Description
aviation management project service sector
S.K. SOMAIYA COLLEGE OF ARTS, SCIENCE AND COMMERCE “AUROBINDO” VIDYAVIHAR MUMBAI-400 077
A PROJECT ON AVIATION MANAGEMENT
BACHELOR OF MANAGEMENT STUDIES SEMESTER VI
2012-2013
SUBMITTED BY SHAIKH ASIF ABDUL RAZZAK
PROJECT GUIDE Prof. APARNA JAIN
DECLARATION
I, Mr. SHAIKH ASIF ABDUL RAZZAK OF S.K SOMAIYA COLLEGE OF ARTS, SCIENCE AND COMMERCE OF TYBMS HEREBY DECLARE THAT I HAVE COMPLETED THIS PROJECT ON AVIATION MANAGEMENT IN THE ACADEMIC YEAR 2012-2013.
THE INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF MY KNOWLEDGE.
DATE:
PLACE: MUMBAI
SIGNATURE OF THE STUDENT (SHAIKH ASIF)
ACKNOWLEDGEMENT
In making this project a lot of people who left no stone unturned in contributing by giving me the required knowledge and time. I would like to thank all of them.
I would like to express my gratitude and sincere thanks to my Project Guide,Prof. APARNA JAIN for instilling confidence in me to carry out this study and extending valuable guidance and encouragement from time to time, without which it would not have been possible to undertake and complete this project.
I thank the ALMIGHTY for giving me the spirit to put in my best efforts towards this project.
Index
Sr No. Topic 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Executive summary Service marketing Unique characteristics of service industry Marketing mix for service industry Airline industry Introduction to airline industry History of industry Structure of the industry Indian aviation industry Players in the airline industry Airport infrastructure Development of civil aviation in India Civil aviation policy Infrastructure development Airport privatization Alliance strategy Recent development Case study- Jet airways Suggestions and Recommendations Conclusion
SUMMARY
Aviation is a fast growing sector of the economy. It is associated with a number of social and economic benefits and a range of environmentally damaging consequences. It is also
associated with a significant and growing contribution to the global inventory of greenhouse gases which are thought to be implicated in climate change. This report sets out to provide a clear basis of evidence for a wider and deeper public debate on these issues and concludes with a number of policy recommendations that are intended to ensure that aviation continues to contribute to the economy in a way that does not threaten environmental quality either globally or locally. The debate about aviation and its strong growth trajectory is very poorly developed. There is an unquestioning acceptance in government that the rising demand for air travel will continue and that the land use planning implications (especially more terminals and runways) of this can be managed with minimal harm to the environment. The aviation industry has been very successful in its adoption of an environmental agenda (environmental reports, support of exotic, threatened environments, appointment of environmental managers, financial support for a professorship of "sustainable aviation") but has been less forthcoming on questions of growth and the need for reductions in greenhouse gases. The industry has benefited from a well developed system of public support. Airports can expect to be linked at public expense by very expensive infrastructure to the motorway system, aviation fuel is not taxed and a great deal of public money at EU and UK levels goes into air traffic control systems. Equally the industry does become involved in direct funding of this infrastructure eg the Heathrow Express. Nevertheless in the language of environmental economics aviation does not meet the full external costs generated by its own activities (noise and pollution) and fails to pay for direct costs generated by the activity itself (eg the motorway links to Manchester and Heathrow airports). This report is intended to raise levels of awareness about the growth of aviation and its environmental consequences. This is especially important in the UK. The United Kingdom is one of the most important aviation markets in Europe with the biggest airline (British Airways), the largest airport (Heathrow), a very dynamic market (new low -budget airlines) and high passenger growth rates. Road based transport has recently emerged from a similar process of debate and reflection which has led to a greater understanding of the links between providing new roads and the growth in road traffic and the economic benefits of improved
road access. A better understanding of both areas has resulted in a scaling down of new road construction. The time is now right for a similar process of reflection and debate for air transport. The report is organized in six sections. Section 2 looks at the growth of aviation. There are a number of predictions of the future level of demand for aviation in the years 2015 and 2050. The growth forecasts vary but the middle of the range indicates at least a doubling of the miles flown by 2015 on a 1995 base. Section 3 describes the impact of aviation on noise and on ground level emissions (aircraft and road transport associated with airports). In both cases it reviews the evidence on the links between these environmental problems and human health. Section 4 deals with the impact of aviation on climate change and Section 5 on the economic impact of aviation and airport development. Section 6 deals with the policy implications of the analysis carried out in the first 5 sections. Currently there is no coherent policy and section 6 makes clear recommendations to fill this gap. The report is intended to stimulate a public and a policy debate around aviation and its growth.
Government policy in transport has made great progress in recent years in its recognition of the importance of integration and in its espousal of demand side and supply solutions to transport problems. It is now time to extend these principles to aviation and through an informed debate to identify the main elements of a new approach to aviation in the UK, the European Union and globally. This approach should be firmly rooted in changes to UK policy (the main target of this report) and through UK policy into European and global debates where changes also need to be made if a coherent approach to aviation is to be achieved. We owe it to the Wright brothers for having invented airplanes. The Wright brothers could not have imagined how airplanes would change the way people live & do business. The airline industry has witnessed a sea change from two wheeler bi-planes to the Boeing 747's that are visible in our skies today. The passage of time has witnessed competition grow from leaps to bounds. Today airplanes are present in every country around the world with expectation of a few places. Even the industry has been growing year on year It was JRD Tata who made the first move to build up an airline industry in India. He with the help of Nevil Vincent, a former RAF pilot, went ahead and drew a plan for the operation of first flight from Karachi to Mumbai with single stopover at Ahmedabad. This is how Tata Airlines was born which was donated to Indian Government. On 28th May 1953, Air Corporation Act – 1953, the government of India nationalized the airlines
industry.accordance with this act, the two air corporations, viz. Indian Airlines Corporation and Air India International were established. In 1994 the monopoly was ended and Indian skies were opened for any carriers who fulfills the statutory requirement. The Indian aviation industry can be broadly classified into two main segments - Civil and Cargo. In fact, the birth of civil aviation is attributed to air cargo and mail. In the beginning, mail and air cargo were the important elements of air carrier services than passengers. The major players in the Indian context are Air India in the international segment and Indian Airlines, Jet Airways and Sahara in the domestic segment. Over the years, the aviation sector in India has evolved and today it is on the threshold of a major shake out with the divestment of the Indian government's stake in Air India and Indian Airlines on the cards. A number of domestic and foreign parties have evinced interest in the divestment process. Recently, foreign airlines like Virgin Atlantic of Britain and Singapore Airlines have also entered the Indian skies.The Indian aviation sector till recently was highly regulated by the government. As recently as the eighties saw the introduction of some new initiatives like the air taxi scheme, whose main objective was to boost tourism. Domestic and international passenger traffic in India is projected to grow annually at 12.5% and 7% respectively over the next decade. At the same time, domestic and international cargo traffic is expected to grow at 4.5% and 12% respectively.
AVIATION CONSISTS?
The aviation industry can be broadly classified into military aviation and civil aviation. The term ‘civil aviation’ covers all aviation related activities except for those undertaken by the military and the government. The airlines segment can be broadly classified into INTERNATIONAL AIRLINES AND DOMESTIC AIRLINES. An airline with one or both terminals in the territory of a country, other than the country in which it is registered, is classified as INTERNATIONAL AIRLINES. DOMESTIC AIRLINES refers to those airlines whose flights fly only within the domestic boundaries of a particular country.
1. SERVICES MARKETING
Service industry is witnessing a major boom in India. Services like banking, car financing, consumer durable credit, cellular, paging, express, hospitality, travel and tourism, airlines, and, educational services on are today realizing the importance of marketing. Along with these big service businesses, many small businesses ranging from beauty saloons, pubs, gyms, play schools and so on are realizing the importance of marketing.
2. UNIQUE CHARACTERSTICS OF SERVICES
What is a service? And why should services receive special treatment from marketers? A popular definition describes services as "any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to physical product." Although, the distinction between goods and services is somewhat artificial, since the success of goods manufacturers is vitally dependent on the service they provide, there are four commonly cited characteristics of services that make them different to market from goods: Intangibility, Inseparability, Variability and Perishability.
Intangibility
Pure services such as baby-sitting cannot be seen or touched. They are ephemeral performances that can be experienced only as they are delivered. As the above definition of service suggests, intangibility may represent the most critical difference between services and goods, and its implications for marketing are great.
Intangible services are difficult to sell because they cannot be produced and displayed ahead of time. They are therefore harder to communicate to prospective customers. A passenger cannot feel the service that he would encounter in the airplane, however person may talk to other travelers who have experienced the same service, but their experience does not necessarily be the same.
Marketers of services can reduce these risks by stressing tangible cues that will convey reassurance and quality to the prospective customers. These tangible cues range from the firm's physical facilities to the appearance and demeanor of its staff to the letterhead on its stationery to its logo. Life insurance companies are particularly savvy about this problem. Their service is, after all, the most intangible service: by definition, the buyer will never know the ultimate result of what he or she has bought! To compensate for this intangibility the major companies over the world have developed strong visual symbols for their firms. Prudential -The rock of Gibraltar All state -Protective hands Traveler’s -A red umbrella Nationwide -A blanket Wausau -A train station
Inseparability
Different service marketing marketers interpret this characteristic differently, but all interpretations point out those special operations problems exist for the firm's managers. One interpretation of this term is the inseparability of customers from the service delivery process. In particular, many services require the participation of the customer in the production process. A child getting a haircut must sit still; otherwise, the family photo may have to be delayed for a month. The person who comes to a Chartered Accountant (C. A.) at the last minute with boxes of disorganized records may cause the C. A. to overlook some possible deductions. These examples illustrate the fact that, unlike goods, which are often produced in a location far removed from the customer and totally under the control of the manufacturing firm, service production often requires the presence and active participation of the customer and of other customers. Depending upon the skill, attitude, cooperation and so on that customers bring to the service encounter, the results can be good or bad, but in any event are hard to standardize.
A second interpretation of inseparability refers to the fact that in some service industries the service delivered is inextricably tied to particular individual service providers. Customers may have ground for complaint if their service is not provided by, for example, the surgeon or lawyer they thought they were paying for.
Variability
The fact that service quality is difficult to control compounds the marketer's task. Intangibility alone would not be such a problem in customers could be sure that the services they were to receive would be just like the successful experiences their neighbors were so pleased with. But in fact, customers know that services can vary greatly. Different front-line personnel have different abilities. Even the same service provider has good days and bad days or may be less focused at different times of day. Services are performances, often involving the cooperation and skill of several individuals, and are therefore unlikely to be same every time. This potential variability of service quality raises the risk faced by the consumer.
The service provider must find ways to reduce the perceived risk due to variability. One method is to design services to be as uniform as possible - by training personnel to follow closely defined procedures, or by automating as many aspects of the services as possible. The appeal of some service personnel - particularly, those involved in such expensive personnel services as beauty parlors treatments or home decoration - lies in their spontaneity and flexibility to address individual customer needs. The danger with too much standardization is that these attributes may be designed right out of the services, therefore reducing much of their appeal. A second way to deal with perceived risk from variability is to provide satisfaction guarantees or other assurances that the customer will not be stuck with a bad result.
Perishability
The fourth characteristic distinguishing services from goods is their time dependence. Services cannot be inventorised, since they are performed in real time. And time periods during which service delivery capacity sits idle represent revenue-earning potential that is lost forever. Periods of peak demand cannot be prepared for in advance by producing and storing services, nor can they be made up for after the fact. A service opportunity occurs at a point in time, and when it is gone, it is gone forever. This can present great difficulty in facilities planning. A survey of service firms found that the greatest operational challenges facing them were posed by the perishability of their products.
Matching service capacity to demand patterns can involve managing one or both elements. Perishability often puts a greater burden on service marketers to manage demand than it does on goods marketers, who can build up inventories to meet peak demand or can reduce prices later to move the unsold inventory. The cited survey found that the firm's principal method for controlling demand was to increase personnel selling during potentially slow periods. Surprisingly, few firms claimed to use the standard economic solution of price changes to increase or decrease demand, although some service industries, such as resort hotels with seasonal demand, do this routinely.
Few service providers had opinion that they developed alternative, counter seasonal service products to use slack capacity, although that has long been a common practice by goods marketers. Many service providers also control demand by requiring appointments. The alternative to controlling demand is to make service capacity flexible. Some service firms keep on call frontline personnel who can arrive on short notice to meet the surges in demand, or cross train support personnel to assist with customer service during busy periods.
3. MARKETING MIX FOR SERVICES MARKETING
The marketing mix refers to the blend of ideas, concepts & features which marketing management put together to best appeal to their target market segments. Each target segment will have a separate marketing mix, tailored to meet the specific needs of consumer in the individual segment.
Service marketing managers have found that the traditional four P's of marketing are inadequate to describe the key aspects of the service marketer's job. The traditional marketing mix is said to consist of the following elements of the total offering to consumers: the product (the basic service or good, including packaging, attendant services etc.); its price; the place where the product is made available (or distribution channels - not generally a real issue for most services, except perhaps for repair and maintenance); and promotion (marketing communication: advertising, public relations and personal selling).
7 P’s of Service Marketing
Price Product Promotion
Service Quality Place
Physical Evidence
People
Process
The product mix The product here refers to Airline service offering. Although service products are essentially intangible, there are certain pyhsical characteristics which consumer assess in their
evaluation of product choice. It the service mix , there is passenger services , cargo services, & the mail services. ? ? Attractiveness of the offering in terms of pyhsical features such as consumers have high expectation, the food & drinks offered , entertainment. Facilities available, associated level of services such as, quality of seats & interior decoration.
The promotional mix The aims of promotion fall into three main categories: to inform, to remind, & to pursuade. It will always be necessary to inform prospective consumers about new products & services, but other issue may also need this type of communication to consumers; new uses, price changes, information to build consumer confidence & to reduce fears, full description of service offering, image building. Similarly consumers may need to get reminded about all these types of issues, especially in the off-peak season. off peak It is vitally important to recognisse that promotion, or marketing communications generally, may not always be aimed at potential consumer or end user of service. In many business busine areas, it is to design promotions aimed at channel customers to complement end user promotion.for e.g Airlines will need to promote their services to tour operaters as well as end user.
The pricing :
Pricing in airlines is a fairly complex issues, since there are price since variations because variations in the level of demand, particularly due to seasonality, when every Airlines gives price discounts & competition is tough. Airlines will always faced by high levels of fixed costs, leading to variants of cost-plus pricing or ROI as key determinants of pricing plus levels. It is important to includde pricing tactics which exploit price sensitivities fully. It
differentiates service levels & offer higher price ‘ value added ‘services, as in business class air travel.
The Distribution:
In Airlines, they utilise more than one method of distribution.for e.g they sell tickets through travel agents & sell seats on flights to tour operators , whilst also operating direct marketing. Whichever distribution strategy is selected, channel management plays a key role. For elected, channels to be effective they need realiable updated information. For these reason, I.T has been widely adopted such as on-line booking system. on line
Some marketers suggest that the unique requirements of selling services require the manager selling attend to three additional P's. These are people, physical evidence and process.
People:
Many services require personal interactions between customers and the firm's employees and these interactions strongly influence the customer's perception of service stomer's quality. For example, a person's stay at a hotel can be greatly affected by the friendliness, knowledge ability and helpfulness of the hotel staff - in most cases the lowest paid people in the organization. One's impression of the hotel and willingness to return are of determined to a large extent by the brief encounters with the front-desk staffs, bellhops, desk housekeeping staff, restaurant wait staff and so on, many of which take place outside the direct control of the hotel management. In fact, the average hotel patron has very little contact with the hotel supervisors and managers. rvisors
Therefore, management faces a tremendous challenge in selecting and training all of these people to do their jobs well, and, perhaps even more important, in motivating them to care about doing their jobs well, and, perhaps even more important, in motivating them to care motivating about doing their jobs and to make an extra effort to serve their customers. After all, these
employees must believe in what they are doing and enjoy their work before they can, in turn, provide good service to customers.
For this reason, human resources management policies and practices are considered to be of particular strategic importance for in delivering high-quality services. Establishing a customer-oriented culture throughout the firm and empowering employees to provide quality service cannot be established merely by putting up inspiring posters. Management leadership, job redesign and systems to reward and recognize outstanding achievement are among the issues that a successful service manager must address. The term "internal marketing" has been coined to characterize the sets of activities a firm must undertake to woo and win over the hearts and minds of its employees to achieve service excellence.
The "people" component of the service marketing mix also includes the management of the firm's customer mix. Because services are often experienced at the provider's facilities, other customers who are being served there can also influence one’s satisfaction with a service. Ill mannered restaurants customers at the next table, crying children in a nearby seat on an airplane and commercial bank customers whose lengthy transactions take up the teller's are all examples of unpleasant service conditions caused by a firm's other patrons.
On the other hand, the right mix of customers can greatly increase the enjoyment of experience - for example, at entertainment services, such as nightclubs or sporting events. Determining the desirable customer mix for a service, segmenting the market into compatible groups and managing customer arrivals to avoid conflict and enhance the service experience are essential components of service management.
Physical Evidence
This element of the expanded marketing mix addresses the "tangible" components of the service experience and firm's image referred earlier. Physical surroundings and other visible cues can have a profound effect on the impressions customers form about the quality of the service they receive. The "services cope" - that is, the ambience, the background music, the comfort of seating and the physical layout of a service facility - can greatly affect a customer's satisfaction with a service experience.
The appearance of the staff, including clothes and grooming, may be used as important clues. Promotional materials and written correspondence provide tangible reassurance, they can be incorporated into the firm's marketing communications to help reduce customer anxiety about committing to the purchase. Service firms should design these items with extreme care, since they will play a major role in influencing a customer's impression of the firm. In particular, all physical evidence must be designed to be consistent with the "personality" that the firm wishes to project in the marketplace.
Process Of Service Production
Because customers are often involved in the production of services, the flow and progress of the production process is more important for services than it is for goods. A customer who buys a television set is not particularly concerned about the manufacturing process that made it. But the customer at a fine restaurant is not merely interested in the end result - the cessation of hunger. The entire experience of arriving at the restaurant - of being seated, enjoying the ambiance, ordering, receiving and eating the meal - is important. The pace of the process and the skill of the provider are both apparent to the customer and fundamental to his or her satisfaction with the purchase.
The importance of the process is true even for less 'sensual" experiences. A customer who applies for a loan at a bank evaluates the purchase not only by the amount of the loan received and the interest rate paid. The speed and sensitivity of the approval process, the interaction with the bank officers, the accuracy of bank statements and the ease of getting redress if mistakes are found all affect the person's attitudes about doing further business with the bank and his or her willingness to recommend it to others. Therefore, when designing service production processes, particular attention must be paid to customer perceptions of that process. For this reason, marketing and operations are closely related in service management.
6. INTRODUCTION
We owe it to the Wright brothers for having invented airplanes. The Wright brothers could not have imagined how airplanes would change the way people live & do business. The airline industry has witnessed a sea change from two wheeler bi-planes to the Boeing 747's that are visible in our skies today. The passage of time has witnessed competition grow from leaps to bounds. Today airplanes are present in every country around the world with expectation of a few places. Even the industry has been growing year on year.
Technology has also made a significant contribution to the airline industry; over the years technological advances have been incorporated into the science of flying airplanes. The industry has also propelled the growth of ancillary services like travel agents, courier services, cargo handling, clearing & forwarding agents etc
7.HISTORY OF INDUSTRY
Nevill Vincent, a former RAF pilot came to India from Britain in 1929, on a brainstorming tour to survey a number of possible routes. It was through providence that he met JRD Tata, the first Indian to secure an A-license within the shortest number of hours. Vincent worked out a scheme, secured JRD's approval and together they presented it to Mr. Peterson, the director of Tata Sons and also JRD's mentor. Sir Dorab Tata, the then chairman of Tata Sons, pleasantly surprised all by giving the scheme his okay. So they went ahead and drew plans for the operation for the first flight from Karachi to Mumbai with a single stopover at Ahmedabad. All that they asked was a guarantee from the government for a year for the sum of Rs.100,000. This, however, was turned down. The Tata-Vincent combine was naturally disappointed but not dismayed. A second scheme was prepared. This time the guarantee asked was Rs.50,000 for the first year, Rs.25,000 for the second year and no guarantee at all from the third year onwards. This scheme was rejected too. The team then tried a third time. This time they offered to donate an air service to the Government of India with no strings attached. The Government finally agreed and thus was born Tata Airlines that later became Air India.
On 28th May 1953, consequent to the coming into force of the Air Corporations Act, 1953, the Government of India nationalized the airlines industry. In accordance with this Act, the two air corporations, viz. Indian Airlines Corporation and Air India International, were
established and the assets of all the then existing airline companies (nine) were transferred to the two new Corporations. The operation of scheduled air transport services was under the monopoly of these two Corporations and the Act prohibited any person other than the Corporations or their associates to operate any scheduled air transport services from, to, or across India.
However, after 40 years, in 1994, the wheel had turned a full circle as the Air Corporation Act, 1953 was repealed with effect from 1st March 1994. That ended the monopoly of the Corporations on scheduled air transport services. Air transport in India is now open to any carrier who fulfills the statutory requirements for operation of scheduled services.
8.STRUCTURE OF THE INDUSTRY
Types of Airline Certification All airlines hold two certificates from the federal government: a fitness certificate and an operating certificate. The Department of Transportation (DOT) issues fitness certificates called certificates of public convenience and necessity - under it's statutory authority. Basically, the certificate establishes that the carrier has the financing and the management in place to provide scheduled service. The certificate typically authorizes both passenger and cargo service. Some airlines, however, obtain only cargo-service authority. Commuter airlines that use aircraft with a seating capacity of 60 or fewer seats or a maximum payload capacity of no more than 18,000 pounds can operate under the alternative authority of Part 298 of DOT’s economic regulations.
Operating certificates, on the other hand, are issued by the Federal Aviation Administration (FAA) under Part 121 of the Federal Aviation Regulations (FARs), which spell out numerous requirements for operating aircraft with 10 or more seats. The requirements cover such things as the training of flight crews and aircraft maintenance programs. All majors, nationals and regionals operate with a Part 121 certificate.
How Major Airlines Are Structured
?
Line Personnel
These include everyone directly involved in producing or selling an airline’s services - the mechanics, who maintain the planes; the pilots, who fly them; the flight attendants, who serve passengers and perform various inflight safety functions; the reservation clerks, airport check-in and gate personnel, who book and process the passengers; ramp-service agents, security guards, etc. Line personnel generally fall into three broad categories: engineering and maintenance, flight operations, and sales and marketing. These three divisions form the heart of an airline and generally account for 85 percent of an airline’s employees.
Operations
This department is responsible for operating an airline’s fleet of aircraft safely and efficiently. It schedules the aircraft and flight crews and it develops and administers all policies and procedures necessary to maintain safety and meet all FAA operating requirements. It is in charge of all flight-crew training, both initial and recurrent training for pilots and flight attendants, and it establishes the procedures crews are to follow before, during and after each flight to ensure safety. Dispatchers also are part of flight operations. Their job is to release flights for takeoff, following a review of all factors affecting a flight. These include the weather, routes the flight may follow, fuel requirements and both the amount and distribution of weight onboard the aircraft. Weight must be distributed evenly aboard an aircraft for it to fly safely.
