturing industry we have Boeing vs. Airbus. Boeing has bet on new carbon composite aircraft making them lighter and thus much more efficient, while their arch enemy and market rival Airbus is going for the world's largest aircraft so they can carry more passengers on a single flight thus, cutting the cost per passenger. Both strategies seem to be working as orders for the A380 Airbus and 787 are strong. The discount airlines are doing okay, but no airline these days can claim to be break the sound barrier. The fuel costs are prohibitive and even if all the airlines raise fares, there is a ticket price where much of the flying public will just stop flying. And this can be seen as many airlines are retiring their less efficient aircraft and thus, taking capacity out of the market. The supply and number of airliners is being reduced out of prudent business decisions to cut non-profitable routes. 3

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These two business models serve two different segments of customers and can, therefore, exist simultaneously. The major network carriers are still suffering because the new LCC business model took away a chunk of customers. Some of these customers could still be lured back by the network carriers if the cost difference reduces. There will always be a floating population of customers who will use both kinds of service, as their needs change or as their income increase. However, each will also have their very loyal segment of customers. The network carriers will have those business customers who always require the services offered by them. The LCCs too will have their niche customers who are the new segment of air travelers they created-namely small businessmen and leisure travel customers. Notwithstanding that, the LCC business is certainly set to grow more than that of the network carriers and, hence, gain a higher market share. The successful private airlines have ensured that the basic elements of punctuality, safety, baggage handling, housekeeping and ease of booking have been in place. In fact, airlines such as Southwest, Easy Jet and Ryan Air have achieved even greater degrees of punctuality and less number of flight cancellations than the network carriers. In India, Kingfisher and Spice Jet are succeeding in pulling human resources like Pilots, Engineers and Technicians from network carriers such as Air Sahara, Jet Airways and Indian Airlines. Sometimes, resignations of pilots in large number have created even cancellations of flight. This situations will be more complicated when some more private players like Go Air, Indigo will take off in the civil aviation industry in India.The cost of labor again contributes a major portion to the LCCs cost advantage and this is, therefore, likely to reduce over time. This cost creep at LCCs due to the above, as well as the cost reductions the network carriers have achieved and are targeting for the future, have gradually reduced the difference between network carriers and LCCs. Even in other aspects such as the airports they use, and the services and frills offered and not offered, these models have started having some

similarities. Some of the bigger LCCs also have started offering limited connections, moving towards the hub and spoke model of the network carriers. Thus its seems as if there is some kind of convergence in the two basic models. How far these models converge and how much they retain their basic differences is yet to be seen.

LITERATURE REVIEW
The Indian Civil Aviation Industry The history of Indian Aviation Industry dated back to the early 1930s, when one of the leading Indian business houses, the Tatas, established Tata Airlines. There was limited activity in the sector over the next two decades despite eight more private companies entering the airline industry. In 1953, the Air Corporation Act came into force, and all the assets of the then existing nine airline companies were transferred to two companies- Indian Airlines Corporation (IA) and Air India International (Air India). While Air India offered international air services, IA offered domestic services. The Air Corporation Act 1953 prohibited any person or company to operate any scheduled air transport services from, to or across India. Therefore, the two corporations enjoyed a monopoly status in the scheduled air transport services market. In 1962, Air India International was renamed as Air India Limited. In 1986, private airlines were allowed to operate chartered and non-scheduled services under an Air Taxi scheme. The scheme was introduced to boost tourism and augment domestic air services. The carriers were, however, not allowed to publish time schedules or issue tickets to passengers. The governments aviation policy was progressively liberalized in the early 1990s. In 1993, the Air corporation Act 1953 was abolished, which put an end to the monopoly of IA and Air India in the scheduled air transport services market. After the abolition of the act, there was a considerable change in the Indian governments aviation policy. From March 1994, the market was opened to any company that fulfilled the statutory requirements of scheduled airline services. The government approved eight private carriers to start domestic operations. They were Jet Airways, Air Sahara, Indian International, Archana Airways, East West Airlines, NEPC Airlines, Modiluft and Damania Airways. While Indian

International was the first licensee after the open skies policy came into force, East West was the first scheduled airlines to take off from the ground. In 1995, the Airports Authority of India (AAI) was formed after the merger of the National Airports Authority (NAA) and the International Airport Authority of India (IAAI). The AAI offered infrastructure facilities to all airlines. There were five international airportsDelhi, Mumbai, Kolkata, Chennai and Thiruvananthapuram- for scheduled international o perations by Indian and foreign carriers. By late 2000, however, most private players went out of business after incurring heavy losses. The reasons included lack of experience in the aviation field, inadequate planning and poor promoter support. According to analysts, none of the private carriers had the staying power or the professional expertise required for the aviation industry. As a result, by mid 2001, only Jet Airways(JA) and Sahara managed to stay afloat among the private carriers. In fact, they went step ahead by grabbing a major market share from Indian Airlines, which had been enjoying a monopoly. By mid 2001, JA commanded 42% of the domestic market and Sahara claimed for 13% leaving and 39% for Indian Airlines as per financial year 2003-04. The September 11, 2001, terrorist attacks in the US affected the global airline industry. Reportedly, the industry suffered a loss of 418 bn and about 400,000 aviation related jobs were lost. However, the Indian aviation industry was not badly hit by attack. In early 2003, the Indian government expressed concerns that the civil aviation industry remained a part-monopoly, with only three players. To introduce more reforms, in August 2003, the government established a committee under the chairmanship of Naresh Chandra, former cabinet secretary, to prepare a road map for a civil aviation policy. The committee recommended that the foreign direct investment limit in the domestic civil aviation sector should be increased to 49% from the permitted 40%, which the government accepted. The government also stressed the need for making air travel more affordable. The 7

