Low cost airlines in INdia

low cost airlines in india, strategies followed, is it truely low cost, comapartive analysis

1. THE ECONOMICS OF LOW COST AIRLINES – THE KEY INDIAN PLAYERS AND STRATEGIES ADOPTED FOR SUSTENANCE. Made By: Section B, Group 6 Kunal Jain (089) Maanick Nangia (090) Manish Bengani (091) Mehak Monga (093) Nimisha Goel (094)

2. BOOM AND BUST IN INDIAN AVIATION INDUSTRY

3. Competitive Dynamics Full service airlines were forced to drop fares Airlines sought to build strong relationships with the manufacturers of aircraft Low-cost carriers sought to supplement their revenue streams by advertising, sale of food on board, and selling other services In the full-service airline category, competition took on several new dimensions.

4. Restructuring of the Industry

5. SpiceJet ModiLuft -> Royal Airways -> SpiceJet . By 2008, it was India's second largest low-cost airline in terms of market share. Cost Control Follows the classical “low-cost” airline model – Very competitive fares Single type of aircraft and a single class of service Point -to-point operations, quick turnarounds, No frills, and internet-based ticketing. But unlike other low-cost airlines, water and snacks served on-board SpiceJet aircrafts is free. Curved winglet design which reduces noise and improves fuel economy by 2-3 per cent.

6. Pricing strategies M arked its entry with Rs. 99 fares for the first 99 days, with 9000 seats. Their marketing theme is "offering low 'everyday spicy fares‘. In May 2007 offered two- lakh seats at a special price of 99 paise . In January 2009 – ‘Book two air tickets, Pay for one’. Value-addition to customers Online travel insurance in partnership with TATA AIG. Maintained a consistent rate of 28 per cent of sales since. Internet banking for customers. Plans to introduce an on-board wireless telephone system for all Spicejet passengers.

7. Operational efficiency Partnerships with global leaders to enhance safety and reliability. In the maintenance department by KLM State-of-the-art technology from Star Navigation, Russell Adams and Tech Log. Partnered with Navitaire , the world’s renowned low-cost support system for reservations and revenue management. These approaches resulted in SpiceJet achieving the lowest costs in the industry (Rs. 2.65/ (ASKM) in 2008). Marketing Strategies Focuses on word-of-mouth marketing, supported by print and Internet media initiatives. Introduced on-board merchandise sales such as goggles, airplane models, perfumes, caps and watches. Sales of branded merchandise will also be available through the company's website.

8. Strategies for Future sustenance

9. IndiGo Successful expansion of market share; Doubled its Market share from 2007 to 2008

10. IndiGo War on Costs Turn Around Times Lesser the TAT, Longer it can fly; Managed to squeeze one more flight TAT of 15 minutes in Non Metros, 20 minutes in Metros Inventory Management Inventory in books of Air France; Not on IndiGo

11. IndiGo Reliable and On-Time Service Young Fleet; Maintenance is easy and less time consuming; Lesser technical faults; Average Age of around 1 year only Claims of on time performance of 94% Centralized operations control with high degree of information for crews; also an advanced weather forecasting system

12. IndiGo Cautious Growth Avoiding reckless growth which Air Deccan had Fleet size of 19; Touches 17 cities; Deccan with similar fleet touched 43 Ordered 100 planes with deliveries till 2016; Business plans formulated till then and full attempts not to tinker with it

13. JetLite 100 per cent subsidiary of Jet airways. Positioned as a value carrier between a full service airline and a low cost carrier. It will have less frills with economy class details. At the same time, frequent fliers scheme will be extended to JetLite .

14. Fleet of same aircraft

15. Airlines No. of aircrafts No. of Flights (daily) Utilization of aircraft (Flights/Aircraft) Average fleet age (in years) Air India 108 - - 11.9 Jet Airways 87 400 4.597 4.5 Kingfisher Airlines 75 218 2.906 2.2 JetLite 24 250 10.416 6.5 Sweating its assets

16. No Frills

17. Online booking and IVR ticketing Eliminates the need for commissions payable to middlemen. Obviates the need of ticketing agents and additional workers, thus cutting down the wage bill. The paperwork associated with transactions is considerably reduced. The tickets are sent online to the email address of the customer and the customer can get a printout of the ticket himself. Cuts the cost of transactions resulting in lower ticket prices.

18. The tickets are priced according to the availability and demand of tickets. The marginal cost of flying an additional customer is very low. Thus , JetLite tries to maximize its revenue. It earns its revenues not only from the sale of tickets but also from the sale of food items and any other service for which it charges over and above the price of the ticket. Dynamic Pricing

19. Advertising revenues

20. Low cost or Value carrier ??

21. CORPORATE STRATEGY AND CUSTOMER FOCUS

22. Quick turnaround of aircraft that average around 25 minutes. Uses only state-of-the-art Airbus A320 Aircraft fleets 


23. DELIVERING VALUE TO CUSTOMERS Easy Booking : GoTravel Agents, GoTata Indicom Outlets, GoInlott outlets, GoCyber café and GoPCOs. Bookings without Passenger Service Fee (PSF) and any applicable Fuel surcharge.

