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1

A STUDY ON

INDIAN AIRLINES INDUSTRY

SUBMITTED TO:

DR.SAMIK SHOME

SUBMITTED BY:

GROUP NUMBER: 1

MARKETING B

PILLAI AKHIL MOHAN

DEEPANJANA GHOSH

KOMAL AGARWAL

ROHIT SINHA

MBA JULY (2013-15)

3

MBA JULY (2013-15)

DECLARATION

This is to declare that the Report titled “Industry Analysis of Indian Airlines Industry” has been

made for the partial fulfillment of the Course Research Methodology in Semester II by Group 1

of Marketing Section B, MBA July (2013-15) under the guidance of Dr.SamikShome.

We confirm that this Report truly represents our work undertaken as a part of our Course. This

work is not a replication of work done previously by any other person/group. We also confirm

that the contents of the report and the views contained therein have been discussed and

deliberated with the faculty.

PILLAI AKHIL MOHAN ……………………….

DEEPANJANA GHOSH ……………………….

KOMAL AGARWAL ……………………….

ROHIT SINHA ……………………….

4

MBA JULY (2013-15)

CERTIFICATE

This is to certify that Group 1, of Marketing Section B, MBA July (2013-15) has completed the

report titled “Industry Analysis of Indian Airlines Industry” under my guidance for the partial

fulfillment of the Course: Research Methodology in Semester II of the Master of Business

Administration.

SIGN:

NAME:

DATE:

5

ACKNOWLEDGEMENT

It gives us great pleasure to thank Alliance University’s Alliance School of Business for

providing us with an opportunity to study this subject and to improve our understanding on the

same.

At Alliance School of Business, we would like to thank Dr. Samik Shome for his guidance

throughout the process and for his extensive support and cooperation for making this Industry

Analysis happen.

His experience, industry expertise and knowledge has helped our group greatly, he has not only

guided the entire group but has also helped us in understanding the different aspects of Research

analysis of an Industry, particularly the Aviation sector in India.

He has instilled confidence in the entire group to be able to conduct the research.

6

LIST OF TABLES

NUMBER NAME PAGE

1.1 Evolution of Airlines industry in INDIA 5-6

1.2 Trend of Foreign Tourist Arrivals during the

period 1995-2010

7

1.3 Estimated Gross revenue earned by sub-sectors

of Indian Civil Aviation sector

8

3.1 Market share of various airlines 16

3.2 Business Diversification 30

3.3 Fleets: Apr-07 32

3.4 Passenger/Cargo forecast till 2016-17 46

3.5 Market share of International Passengers

Carried by Scheduled Domestic Carriers from

India & Foreign Carriers (%)

47

3.6 Comparison with USA and Other Countries 49

3.7 Foreign Carrier’s Pax market shares in

International Routes (FY10 DATA)

49

3.8 Key operating indicators and valuations for the

Global Airline Industry- Full Service Carrier

50

3.9 Key operating indicators and valuations for the

Global Airline Industry- Low Cost Carrier

51

7

LIST OF FIGURES

NUMBER NAME PAGE

1.1 Global commercial airline profitability 3

1.2 2012 worldwide airline financial results per

departing passenger

4

3.1 Market Share representation 17

3.2 Porter’s Five Forces of Competition 20

3.3 Classification of Passengers 24

3.4 Segmentation of Indian Airline Industry 25

3.5 PESTEL Model 27

3.6 Pre and post merger profit and loss 34

3.7 Benefits of Cloud Computing 40

3.8 Benefits of Outsourcing 41

3.9 Expected Profits in 2014 47

3.10 India’s Current and expected future fleet 48

3.11 Unites States Current and expected future fleet 48

8

EXECUTIVE SUMMARY

Following report has been made on the “Indian Aviation Industry”. All the data has been

collected from the internet, research papers and surveys.

Indian aviation industry has changed to a more open and investment friendly sector. It plays a

greater role in the development of the Indian economy. The increase in the income of people,

entry of low cost carriers (LCC), FDI, new government policies, growth in other businesses,

globalization etc. are reasons for the growth of the Indian aviation industry. The aviation sector

in India is expected to have a bright future.

The report gives information on different aspects of the Indian aviation industry. For simplicity it

is divided into various parts and information. Some of the key points are:

(i) Introduction to the Indian aviation industry and defines its importance to the

economy.

(ii) The industry analysis. Under this the following objectives are studied.

Market share and nature of competition

Market segmentation

PEST analysis

Business diversification

Mergers and acquisitions

International exposure

Technology intensity

Marketing initiatives

Future outlook and

Comparison with US and other countries

The whole project gives us detail information about the Indian aviation industry.

In the end of the study we have given up certain recommendations which we think are important

from the point of view of the Indian Aviation Industry.

9

CHAPTER 1:

INTRODUCTION

10

1.1 GLOBAL SCENARIO

Recently, the International Air Transport Association (IATA) forecasted their profit to $11.7

billion1 of the airline industry, which is an 8% decrease as compared to previous estimates. They

have pointed out that there is a weak growth in Asia and a huge drop in the demand for freight.

As in July 2013, Global airline indus2try outlook was seen as a bright scenario for the remaining

year because of North America’s recovery of the economy. IATA forecasted a profit of $12.7

billion to the airline industry and also total number of passengers to be 3.13 billion3.

Figure 1.1 Global commercial airline profitability

From the figure 1.1 it is clear that the profitability is improving where the 2000s peaks are below

the margins and are above the peaks of 1990s.

1 http://www.businessvibes.com/blog/global-airline-market-analysis-2013



11

Figure 1.2 2012 worldwide airline financial results per departing passenger

From the figure 1.2 it can be seen that there is an increase in the revenue per passenger by only

$2.56. Also there is a lag in cost by $10 which excludes $12 ancillaries.

Although there was decrease in the projection of 2013, still it is estimated that the industry will

be successful with regard to the profits of the sector.

While the United States, Middle East and much of the parts of Asia have contributed to the

growth, Latin America and Europe are unstable markets.

The airline companies all over the world have done a profitable task, but the forecast for 2014

will be decided as per the fuel prices. Fuel costs are an important factor as they were responsible

for 31% of the 2013 costs of operating. A profit of $16.4 billion is forecasted by IATA in 2014

because of the oil prices situation.

1.2 INDIAN SCENARIO

The Indian Aviation is now an open, friendly to the investor, and a liberalized one which is quite

different what it was 10years ago. The entrance of LCCs has contributed to a growth of the

sector, with an improvement in the infrastructure and an increase in the operating airlines.

Following are some of the key points in reference to the Indian Airline industry:

(i) 100% increase in the FDI limit has been given by the government for the airlines and

Greenfield airports.

(ii) Increase in the number of airlines including the LCCs, leading an increase in the

competition and reduction of the fare resulting in growth of air traffic.

12

(iii) There had been a number of fleet acquisitions with 300 aircrafts.

(iv) MRO facilities need to be set up because of the rise in the fleet size and also the

modernization of the airports. The expansion of fleet of India has tempted many

players across the globe such as Boeing, Airbus, SIA Engineering, ST Aerospace and

Lufthansa Technik to come up with the same services in India.

(v) There is a big pressure on airlines because of high tax structure, fuel costs and more

user charges, which has raise the need and trend of mergers and acquisitions.

1.3 EVOLUTION OF AIRLINE INDUSTRY IN INDIA

Table 1.1: Evolution of Airlines industry in INDIA

YEAR MAJOR MILESTONES

< 1953 Nine Airlines existed including Indian Airlines & Air India

1953 Nationalization of all private airlines through Air Corporations Act;

1986 Private players permitted to operate as air taxi operators

1994 Air Corporation act repealed; Private players can operate schedule services

1995 Jet, Sahara, Modiluft, Damania, East West granted scheduled carrier status

1997 4 out of 6 operators shut down; Jet & Sahara continue

2001 Aviation Turbine Fuel (ATF) prices decontrolled

2003 Air Deccan starts operations as India’s first LCC

2005 Kingfisher, Spice Jet, Indigo, Go Air, Paramount start operations

2007 Industry consolidates; Jet acquired Sahara; Kingfisher acquired Air Deccan

2010 Spice Jet starts international operations

2011 Indigo starts international operations, Kingfisher exits LCC segment

13

2012

Government allows direct ATF imports, FDI proposal for allowing foreign

carriers to pick up to 49% stake under consideration

2013 Signing of the Jet Airways-Etihad Airways deal.

2013 AirAsia and the Tata Group queuing up to start two new airlines in India.

2014

(yet to

happen)

Commencement or expansion of commercial operations by four global airlines —

Etihad, AirAsia, Singapore Airlines and Tiger Airways.

Source: ICRA (2012)

1.4 ROLE OF AVIATION INDUSTRY IN THE ECONOMY

1.4.1 Major roles

Air transport is an important factor of transport infrastructure of a country, and has a significant

contribution in the development process by creating employment opportunities, improving the

productivity and more efficient transportation of goods and services. It also enhances business

growth, tourism and trade across the economy.

International trade of India has seen a boom because of the reliability and speed across long

distances by air transport. Sectors such as pharmaceuticals, office and electronic equipment,

which are relying on air transport for international trade have a great value.

Thus, aviation industry is the backbone of many services which have shown high growth. Air

transport enhances the connectivity because of its reliability and speed and countries having a

strong aviation sector have the ability to attract Foreign Direct Investment.

Aviation sector has a huge impact on the development of the Tourism Industry. 2.8 billion

Passengers were transported in 2011, which connected the cities across the world with 36,000

routes4. It is so because 2009, 90%

5 of the visitors from different countries arrived to India

through air transport.

Table 1.2: Trend of Foreign Tourist Arrivals during the period 1995-2010

4 http://www3.weforum.org/docs/TTCR/2013/TTCR_Chapter1.4_2013.pdf

5 http://civilaviation.gov.in/cs/groups/public/documents/document/moca_001680.pdf

14

Source: World Bank13, Analysis: MoCA

Aviation industry is a catalyst for the growth of other industries which is in itself an important

contribution of growth6.