recommendations were accepted and excise duty on Aviation Turbine Fuel (ATF) was cut to 8% from 16%. The government also did away with the 15% inland air travel tax (IATT). By August 2006, the government started reviewing other guidelines pertaining to the aviation sector including the ban on financial arrangements with foreign airlines for lease finance, hire purchase and other loan arrangements. The existing policy prevented any such financing arrangements. Industry analysts realized that the government was clear in its intention of bringing air travel within the reach of the common man. Taking advantage of liberal policies, Air Deccan started operating in short-haul routes in all over India. Aiming to compete with their rivals in the international market, the fast-growing Indian airlines are looking at global platforms to widen their overseas presence. In 2008 the two Indian international carriers, Air India and Jet Airways, currently have less than 25% share in the long-haul market to and from the country. With the third carrier Kingfisher Airlines joining the ranks this month, the Indian aviation scenario is all set to change. Kingfisher Airlines, which is starting its international operations on September 3 with a Bangalore-London flight, is considering options to join the SkyTeam Alliance led by Air France-KLM and Delta Airlines of the US. The national carrier, Air India, has already joined the Star Alliance, the world's largest airlines consortium led by Lufthansa and Singapore Airlines. Mumbai-based Jet Airways could eventually become the Indian partner of the Oneworld Alliance, led by British Airways and American Airlines, according to industry sources. Under such global alliances, airlines agree to co-operate, tie up to provide better connectivity to international passengers, share terminals as well as expertise in back-end operations. Indian airlines are aiming for a greater presence in the lucrative international market with the ambition of taking market share from the large number of international carriers such as 8

Singapore Airlines, Emirates, Lufthansa and British Airways, which dominate international traffic to and from India. Kingfisher executives said that it would be most logical for the airline to eventually join the SkyTeam alliance, given the growing links with the Air France-KLM. It is a bit early to comment on our global alliance plans, but we are already looking at developing synergies with Air France-KLM, which are providing back-end technical support in London to our aircraft. Kingfisher has already entered into a maintenance and technical support pact with Air France-KLM for its wide bodied aircraft used in international operations. Meanwhile, Jet Airways is currently evaluating our options. They have not decided to join any alliance as of now. There are no specific time frames. The airline industry is going through a phase of consolidation and airline groupings could also possibly change in the immediate future. The recent example being Continental exiting the SkyTeam and joining Star Alliance. Jet Airways currently has frequent-flier programme partnerships with 16 carriers and has codeshare partnerships with Qantas, American Airlines, Brussels Airlines, Etihad Airways and Air Canada.

COMPETITIVE SCENARIO Change is the only constant in aviation these days. Just as the industry posted its first profit since 2000 $5.6 billion last year oil prices rose to historic levels, and a potential economic downturn threatens revenues. At one point, Asia seemed immune to many of the woes of the industry. Aviation supports 10.5 million jobs across Asia Pacific. And that, in turn, supports $807 billion in business. Traffic in the region is still growing at breakneck speed. By 2010, Asia will be the largest single market for aviation. Growth brings challenges and responsibilities. The first challenge is a healthy one competition. Everyone wants a piece of the pie. Look at the Middle-East, which is positioning itself as a global air hub. Already, Dubai handles nearly as much traffic as Changi. And with 159 destinations, it is connected to 37 per cent more destinations. Its proposed super airport at Jebel Ali will be the worlds biggest, handling up to 140 million passengers a year. The second challenge is the supply of skilled personnel. To operate the 16,000 new aircraft that will be required to meet demand in 2020, 17,000 new pilots must be trained each year. That is 40,000 more than current training capacity. And the third challenge is declining profitability. Capacity expansion of nearly 40 per cent in the region saw absolute profitability go from $1.7 billion in 2002 to an estimated $900 million last year. Margins fell from 4 per cent to less than 1 per cent over the same period. Innovation and change Challenges are opportunities for innovation and change. I see the biggest opportunities in the areas of liberalisation, security and environment.

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The Asian decision to liberalise traffic between capital cities in 2008 moves airlines towards the same commercial freedoms that other businesses take for granted. The archaic bilateral system requires government to negotiate international markets and keeps the industry fragmented. The largest airline represents only 5 per cent of total traffic. And in Asia 13 airlines compete to provide just 50 per cent of the market. Europe has proved that cross-border consolidation is politically acceptable. And the bottomline numbers of Lufthansa, Swiss and Air France-KLM show that it can be profitable too. If Asia acts as a region, it can balance the traditional leadership of the US and Europe. The failure of last years US-EU open skies agreement to address ownership put the baton of industry leadership up for grabs. It is time for Asia to be bolder and explore new ways of doing business. It could develop a new model for the relationship between industry and government that allows the air transport industry to deliver even greater economic benefits. Perhaps it could even develop an institution for regional co-ordination of air policy issues, so that Asia is as strong in building the future of our industry as it is in building great airlines and airports. Security is a ready-made project for regional coordination. Six years after 9/11, the industry is more secure. But the system remains an unco-ordinated mess. We have not harmonised measures across borders. Shoes on or off? Laptop in or out? Belt and coat on or off? The answers are different at every airport. What message does that send to passengers? Singapore signed an agreement with the EU to harmonise the security of duty-free items. Good job. Now we need to find a leadership method to turn this into a regional solution that is a building block for global harmonisation.

