competition in airline industry
Transcript of competition in airline industry
Indian Aviation Industry
Framework Size:
75 million passengers5.6 billion dollars
Growth:Around 15 % in last 10 yearsGrowth in current year ( 2009) O.7%Vision: 280 million customers by 2020
PHASE 1
•In 1932 JD TATA founded TATA AIRLINE
•Air India International Company-Joint Sector-Govt. Of India- June 8, 1948 IN 1953
•Air line sector not opened for Private players
Types of Air Services
•Scheduled Air Transport Service
•Non-Scheduled Operation
•An air cargo service
Factors affecting Aviation Industry
• Political • Economic • Technological• Demographic• Natural Environment
•Deregulations in different spheresOpen Sky Policy
• FDI limits : 49 % for airlines 100% for airports
Political
• Changing pattern of consumers
• Highest percentage people of group 20-25
• Educational environment
• High energy cost
Demographic and Natural
DETERMINANTS OF PRICING
ATF•ATF refers to air turbine fuel which is used by airlines in its operations.•ATF contributes to the 40 % of operation cost
•It includes freight charges from gulf to India ,Customs Duty, Domestic Transportation and various taxes.•India usually Pay higher ATF charges as compared to other countries.
Lease Rental•Private operators except Air India have leased aircraft from USA and Europe.
•They pay on average $375000 to $500000 per month depending on the aircraft
•They contribute almost 33 % of operational cost.
•They generally have to pay their rents in dollar terms.
Airport Charges
• It is the basic fees that is charged by airports from
airlines
• This include parking fees, landing fees , stop paging
fees and aero bridge expenses
• New airport charges more than established one to
cover up all the cost incurred.
Other factors
• Advertising and Promotional Expenses
• Technology employed by the airlines
• Current Financial position
• Prices set by other airlines competing in the present
environment.
• Pilot fees
• Government regulation.
Phase II (1986-2003)
• Granting scheduled status to six private
airlines
• Till 1998
• ONLY TWO AIRLINES (i. E jet airways and air
Sahara) SURVIVED WHILE OTHERS SHUT
BUSINESS
• RESULTING A DUOPLY OF PRIVATE AIRLINES
AirFare
WAR
INDIAN AIRLINES
• Indian Airlines came up with a new apex fare
slab for purchase of tickets in eight sectors, 28
days in advance — two days less than
those offered by Air Sahara and Jet Airways.
• The D-28 fares would be available for sale on
one way or round trips as against round trip fares
offered by Air Sahara.
• Frequent Flyer Scheme
• APEX pricing Scheme
• Cash Back Offer
• Jet Privilege Scheme : Extended its points partnerships to
Accor Hotels and Langham Hotels International.
• Internet Auction
JET AIRWAYS
What is Apex?
Apex IS ADVANCE PURCHASE EXCURSION FARE. It is a non-
cancellable return fare offered at a heavy discount on the conditions:
• Tickets are purchased at least 21 days in advance
• Minimum gap between departures range from one to six weeks.
• Maximum gap between departures is 12 to 24 weeks.
• There are no stopovers.
•Led to increase in the number of customers.
•Loss of airline companies minimized as with the increase of
passengers the aircraft ran to their full capacity.
•It brought a veritable boom in tourism sector.
•It was able to lure the middle class people who preferred
to travel by trains.
Effects of APEX
• First Airlines to start innovative Pricing model rather
than APEX Model.
• Sixer and Super Sixer Schemes in 2002 – Six refers to
the six zones for 25k.These schemes offered more to the
customers than their competitors.
• Square Drive Scheme – ( Family Pack) 4k-2.5k
•“Steal a Seat” - Bidding process started from Base price –
Re 1/-
AIRSAHARA
Defining relevant market
Business travelers
•Time sensitive
•Opportunity cost of time is high
Leisure travelers
•Price elasticity of demand very high
•Responsive to price changes
Change in travel preferences will continue to drive growth……
CAPA Indian Domestic Market Forecast:Business vs Leisure/VFR
PHASE INTRODUCTION OF LCC (a shift to Monopolistic Competition)
AIR DECCAN introduced Low Cost Airlines in India in Sept-2003.
•Carved a niche for passengers travelling in train
•Fares down by 17%
• Initially started with 20,000 seats per day
• Planned to increase 800 seats per day every month
• Fleet strength initially of 35
• Plans to take it to 112 by 2012
The trend then followed by…..
May 2005
May 2005
Oct 2005
Oct 2005
Aug 2006
Key characteristics of low cost airlines
•High seating density and load factors
•Uniform aircraft types (usually the 737-300)
•Direct booking (internet/call centre - no sales commissions)
•No frills such as “free” food/drinks, lounges or ‘air miles’
•Simple systems of yield management (pricing)
•Use of secondary airports to cut charges and turnaround times
Increase in passenger traffic
Phase 4: Merger & Acqusition• On 20 th April , 2007 Jet acquired 100% stake
in Air Sahara for INR 14.5 billion• Re brand Sahara as “Jetlite” which would
operate as a value carrier
KINGFISHER AIRLINES AND AIR DECCAN
On 31st May 2007 Kingfisher Airlines bought a 26% stake for Rs.550 crores in Air Deccan
• Post merger Combined Market Share : 30%
AIR INDIA AND INDIAN AIRLINES
• The two state run carriers entered into a merger in April, 2007 in a bid to consolidate and optimize the use of the assets of the two public sector airlines.
• The will help the two airlines to synergize their operations.
Major Players (Market Share)
SWOT ANALYSIS
Strengths• Liberal environment• Modern Fleet• High Quality• Signs of economic growth• Political Stability
Weakness• Airport infrastructure• Airways Infrastructure• High Cost Structure• Skilled Resources
Opportunities
• Market Growth• Geographic Location• Lower costs, higher Quality
Threats
• Aggressive approach of Railways• Slowdown in the economy affecting the
tourism
CONCLUSION
• The price cutting schemes will be feasible as long as external factors for pricing are under control
• Government should encourage private participation