Low Cost Carriers BUZZ Section B Image courtesy of Boeing

Airlines “ Once you get hooked on the airline business, it's worse than dope.” “ This is a nasty, rotten business.” “ Air transport is just a glorified bus operation.”

“ Once you get hooked on the airline business, it's worse than dope.”

“ This is a nasty, rotten business.”

“ Air transport is just a glorified bus operation.”

Global Carriers US Ireland Ireland Malaysia Australia Saudi Arabia Singapore Germany UK US Southwest Airlines Ryanair Easy jet AirAsia Virgin Blue Air Arabia Valueair Air Berlin Air Southwest US Airways

US

Ireland

Ireland

Malaysia

Australia

Saudi Arabia

Singapore

Germany

UK

US

Southwest Airlines

Ryanair

Easy jet

AirAsia

Virgin Blue

Air Arabia

Valueair

Air Berlin

Air Southwest

US Airways

World Scenario - Low Cost Airlines The successful low cost airlines are more profitable than established carriers Ryanair has a market capitalisation of about £3 billion Globally, the largest and most successful low cost airline is Southwest in the US Operating Margins of different international airlines: Ryanair Southwest United Airlines Lufthansa Air France KLM British Airways 22.7% 21.8% 11.9% 5.7% 3.5% 1.5% 0.9%

The successful low cost airlines are more profitable than established carriers

Ryanair has a market capitalisation of about £3 billion

Globally, the largest and most successful low cost airline is Southwest in the US

Operating Margins of different international airlines:

Aviation Industry in India : Characteristics Huge Potential Under penetrated market Total Passenger Traffic : 50 million Passenger trips per annum : India : 0.05 United states : 2.02 Untapped air cargo market

Huge Potential

Under penetrated market

Total Passenger Traffic : 50 million

Passenger trips per annum :

India : 0.05

United states : 2.02

Untapped air cargo market

Aviation Industry in India : Characteristics India GDP : 9.6 % per annum Domestic air travel : 20 – 25 % WTTC Travel & Tourism : 8.8 % Over next 10 years Medium Term Growth Forecast :

Aviation Industry in India : Characteristics Constraints : Infrastructure constraints Shortage of airport facilities Parking bays Air traffic control facilities Takeoff and landing slots. Less than 100 airports having more than one daily service.

Constraints :

Infrastructure constraints

Shortage of airport facilities

Parking bays

Air traffic control facilities

Takeoff and landing slots.

Less than 100 airports having more than

one daily service.

Macro Environment Analysis Main Factors : P olitical E conomic S ocio-cultural T echnological Other Factors : Demographic Natural Environment

Main Factors :

P olitical

E conomic

S ocio-cultural

T echnological

Other Factors :

Demographic

Natural Environment

Macro Environment Analysis : Political Open Sky Policy Deregulations in different spheres Low entry barriers FDI limits : 49 % for airlines 100% for airports

Open Sky Policy

Deregulations in different spheres

Low entry barriers

FDI limits :

49 % for airlines

100% for airports

Macro Environment Analysis : Economic Growing middle class income Consistent GDP growth of more than 8% and projected rate in two digits Hike in average salary 14%(highest) in the world Tourism industry growth :8.8 %in 2005

Growing middle class income

Consistent GDP growth of more than 8% and projected rate in two digits

Hike in average salary 14%(highest) in the world

Tourism industry growth :8.8 %in 2005

Macro Environment Analysis : Socio-cultural Growing middle class : 1993-1999 : 39.5 m to 56.7 m households 2005 : 300 m 2010 : 400 m (Estimated) Increase in leisure travel by tourists by 15 % in 2005 Foreign tourists in 2006 : 3.2 mn Status symbol to travel in plane.

Growing middle class :

1993-1999 : 39.5 m to 56.7 m households

2005 : 300 m

2010 : 400 m (Estimated)

Increase in leisure travel by tourists by 15 % in 2005

Foreign tourists in 2006 : 3.2 mn

Status symbol to travel in plane.

Macro Environment Analysis : Technological Modernization & Privatization of Airports Modern Technology for efficient handling of aircraft, passenger and cargo. Example : ILS, CAT-3 Developing Greenfield Airports with Private Sector Example : Bangalore Airport Corporation Ltd.

Modernization & Privatization of Airports

Modern Technology for efficient handling of aircraft, passenger and cargo.

Example : ILS, CAT-3

Developing Greenfield Airports with Private Sector

Example : Bangalore Airport Corporation Ltd.