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Environment Environment is another global issue in need of a global solution. Aviation is 2 per cent of global carbon emissions. By 2020 our target is to improve global fuel efficiency by 25 per cent to limit our impact on climate change. We have a four pillar strategy to achieve it: investment in technology, efficient operations and effective infrastructure with positive economic incentives to achieve these. Beyond that, our vision is for carbon neutral growth, leading to a carbon-free future. There is no ready-made roadmap to achieve this. But I am confident. An industry that went from the Wright Brothers to the jet age in 50 years will be able to achieve great things. Governments must be on board with the vision. And there is plenty that can be done in Asia, from greater harmonisation of air traffic management, to setting benchmarks for air traffic efficiency and financial support for research into alternative fuels and radical aircraft design. I have proof that great ideas can change an industry quickly. By May 31, 2008, we will complete the conversion of the world to electronic ticketing. The project began in Singapore and will take exactly four years, measured with goals and targets. Asia is our industrys present and its future. Running an airline is a tough business, and Asia has done well. Now we are at a turning point. Even as China and India continue to be markets of enormous potential, in only a few years this region will already be our industrys largest single market. The race for market share and growth has been won. Now we need a unique race for leadership that involves key players from fast developing China and India, to more traditional players like Japan, Singapore, or Australia and everyone in-between. Nobody holds a patent on innovation. What is needed is the leadership vision to turn innovation into results: building an industry that is even safer and more secure; delivering an industry that is financially sound and efficient by rethinking our outdated regulatory 12

framework; and acting locally to ensure that aviation is a global benchmark for environmental responsibility. ROLE OF GOVERNMENT There is no justification to subsidise fuel costs but reducing the gap between domestic and international prices would bring costs down by about 30 per cent, reduce break-even loads, lead to competitive pricing and increase demand. However, the government should look at the flip side before acting The Indian airline industry is projected to lose $2 billion this fiscal. The airlines have been quick to blame spiralling fuel costs and have, with the support of the Civil Aviation Minister, Mr Praful Patel, sought relief from the government to help the industry survive. The Government has set up a committee to investigate this demand. But should the Government intervene? To answer this question, we need to investigate the drivers of performance in the airline industry. While the demand for civil aviation in India historically grew in line with GDP growth, the inflection point in its growth occurred around 2003, with the launch of Air Deccan, followed by other discount carriers such as SpiceJet, GoAir and IndiGo. Between 2003 and 2008, the demand for civil aviation services (as measured by domestic passengers carried) grew at a compounded rate in excess of 30 per cent. Evidence suggests that this demand growth came as a result of lower fares, release of pent-up demand, shift of upper-class rail travellers to air for journeys of 750 km and more, the upwardly mobile aspirations of Indias middle class, and better connectivity.

Recent developments such as the negative growth rate of the airline industry in the most recent quarter (after airlines increased fares sharply) only underline the steep price elasticity of demand for civil aviation services. 13

Profitability However, even during the peak growth phase, Indias domestic airlines were not profitable. (In fact, in 2006-07, the latest year for which comparable figures are available, only one domestic airline, Paramount Airways, reported operating profits.) There were several reasons for this. Some were outside the direct control of the airlines crowded infrastructure (resulting in congestion in the air and on the ground), shortage of qualified pilots and maintenance engineers, leading to inflated compensation packages, route guidelines that necessitated services on uneconomical routes, and high tariffs on fuel, all these strained the financial performance of the airline industry. On the other hand, the airlines themselves have to shoulder a part of the blame. Even before fuel prices went up, at the fares charged by discount carriers, the break-even load was well in excess of 80 per cent (and often closer to 90 per cent). Actual industry-wide load factors hovered around 70 per cent. The villain was capacity as demand increased, airline capacity soared as well, preventing increases in the load factor of individual airlines. And, in an industry with a perishable product and high fixed costs, the overhang of increased capacity kept prices low.

The low fares charged by discount carriers affected full-service carriers as well, leading them to offer 75 per cent of their seats at prices below the normal fares. To make matters worse, full-service airlines Jet and Kingfisher were also making major investments on international expansion and domestic brand-building respectively. At the same time, it is clear that the doubling of fuel costs within a years time has overshadowed all the other problems faced by the industry.

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The countrys most efficient discount carrier, SpiceJet, which was profitable in Q1 FY20010, is today deeply in the red. Following the increase in fuel costs, the break-even load factor of the largest domestic carrier Jet Airways has increased from about 70 per cent to 90 per cent, while its capacity utilisation remains at around 72 per cent. What govt can do While there is no justification or need to subsidise fuel costs for the airline industry, current handling fees imposed by the oil companies and taxes imposed by the Centre and the States have resulted in pushing fuel prices as much as 70 per cent higher than international benchmarks. Reduction of this gap to a more reasonable figure (say, a maximum of 20 per cent) would bring down fuel costs by about 30 per cent, reduce break-even loads, result in more competitive pricing and a corresponding increase in demand, and improve the airlines viability. A concern of the government would be whether the benefit of lower costs would translate into customer benefits in terms of lower prices or simply be pocketed by the airlines. The former is more likely. Though there has been consolidation in the airline industry, it is still a competitive industry. The five major players Jet + JetLite; Kingfisher + Deccan, Air India, SpiceJet and IndiGo are under different ownership, and have different competitive strategies, business models, and cost structures. There is no clear industry leader, under whose umbrella other carriers might shelter. Though there have been some efforts to create a floor price across the industry through the adoption of common fuel surcharges, efficient discount carriers such as IndiGo and SpiceJet continue to offer significantly lower total fares. This is because they have substantially lower costs than the full-service carriers and it makes business sense for them to convert this cost advantage into lower prices. There is as much of a competition between formats (full service vs discount) as between carriers, and the fundamental assumptions of these formats are different. Under these 15

conditions, sustained cartelisation is not sustainable, and price-based competition will ensure that the benefits of lower costs are passed on to consumers. The flip side At the same time, there are three arguments against reducing the cost structure for airlines by lowering the taxes and duties on ATF. One is on the grounds of environmental sustainability. The airline industry is already being targeted globally for its large carbon footprint. It could be argued that rapid growth of the Indian airline industry would be against the long-term ecological interests of the country and the world. The second is on questionable benefits to the larger economy while before the entry of the discount carriers, business travellers comprised more than 80 per cent of the users of airline services, the boom in the use of airline services was driven by travel for either leisure or visiting friends and relatives, leading to a decline in the proportion of business travellers to around two-thirds. Finally there is the issue of lost welfare due to foregone tax revenues by the State and Central governments. The Government must weigh these costs in taking a decision on a bailout plan for the airline industry.