Maintenance
Maintenance accounts for approximately 11 percent of an airline’s employees and 10-15 percent of its operating expenses. Maintenance programs keep aircraft in safe, working order; ensure passenger comfort; preserve the airline’s valuable physical assets (its aircraft); and ensure maximum utilization of those assets, by keeping planes in excellent condition. An airplane costs its owner money every minute of every day, but makes money only when it is flying with freight and/or passengers aboard. Therefore, it is vital to an airline’s financial success that aircraft are properly maintained
Airlines typically have one facility for major maintenance work and aircraft modifications, called the maintenance base; larger airlines sometimes have more than one maintenance base. Smaller maintenance facilities are maintained at an airline’s hubs or primary airports, where aircraft are likely to be parked overnight. Called major maintenance stations, these facilities perform routine maintenance and stock a large supply of spare parts.
A third level of inspection and repair capability is maintained at airports, where a carrier has extensive operations, although less than at its hubs. These maintenance facilities generally are called maintenance stations.
Sales and Marketing
This division encompasses such activities as pricing, scheduling, advertising, ticket and cargo sales, reservations and customer service, including food service. While all of them are important, pricing and scheduling in particular can make or break an airline, and both have become more complicated since deregulation. As explained in the next chapter, airline prices change frequently in response to supply and demand and to changes in the prices of competitors’ fares. Schedules change less often, but far more often than when the government regulated the industry. Airlines use sophisticated computer reservation systems to advertise their own fares and schedules to travel agents and to keep track of the fares and schedules of competitors. Travel agents, who sell approximately 80 percent of all airline tickets, use the same systems to book reservations and print tickets for travelers.
Subcontractors
While major airlines typically do most of their own work, it is common for them to farm out certain tasks to other companies. These tasks could include aircraft cleaning, fueling, airport security, food service and in some instances, maintenance work. Airlines might contract out for all of this work or just a portion of it, keeping the jobs in house at their hubs and other key stations. However, whether an airline does the work itself or relies on outside vendors, the carrier remains responsible for meeting all applicable federal safety standards.
Security measures
The government will most probably accept the recommendations of the technical up gradation committee, set up to look into the different aspects of air security.
For international flights Air India & Indian airlines, security personnel have been trained in passenger profiling, supposed to be the "most fool-proof" security arrangement to identify suspicious traits among passengers. The government is willing to spare more highly trained commands, but the airlines have to be prepared to pay the price of having the sky on board, it is learnt
9. THE INDIAN AVIATION INDUSTRY 1. GENESIS / HISTORY The birth of civil aviation in India began happened on Feb 18, 1911 when Henri Piquet flew a Humber biplane. In 1932, JRD Tata, a visionary launches India’s first scheduled airline, Tata Airline and also piloted its first innaugral fight. In early 1948, a joint sector company, Air India International Ltd. was established by the Government of India and Air India (earlier Tata Airline) with a capital of Rs 2 crore and a fleet of three Lockheed constellation aircraft. The joint venture was headed by J.R.D. Tata. After the Second World War as many as eleven private domestic airlines operated in India. The supply-demand was not in balance as the Indian aviation market was still in a fledgling state. Many of these airlines were making heavy losses as a result of which the government decided to nationalise the airlines by forming one domestic carrier and one international flag carrier. In 1953 Air-India International (name truncated to Air-India in 1962) became a public sector corporation along with Indian Airlines Corporation (catering to domestic and regional routes). Eight erstwhile private airlines were merged to form Indian Airlines Corp., namely Deccan Airways, Bharat Airways, Air India, Himalayan Aviation, Kalinga Airlines, Indian National Airways, Air Services of India and Air-Services India. The fleet was fairly big consisting of 73 DC-3 Dakotas, 12 Vikings, 3 DC-4s and some other smaller aircraft. (*) (Source
*) www.knowindia.net) 2. TODAY There has been a marked change in the civil aviation scenery in India. Whereas prior to 1992 when the two public sector airlines, namely Air-India and Indian Airlines enjoyed a monopoly in the domestic sector, today a dozen airlines are competing for a market share. The Indian civil aviation industry is expanding by leaps and bounds. A slew of low-cost airlines is operating or will commence operations during the current year. India's main airports are beginning to face capacity constraints and are in the process of being modernized. Indian airlines have lately placed a record number of aircraft orders. As an example, ATR received firm orders for 90 new aircraft in 2005 of which India's (Kingfisher Airlines and Air Deccan) share was 55 per cent. 3. INDIAN AIRPORTS A government controlled body AAI (Airports Authority of India) manages 127 airports in the country comprising 15 international airports, 7 restricted international airports, 80 domestic airports and 25 civil enclaves at defence airfields. Indian airports handled 51.9 million domestic, 22.4 million international passengers and 1.4 million tons of cargo in the year ended March 2006. projected traffic for 2012 is 130 million passengers. (Source : PPT by Exec Dir (AAI) at Airport forum in Dubai) 4. INFRASTRUCTURE The government of India has recognised the need to improve the aviation infrastructure in the country. Airports account for 40 per cent of India's trade by value and 95 per cent of international travel to and from India takes place through this mode. According to estimates, the present infrastructure can support a 20 per cent growth in passenger traffic and 10 per cent growth in cargo traffic. The ministry of civil aviation estimates that there is a need for an
investment of Rs 260 - Rs 360 billion . The restructuring of the first phase of Delhi airport is expected to be completed by 2009 at a cost of Rs 1.9 billion. Expansion and upgradation of the current facility at Mumbai is already under way. Work has started on a new international airport at Bangalore. Apart from strengthening of the Hyderabad runway at a cost of Rs 700 million, a new international airport is also being planned at a cost of Rs 13 billion. The government has also decided to modernise 25 airports in non-metro cities. Improvement of another 55 airports is also on the anvil. (Source : icfdc.com)
5. FDI Forty nine per cent foreign direct investment (FDI) is permitted in financing airport infrastructure as well as in airport ground handling. The government has recently increased FDI from 40 per cent to 49 per cent in domestic air carriers. However foreign airlines are not permitted to pick up a stake directly or indirectly. Non-resident Indians and corporate bodies are allowed to hold up to 100 per cent equity in domestic airlines. (Source : icfdc.com)
6. AVIATION REGULATOR The Civil Aviation Ministry plans to table a Bill to establish an independent Civil Aviation Economic Regulatory Authority (CAERA). The new regulator would be responsible for formalising all charges to be levied on operators and ensuring a level playing field for all players. Its tasks would include fixing of tariff, finalising parking and user charges, issuing broad guidelines to service providers, settling disputes among stakeholders in new airports and arbitrating between various users and service providers, including airlines. Initially the scope of the regulator would be limited to regulating the economic aspects of Delhi, Mumbai, Bangalore and Hyderabad airports where there is private participation and AAI is a stakeholder. Henceforth, the AAI too would be answerable to the new regulator. To start with, CAERA is expected to be a single-member regulator assisted by technical staff. The Bill seeks to expand its role in the days ahead. That may become necessary anyway, given the liberalisation initiatives underway in the sector. Operational, Infrastructure Regulatory-cum-developmental. On the operational front, Air India provides international air services while Indian Airlines is involved in the field of domestic air services. Pawan Hans supplies helicopter support services, primarily to the petroleum sector. Air India, Indian Airlines and its subsidiary Alliance Air (which also provides domestic services) and Pawan Hans are governmentowned. Other than them, there are a few private domestic operators too. Airports Authority of India (AAI), which was formed in April 1995 through the Airports Authority of India Act, by merging the separate ‘national’ and ‘international’ airport authorities that existed earlier supply infrastructural facilities.
In terms of size, the Indian aviation industry's turnover was approximately Rs.40 billion in FY99. 14 million passengers traveled using its services in FY99. The growth profile of the industry in the last three decades is given below.
Year
Aircraft (mn km flown)
Passengers flown ('000 Passengers nos) 2,123 4,850 7,912 10,356 12,312 11,549 12,017 (mn km flown) 1,559.0 3,917.2 7,028.1 9,249.3 11,047.3 10,702.9 10,820.3
1970-71 1980-81 1990-91 1995-96 1996-97 1997-98 1998-99
37.8 41.2 58.7 88.8 112.5 109.4 117.2
No of Passengers flown During 1970-1999
14000 12000 10000 8000 6000 4000 2000 0 1970-71 1980-81 1990-91 1995-96 1996-97 1997-98 1998-99
Passengers flown ('000 nos) Passengers (mn km flown)
Source: Indiainfoline.com
From the above table, it is clear that the aviation industry in the country has grown by leaps and bounds in terms of kilometers flown and also number of passengers serviced. However, as compared to the previous decades, the rate of growth has fallen in recent years. In fact, in the period FY97 to FY99, the number of passengers has fallen and so has the length of passenger kilometers traveled.
In terms of characteristics, the aviation industry is seasonal in nature. In the period April to May and again from November to December, demand is high. However, in the June-July period demand falls.
LIBERALISATION OF THE AIRLINE SECTOR
INTRODUCTION Liberalisation - Opening up of a country's markets to foreign/ private players. The liberalisation process in the airline sector has been going on since 1992, but it has seen a lot of turbulence. The main effects of liberalisation in this sector are: more players, less fares and better service. Before 1992 there was just one airline - Indian Airlines. When the government liberalised the sector in 1992 a lot of airlines came in (Damania, East-West, Jet), but with a market shake-up in the mid 90's only the fittest have survived. Today there are 3 major national players (IA, Sahara, Jet) and several regional players (NEPC, Span, Gujrat). As a result of liberalisation, the services of all airlines have gone up and along with that the fares have dropped noticeably.
GOVERNMENT POLICY The policy of the government in the 50's was to connect all of India via air. Hence today we find that almost all small towns of India have airports. The policy failed because not many people could afford to fly and almost no one flew to small towns. Today when small towns are finally getting flights it is found that the equipment at the airports is outdated (eg - The Patna airport was built in the 60's but use of the airport and all it's facilities began only in the 80's. That is, for twenty years the equipment in the airport was just lying around). After 1992, however, the government has adopted an "Open skies" policy. In this policy, players are allowed to enter and leave the market as they seem fit.
IS THE GOVERNMENT SERIOUS ? Often it has been found that the government's talk on liberalisation has to been taken with a pinch of salt. In the airlines sector it has been seen that although the government seems to have done a lot about liberalisation there are still some areas that haven't changed at all. 1. Narrow air corridors - An air corridor is nothing but the width of the passage an airliner can fly in. In India most of the air corridors are still very narrow as a majority of the airspace is still with the airforce. For instance, the approach to the Delhi airport is just 3 kms. wide. This narrow corridor was a primary cause of the April 26 1993 Charki Dadri crash in Haryana, where all 351 people on board two international airlines - Saudi Arabian Airlines and Kazakhstan Airlines were killed in a mid-air collision. It was one of the worst crashes in aviation history. So although the government has opened the skies they haven't yet opened the highways of the sky. 2. Tata-SIL - Some years ago the Tatas along with Singapore Airlines wanted to start a domestic airline service in the country. The government, under pressure from Indian Airlines, didn't give them the permission to do so. IA feared the competition that Tata-SIL could provide. They also said that before allowing the Tata-SIL airline to take off, the government should allow them to function as a complete private airline. This demand was not completely unjustified as even today IA is made to give 50% discount to IAS and defence officers. Also, they are made to fly to less popular destinations (North-East, Andaman & Nicobar Islands) which results in a loss of revenue for them. On the other hand, today the government is ready to privatise IA and AI. They are even willing to let any foreign airline hold a 40% stake in Air India. Such a step shows a deep commitment to liberalisation and has been well received by the global airlines. Many airlines have already come forward and placed their bids for the stake in AI (Delta Airlines, Singapore Airlines, Air France). To conclude one can say that even though the government has been giving confusing signals in the past, it seems that now they are ready to go ahead with the liberalisation process.
ATEC COMMITTEE AND IT'S FINDINGS Pre 1956, private companies were allowed to open scheduled/ non-scheduled airlines. A total of 9 institutions came up. In this period a 'Dakota' was sold for Rs. 20,000. However, these airlines soon started having financial problems. The operators requested the government for loans. The government wanted to know as to why the private airlines weren't doing too well and so it appointed the ATEC (Air Transport Enquiry Committee) headed by Dr. Rajyadhaksha to do so. After completing it's investigation the committee came up with several reasons for the economic poor show of the private airlines, four noteworthy reasons were: a) Non-standardisation of inventories - Different qualities and types of equipment was used due to multiple type of aircraft used. This hiked the maintenance cost of all the airlines. b) Multiplicity of rate - The rates of all institutions differed. c) Loss of revenue due to NAMS - NAMS means Nightly Air Mail Service. Private operators were made to carry air mail on their flights at night time, which meant a loss of passengers and hence a loss of revenue. d) High cost of fuel - The fuel used in aircraft is ATF (Aviation Turbine Fuel). It is nothing but a form of highly purified kerosene. However, the purification process accounts for 35% of the cost of the fuel which many operators could not afford. These reasons along with several other reasons lead to the nationalisation of the airline sector through the 'Air Co-operation Act' which took effect on 26 June 1953. Under the act, eight out of nine private operators became 'Indian Airlines Corporation' and one was constituted as 'Air India Corporation'. WHY DEREGULATION AND SCHEDULED AIRLINES? According to the planning commission the air transport industry in India has a growth rate of over 10% and with the existing fleet strength the national airline could not meet the demand in the market. Hence, deregulation of the skies was the only option. Deregulation means to allow free entry in to the market. Private airlines were allowed to start as air taxi operators in 1992. The growing demand for rationalisation of policies made the government lay down conditions through which air taxi operators could become scheduled airlines (ie - they are allowed to print their schedules). The major emphasis in allowing scheduled airlines are: a) Government permission to import air b) Rationalisation of operative routes. The players who come in to the market either exist with all their gimmickry or fade away due to economic pressures.
CONCLUSION After independence India had private airlines operating in the airlines sector, however in 1953 the government nationalised this sector which lead to years of government monopoly and a basic downgradation of the airline services. In 1992, however private airlines were once again allowed to operate. To put it in one line, "History repeats itself"
10. Domestic Players in Airlines
Till recently, Indian Airlines had a monopoly in the sector. However, in 1993 the skies were opened for private participation and 8 airlines got the nod to commence operations. Of these, only two have survived - Jet Airways and Sahara Airlines. Another airline, called Crown Express, has very recently got an approval from the government to start domestic operations.
The market share of major players in 2000-01.
Market share Airlines Indian airlines Jet airways Sahara airlines Source: ICMR Research Team Market Share of Major Players Market Share Percentage 51 42 7 Aircraft’s owned 57 33 9
7%
Indian airlines Jet airways Sahara airlines
42% 51%
Source: ICMR Research Team
Over the past few years, Indian Airlines has lost market share and is currently second to private operators. Its market share has fallen from 50.5% in 1999 to 46.8% in 2000. The major gainers are the two domestic operators Jet and Sahara, the major beneficiary being Jet
Airways. The combined market share of both of them has risen from 49.5% in 1999 to 53.2% in 2000. In terms of plant load factor too IA lags behind. While the average for all domestic operators was around 63.4%, Indian Airlines clocked a performance of 61.9%. Jet had the highest plant load factor of around 71.8%.
A.INDIGO
Indigo--or "individuals on the go", for the first time allowed individual travelers the ability to reserve and purchase a single seat on a traditional corporate or business jet which then flew a "scheduled" flight like a traditional airline. Prior to Indigo the only business jet services available to consumers consisted of jet ownership or charter, both expensive options to regular airline travel. Indigo is regarded as the originator of two new categories of corporate jet air travel service: per seat, high frequency and the public or commercial corporate jet. Indigo Airlines commenced operations on 4 August 2006 with a service from Delhi to Imphal via Guwahati. The airline is owned by InterGlobe Enterprises. It took delivery of its first Airbus A320 aircraft on 28 July 2006 and received six aircraft during 2006. Nine more aircraft were delivered in 2007 taking the total to 15. The carrier has set a target of serving approximately 30 Indian cities by 2010 with a fleet size of 40 A320 and A321 aircraft. The airline will receive all 100 A320 family aircraft by 2016. Former US Airways Executive Vice-President, Marketing and Planning
Bruce Ashby has joined Indigo Airlines as their Chief Executive Officer. The Indian Government has approved the airlines' aircraft import plan "in principle". The airline has also acquired 3 parking spots in New Delhi and Mumbai airports.
B.SPICEJET
SpiceJet is a low-cost airline based in New Delhi, India. It began service in May 2005. Earlier known as Royal Airways, it is a reincarnation of ModiLuft. SpiceJet marked its entry in service with Rs. 99 fares for the first 99 days. There were 9000 seats available at this rate. It followed it up with a Rs. 999 promotional scheme on select routes. Their marketing theme is "offering low 'everyday spicy fares' and great guest services to price conscious travelers". It was voted as the best low-cost airline in South Asia and Central Asia region by Skytrax in 2007
C.KINGFISHER
Kingfisher Airlines is an airline based in Bangalore, India. It operates 218 flights a day and has a network of 38 destinations, with regional and long-haul international services. Its main bases are Bangalore International Airport, Chhatrapati Shivaji International Airport, Rajiv Gandhi International Airport and Indira Gandhi International Airport. Kingfisher Airlines, through one of its holding companies United Breweries Group, has 50% stake in
low-cost carrier Kingfisher Red, formerly known as Air Deccan.
Indian Airlines
The network of Indian Airlines spans from Kuwait in the west to Singapore in the East and covers 75 destinations - 59 within India and 16 abroad. The Indian Airlines international network covers Kuwait, Oman, U. A. E, Qatar and Bahrain in West Asia, Thailand, Singapore, Yangoon (Rangoon) and Malaysia in South East Asia and Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and Maldives in the South Asian subcontinent.
Indian Airlines flight operations center on its four main hubs the main metro cities of Delhi, Mumbai, Calcutta and Chennai. Together with its subsidiary Alliance Air, Indian Airlines carries a total of over 7.5mn passengers annually.
At present, Indian Airlines has a fleet strength of 55 aircraft's. Out of them, are 11 Airbus A300, 30 Airbus A320, 11 Boeing B737 and 3 Dorniers D0228. Indian Airlines has total staff strength of around 22,000 employees. Its annual turnover, together with that of its subsidiary Alliance Air, is over Rs.40bn.
Other Airline operators:
The number and type of aircrafts owned by the two main private operators are as follows. Operator Jet Airways Sahara India Airline No. of Aircraft 12 2 Type of Aircraft B-737-400 B-737-200
International Airlines
In the international sector, Air India is the sole Indian service provider. However, in the international market, the share Air-India is negligible compared to that of the likes of British Airways and Emirates Air.
Air India
Air-India International was registered on March 8, 1948 and it inaugurated its international services on June 8, 1948, with a weekly flight from Mumbai to London via Cairo and Geneva with a Lockheed Constellation aircraft. Later on in 1962, the word 'International' was dropped. Effective March 1, 1994, the airline has been functioning as Air-India Limited.
At present, Air India has a fleet strength of 23 aircrafts. Out of them are 6 Boeing 747-400, 4 Boeing 747-200, 2 Boeing 747-300 Combi, 8 Airbus 310-300 and 3 Airbus 300-B4. The airline has plans to induct 4 more A-310-300 aircraft on dry lease effective December 2000. From a total of three stations served at the time of nationalization, Air-India's network today covers 44 destinations. In addition, Air India has a so-called 'code sharing' arrangement with a number of foreign airlines. These include Swiss Air, Bellview Airlines, Austrian Airlines, Asiana Airlines, Air France, Virgin Atlantic, Scandinavian Airlines, Singapore Airlines, Aeroflot, Air Mauritius, Kuwait Airways and Emirates.Air India carried a total of 3.35mn passengers in FY2000 as against 3.17mn in FY99. This made for a plant load factor of 70.3%.
Financials
Air-India has posted an operating profit of Rs.760mn in FY2000. This is good news given the fact that the airline had recorded its highest operating loss of Rs.4.13bn only three years ago i.e. in FY97. The airline had made its last operating profit in FY95. The net loss has been contained at Rs.370mn partly due to an additional payout of Rs.1.78bn during the fiscal due to a hike in global and domestic fuel prices. Air-India's total turnover during the year was Rs.46.62bn as compared to Rs.42.36bn last year - a growth of 10%.
While PBIDT was a negative Rs.6.48bn, the firm succeeded in raking in a cash profit of Rs.4.12bn during the year. Air-India has also achieved a positive return on its investments of over 5% in FY2000 on capital employed in the business as compared to a negative return in the last couple of years.
DEREGULATING INDIA’S CIVIL AVIATION
? Prior to 1991, aviation, much like other major sectors of the Indian economy,was nationalized and heavily regulated ? In 1953, the Air Corporation Act, 1953, changed the landscape of the airline industry in India. ? It was in 1994 that the Air Corporation Act was repealed and thus this allowed private operators to operate in the domestic airline and aviation industry
ABOUT AIR ONE
• The AIR ONE airline is a low cost airline with four Boeing 737 planes at an investment of $300million. • AIR ONE believes in dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit with returns to the shareholders.
AIR ONE PRINCIPLES
? Simple product — which means no free meals, economy seating, onlinereservations, no frequent flier programmes ? Positioning — targeting business and price-conscious passengers ? Low operating costs.
AIR ONE MISSION
? The mission of Air one is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit with returns to the shareholders.
11. AIRPORT INFRASTRUCTURE
There are a total of 449 airports/airstrips in the country. Airports are presently classified as international and domestic airports.
International Airports: These are available for scheduled international operations by Indian and foreign carriers. Presently, Mumbai, Delhi, Chennai, Calcutta and Thiruvananthapuram fall into this category.