Macro Environment Analysis : Demographic and Natural Changing pattern of consumers Highest percentage people of age group 20-25 Educational environment Shift towards family concept High energy cost

Changing pattern of consumers

Highest percentage people of age group 20-25

Educational environment

Shift towards family concept

High energy cost

Low Cost Carriers in India Air Deccan SpiceJet IndiGo Airlines Go Air Jetlite (Formerly known as Air Sahara)

Air Deccan

SpiceJet

IndiGo Airlines

Go Air

Jetlite (Formerly known as Air Sahara)

Business Model of Low Cost Carriers A single Passenger class A single type of airplane reducing training and service cost No frills such as free food/drinks, lounges etc. Emphasis on direct sale of ticket through Internet avoiding fee and commission paid to travel agents. Employees working in multiple roles Unbundling of ancillary charges to make the Headline fare lower

A single Passenger class

A single type of airplane reducing training and service cost

No frills such as free food/drinks, lounges etc.

Emphasis on direct sale of ticket through Internet avoiding fee and commission paid to travel agents.

Employees working in multiple roles

Unbundling of ancillary charges to make the Headline fare lower

Aviation Industry in India : Market Share

Market Share in LCC Segment

Airline Industry in India : Service Vs Price Graph S E R V I C E P R I C E

Air Deccan Come SIMPLIFLY With Us… Market Share : 21.2 % Image courtesy of Air Deccan

Market Share : 21.2 %

Vision and Mission Vision : Empower every Indian to fly Mission : To demystify air travel in India by providing reliable, low cost and safe travel to the common man by constantly driving down the air fares as an ongoing mission

Vision :

Empower every Indian to fly

Mission :

To demystify air travel in India by providing reliable, low cost and safe travel to the common man by constantly driving down the air fares as an ongoing mission

Marketing Strategy Common Man : The Brand Ambassador for Air Deccan, the people’s airline is Mr. R.K Laxman’s ‘ Common Man ’ Free Tickets : Images courtesy of Air Deccan

Common Man :

The Brand Ambassador for Air Deccan, the people’s airline is Mr. R.K Laxman’s ‘ Common Man ’

Free Tickets :

Marketing Strategy Advertisement through print, radio and billboards In flight magazine for revenue generating In flight shopping scheme called “Brand for less” – AVA Merchandising Tie-up with Café Coffee Day ICICI-Travel agent purchase card Tie-ups with HPCL and Reliance Web World

Advertisement through print, radio and billboards

In flight magazine for revenue generating

In flight shopping scheme called “Brand for less” – AVA Merchandising

Tie-up with Café Coffee Day

ICICI-Travel agent purchase card

Tie-ups with HPCL and Reliance Web World

How Air Deccan cuts cost? Quicker turnaround time Lower distributions costs All economy seating configuration No free catering on board Alternative revenue channels 100% web enabled bookings – e ticketing Enhanced cash flow management

Quicker turnaround time

Lower distributions costs

All economy seating configuration

No free catering on board

Alternative revenue channels

100% web enabled bookings – e ticketing

Enhanced cash flow management

SWOT Analysis Strengths : Leader in LCC segment : First to target the middle class : First mover advantage Highest load efficiency Flies to destinations in the hinterland A ‘Lean-and-Mean’ approach to staffing

Strengths :

Leader in LCC segment :

First to target the middle class : First mover advantage

Highest load efficiency

Flies to destinations in the hinterland

A ‘Lean-and-Mean’ approach to staffing

SWOT Analysis Weaknesses : Focuses mostly on South Indian market Image plagued by frequent breakdowns and near misses Very limited advertising Reached at the threshold of cost efficiency

Weaknesses :

Focuses mostly on South Indian market

Image plagued by frequent breakdowns and near

misses

Very limited advertising

Reached at the threshold of cost efficiency

SWOT Analysis Opportunities : Extensive network to capitalize Air Cargo business Plenty of scope for expansion of operations Strengthen its position in Chartered flight segment Could start ‘Contractual Employment’

Opportunities :

Extensive network to capitalize Air Cargo

business

Plenty of scope for expansion of operations

Strengthen its position in Chartered flight

segment

Could start ‘Contractual Employment’

SWOT Analysis Threats : High attrition rate The threat of new entrants into Low Price Segment especially IndiGo, Go Air and SpiceJet High Risk Perception

Threats :

High attrition rate

The threat of new entrants into Low Price Segment

especially IndiGo, Go Air and SpiceJet

High Risk Perception

SpiceJet flying for everyone Market Share : 6 % Image courtesy of SpiceJet Source : http://www.airteamimages.com