Role of Aviation Industry in India GDP

The Role of Aviation Industry in India GDP in the past few years has been phenomenal in all respects. 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. 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 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

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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 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

The Reserve Bank of India (RBI) announced that foreign institutional investors might have shareholdings more than the limited 49% in the domestic sector.

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MAJOR PRIVATE PLAYERS

Life seems to have cruised a full circle in the Indias aviation industry. Almost a decade after a dozen-odd carriers took to the Indian skies and then quietly folded up, a whole new generation of entrepreneurs- nine at last count-are now preparing to try their hand at doing business 30000 feet up in the sky. Albeit this time round, a good chunk of these new entrants want to take the frills out of flying and are aiming to provide budget air travel with fares that are about 30% lower than those of the existing full service carriers in the Indian skies. Market share statistics for May 2011 indicates a neck-to-neck tiff between Kingfisher and IndiGo with 20 and 19.9 per cent of market share respectively. However, if the figures for Jet Airways (18.5 per cent) and JetLite (7.6 per cent) are combined, then the Jet Airways group of airlines leads with 26.1 per cent of the market. The remaining market shares belong to Air India (13.2 per cent), Spicejet (14.2 per cent) and GoAir (6.6 per cent).

JET AIRWAYS Jet Airways is an airline based in Mumbai, India. It is the country's second-largest international airline after Air India and the largest domestic airline. It operates over 400 daily flights to 62 destinations. Its primary base is Mumbai's Chhatrapati Shivaji Airport with secondary hubs at Bangalore, Brussels, Chennai, Delhi, Hyderabad, Kolkata and Pune. In July 2008, it was honored as the world's best long-haul airline after Singapore Airlines. In a poll conducted in September 2008, it was voted as the world's seventh best airline overall. Jet Airways has also won an award for the quality of its catering. According to March 2008 figures, Jet Airways share of India's domestic aviation market stood at 29.8%, including its low-cost subsidiary JetLite's share of 7.1%, making it the largest airline in India. However, the airline faces competition from other domestic carriers like Kingfisher Airlines, SpiceJet and IndiGo Airlines. 18

HISTORY Jet Airways was incorporated as an air taxi operator on 1 April 1992. It started commercial airline operations on 5 May 1993 with a fleet of 4 Boeing 737-300 aircraft. In January 1994, a change in the law enabled Jet Airways to apply for scheduled airline status, which was granted on 4 January 1995. It began international operations to Sri Lanka in March 2004. While the company is listed on the Bombay Stock Exchange, 80% of its stock is controlled by Naresh Goyal (through his ownership of Jets parent company, Tailwinds, and has 10,017 employees. Naresh Goyal, who already owned Jetair (Private) Limited, which provided sales and marketing for foreign airlines in India, set up Jet Airways as a full-service scheduled airline to compete against state-owned Indian Airlines. Indian Airlines had enjoyed a monopoly in the domestic market between 1953, when all major Indian air transport providers were nationalised under the Air Corporations Act (1953), and January 1994, when the Air Corporations Act was repealed, following which Jet Airways received scheduled airline status. Jet Airways Boeing 777-300ER in the airline's new color scheme in 2007Jet Airways and Air Sahara were the only private airlines to survive the Indian business downturn of the early 1990s. In January 2006, Jet Airways announced that it would buy Air Sahara for US$500 million in an all-cash deal, making it the biggest takeover in Indian aviation history. The resulting airline would have been the country's largest[8] but the deal fell through in June 2006. On 12 April 2007, Jet Airways agreed to buy out Air Sahara for 14.5 billion rupees (US$340 million). Air Sahara was renamed JetLite, and was marketed between a low-cost carrier and a full service airline. In August 2008, Jet Airways announced its plans to completely integrate JetLite into Jet Airways. Brand Ownership 19

Jet Airways does not own its brand. The brand is owned by Jetair Enterprises Ltd., a separate company substantially owned by Naresh Goyal, which licenses the brand to the airline in return for an annual payment. This arrangement is very similar to the terms governing the use of the "easy" brand by the easyJet Airline Company Limited (the name under which easyJet has been incorporated). Under the aforesaid arrangement, Sir Stelios Haji-Ioannou, the founder and largest individual shareholder of easyJet Airline Co. Ltd. has sole ownership of the "easy" brand and licenses it to that airline for a specified payment. This kind of arrangement is of vital importance should the concerned airlines become the subject of a hostile takeover bid because the bidder[s] will not automatically acquire ownership of their takeover target's brand and without access to the brand the takeover target will be less valuable. Destinations Jet Airways serves 62 destinations within India. In addition to destinations across India and other parts of the Indian subcontinent (Colombo, Dhaka, Kathmandu), Jet Airways expanded international operations to include destinations in Asia (Bangkok, Hong Kong, Kuala Lumpur, Shanghai, Singapore), Europe (Brussels, London), the Middle East (Abu Dhabi, Dubai , Bahrain, Doha, Kuwait, Muscat) and North America (New York, Newark, San Francisco, Toronto). By July 2007, it was connecting India with over 50 international destinations Jet Airways operates a scissors-hub in Brussels, with four Indian cities (Bengaluru, Chennai, Delhi, Mumbai) connected to three North American cities (New York, Newark, Toronto). In-Flight Services Indian cuisine meal served onboard domestic Jet Airways flight.With the arrival of its new Boeing 777-300ER and Airbus A330-200 aircraft, Jet Airways has introduced a new cabin with upgraded seats in all classes. The Boeing 777-300ER aircraft has three classes of service: First, Premire (Business), and Economy. The Airbus A330-200 aircraft have two 20