24. HUB MODEL Emulates point-to-point strategy of South West Airlines first increases flights in the existing network spreads costs across different overheads. It utilize crew, fuel and aircraft more. Used mostly in metros and Tier-2 Higher income levels : higher occupancy rate Better infrastructure

25. RED EYE OPERATIONS Usually operate during the period from 9:00 p.m. to 5:00 a.m. local time. higher utilization of resources Attracts traffic especially from SMEs and business travelers Decreases rush during peak hours by diverting traffic Lower fares Satisfies unique customer need

26. SLOW FLEET EXPANSION PROGRAMME Conservative approach Plans to get rid of leased aircraft by 2011 Current prices are too high

27. FREQUENCY ENHANCEMENT PROGRAMME Adding flights to its to its existing network There is demand for increased frequency in Metros and Tier-2 cities Added two new aircraft in 2007:doubled current flight operations At this time consistent load factor was more than 80%

28. FLEXI-FARE Unlimited changes in its travel itinerary free of cost Cut cancellation charges to Rs. 200 on all GoFlexi bookings Targeting frequent-flying business passengers Allows cancellation/rescheduling upto hours before scheduled departure Transfer to customers credit account incase of difference between new and original fare

29. GoComfort Reasons High fuel prices, Intense competition Weak growth in price-sensitive demand positioned between LCCs and full service carriers FEATURES Better leg space: pitch between two rows increased to 34" Comfort seating: middle seat is always free Priority check in Reschedule travel plans at no extra cost Complimentary F&Bs Aims to increase repeat business travel

30. COMPARATIVE ANALYSIS Repositioning to Value Carrier Airlines Kingfisher Red GoAir to GoComfort JetLite A result of rising ATF prices, losses, cash crunches, low rise in price-sensitive demand

31. AIRLINE TYPES OF AIRCRAFTS JetLite Boeing 737 series and Canadian Regional Jets 200 Series. GoAir Airbus A320s (leased and purchased) SpiceJet Boeing 737-800 Boeing 737-900 Indigo Airbus A320 AirDeccan/Kingfisher Red 48 and 72 seater ATRs on the regional routes and the 180-seater A320 on the trunk routes. 2. Fleet Of Aircraft Utilized

32. AIRLINE MODEL ADOPTED JetLite Point to point between metros, hub-n-spoke for non-metros to metros and vice-versa or between non-metros GoAir Hub/Point-to-point model SpiceJet Point-to-point, and regional hub-n-spoke Indigo Point-to-point model AirDeccan/Kingfisher Red Hub-n-spoke model 3. Models adopted

33. Low cost v/s low fare Spice Jet has lowest unit cost at 6.2 cents per ASK; Comparable with Southwest, Easy Jet, and Jet Blue. Twice that of Air Asia with unit cost of 3 cents per ASK. Usually, LCCs provide point-to-point service while FSCs work on hub-and-spoke system. Air Deccan has deviated from the LCC business model ; has a hub-and-spoke model to connect metros with towns. This has increased its costs. Bill Franke , Managing Director of leading airline investment firm Indigo Partners – “There is not a single airline in India that operates a true low cost structure, only low-fare and low-margin.”

34. Is the LCC business model in India sustainable? Low-fare airlines have common features. Easy to replicate and are integral to LCC in India. As a result, they do not offer a sustainable competitive advantage. Typically, a low-fare airline chooses routes that are not already operated by other low-fare airlines. Head-on competition -> price war -> benefits consumers -> not profitable to the airlines. Government has to improve airport infrastructure if this model is to succeed. Increase in air traffic not matched with the increase in the infrastructure; leads to long halts and waiting of these planes, delays besides loss of precious air fuel.

35. Shorthaul services impose cost disadvantages. Quick turnarounds to achieve high utilization become critical. Air fuel constitute the largest share of expenses. The under-developed commodity hedging market puts a stumbling block on these companies to hedge against fluctuating prices of air fuel. The cost of procuring new fleet. Aircrafts need to have at least 80% occupancy of seats to be viable in long run. Must explore low-cost routes, less time taking routes, rather than hauling on the same popular routes, if they wish to remain viable in long run. Requirement for trained commanders to operate these flights. Severe demand supply gap -> price hike -> increasing cost.

36. Future Outlook Chased market share, i.e., revenue maximization and forced the incumbents to match their low prices. While revenue maximization is a good short term strategy to enter the market, sooner or later, LCCs have to be become profitable. 2 outcomes — either they go bust in a market shake-out or they merge/get acquired by other airlines. Near term challenges Realizing the benefits of the consolidations. Realigning their competitive strategies to become profitable. Pursuing aggressive cost reduction. The availability of capital. Constraints due to poor infrastructure for aviation in India. Not new among foreign low-cost carriers; have either merged or sold off their business due to long-run un-sustainability.