Domestic Airports: In this category fall those airports which have custom and immigration facilities for limited international operations by national carriers and for foreign tourist and cargo charter flights. These include airports Bangalore (CE), Hyderabad, Ahmedabad, Calicut, Goa (CE), Varanasi, Patna, Agra (CE), Jaipur, Amritsar, Tiruchirapally, Coimbatore, Lucknow. Yet another type of airports are known as Model Airports. These have a minimum runway length of 7,500 feet and are capable of handing A320 type Airbuses. They can cater to limited international traffic, if required. These airports are in Bhubaneswar, Guwahati, Nagpur, Vadodara, Imphal and Indore. There are 71 domestic airports, which fall in the category of 'Other' Domestic Airports. There are also 28 civil enclaves (CE) in Defense airfields. Twenty of them are currently in operation. Mumbai airport is the busiest in India and handles about 30% of the total passenger traffic in the country. The Chhatrapati Shivaji international airport's share of the country's international traffic is around 40%. MACRO ENVIRONMENT ANALYSIS Macro environment analysis refers to study of those factors which affect an organization but are beyond the control of an organization. These factors are uncontrollable. Macro environment consist of following six broad areas: ? Political environment ? Economic environment ? Social environment ? Technological environment ? Demographic environment ? Natural environment
1 POLITICAL ENVIRONMENT Indian political scenario has, is and will undergo various changes. Following are the various policy changes which might have an impact on aviation industry in coming years: Open Sky Policy India had this agreement with 40 countries and lately it signed the policy with UK, USA and European Union. According to this policy, The signatories are allowed to fly over the skies of India. Under this arrangement, airlines from EU member nations will be allowed to operate flights to India from any of the 25 EU nations regardless of the carrier's country of origin. Effect: Tourist arrivals in India are expected to grow exponentially, especially due to the open sky policy between India and the SAARC countries and the increase in bilateral entitlements with European countries, and the US. The increase in number of international tourists will percolate down to increase in domestic passengers. . Deregulation
Year of the Amendme nt
1986
Number of Aircraft Seats
Max. of 10
May provide service to:
Notified Airports Only 55 Notified airports All airports (93)
May provide service when
2 hrs before/ after National Airline
Who can Service
Fares:
National and nonscheduled
Regulated by National Airline
9.8.1989 MayDecember 1990 25th Feb 1993 1st March 1994 24th Jan 1997
Max. of 50 seats Min of 15/ No max
Prior approval of flight timesabolished
Ownership expanded to: Citizens, NRI Government 40 % foreign Equity allowed A company/ body registered in India*
Fare restriction abolished
8.3.94 A max. of 30 seats for new entrants No restrictions
No restrictions do
No restrictions
Anyone in the aforementioned categories* FDI 49% airline 100% airport
NO restrictions No Restric.
02 Feb 2006
do
do
Prior to 1991, aviation was nationalized and heavily regulated In 1953, the Air Corporation Act, 1953, changed the landscape of the airline industry in India.It was in 1994 that the Air Corporation Act was repealed and thus this allowed private operators to operate in the domestic airline and aviation industry. Requirements to become a scheduled operator air carrier in India have being reformed, the reduced restrictions on foreign direct investment is 49% for flights and 100% for airports Effect: Entry into the air travel industry is not only cheaper, but also affordable to new operators Modernization of Airports The Indian Cabinet has approved a proposal mandating the state-run airport operator to modernise 35 airports in second-tier cities within the next two years. The modernisation process will cost the government between Rs. 70 to 80 billion. Delhi (Rs.8,700 cr) to GMR and Mumbai Airport Modernisation (Rs.6,400 cr)to GVK are two biggest investment projects . Total investment on hand in airport infrastructure
crossedRs.35,000 crore in the quarter ended January 2006.This investment was spread over 89 projects.Upgradation of Kolkata and Chennai airports is on anvil.. Simultaneously, 20 non-metro airports will be developed. Two biggest active projects are the Bangalore International Airports Authority Ltd (Rs.1.5 crore)and GMR Hyderabad International Airport Ltd (Rs.1.5 crore). Effect: Improved infrastructure would lead to rise in no. of travellers and also so would encourage more operators. Abolishment of Taxes Foreign Travel Tax (FTT) Rs500 and 15% inland air travel tax (IATT) charged on Basic airfare has been abolished by the government wef from January 9,2004 to reduce fares. Reduction on Exise Duty From January 9,2004, the excise duty on ATF was reduced from 16 to 8 per cent The average domestic price of ATF is 99 per cent higher than prices in foreign countries and affects domestic airlines drastically as ATF accounts for 30 to 40 per cent of operating costs Effect : It would lead to low fares thus giving a boost to air travel The government has reduced the average age of aircraft being imported into India for commercial airline operations by five years. Effect: It would lead to increase in imports of aircraft thus can discourage more operators coming in and improve services Landing Charges abolished Landing charges for aircraft with less than 80 seats were and landing charges for larger aircraft have been reduced by 15% with effect from February 11,2004.
2 ECONOMIC ENVIRONMENT
India,ranked tenth in the world in 2004,is expected to be holding eighth rank in the world by 2014 and fourth rank in next years with a GDP of $1.15-1.4 trillion and $2.1-3 trillion respectively,and a projected growth rate of 6-8%. Effect: This rise in income levels along with introduction of no-frills flights will lead to ? rise in no of travellers, ? more investments in aviation, ? more competition and ? rise in industrialization leading to more need of air transport
3 SOCIO-CULTURAL ENVIRONMENT Change in Lifestyle Average income of middle class household is expected to rise to 194000 Rs by 2010 from 169000 Rs in 2001-02.No of households projected to be 43.6million in 2010. Effect: So there is going to be change in lifestyle and spending of people Due to this change people will prefer Low cost airlines instead of Railways first airconditioned thus rise in air traffic
Rise in Leisure travel Tourism industry grew 8.8 per cent over 2003- highest growth rate in the world. 3.2 million foreign tourists visited India last year.There has been an increase in leisure travel by tourists of 15% in 2004. Effect : It will lead to rise in no of tourist passengers thus more encouragement for new operators.
4 TECHNOLOGICAL ENVIRONMENT Introduction Of Airbus A380 The double deck Airbus A380 is the most ambitious civil aircraft program yet was launched in December 2000. An all new design Superjumbo, the Airbus A380 is the world's first twindeck, twin-aisle airliner.It could be outfitted for special passenger uses such as sleeper cabins, business centers or even child care service. In a one-class configuration, the A380 could accommodate as many as 840 passengersAdvantages of the A380 include lower fuel burn per seat and lower operating costs per seat. Airbus states the A380 will use 20% less fuel and will fly quieter, cheaper and more environmentally friendly than the 747 ILS-Instrument Landing System Instrument landing system (ILS) facilities are a highly accurate means of navigating to the runway under low visibility conditions Various runway environment lighting systems serve as integral parts of the ILS system to aid the pilot in landingWhen using the ILS, the pilot determines aircraft position by instruments. ILS is classified according to capabilities of the ground equipment. Category I ILS provides guidance information down to a decision height (DH) of not less than 200 ft. Improved equipment (airborne and ground) provide for Category II ILS approaches.(DH of not less than 100feet)
5 DEMOGRAPHIC ENVIRONMENT
Changing Structure of Consumers
Middle class population of India was 300 million in 2005 and is projected to be 400 million for 2010. Effect : For aviation, this growth is a remarkable achievement and a sign that the industry can only expand as more people gain the ability to purchase airline travel,supported by introduction of low-cost carriers. High %age of young population India has highest percentage of people in age group of 20-50, with high earning potential.Also younger segment has more mobility needs due to education or work,So it shows high probability of rise in Domestic air travel. Higher number of literates
Due to rise in education awareness, there has been rise in no. of graduates and those pursuing higher studies.which translates into higher earning potential and higher spending on travel in future.
Nuclear Families Due to lesser number of joint families and increasing nuclear families, there would be rise in air travel by children to meet their grandparents.
6 NATURAL ENVIRONMENT
The average domestic price of ATF is 99 per cent higher than prices in foreign countries and affects domestic airlines drastically as ATF accounts for 30 to 40 per cent of operating costs After a fall in ATF in nov and dec by 2%, and 11%, for the 2nd consecutive month,ATF price in February soared by 3.5 % to the price prevailing in Jan 2006.(from Rs.35 a litre to Rs.36.2 a litre.) Earlier, under the fuel pricing mechanism the subsidy given to Kerosene/diesel was loaded onto ATF. While this has been phased out, States are now levying heavy Sales Tax on ATF which made it costly. Effect: Due to high factor costs, short haul operations are rendered unviable.It would lead to low profits thus discouraging new operators.
PORTERS FIVE FORCE ANALYSIS THREAT OF NEW ENTRANTS The entry is easy but various regulations make the launch of a new airline difficult. The factors which make the execution difficult are • The capital requirement-An airline is required to have capitalization of minimum thirty crores without which it is not allowed to takeoff. • Expected retaliation-The market is concentrated in the hands of a few players thus any new player would to face stiff competition and retaliation from the existing players such as Jet Airways and Indian. • Legislation or government action-Along with the equity restrictions for floating an airline they also compel the airlines to operate on uneconomical routes such as • Inadequate airport infrastructure often makes it difficult for the existing airlines to function smoothly and thus deters new ones from entering the market. Shortage of pilots and high fuel costs also pose a threat as the existing demands itself are not being fulfilled. • Exit barriers-The high capital requirement makes it difficult for the companies to exit the market but being a growing industry the existing players are willing to acquire and make exit for an operator less difficult. 1.POWER OF BUYERS • The power of buyers is low because they are large in number and highly fragmented. The increasing GDP and the introduction of low cost airlines has not only increased the existing number of buyers but opened the doors for a huge opportunity of growth. However the power is not as low as it could be because of minimal switching cost and alternatives available. A customer does not have to incur an cost to move from one airline to another he might incur a cost if he has signed a contract otherwise no costs are involved which increases the power of the buyers. Along with this the various options available between airlines and even other modes of transport helps the buyers. Further there is no differentiation among the players in the same segment example the differences between Air Deccan and Spice Jet is minimal.
•
•
2.POWER OF SUPPLIERS The power of the suppliers are limited and thus their power is high. • Concentration of suppliers-The suppliers of pilots and ATF are highly concentrated which increases their power. • Switching costs-If we look at the aircrafts there are only two suppliers Boeing and Air Bus thus the options available with the airlines to switch between is very limited and thus the switching costs are high but sometime the competition between the two manufacturers reduces the costs to some extent. • Brand value-Less number of suppliers results in a high brand value which works in their favor and increases their bargaining power. • Forward integration-The airlines also face a threat of forward integration. Though such an instance has not taken place in the past it may take place in
• •
the future as the suppliers have or know about most or the technical aspects of the industry. There is an acute shortage of pilots which makes the industry dependent on them. High fuel costs-Fuel accounts for nearly 35% of the total cost and the cost of fuel is increasing rapidly posing a threat to the companies profits.
3. AVAILABILITY OF SUBSTITUTE • Product for product substitution-Consumers have various options in terms of airlines to choose from. They may also switch to other modes of transport such as road and rail. Substitution for need- With the advent of technology options such as video conferencing and conference calls reduces the need to travel thus the option of substitution of need in present but it is marginal as it is not possible to totally do away with traveling.
•
4. COMPETITIVE RIVALRY The competition in the industry in high but the intensity of the competition has been reduced as it is an expanding market. • The number of airlines is increasing which increases the level of competition among airlines. Earlier when we thought of airlines the only name would be Indian Airlines but today the list is long and growing with new carriers like Goair trying to make a mark in the industry. More over six new low cost airlines are expected to come up. • High fixed costs and input constraints also add to the competitive pressures in the industry. • Like every industry mergers and acquisitions take place here too which increases competitive rivalry between airlines which in turn force more airlines to opt for mergers and acquisitions thus forming a viscous circle of competition. • Low level of differentiation between the services offered by the different airlines increases the risk of switching and thereby adds to the competition. • The industry is expected to grow at 22% which actually gives scope to the existing players and new ones to operate and reduces the extent of competition. Airports Authority Of India The Airports Authority of India (AAI) was formed after the merger of International Airports Authority of India and the National Airports Authority by way of the Airports Authority Act (No.55 of 1994). It came into existence on 1st April 1995. AAI manages 5 international airports, 87 domestic airports and 28 civil enclaves. It provides air traffic services over the entire Indian airspace and adjoining oceanic areas.
12. DEVELOPMENT OF CIVIL AVIATION IN INDIA
Travel by air in the modern sense began in India only in 1877, when Joseph Lyna took off from the Lalbagh Gardens in Bombay, and ascended to an altitude of about 7,500 feet and landed at Dadra. In the years that followed, there was a tremendous development of air transportation in India as in any other countries due to technological advances and cooperation from the government.
In 1920, the Indian Air board was set up as a part of the Department of Industries and Labour to provide safe navigation and landing places and live up to its International Commitments.
With a view to draw up a plan in anticipating the post-war needs for civil air transport, the government of India appointed in 1943 the Reconstruction of Air Services Committee under the chairmanship of the Director of Civil Aviation. Captain F.C. Tymms, M.C., (later Sir Frederick Tymms). Armed with vast technical and administrative experience and an alarming capacity for work, Sir Frederick submitted by September 1943, a series of carefully thought out papers on all aspects of post-war aviation. Accepting the basic recommendation of the Tymm’s report, the government appointed a Committee in 1944 under the chairmanship of Sir Mohammad Ushman, a member of the Post and Air Department to follow up the Tymms plan. After a critical examination of the development of civil aviation in India, USA and European countries, the Committee suggested certain measures for the construction of new aerodromes and air routes by recommending that more local air services be started and that India should participate in the establishment of governmental assistance in the form of subsidy atleast in the initial stage, and introduction of the system of licensing for air carrier companies. However it had not suggested any ceiling on the number of such licenses as recommended by the Tymms Committee. The cabinet after much discussion and deliberation decided to nationalize the civil air transport scheduled carriers and to create two monopoly corporations in the public sector. In March 1953, India’s Parliament passed the Air Corporation Act, which received the assent of the President on 20th May.
The main provisions of the Act were that: “There shall be transferred to and vested in: ? Indian Airlines, the undertaking of all the existing Air Companies (other than Air India International Limited) and ? Air India International, the undertaking of the Air India International Limited (AIIC)”.
The saga of Indian Airlines began on the 1st of August 1953, following the amalgamation of eight private airlines. The journey began with a modest fleet but high aspirations and over the years, Indian Airlines innovated and upgraded its fleet to emerge as one of the largest domestic airlines in the world. Today, Indian Airlines, along with its subsidiary airline, Alliance Air, provides an extensive network, which encompasses the whole of India - a geographical area equivalent to Western Europe, besides reaching out to 17 International Stations.
In the last four decades, Indian Airlines has progressed by leaps and bounds and built an excellent track record of manpower and infrastructural development. It has thus emerged as a proud symbol of modern India. Some of the highlights of this glorious period of evolution include: ? ? ? ? Increase in passenger carriage from 0.5 million in 1954-55 to 8.4 million in 1997-98. Spread of network from 23,000 kilometres in 1953 to 1,18,000 kilometres in 1997-98. Growth of assets from Rs..21 million to Rs.30, 000 million in 1997-98. A manifold increase in system seat capacity from 3,070 seats per day in 1955 to 35,700 seats per day.
FUTURE OF INDIAN AVIATION According to A World Travel and Tourism Council report, India will be the fastest growing travel market in the world over the next decade (Financial Express, 2001). The study expects the Indian travel market will triple to $51 billion by 2011 from the $16.3 billion currently. Air Travel in India grew by 20% last year and Boeing has raised its 20 year market forecast for Aircraft purchases from $ 25 Billion to $ 35 Billion. More than 3 million Tourists visited India last year and the tourism industry grew by 8.8% YOY, highest in the world. The International Airlines are vying with each other and planning to increase there frequencies three fold. Apart from this various schemes are being used to attract more and more customers and also attract the customers of AC classes of Trains. Some of the methods that are being used are as follows: • • • • • Low Price Tags Apex Fares Internet Auctions Bulk Purchases Last Day Fares
1 .GROWTH INDICATORS • World Passenger traffic grew to 52.12 million in the last fiscal, from 43.47 million in 2004-05, to register a growth of 19.9 percent. • Robust growth of 24 % in last fiscal in Indian Aviation Industry. • Sector expected to expand by at least 16% annually for the next 5 years, riding on the overall economic growth of 8%.
Forecast: Growth In Air Traffic
Surging Air Traffic in Indian Metros
2. EXPANSION PLANS The Burgeoning industry also demands fleet acquisition. Boeing has raised its 20-year market forecast for India for aircraft purchases from US$ 25 billion to US$ 35 billion. Both Airbus and Boeing are waiting for the next big order, expected from Air India. The airline is evaluating medium and large capacity aircraft and is expected to order 50 wide-body jets, worth almost $5 billion at list prices. Airbus has been the beneficiary of a large chunk of the new orders announced in 2004. The European consortium will sell about 100 planes to Indian Airlines, Air Deccan and Kingfisher Air, and now says it wants to give something back to India by setting up a state-of-the-art training cumMaintenance centre. The company is awaiting government clearance for Indian Airlines' $4 billion order for 43 Airbus aircraft, a decision that was made two years ago.
3 . ROADBLOCKS • Infrastructure Constraints • Shortage of Pilots • Obsolete Navigation Facilities • Inadequate Safety Norms • Congestion Problems • High Operating Costs
4. POSITIVES • Greenfield airports –Bangalore/Hyderabad • J/Vs for Ground Handling and MRO facilities • Highly advanced GPS aided Geo augmented • navigation (GAGAN) system operational this year. • AAI set up more radar stations – to bring entire • Indian airspace under radar monitoring. • Training more Pilots and Air Traffic Controllers. • Raising retirement age of pilots to 65 from 61. 5. NEW ENTRANTS
The aviation sector is likely to see the launch of many new airlines, including: • • • • • • • Premier Airways Star Air East West Airlines Indigo Jagson Magic Air Indus Air
6. FUEL PRICES The government has raised the fuel prices by 7.5% in January 2006.Prices increased from Rs. 32.56 a liter to Rs. 35 liter. Aircraft Fuel forms a major chunk of the revenue and hence any changes in the fuel prices effects the revenues in a major way.
Rise in ATF Prices (Rs/Kg)
A possible way of dealing with these rising fuel prices is FUEL HEDGING which as used extensively and very successfully by Southwest Airlines. They booked Future options of fuel and hence even when the fuel prices soared, they were able to procure fuel at very handsome prices.
7. RECOMMENDATIONS Some recommendations to deal with the inefficiencies as suggested by WTC report are as follows: • • • • • Allow all Indian Carriers, Public or Private-to operate International routes. Lower the cost of aviation turbine fuel. Lower the Landing and airport charges. Strengthen and promote short haul tourism for business development, trade and tourism. Encourage of Proactive involvement of overseas investors and technical managers in the privatization of airports. Encourage commercial activities within airports such as hotel, restaurants etc. Ensure a healthy growth in traffic to the private airports.
• • • Interpretation: 1. In this table it is evident that the sales of the jet airways has increased by 25% in the year 2001-02 but has suddenly stopped for the year 2002-03 in which year it appeared to be increased by only 1%. but this is not the true indicator of the companies performance in that year because, this is the year in which most of the companies has shown losses and had withdrawn their service after sluggish ness in the airline business because of the attack on the WTC, in sept. 11, 2001. 2. In the year 2002-03, though there was sluggishness in the market the company had increased its service to some more flights and more locations. 3. Coming down to the performance of the company again we can see that the company has recovered very soon and has posed a profit of approx.12.5% and has shown a similar trend of 20% increase in the net revenue. 4. Thus if we consider the performance of the company in the year of the crisis to assess the future performance of the company it will represent a faulty projection for the company. So by excluding and projecting according to the trend that the company has shown it comes out to be a growth of 20% and thus will generate revenue of around 5238 crore. 5. In the year 2005-06 the company has introduced some aircrafts (Boeing 337-700, A340300E), and due to soaring prices of ATF the company has incurred higher amount of expenses. It is difficult to determine whether company is going to increase more aircrafts and also the fluctuating oil prices. So, we could not predict the COGS of the company. 6. Another major reason, why the projection of the company is increasingly difficult is because, it has recently been allowed to operate overseas and for this company has been entering into many new contracts and trying to make acquisition like Sahara Airlines (which failed, though), in fact the company has also start operating in certain countries, in which it had not been earlier. Thus, it makes very difficult to come up with the projection of promotional expenses and other items of the P/L A/c and B/sheet. 7. But, if we presume that the company will be only as efficient as earlier years and there would not be any dramatic change in the market share of the company we can come up with the following projection table:
year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Jet’s Market Share 1982 2500 2526 2876 3447 4338 5238
Total Domestic Market 5223 5275 6009 7204 9063 11900 14994
Market Share Market Growth(%) 38 47 1 42 14 40 20 38 25 36 31 35 26
Jet Airways Market growth(%) 26 1.04 13 19 25 20.75
8. Facing the same problem of an abnormal year of crisis which impacts the airline business heavily, we have averaged the growth of the four years only except 2000-01 and 2002-03 and got the simple average of 20.75 % and have been projecting it as the possible growth of the company for 2006-07.But the growth of the company may even be higher because our projection goes conservative because we have have not acknowledged the slow growth of the year 2003-04 and have considered it as a normal year. So, we conclude that the market share of the jet airways will grow at 20.75 % with certain assumptions made above and because of the highly fluctuating ATF (Aviation Turbine Fuel), and growing competion and no definite trend in the different costs we decided not make any projection for the profit, which may be highly faulty.
13. CIVIL AVIATION POLICY
The Ministry of Civil Aviation is the main central agency responsible for the formulation of national policies and programs for development and regulation of Civil Aviation and for devising and implementing schemes for orderly growth and expansion of Civil Air Transport. Its functions also extend to overseeing the provisions of airport facilities, air traffic services and carriage of passengers and goods by air. The Government recently approved a new policy to promote private investments in the Aviation Sector. The highlights of the policy are as follows. a. Foreign equity upto 40% and investment by non-resident Indians (NRIs) or overseas corporate bodies' (OCBs) upto 100% will be permitted in domestic air transport services. b. Equity from foreign airlines will not be allowed directly, or indirectly, in domestic air transport services. Existing companies in which equity is held by foreign airlines will be advised to disinvest this equity. c. Entry and exit barriers have been removed. There will be a scrutiny of applications to verify financial soundness and maintenance, security and safety aspects of operations. d. The choice of aircraft type and size is left to the operator. e. To achieve economies of scale, the minimum fleet size for a scheduled operator has been raised from the existing three aircraft to five. Also the minimum amount of shareholders' funds has been increased from the existing Rs.50mn (US$ 1.4mn) to Rs.100mn (US$ 2.9mn) for aircraft of all-up weight below 40,000 kg and from Rs.100mn (US$ 2.9mn) to Rs.300mn (US$ 8.7mn) for all-up weight exceeding 40,000 kg. 2. Total capacity requirements in the air transport sector are being projected for a period of at least five years on an annual basis, to help the developer make investment decisions. 3. In the distribution of this capacity, while preference will be given to Indian Airlines according to its fleet augmentation plan, private operators' proposals to induct new capacity will be considered, based on the demand, load factor, past track record and financial soundness. 4. All scheduled operators are required to deploy 10 per cent of their capacity in NorthEast, Jammu and Kashmir, Andaman and Nicobar Islands and Lakshadweep.
14. INFRASTRUCTURE DEVELOPMENTS
Private sector is now allowed in building airports. Among the private sector-aided airports to be developed in the next five years are Hassan (Karnataka), Mumbai, Goa and Bangalore. These airports are capital-intensive projects that have to be run efficiently to make them commercially profitable. The Mumbai project, for instance, will cost an estimated Rs.16bn (US$457mn). The Government has also decided to concentrate on developing existing airports rather than on new airports. The AAI is investing Rs.4.4bn (US$125.7mn) to develop model airports in 12 cities, with state-of-the-art equipment.
Part financing of facilities through a tax paid by embarking international air passengers is an idea being tried out at Kozhikode, which generates large West Asia-bound traffic. A similar method may be adopted for development of airports in Rajasthan and Goa that are popular tourist destinations.