Public finances are also supported by aviation sector, which include taxes paid by passengers,

airline companies, airport operators, etc. These also include income tax and MRO firms by the

employees, and also collection of the revenue. Thus, Aviation sector is a major source of tax

revenue to the Indian government of approximately 87,500 each year.

Indian Aviation sector is the 9th largest in the world, which serves approximately 120 million

domestic and 41 million international passengers every year. Indian Airlines is connected well by

over 5 Indian airlines and 86 international airlines7.

6 The contribution of the Aviation industry to the UK economy, Oxford Economic Forecasting,1999

7 http://articles.economictimes.indiatimes.com/2013-03-07/news/37531826_1_tourism-industry-global-

downturn-global-challenges

15

Civil Aviation sector is reflecting value addition and employment by various activities appearing

to be much deeper, thus strengthening the economic foot-print of a country.

1.4.2 Snapshot

The importance of a particular industry is known by the income and employment generated

through it. This can be seen from the table 1.2.

Table 1.3 Estimated Gross revenue earned by sub-sectors of Indian Civil Aviation sector

SUB-SECTORS GROSS INCOME

(Rs.Crores)

AIRLINES Scheduled 43,352

Non-Scheduled 1,528

TOTAL 44,880

AIRPORTS AA1 5,734

Private 3,805

TOTAL 9,539

Maintenance Repair and

Overhaul (MRO)

4,000

Air cargo and Express

Industry

19,000

Ground handling 2,000

Aviation Academies 325

TOTAL 79,744

Source: Respective Annual reports, Industry Sources; Analysis: MoCA

16

It can be seen that the contribution of the scheduled airlines is about 50% of the gross income of

the total sector.

1.5 OBJECTIVES OF THE STUDY

Following are the objectives of the study on Indian Airlines Industry:

(i) To measure the market shares and nature of competition of the Indian Airline Industry.

(ii) To identify the demographics of the flyers.

(iii)To carry out the PESTEL Analysis of the Indian Airline Industry.

(iv) To determine the business diversification of the Indian Airline Industry.

(v) To determine the mergers and acquisitions in the Indian Airline Industry.

(vi) To determine the international exposure of the Indian Airline industry.

(vii) To identify the technologies used in the Indian Airline Industry those play a

strategic role in its development.

(viii) To identify the marketing initiatives used in the Indian Airline Industry.

(ix) To compare the Indian Airline industry with various international airline industry.

(x) To identify the trends in the civil aviation industry projecting the future scenario.

1.6 CONCLUSION

Indian Aviation industry plays an integral part in the development of the economy as a whole

and is one of the major contributors to increase the employment level in the country. Not only

through its direct flight operations but also through ground services and all other supporting

activities that are directly or indirectly related to the aviation sector.

The Ministry of Civil Aviation has taken a number of steps to bring a revival of this sector after a

period of recession in the economy. Aviation sector contributes approximately INR 33,000 Crore

to the GDP of India which is around 0.5%.

It not only brings an economic development but also contributes the up-liftment of the business

industry of the country again indirectly adding to the GDP of the country. Aviation sector acts as

a catalyst in the social up-liftment as a whole.

17

CHAPTER 2:

LITERATURE REVIEW

18

2.1 INTRODUCTION TO LITERATURE REVIEW

As a part of Industry Analysis of the Aviation Sector in India, 10 articles, reports and newspaper

articles were referred for the subject matter. A literature review involves the review of the

previous study that has been carried out in reference to the same subject.

A Literature review can help us better understand:

(i) To learn what has been studied in the past.

(ii) To save time on trying to conduct a primary search, when the topic may have already

been studied.

(iii) To understand the opinion expressed by the experts and researchers.

2.2 SCOPE OF LITERATURE REVIEW

Literature review can help us identify the GAP and provide a guideline on what topic needs to be

studied and whether what type of research design can help us achieve the desired results, which

may be done using an exploratory research, descriptive research or cause and effect relationship

research which is also known as causal research.

The following points are considered while reading the literature review:

2.2.1 Growth in the Airline Industry

Shah (2008), this article extensively speaks about the period of grandeur that the aviation sector in

India has seen. This growth was an outcome of many macro-economic factors such as government

reforms and market lead dynamics. Further the articles talk about the Marketing concept of POD-

Point of Differentiation which various airlines use in order to attract the customers to fly with them.

Airline companies are using techniques such a multiple pricing policies, wherein the prices of the

airline tickets change in seconds and are sold to customer at different prices based on the availability

of the seats and the date of travel. All the airlines have to adhere to some bare minimum barriers such

as minimum number of fleet size, equity, and minimum 5 years of domestic operation to be able to

fly internationally.

The article also sheds light on popular merger and acquisition that have happened recently in the

Indian Aviation Sector such as Kingfisher Airlines with Air Deccan, Jet Airways with Sahara

Airlines.

2.2.2 Major orders in the Aviation Industry

The article about the “Indian Airlines Show Vitality”, talk about how the Indian Airline

companies are not able to manage their cash flow and do not have enough cash reserves to carry

their operations, overburdened by high fuel prices which are always on rise along with heavy

airport charges and lack of sales due to expensive ticket fares as per the Indian Markets.

Indigo Airlines has placed one of the biggest order of the aviation history of 180 out of which

150 are A320 Neo Planes with Airbus. Indigo has also order and upgraded most of its planes

with SHARKLETS which is a different shaped wings that improves the fuel efficiency and thus

help save a lot on cost.

19

2.2.3 Aviation Strategy of Indian Civil Aviation

The aviation industry is growing at an exponential rate. According to Thomas “The estimated

compound annual growth rate (CAGR) of passenger traffic to be planned for, in the aggregate,

would be conservatively of the order of 15 per cent (roughly twice the GDP growth rate) and,

perhaps, even more if the stimulating effect of low fares is considered. This means a doubling of

passenger traffic in about five years. At this rate, by 2020, the nominal end point of the new

Vision, there would be a whopping six fold increase in passenger traffic.” (Thomas, 2007). To

capture this growth a strong aviation strategy is required for all the players in the market.

Thomas further discusses that there is a lack of explicit aviation strategy “In the absence of an

overarching super ordinate goal that is widely shared, the concerted and sustained efforts of the

assorted players involved in this complex, time-, space- and capital-intensive sector may not be

forthcoming and actions on the ground and over time may be at cross purposes. Instead of

affecting the desired paradigm shift in civil aviation, we would end up with a dubious non –

strategic drift.” (Thomas, 2007). Further to gain competitive advantage in the future in aviation

market Thomas suggested that “Indian aviation needs to be "democratised", which requires

moving from an elitist to a "mass transit" mode, for which cost – effectiveness is an imperative.”

(Thomas, 2007).

2.2.4 Merger and Acquisitions

Due to the development of the Aviation sector the infrastructure has also developed to a great

extent which is proving to be beneficial for the economy to a large extent due to its cyclical

effect.

All the companies are continuously engaged in innovation and are now able to attract more and

more new customers due to various pricing policies. Companies have expanded exponentially

due to merger and acquisition except Kingfisher and Air Deccan which has added to losses.

Government of India has also refined the Foreign Direct Investment (FDI) policies which are

now attracting foreign investors to invest in Indian Aviation Sector.

2.2.5 Challenges of Indian aviation industry

Deregulation of the Indian airline industry was in 1990 and due to many rules and regulations it

has become impossible for carriers to be efficient. There have seen many restrictions on foreign

ownership and labor laws which has kept the industry away from innovating. Instead of

protective measures like survival fund, bailouts, airlines have to work with government in order

to tackle long term problems.

There are few missions of the airline industry like introducing more low cost carriers for an

average Indians who dreams to travel by air once in life and also building more runways,

efficiently running the airports and reigning labor costs. There are shortage of workers and

professionals, concerns about safety, lack of accompanying capacity and infrastructure in the

airline industry this has led to stiff competition and rising of the fuel prices.

There have been high debt burden and liquidity constraints and there needs to be an

improvement in the balance sheet. Improved financial profile would help these players to focus

20

on steps to improve long term viability and improve its customer service and brand building. In

the long term the operators must focus on improving cost structure, through rationalization at all

levels which includes routes and fleets which aims at cost efficiency. It also includes return of

pricing power through better alignment of capacity to the demand growth at the industry level.

There has been a high cost of air travel due t the unnecessary government ownership and

regulations of airlines. There has been a change rapidly over the last few decades which has led

to explosive growth supported by structural reforms, modernizations of airports and

improvement in the service standards. In many parts of the world air travel has been transformed

into a major mode of mass transportation.

2.2.6 Aviation industry in India –challenges for the low cost carriers

Due to the liberalization of aviation industry in India there has been a boom for domestic and

international passenger carriers. There has been a growth rate of 44.6% and 8.7% in the domestic

passenger and cargo traffic and there has been a growth rates of 15.8% and 13.8% in the

international passenger and cargo traffic during 2006. The Airport Authority of India (AAI)

manages total 122 airports in the country including 11 international and 94 domestic airports and

28 civil enclaves. 70% of the passenger traffic in the country is handled by top 5 airports and out

of that Delhi and Mumbai together account for more than 50% of the passenger traffic.

According to the latest data compiled by Airport Authority of India (AAI) shows that all the

airports handled 90.44 million passengers during the year 2006 as compared to 67.95 million

passengers handled during the same period in the previous year. Indian Aviation Industry has

seen substantial growth due to-

(i) Low-cost carriers (LCC) like Spice Jet ,Go Air , etc.

(ii) Scheduled domestic air services are available now from 75 airports which was 50 earlier.

21

CHAPTER 3:

INDUSTRY ANALYSIS

22

3.1 INTRODUCTION TO INDUSTRY ANALYSIS

Industry analysis is a process of studying the industry or any specific branch of the industry like

manufacturing, trade and service etc. it helps out in understanding the business and its

environment. Industry analysis even acts like an assistance in sorting out the investment

decisions and supports in grabbing the opportunities which are forecasted by it.

Here the industry analysis which is done upon the Airline Industry is a report that tells us about

the current scenario of the industry.

