Description
It talks about the differentiating factord it had over LCCs and talks in brief the strategy of Spicejet and also the advantages and disadvantages of such a strategy.
Paramount’s strategy (2007) Paramount operated in niche segment, connecting a cluster of mid-tier towns from the closest major metros. For instance, it connected tier-II cities like Madurai, Thiruvananthapuram and Coimbatore to major cities like Chennai, Bangalore and Hyderabad. It thus tapped into a huge potential target segment. By FY 2006, it had bagged a fourth of its market (the southern India). It’s neither a low-cost airline nor a conventional full-service provider. It’s a melange’ of both the idea, the good from both the worlds that worked wonders for Paramount. An evidence towards this end is its pricing strategy in 2007: A no-frills economy class from Coimbatore to Chennai would then have cost approx. Rs 3,000 and business class would have been around Rs 8,500; while Paramount offered the business class at Rs 3,600 and first class at Rs 8,600. But at the same time, it is India’s only by-and-large business class airline, which throws in luxuries like four-course meals, LCD monitors and valet services. So how does Paramount afford to create such value for money for its target customers? Although the services offered by paramount are those of a luxury carrier, its focus of operations has been to achieve operational efficiencies and cost cutting all through. In some cases it has been more aggressive than LCCs while attacking costs. a. The passenger load factor of Paramount was around 85%, which was higher than that of Deccan’s estimated 75-80% and Jet Airways’ estimated 60-65%. b. Paramount had five Brazilian Embraer aircrafts. Two of them were Embraer 170 jets, each with 70 seats - all business class. The other three were Embraer 175s, with 75 seats – 11 first class and 64 business class. ? The use of less-than 80 seat aircraft was well planned by Thiagarajan, considering the fact that airports don’t levy landing and parking fees on smaller aircraft like the Embraer. While bigger aircrafts like Airbus or Boeing pay about Rs 15,000 as landing charge each time and about Rs 33,000 per hour as parking fee at a major airport. ? Smaller jets have to pay only 4% as sales tax on fuel as against 28-33% levied on bigger aircraft. ? Paramount flies its aircraft for higher number of hours a day as compared to many of its peers. ? It sells around 40% of its ticket on the Internet, which is high for a full-service airline as they tend to sell most of its seats through travel agents. ? It operates six or more flights operating out of an airport instead of one or two, unlike its competitors. If the number of flights an airport services is more, it brings down the cost per flight. Effectively, the airways is able to pass on a share of its benefit of costs savings to its customers, which further helps it retain its customers.
Spicejet’s strategy of Low Cost Carrier - Spicejet also boasted of having the lowest cost per unit amongst Indian LCCs, through its use of standard aircraft (B737-800) having identical seat configuration in a single cabin, engines and
other maintenance equipment. This commonality of aircraft spares and training for crew and engineers has helped Spicejet contain its costs and pass on the advantage to its customers.
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It has always maintained its fleet ensuring highest standards of safety, and had maintained a very good record of on-time performance as well as lowest turn-around time at airports. This helped them maintain high aircraft utilization.
SpiceJet has already invested heavily into IT to ensure high class service levels to its customers and partners, and also to provide the Management with MIS and other inputs, which in turn helps them deliver the best end product/service. ADVANTAGES With the acquisition of a stake in Spicejet, Paramount gets an easy access to the northern and eastern domestic market segments. With already in possession of a national flying license, Paramount can now make use of the asset base of Spicejet to run its own aircraft after getting the DGCA approval. Paramount would be able to tap the huge potential of the LCC market that currently Spicejet caters to. Paramount would also be able to make use of Spicejet to provide a seamless connectivity to the customers of both the airlines. Thus, it can save on some operational costs and bring in economies of scale. With Spicejet still running in its original format, it gets access to the customer base of Spicejet to even promote its own operations as well. Paramount can also try to implement a better IT management system learning from Spicejet’s way of implementation. Also, Spicejet’s parternships with global names like Honeywell, Weber Seats, etc would also be beneficial to Paramount. Paramount would be taking on an entity bigger than itself. Combined, a much bigger and credible entity would be able to achieve higher bargaining power for procuring its oil requirements. DISADVANTAGES The extent of operational efficiencies are limited due to the different aircrafts being used by the two entities. The integration of IT systems, if required, may lead to some initial investment.