Among airport construction projects with private participation, the Kochi International Airport has progressed the furthest. It has passed the initial planning and the land acquisition stage. The project is expected to cost around Rs.1.6bn (US$45.7mn) in the first phase, and go up to around Rs.3bn (US$85.7mn) finally. In the first phase, equity will account for Rs.640mn (US$18.3mn), 26% of which the government of the State of Kerala holds, and the rest by non-resident Indians, banks, users (airline firms) and contractors. Term loans and short-term borrowings for working capital from banks will fund the rest of the project.
The AAI has also drawn up a Rs.40bn (US$1.1bn) plan to modernize and expand its airspace infrastructure to meet the demand growth projected for the coming five years. The growth strategy envisages not only better passenger facilities but also improved navigational and communication systems. The first phase will involve upgradation of conventional communication, navigational and surveillance systems as an immediate measure. The second will be a transition from the present ground-based ATS systems to satellite-based CNS/ATM by the year 2000.
The internal resources generated at present being inadequate, the AAI plans to enhance revenues through rationalization of the tariff structure, as well as from commercial, cargo and duty-free shops.
Association
IATA - The International Air Transport Associations History: IATA - The International Air Transport Association- was founded in Haryana, CUBA, IN APRIL 1945. It is the prime vehicle for inter-airline cooperation in promoting safe, reliable, secure and economical air service - for the benefit of the world's consumers.
The international scheduled air transport industry is now more than 100 times larger than it was in 1945. Few industries can match the dynamism of that growth, which would have been much less spectacular without the standards, practices and procedures developed within IATA.
At its foundation IATA had 57 members from 31 nations, mostly in Europe and North America. Today it has over 230 members from more than 130 nations in every part of the globe.
15. AIRPORT PRIVATIZATION
The Airport Authority of India, which manages five international airports, 87 Domestic airports and 28 civil enclaves at defense airfields, is facing an uphill task, as it for funds, management talent and its adherence to the government procedures. Government policies provide for privatization of airports at Delhi, Mumbai, Calcutta and Chennai through long lease and new developments at existing airports and Greenfield airports through private initiative.
It's true that there is risk in privatization of airports, since airports essentially provide public utility services in monopolistic situations. There are apprehensions that private enterprises are profit motivated and with privatization users may not get quality services at affordable prices.
To begin with, for four airports which the government has decided to privatize, consultants should immediately put the website details of assets, traffic figures for the past 10 years and figure projections, revenue figures existing and projected, profit & loss for last 10 Years, details of manpower, business plans, capital investment programs etc. This would enable potential investor to start preparatory work on their due diligence investigations.
Consultants should immediately develop draft terms and conditions governing lease of these airports clearly bringing out obligations of new managements in terms of service levels, commitment to minimum investments for development of airport facilities, operational standards to meet our national and international obligations, clauses to deal with emergency situations, termination in event of breach, etc. These should be discussed with the aviation industry and finalized.
Government should set up a regulatory Authority whose main functions would be economic regulation and operational safety audit. This authority through its statutory powers and intervene if standards of airport services in terms of safety, reliability and cost effectiveness are not met.
Some of the states are taking initiative for development of Greenfield airports and they should be assisted by the Ministry of Civil Aviation in adopting more professional approach.
In the first instance state governments should develop techno -economic feasibility reports for airport projects through experienced organizations / consultants of repute.
Airport Authority of India (AAI) has a large number of airports where the traffic volumes are low. Private entrepreneurs are not likely to be interested in such airports, which are not financially viable. These airports should be commercialized by exploiting the commercial potential of airport lands, cost containment, increased productivity and improved cost recoveries. Thus, some of these airports may in the next few years reach a stage when they can also be privatized.
There are some other airports with AAI, which could be transferred to state governments, local bodies or tourism agencies who are in an advantageous position to operate and manage them more cost effectively. It is conceded that privatisation is not likely to remove all the hiccups in the development of aviation sector .We need to have a model tailored to Indian Conditions, keeping in view the local laws, rules and regulations in tune with the political philosophy and psychology of local travelers. The funding pattern should be such that the investment made is beneficial to the investors due to monopoly nature of airport business.
Foreign investors do not want to investment in aviation sector in India, due to abnormal delays in decision making, undue interference, non- consistent policies of government and to some extent inflated fear of corruption in India. It's therefore essential that sectors like aviation be left in hands of professional managers and the role of bureaucracy should be only custodial and regulatory.
16. ALLIANCE STRATEGY
Alliances in various manifestations have come to stay and airlines around the world are spending agonizing hours deciding who they will marry and on what terms. The basic reason for all these alliances and equity partnerships is that the competition is growing and the World Trade Organization (WTO) is spurring the move towards “open skies” in the real sense of the word. Multilateralism in the field of aviation would mean any airline could fly anywhere in the world without being bound by bilateral agreements like that exist at present. The impact of these global handshakes is being felt by smaller airlines, as about 70 percent of the large carriers have become a part of the various groupings. No individual airline can match the reach and the connectivity of the large groupings and the smaller carriers can only watch as the globe is carved up among the various mega alliances. As a strategy, an alliance involves
1) Extensive code sharing and the frequent flier plans Code- Sharing is where an airline flies on behalf of the other on a particular sector. The Indian example is that of Indian Airlines and Air India that share codes in the Delhi-Mumbai as well as in the Gulf sector. The frequent flier programmes are yet another advantage. The miles earned on domestic flights can be redeemed on international flights. The Jet Airways has an alliance with KLM/Northwest and the British Airways. The passenger who flies on any of these airlines is eligible for the “Jet Privilege” card subject to the fulfillment of terms and conditions.
2) It also involves co-ordination of schedules to maximize loads By this it implies that the two airlines that were earlier competing with each other on a particular route compete no longer because of the alliance. They instead time their flights so that their payload is maximized and they do not compete against each other. Effective scheduling of flights does this. When a domestic airline goes into an alliance with an International airline then the scheduling is done in such a way that the domestic flight can act as a connecting flight for the passengers of the international flight. The Indian example of such an alliance is that of Jet Airways with KLM/Northwest and British Airways. By this not
only the domestic airline has an increased load factor but the international airline also has an increased load factor through better connectivity.
3) Route planning In route planning the alliance partners join hands for a particular route or a combination of routes. For example if Air Lanka has got scheduled flights from Colombo to Mumbai, then a passenger from Colombo can be issued a ticket from Colombo to New Delhi. From Mumbai to Delhi the alliance partner will carry the passenger.
4) Joint pricing As stated above the passenger from Colombo to Delhi can be issued one single ticket though he shall be availing of the services of two airlines. This is called as joint pricing where in one of the partner issues a ticket on behalf of the other.
5) Inventory management In the aviation industry the inventory costs form a major part of the cost. The inventories are quite expensive as well. The alliance partners maintain common set of inventories and this helps in the reduction of the inventory costs, as a large amount of capital is not blocked for this.
6) Integration of information technology This is yet another highlight of a successful alliance. The partners can have joint reservation, check in and check out systems and can also use the information technology infrastructure of the alliance partner.
7) Joint purchasing by the alliance partners The benefit of scale and bargaining powers can provide great synergies and the cost reduction to the partners.
Benefit To Passenger Easy connections across the globe An easy connection across the globe is made possible as the passenger has the advantage of flying to such locations where the international flights do not operate. In such a case the alliance partner provides the connecting services (provided it has the same in that region).
Lounge access at various airports The advantage of the frequent flier program is also that the passenger who holds the frequent flier status is eligible for availing of the lounge services of the alliance partner as well. For example the “Gold Card” holder of Jet Airways is eligible to avail of the lounge services of KLM/Northwest and British Airways.
Times have changed to an extent that carriers, who were bitter rivals once, are now talking about joint sales incentives, sharing revenues and profits.
Though no Indian carrier is yet a part of the giant global alliances, Air-India, Indian Airlines and Jet Airways are already in other alliances like code-sharing, joint frequent flier programs. Airlines hold hands with each other in several ways depending on their needs. Of course, the most drastic measure is taking an equity stake, a method that is actually going out of vogue these days. Other common ways are Code- Sharing where an airline flies on behalf of the other on a particular sector. Examples in India are Air-India and Air Lanka on flights to Delhi, Air- India and Indian Airlines on domestic flights to Delhi and flights to the Gulf, Jet Airways and KLM / Northwest. Joint marketing and frequent flier programs co-operation is another popular measure to tie-up. An example is Jet Airways frequent flier program “Jet Privilege”, where it has a joint co-operation with British Airways and KLM /Northwest. This primarily means that the miles earned on domestic Indian routes can be redeemed on international flights. A corollary of this is the joint utilization of reservation, through check in and operational systems.
Other ways of alliance between the airlines for greater synergies: 1. Block seat arrangements- In this the airlines agree to take up a certain percentage of seats on another carrier on a particular route. 2. Block cargo schemes- For cargo, airlines have block cargo undertaking to provide a certain tonnage to another carrier; they can also have Cargo Code Shares between them. 3. Strategic partnership- This is another amorphous term wherein airline tie-up for longterm commercial gains. This sort of relationship usually ends up in equity partnership or more permanent commercial arrangements. The latest example is that of Singapore Airline taking a 49 percent stake in Richard Branson’s “Virgin Atlantic”.
17. RECENT DEVELOPMENTS
The government has given the final nod for the divestment of Air India. It has been proposed that the government will not fix any price for sale but will let the market decide the price. The government has put up 40% of the equity in the airline for sale. The strategic partner, which the airline has been scouting for, will take up 40% stake with only a 26% cap to foreign airlines. The line up of suitors is formidable with a combine of British Airways and Jet Airways, Singapore Airlines and the Tata's, a consortium led by Air-France and Delta, Reliance and ITC. Then came British steel baron Laxmi Mittal who has decided to take the plunge along with Kotak Mahindra, British Airways and Qantas of Australia.
As far as Indian Airlines is concerned, the Tata group has bid for it in addition to its bid for Air India. The Hindujas, the SkyTeam comprising of Air France and Delta, Emirates and the Indian Pilots Guild have also submitted their expression of interest. Reliance had earlier pulled out from the race.
The Disinvestment Minister Arun Shourie has said that the end of FY01 will see the completion of the privatization process for Air-India. The government is sadly way off the target (Rs.100bn) as far as the program for disinvestment goes. It remains to be seen whether the proposed divestment in Air India does come about by the set date. lities as a way to encourage air traffic.
The Take Off: Naresh Goyal, Chairman of Jet airways was the one-man show behind Jet airway’s birth. Goyal started his career as a marketing executive at the General Sales Agent (GSA) with Lebanese international airlines in Delhi. He than worked with Iraqi airways for a couple of years, before joining Royal Jordanian Airlines as a regional manager. Goyal's diligence & incredible ability to memorize flight schedules caught the attention of Ali Ghandour, who was then president & chairman of Royal Jordanian Airlines. Ghandour introduced Goyal to the wider world of aviation outside India.
In 1974, Goyal decided to get into the GSA business himself establish Jet air Transportation representing Kuwait Airways & Air France. Simultaneously, Goyal was appointed regional manager of Philippine Airlines. Over the next few years, Goyal expanded his network picking up agencies for some more airlines. He was regular member at the AGM of International Air Transport Association(IATA) the global aviation body .
Meanwhile Goyal turned into NRI & shifted his base to London. During the same time, Goyal also toyed with the idea of setting up his own airlines. The opportunity came in early 1990s, with the GOI's open skies policy permitting private investment (including NRI's) in the domestic aviation. In April 1992, Jet airways India was set up as a 100 % subsidiary of tailwind ltd., a company registered I Cayman islands (situated in the northwest Caribbean sea ) . Kuwait Airway's & Gulf Air had 40 % stake in tailwind ltd. Soon after being incorporated as a privately owned airline, Jet airways hired lintas the ad agency to develop Jet airways 's corporate logo, IMRB the market research firm to do a consumer survey & Anderson consulting to do feasibility study & help prepare the business plan. By 1992, goyal put his start-up team in place. Saroj datta & B.P.balinga, both directors at Air India, Rolland Thomas from Malaysia Airlines & Steven Jagannathan from Singapore Airlines joined the board.
The Success Formula Jet airways started its operation with leased aircraft's. The idea was to expand faster by using funds to lease more aircraft's than buying one or two. Boeing 737 could cost anywhere between $ 40 to $ 50 mn, whereas a monthly lease could be as low as $ 0.4 mn. The most crucial decision was the choice of aircraft. While Damania, East West & Modiluft who also started their operations at the same time opted for the older Boeing 737.200s, Jet airways chose newer 737.300s whose least cost were atleast 40 % higher. four planes (about three years old) were leased from Ansett Airlines. Although the 737.300s were more expensive to lease they were more fuel-efficient (consumed 8% less fuel) & were cheaper to maintain. goyal felt that young fleet would help attracting customers.
Analyst felt that by having one type of aircraft-the 737-in its fleet, Jet airways made the maintenance & flight crew training far simpler. Spares were common & inventories were lower as well. for engineers, dealing with one type of aircraft. Balinga claimed that Jet airways technical dispatch reliability was 99.6 % , which meant that a Jet airways flight was rarely held up on account of technical snags.
Jet airways also had another advantage in the form of a readymade distribution network in sister company Jetair's 85 offices countrywide through which it had access to a larger market beyond metros. Unlike other start-ups that started with manual reservations, Jet airways went in for computerized from day one. This airlines reservation system, though expensive, delivered superior service.
Jet airways 's number of employee per aircraft was 163 & a total employee strength of 4,000 as against Indian Airlines's 397. The focus was on productivity & cost control. Jet airways was not a lavish paymaster & increments were modest. Salaries provided were not as high as foreign airlines offered. Jet airways also invested heavily to train his pilots. An aviation academy housing the state-of-art Boeing 737 700 /800 flight simulator & flight training device for 737-400s was set up at a cost of $ 10 mn.
Jet airways 's success was mainly due to its service excellence. Jet airways always ensured that its service surpassed customer expectations. Goyal ensured that the attendants & front line staff were fresh recruits trained in the "jet way"& not people from other airlines who would bring with them old culture. According to the frequent travelers, the hallmark of Jet Airways's service was its cheerful attitude. If flight was delayed, travelers were phoned & informed in advanced. Jet Airways's managed to achieve service excellence, because of being strictly disciplined from the start. Lapses were not tolerated & the focus was on performance.
Innovations in service ? ? ? ? ? Cabin bag-only passengers can check in at any city counter Returning passengers can get two boarding passes at one check in Business class passengers can customize their meal & drinks In flight mail-order shopping offers premium products at a discount JetMobile offers automated flight schedules over the cell phone
Jet Airways always focussed on the business traveler. To attract & retain business traveler, it had to offered superior services. Jet Airways's picked up Indian Airlines's service module as a framework & borrowed a few ideas from KLM Royal Dutch Airlines for managing systems. Jet Airways's always believed in keeping close watch on its customer's service. On all its
flights more than 20 minutes long, light refreshments were served & on longer flight passengers were served non-alcoholic drinks, cold towels & a three coarse meal. Jet Airways received 16,500-service monitor questionnaire (SMQ's) every month & they were analyzed at various levels to plug loopholes in service. Every new flight attendant was put through at least three months of training in the first year & thereafter several more hours of in-flight & class room training.
In December 1999, Jet Airways relaunched its frequent flier program under the 'jet privilege' (JP) name the (frequent flier program was initially launched in 1994). JP customers were not required to pay membership fees. They also did not have to produce boarding cards or other proof of travel. A passenger can earn free JP miles (points) by taking a Jet Airways flight. The new programme offered three different levels of privileges: J.P Blue, J.P Silver, J.P Gold, depending on the number of miles accrued or the number of flights flown. J.P Silver & Gold members could earn bonus miles on all Jet Airways flights & enjoyed lounge access, Tele check-in benefits. Jet Airways tied up with international carriers like KLM Royal Dutch Airlines & Northwest Airlines as a result of which JP members could earn miles on these airline networks too. They could redeem their miles when they had earned atleast 10,000 miles or had flown 10 flights. Jet Airways had tied up with Oberoi Hotels & Resorts, Radisson Worldwide. Members of JP could earn miles on each stay at any of these hotels.
In 2001, Jet Airways launched an in-flight, Jet Airways launched an in-flight mail order catalogue, JetMall for high quality products. The in-flight shopping programme enabled passengers to browse through a specially design mail order catalogue which helped them select products & get them products delivered at home within two to four hours anywhere in India. Jet Airways claimed that that the mail order catalogue was at par with the in-flight shopping catalogue on international flights.
In early 2001, Jet Airways finalized a Rs. 16 bn loan for the purchase of 10 Boeing 737s to be delivered over next two years. This was the first deal in India that involved the US Exim Bank & an Indian Bank along with two offshore special purpose vehicle (SPVs). According to analyst, the beauty of the deal was that Jet Airways would finally end up borrowing from indian investors & not from foreign bank.
Performance of jet airways Performance of jet airways since its formulation in 1992.Over the years, jet airways has significantly improved its market share from 6.6 % in 1993-94 to 42 % in 2000-01. Right from the start, jet airways focussed more on customer service rather than anything else. It was because of it's superior customer service, that jet airway's had become the most popular airline in India.
Strategies of jet airways: It's operations started in India with leased aircraft because buying an aircraft would have cost jet airways around $ 0.4 million. Jet airways also started it's operation with the new Boeing 737-300s & not the older Boeing 737-200s. This was because the new aircraft were fuelefficient & maintenance costs were low. Jet airways' aircraft utilization & number of flights a per day more than of Indian Airlines. Another reason of jet airways was it's lean structure. Compared Air India’s 397 employees per aircraft, Jet airways had only 163 employees per aircraft.
Flying High In The Indian Sky: In 2001, with revenues of $ 542.18 MN, Jet Airways emerged as the most popular domestic airlines in india. Jet Airways stated its operation in 1993;the number of its passengers increased from 0.663 million in 2000-01.by 2001, when other private airlines had stopped their operations, Jet Airways not only continued to survive, but had become a formidable competitor to indias national domestic airlines -(AIR INDIA). Jet Airways seemed to be lone challenger to AIR INDIA with Sahara Airlines in the third position. Jet Airways's market share increased to 42 % in 2001 from 6.6 % in late 1990s. In 2001 , Jet Airways ran 215 flights per day compared to INDIAN AIRLINES's 208.Unlike the loss making INDIAN AIRLINES, Jet Airways is making profits. At the end of the first year, Jet Airways achieved average seat factor close to break-even level of 71 %. Thereafter it broke even & has been making profits ever since. In 2001, Jet Airways recorded profits of rupees 125mn compared to AIR INDIA which recorded a loss of Rs 1.77bn
Table 1 Passenger Carried Years 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 In million 0.663 1.241 1.606 2.367 3.131 4.013 4.875 5.931 Years
Table 2 Market Share Numbers 6.6 11.0 12.7 19.0 25.6 32.8 38.4 41.9
1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01
Source: Business Today, July 21, 2001
Table 3 Fleet size Year 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 July 2001 Source: Business Today, July 21, 2001 Numbers 4 6 8 12 19 25 29 30 33
Growth of Fleet Size of Jet Airways
40 n me u b rs 30 20 10 0 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 years
Jet airways a favorite with travelers because of its friendlier approach & new generation cleaner planes more importantly, seasoned air travelers were that if they have crucial appointments to keep in other cities, jet airways was reliable than Air India. Jet airways on time performance & schedules attracted business travelers who accounted for 80 % of its customer. Jet airways had a fleet of 33 planes in 2001,(table-3) as against AIR INDIA that had a 57 planes. But Jet airway’s fleet was much younger & average daily flying time of Jet airways was greater than IA. Greater utilization meant higher revenues & more efficient utilization of capital assets.
19. SUGGESTIONS AND RECOMMENDATIONS
? ? ? ? ? ? ? ? ? ? ? ?
Allow all Indian Careers, Public or Private-to operate International roots. Lower the cost of aviation turbine fuel. Lower the Landing and airport charges. Strengthen and promote short haul tourism for business development, trade and tourism. Encourage of Proactive involvement of overseas investors and technical managers in the privatization of airports. Encourage commercial activities within airports such as hotel, restaurants etc. Ensure a healthy growth in traffic to the private airports. Remove Legacy Silos-based platforms – SOA Improve network – Ip, Optical. Improve Mobile Workers Efficiencies – Wireless Networks. Advanced Demand Mgmt. - Advanced Planning, Scheduling. Improve Security & Safety - T Security, Sensor Networks, Surveillance .
20. CONCLUSION
The growth of aviation and its local and global impacts has created serious problems that must now be resolved. The publication in late 1999 of the United Nations review of the global environment (UNEP, 1999) showed just how serious these problems are. It would be perverse and contrary to UK and EU sustainable development policy not to find a way that can manage the impacts of aviation within a framework that reduces growth, reduces impacts and protects health and environment. There are a number of ways in which this can be done. Aviation is not an example of the intractable international industry that cannot be part of the solution. The development of demand management in aviation should be associated with a full package of measures: · An environmental charge based on emissions · The ending of all subsidies and tax exemptions · More stringent noise and emission standards for aircraft and for geographical areas around airports · More research and best practice guidance on substitution · Better levels of local environmental data and environmental monitoring to inform local populations about air and noise quality. These measures should be introduced in an incremental fashion to give the industry and consumers time to adjust to the changes. Incrementalism is already built into the environmental charge but will need development in the area of standards. Education and awareness is very important indeed in aviation. There will be many airline customers who have never thought of airports and flying as an environmental problem. Information should be widely available so that these groups have the background information they need to understand t he changing circumstances of aviation. Informed choice is a key component of transport demand management and environmental policy. The latest scientific evidence on the state of the global environment (UNEP, 1999) and on the contribution of aviation to gl obal inventories of greenhouse gases reviewed in this report point to the need for a fundamental change in public policy towards aviation. The current impact of aviation and the forecasts of future impacts bring into sharp focus the need for a policy that is based on science and that can bring about a re-positioning of aviation within the context of sustainable development and overall environmental objectives. The science is clear, the policy measures that are available are clear. All that remains to be put in place is a clear aviation policy.
See What E-Distribution can do
Continental Airlines' Web Site Generates Record Sales; Hitting $2 Billion Annual Rate HOUSTON, Aug. 11 -- Continental Airlines today announced that its continental.com web site is generating record sales volume for the airline, recently setting a single-day sales record and achieving record sales volume of $2 billion for the most recent 12-month period, ending July 31. “We’ve made a significant investment in our web site’s features and functionality to make it a full-service travel site,” said Jim Compton, executive vice president-marketing. “Seeing this dramatic growth in the site’s usage is rewarding because this is such an efficient method for ticket sales.” On one day in July, continental.com racked up $8.5 million in sales, setting an all-time single-day record. This record volume is equal to 34% of the worldwide passenger sales volume that Continental achieves from all sources in an average day. Continental Airlines Press Release, Aug 11 2005
Bibliography:-
India info line.com Web site of Airport Authority of India. CMIE Journal MMS (Final) Project on Service Industry By Janet Quadris Business Strategy Author: Sanjib Dutta & A. Mukund Title of the Book: Business Strategy Publication: 2002 Publisher: ICFAI Press
doc_266650686.pdf
aviation management project service sector
S.K. SOMAIYA COLLEGE OF ARTS, SCIENCE AND COMMERCE “AUROBINDO” VIDYAVIHAR MUMBAI-400 077
A PROJECT ON AVIATION MANAGEMENT
BACHELOR OF MANAGEMENT STUDIES SEMESTER VI
2012-2013
SUBMITTED BY SHAIKH ASIF ABDUL RAZZAK
PROJECT GUIDE Prof. APARNA JAIN
DECLARATION
I, Mr. SHAIKH ASIF ABDUL RAZZAK OF S.K SOMAIYA COLLEGE OF ARTS, SCIENCE AND COMMERCE OF TYBMS HEREBY DECLARE THAT I HAVE COMPLETED THIS PROJECT ON AVIATION MANAGEMENT IN THE ACADEMIC YEAR 2012-2013.