The present condition of the industry, the challenges they are facing, the advantages they are

having in the future timeline can be known by observing this analysis. The main objective behind

the industry analysis is that to reveal the actual technique that industry practices to drive away

the competition in order to achieve high end profits. Some of the other objectives are like

identifying the factors behind the success of the company.

Industry analysis assists in assessment of the company’s performance in terms of profits, market

share, and other future opportunities in attracting the customer base. It is also useful for the

investors in making some investing decisions. The shareholders of the company also observe the

analysis of that particular industry, so as to make some vital decisions like buying their shares,

selling them and even contributing to the company’s equity by investing for their product

developments, business expansions and growth orientations.

The objectives that are discussed in the analysis will give us the broader view of the industry in

all the aspects pertaining to it. Starting from market share they are holding to the future outlook,

forecast of the different airlines is discussed in this analysis. Airlines industry is a highly

competitive market with limited number of players. So the data given in this analysis is derived

from various written research papers and even from manual observations.

Industry analysis of the airlines industry covers the key elements like industry’s competitive

conditions, performance of the industry, attitude of the government, market penetration

capabilities of the respective airlines, and porters five force model, which gives a detail about the

market conditions prevailing in and around the industry.

The features which are discussed in the analysis part are broadly related to the structural and

operational descriptions of the industry.

23

3.2 OBJECTIVE 1

TO MEASURE THE MARKET SHARES AND NATURE OF

COMPETITION OF THE INDIAN AIRLINE INDUSTRY.

3.2.1 MARKET SHARE

As per DGCA data foreign carriers enjoy around 65% of the market share in international traffic

and 27% of the total passenger traffic including domestic and international. According to Market

line 2012 “The Indian airlines industry showed healthy growth over last couple of years with the

exception of 2009. The industry is expected to continue the growth with quite high grow rates in

the forthcoming years up to 2016.

Table 3.1 Market share of various airlines

SOURCE: DGCA

AIRLINE

MARKET SHARE (%)

INDIGO 29.5

JET AIRWAYS + JETLITE 22.5

SPICEJET 19.8

AIRINDIA (DOM) 19.1

GOAIR 9.0

24

Figure 3.1Market Share representation

3.2.1.1 Indigo

Indigo was launched on August 4, 2006. Interglobe Enterprises is the Parent company of Indigo,

and is owned by Mr. Rakesh Gangwal. It is a privately owned LCC and is based in Gurgaon with

its main base, Indira Gandhi International Airport. It is one of the fastest growing LCC in the

world and is amongst the best offering professional services with discounted airfares and

economical prices with great deals. It operates to all the major cities of India. 8 Its fleet is of 76

new Airbus A320 aircraft. It offers 485 daily flights connecting to 36 destinations .It’s services

are user friendly as compared to other airlines.9

Budget airline Indigo has widened its lead over rivals, touching a 29.8% market share ,the

highest since its 2006 launch according to the data released by the Directorate General of Civil

Aviation (DGCA). Indigo has seized the opportunity with both hands once it became apparent

that kingfisher was on its way out. Passengers will continue to pay higher fares with one airline

dominating to this extent as Indigo’s share is highest than any other airlines.10

8 http://www.makemytrip.com/flights/indigo_airlines-history.html 9 http://en.wikipedia.org/wiki/IndiGo

10http://www.livemint.com/Companies/rLH5i8cGefPFZswxxObSKO/IndiGo-widens-lead-to-30-

market-share.html

Source: DGCA

http://www.livemint.com/Companies/rLH5i8cGefPFZswxxObSKO/IndiGo-widens-lead-to-30-market-share.html

http://www.livemint.com/Companies/rLH5i8cGefPFZswxxObSKO/IndiGo-widens-lead-to-30-market-share.html

25

3.2.1.2 Jet airways and Jetlite

Jet Airways was founded on 1st April 1992 and it commenced its operations from 5

th May 1993.

It is the second of India’s two major Airlines after Indigo Airlines in terms of market share and

passenger carried. It operates over 3000 flights daily to 76 destinations worldwide .It is owned

by Naresh Goyal.

It’s international hub is in Brussels Airport , Belgium. It’s main hub is in Mumbai and it also has

secondary hubs in Delhi, Kolkata , Chennai and Bangalore.11

Jetlite was established on September 20th

1991 as Sahara Airlines .It started it’s operations on 3rd

December 1993 with two Boeing 737-200 aircraft . It’s initial base was in Delhi. On 2nd

October

Sahara Airlines was rebranded as Air Sahara though it’s registered name remained Sahara

Airlines. It became an international carrier on 22nd

March 2004 and it’s starting flight was from

Chennai to Colombo. In 2005 the airlines suffered huge loss and so it went ahead for a takeover

deal with Jet Airways in 2006. Jet Airways first takeover deal was on January 19,2006 offering

US$500 million to Air Sahara but this deal failed. Jet Airways second takeover deal was on April

12 , 2007 with US$340 million which was successful and on April 16, 2007 Jet Airways

renamed Air Sahara as JetLite as a low-cost airline.12

.Jet Airways and JetLite together has a market share of 22.5% launch according to the data

released by the Directorate General of Civil Aviation (DGCA) which is expected to rise in the

coming years.

3.2.1.3 SpiceJet

SpiceJet is an Indian low-cost airline and is owned by the Sun Group of India. It’s registered

office is in Chennai and it’s corporate office is in Gurgaon.13

Spicejet is a low cost Airline and is

based in New Delhi . it began it’s service in May 2005 and by 2012 became India’s third largest

Airlines in terms of market share . It was earlier known as Royal Airways and is a recarnation of

ModiLuft. It started it’s service with Rs. 99 fares for the first 99 days. In 2007 it wsa voted as the

best low-cost airline in South Asia and Central Asia by Skytrax.14

Spice Jet is also increased it market share from 14% to 19.8% during last year and a competitor

to Jet airways. “There is no doubt that the India air market is huge, if the price is right” states

Mark Winders, CEO Spice Jet. They had a remarkable success in the last several weeks. They

have operated consistently with over a 95% seat load factor. While this overwhelming success

they have put some strain on their new operations. Remarkably their overall operating

performance has been very good.

11

http://en.wikipedia.org/wiki/Jet_Airways 12

http://www.makemytrip.com/flights/jetlite-history.html 13

http://en.wikipedia.org/wiki/SpiceJet 14

http://www.makemytrip.com/flights/spicejet-history.html

26

3.2.1.4 AirIndia (DOM)

AirIndia began it’s journey in 1932 under the aegis of Tata Airlines which is a division of Tata

Group . In 2007 AirIndia was merged with Indian Airlines and is the only state-owned airline in

the country. It’s main base is at Chhatrapati Shivaji International Airport in Mumbai and Indira

Gandhi Airport in Delhi. It connects 146 destinations around the world.15

AirIndia’s market share is 19.1% and there’s not much difference between the market share of

spicejet and AirIndia. It grew from 18.5 % during the year 2012 to 19.1% in 2013. The Airlines

on-time performance also showed an improvement by touching 83%.16

3.2.1.5 GoAir

GoAir is an Indian low-cost Airline and is based in Mumbai and is the aviation foray of the

wadia Group.17

GoAir was established in June 2004 and it started it’s operations in October 2005

with a fleet of around 20 leased Airbus A320 aircrafts. In mid- January 2007 the airline planned

for it’s expansion and on January 24,2007 it announced that Florida based Airline reservation

system provider Radixx International had taken over the airlines over all reservations and

passenger management functions.18

GoAir’s Market Share is 9.0 % and it managed to improve it’s market share due to the discounts

it offered. It also had a significant improvement in the load factor.19

It is also evaluating their

plans to lease planes over the next two – three years and it is planning to do so to retain it’s

market share.20

3.2.2 NATURE OF COMPETITION

The Airline industry is highly competitive and is subject to rapid changes. In order to compete

effectively against

There are basically two types of markets other airlines with greater financial resources or with

low operating costs the nature of competition in the market changes is very difficult.21

one is the

perfect competition and the other is monopoly. Airline industry comes under oligopoly market

15

http://www.makemytrip.com/flights/air_india-history.html 16

http://archive.indianexpress.com/news/air-indias-market-share-passenger-revenue-grow-in-q2-

of-201314/1187822/ 17

http://en.wikipedia.org/wiki/GoAir 18

http://www.makemytrip.com/flights/goair-history.html 19

http://articles.economictimes.indiatimes.com/2013-12-18/news/45338317_1_market-share-

goair-cent-share 20

http://www.business-standard.com/article/companies/goair-mulls-leasing-planes-to-retain-

market-share-113122000781_1.html 21

http://mis.kent.edu/Users/weinroth/public/July%208%20Southwest%20Progress%20Report.htm

27

and it is between the two extreme ends of market types. In this type there are few suppliers

controlling a large share of market. Pricing falls between perfectly competitive market where a

player have no pricing power and a monopoly market where a single player according to the

demand can fix the highest price.

Figure 3.2: Porter’s Five Forces of Competition

Source

22

3.2.2.1 Competitive Forces:

3.2.1.1 Rivalry among Sellers

Rivalry among sellers is moderate to strong . Airlines compete on price and services they

also compete on the frequency of flights , reliability of services , frequent flyer programs

and other amenities. In the recent years the airlines are concentrating more on returning

to profitability than expansion.

3.2.1.2 Potential New Entrants

The potential of new entrants is weak to moderate . It has barriers of entry due to the low

traffic levels and a lack of desirable gate access in airports. There are several other

reasons which can cause difficulties for new entrants :-

1. Capital-intensive

22

https://www.google.co.in/search?q=nature+of+competition+in+the+airline+industry&source=ln

ms&tbm=isch&sa=X&ei=CRM5U6z5OIOrrAfwoYGABg&ved=0CAcQ_AUoAg&biw=1242&

bih=585#facrc=_&imgdii=_&imgrc=_JCH0mMfK-

AyvM%253A%3BjmlR30yW3BRONM%3Bhttp%253A%252F%252Fhbr.org%252Fhbrg-

main%252Fresources%252Fimages%252Farticle_assets%252Fhbr%252F0801%252FR0801E_

A.gif%3Bhttp%253A%252F%252Fhbr.org%252F2008%252F01%252Fthe-five-competitive-

forces-that-shape-strategy%252Far%252F1%3B390%3B341

28

2. Labor-intensive

3. Energy-intensive

3.2.1.3 Substitute Products

The substitute Products are moderate in the airline industry. There are many substitutes

that exist in relation with the airine industry like bus services, rail services and also

personal transportation. They are considered more convenient for shorter distances due

to the lower cost and is preferred only for longer distances.