classes: Premire and Economy. All A330-200 and B777-300ER aircraft have this feature. B737 aircraft are configured differently. Jet Airways has a three-star rated Business and First Class, and is in the top twenty-five business classes reviewed by Skytrax. Economy class has been reviewed as a three-star product by Skytrax. First Class First class is available on all Boeing 777-300ER aircraft. All seats convert to a fully-flat bed, similar to Singapore Airlines suites but smaller. It was the second airline in the world to have private suites. (Emirates Airline were first, introducing the private suites in 2003 on their Airbus A340-500s). All seats have a 15-inch widescreen LCD monitor with audio-video ondemand (AVOD), in seat power supply, and USB ports etc. Jet Airways is the second airline in India to have fully-enclosed first class suites on its aircraft; each suite has a closeable door, making for a private compartment. It is the ninth-best first class in the world as conducted by Skytrax. The only airlines that surpass Jet in first class are Singapore Airlines and Emirates Airline. Boeing 777-300ER Premire class seats. Premire Class Premire Class (Business Class) on the Airbus A330-200 and Boeing 777-300ER international fleet has a fully-flat bed with AVOD entertainment. Seats are configured in a herringbone pattern (1-2-1 on the Boeing 777, and 1-1-1 on the Airbus A330), with each seat offering direct access to the aisle. USB ports and in-seat laptop power are provided. Mood lighting is installed on the A330-200 and B777-300ER, with light schemes corresponding to the time of day and flight position. On the short-haul/domestic Boeing 737, all new aircraft are equipped with AVOD. All seats are standard recliner business-class seats with a few newer aircraft with electronic recline and massager. 21

Economy Class Economy class on the Boeing 777-300ER, Boeing 737, and A330-200 has 32-inch seat pitch. All 777/A330, as well as some Boeing 737 aircraft, have a touch screen AVOD system. Seats on the 777/A330 have a "hammock-style" net footrest. The cabin is configured in 3-3-3 abreast on the 777, 2-4-2 on the A330, and 3-3 in the 737.

KINGFISHER
Kingfisher Airlines Limited is an airline based in Bangalore, India. It operates 218 flights a day and has a network of 38 destinations, with plans for regional and long-haul international services. Its main bases are Bengaluru International Airport, Chhatrapati Shivaji International Airport, Rajiv Gandhi International Airport and Indira Gandhi International Airport. Kingfisher Airlines, through one of its holding companies United Breweries Group, has acquired 26% stake in the budget airline Air Deccan and has option to buy further of 20% stake from the secondary sector. Kingfisher is one of six airlines in the world to have a five-star rating from Skytrax, along with Asiana Airlines, Malaysia Airlines, Qatar Airways, Singapore Airlines and Cathay Pacific Airways. Destinations Kingfisher Airlines currently operates only a domestic network across India. It has plans to start international services to North America using Airbus A340-500 aircraft. Other destinations in consideration for future expansion include East Midlands, London, Sydney, San Francisco, Singapore, Hong Kong, Vancouver, Kuala Lumpur and Bangkok from its Bengaluru hub. The airline plans to begin operations from London Heathrow to Bengaluru and Mumbai, followed by flights from Bengaluru to San Fransico and New York by late 2008. Further into 22

the future, international services will possibly be expanded to the Middle-East, East Asia, Sri lanka and Pakistan, starting with the Bengaluru to Singapore sector. The airline will use the Bengaluru International Airport as its main international hub Kingfisher Airlines fleet currently consists of the ATR 72,Airbus A320 Family for domestic/short haul services. Deliveries of the Airbus A330-200 and Airbus A340-500 for international services are expected sometime in the future. The Kingfisher Airlines fleet consists of the following aircraft as of 6th July 2008:

Kingfisher Airlines Fleet Aircraft ATR 72500 Airbus A319-100 Airbus A319100CJ Airbus A320-200 Airbus A321-200 Airbus A330-200 Airbus A340-500 Airbus A350-800 Airbus A380-800 Total Total Passengers (Kingfisher First/Kingfisher Class) Routes Domestic Short Haul Notes Pratt & Whitney PW127F Engines

18 66 (0/66) (17 Orders) 3 (1 Order) 1 144 (0/144) Corporate Jet

Short to Medium IAE V2500 Engines Haul Short to Medium Private Aircraft, Not Used Haul for Commercial Operations Short to Medium IAE V2500 Engines Haul Short to Medium IAE V2500 Engines Haul Medium to Long Pratt & Whitney PW4168A Haul Engines Extended Long Haul Extended Long Haul Long Haul Rolls Royce Trent 556 Engines,2 A340s being sold due to rising Fuel Prices Rolls Royce Trent XWB Engines Entry into service: 2010

13 174 (0/174) (49 Orders) 134 (20/114) 8 199 (0/199) 151 (32/119)

2 217 (30/187) (13 Orders) (8 orders) (20 Orders) (10 Options) (5 Orders) (5 Options) 45