THE INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF MY KNOWLEDGE.
DATE:
PLACE: MUMBAI
SIGNATURE OF THE STUDENT (SHAIKH ASIF)
ACKNOWLEDGEMENT
In making this project a lot of people who left no stone unturned in contributing by giving me the required knowledge and time. I would like to thank all of them.
I would like to express my gratitude and sincere thanks to my Project Guide,Prof. APARNA JAIN for instilling confidence in me to carry out this study and extending valuable guidance and encouragement from time to time, without which it would not have been possible to undertake and complete this project.
I thank the ALMIGHTY for giving me the spirit to put in my best efforts towards this project.
Index
Sr No. Topic 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Executive summary Service marketing Unique characteristics of service industry Marketing mix for service industry Airline industry Introduction to airline industry History of industry Structure of the industry Indian aviation industry Players in the airline industry Airport infrastructure Development of civil aviation in India Civil aviation policy Infrastructure development Airport privatization Alliance strategy Recent development Case study- Jet airways Suggestions and Recommendations Conclusion
SUMMARY
Aviation is a fast growing sector of the economy. It is associated with a number of social and economic benefits and a range of environmentally damaging consequences. It is also
associated with a significant and growing contribution to the global inventory of greenhouse gases which are thought to be implicated in climate change. This report sets out to provide a clear basis of evidence for a wider and deeper public debate on these issues and concludes with a number of policy recommendations that are intended to ensure that aviation continues to contribute to the economy in a way that does not threaten environmental quality either globally or locally. The debate about aviation and its strong growth trajectory is very poorly developed. There is an unquestioning acceptance in government that the rising demand for air travel will continue and that the land use planning implications (especially more terminals and runways) of this can be managed with minimal harm to the environment. The aviation industry has been very successful in its adoption of an environmental agenda (environmental reports, support of exotic, threatened environments, appointment of environmental managers, financial support for a professorship of "sustainable aviation") but has been less forthcoming on questions of growth and the need for reductions in greenhouse gases. The industry has benefited from a well developed system of public support. Airports can expect to be linked at public expense by very expensive infrastructure to the motorway system, aviation fuel is not taxed and a great deal of public money at EU and UK levels goes into air traffic control systems. Equally the industry does become involved in direct funding of this infrastructure eg the Heathrow Express. Nevertheless in the language of environmental economics aviation does not meet the full external costs generated by its own activities (noise and pollution) and fails to pay for direct costs generated by the activity itself (eg the motorway links to Manchester and Heathrow airports). This report is intended to raise levels of awareness about the growth of aviation and its environmental consequences. This is especially important in the UK. The United Kingdom is one of the most important aviation markets in Europe with the biggest airline (British Airways), the largest airport (Heathrow), a very dynamic market (new low -budget airlines) and high passenger growth rates. Road based transport has recently emerged from a similar process of debate and reflection which has led to a greater understanding of the links between providing new roads and the growth in road traffic and the economic benefits of improved
road access. A better understanding of both areas has resulted in a scaling down of new road construction. The time is now right for a similar process of reflection and debate for air transport. The report is organized in six sections. Section 2 looks at the growth of aviation. There are a number of predictions of the future level of demand for aviation in the years 2015 and 2050. The growth forecasts vary but the middle of the range indicates at least a doubling of the miles flown by 2015 on a 1995 base. Section 3 describes the impact of aviation on noise and on ground level emissions (aircraft and road transport associated with airports). In both cases it reviews the evidence on the links between these environmental problems and human health. Section 4 deals with the impact of aviation on climate change and Section 5 on the economic impact of aviation and airport development. Section 6 deals with the policy implications of the analysis carried out in the first 5 sections. Currently there is no coherent policy and section 6 makes clear recommendations to fill this gap. The report is intended to stimulate a public and a policy debate around aviation and its growth.
Government policy in transport has made great progress in recent years in its recognition of the importance of integration and in its espousal of demand side and supply solutions to transport problems. It is now time to extend these principles to aviation and through an informed debate to identify the main elements of a new approach to aviation in the UK, the European Union and globally. This approach should be firmly rooted in changes to UK policy (the main target of this report) and through UK policy into European and global debates where changes also need to be made if a coherent approach to aviation is to be achieved. We owe it to the Wright brothers for having invented airplanes. The Wright brothers could not have imagined how airplanes would change the way people live & do business. The airline industry has witnessed a sea change from two wheeler bi-planes to the Boeing 747's that are visible in our skies today. The passage of time has witnessed competition grow from leaps to bounds. Today airplanes are present in every country around the world with expectation of a few places. Even the industry has been growing year on year It was JRD Tata who made the first move to build up an airline industry in India. He with the help of Nevil Vincent, a former RAF pilot, went ahead and drew a plan for the operation of first flight from Karachi to Mumbai with single stopover at Ahmedabad. This is how Tata Airlines was born which was donated to Indian Government. On 28th May 1953, Air Corporation Act – 1953, the government of India nationalized the airlines
industry.accordance with this act, the two air corporations, viz. Indian Airlines Corporation and Air India International were established. In 1994 the monopoly was ended and Indian skies were opened for any carriers who fulfills the statutory requirement. The Indian aviation industry can be broadly classified into two main segments - Civil and Cargo. In fact, the birth of civil aviation is attributed to air cargo and mail. In the beginning, mail and air cargo were the important elements of air carrier services than passengers. The major players in the Indian context are Air India in the international segment and Indian Airlines, Jet Airways and Sahara in the domestic segment. Over the years, the aviation sector in India has evolved and today it is on the threshold of a major shake out with the divestment of the Indian government's stake in Air India and Indian Airlines on the cards. A number of domestic and foreign parties have evinced interest in the divestment process. Recently, foreign airlines like Virgin Atlantic of Britain and Singapore Airlines have also entered the Indian skies.The Indian aviation sector till recently was highly regulated by the government. As recently as the eighties saw the introduction of some new initiatives like the air taxi scheme, whose main objective was to boost tourism. Domestic and international passenger traffic in India is projected to grow annually at 12.5% and 7% respectively over the next decade. At the same time, domestic and international cargo traffic is expected to grow at 4.5% and 12% respectively.
AVIATION CONSISTS?
The aviation industry can be broadly classified into military aviation and civil aviation. The term ‘civil aviation’ covers all aviation related activities except for those undertaken by the military and the government. The airlines segment can be broadly classified into INTERNATIONAL AIRLINES AND DOMESTIC AIRLINES. An airline with one or both terminals in the territory of a country, other than the country in which it is registered, is classified as INTERNATIONAL AIRLINES. DOMESTIC AIRLINES refers to those airlines whose flights fly only within the domestic boundaries of a particular country.
1. SERVICES MARKETING
Service industry is witnessing a major boom in India. Services like banking, car financing, consumer durable credit, cellular, paging, express, hospitality, travel and tourism, airlines, and, educational services on are today realizing the importance of marketing. Along with these big service businesses, many small businesses ranging from beauty saloons, pubs, gyms, play schools and so on are realizing the importance of marketing.
2. UNIQUE CHARACTERSTICS OF SERVICES
What is a service? And why should services receive special treatment from marketers? A popular definition describes services as "any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to physical product." Although, the distinction between goods and services is somewhat artificial, since the success of goods manufacturers is vitally dependent on the service they provide, there are four commonly cited characteristics of services that make them different to market from goods: Intangibility, Inseparability, Variability and Perishability.
Intangibility
Pure services such as baby-sitting cannot be seen or touched. They are ephemeral performances that can be experienced only as they are delivered. As the above definition of service suggests, intangibility may represent the most critical difference between services and goods, and its implications for marketing are great.
Intangible services are difficult to sell because they cannot be produced and displayed ahead of time. They are therefore harder to communicate to prospective customers. A passenger cannot feel the service that he would encounter in the airplane, however person may talk to other travelers who have experienced the same service, but their experience does not necessarily be the same.
Marketers of services can reduce these risks by stressing tangible cues that will convey reassurance and quality to the prospective customers. These tangible cues range from the firm's physical facilities to the appearance and demeanor of its staff to the letterhead on its stationery to its logo. Life insurance companies are particularly savvy about this problem. Their service is, after all, the most intangible service: by definition, the buyer will never know the ultimate result of what he or she has bought! To compensate for this intangibility the major companies over the world have developed strong visual symbols for their firms. Prudential -The rock of Gibraltar All state -Protective hands Traveler’s -A red umbrella Nationwide -A blanket Wausau -A train station
Inseparability
Different service marketing marketers interpret this characteristic differently, but all interpretations point out those special operations problems exist for the firm's managers. One interpretation of this term is the inseparability of customers from the service delivery process. In particular, many services require the participation of the customer in the production process. A child getting a haircut must sit still; otherwise, the family photo may have to be delayed for a month. The person who comes to a Chartered Accountant (C. A.) at the last minute with boxes of disorganized records may cause the C. A. to overlook some possible deductions. These examples illustrate the fact that, unlike goods, which are often produced in a location far removed from the customer and totally under the control of the manufacturing firm, service production often requires the presence and active participation of the customer and of other customers. Depending upon the skill, attitude, cooperation and so on that customers bring to the service encounter, the results can be good or bad, but in any event are hard to standardize.
A second interpretation of inseparability refers to the fact that in some service industries the service delivered is inextricably tied to particular individual service providers. Customers may have ground for complaint if their service is not provided by, for example, the surgeon or lawyer they thought they were paying for.
Variability
The fact that service quality is difficult to control compounds the marketer's task. Intangibility alone would not be such a problem in customers could be sure that the services they were to receive would be just like the successful experiences their neighbors were so pleased with. But in fact, customers know that services can vary greatly. Different front-line personnel have different abilities. Even the same service provider has good days and bad days or may be less focused at different times of day. Services are performances, often involving the cooperation and skill of several individuals, and are therefore unlikely to be same every time. This potential variability of service quality raises the risk faced by the consumer.
The service provider must find ways to reduce the perceived risk due to variability. One method is to design services to be as uniform as possible - by training personnel to follow closely defined procedures, or by automating as many aspects of the services as possible. The appeal of some service personnel - particularly, those involved in such expensive personnel services as beauty parlors treatments or home decoration - lies in their spontaneity and flexibility to address individual customer needs. The danger with too much standardization is that these attributes may be designed right out of the services, therefore reducing much of their appeal. A second way to deal with perceived risk from variability is to provide satisfaction guarantees or other assurances that the customer will not be stuck with a bad result.
Perishability
The fourth characteristic distinguishing services from goods is their time dependence. Services cannot be inventorised, since they are performed in real time. And time periods during which service delivery capacity sits idle represent revenue-earning potential that is lost forever. Periods of peak demand cannot be prepared for in advance by producing and storing services, nor can they be made up for after the fact. A service opportunity occurs at a point in time, and when it is gone, it is gone forever. This can present great difficulty in facilities planning. A survey of service firms found that the greatest operational challenges facing them were posed by the perishability of their products.
Matching service capacity to demand patterns can involve managing one or both elements. Perishability often puts a greater burden on service marketers to manage demand than it does on goods marketers, who can build up inventories to meet peak demand or can reduce prices later to move the unsold inventory. The cited survey found that the firm's principal method for controlling demand was to increase personnel selling during potentially slow periods. Surprisingly, few firms claimed to use the standard economic solution of price changes to increase or decrease demand, although some service industries, such as resort hotels with seasonal demand, do this routinely.
Few service providers had opinion that they developed alternative, counter seasonal service products to use slack capacity, although that has long been a common practice by goods marketers. Many service providers also control demand by requiring appointments. The alternative to controlling demand is to make service capacity flexible. Some service firms keep on call frontline personnel who can arrive on short notice to meet the surges in demand, or cross train support personnel to assist with customer service during busy periods.
3. MARKETING MIX FOR SERVICES MARKETING
The marketing mix refers to the blend of ideas, concepts & features which marketing management put together to best appeal to their target market segments. Each target segment will have a separate marketing mix, tailored to meet the specific needs of consumer in the individual segment.
Service marketing managers have found that the traditional four P's of marketing are inadequate to describe the key aspects of the service marketer's job. The traditional marketing mix is said to consist of the following elements of the total offering to consumers: the product (the basic service or good, including packaging, attendant services etc.); its price; the place where the product is made available (or distribution channels - not generally a real issue for most services, except perhaps for repair and maintenance); and promotion (marketing communication: advertising, public relations and personal selling).
7 P’s of Service Marketing
Price Product Promotion
Service Quality Place
Physical Evidence
People
Process
The product mix The product here refers to Airline service offering. Although service products are essentially intangible, there are certain pyhsical characteristics which consumer assess in their
evaluation of product choice. It the service mix , there is passenger services , cargo services, & the mail services. ? ? Attractiveness of the offering in terms of pyhsical features such as consumers have high expectation, the food & drinks offered , entertainment. Facilities available, associated level of services such as, quality of seats & interior decoration.
The promotional mix The aims of promotion fall into three main categories: to inform, to remind, & to pursuade. It will always be necessary to inform prospective consumers about new products & services, but other issue may also need this type of communication to consumers; new uses, price changes, information to build consumer confidence & to reduce fears, full description of service offering, image building. Similarly consumers may need to get reminded about all these types of issues, especially in the off-peak season. off peak It is vitally important to recognisse that promotion, or marketing communications generally, may not always be aimed at potential consumer or end user of service. In many business busine areas, it is to design promotions aimed at channel customers to complement end user promotion.for e.g Airlines will need to promote their services to tour operaters as well as end user.
The pricing :
Pricing in airlines is a fairly complex issues, since there are price since variations because variations in the level of demand, particularly due to seasonality, when every Airlines gives price discounts & competition is tough. Airlines will always faced by high levels of fixed costs, leading to variants of cost-plus pricing or ROI as key determinants of pricing plus levels. It is important to includde pricing tactics which exploit price sensitivities fully. It
differentiates service levels & offer higher price ‘ value added ‘services, as in business class air travel.
The Distribution:
In Airlines, they utilise more than one method of distribution.for e.g they sell tickets through travel agents & sell seats on flights to tour operators , whilst also operating direct marketing. Whichever distribution strategy is selected, channel management plays a key role. For elected, channels to be effective they need realiable updated information. For these reason, I.T has been widely adopted such as on-line booking system. on line
Some marketers suggest that the unique requirements of selling services require the manager selling attend to three additional P's. These are people, physical evidence and process.
People:
Many services require personal interactions between customers and the firm's employees and these interactions strongly influence the customer's perception of service stomer's quality. For example, a person's stay at a hotel can be greatly affected by the friendliness, knowledge ability and helpfulness of the hotel staff - in most cases the lowest paid people in the organization. One's impression of the hotel and willingness to return are of determined to a large extent by the brief encounters with the front-desk staffs, bellhops, desk housekeeping staff, restaurant wait staff and so on, many of which take place outside the direct control of the hotel management. In fact, the average hotel patron has very little contact with the hotel supervisors and managers. rvisors
Therefore, management faces a tremendous challenge in selecting and training all of these people to do their jobs well, and, perhaps even more important, in motivating them to care about doing their jobs well, and, perhaps even more important, in motivating them to care motivating about doing their jobs and to make an extra effort to serve their customers. After all, these
employees must believe in what they are doing and enjoy their work before they can, in turn, provide good service to customers.
For this reason, human resources management policies and practices are considered to be of particular strategic importance for in delivering high-quality services. Establishing a customer-oriented culture throughout the firm and empowering employees to provide quality service cannot be established merely by putting up inspiring posters. Management leadership, job redesign and systems to reward and recognize outstanding achievement are among the issues that a successful service manager must address. The term "internal marketing" has been coined to characterize the sets of activities a firm must undertake to woo and win over the hearts and minds of its employees to achieve service excellence.
The "people" component of the service marketing mix also includes the management of the firm's customer mix. Because services are often experienced at the provider's facilities, other customers who are being served there can also influence one’s satisfaction with a service. Ill mannered restaurants customers at the next table, crying children in a nearby seat on an airplane and commercial bank customers whose lengthy transactions take up the teller's are all examples of unpleasant service conditions caused by a firm's other patrons.
On the other hand, the right mix of customers can greatly increase the enjoyment of experience - for example, at entertainment services, such as nightclubs or sporting events. Determining the desirable customer mix for a service, segmenting the market into compatible groups and managing customer arrivals to avoid conflict and enhance the service experience are essential components of service management.
Physical Evidence
This element of the expanded marketing mix addresses the "tangible" components of the service experience and firm's image referred earlier. Physical surroundings and other visible cues can have a profound effect on the impressions customers form about the quality of the service they receive. The "services cope" - that is, the ambience, the background music, the comfort of seating and the physical layout of a service facility - can greatly affect a customer's satisfaction with a service experience.
The appearance of the staff, including clothes and grooming, may be used as important clues. Promotional materials and written correspondence provide tangible reassurance, they can be incorporated into the firm's marketing communications to help reduce customer anxiety about committing to the purchase. Service firms should design these items with extreme care, since they will play a major role in influencing a customer's impression of the firm. In particular, all physical evidence must be designed to be consistent with the "personality" that the firm wishes to project in the marketplace.
Process Of Service Production
Because customers are often involved in the production of services, the flow and progress of the production process is more important for services than it is for goods. A customer who buys a television set is not particularly concerned about the manufacturing process that made it. But the customer at a fine restaurant is not merely interested in the end result - the cessation of hunger. The entire experience of arriving at the restaurant - of being seated, enjoying the ambiance, ordering, receiving and eating the meal - is important. The pace of the process and the skill of the provider are both apparent to the customer and fundamental to his or her satisfaction with the purchase.
The importance of the process is true even for less 'sensual" experiences. A customer who applies for a loan at a bank evaluates the purchase not only by the amount of the loan received and the interest rate paid. The speed and sensitivity of the approval process, the interaction with the bank officers, the accuracy of bank statements and the ease of getting redress if mistakes are found all affect the person's attitudes about doing further business with the bank and his or her willingness to recommend it to others. Therefore, when designing service production processes, particular attention must be paid to customer perceptions of that process. For this reason, marketing and operations are closely related in service management.
6. INTRODUCTION
We owe it to the Wright brothers for having invented airplanes. The Wright brothers could not have imagined how airplanes would change the way people live & do business. The airline industry has witnessed a sea change from two wheeler bi-planes to the Boeing 747's that are visible in our skies today. The passage of time has witnessed competition grow from leaps to bounds. Today airplanes are present in every country around the world with expectation of a few places. Even the industry has been growing year on year.
Technology has also made a significant contribution to the airline industry; over the years technological advances have been incorporated into the science of flying airplanes. The industry has also propelled the growth of ancillary services like travel agents, courier services, cargo handling, clearing & forwarding agents etc
7.HISTORY OF INDUSTRY
Nevill Vincent, a former RAF pilot came to India from Britain in 1929, on a brainstorming tour to survey a number of possible routes. It was through providence that he met JRD Tata, the first Indian to secure an A-license within the shortest number of hours. Vincent worked out a scheme, secured JRD's approval and together they presented it to Mr. Peterson, the director of Tata Sons and also JRD's mentor. Sir Dorab Tata, the then chairman of Tata Sons, pleasantly surprised all by giving the scheme his okay. So they went ahead and drew plans for the operation for the first flight from Karachi to Mumbai with a single stopover at Ahmedabad. All that they asked was a guarantee from the government for a year for the sum of Rs.100,000. This, however, was turned down. The Tata-Vincent combine was naturally disappointed but not dismayed. A second scheme was prepared. This time the guarantee asked was Rs.50,000 for the first year, Rs.25,000 for the second year and no guarantee at all from the third year onwards. This scheme was rejected too. The team then tried a third time. This time they offered to donate an air service to the Government of India with no strings attached. The Government finally agreed and thus was born Tata Airlines that later became Air India.
On 28th May 1953, consequent to the coming into force of the Air Corporations Act, 1953, the Government of India nationalized the airlines industry. In accordance with this Act, the two air corporations, viz. Indian Airlines Corporation and Air India International, were
established and the assets of all the then existing airline companies (nine) were transferred to the two new Corporations. The operation of scheduled air transport services was under the monopoly of these two Corporations and the Act prohibited any person other than the Corporations or their associates to operate any scheduled air transport services from, to, or across India.
However, after 40 years, in 1994, the wheel had turned a full circle as the Air Corporation Act, 1953 was repealed with effect from 1st March 1994. That ended the monopoly of the Corporations on scheduled air transport services. Air transport in India is now open to any carrier who fulfills the statutory requirements for operation of scheduled services.
8.STRUCTURE OF THE INDUSTRY
Types of Airline Certification All airlines hold two certificates from the federal government: a fitness certificate and an operating certificate. The Department of Transportation (DOT) issues fitness certificates called certificates of public convenience and necessity - under it's statutory authority. Basically, the certificate establishes that the carrier has the financing and the management in place to provide scheduled service. The certificate typically authorizes both passenger and cargo service. Some airlines, however, obtain only cargo-service authority. Commuter airlines that use aircraft with a seating capacity of 60 or fewer seats or a maximum payload capacity of no more than 18,000 pounds can operate under the alternative authority of Part 298 of DOT’s economic regulations.
Operating certificates, on the other hand, are issued by the Federal Aviation Administration (FAA) under Part 121 of the Federal Aviation Regulations (FARs), which spell out numerous requirements for operating aircraft with 10 or more seats. The requirements cover such things as the training of flight crews and aircraft maintenance programs. All majors, nationals and regionals operate with a Part 121 certificate.
How Major Airlines Are Structured
?
Line Personnel
These include everyone directly involved in producing or selling an airline’s services - the mechanics, who maintain the planes; the pilots, who fly them; the flight attendants, who serve passengers and perform various inflight safety functions; the reservation clerks, airport check-in and gate personnel, who book and process the passengers; ramp-service agents, security guards, etc. Line personnel generally fall into three broad categories: engineering and maintenance, flight operations, and sales and marketing. These three divisions form the heart of an airline and generally account for 85 percent of an airline’s employees.
Operations
This department is responsible for operating an airline’s fleet of aircraft safely and efficiently. It schedules the aircraft and flight crews and it develops and administers all policies and procedures necessary to maintain safety and meet all FAA operating requirements. It is in charge of all flight-crew training, both initial and recurrent training for pilots and flight attendants, and it establishes the procedures crews are to follow before, during and after each flight to ensure safety. Dispatchers also are part of flight operations. Their job is to release flights for takeoff, following a review of all factors affecting a flight. These include the weather, routes the flight may follow, fuel requirements and both the amount and distribution of weight onboard the aircraft. Weight must be distributed evenly aboard an aircraft for it to fly safely.