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Strategy Fit with Spicejet
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-
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Different areas of operations. Hance increased market synergies.
doc_515371068.docx
It talks about the differentiating factord it had over LCCs and talks in brief the strategy of Spicejet and also the advantages and disadvantages of such a strategy.
Paramount’s strategy (2007) Paramount operated in niche segment, connecting a cluster of mid-tier towns from the closest major metros. For instance, it connected tier-II cities like Madurai, Thiruvananthapuram and Coimbatore to major cities like Chennai, Bangalore and Hyderabad. It thus tapped into a huge potential target segment. By FY 2006, it had bagged a fourth of its market (the southern India). It’s neither a low-cost airline nor a conventional full-service provider. It’s a melange’ of both the idea, the good from both the worlds that worked wonders for Paramount. An evidence towards this end is its pricing strategy in 2007: A no-frills economy class from Coimbatore to Chennai would then have cost approx. Rs 3,000 and business class would have been around Rs 8,500; while Paramount offered the business class at Rs 3,600 and first class at Rs 8,600. But at the same time, it is India’s only by-and-large business class airline, which throws in luxuries like four-course meals, LCD monitors and valet services. So how does Paramount afford to create such value for money for its target customers? Although the services offered by paramount are those of a luxury carrier, its focus of operations has been to achieve operational efficiencies and cost cutting all through. In some cases it has been more aggressive than LCCs while attacking costs. a. The passenger load factor of Paramount was around 85%, which was higher than that of Deccan’s estimated 75-80% and Jet Airways’ estimated 60-65%. b. Paramount had five Brazilian Embraer aircrafts. Two of them were Embraer 170 jets, each with 70 seats - all business class. The other three were Embraer 175s, with 75 seats – 11 first class and 64 business class. ? The use of less-than 80 seat aircraft was well planned by Thiagarajan, considering the fact that airports don’t levy landing and parking fees on smaller aircraft like the Embraer. While bigger aircrafts like Airbus or Boeing pay about Rs 15,000 as landing charge each time and about Rs 33,000 per hour as parking fee at a major airport. ? Smaller jets have to pay only 4% as sales tax on fuel as against 28-33% levied on bigger aircraft. ? Paramount flies its aircraft for higher number of hours a day as compared to many of its peers. ? It sells around 40% of its ticket on the Internet, which is high for a full-service airline as they tend to sell most of its seats through travel agents. ? It operates six or more flights operating out of an airport instead of one or two, unlike its competitors. If the number of flights an airport services is more, it brings down the cost per flight. Effectively, the airways is able to pass on a share of its benefit of costs savings to its customers, which further helps it retain its customers.
Spicejet’s strategy of Low Cost Carrier - Spicejet also boasted of having the lowest cost per unit amongst Indian LCCs, through its use of standard aircraft (B737-800) having identical seat configuration in a single cabin, engines and
other maintenance equipment. This commonality of aircraft spares and training for crew and engineers has helped Spicejet contain its costs and pass on the advantage to its customers.
-
It has always maintained its fleet ensuring highest standards of safety, and had maintained a very good record of on-time performance as well as lowest turn-around time at airports. This helped them maintain high aircraft utilization.
SpiceJet has already invested heavily into IT to ensure high class service levels to its customers and partners, and also to provide the Management with MIS and other inputs, which in turn helps them deliver the best end product/service. ADVANTAGES With the acquisition of a stake in Spicejet, Paramount gets an easy access to the northern and eastern domestic market segments. With already in possession of a national flying license, Paramount can now make use of the asset base of Spicejet to run its own aircraft after getting the DGCA approval. Paramount would be able to tap the huge potential of the LCC market that currently Spicejet caters to. Paramount would also be able to make use of Spicejet to provide a seamless connectivity to the customers of both the airlines. Thus, it can save on some operational costs and bring in economies of scale. With Spicejet still running in its original format, it gets access to the customer base of Spicejet to even promote its own operations as well. Paramount can also try to implement a better IT management system learning from Spicejet’s way of implementation. Also, Spicejet’s parternships with global names like Honeywell, Weber Seats, etc would also be beneficial to Paramount. Paramount would be taking on an entity bigger than itself. Combined, a much bigger and credible entity would be able to achieve higher bargaining power for procuring its oil requirements. DISADVANTAGES The extent of operational efficiencies are limited due to the different aircrafts being used by the two entities. The integration of IT systems, if required, may lead to some initial investment.
-
Strategy Fit with Spicejet
-
-
-
Different areas of operations. Hance increased market synergies.
doc_515371068.docx