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Kingfisher Airlines has an average fleet age of 1.7 years as at March 2008. The airline began operation with entirely new aircraft. On 18 February 2005, Kingfisher Airlines signed a contract with Airbus for three Airbus A319 aircraft, adding to the 10 Airbus A320 aircraft (plus 20 options) ordered in January 2005. The first of the A319s will be delivered in December 2005, complementing the A320s on routes to smaller cities in India. The Airbus A380 during its World Tour flight 2006-2007. On 15 June 2005, Kingfisher announced orders for the Airbus A380. It placed orders for five A380s, five Airbus A350800 aircraft and five Airbus A330-200 aircraft. Delivery of the A330s is due to start in late 2007, followed by the A380s in 2010 and the A350s in 2012. On 20 November 2005, at the Dubai Air Show, Kingfisher Airlines announced that it would be buying 20 ATR 72-500s (plus 15 options). The deal is estimated to be worth $500 million with the deliveries starting from March 2006. The last of the 20 planes would be handed over to Kingfisher Airlines by 2008. The first aircraft from that order was delivered to the airlines on March 31, 2006. On 21 November 2005, at the same air show, Kingfisher Airlines placed an order to acquire 30 more A320s in a deal estimated to be worth $2 billion. Engine-making joint venture International Aero Engines will supply the engines for the planes. Deliveries for the planes are expected to start from 2008. On 13 January 2006 an Airbus A319 of Kingfisher Airlines was the first aircraft in that class to land on the short older runway at Mangalore Jet Airways has been operating to old Manglore much before since 1998 with a bigger Boeing 737-400. On the 24 April 2006,

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Kingfisher signed a contract for five Airbus A340-500 HGWs. The airline plans to use this for its Bangalore-San Francisco . Delivery is expected for end 2008 Kingfisher has sold two Airbus A321s to Pegasus Aviation Finance in a sale and lease-back deal. Pegasus says in a statement that the two newly-built A321-200s that are being prepared for delivery to Kingfisher will be the first of the stretched A320-family variant in India. Kingfisher already leases one A320 from Pegasus. An A380 of registration F-WWOW arrived on 6 May 2007 in New Delhi and in Mumbai two days later as part of Kingfisher's second anniversary celebrations. On 20 June 2007, Kingfisher airlines announced that it will buy Airbus aircraft including an extra 15 A350-800 XWB aircraft. The order also includes five four-engine A340-500 planes, 10 A330-200 wide-body models and 20 single-aisle A320-family jets. The order is worth a total of $7.2 billion at list prices. Kingfisher is also operating its A340-500 from August 2008 and will offer non-stop flight between India and the US. SPICEJET SpiceJet is a low-cost airline based in New 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 voted as the best low-cost airline in South Asia and Central Asia region by Skytrax in 2007. Rising fuel costs and increasing competition resulted in SpiceJet posting a loss in the first quarter of 2008-09. In August 2008, SpiceJet announced plans to raise US$100 million through foreign investment.

History 25

SpiceJet was earlier known as Royal Airways, a reincarnation of ModiLuft. it was promoted by Ajay Singh, Sanjay Malhotra and the Kansagra family. SpiceJet marked its entry in service with Rs. 99 fares for the first 99 days, with 9000 seats available at this rate. This deal was followed it up with a Rs. 999 promotional scheme on select routes. Their marketing theme "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 AC coaches. 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 inprinciple 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.

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COMPETITIVE STRATEGIES
The pioneer among LCCs-Southwest Airlines-was started in 1971. It operated from Dallas and offered air services between Dallas, Housten and San Antonio. Over the next years it covered more towns in Texas carrying 5 Million passengers in 1977. Southwest used its lower costs from its point to point (no hub and spokes model for connectivity), no frills service business model to offer lower prices and create a larger market for air travel between these towns. By 2004, southwest had returned its 31st consecutive year of profitability, flying more than 65 million passengers a year to 59 cities across America. In Europe, Easy Jet and Ryan Air adopted this no frills discount airline model successfully when Europes skies were deregulated in the nineties. As of 2004, LCCs are now edging into Australasia, led by operators such as Australias Virgin Blue. In Asia, Air Asia in Malaysia has created waves by getting 30% of the domestic Malaysian Market share and generating profits within 3years of inception in 2001. There is no dobt that the growth of LCCs has affected the large network carriers. Their growth and profitability even during the industry recession, which started in 2001, is in sharp contrast to the poor fortunes of major network carriers. In India, this revolution has been brought by national carrier Air Deccan.

LCCs (Low Cost Carriers) and their No Frills Business Model The no frills LCC business model was based on the premise that there were a segment of customers who preferred fares, as they did not need all the conveniences and service frills the major network carriers offering. These travelers really needed an economical, quick, safe and

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timely service between two cities. LCC like Air Deccan has been offering just this in Indian Civil Aviation Industry. For the airline, cutting away the frills would reduce costs, which would in turn enabled the airline to offer lower prices. The economical discounted fares offered by these airlines created a whole new segment of customers, who hitherto found air travel too expansive. These consisted initially of leisure travelers and small businessman. Gradually they began attracting the customers of the network carriers, who for some simple travel itineraries did not need all the conveniences and frills offered by the network carriers. These LCCs also operated on some smaller routes not served well by the traditional network carriers, which simultaneously created a niche segment of travelers, and also helped reduce cost further. While the successful LCCs have based their business on low-costs, they have not compromised on safety, on time flights and customer convenience. The business model and, hence, the choice of operational models of aircraft size, airports, etc., have also helped these airlines cater to an entirely new set of customers at first, and gradually also encroach upon the customer base of the traditional full service operators. The Mechanics of LCCs Low-Cost The cost advantage these carriers created and enjoyed over the traditional airlines was more due to the operational processes that followed from this business model than from the removal of the frills of service as commonly understood by the phrase no frills. So cost advantages of low-cost carriers comes from these simpler processes: Providing only point-to-point service, which increases aircraft and personal utilizations by avoiding the slack of complex flight schedules structured for connecting passengers. Reducing the cost of labor-intensive processes needed to provide baggage handling, and transfer of passengers for seamless connections, which are further complicated by the need to accommodate last minute changes.