Maintenance
Maintenance accounts for approximately 11 percent of an airline’s employees and 10-15 percent of its operating expenses. Maintenance programs keep aircraft in safe, working order; ensure passenger comfort; preserve the airline’s valuable physical assets (its aircraft); and ensure maximum utilization of those assets, by keeping planes in excellent condition. An airplane costs its owner money every minute of every day, but makes money only when it is flying with freight and/or passengers aboard. Therefore, it is vital to an airline’s financial success that aircraft are properly maintained
Airlines typically have one facility for major maintenance work and aircraft modifications, called the maintenance base; larger airlines sometimes have more than one maintenance base. Smaller maintenance facilities are maintained at an airline’s hubs or primary airports, where aircraft are likely to be parked overnight. Called major maintenance stations, these facilities perform routine maintenance and stock a large supply of spare parts.
A third level of inspection and repair capability is maintained at airports, where a carrier has extensive operations, although less than at its hubs. These maintenance facilities generally are called maintenance stations.
Sales and Marketing
This division encompasses such activities as pricing, scheduling, advertising, ticket and cargo sales, reservations and customer service, including food service. While all of them are important, pricing and scheduling in particular can make or break an airline, and both have become more complicated since deregulation. As explained in the next chapter, airline prices change frequently in response to supply and demand and to changes in the prices of competitors’ fares. Schedules change less often, but far more often than when the government regulated the industry. Airlines use sophisticated computer reservation systems to advertise their own fares and schedules to travel agents and to keep track of the fares and schedules of competitors. Travel agents, who sell approximately 80 percent of all airline tickets, use the same systems to book reservations and print tickets for travelers.
Subcontractors
While major airlines typically do most of their own work, it is common for them to farm out certain tasks to other companies. These tasks could include aircraft cleaning, fueling, airport security, food service and in some instances, maintenance work. Airlines might contract out for all of this work or just a portion of it, keeping the jobs in house at their hubs and other key stations. However, whether an airline does the work itself or relies on outside vendors, the carrier remains responsible for meeting all applicable federal safety standards.
Security measures
The government will most probably accept the recommendations of the technical up gradation committee, set up to look into the different aspects of air security.
For international flights Air India & Indian airlines, security personnel have been trained in passenger profiling, supposed to be the "most fool-proof" security arrangement to identify suspicious traits among passengers. The government is willing to spare more highly trained commands, but the airlines have to be prepared to pay the price of having the sky on board, it is learnt
9. THE INDIAN AVIATION INDUSTRY 1. GENESIS / HISTORY The birth of civil aviation in India began happened on Feb 18, 1911 when Henri Piquet flew a Humber biplane. In 1932, JRD Tata, a visionary launches India’s first scheduled airline, Tata Airline and also piloted its first innaugral fight. In early 1948, a joint sector company, Air India International Ltd. was established by the Government of India and Air India (earlier Tata Airline) with a capital of Rs 2 crore and a fleet of three Lockheed constellation aircraft. The joint venture was headed by J.R.D. Tata. After the Second World War as many as eleven private domestic airlines operated in India. The supply-demand was not in balance as the Indian aviation market was still in a fledgling state. Many of these airlines were making heavy losses as a result of which the government decided to nationalise the airlines by forming one domestic carrier and one international flag carrier. In 1953 Air-India International (name truncated to Air-India in 1962) became a public sector corporation along with Indian Airlines Corporation (catering to domestic and regional routes). Eight erstwhile private airlines were merged to form Indian Airlines Corp., namely Deccan Airways, Bharat Airways, Air India, Himalayan Aviation, Kalinga Airlines, Indian National Airways, Air Services of India and Air-Services India. The fleet was fairly big consisting of 73 DC-3 Dakotas, 12 Vikings, 3 DC-4s and some other smaller aircraft. (*) (Source
*) www.knowindia.net) 2. TODAY There has been a marked change in the civil aviation scenery in India. Whereas prior to 1992 when the two public sector airlines, namely Air-India and Indian Airlines enjoyed a monopoly in the domestic sector, today a dozen airlines are competing for a market share. The Indian civil aviation industry is expanding by leaps and bounds. A slew of low-cost airlines is operating or will commence operations during the current year. India's main airports are beginning to face capacity constraints and are in the process of being modernized. Indian airlines have lately placed a record number of aircraft orders. As an example, ATR received firm orders for 90 new aircraft in 2005 of which India's (Kingfisher Airlines and Air Deccan) share was 55 per cent. 3. INDIAN AIRPORTS A government controlled body AAI (Airports Authority of India) manages 127 airports in the country comprising 15 international airports, 7 restricted international airports, 80 domestic airports and 25 civil enclaves at defence airfields. Indian airports handled 51.9 million domestic, 22.4 million international passengers and 1.4 million tons of cargo in the year ended March 2006. projected traffic for 2012 is 130 million passengers. (Source : PPT by Exec Dir (AAI) at Airport forum in Dubai) 4. INFRASTRUCTURE The government of India has recognised the need to improve the aviation infrastructure in the country. Airports account for 40 per cent of India's trade by value and 95 per cent of international travel to and from India takes place through this mode. According to estimates, the present infrastructure can support a 20 per cent growth in passenger traffic and 10 per cent growth in cargo traffic. The ministry of civil aviation estimates that there is a need for aninvestment of Rs 260 - Rs 360 billion . The restructuring of the first phase of Delhi airport is expected to be completed by 2009 at a cost of Rs 1.9 billion. Expansion and upgradation of the current facility at Mumbai is already under way. Work has started on a new international airport at Bangalore. Apart from strengthening of the Hyderabad runway at a cost of Rs 700 million, a new international airport is also being planned at a cost of Rs 13 billion. The government has also decided to modernise 25 airports in non-metro cities. Improvement of another 55 airports is also on the anvil. (Source : icfdc.com)
5. FDI Forty nine per cent foreign direct investment (FDI) is permitted in financing airport infrastructure as well as in airport ground handling. The government has recently increased FDI from 40 per cent to 49 per cent in domestic air carriers. However foreign airlines are not permitted to pick up a stake directly or indirectly. Non-resident Indians and corporate bodies are allowed to hold up to 100 per cent equity in domestic airlines. (Source : icfdc.com)
6. AVIATION REGULATOR The Civil Aviation Ministry plans to table a Bill to establish an independent Civil Aviation Economic Regulatory Authority (CAERA). The new regulator would be responsible for formalising all charges to be levied on operators and ensuring a level playing field for all players. Its tasks would include fixing of tariff, finalising parking and user charges, issuing broad guidelines to service providers, settling disputes among stakeholders in new airports and arbitrating between various users and service providers, including airlines. Initially the scope of the regulator would be limited to regulating the economic aspects of Delhi, Mumbai, Bangalore and Hyderabad airports where there is private participation and AAI is a stakeholder. Henceforth, the AAI too would be answerable to the new regulator. To start with, CAERA is expected to be a single-member regulator assisted by technical staff. The Bill seeks to expand its role in the days ahead. That may become necessary anyway, given the liberalisation initiatives underway in the sector. Operational, Infrastructure Regulatory-cum-developmental. On the operational front, Air India provides international air services while Indian Airlines is involved in the field of domestic air services. Pawan Hans supplies helicopter support services, primarily to the petroleum sector. Air India, Indian Airlines and its subsidiary Alliance Air (which also provides domestic services) and Pawan Hans are governmentowned. Other than them, there are a few private domestic operators too. Airports Authority of India (AAI), which was formed in April 1995 through the Airports Authority of India Act, by merging the separate ‘national’ and ‘international’ airport authorities that existed earlier supply infrastructural facilities.
In terms of size, the Indian aviation industry's turnover was approximately Rs.40 billion in FY99. 14 million passengers traveled using its services in FY99. The growth profile of the industry in the last three decades is given below.
Year
Aircraft (mn km flown)
Passengers flown ('000 Passengers nos) 2,123 4,850 7,912 10,356 12,312 11,549 12,017 (mn km flown) 1,559.0 3,917.2 7,028.1 9,249.3 11,047.3 10,702.9 10,820.3
1970-71 1980-81 1990-91 1995-96 1996-97 1997-98 1998-99
37.8 41.2 58.7 88.8 112.5 109.4 117.2
No of Passengers flown During 1970-1999
14000 12000 10000 8000 6000 4000 2000 0 1970-71 1980-81 1990-91 1995-96 1996-97 1997-98 1998-99
Passengers flown ('000 nos) Passengers (mn km flown)
Source: Indiainfoline.com
From the above table, it is clear that the aviation industry in the country has grown by leaps and bounds in terms of kilometers flown and also number of passengers serviced. However, as compared to the previous decades, the rate of growth has fallen in recent years. In fact, in the period FY97 to FY99, the number of passengers has fallen and so has the length of passenger kilometers traveled.
In terms of characteristics, the aviation industry is seasonal in nature. In the period April to May and again from November to December, demand is high. However, in the June-July period demand falls.
LIBERALISATION OF THE AIRLINE SECTOR
INTRODUCTION Liberalisation - Opening up of a country's markets to foreign/ private players. The liberalisation process in the airline sector has been going on since 1992, but it has seen a lot of turbulence. The main effects of liberalisation in this sector are: more players, less fares and better service. Before 1992 there was just one airline - Indian Airlines. When the government liberalised the sector in 1992 a lot of airlines came in (Damania, East-West, Jet), but with a market shake-up in the mid 90's only the fittest have survived. Today there are 3 major national players (IA, Sahara, Jet) and several regional players (NEPC, Span, Gujrat). As a result of liberalisation, the services of all airlines have gone up and along with that the fares have dropped noticeably.
GOVERNMENT POLICY The policy of the government in the 50's was to connect all of India via air. Hence today we find that almost all small towns of India have airports. The policy failed because not many people could afford to fly and almost no one flew to small towns. Today when small towns are finally getting flights it is found that the equipment at the airports is outdated (eg - The Patna airport was built in the 60's but use of the airport and all it's facilities began only in the 80's. That is, for twenty years the equipment in the airport was just lying around). After 1992, however, the government has adopted an "Open skies" policy. In this policy, players are allowed to enter and leave the market as they seem fit.
IS THE GOVERNMENT SERIOUS ? Often it has been found that the government's talk on liberalisation has to been taken with a pinch of salt. In the airlines sector it has been seen that although the government seems to have done a lot about liberalisation there are still some areas that haven't changed at all. 1. Narrow air corridors - An air corridor is nothing but the width of the passage an airliner can fly in. In India most of the air corridors are still very narrow as a majority of the airspace is still with the airforce. For instance, the approach to the Delhi airport is just 3 kms. wide. This narrow corridor was a primary cause of the April 26 1993 Charki Dadri crash in Haryana, where all 351 people on board two international airlines - Saudi Arabian Airlines and Kazakhstan Airlines were killed in a mid-air collision. It was one of the worst crashes in aviation history. So although the government has opened the skies they haven't yet opened the highways of the sky. 2. Tata-SIL - Some years ago the Tatas along with Singapore Airlines wanted to start a domestic airline service in the country. The government, under pressure from Indian Airlines, didn't give them the permission to do so. IA feared the competition that Tata-SIL could provide. They also said that before allowing the Tata-SIL airline to take off, the government should allow them to function as a complete private airline. This demand was not completely unjustified as even today IA is made to give 50% discount to IAS and defence officers. Also, they are made to fly to less popular destinations (North-East, Andaman & Nicobar Islands) which results in a loss of revenue for them. On the other hand, today the government is ready to privatise IA and AI. They are even willing to let any foreign airline hold a 40% stake in Air India. Such a step shows a deep commitment to liberalisation and has been well received by the global airlines. Many airlines have already come forward and placed their bids for the stake in AI (Delta Airlines, Singapore Airlines, Air France). To conclude one can say that even though the government has been giving confusing signals in the past, it seems that now they are ready to go ahead with the liberalisation process.
ATEC COMMITTEE AND IT'S FINDINGS Pre 1956, private companies were allowed to open scheduled/ non-scheduled airlines. A total of 9 institutions came up. In this period a 'Dakota' was sold for Rs. 20,000. However, these airlines soon started having financial problems. The operators requested the government for loans. The government wanted to know as to why the private airlines weren't doing too well and so it appointed the ATEC (Air Transport Enquiry Committee) headed by Dr. Rajyadhaksha to do so. After completing it's investigation the committee came up with several reasons for the economic poor show of the private airlines, four noteworthy reasons were: a) Non-standardisation of inventories - Different qualities and types of equipment was used due to multiple type of aircraft used. This hiked the maintenance cost of all the airlines. b) Multiplicity of rate - The rates of all institutions differed. c) Loss of revenue due to NAMS - NAMS means Nightly Air Mail Service. Private operators were made to carry air mail on their flights at night time, which meant a loss of passengers and hence a loss of revenue. d) High cost of fuel - The fuel used in aircraft is ATF (Aviation Turbine Fuel). It is nothing but a form of highly purified kerosene. However, the purification process accounts for 35% of the cost of the fuel which many operators could not afford. These reasons along with several other reasons lead to the nationalisation of the airline sector through the 'Air Co-operation Act' which took effect on 26 June 1953. Under the act, eight out of nine private operators became 'Indian Airlines Corporation' and one was constituted as 'Air India Corporation'. WHY DEREGULATION AND SCHEDULED AIRLINES? According to the planning commission the air transport industry in India has a growth rate of over 10% and with the existing fleet strength the national airline could not meet the demand in the market. Hence, deregulation of the skies was the only option. Deregulation means to allow free entry in to the market. Private airlines were allowed to start as air taxi operators in 1992. The growing demand for rationalisation of policies made the government lay down conditions through which air taxi operators could become scheduled airlines (ie - they are allowed to print their schedules). The major emphasis in allowing scheduled airlines are: a) Government permission to import air b) Rationalisation of operative routes. The players who come in to the market either exist with all their gimmickry or fade away due to economic pressures.
CONCLUSION After independence India had private airlines operating in the airlines sector, however in 1953 the government nationalised this sector which lead to years of government monopoly and a basic downgradation of the airline services. In 1992, however private airlines were once again allowed to operate. To put it in one line, "History repeats itself"
10. Domestic Players in Airlines
Till recently, Indian Airlines had a monopoly in the sector. However, in 1993 the skies were opened for private participation and 8 airlines got the nod to commence operations. Of these, only two have survived - Jet Airways and Sahara Airlines. Another airline, called Crown Express, has very recently got an approval from the government to start domestic operations.
The market share of major players in 2000-01.
Market share Airlines Indian airlines Jet airways Sahara airlines Source: ICMR Research Team Market Share of Major Players Market Share Percentage 51 42 7 Aircraft’s owned 57 33 9
7%
Indian airlines Jet airways Sahara airlines
42% 51%
Source: ICMR Research Team
Over the past few years, Indian Airlines has lost market share and is currently second to private operators. Its market share has fallen from 50.5% in 1999 to 46.8% in 2000. The major gainers are the two domestic operators Jet and Sahara, the major beneficiary being Jet
Airways. The combined market share of both of them has risen from 49.5% in 1999 to 53.2% in 2000. In terms of plant load factor too IA lags behind. While the average for all domestic operators was around 63.4%, Indian Airlines clocked a performance of 61.9%. Jet had the highest plant load factor of around 71.8%.
A.INDIGO
Indigo--or "individuals on the go", for the first time allowed individual travelers the ability to reserve and purchase a single seat on a traditional corporate or business jet which then flew a "scheduled" flight like a traditional airline. Prior to Indigo the only business jet services available to consumers consisted of jet ownership or charter, both expensive options to regular airline travel. Indigo is regarded as the originator of two new categories of corporate jet air travel service: per seat, high frequency and the public or commercial corporate jet. Indigo Airlines commenced operations on 4 August 2006 with a service from Delhi to Imphal via Guwahati. The airline is owned by InterGlobe Enterprises. It took delivery of its first Airbus A320 aircraft on 28 July 2006 and received six aircraft during 2006. Nine more aircraft were delivered in 2007 taking the total to 15. The carrier has set a target of serving approximately 30 Indian cities by 2010 with a fleet size of 40 A320 and A321 aircraft. The airline will receive all 100 A320 family aircraft by 2016. Former US Airways Executive Vice-President, Marketing and Planning
Bruce Ashby has joined Indigo Airlines as their Chief Executive Officer. The Indian Government has approved the airlines' aircraft import plan "in principle". The airline has also acquired 3 parking spots in New Delhi and Mumbai airports.
B.SPICEJET
SpiceJet is a low-cost airline based in New Delhi, India. It began service in May 2005. Earlier known as Royal Airways, it is a reincarnation of ModiLuft. SpiceJet marked its entry in service with Rs. 99 fares for the first 99 days. There were 9000 seats available at this rate. It followed it up with a Rs. 999 promotional scheme on select routes. Their marketing theme is "offering low 'everyday spicy fares' and great guest services to price conscious travelers". It was voted as the best low-cost airline in South Asia and Central Asia region by Skytrax in 2007
C.KINGFISHER
Kingfisher Airlines is an airline based in Bangalore, India. It operates 218 flights a day and has a network of 38 destinations, with regional and long-haul international services. Its main bases are Bangalore International Airport, Chhatrapati Shivaji International Airport, Rajiv Gandhi International Airport and Indira Gandhi International Airport. Kingfisher Airlines, through one of its holding companies United Breweries Group, has 50% stake in
low-cost carrier Kingfisher Red, formerly known as Air Deccan.
Indian Airlines
The network of Indian Airlines spans from Kuwait in the west to Singapore in the East and covers 75 destinations - 59 within India and 16 abroad. The Indian Airlines international network covers Kuwait, Oman, U. A. E, Qatar and Bahrain in West Asia, Thailand, Singapore, Yangoon (Rangoon) and Malaysia in South East Asia and Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and Maldives in the South Asian subcontinent.
Indian Airlines flight operations center on its four main hubs the main metro cities of Delhi, Mumbai, Calcutta and Chennai. Together with its subsidiary Alliance Air, Indian Airlines carries a total of over 7.5mn passengers annually.
At present, Indian Airlines has a fleet strength of 55 aircraft's. Out of them, are 11 Airbus A300, 30 Airbus A320, 11 Boeing B737 and 3 Dorniers D0228. Indian Airlines has total staff strength of around 22,000 employees. Its annual turnover, together with that of its subsidiary Alliance Air, is over Rs.40bn.
Other Airline operators:
The number and type of aircrafts owned by the two main private operators are as follows. Operator Jet Airways Sahara India Airline No. of Aircraft 12 2 Type of Aircraft B-737-400 B-737-200
International Airlines
In the international sector, Air India is the sole Indian service provider. However, in the international market, the share Air-India is negligible compared to that of the likes of British Airways and Emirates Air.
Air India
Air-India International was registered on March 8, 1948 and it inaugurated its international services on June 8, 1948, with a weekly flight from Mumbai to London via Cairo and Geneva with a Lockheed Constellation aircraft. Later on in 1962, the word 'International' was dropped. Effective March 1, 1994, the airline has been functioning as Air-India Limited.
At present, Air India has a fleet strength of 23 aircrafts. Out of them are 6 Boeing 747-400, 4 Boeing 747-200, 2 Boeing 747-300 Combi, 8 Airbus 310-300 and 3 Airbus 300-B4. The airline has plans to induct 4 more A-310-300 aircraft on dry lease effective December 2000. From a total of three stations served at the time of nationalization, Air-India's network today covers 44 destinations. In addition, Air India has a so-called 'code sharing' arrangement with a number of foreign airlines. These include Swiss Air, Bellview Airlines, Austrian Airlines, Asiana Airlines, Air France, Virgin Atlantic, Scandinavian Airlines, Singapore Airlines, Aeroflot, Air Mauritius, Kuwait Airways and Emirates.Air India carried a total of 3.35mn passengers in FY2000 as against 3.17mn in FY99. This made for a plant load factor of 70.3%.
Financials
Air-India has posted an operating profit of Rs.760mn in FY2000. This is good news given the fact that the airline had recorded its highest operating loss of Rs.4.13bn only three years ago i.e. in FY97. The airline had made its last operating profit in FY95. The net loss has been contained at Rs.370mn partly due to an additional payout of Rs.1.78bn during the fiscal due to a hike in global and domestic fuel prices. Air-India's total turnover during the year was Rs.46.62bn as compared to Rs.42.36bn last year - a growth of 10%.
While PBIDT was a negative Rs.6.48bn, the firm succeeded in raking in a cash profit of Rs.4.12bn during the year. Air-India has also achieved a positive return on its investments of over 5% in FY2000 on capital employed in the business as compared to a negative return in the last couple of years.
DEREGULATING INDIA’S CIVIL AVIATION
? Prior to 1991, aviation, much like other major sectors of the Indian economy,was nationalized and heavily regulated ? In 1953, the Air Corporation Act, 1953, changed the landscape of the airline industry in India. ? It was in 1994 that the Air Corporation Act was repealed and thus this allowed private operators to operate in the domestic airline and aviation industry
ABOUT AIR ONE
• The AIR ONE airline is a low cost airline with four Boeing 737 planes at an investment of $300million. • AIR ONE believes in dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit with returns to the shareholders.
AIR ONE PRINCIPLES
? Simple product — which means no free meals, economy seating, onlinereservations, no frequent flier programmes ? Positioning — targeting business and price-conscious passengers ? Low operating costs.
AIR ONE MISSION
? The mission of Air one is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit with returns to the shareholders.
11. AIRPORT INFRASTRUCTURE
There are a total of 449 airports/airstrips in the country. Airports are presently classified as international and domestic airports.
International Airports: These are available for scheduled international operations by Indian and foreign carriers. Presently, Mumbai, Delhi, Chennai, Calcutta and Thiruvananthapuram fall into this category.