3.2.1.4 Supplier Bargaining Power

Supplier bargaining power is moderate to strong .Aircrafts are costly and pieces of

equipment are also costly for an airline company. There are only two suppliers that

exist in the airline industry that is Boeing and Airbus. Due to the limited suppliers they

have greater power in setting prices. It is also an fuel-intensive industry so there is also

regular swings in fuel prices offered by fuel suppliers.

3.2.1.5 Buyer Bargaining Power

Buyer bargaining power is weak. There are many individuals and organizations for

buyers of airline tickets so as a cohesive group very little power is exerted by the

buyers.23

3.2.2.2 Key factors for competitive success

Following are some of the key factors with reference to the competitive success of

Airline Industry:

3.2.2.2.1 Locations that an airline services

The airline must focus on servicing in particular geographic markets and there is also a

need to offer routes between markets that are desired and utilized by customers.

3.2.2.2.2 Cost structure of an airline’s operations

Costs in the airline industry includes maintenance , fuel , labor , fees and lease payments

for the operation in the airports and various other costs including food , entertainment

,etc. If the airlines are successful to control costs then they can attract customers with

lower fares and can also increase its overall profitability.

3.2.2.2.3 An Airlines workforce and it’s interaction with customers

The workforce of an airline industry defines the customer’s perceptions of the airline’s

image. if the workforce is pleasant it can repeat business and it the workforce is sullen it

can drive customers away to rivals.

23


29

3.2.2.2.4 Reliability of Services

Due to the reliable service of an airline it develops a positive image among customers .

Reliability can be measured by several elements:-

1. Reports of mishandled baggage

2. On-time arrival of flights

3. Boarding denials from overbooking flights

4. Passenger complaints

If any airlines is able to control these elements they can provide better services to the

customers.24

3.2.3 HERSFINDHAL-HIRSCHMAN INDEX

It is an indicator of the amount of competition among the individual firms to the overall industry.

Market shares of aviation industry as for August 2013 are stated as below.

Indigo: 29.5%

Jet airways: 22.5%

Air India: 19.1%

Spice jet: 19.8%

Go air: 9.0%

HHI =(29.5)^2 +(22.5)^2+(19.1)^2+(19.8)^2+(9.0)^2 = 2214.35

Rules:

If HHI index < 0.01 (or 100) – highly competitive index.

If HHI index < 0.15 (or 1,500) – un-concentrated index.

If HHI index > 0.15 (or 1,500) and < 0.25(or 2,500) -- tells moderate concentration.

If HHI index > 0.25 (above 2,500) – tells high concentration.

This indicates our industry firms are in moderate concentration.

3.2.3.1Guidelines of HHI:

A HHI index below 0.01 (or 100) indicates a highly competitive index.

A HHI index below 0.15 (or 1,500) indicates an un-concentrated index.

A HHI index between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration.

A HHI index above 0.25 (above 2,500) indicates high concentration

This indicates our industry firms are in moderate concentration.

24


30

3.3 OBJECTIVE 2

TO IDENTIFY THE DEMOGRAPHICS OF THE FLYERS.

3.3.1 Demographics of flyers-Market Segmentation

Market Segmentation is the marketing strategy that divides the broad target market into

subsets of consumers with common needs. It is designed and implemented to target

specific customer segments, addressing their needs or desires that are common in the

segments.

It is very difficult to for the companies to fulfil the needs and demands of each and every

customer but the companies try their level best to fulfil their needs and demands and for

this they follow an approach called target marketing.

Main objectives of market segmentation are –

(i) Markets have a variety of product needs and preferences

(ii) Markets can better define needs of the customers

Market is segmented on the basis of age , family size , gender , household income ,

occupation , education , religion ,etc.

Airlines segment the market according to the demand of services. There are mainly two

types of segments in which the airline industry has divided its customers-

(i) Segment in which the customers are willing to pay for better services offered by

the airlines. They can buy tickets even if the cost is high for better services

(ii) The second segment is the one in which the customers look for discounts and they

focus mainly on the fares rather than the services offered by the airlines.25

3.3.2 Classification of Passengers in Indian Airline Industry

The passengers depending upon the price and time factor are broadly segmented into four

types.

25

http://www.researchomatic.com/Passenger-Airline-Industry-45556.html#congrats

31

Figure 3.3 Classification of Passengers

3.3.2. 1Type 1: Sensitive to Time and insensitive to Price

(i) Business travelers who can pay high price

(ii) They need travel flexibility and last minute availability of seat is extremely important

3.3.2.2 Type 2: Sensitive to both Time and Price

(i) Few business travelers must make trip but are flexible to secure reduced fare

(ii) They cannot book far enough in advance to get the lowest fares

3.3.2.3 Type 3: Price sensitive and insensitive to Time

(i) Leisure and vacation travelers who are willing to change time and day of travel to find

seat at the lowest possible fare

(ii) Don’t care much about comfort

3.3.2.4 Type 4: Insensitive to both Time and Price

(i) Passengers who are willing to pay for high level of services

(ii) The segmentation of customers is done on the basis of their travels as leisure travelers

and business travelers. The business travelers are sensitive to time, their opportunity cost

of time is very high and leisure travelers have lot of time to choose the airline which offer

best service according to their budget.

The segmentation is also done on the level of luxury travelers want offered by different class of

airlines. This is done on the business class, economy class and premier class offered by the

airlines. Business and premier class are generally found in international airlines whereas

economy class is found in domestic airlines. Business class is the most costly and is suitable for

business travelers for whom price of ticket is not important. Premier class is cheaper than the

business class and is preferred by above middle class. Economy class is for people who belong to

the middle class and below it, who value for money and don’t care much about comfort.

32

3.3.3 Segments

The segmentation in Indian airlines majorly concentrates on the income factor of the people.

This is because there is a gradual increase in middle class people’s percentage year by year.

Figure 3.4 Segmentation of Indian Airline Industry

3.3.3.1 Low Cost Carrier (LCC):

Low cost carrier airlines have less fare and fewer comforts. They have low ticket prices and

limited services. Such airlines charge for extras like food, seat allocating, baggage, priority

boarding etc.

Ex: Spice Jet, Indigo, Jet Lite and Go Air.

3.3.3.2 Full Service Carrier (FSC):

Full service carrier airlines provide all types of facilities which make the journey comfortable.

The price of ticket is high. They provide extra in-flight services such as food and entertainment.

Ex: Jet Airways, Air India.

3.3.4 Market Segmentation of various Airlines

3.3.4.1 Market Segmentation of Indigo Airlines

Indigo’s market segment is mainly for cost conscious passengers and their target group is

lower middle class or middle class people who are conscious about the fares and are

concerned mainly about the price not services.26

It positioned it’s services on high

efficiency and nice experience, they differentiated their services in such a way that the

customers would perceive it not only as a low-cost carrier but also the one which is

affordable, hassle-free and efficient.27

26

http://www.mbaskool.com/brandguide/airlines/388-indigo-airlines.html 27

http://pitchonnet.com/blog/2011/05/15/cover-story-indigo-flying-high/

33

3.3.4.2 Market Segmentation of Jet Airways and JetLite

They are concerned more about the services than the fares ,their segment is

mainly upper class people who are ready to pay any price for the services

provided. They have two segments business class and economy class.28

3.3.4.3 Market Segmentation of SpiceJet

Indigo’s market segment is mainly for cost conscious passengers and their

target group is lower middle class or middle class people who are conscious

about the fares and are concerned mainly about the price not services. Their

services offered are well received by the customers.29

3.3.4.4 Market Segmentation of AirIndia

AirIndia’s market segment is middle class people and their main aim is to

look towards the needs and demands of each and every customer and

provides them with the best fares with very good services as compared to the

other airlines.

3.3.4.5 Market Segmentation of GoAir

Indigo’s market segment is mainly for cost conscious passengers and their

target group is lower middle class or middle class people who are conscious

about the fares and are concerned mainly about the price not services. 30

3.4 OBJECTIVE 3

TO CARRY OUT THE PESTEL ANALYSIS OF THE INDIAN AIRLINE

INDUSTRY.

3.4.1 PESTEL ANALYSIS

Luxury , comfort and convenience comes in our mind when we think about airlines .The

airlines worldwide suffer due to the higher operating costs , lower profits and decreasing

margins. Radical restructuring can help the airlines revive its fortunes. PESTLE analysis

is used to analyze the current state of the airline industry.

28

http://www.slideshare.net/shubhraha/jet-airways-strategy 29

http://www.mbaskool.com/brandguide/airlines/538-spicejet.html 30

http://www.mbaskool.com/brandguide/airlines/387-go-air.html

34

Figure 3.4 Pestel Model

3.4.1.1 Political

The political environment of the airline industry is highly regulated this is because the global

aviation industry gives importance to passenger safety and so they have resorted to higher

regulations for the operation of the airlines. There is also deregulation on the supply side which

has lead to more competition among airlines and there is also regulation on the demand side

which means that the passengers and fliers can press for more amenities and low prices.31

3.4.1.2 Economic

It is very difficult for the global airline industry to recover from the aftermath of the 911 attacks

and with this there’s also recession. The other reason is the fluctuations in the oil prices due to

the Second Iraq War and the sudden spike in the oil prices before the great recession of 2008.

Due to the global economic slowdown the airlines are struggling the main reasons being

declining passenger traffic, competition from low cost carriers , fuel prices being higher , labor

demands and high costs of maintenance and operating costs. Due to these reasons the airlines

have gone to heavy losses and have been prone to bankruptcies and closure because they could

31

http://managementstudyguide.com/pestle-analysis-of-global-aviation-industry.htm

35

not afford to profitably run their operations. This has lead to many mergers and acquisitions in

the airline industry. 32

3.4.1.3 Social

Social changes of a generation has lead to more demanding customers in terms of services so the

airlines have to balance their costs with their increasing demand. Customers are ready to pay for

the services provided and due to the Baby Boomer generation the airlines are loosing their source

of income. The profile of passengers have also changed there are more number of economic

passengers than business passengers who prefer improved communication facilities rather than

flying down to meet their business partners.