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Eliminating in-flight frills, which save on the time and processes of preparing for and delivering such services, thereby, improving aircraft turnarounds.

A simple internet/telephone-based reservations system for point-to-point bookings. This avoids the travel agent-based distribution system for tailored to selling tickets across the globe and to provide customers the convenience of connections and changes required for a complex travel itinerary.

Using a single type of aircraft as all destinations have similar travel times and landing facilities. This result in savings in training, servicing, aircraft downtimes and spare parts inventory holding costs.

Flying to smaller airports, apart from savings in direct landing and parking charges, enables faster aircraft turnarounds.

Thus, the simple limited service model of low-cost carriers is able to achieve significantly better velocity of asset utilization with quicker aircraft turnarounds by saving on the time used up by complex processes in to business model of the traditional full service carriers. The Cost savings of the LCC business model can be summarized in three broad areas. Business model process related cost savings. Overhead (labor) related. Direct Costs savings on frills removed.

LCC (Low Cost Carriers) Business Around The World LCC business in the US In the US, after deregulation in 1978 there were many new carriers, most of which went bust. The strong network carriers were able to out compete and crush most of these me too carriers who operated in their turf. Thats when Southwest used a different business model to 29

compete with enormous success, which was then adopted by other low-cost carriers like Jet Blue and ValueJet (now Air Tran). Now the American LCCs business model has matured, with these carriers not only being able to stand up to competition, but also be more profitable. They have even been able to beat the network carriers on some parameters of service on which they compete, such as reliability and punctuality. By 2004, LCCs were able to capture a share of close to 30% of the domestic market of US. The American Market has matured. Low-cost carriers compete with the traditional network carriers, and also with regional carriers and charters. As the competition between LCCs has increased in the US market, some LCCs have started offering frills to differentiate themselves. Jet Blue offers Satellite TV and even assigned seats.

LCC business in the Europe

Europes first LCC was Ryan Air, which remodeled itself into one in 1991, connecting Dublin with other cities in Britain. Easy Jet the other hugely successful European LCC was launched in 1995 covering routes in the UK from its Luton Base. However, it was only in 1997, when Europes airspace was fully deregulated that pan European LCCs started operating. Hence, for the first few years the LCC business was restricted to travel between the British Isles. Even as of 2004, while LCCs had almost 40% of capacity share in London, it was only 12% and 20% at Paris and Frankfurt. It is only in the last few years that cross country LCC flights increased in Europe. The two earliest LCCs in Europe, Ryan Air and Easy Jet started like their American counterparts offering no frills, point-to-point service from secondary airports. However they focused on two different segments of customers. Easy Jet focused on the smaller 30

business traveler and, hence, operated on major business routes such as from London to smaller cities and holiday destinations. Ryan Air on the other hand focused on the leisure travel market, which was hitherto dominated by Charter airlines, and also on the personal Visiting friends and relatives (VFR) travel market between Ireland and England. This European market is still in a Shakeout stage, where some new LCCs have failed and some others are likely to fail.

LCCs Business in Asia

The first LCC to start in Asia was Air Asia in Malaysia towards the end of 2001. In less than three years it has captured 30% of domestic market share. It is expected to generate profits of $16 mn in 2004, on projected revenue of $120 mn. The interesting fact is that almost all the growth has come from new customers, as Malaysian airlines hardly lost any business in the domestic market in these years. Air Asia has received landing rights in Thailand, Indonesia and the Philippines. Thai Air Asia is a joint venture between Thai Airlines and Air Asia. Singapore Airlines has launched Tiger Airways to cover popular tourist destinations such as Bali, Hong Kong, Bangkok and Phuket. Value Air and Silk Air are two other Singapore-based LCCs. Indonesias Lion Air and Air Paradise are LCC airlines.Malaysias Athena air services and Philippines Cebu-pacific are other LCCs already In operation. In India, Air Deccan has been the pioneer with the LCCno frills business model. Spurred by Air Deccans entry and initial success, many new airlines have announced their intention to enter the domestic airline market using the LCC business model. The UB groups Kingfisher Airlines, Go Airways from the Wadia family, and Royal airlines (formerly Modiluft), have already received government permission to fly and have placed orders for aircraft. These airlines plan to commence operations in the first two quarters of 2005. 31

While the LCC business is relatively new in Asia, it offers a huge scope for the LCC business. Asia has close to 400 cities with over half a million population. The number of travelers, both business and leisure travel is growing rapidly. The main element missing is the presence of enough functional secondary airports.

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SWOT ANALYSIS OF THE INDIAN AVIATION INDUSTRY

SWOT means the strengths, weakness, threats and opportunities. This is one of the essential requirements of any organization and the foundation for understanding the industry of that particular organization. The continuous volatile environment of the aviation industry has been analysed with respect the extended marketing mix ( product, price, place, promotion, process, people and physical evidence). While individual airlines each analyze and make decisions based on their own situations, there are overall industry similarities that all airlines face, with each endeavoring to maximize strengths and opportunities while minimizing weaknesses and threats.