Domestic Airports: In this category fall those airports which have custom and immigration facilities for limited international operations by national carriers and for foreign tourist and cargo charter flights. These include airports Bangalore (CE), Hyderabad, Ahmedabad, Calicut, Goa (CE), Varanasi, Patna, Agra (CE), Jaipur, Amritsar, Tiruchirapally, Coimbatore, Lucknow. Yet another type of airports are known as Model Airports. These have a minimum runway length of 7,500 feet and are capable of handing A320 type Airbuses. They can cater to limited international traffic, if required. These airports are in Bhubaneswar, Guwahati, Nagpur, Vadodara, Imphal and Indore. There are 71 domestic airports, which fall in the category of 'Other' Domestic Airports. There are also 28 civil enclaves (CE) in Defense airfields. Twenty of them are currently in operation. Mumbai airport is the busiest in India and handles about 30% of the total passenger traffic in the country. The Chhatrapati Shivaji international airport's share of the country's international traffic is around 40%. MACRO ENVIRONMENT ANALYSIS Macro environment analysis refers to study of those factors which affect an organization but are beyond the control of an organization. These factors are uncontrollable. Macro environment consist of following six broad areas: ? Political environment ? Economic environment ? Social environment ? Technological environment ? Demographic environment ? Natural environment
1 POLITICAL ENVIRONMENT Indian political scenario has, is and will undergo various changes. Following are the various policy changes which might have an impact on aviation industry in coming years: Open Sky Policy India had this agreement with 40 countries and lately it signed the policy with UK, USA and European Union. According to this policy, The signatories are allowed to fly over the skies of India. Under this arrangement, airlines from EU member nations will be allowed to operate flights to India from any of the 25 EU nations regardless of the carrier's country of origin. Effect: Tourist arrivals in India are expected to grow exponentially, especially due to the open sky policy between India and the SAARC countries and the increase in bilateral entitlements with European countries, and the US. The increase in number of international tourists will percolate down to increase in domestic passengers. . Deregulation
Year of the Amendme nt
1986
Number of Aircraft Seats
Max. of 10
May provide service to:
Notified Airports Only 55 Notified airports All airports (93)
May provide service when
2 hrs before/ after National Airline
Who can Service
Fares:
National and nonscheduled
Regulated by National Airline
9.8.1989 MayDecember 1990 25th Feb 1993 1st March 1994 24th Jan 1997
Max. of 50 seats Min of 15/ No max
Prior approval of flight timesabolished
Ownership expanded to: Citizens, NRI Government 40 % foreign Equity allowed A company/ body registered in India*
Fare restriction abolished
8.3.94 A max. of 30 seats for new entrants No restrictions
No restrictions do
No restrictions
Anyone in the aforementioned categories* FDI 49% airline 100% airport
NO restrictions No Restric.
02 Feb 2006
do
do
Prior to 1991, aviation was nationalized and heavily regulated In 1953, the Air Corporation Act, 1953, changed the landscape of the airline industry in India.It was in 1994 that the Air Corporation Act was repealed and thus this allowed private operators to operate in the domestic airline and aviation industry. Requirements to become a scheduled operator air carrier in India have being reformed, the reduced restrictions on foreign direct investment is 49% for flights and 100% for airports Effect: Entry into the air travel industry is not only cheaper, but also affordable to new operators Modernization of Airports The Indian Cabinet has approved a proposal mandating the state-run airport operator to modernise 35 airports in second-tier cities within the next two years. The modernisation process will cost the government between Rs. 70 to 80 billion. Delhi (Rs.8,700 cr) to GMR and Mumbai Airport Modernisation (Rs.6,400 cr)to GVK are two biggest investment projects . Total investment on hand in airport infrastructure
crossedRs.35,000 crore in the quarter ended January 2006.This investment was spread over 89 projects.Upgradation of Kolkata and Chennai airports is on anvil.. Simultaneously, 20 non-metro airports will be developed. Two biggest active projects are the Bangalore International Airports Authority Ltd (Rs.1.5 crore)and GMR Hyderabad International Airport Ltd (Rs.1.5 crore). Effect: Improved infrastructure would lead to rise in no. of travellers and also so would encourage more operators. Abolishment of Taxes Foreign Travel Tax (FTT) Rs500 and 15% inland air travel tax (IATT) charged on Basic airfare has been abolished by the government wef from January 9,2004 to reduce fares. Reduction on Exise Duty From January 9,2004, the excise duty on ATF was reduced from 16 to 8 per cent The average domestic price of ATF is 99 per cent higher than prices in foreign countries and affects domestic airlines drastically as ATF accounts for 30 to 40 per cent of operating costs Effect : It would lead to low fares thus giving a boost to air travel The government has reduced the average age of aircraft being imported into India for commercial airline operations by five years. Effect: It would lead to increase in imports of aircraft thus can discourage more operators coming in and improve services Landing Charges abolished Landing charges for aircraft with less than 80 seats were and landing charges for larger aircraft have been reduced by 15% with effect from February 11,2004.
2 ECONOMIC ENVIRONMENT
India,ranked tenth in the world in 2004,is expected to be holding eighth rank in the world by 2014 and fourth rank in next years with a GDP of $1.15-1.4 trillion and $2.1-3 trillion respectively,and a projected growth rate of 6-8%. Effect: This rise in income levels along with introduction of no-frills flights will lead to ? rise in no of travellers, ? more investments in aviation, ? more competition and ? rise in industrialization leading to more need of air transport
3 SOCIO-CULTURAL ENVIRONMENT Change in Lifestyle Average income of middle class household is expected to rise to 194000 Rs by 2010 from 169000 Rs in 2001-02.No of households projected to be 43.6million in 2010. Effect: So there is going to be change in lifestyle and spending of people Due to this change people will prefer Low cost airlines instead of Railways first airconditioned thus rise in air traffic
Rise in Leisure travel Tourism industry grew 8.8 per cent over 2003- highest growth rate in the world. 3.2 million foreign tourists visited India last year.There has been an increase in leisure travel by tourists of 15% in 2004. Effect : It will lead to rise in no of tourist passengers thus more encouragement for new operators.
4 TECHNOLOGICAL ENVIRONMENT Introduction Of Airbus A380 The double deck Airbus A380 is the most ambitious civil aircraft program yet was launched in December 2000. An all new design Superjumbo, the Airbus A380 is the world's first twindeck, twin-aisle airliner.It could be outfitted for special passenger uses such as sleeper cabins, business centers or even child care service. In a one-class configuration, the A380 could accommodate as many as 840 passengersAdvantages of the A380 include lower fuel burn per seat and lower operating costs per seat. Airbus states the A380 will use 20% less fuel and will fly quieter, cheaper and more environmentally friendly than the 747 ILS-Instrument Landing System Instrument landing system (ILS) facilities are a highly accurate means of navigating to the runway under low visibility conditions Various runway environment lighting systems serve as integral parts of the ILS system to aid the pilot in landingWhen using the ILS, the pilot determines aircraft position by instruments. ILS is classified according to capabilities of the ground equipment. Category I ILS provides guidance information down to a decision height (DH) of not less than 200 ft. Improved equipment (airborne and ground) provide for Category II ILS approaches.(DH of not less than 100feet)
5 DEMOGRAPHIC ENVIRONMENT
Changing Structure of Consumers
Middle class population of India was 300 million in 2005 and is projected to be 400 million for 2010. Effect : For aviation, this growth is a remarkable achievement and a sign that the industry can only expand as more people gain the ability to purchase airline travel,supported by introduction of low-cost carriers. High %age of young population India has highest percentage of people in age group of 20-50, with high earning potential.Also younger segment has more mobility needs due to education or work,So it shows high probability of rise in Domestic air travel. Higher number of literates
Due to rise in education awareness, there has been rise in no. of graduates and those pursuing higher studies.which translates into higher earning potential and higher spending on travel in future.
Nuclear Families Due to lesser number of joint families and increasing nuclear families, there would be rise in air travel by children to meet their grandparents.
6 NATURAL ENVIRONMENT
The average domestic price of ATF is 99 per cent higher than prices in foreign countries and affects domestic airlines drastically as ATF accounts for 30 to 40 per cent of operating costs After a fall in ATF in nov and dec by 2%, and 11%, for the 2nd consecutive month,ATF price in February soared by 3.5 % to the price prevailing in Jan 2006.(from Rs.35 a litre to Rs.36.2 a litre.) Earlier, under the fuel pricing mechanism the subsidy given to Kerosene/diesel was loaded onto ATF. While this has been phased out, States are now levying heavy Sales Tax on ATF which made it costly. Effect: Due to high factor costs, short haul operations are rendered unviable.It would lead to low profits thus discouraging new operators.
PORTERS FIVE FORCE ANALYSIS THREAT OF NEW ENTRANTS The entry is easy but various regulations make the launch of a new airline difficult. The factors which make the execution difficult are • The capital requirement-An airline is required to have capitalization of minimum thirty crores without which it is not allowed to takeoff. • Expected retaliation-The market is concentrated in the hands of a few players thus any new player would to face stiff competition and retaliation from the existing players such as Jet Airways and Indian. • Legislation or government action-Along with the equity restrictions for floating an airline they also compel the airlines to operate on uneconomical routes such as • Inadequate airport infrastructure often makes it difficult for the existing airlines to function smoothly and thus deters new ones from entering the market. Shortage of pilots and high fuel costs also pose a threat as the existing demands itself are not being fulfilled. • Exit barriers-The high capital requirement makes it difficult for the companies to exit the market but being a growing industry the existing players are willing to acquire and make exit for an operator less difficult. 1.POWER OF BUYERS • The power of buyers is low because they are large in number and highly fragmented. The increasing GDP and the introduction of low cost airlines has not only increased the existing number of buyers but opened the doors for a huge opportunity of growth. However the power is not as low as it could be because of minimal switching cost and alternatives available. A customer does not have to incur an cost to move from one airline to another he might incur a cost if he has signed a contract otherwise no costs are involved which increases the power of the buyers. Along with this the various options available between airlines and even other modes of transport helps the buyers. Further there is no differentiation among the players in the same segment example the differences between Air Deccan and Spice Jet is minimal.
•
•
2.POWER OF SUPPLIERS The power of the suppliers are limited and thus their power is high. • Concentration of suppliers-The suppliers of pilots and ATF are highly concentrated which increases their power. • Switching costs-If we look at the aircrafts there are only two suppliers Boeing and Air Bus thus the options available with the airlines to switch between is very limited and thus the switching costs are high but sometime the competition between the two manufacturers reduces the costs to some extent. • Brand value-Less number of suppliers results in a high brand value which works in their favor and increases their bargaining power. • Forward integration-The airlines also face a threat of forward integration. Though such an instance has not taken place in the past it may take place in
• •
the future as the suppliers have or know about most or the technical aspects of the industry. There is an acute shortage of pilots which makes the industry dependent on them. High fuel costs-Fuel accounts for nearly 35% of the total cost and the cost of fuel is increasing rapidly posing a threat to the companies profits.
3. AVAILABILITY OF SUBSTITUTE • Product for product substitution-Consumers have various options in terms of airlines to choose from. They may also switch to other modes of transport such as road and rail. Substitution for need- With the advent of technology options such as video conferencing and conference calls reduces the need to travel thus the option of substitution of need in present but it is marginal as it is not possible to totally do away with traveling.
•
4. COMPETITIVE RIVALRY The competition in the industry in high but the intensity of the competition has been reduced as it is an expanding market. • The number of airlines is increasing which increases the level of competition among airlines. Earlier when we thought of airlines the only name would be Indian Airlines but today the list is long and growing with new carriers like Goair trying to make a mark in the industry. More over six new low cost airlines are expected to come up. • High fixed costs and input constraints also add to the competitive pressures in the industry. • Like every industry mergers and acquisitions take place here too which increases competitive rivalry between airlines which in turn force more airlines to opt for mergers and acquisitions thus forming a viscous circle of competition. • Low level of differentiation between the services offered by the different airlines increases the risk of switching and thereby adds to the competition. • The industry is expected to grow at 22% which actually gives scope to the existing players and new ones to operate and reduces the extent of competition. Airports Authority Of India The Airports Authority of India (AAI) was formed after the merger of International Airports Authority of India and the National Airports Authority by way of the Airports Authority Act (No.55 of 1994). It came into existence on 1st April 1995. AAI manages 5 international airports, 87 domestic airports and 28 civil enclaves. It provides air traffic services over the entire Indian airspace and adjoining oceanic areas.
12. DEVELOPMENT OF CIVIL AVIATION IN INDIA
Travel by air in the modern sense began in India only in 1877, when Joseph Lyna took off from the Lalbagh Gardens in Bombay, and ascended to an altitude of about 7,500 feet and landed at Dadra. In the years that followed, there was a tremendous development of air transportation in India as in any other countries due to technological advances and cooperation from the government.
In 1920, the Indian Air board was set up as a part of the Department of Industries and Labour to provide safe navigation and landing places and live up to its International Commitments.
With a view to draw up a plan in anticipating the post-war needs for civil air transport, the government of India appointed in 1943 the Reconstruction of Air Services Committee under the chairmanship of the Director of Civil Aviation. Captain F.C. Tymms, M.C., (later Sir Frederick Tymms). Armed with vast technical and administrative experience and an alarming capacity for work, Sir Frederick submitted by September 1943, a series of carefully thought out papers on all aspects of post-war aviation. Accepting the basic recommendation of the Tymm’s report, the government appointed a Committee in 1944 under the chairmanship of Sir Mohammad Ushman, a member of the Post and Air Department to follow up the Tymms plan. After a critical examination of the development of civil aviation in India, USA and European countries, the Committee suggested certain measures for the construction of new aerodromes and air routes by recommending that more local air services be started and that India should participate in the establishment of governmental assistance in the form of subsidy atleast in the initial stage, and introduction of the system of licensing for air carrier companies. However it had not suggested any ceiling on the number of such licenses as recommended by the Tymms Committee. The cabinet after much discussion and deliberation decided to nationalize the civil air transport scheduled carriers and to create two monopoly corporations in the public sector. In March 1953, India’s Parliament passed the Air Corporation Act, which received the assent of the President on 20th May.
The main provisions of the Act were that: “There shall be transferred to and vested in: ? Indian Airlines, the undertaking of all the existing Air Companies (other than Air India International Limited) and ? Air India International, the undertaking of the Air India International Limited (AIIC)”.
The saga of Indian Airlines began on the 1st of August 1953, following the amalgamation of eight private airlines. The journey began with a modest fleet but high aspirations and over the years, Indian Airlines innovated and upgraded its fleet to emerge as one of the largest domestic airlines in the world. Today, Indian Airlines, along with its subsidiary airline, Alliance Air, provides an extensive network, which encompasses the whole of India - a geographical area equivalent to Western Europe, besides reaching out to 17 International Stations.
In the last four decades, Indian Airlines has progressed by leaps and bounds and built an excellent track record of manpower and infrastructural development. It has thus emerged as a proud symbol of modern India. Some of the highlights of this glorious period of evolution include: ? ? ? ? Increase in passenger carriage from 0.5 million in 1954-55 to 8.4 million in 1997-98. Spread of network from 23,000 kilometres in 1953 to 1,18,000 kilometres in 1997-98. Growth of assets from Rs..21 million to Rs.30, 000 million in 1997-98. A manifold increase in system seat capacity from 3,070 seats per day in 1955 to 35,700 seats per day.
FUTURE OF INDIAN AVIATION According to A World Travel and Tourism Council report, India will be the fastest growing travel market in the world over the next decade (Financial Express, 2001). The study expects the Indian travel market will triple to $51 billion by 2011 from the $16.3 billion currently. Air Travel in India grew by 20% last year and Boeing has raised its 20 year market forecast for Aircraft purchases from $ 25 Billion to $ 35 Billion. More than 3 million Tourists visited India last year and the tourism industry grew by 8.8% YOY, highest in the world. The International Airlines are vying with each other and planning to increase there frequencies three fold. Apart from this various schemes are being used to attract more and more customers and also attract the customers of AC classes of Trains. Some of the methods that are being used are as follows: • • • • • Low Price Tags Apex Fares Internet Auctions Bulk Purchases Last Day Fares
1 .GROWTH INDICATORS • World Passenger traffic grew to 52.12 million in the last fiscal, from 43.47 million in 2004-05, to register a growth of 19.9 percent. • Robust growth of 24 % in last fiscal in Indian Aviation Industry. • Sector expected to expand by at least 16% annually for the next 5 years, riding on the overall economic growth of 8%.
Forecast: Growth In Air Traffic
Surging Air Traffic in Indian Metros
2. EXPANSION PLANS The Burgeoning industry also demands fleet acquisition. Boeing has raised its 20-year market forecast for India for aircraft purchases from US$ 25 billion to US$ 35 billion. Both Airbus and Boeing are waiting for the next big order, expected from Air India. The airline is evaluating medium and large capacity aircraft and is expected to order 50 wide-body jets, worth almost $5 billion at list prices. Airbus has been the beneficiary of a large chunk of the new orders announced in 2004. The European consortium will sell about 100 planes to Indian Airlines, Air Deccan and Kingfisher Air, and now says it wants to give something back to India by setting up a state-of-the-art training cumMaintenance centre. The company is awaiting government clearance for Indian Airlines' $4 billion order for 43 Airbus aircraft, a decision that was made two years ago.
3 . ROADBLOCKS • Infrastructure Constraints • Shortage of Pilots • Obsolete Navigation Facilities • Inadequate Safety Norms • Congestion Problems • High Operating Costs
4. POSITIVES • Greenfield airports –Bangalore/Hyderabad • J/Vs for Ground Handling and MRO facilities • Highly advanced GPS aided Geo augmented • navigation (GAGAN) system operational this year. • AAI set up more radar stations – to bring entire • Indian airspace under radar monitoring. • Training more Pilots and Air Traffic Controllers. • Raising retirement age of pilots to 65 from 61. 5. NEW ENTRANTS
The aviation sector is likely to see the launch of many new airlines, including: • • • • • • • Premier Airways Star Air East West Airlines Indigo Jagson Magic Air Indus Air
6. FUEL PRICES The government has raised the fuel prices by 7.5% in January 2006.Prices increased from Rs. 32.56 a liter to Rs. 35 liter. Aircraft Fuel forms a major chunk of the revenue and hence any changes in the fuel prices effects the revenues in a major way.
Rise in ATF Prices (Rs/Kg)
A possible way of dealing with these rising fuel prices is FUEL HEDGING which as used extensively and very successfully by Southwest Airlines. They booked Future options of fuel and hence even when the fuel prices soared, they were able to procure fuel at very handsome prices.
7. RECOMMENDATIONS Some recommendations to deal with the inefficiencies as suggested by WTC report are as follows: • • • • • Allow all Indian Carriers, Public or Private-to operate International routes. Lower the cost of aviation turbine fuel. Lower the Landing and airport charges. Strengthen and promote short haul tourism for business development, trade and tourism. Encourage of Proactive involvement of overseas investors and technical managers in the privatization of airports. Encourage commercial activities within airports such as hotel, restaurants etc. Ensure a healthy growth in traffic to the private airports.
• • • Interpretation: 1. In this table it is evident that the sales of the jet airways has increased by 25% in the year 2001-02 but has suddenly stopped for the year 2002-03 in which year it appeared to be increased by only 1%. but this is not the true indicator of the companies performance in that year because, this is the year in which most of the companies has shown losses and had withdrawn their service after sluggish ness in the airline business because of the attack on the WTC, in sept. 11, 2001. 2. In the year 2002-03, though there was sluggishness in the market the company had increased its service to some more flights and more locations. 3. Coming down to the performance of the company again we can see that the company has recovered very soon and has posed a profit of approx.12.5% and has shown a similar trend of 20% increase in the net revenue. 4. Thus if we consider the performance of the company in the year of the crisis to assess the future performance of the company it will represent a faulty projection for the company. So by excluding and projecting according to the trend that the company has shown it comes out to be a growth of 20% and thus will generate revenue of around 5238 crore. 5. In the year 2005-06 the company has introduced some aircrafts (Boeing 337-700, A340300E), and due to soaring prices of ATF the company has incurred higher amount of expenses. It is difficult to determine whether company is going to increase more aircrafts and also the fluctuating oil prices. So, we could not predict the COGS of the company. 6. Another major reason, why the projection of the company is increasingly difficult is because, it has recently been allowed to operate overseas and for this company has been entering into many new contracts and trying to make acquisition like Sahara Airlines (which failed, though), in fact the company has also start operating in certain countries, in which it had not been earlier. Thus, it makes very difficult to come up with the projection of promotional expenses and other items of the P/L A/c and B/sheet. 7. But, if we presume that the company will be only as efficient as earlier years and there would not be any dramatic change in the market share of the company we can come up with the following projection table:
year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Jet’s Market Share 1982 2500 2526 2876 3447 4338 5238
Total Domestic Market 5223 5275 6009 7204 9063 11900 14994
Market Share Market Growth(%) 38 47 1 42 14 40 20 38 25 36 31 35 26
Jet Airways Market growth(%) 26 1.04 13 19 25 20.75
8. Facing the same problem of an abnormal year of crisis which impacts the airline business heavily, we have averaged the growth of the four years only except 2000-01 and 2002-03 and got the simple average of 20.75 % and have been projecting it as the possible growth of the company for 2006-07.But the growth of the company may even be higher because our projection goes conservative because we have have not acknowledged the slow growth of the year 2003-04 and have considered it as a normal year. So, we conclude that the market share of the jet airways will grow at 20.75 % with certain assumptions made above and because of the highly fluctuating ATF (Aviation Turbine Fuel), and growing competion and no definite trend in the different costs we decided not make any projection for the profit, which may be highly faulty.
13. CIVIL AVIATION POLICY
The Ministry of Civil Aviation is the main central agency responsible for the formulation of national policies and programs for development and regulation of Civil Aviation and for devising and implementing schemes for orderly growth and expansion of Civil Air Transport. Its functions also extend to overseeing the provisions of airport facilities, air traffic services and carriage of passengers and goods by air. The Government recently approved a new policy to promote private investments in the Aviation Sector. The highlights of the policy are as follows. a. Foreign equity upto 40% and investment by non-resident Indians (NRIs) or overseas corporate bodies' (OCBs) upto 100% will be permitted in domestic air transport services. b. Equity from foreign airlines will not be allowed directly, or indirectly, in domestic air transport services. Existing companies in which equity is held by foreign airlines will be advised to disinvest this equity. c. Entry and exit barriers have been removed. There will be a scrutiny of applications to verify financial soundness and maintenance, security and safety aspects of operations. d. The choice of aircraft type and size is left to the operator. e. To achieve economies of scale, the minimum fleet size for a scheduled operator has been raised from the existing three aircraft to five. Also the minimum amount of shareholders' funds has been increased from the existing Rs.50mn (US$ 1.4mn) to Rs.100mn (US$ 2.9mn) for aircraft of all-up weight below 40,000 kg and from Rs.100mn (US$ 2.9mn) to Rs.300mn (US$ 8.7mn) for all-up weight exceeding 40,000 kg. 2. Total capacity requirements in the air transport sector are being projected for a period of at least five years on an annual basis, to help the developer make investment decisions. 3. In the distribution of this capacity, while preference will be given to Indian Airlines according to its fleet augmentation plan, private operators' proposals to induct new capacity will be considered, based on the demand, load factor, past track record and financial soundness. 4. All scheduled operators are required to deploy 10 per cent of their capacity in NorthEast, Jammu and Kashmir, Andaman and Nicobar Islands and Lakshadweep.
14. INFRASTRUCTURE DEVELOPMENTS
Private sector is now allowed in building airports. Among the private sector-aided airports to be developed in the next five years are Hassan (Karnataka), Mumbai, Goa and Bangalore. These airports are capital-intensive projects that have to be run efficiently to make them commercially profitable. The Mumbai project, for instance, will cost an estimated Rs.16bn (US$457mn). The Government has also decided to concentrate on developing existing airports rather than on new airports. The AAI is investing Rs.4.4bn (US$125.7mn) to develop model airports in 12 cities, with state-of-the-art equipment.
Part financing of facilities through a tax paid by embarking international air passengers is an idea being tried out at Kozhikode, which generates large West Asia-bound traffic. A similar method may be adopted for development of airports in Rajasthan and Goa that are popular tourist destinations.