3.4.1.4 Technological

The airline industry uses technology extensively in it’s operations so they are often

recommended to make use of advanced technology for the front as well for the back office.

Mobile technologies need to be adapted for ticketing ,distribution and customer service. There’s

also a need of the social media to be leveraged by the airline industry.

3.4.1.5 Environmental

Passengers are counting their carbon footprint with climate changes entering the social

consciousness as the passengers are nowadays more environmentally conscious. This has forced

the airlines to adopt green flying and they are being more responsive to the concerns of the

environmentalists. The airlines are concentrating a lot on their CSR activities due to the social

responsibility initiatives becoming more pronounced. 33

3.4.1.6 Legal

The number of lawsuits against airlines from workers as well as the customers has gone up. The

regulations are also being strict with the airlines and they are coming out with new strategies and

they are bothered if the airlines are violating any laws. The each and every move of the airlines

are being scrutinized regarding the delays, safety issues and other fears.

32 http://managementstudyguide.com/pestle-analysis-of-global-aviation-industry.htm 33

http://managementstudyguide.com/pestle-analysis-of-global-aviation-industry.htm

36

3.5 OBJECTIVE 4

TO DETERMINE THE BUSINESS DIVERSIFICATION OF THE INDIAN

AIRLINE INDUSTRY.

3.5.1 BUSINESS DIVERSIFICATION

3.5.1.1 Introduction to Indian Companies Business Diversification is a term, which means extension of business into disparate fields. In

this, we will have a close look on few of the companies or groups, which at present other than

running an Airlines company have any other businesses or is it a standalone company. The few

of the Airlines companies can be listed as follows:

3.5.1.1.1 Indigo Airlines:

This airline is the best Airline in the country both in terms of low cost & services. The

parent company of Indigo (InterGlobe Aviation) is InterGlobe Enterprises. InterGlobe

Enterprises was founded on September 13, 1989. Its headquarters is in Gurgaon,

Haryana. Other than Airlines its business is also diversified in other sectors such I.T.

(InterGlobe Technologies), Hospitality (InterGlobe Hotels), Travel (InterGlobe Air

Transport) etc. Indigo started its operation on 4th August 2006.

3.5.1.1.2 Spice Jet:

Spice Jet is a division of Sun Group, which is based in Chennai, Tamil Nadu. Sun Group

is one of the largest media network in the country. Other than Spice Jet, divisions, which

the company has, are Dinakaran, Sun Pictures, Sun TV, Red FM 93.5 etc. The company

also owns an Indian IPL team ‘Sun risers Hyderabad’.

3.5.1.1.3 Go Air:

Go Air is a part of Wadia Group which was founded in the year 1736 by Lovji

Nusserwanjee Wadia. The company also consists of three independent companies which

are also listed on Bombay Stock Exchange. These include: Bombay Dyeing- which

comes under textile industry, Bombay Realty- which deals with Real Estate & Britannia

Biscuits- a company which sells Biscuits.

3.5.1.1.4 Air India:

Air India is a standalone company, which is under Govt. of India. It does not have any

other business, which means it is completely into Aviation Sector. Its parent company is

Air India Ltd. The subsidiaries of the company are Air India, Air India Express (Cargo)

& Air India Regional.

3.5.1.1.5 Jet Airways:

Jet Airways is a standalone company, which commenced its operation on 5th May 1993.

It is the second largest Airlines in the country based in Mumbai. The subsidiaries of the

company are namely Jet Lite & Jet Konnect.

37

3.5.1.1.6 Kingfisher Airlines:

Kingfisher airlines is found in 2003 and commenced its operations from 9 may 2005. It

has its main hub in Bangalore International Airport and secondary hubs at Mumbai and

Delhi airports. Its parent company is United Breweries Group. Kingfisher Express is its

subsidiary. Kingfisher airlines also hold the franchise of IPL team Royal Challengers

Bangalore. So, it is a not a standalone company.

Table 3.2 Business Diversification

AIRLINES DIVERSIFIACTION

Air India Limited Standalone

Jet Airways and JetLite Standalone

SpiceJet Standalone

Go Air Conglomerate

IndiGo Conglomerate

38

3.6 OBJECTIVE 5

TO DETERMINE THE MERGERS AND ACQUISITIONS IN THE

INDIAN AIRLINE INDUSTRY.

3.6.1 Consolidation – Mergers and Acquisition

Since 1950s acquisition and merging has started and yet it is happening till now. It is obvious to

happen because these phenomenons always bring better competitive and technological strength

in the concerned business. Before the discussion of analysis of the Indian civil aviation it is

better to put a glimpse on the concepts of acquisition and merger.

3.6.1.1 ACQUISITION OF AIR SAHARA BY JET AIRWAYS

Air Sahara’s 100% shares were acquired by Jet Airways, on 20th

.April 2007 which was 15

months later the signing of the purchase agreement. Earlier this month, Air Sahara was taken

over for INR14.5 billion34

by Jet Airways which was 35% lower than the initial deal. After

acquiring Air Sahara the name was changed to JetLite.

3.6.1.1.1 Minor Details of the Acquisition

Announcement Day – 20th

.January, 2006

Place – New Delhi

Speaker – Mr. Naresh Goyal (CEO Jet Airways)

Closing Day – 21st.

April, 2007

Place – New Delhi35

3.6.1.1.2 Events after the Acquisition

The Jet- Sahara Acquisition posed some important challenges, with the increase in the short

term risks of the carriers. Also, Jet had no margin for errors and had to focus on Air Sahara.

Following points are of importance in relation to the acquisition:

(i) Fleet

The achievement of fleet efficiencies was not easy for Jet Airways. There was a mixture

of Air Sahara’s B737 classic aircrafts and also some of them were quite old. Also the

fleet operation was from different types of engine.

The first thing Jet needed to do was to fully utilize the operations of the fleet. What the

Jet Airways did was that they replaced the Sahara’s CRJs with ATRs with were common

34

http://capaindia.com/PDFs/Jet-Airways-May-07.pdf

35 http://nrao-m-a-handbook.blogspot.in/2007/09/acquisition-of-air-sahara-by-jet.html

39

for them. Also they needed to achieve efficiencies in costs through common maintenance

of both the B737 and ATRs.

Table 3.3 Fleets: Apr-07

JET AIRWAYS SAHARA COMBINED

(JETLITE)

B737-300 2 2

B737-400 6 3 9

B737-700 13 7 20

B737-800 28 7 35

B737-900 2 2

CRJ-200 7 7

ATR-72 8 8

A330-200 2 2

A340-300 3 3

TOTAL 62 26 88

Source: Centre for Asia Pacific Aviation

(ii) Staff

New corporate structure was needed to be made by Jet management, rationalization of

the workforce and also to integrate a deal between both the carriers. An employee

which was not required by one was taken over by the other, as the two had made a

commitment that the employees won’t lose their jobs as a result of the deal.

(iii) Network

Jetlite was the only carrier which was given permission for operating internationally, in

spite of the condition that a carrier must be 5 years in domestic flying.

(iv) Financing

Jet Airways funded the take-over through $450 million of promoter’s equity36

. The

amount which was to be paid to Sahara was given in all cash.

36 http://nrao-m-a-handbook.blogspot.in/2007/09/acquisition-of-air-sahara-by-jet.html

40

Thus it can be said, that this acquisition led Jet Airways in cost reduction scope and capacity

expansion without compromising in excess expenses. This largest acquisition also led Air Sahara

in relief of debt. And all above Indian economy was looking forward in better position due to

new cash flows in airlines and purchasing new aircrafts.

3.6.1.2 MERGER OF AIR INDIA AND INDIAN AIRLINE

The merger of Air India and Indian Airlines was approved by the government of India in the year

2007. The two airlines are merged into a new company called National Aviation Company of

India ltd. The merger entity will operate its flights under the brand name ‘AIR India’. It operates

its flights on the domestic as well as international sectors. Now Air India has a combined fleet of

112 aircrafts37

.

3.6.1.2.1 Aim of the Merger

Following are the reasons why the acquisition took place:

(i) Create the largest airline in India compared with other airlines.

(ii) Provide an integrated service of both international and domestic that will enhance

customer proposition.

(iii) Use the resources optimally without incurring extra cost.

(iv) Provide an opportunity to use the employees with the optimum potential.

(v) Enable routes rationalization and eliminating of unprofitable routes by offering

more competitive price.

(vi) Potential to launch new business that gives profit.

37 http://pib.nic.in/newsite/erelease.aspx?relid=30435

41

Fig 3.5 Pre and post merger profit and loss

3.6.1.3 MERGER BETWEEN KINGFISHER AND AIR DECCAN

Kingfisher airline was established in 2003 by the United Breweries group of Bangalore. It started

its commercial operations in 2005 from Mumbai to Delhi and also started its international

operations with London.

United Breweries Holdings Limited (UBH) took over Deccan Aviation Private Limited (DAP)

by 26% stake on May 31, 200738

, owner of Air Deccan which was known as a low-cost airline in

India. 5.5 billion Was39

paid by UBH making it a largest holder of DAP.

3.6.1.3.1 Post merger situation

Following are the results after the merger-

(i) The combined airline was now India’s largest domestic airline with a fleet size of

71 aircrafts40

.

(ii) 537 flights to 69 cities41

were offer by the new airlines.

(iii) The market share was 30% for combined airline, which made them the second

largest in the country.

(iv) After the merger the Kingfisher is focusing on international routes and Air

Deccan in domestic areas.

38 http://ibef.org, December 14, 2006

39 www.centreforaviation.com, March 7, 2007

40 "Kingfisher-Air Deccan: Different, Yet Similar,"The Hindu Business Line, June 01, 2007

41 www.livemint.com, June 04, 2007

42

(v) The Air Deccan is continuing its operations as a low cost carrier while

Kingfisher as a full service carrier.