STRENGTHS
A major strength of any airline is the product itself (air travel). Despite downturns, over time air travel continues to grow, not only due to population growth, but also due to an increased propensity to fly. The entry of low-cost carriers pioneered by Air Deccan helped greatly reduce the costs involved in flying. This helped attract consumers for whom air travel was only a dream. Now a number of low-cost airlines are operating in India, namely Go Airways, Spice Jet, and Kingfisher Air, and they have a major share of the Indian aviation industry. Indian labour costs are an advantage, at $30-35 per man-hour. This compares with $55-60 in South-East Asia and Middle East and even higher in the USA and Europe. The change in lifestyle of people and growth in the disposable income has resulted in an increase in leisure travelers for the past few years; 5 years back 85% were business travelers.

WEAKNESS
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All the major players in the aviation industry focus on particular regions rather than focusing on India as a country. For example Air Deccan focuses exclusively on south Indian market while Go Air focuses on southern and western India.

The unplanned location of airport and the lack of proper infrastructure facilities at the airport. Though the government has tied up with private companies such as GMR and has upgraded airports such Delhi and Banglore but still there is a long way to go.

Airlines have a high "spoilage" rate compared to most other industries. Once a flight leaves the gate, an empty seat is lost and non-revenue producing.

OPPORTUNITIES
Government allows 100% FDI via the automatic route for the green field airports. Also, foreign investment up to 74% is permissible through direct approvals while special permissions are required for 100% investment. Private investors are allowed to establish general airports and captive airstrips while keeping a distance of 150 km from the existing ones. About 49% FDI is allowed for investment in domestic airlines via the automatic route. However, this option is not available for foreign airline corporations. Complete equity ownership is granted to NRIs (Non Resident Indians). Foreign direct investment up to 74% is allowed for non-scheduled and cargo airlines. Thus, all these policies promote foreign investment in this industry. Investment opportunities of US$ 110 billion are being envisaged up to 2020 with US$ 80 billion towards new aircraft and US$ 30 billion towards the development of airport infrastructure, according to the Investment Commission of India. Technology advances can result in cost savings, from more fuel efficient aircraft to more automated processes on the ground. Technology can also result in increased revenue due to customer-friendly service enhancements like in-flight Internet access and other value-added products for which a customer will pay extra.

THREATS
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One of the basic weaknesses in the aviation industry is the fuel costs which are 70% higher than International standards. The fuel bill is 40% of operating cost. Aviation Turbine Fuel (ATF) prices in India is around Rs. 37,800 per kilo litre against Rs.21,800 in the Average International Markets. Also 20% of the Operational Budget is spent on training pilots. Furthermore, landing and parking charges are 78% higher than the international average.

There is a shortage of skilled manpower which includes pilots, cabin crew and ground staff. Also there is high attrition rate among the skilled manpower within the aviation industry.

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CONCLUSION
In service sector, the marketing strategy hinges around the marketing mix which is defined as the elements an organisation controls, that can be used to satisfy or communicate with the customers. It includes the 7 Ps which are product place, price, promotion, people physical evidence and process and of late another P relevant to the service industry has been added ie. pace. Though all the competitive airlines keep these basis Ps in mind while devising the marketing strategy but their stress varies and that is what gives them a distinct touch and enabling them to score over the others. While Indian Airlines excels in advertising cum media blitzkrieg and dissemination of information about the strength of the company in a dramatic and innovative manner to establish on emotional credible bond with the customer, Jet Airways prides itself on superior service both on the ground and in the air. It is also very brand conscious and has an emasculate young cabin crew supporting a yellow rose an international symbol of friendship, warmth and caring. Customer satisfaction is of prime importance to Sahara Airline. It is striving to reach and attain newer heights in passenger care comfort, reliability, safety and service. It may also has many firsts to its credit. Its on time performance has been consistently 97.5% and dispatch reliability touches 99.8%. The healthly competition of domestic airlines has set new trends in the quality of service. In the monopolistic environment of Indian Airlines the quality and the desire to win over the constraints was totally dismal. With the oncoming of Jet Airways and Air Sahara there is sea change in the quality of service and the pride of the job. It is a matter of great significance that the airlines staff now care about the passenger comfort and take pains to see that the flight are on time. The high percentage 98% of on time service of Sahara Airlines is the hall mark of their quality of service.

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RECOMMENDATIONS
The research study and the analysis of the various aspects tapped lead to the following recommendation: 1) With the oncoming of the Private Airlines on the country the customer awareness and aspiration of quality of service has been enhanced considerably. So all the airlines should emphasis on providing more efficient services both on the ground and in the air as done by Jet Airways to a large extent. 2) The check-in time should be minimal. Wherever there is likely to be long cues more counters should be opened. 3) The facility of valet services as introduced by Sahara Airlines should be adopted by all airlines and it should be extended to all classes. 4) Tele reservation and computerised check-in procedure should mandatory for all airlines. 5) The process of ticketing and cancellation should be made more easy, smooth and as flawless as possible as most of the respondent were not happy with the present ticketing procedure. 6) Delayed flight which is a very painful experience for the travelers, should be attended to as top priority because the main clientage is business men and they are time bound. 7) There is a need to improve the quality of in-flight comfort especially for a economy class by way of seat pitch, leg room, quality and choice of food. Customer grievance and prompt redressal should also be rated as top priority as this will not only provide the necessary input and the feedback but also would go a long way in improving the image of the airlines.

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BIBLIOGRAPHY
Books and Magazines Service Marketing by Verma, 2008 Annual Report of Air India and Kingfisher. Indian Aviation Weekly, Jan 30th, 2011 Aviation International Times, Oct 17th 2010 Business World, March 7th to 21st 2010

Websites http://indianaviation2011.blogspot.com/2011/05/india-aviation-industry-needs-30-bnfor.html http://www.daijiworld.com/chan/exclusive_arch.asp? ex_id=1522&ex_title=A+Century+of+Indian+Aviation%3A+Challenges+and+Opportunities

www.airindia.com www.iht.com/ www.businessweek.com

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