Among airport construction projects with private participation, the Kochi International Airport has progressed the furthest. It has passed the initial planning and the land acquisition stage. The project is expected to cost around Rs.1.6bn (US$45.7mn) in the first phase, and go up to around Rs.3bn (US$85.7mn) finally. In the first phase, equity will account for Rs.640mn (US$18.3mn), 26% of which the government of the State of Kerala holds, and the rest by non-resident Indians, banks, users (airline firms) and contractors. Term loans and short-term borrowings for working capital from banks will fund the rest of the project.
The AAI has also drawn up a Rs.40bn (US$1.1bn) plan to modernize and expand its airspace infrastructure to meet the demand growth projected for the coming five years. The growth strategy envisages not only better passenger facilities but also improved navigational and communication systems. The first phase will involve upgradation of conventional communication, navigational and surveillance systems as an immediate measure. The second will be a transition from the present ground-based ATS systems to satellite-based CNS/ATM by the year 2000.
The internal resources generated at present being inadequate, the AAI plans to enhance revenues through rationalization of the tariff structure, as well as from commercial, cargo and duty-free shops.
Association
IATA - The International Air Transport Associations History: IATA - The International Air Transport Association- was founded in Haryana, CUBA, IN APRIL 1945. It is the prime vehicle for inter-airline cooperation in promoting safe, reliable, secure and economical air service - for the benefit of the world's consumers.
The international scheduled air transport industry is now more than 100 times larger than it was in 1945. Few industries can match the dynamism of that growth, which would have been much less spectacular without the standards, practices and procedures developed within IATA.
At its foundation IATA had 57 members from 31 nations, mostly in Europe and North America. Today it has over 230 members from more than 130 nations in every part of the globe.
15. AIRPORT PRIVATIZATION
The Airport Authority of India, which manages five international airports, 87 Domestic airports and 28 civil enclaves at defense airfields, is facing an uphill task, as it for funds, management talent and its adherence to the government procedures. Government policies provide for privatization of airports at Delhi, Mumbai, Calcutta and Chennai through long lease and new developments at existing airports and Greenfield airports through private initiative.
It's true that there is risk in privatization of airports, since airports essentially provide public utility services in monopolistic situations. There are apprehensions that private enterprises are profit motivated and with privatization users may not get quality services at affordable prices.
To begin with, for four airports which the government has decided to privatize, consultants should immediately put the website details of assets, traffic figures for the past 10 years and figure projections, revenue figures existing and projected, profit & loss for last 10 Years, details of manpower, business plans, capital investment programs etc. This would enable potential investor to start preparatory work on their due diligence investigations.
Consultants should immediately develop draft terms and conditions governing lease of these airports clearly bringing out obligations of new managements in terms of service levels, commitment to minimum investments for development of airport facilities, operational standards to meet our national and international obligations, clauses to deal with emergency situations, termination in event of breach, etc. These should be discussed with the aviation industry and finalized.
Government should set up a regulatory Authority whose main functions would be economic regulation and operational safety audit. This authority through its statutory powers and intervene if standards of airport services in terms of safety, reliability and cost effectiveness are not met.
Some of the states are taking initiative for development of Greenfield airports and they should be assisted by the Ministry of Civil Aviation in adopting more professional approach.
In the first instance state governments should develop techno -economic feasibility reports for airport projects through experienced organizations / consultants of repute.
Airport Authority of India (AAI) has a large number of airports where the traffic volumes are low. Private entrepreneurs are not likely to be interested in such airports, which are not financially viable. These airports should be commercialized by exploiting the commercial potential of airport lands, cost containment, increased productivity and improved cost recoveries. Thus, some of these airports may in the next few years reach a stage when they can also be privatized.
There are some other airports with AAI, which could be transferred to state governments, local bodies or tourism agencies who are in an advantageous position to operate and manage them more cost effectively. It is conceded that privatisation is not likely to remove all the hiccups in the development of aviation sector .We need to have a model tailored to Indian Conditions, keeping in view the local laws, rules and regulations in tune with the political philosophy and psychology of local travelers. The funding pattern should be such that the investment made is beneficial to the investors due to monopoly nature of airport business.
Foreign investors do not want to investment in aviation sector in India, due to abnormal delays in decision making, undue interference, non- consistent policies of government and to some extent inflated fear of corruption in India. It's therefore essential that sectors like aviation be left in hands of professional managers and the role of bureaucracy should be only custodial and regulatory.
16. ALLIANCE STRATEGY
Alliances in various manifestations have come to stay and airlines around the world are spending agonizing hours deciding who they will marry and on what terms. The basic reason for all these alliances and equity partnerships is that the competition is growing and the World Trade Organization (WTO) is spurring the move towards “open skies” in the real sense of the word. Multilateralism in the field of aviation would mean any airline could fly anywhere in the world without being bound by bilateral agreements like that exist at present. The impact of these global handshakes is being felt by smaller airlines, as about 70 percent of the large carriers have become a part of the various groupings. No individual airline can match the reach and the connectivity of the large groupings and the smaller carriers can only watch as the globe is carved up among the various mega alliances. As a strategy, an alliance involves
1) Extensive code sharing and the frequent flier plans Code- Sharing is where an airline flies on behalf of the other on a particular sector. The Indian example is that of Indian Airlines and Air India that share codes in the Delhi-Mumbai as well as in the Gulf sector. The frequent flier programmes are yet another advantage. The miles earned on domestic flights can be redeemed on international flights. The Jet Airways has an alliance with KLM/Northwest and the British Airways. The passenger who flies on any of these airlines is eligible for the “Jet Privilege” card subject to the fulfillment of terms and conditions.
2) It also involves co-ordination of schedules to maximize loads By this it implies that the two airlines that were earlier competing with each other on a particular route compete no longer because of the alliance. They instead time their flights so that their payload is maximized and they do not compete against each other. Effective scheduling of flights does this. When a domestic airline goes into an alliance with an International airline then the scheduling is done in such a way that the domestic flight can act as a connecting flight for the passengers of the international flight. The Indian example of such an alliance is that of Jet Airways with KLM/Northwest and British Airways. By this not
only the domestic airline has an increased load factor but the international airline also has an increased load factor through better connectivity.
3) Route planning In route planning the alliance partners join hands for a particular route or a combination of routes. For example if Air Lanka has got scheduled flights from Colombo to Mumbai, then a passenger from Colombo can be issued a ticket from Colombo to New Delhi. From Mumbai to Delhi the alliance partner will carry the passenger.
4) Joint pricing As stated above the passenger from Colombo to Delhi can be issued one single ticket though he shall be availing of the services of two airlines. This is called as joint pricing where in one of the partner issues a ticket on behalf of the other.
5) Inventory management In the aviation industry the inventory costs form a major part of the cost. The inventories are quite expensive as well. The alliance partners maintain common set of inventories and this helps in the reduction of the inventory costs, as a large amount of capital is not blocked for this.
6) Integration of information technology This is yet another highlight of a successful alliance. The partners can have joint reservation, check in and check out systems and can also use the information technology infrastructure of the alliance partner.
7) Joint purchasing by the alliance partners The benefit of scale and bargaining powers can provide great synergies and the cost reduction to the partners.
Benefit To Passenger Easy connections across the globe An easy connection across the globe is made possible as the passenger has the advantage of flying to such locations where the international flights do not operate. In such a case the alliance partner provides the connecting services (provided it has the same in that region).
Lounge access at various airports The advantage of the frequent flier program is also that the passenger who holds the frequent flier status is eligible for availing of the lounge services of the alliance partner as well. For example the “Gold Card” holder of Jet Airways is eligible to avail of the lounge services of KLM/Northwest and British Airways.
Times have changed to an extent that carriers, who were bitter rivals once, are now talking about joint sales incentives, sharing revenues and profits.
Though no Indian carrier is yet a part of the giant global alliances, Air-India, Indian Airlines and Jet Airways are already in other alliances like code-sharing, joint frequent flier programs. Airlines hold hands with each other in several ways depending on their needs. Of course, the most drastic measure is taking an equity stake, a method that is actually going out of vogue these days. Other common ways are Code- Sharing where an airline flies on behalf of the other on a particular sector. Examples in India are Air-India and Air Lanka on flights to Delhi, Air- India and Indian Airlines on domestic flights to Delhi and flights to the Gulf, Jet Airways and KLM / Northwest. Joint marketing and frequent flier programs co-operation is another popular measure to tie-up. An example is Jet Airways frequent flier program “Jet Privilege”, where it has a joint co-operation with British Airways and KLM /Northwest. This primarily means that the miles earned on domestic Indian routes can be redeemed on international flights. A corollary of this is the joint utilization of reservation, through check in and operational systems.
Other ways of alliance between the airlines for greater synergies: 1. Block seat arrangements- In this the airlines agree to take up a certain percentage of seats on another carrier on a particular route. 2. Block cargo schemes- For cargo, airlines have block cargo undertaking to provide a certain tonnage to another carrier; they can also have Cargo Code Shares between them. 3. Strategic partnership- This is another amorphous term wherein airline tie-up for longterm commercial gains. This sort of relationship usually ends up in equity partnership or more permanent commercial arrangements. The latest example is that of Singapore Airline taking a 49 percent stake in Richard Branson’s “Virgin Atlantic”.
17. RECENT DEVELOPMENTS
The government has given the final nod for the divestment of Air India. It has been proposed that the government will not fix any price for sale but will let the market decide the price. The government has put up 40% of the equity in the airline for sale. The strategic partner, which the airline has been scouting for, will take up 40% stake with only a 26% cap to foreign airlines. The line up of suitors is formidable with a combine of British Airways and Jet Airways, Singapore Airlines and the Tata's, a consortium led by Air-France and Delta, Reliance and ITC. Then came British steel baron Laxmi Mittal who has decided to take the plunge along with Kotak Mahindra, British Airways and Qantas of Australia.
As far as Indian Airlines is concerned, the Tata group has bid for it in addition to its bid for Air India. The Hindujas, the SkyTeam comprising of Air France and Delta, Emirates and the Indian Pilots Guild have also submitted their expression of interest. Reliance had earlier pulled out from the race.
The Disinvestment Minister Arun Shourie has said that the end of FY01 will see the completion of the privatization process for Air-India. The government is sadly way off the target (Rs.100bn) as far as the program for disinvestment goes. It remains to be seen whether the proposed divestment in Air India does come about by the set date. lities as a way to encourage air traffic.
The Take Off: Naresh Goyal, Chairman of Jet airways was the one-man show behind Jet airway’s birth. Goyal started his career as a marketing executive at the General Sales Agent (GSA) with Lebanese international airlines in Delhi. He than worked with Iraqi airways for a couple of years, before joining Royal Jordanian Airlines as a regional manager. Goyal's diligence & incredible ability to memorize flight schedules caught the attention of Ali Ghandour, who was then president & chairman of Royal Jordanian Airlines. Ghandour introduced Goyal to the wider world of aviation outside India.
In 1974, Goyal decided to get into the GSA business himself establish Jet air Transportation representing Kuwait Airways & Air France. Simultaneously, Goyal was appointed regional manager of Philippine Airlines. Over the next few years, Goyal expanded his network picking up agencies for some more airlines. He was regular member at the AGM of International Air Transport Association(IATA) the global aviation body .
Meanwhile Goyal turned into NRI & shifted his base to London. During the same time, Goyal also toyed with the idea of setting up his own airlines. The opportunity came in early 1990s, with the GOI's open skies policy permitting private investment (including NRI's) in the domestic aviation. In April 1992, Jet airways India was set up as a 100 % subsidiary of tailwind ltd., a company registered I Cayman islands (situated in the northwest Caribbean sea ) . Kuwait Airway's & Gulf Air had 40 % stake in tailwind ltd. Soon after being incorporated as a privately owned airline, Jet airways hired lintas the ad agency to develop Jet airways 's corporate logo, IMRB the market research firm to do a consumer survey & Anderson consulting to do feasibility study & help prepare the business plan. By 1992, goyal put his start-up team in place. Saroj datta & B.P.balinga, both directors at Air India, Rolland Thomas from Malaysia Airlines & Steven Jagannathan from Singapore Airlines joined the board.
The Success Formula Jet airways started its operation with leased aircraft's. The idea was to expand faster by using funds to lease more aircraft's than buying one or two. Boeing 737 could cost anywhere between $ 40 to $ 50 mn, whereas a monthly lease could be as low as $ 0.4 mn. The most crucial decision was the choice of aircraft. While Damania, East West & Modiluft who also started their operations at the same time opted for the older Boeing 737.200s, Jet airways chose newer 737.300s whose least cost were atleast 40 % higher. four planes (about three years old) were leased from Ansett Airlines. Although the 737.300s were more expensive to lease they were more fuel-efficient (consumed 8% less fuel) & were cheaper to maintain. goyal felt that young fleet would help attracting customers.
Analyst felt that by having one type of aircraft-the 737-in its fleet, Jet airways made the maintenance & flight crew training far simpler. Spares were common & inventories were lower as well. for engineers, dealing with one type of aircraft. Balinga claimed that Jet airways technical dispatch reliability was 99.6 % , which meant that a Jet airways flight was rarely held up on account of technical snags.
Jet airways also had another advantage in the form of a readymade distribution network in sister company Jetair's 85 offices countrywide through which it had access to a larger market beyond metros. Unlike other start-ups that started with manual reservations, Jet airways went in for computerized from day one. This airlines reservation system, though expensive, delivered superior service.
Jet airways 's number of employee per aircraft was 163 & a total employee strength of 4,000 as against Indian Airlines's 397. The focus was on productivity & cost control. Jet airways was not a lavish paymaster & increments were modest. Salaries provided were not as high as foreign airlines offered. Jet airways also invested heavily to train his pilots. An aviation academy housing the state-of-art Boeing 737 700 /800 flight simulator & flight training device for 737-400s was set up at a cost of $ 10 mn.
Jet airways 's success was mainly due to its service excellence. Jet airways always ensured that its service surpassed customer expectations. Goyal ensured that the attendants & front line staff were fresh recruits trained in the "jet way"& not people from other airlines who would bring with them old culture. According to the frequent travelers, the hallmark of Jet Airways's service was its cheerful attitude. If flight was delayed, travelers were phoned & informed in advanced. Jet Airways's managed to achieve service excellence, because of being strictly disciplined from the start. Lapses were not tolerated & the focus was on performance.
Innovations in service ? ? ? ? ? Cabin bag-only passengers can check in at any city counter Returning passengers can get two boarding passes at one check in Business class passengers can customize their meal & drinks In flight mail-order shopping offers premium products at a discount JetMobile offers automated flight schedules over the cell phone
Jet Airways always focussed on the business traveler. To attract & retain business traveler, it had to offered superior services. Jet Airways's picked up Indian Airlines's service module as a framework & borrowed a few ideas from KLM Royal Dutch Airlines for managing systems. Jet Airways's always believed in keeping close watch on its customer's service. On all its
flights more than 20 minutes long, light refreshments were served & on longer flight passengers were served non-alcoholic drinks, cold towels & a three coarse meal. Jet Airways received 16,500-service monitor questionnaire (SMQ's) every month & they were analyzed at various levels to plug loopholes in service. Every new flight attendant was put through at least three months of training in the first year & thereafter several more hours of in-flight & class room training.
In December 1999, Jet Airways relaunched its frequent flier program under the 'jet privilege' (JP) name the (frequent flier program was initially launched in 1994). JP customers were not required to pay membership fees. They also did not have to produce boarding cards or other proof of travel. A passenger can earn free JP miles (points) by taking a Jet Airways flight. The new programme offered three different levels of privileges: J.P Blue, J.P Silver, J.P Gold, depending on the number of miles accrued or the number of flights flown. J.P Silver & Gold members could earn bonus miles on all Jet Airways flights & enjoyed lounge access, Tele check-in benefits. Jet Airways tied up with international carriers like KLM Royal Dutch Airlines & Northwest Airlines as a result of which JP members could earn miles on these airline networks too. They could redeem their miles when they had earned atleast 10,000 miles or had flown 10 flights. Jet Airways had tied up with Oberoi Hotels & Resorts, Radisson Worldwide. Members of JP could earn miles on each stay at any of these hotels.
In 2001, Jet Airways launched an in-flight, Jet Airways launched an in-flight mail order catalogue, JetMall for high quality products. The in-flight shopping programme enabled passengers to browse through a specially design mail order catalogue which helped them select products & get them products delivered at home within two to four hours anywhere in India. Jet Airways claimed that that the mail order catalogue was at par with the in-flight shopping catalogue on international flights.
In early 2001, Jet Airways finalized a Rs. 16 bn loan for the purchase of 10 Boeing 737s to be delivered over next two years. This was the first deal in India that involved the US Exim Bank & an Indian Bank along with two offshore special purpose vehicle (SPVs). According to analyst, the beauty of the deal was that Jet Airways would finally end up borrowing from indian investors & not from foreign bank.
Performance of jet airways Performance of jet airways since its formulation in 1992.Over the years, jet airways has significantly improved its market share from 6.6 % in 1993-94 to 42 % in 2000-01. Right from the start, jet airways focussed more on customer service rather than anything else. It was because of it's superior customer service, that jet airway's had become the most popular airline in India.
Strategies of jet airways: It's operations started in India with leased aircraft because buying an aircraft would have cost jet airways around $ 0.4 million. Jet airways also started it's operation with the new Boeing 737-300s & not the older Boeing 737-200s. This was because the new aircraft were fuelefficient & maintenance costs were low. Jet airways' aircraft utilization & number of flights a per day more than of Indian Airlines. Another reason of jet airways was it's lean structure. Compared Air India’s 397 employees per aircraft, Jet airways had only 163 employees per aircraft.
Flying High In The Indian Sky: In 2001, with revenues of $ 542.18 MN, Jet Airways emerged as the most popular domestic airlines in india. Jet Airways stated its operation in 1993;the number of its passengers increased from 0.663 million in 2000-01.by 2001, when other private airlines had stopped their operations, Jet Airways not only continued to survive, but had become a formidable competitor to indias national domestic airlines -(AIR INDIA). Jet Airways seemed to be lone challenger to AIR INDIA with Sahara Airlines in the third position. Jet Airways's market share increased to 42 % in 2001 from 6.6 % in late 1990s. In 2001 , Jet Airways ran 215 flights per day compared to INDIAN AIRLINES's 208.Unlike the loss making INDIAN AIRLINES, Jet Airways is making profits. At the end of the first year, Jet Airways achieved average seat factor close to break-even level of 71 %. Thereafter it broke even & has been making profits ever since. In 2001, Jet Airways recorded profits of rupees 125mn compared to AIR INDIA which recorded a loss of Rs 1.77bn
Table 1 Passenger Carried Years 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 In million 0.663 1.241 1.606 2.367 3.131 4.013 4.875 5.931 Years
Table 2 Market Share Numbers 6.6 11.0 12.7 19.0 25.6 32.8 38.4 41.9
1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01
Source: Business Today, July 21, 2001
Table 3 Fleet size Year 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 July 2001 Source: Business Today, July 21, 2001 Numbers 4 6 8 12 19 25 29 30 33
Growth of Fleet Size of Jet Airways
40 n me u b rs 30 20 10 0 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 years
Jet airways a favorite with travelers because of its friendlier approach & new generation cleaner planes more importantly, seasoned air travelers were that if they have crucial appointments to keep in other cities, jet airways was reliable than Air India. Jet airways on time performance & schedules attracted business travelers who accounted for 80 % of its customer. Jet airways had a fleet of 33 planes in 2001,(table-3) as against AIR INDIA that had a 57 planes. But Jet airway’s fleet was much younger & average daily flying time of Jet airways was greater than IA. Greater utilization meant higher revenues & more efficient utilization of capital assets.
19. SUGGESTIONS AND RECOMMENDATIONS
? ? ? ? ? ? ? ? ? ? ? ?
Allow all Indian Careers, Public or Private-to operate International roots. Lower the cost of aviation turbine fuel. Lower the Landing and airport charges. Strengthen and promote short haul tourism for business development, trade and tourism. Encourage of Proactive involvement of overseas investors and technical managers in the privatization of airports. Encourage commercial activities within airports such as hotel, restaurants etc. Ensure a healthy growth in traffic to the private airports. Remove Legacy Silos-based platforms – SOA Improve network – Ip, Optical. Improve Mobile Workers Efficiencies – Wireless Networks. Advanced Demand Mgmt. - Advanced Planning, Scheduling. Improve Security & Safety - T Security, Sensor Networks, Surveillance .
20. CONCLUSION
The growth of aviation and its local and global impacts has created serious problems that must now be resolved. The publication in late 1999 of the United Nations review of the global environment (UNEP, 1999) showed just how serious these problems are. It would be perverse and contrary to UK and EU sustainable development policy not to find a way that can manage the impacts of aviation within a framework that reduces growth, reduces impacts and protects health and environment. There are a number of ways in which this can be done. Aviation is not an example of the intractable international industry that cannot be part of the solution. The development of demand management in aviation should be associated with a full package of measures: · An environmental charge based on emissions · The ending of all subsidies and tax exemptions · More stringent noise and emission standards for aircraft and for geographical areas around airports · More research and best practice guidance on substitution · Better levels of local environmental data and environmental monitoring to inform local populations about air and noise quality. These measures should be introduced in an incremental fashion to give the industry and consumers time to adjust to the changes. Incrementalism is already built into the environmental charge but will need development in the area of standards. Education and awareness is very important indeed in aviation. There will be many airline customers who have never thought of airports and flying as an environmental problem. Information should be widely available so that these groups have the background information they need to understand t he changing circumstances of aviation. Informed choice is a key component of transport demand management and environmental policy. The latest scientific evidence on the state of the global environment (UNEP, 1999) and on the contribution of aviation to gl obal inventories of greenhouse gases reviewed in this report point to the need for a fundamental change in public policy towards aviation. The current impact of aviation and the forecasts of future impacts bring into sharp focus the need for a policy that is based on science and that can bring about a re-positioning of aviation within the context of sustainable development and overall environmental objectives. The science is clear, the policy measures that are available are clear. All that remains to be put in place is a clear aviation policy.
See What E-Distribution can do
Continental Airlines' Web Site Generates Record Sales; Hitting $2 Billion Annual Rate HOUSTON, Aug. 11 -- Continental Airlines today announced that its continental.com web site is generating record sales volume for the airline, recently setting a single-day sales record and achieving record sales volume of $2 billion for the most recent 12-month period, ending July 31. “We’ve made a significant investment in our web site’s features and functionality to make it a full-service travel site,” said Jim Compton, executive vice president-marketing. “Seeing this dramatic growth in the site’s usage is rewarding because this is such an efficient method for ticket sales.” On one day in July, continental.com racked up $8.5 million in sales, setting an all-time single-day record. This record volume is equal to 34% of the worldwide passenger sales volume that Continental achieves from all sources in an average day. Continental Airlines Press Release, Aug 11 2005
Bibliography:-
India info line.com Web site of Airport Authority of India. CMIE Journal MMS (Final) Project on Service Industry By Janet Quadris Business Strategy Author: Sanjib Dutta & A. Mukund Title of the Book: Business Strategy Publication: 2002 Publisher: ICFAI Press
doc_266650686.pdf