(vi) The Kingfisher can save a lot of operational cost. It helped them to expand its

services internationally. They can reduce their maintenance cost. If they manage

their routes which are more profitable with low fare then they can attract more

passengers.

3.6.1.4 TATA JOINT VENTURE WITH SINGAPORE AIRLINES

Tata sons are a holding company of Tata groups. As FDI in aviation industry is up to 49% so the

Singapore airlines ventured with Tata with 49% share and Tata with 51% in full services carrier

groups in Air Asia42

.

Indian conglomerate Tata group and Singapore Airline planned to set up a new full service

airline in India. The two companies plan is to invest 100 million initially in the new airline. Tata

own 51%and Singapore airline owns 49%. Due to the losses in Indian Aviation industry it

opened to foreign investments last year.

Singapore airline is Asia’s 2nd biggest carrier by market capitalization. The FDI of 49% allowed

is to provide an opportunity for the foreign investor to invest in domestic carriers. It will increase

the growth of aviation industry.

The investment is happening in India at appropriate time. By this the investors will show interest

in investing in Indian market. This should be approved by different agencies like DGCA, tax

department etc. to commence their operation.

3.6.1.5 TATA JOINT VENTURE WITH MALAYSIAN CARRIER AIR ASIA

Malaysian low cost carrier Air Asia entered into the aviation sector of India. As FDI increased

from 26% to 49% Malaysian’s Air Asia decided to take a venture with Tata son’s ltd and Arun

Bhatia’s Telstra Trade Place Pvt Ltd. Tata sons will hold 30% in the joint venture and Hindustan

aviation of the Bhatia will hold 21% stake43

.

It is the first investment in the airline industry after the FDI is allowed Air Asia said that it

should start its operations from Chennai and focus on connecting to Tier-2 and Tier-3 cities.

The three partners signed the agreement and gave the proposal to the Indian government. It

should evaluate this agreement and believe that the investment will produce better results. The

government strongly believes in introducing low cost carriers that will stimulate the growth in

the market. They are trying to focus on the cost structure which will benefit the Indian consumer.

42http://www.livemint.com/Companies/PA3J9VHjGRWPNYKT3mlV2K/Tata-Group-Singapore-Airlines-incorporate-airline-venture.html 43

http://www.thehindu.com/business/Industry/airasia-ties-up-with-tatas-to-start-airline-in-india/article4435684.ece

43

3.6.1.6 JET AIRWAYS AND ETIHAD AIRWAYS DEAL

Etihad airways took 24% stake of Indian Carrier Jet airways for $379 million44

. Etihad airways

currently operated to 9 Indian destinations with a total of 59 flights per week.

Following are some of the important points related to the deal-

(i) The deal will create a network of 140 destinations.

(ii) The passengers of Jet Airways will gain a direct access to global network from 23 cities.

(iii) New fights will be introduced by Jet Airways from Hyderabad and Bangalore.

(iv) Jet Airways position will be strengthened by the investment of US$600 million45

.

3.7 OBJECTIVE 6

TO DETERMINE THE INTERNATIONAL EXPOSURE OF THE INDIAN

AIRLINE INDUSTRY.

3.7.1 INTERNATIONAL EXPOSURE

In recent times we can see there is a great expansion on international operations by the domestic

players. We even have many transactions related to imports like mainly the fuel and spare parts

of aircrafts.

3.7.1.1 Airports Authority of India

The Airports Authority of India (AAI) has been involved in various consultancy projects with

countries like Afghanistan, Libya, Algeria, Maldives, Yemen, Nauru, Mauritius, Tanzania etc. It

also provides trained personnel for operation, management and maintenance of airports in these

countries.

3.7.1.2 Aviation Turbine Fuel

Direct import of Aviation Turbine Fuel (ATF) was permitted by the union budget 2012-13 for

Indian carriers as actual users. At present the airlines buy ATF from oil marketing companies

which is subjected to sales tax varying from 5% - 30% depending upon the state. On average

airlines pay 22-26% sales tax on ATF for domestic operations. With the option to import directly

the taxes on ATF will reduce as they will have to pay only import duties and they can exempt

from paying sales tax. Thus it will result in large savings for them.

44

http://www.jetairways.com/EN/JP/PressReleases/JetAirwaysEtihad.aspx

45 http://www.jetairways.com/EN/JP/PressReleases/JetAirwaysEtihad.aspx

44

3.7.1.3 Leasing of Aircraft

Airlines lease aircraft from the leasing companies for the following reasons:

(i) To reduce the financial burden of buying the aircraft

(ii) To provide temporary increase in capacity

There are three types of leasing:

3.7.3.1 Wet Lease:

In wet lease one airline (lessor) provides aircraft, crew, maintenance, and insurance

(ACMI) to other airline (lessee), which pays by hours operated. The lessee pays for the

fuel, airport charges and other duties, taxes etc. It lasts for one month to two years. It is

normally used for short term leasing.

3.7.3.2 Damp Lease:

It is a wet lease in which the lessor provides aircraft, maintenance and insurance of the

aircraft but does not provide the aircraft crew.

3.7.3.3 Dry Lease:

In dry lease the lessor provides only the aircraft and does not include crew, maintenance

or insurance. It requires the lessee to put the aircraft on its own Air Operator Certificate

(AOC) and also provide registration for the aircraft. Its average tenure is more than two

years. It is normally used for long term leases.

3.7.4 Leasing Foreign Registered Aircraft to Indian Operator

If an Indian operator wants to take a foreign registered aircraft on lease for a person holding Air

Operator Certificate (AOC) issued by another state, then it should provide following information

to DGCA at least 45 days before the proposed date of operation with the aircraft:

(i) Name and contact information of the Indian operator

(ii) Name and contact information of lessor

(iii) Aircraft details

(iv) AOC of the lessor

(v) Contact information of the state of registry

(vi) Proposed date of import in India

3.7.5 Leasing Indian Registered Aircraft to Foreign Operator

If an Indian operator wants to give an Indian registered aircraft on lease to a foreign operator

then it should provide following information to DGCA at least 45 days before the proposed date

of operation with the aircraft:

(i) Name and contact information of the Indian operator

(ii) Name and contact information of lessee

(iii) AOC details of lessee

(iv) Aircraft details

45

(v) A copy of letter of intent

(vi) Proposed date of export from India

3.7.6 Import of Spares & Tools/Equipment’s

Imports are made under the specifications provided by the regulatory body DGCA, which are

listed below.

(i) The new spare parts for aero planes and helicopters can be imported freely

without recommendation of DGCA

(ii) Repaired / overhauled / reconditioned second hand components may be imported

by organizations approved by DGCA under and on the recommendation of DGCA with

valid documents

(iii) For importing tools / equipment required for maintenance of aircraft the importer

should obtain a no objection certificate from DGCA

(iv) According to the union budget 2012-13 the government has granted full

exemption of basic custom duty and countervailing duties (CVD) on aircraft spares, tools

etc.

3.8 OBJECTIVE 7

TO IDENTIFY THE TECHNOLOGIES USED IN THE INDIAN AIRLINE

INDUSTRY THOSE PLAY A STRATEGIC ROLE IN ITS

DEVELOPMENT.

In the last decade Indian aviation has achieved tremendous growth, but many things which are

important for passenger travel were unchanged. To remove these new efficient technologies had

the ability to transform travel satisfaction to consumers in three years. There are new

technologies like:

1. RFID tracking of bags as well as flights which are tracked through GPS.

2. Self-service kiosks,

3. Social media for increasing sales,

4. Using mobile as medium to book tickets, check flight status, etc.

5. Using biometrics for employees for proper quality as it will help the customers to have a

hassle free travel experience by giving custom options depending on the customer’s

choices.

Environment in the airline industry needs to be secure loyal consumers and make more sales by

being more efficient. Such technologies are being implemented to promote vibrant and consumer

friendly airline industry. New technologies in the industry are strategies have a high weight age

which brings different engagements for passengers form consumers and company’s point of

46

view. Reducing pollution through cutting edge technology to create new engines for the aircraft

will also help the planet and reduce the CO2 emissions.

In the past 50 years many technological developments have been done to convert natural gas &

coal to generate liquid fuels. Technologies like CTL have been long gone, now new

technological developments have been made but they are more expensive presently, it converts

crude oil in to jet fuel i.e. kerosene, it gives a future possibility to continue utilizing now

renewable resources in the aviation industry. Numerous companies in this industry are trying to

perfect this conversion technology to optimize the resources available to generate jet fuel.

Air traffic management programs are very sophisticated computer systems which does the job of

managing huge sets of flight data.

Programmes like NextGen in US and SESAR in European continent are still being developed

for air traffic management for better control in the flight traffic to make it more efficient.

NextGen system will start and will be fully functional from 2012 to 2025 whereas SESAR will

be functional in between 2014 and 2020.

Many technical improvements are being done by the airline companies to their aircrafts to utilize

the carbon abatement. They are using lightweight materials during manufacturing the parts of the

aircraft like seats, frame of the plane, manufacturing fuel efficient engines. Due to lack of crude

oil due less supply and huge demand for oil the price of the fuels are on the rise all the suppliers

in the industry are trying to exploit all the possible technological improvements to improvise the

aircraft performance as it will help in reducing the cost for their target consumers which will help

the companies to have an edge in the competitive market.

Implementing more lightweight materials fuel efficient engines for the jet have been taken as an

opportunity through technical improvisations. Usage of light composite materials in the plane

has given us an opportunity to retrofit the existing aircraft and also build a new one to, but it has

a downside of being more expensive and very few places the composite parts can be fitted but it

gives a very low gas of greenhouse emissions. This new technology is the promising future for

the aviation industry as new Boeings can be building.

Engine manufacturers of jet plane are constantly developing efficiency in fuel usage for the

aircraft. As the emission are directly connected to the engines of the plane new ways for

improving this engines is been developed like advance designs of turbofan and a new material

called ceramics are used as its light in weight.