Market Share : 6 %

Vision and Mission Vision : To ensure that flying is no longer only for CEOs and business travelers, but for everyone Mission : To become India’s preferred low-cost airline, delivering the lowest air fares with the highest consumer value, to price sensitive consumers

Vision :

To ensure that flying is no longer only for CEOs and business travelers, but for everyone

Mission :

To become India’s preferred low-cost airline, delivering the lowest air fares with the highest consumer value, to price sensitive consumers

Marketing Strategy Entered with Rs. 99 fares for first 99 days offering ‘low everyday spicey fares’ Aims to compete with Indian Railway’s AC segment Aims at future fleet expansion to increase market share

Entered with Rs. 99 fares for first 99 days offering ‘low everyday spicey fares’

Aims to compete with Indian Railway’s AC segment

Aims at future fleet expansion to increase market share

Challenges Small fleet structure Small load efficiency compared to Air Deccan Competition with new entrants Market share of East-central India High attrition rate

Small fleet structure

Small load efficiency compared to Air Deccan

Competition with new entrants

Market share of East-central India

High attrition rate

GoAir The People’s Airlines – to FLY SMART Market Share : 2 % Image courtesy of GoAir

Market Share : 2 %

Strengths and Weaknesses Strengths : Promoted by Wadia group GoAir FreeFares Weaknesses : Small network : Only in Southern and Western India Small fleet structure Load efficiency

Strengths :

Promoted by Wadia group

GoAir FreeFares

Weaknesses :

Small network : Only in Southern and Western India

Small fleet structure

Load efficiency

IndiGo Always affordable, no gimmicks, hassle free Market Share : 0-1% Image courtesy of IndiGo

Market Share : 0-1%

Marketing Strategy Focuses on One thing : One type of airplane, fare, customer service, route etc. Uses new Airbus A320-200 aircraft Efficient processes

Focuses on One thing :

One type of airplane, fare, customer service, route etc.

Uses new Airbus A320-200 aircraft

Efficient processes

An Example Images courtesy of www.chillnite.com

Current Trends : Consolidations All Around Kingfisher-Air Deccan Deal Kingfisher buys out 26 % stake for Rs.550 crore. They have combined Market share of 33% They are second biggest player after Jet Sahara deal Jet airways and Air Sahara merger Air Sahara name changed to JetLite

Kingfisher-Air Deccan Deal

Kingfisher buys out 26 % stake for Rs.550 crore.

They have combined Market share of 33%

They are second biggest player after Jet Sahara deal

Jet airways and Air Sahara merger

Air Sahara name changed to JetLite

Future Trends The projection for Indian Aviation for 2020 is estimated at: 400 million passengers Including 180 million domestic passengers 1,000 aircraft in the civil aviation sector Likely to follow the footholds of International Low Price Carriers e.g. Air Arabia, Southwest Airlines etc. More emphasis will be on Arabian and South-East Asian circuits.

The projection for Indian Aviation for 2020 is estimated at:

400 million passengers

Including 180 million domestic passengers

1,000 aircraft in the civil aviation sector

Likely to follow the footholds of International Low Price Carriers e.g. Air Arabia, Southwest Airlines etc.

More emphasis will be on Arabian and South-East Asian circuits.

Future Trends : Passenger Forecast Source : www.civilaviationweek.com

Future Trends : Proposed Addition Source : www.civilaviationweek.com

Thank You Jai Prakash Mundhra -071221 Kamal Agarwal -071222 Kartik Rawal -071223 Kaushal Dixit -071224 Ketan Mardikar -071225 Image courtesy of Boeing

Jai Prakash Mundhra -071221

Kamal Agarwal -071222

Kartik Rawal -071223

Kaushal Dixit -071224

Ketan Mardikar -071225

References http://www.wikipedia.org http://www.flyairdeccan.net http://www.goair.in http://www.spicejet.com http://www.hinduonline.com http://www.civilaviationweek.com http://www.businesstravelindia.com http://www.yahoo.com http://civilaviation.nic.in http://www.skygod.com /quotes/ http://www.flykingfisher.com http://www.goindigo.in http://indiaaviation.aero

http://www.wikipedia.org

http://www.flyairdeccan.net

http://www.goair.in

http://www.spicejet.com

http://www.hinduonline.com

http://www.civilaviationweek.com

http://www.businesstravelindia.com

http://www.yahoo.com

http://civilaviation.nic.in

http://www.skygod.com /quotes/

http://www.flykingfisher.com

http://www.goindigo.in

http://indiaaviation.aero