In many instances the NextGen customers prefers technology over human interface and is more

comfortablewith new technologies. But human touch points for interaction with customers need

to kept available in the future too as many new customers would prefer both. As most of the

people have android or smart phones with them the scope of using these phones for core services

shows a huge potential if the airline companies have dedicated apps for the same, but this

initiative is at the beginning stage and has a long way to go in the future. The younger

47

generations who are the tech savvy customers of the future are attracted through social sites, so

the companies have capitalize this opportunity and engage more advertisements in the social

platform media. Social media platforms bring out the best and the worst influence which will

directly impact the brand image of the company. Customers want to enhance their travel

experiences by having Wi Fi feature while travelling, on time streaming of videos to their mobile

devicesthere will be considerable shift in accordance with the relationship with customers by the

year end on 2015 which brings out the need to implement improves BI systems.

It is now plays a strategic role in the airline industry Airlines shouldfocus on how they can turn

such features not simply into a point of competitive differentiation but to generate ancillary

revenue.

3.8.1 Technologies Used

They planning to include automation in the service delivery by technology like automatic

3boarding, kiosks, self-bag drop, mobile applications, etc. as self-service is the new best

initiative which will grow tremendously if they are coordinated well.

3.8.1.1 Cloud Computing: Today the Indian aviation members is not fully using Cloud

computing, but they know they need to adopt as the aviation industry players are going global

and every member is adopting it slowly, benefits of this cloud computing is it will reduce the

cost and managing backups will be easy which will help in creating better solutions

Figure 3.6: Benefits of Cloud Computing

Source: CAPA SITA Report 2013

48

3.8.1.2 Out sourcing

Outsourcing the activities which are not core ones should be offloaded by the Indian

airliners.

Most airlines stated that cost cutting has given many benefits as it was refers.

Figure 3.7: Benefits of Outsourcing

Source: CAPA SITA Report 2013

3.9 OBJECTIVE 8

TO IDENTIFY THE MARKETING INITIATIVES USED IN THE INDIAN

AIRLINE INDUSTRY.

3.9.1 Growing LCC Market Share

(Marketing Strategies & Service Excellence For Low-cost Airline in India)

In the year 2013 January, spice jet came with unimaginable marketing strategy to sell its seats at

a very low price. The seats which were offered are as many as 1 million. The cost of each ticket

one way was Rs. 2013. Incidentally the cost which they offered was same as the year. Jet airways

released almost 2 million seats with a low cost. They have divided these one way travels into

four slabs basing on the distance it is covering. The offered is valid for both jet airways and its

subsidiary no frills of Jet Konnect. Tickets which are being purchased during this period of these

6 days will be valid till December 31st and the passengers who bought these tickets can fly any

day during the valid period. Jet airways has generated a massive response .Most of the customers

couldn’t access the site for most of the day. Because of this the visitors were unable to book the

tickets. Expecting low price seats with necessary quality of service are one of the expectations of

the customers. Customers expect the service encounters to be simple and easy like procedure to

49

book tickets, timely departures, no unnecessary problems while check in. Hassle free delivery of

belongings like bags. This nationwide low fare service is considered as a goodwill gesture to

their loyal customers as they book their tickets in advance before the holiday season. Popular

website called Makemytrip.com came to decision by observing that the discount fares will make

people travel even they haven’t planned a trip by then. So these offers will boost their revenues.

This strategy has brought in different comments from different quarters. The CEO of CAPA,

Kapilkaul said that there is lot of appetite for Indian low fare airline market and other airlines

will follow suit. This strategy of giving low fares to its customers are not given to the entire

passengers on the flight. Itsbeen given to very few seats on the flight mostly during off season.

This is like a boost to the airline industry. spicejet did a very good move as it will help in

stimulating the market because generally February to April is a lean period and you want to

stimulate the market and by selling seats at this lean period they could earn more profits and the

actual season starts in may

Indian airlines came with the same marketing offer called ‘jaldejalde’. This offer was in

November 2012, this also improved the revenues of Air India and Indigo cut its fares at that

time.

Experts claim domestic budget carriers will not be able to recover the money or cost incurred on

each seat, As Spice jet and Jet airways has slashed away prices, Indigo and Indian airlines had no

other options but to reduce the prices to similar destinations routes. The DGCA official has less

say on the changes of fares asit’s not their job to tell them and they are not interested in

interfering with the offers which the airline companies but they are concerned about the long

term side effects of keeping the fares low as it might affect the airline companies

Aviation ministry is now concentrating on fixing a limit to these low line air fares. Yatra.com has

multiplied five times because of this reduction in air fares.

Low fares will boost the airline industry as it will increase the sales as well as the profits in the

long term which shows a lot of scope for making big money for the airlines. There is one more

reason for these discount offers because these airlines are not making profit for the last 2 years

and there is increase of 50 percent in the aviation fuel. There will be a definite increase in

passenger traffic because of this and there was a drastic decrease in passenger traffic in the year

2013 made these airlines to take this decision. Some customers need to opt for only those airlines

irrespective of the fares charged as they don’t have a choice to select other airlines due

emergency factors. The other strategy which the airlines used is to fill the seats which come

under the weaker routes where it is tough to fill the seats.It is an excellent strategy and it is time

when airline companies are going into smaller cities and these type of offers will promote the

airlines and will increase the loyal customers which is very important for these airlines and there

is no better way for promoting for these airlines.

50

This marketing initiative will boost the airline industry as there will more increase in the airline

traffic and this will help airline companies with having instant cash which is very important for

any industry. The future of these airlines industries looks promising as there will be increase in

loyal customers for these airline industries. In the year 2014 Indigo airlines are leading the

largest market share among the LLC in India, they provide value for money services towards its

consumers. Indigo Airlines is equipped with aggressive airline fleet and plans for expanding their

reach to its customers. They follow the marketing strategy by utilizing several channels of

communication like social networking sites, internet, and travel sites to generate awareness about

their brand in the market. They also connect with their customers through mobile applications by

giving flight information, many airliners have now also started with M- ticket too Customers

agree that the company has earned the distinction of on-time performance and consistent basic

and desirable services. special efforts of the staff to address minute details and keep the customer

satisfied, innovative modes of communication with the customers and attractive fares – all have

made Indigo a LCC of choice for thousands of travelers each day. Indigo airlines became the

market leader due to their constant increase in size of their fleet and connection of more routes in

domestic as well as international routes .Its success lies in its “on-time hassle-free” service motto

together with its clear business strategy.

3.9.2 Marketing Communication

Differentiating with other competitors in the industry can be done through different ways, first is

by creating a brand and developing it and it can be done by implementing new services which

are specialized in nature but they have to make sure that this service offerings are informed to its

target customers. Generating this services and showcasing them through constant marketing

strategies towards its customers will create awareness and positive word of mouth will be

channeled properly creating loyalty to its brand. Creative interface on the airline company’s

website which will show all the service provided by the airliner and giving the customers the

opportunity to use technologies like mobile applications and tablets. Social networking sites

generate a lot of traffic of users which makes it one of the main places for promoting one’s brand

through advertisements, campaigns, etc. which will create a buzz around the internet as the

information travels fast even though its good or bad information. Marketing one’s product and

service should be done through various channels and make sure the promotional activities are

kept on going at regular intervals so that the customers retain the information. One can do this by

print media hoardings ate prominent locations.by participating in shows, sponsoring the shows,

etc. Customer delight can be achieved by using low promotional fares by focusing on customers

using direct mail, Email’s, mobile communication. The core values of the company shows their

exact marketing style as it shows their offerings to their customers.

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3.10 OBJECTIVE 9

TO IDENTIFY THE TRENDS IN THE CIVIL AVIATION INDUSTRY PROJECTING

THE FUTURE SCENARIO.

3.10.1 Introduction

In this report we excel about the opportunities of India's aviation, and present its future blueprint.

The present situation of Indian airlines reflects some facts about their future environmental

conditions. Here we can predict some cases where the airlines are going to face some tough

challenge in running their operations.

The CAPA (Centre for Aviation and Air Transport) forecasts that Indian aviation will be the

third largest industry by 2020.evary year 452 million passengers will travel and 1030 aircrafts

will be on the fleet. The aggregate value of investments will be of $120 billion by 2020, from

which $80 million will be spent on new crafts. Investments would be the key factor to

accomplish the challenges of growth. Technology, innovation may be helpful to meet the

expected growth, but it is strategically unimportant.

They contribute in increasing the speed of the sector. Operational efficiency, cost reductions,

customer experience enhancement are the key drivers for investments. Investment in skills and

infrastructure are necessary to meet the growth challenges.

Maneesh Jaikrishna, Country Director - India and Subcontinent SITA, said: "SITA is acting like

a catalyst in the innovations of aviation since 60 years. As the world's leading specialist in IT

solutions and air transport communications, we look forward to continue to work with the Indian

aviation industry and the Government to motivate innovation during this tremendous period of

change and transformation."

Kapil Kaul, CEO CAPA India, said: “Today technology has the enough potential to become

more pervasive and transform the airline’s operations, border control, service providers and

airports. The industry can utilize technology not only for cost efficiencies and functionality

purposes, but to enhance customer’s experiences, security improvement and develop a new

stream of commercial revenue."

3.10.2 Prevail of critical uncertainty

Indian aviation is in its great uncertain phase since a decade. An estimated loss of US$2 billion

by the end of 31st March 2012. Indian aviation is going to face an equally challenging years

ahead. Increase in operating costs, uncertainty in regulation, Indian economic conditions and a

typical global environment will pile the burden on airlines, mainly the poor performing airlines.

Anyhow, this may even create some market opportunities to the other players to exploit as they

are better positioned.

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3.10.3 Jet Airways to Be Primary Beneficiary of Market Dynamics

Jet Airways is the largest and most beneficiary among all the airlines, despite of the troubles

faced by the kingfisher and Air India. The kingfisher’s contraction from 66 to16 operational

aircraft, in which regional ATR aircraft, has given the opportunity to Jet to expand its market in

domestic field. In addition the industrial action taken on international routes (long haul) has

surrendered North American and other traffic to Jet Airways.

The increase in yield (10‐12%) in Q4 of FY12 is quite substantial evidence to claim that, the flying

capacity of Air India and kingfisher is declined to a great extent; it is estimated to12‐15% in Q1 of

FY13 i.e., current year.

3.10.4 Industry is ready to face a Cost Environment:

(i) Fuel prices

Rising fuel costs have a direct impact on the airfares of the airlines industry. The passengers

ultimately have to face the impact as and when the fuel costs rises, it leads to increase in the

airfares of the flights, which the passengers pay. When the prices of the fares increases

people may tend to take alternate transportation rather than flying through Airplanes.

(ii) Weak currency

Rupee depreciation, which has declined by more than 20% in the last 12 months, resulting in

pushing the prices and costs of mandatory requirements such as Aircraft leases, fuel, offshore

interest obligations ,maintenance etc.

(iii) Airport charges:

A 334% raise in charges has been approved by the regulatory at Delhi Airport, with even a

higher rate of up to 500% is expected at Mumbai airport. Combination of these it is most

likely to have an impact of increment (15-20%) of Delhi‐ Mumbai fares. which can show a

negative impact over the air traffic. Rise on airport fares can be expected to get introduced at

other airports such as Kolkata and Chennai to fund the modernization programs.

(iv) Service tax

The service tax extension on the fares of economy class to a certain amount adding of

percentage causes rise in all the levels of impost in most of the sectors.

3.10.5 Motto for Greenfield Airport Development

There is a need for the new airport constructions in India so as to meet the demand of the traffic,

which is growing day by day exponentially. Infrastructure should be an unabated in case of India

to achieve the potential in long term perspective. Here comes the question of appropriate sources

of funding large scale CAPEX is required in order to fulfill these requirements.

The present model public and private combination or partnership which has been adopted for

modernizing of Hyderabad, Mumbai, Delhi, and Bangalore resulted in good improvement of the

infrastructure. But there is a political backlash behind every projects held by the government.

53

3.10.6 Jet Airways to lead long haul expansion by Indian carriers

The suspension of the kingfisher’s operations has given an opportunity to the other airlines like

Jet Airways to fill the gap with its functions. The ongoing industry action of Air India also

helped jet to take over their market. Apart from increase in frequencies of the existed destination

in Southeast Asia and Gulf there is other routes which are considered under evaluation.

(i) Asia: Beijing, Shanghai, Ho Chi Minh City.

(ii) Europe: Frankfurt, Amsterdam, Paris, Munich and Rome. Frankfurt and Amsterdam

are main routes that to be considered.

(iii) USA: Washington, Chicago, and San Francisco

(iv) Pacific: Sydney is also considered.

3.10.7 Expected Increase In Passenger Number in FY2014

In FY2014 there would be an expected expansion of 4-6% in domestic traffic, which contributes

to cross the 60 million numbers. The movement of people due to the state elections and general

elections also can be a factor in this growth or expansion. The possible entry of Air Asia during

this financial year will also reflect its effect in terms of growth in air traffic.

Table 3.4: Passenger/Cargo forecast till 2016-17

Source: Airport Authority of India

54

3.10.8 The pace of International Traffic Growth is twice that of Domestic

There is an expected rise in international traffic by 10-12% which is twice when compared to

domestic. This can be due to expansion of Indian carriers and an expected grant for some foreign

carriers as bilateral entitlements. Low Cost Carriers are majorly driving this growth. Spice Jet

and indigo are playing merely near and almost closer to the breakeven point on their overseas

operations.

Table 3.5: Market share of International Passengers Carried by Scheduled Domestic

Carriers from India & Foreign Carriers (%)

Source: DGCA; Analysis: MoCA

3.10.9 Outlook of Profitability by FY2014 Below is the chart which gives the figures of expected profit of 250-300 million USD by

FY2014.

Figure 3.8: Expected Profits in 2014

Source: CAPA FY2014

55

3.11 OBJECTIVE 10

TO COMPARE THE INDIAN AIRLINE INDUSTRY WITH VARIOUS

INTERNATIONAL AIRLINE INDUSTRY.

3.11.1 Comparison of Indian Airlines with Other airlines

The below mentioned comparison is made based on Fleet Size.

Figure 3.9: India’s Current and expected future fleet

Source: CAPA - Centre for Aviation | Week starting 31-Mar-2013

Figure 3.10: Unites States Current and expected future fleet

Source: CAPA - Centre for Aviation | Week starting 31-Mar-2013

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Table 3.6: Comparison with USA and Other Countries

3.11.2 Comparison of Airlines based on PAX (Passengers):

The below mentioned table provides information on the market share of major airlines

across the globe based on the number of passengers that travel with these airlines.

Table 3.7: Foreign Carrier’s Pax market shares in International Routes (FY10 DATA):

57

3.11.3 Comparison of Major Airlines across the GLOBE

Foreign airlines enjoy 65% share of the world air travellers.

Table 3.8: Key operating indicators and valuations for the Global Airline Industry- Full

Service Carrier

58

3.11.4 Comparison on some Key Indicators

The below mentioned table provides information based on comparison made on the basis of

some key indicators such as:

(i) Market Capital

(ii) Sales

(iii) Net Profit

(iv) Return on Equity (ROE)

Table 3.9: Key operating indicators and valuations for the Global Airline Industry- Low

Cost Carrier

3.11.5 Conclusion

In aviation industry segmentation is done mainly as low cost carrier (LCC) and full service

carrier (FSC) airline. LCC has less fare compared to FSC. LCC provides fewer comforts whereas

FSC provides all types of comforts. FSC is preferred by business travelers and LCC is preferred

by leisure travelers, middle class etc.

To analyze both internal and external factors this is very important. The performance of a

company should depend on the internal environment that is inside the company. We cannot

control the external factors but it will influence the company performance. To evaluate the

strengths and weakness of the business through external environment this is done. For every

business these factors will vary.

Diversification in business not only acts as a key tool for survival but also like an option to

enhance a rapid growth. Airlines are using many ways of diversifying their business. Some of

them are adding some product lines and some are even trading under different brand names apart

from parent brand.

The main thing to remember in diversifying the business is that the main business should do well

and should be seen it sustains and supports further extensions. Planning is very much important

in this case because launching something outside the existing customer base is always a riskier

part to practice.

For the growth of Indian aviation sector this mergers and acquisitions take place. But the airlines

of India are not successful of these mergers they want to be competitive with others and want to

fly internationally. For these reasons they are going with this. The competition among the full

59

service carriers and low cost carriers give problems on cost and maintenance etc. The companies

should think before going to this decisions that will give profit to the company’s or not.

The government is also working towards the welfare of aviation industry in India. According to

the union budget 2012-13 the government has permitted direct import of Aviation Turbine Fuel

(ATF) and has also exempted custom duty on aircraft spare parts. Also the Airports Authority of

India is involved in some doing international projects in other countries. So overall it is a good

sign for the Indian aviation industry.

All the players of airline industry are coming up with their own techniques of branding,

marketing, and advertising. The target is to maintain their customer base and even attract more to

increase their market share. Sustainability is the main motto of any business particularly in a

competitive market and to support it they need to constantly innovating and marketing

themselves in an absolutely effective manner.

The above forecasts will help the airlines industry in directing them towards achieving their

positive opportunities and to be aware of the future consequences due to their present actions,

which may make them to run them into losses.

The profitability opportunities and growth orientation in air traffic is forecasting a positive

environment to the private players mainly until they are capable of grabbing these unused

opportunities.

There are many parameters on which the aviation sector can be compared to other companies in

the world, it is visible that the Indian industry has a huge potential to grow and the government

needs to be broad-minded while making the policies for the aviation industry in India. Also

Indian aviation companies are becoming almost competitive to the foreign companies and are

getting geared up for the extensive international competition.

60

CHAPTER 4:

CONCLUSION

61

4.1 OBSERVATIONS

This report has been extracted from the keen observations of the industry. To brief the report, we

have some observations that tell about the industry situation and its necessities. Some of the

observations are as follows:

(i) There is a demand to increase the FDI flow into the country, to run the operations.

(ii) The readymade future for acquisitions and mergers.

(iii) Due to the reason increase in travel expenses the tourism and the hospitality sector is

undergoing huge pressure.

(iv) The business people and delegates opt for other source of communication like video

conference in order to escape the travel alliance burden.

(v) In the domain of competition the air traffic is not at all considered by the airlines.

(vi) There is a huge rise in expectations due to the rapid growth.

(vii) The variation between profit and the revenue is large.

(viii) Uneven allocation of routes and illogical pricing of fares.

4.2 RECOMMENDATIONS

There are some recommendations which can be followed in order to rule out the cons in the

industry. These recommendations are meant for the improvement of the industry in retrospective

approach.

(i) Should concentrate on reducing the ticketing costs by implementing the front

operations effectively.

(ii) The routes must be optimized to the possible extent and the logistics as well.

(iii) Upgrading of airports is already in a process and must be observed it will be a

continuous process.

(iv) The air traffic must be handled effectively.

(v) Packages with value added services must be rendered to the customers.

(vi) The turnaround times must be improved for maintenance purpose.

(vii) Baggage clearance charges should be checked so as to increase the efficiency of the

fuel.

(viii) The lean organization approach is advised to follow for the operational advantage

(ix) Liberalization should be still increased and generalizing the budget model is

advisable.

The above are the observations and the recommendations that are made to diagnose them. We

expect the Airline industry to come across the barriers and fly high.

62

REFERENCES

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March 16, 2014 at 01:00 AM IST.

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88886&_afrWindowMode=0&_adf.ctrl-state=55558d2lz_89,.Retrieved from

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88886&_afrWindowMode=0&_adf.ctrl-state=55558d2lz_89.

(iii) ICRA (2012) INDIAN AVIATION INDUSTRY: Through turbulent times, FDI

relaxation alone not a game changer, Report March

(iv) DGCA (2013) http://www.dgca.nic.in/reports/rep-ind.htm

(v) FICCI (2013) Indian aviation: Spreading its wings, Report February 2013

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fuel-constitutes-50-60-per-cent-of-the-total-operating-cost-of-airlines-in-India-

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airport-modernization.aspx,

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