Sectoral analysis - The Civil Aviation Industry in India


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MBA, PGDM - Business Design project, 2nd Trimester, 2010.
This project involved extensive primary and secondary research and analysis conducted over 2 months. Information was obtained from airline officials, social networks, passengers & frequent flyers worldwide, aviation authorities, and the Ministry of Civil Aviation in India, apart from extensive online research of the Global aviation industry.

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Sectoral analysis - The Civil Aviation Industry in India

  1. 1. Civil Aviation Sector Analysis
  2. 2. Q The History of Civil aviation Q History of Commercial Aviation Q The Indan Aviation Sector Q Pioneers of the Commercial Aviation Industry Q The Stakeholders Q Value Offerings QDistribution Channels QSupply Chain QRegulatory Authorities QCurrent & Upcoming trends QAdvertising Agencies & Financial Cos. QConventional v/s Unconventional Business Models Q References
  3. 3. December 17, 1903 , Orville and Wilbur Wright introduced to the world the principle of controlled, powered flight. Their Wright Flyer cost less than a thousand pounds to build, and although its first flight only covered a distance of 120 feet, a billion- dollar industry was born.
  4. 4. Airships The first aircraft to make routine controlled flights were non-rigid airships In 1929 the Graf Zeppelin made a complete circumnavigation of the globe, The "Golden Age" of the airships ended on May 6, 1937 after the Hindenburg disaster. Airships have seen only niche application since that time
  5. 5. The Douglas DC-3, was the first airliner that was profitable carrying passengers exclusively, starting the modern era of passenger airline service.
  6. 6. Passenger travel goes Supersonic! The Aérospatiale- British Aircraft Corporation Concorde – a turbojet-powered supersonic passenger airliner. The development project was an international treaty between Britain and France First flown in 1969, entered service in 1976 and continued commercial flights for 27 years.
  7. 7. Big, Bigger, Biggest! The Airbus A380 is the first aircraft with a capacity larger than that of the 747. The Superjumbo has two passenger decks extending the full length of the fuselage, as well as a full-length lower third deck for cargo. Seating Capacity: 525 – 853 1970 - first flight of the Boeing 747, a.k.a. Jumbo Jet The world’s 1st first double- deck jet airliner. Top deck is smaller than the main level. Seating Capacity: 416 - 524
  8. 8. History of the Airline Industry The world's first airline  DELAG, (Deutsche Luftschiffahrts- Aktiengesellschaft) Founded November 16, 1909, Germany Operated airships manufactured by The Zeppelin Corporation.
  9. 9. The Common-man’s Airline The budget flight revolution began in America with Southwest Airlines in Dallas, Texas, 1973 Southwest Airlines, JetBlue, AirTran Airways, Skybus Airlines and other low-cost carriers begin to pose a serious challenge to the "legacy airlines“. India's first low cost airline, Air Deccan launched in 2003.
  10. 10. The Birth of Indian Aviation The First commercial flight in India– --The year: February 18, 1911 --The Pilot: Monseigneur Piguet --The Route: Allahabad to Naini, distance of approx. 10 km. The first flight in the history of Indian aviation— --The year: 1932 --The Pilot: JRD Tata --The Aircraft:De Havilland Puss Moth, Tata Aviation Services. --The route: Karachi to Delhi
  11. 11. Commercial Aviation in India - Timeline Landmarksin Indian Aviation History India's first lowcost airline, Air Deccan launched First commercial flight in India (18/2/1911) Beginning of Indian Aviation Industry 1st flight byan Indian -JRD Tata (15/10/1932) Air India International formed 1st International flight - AI Intl.(Bom-Lon) All Domestic services brought under Indian Airlines The Air Corporations Act, 1953 - Airlines nationalised Jet Age begins -1st Boeing 707-420 bought byAI India’s first Boeing 747- 200B bought byAI Repeal of Air Corporations Act,1953 - newdomestic carriers emerge 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
  12. 12. The Jet age in India! 1960, Indian aviation enters the Jet Age : -- 1st Boeing 707-420, “Gauri Shankar” bought by Air India International.
  13. 13. Commercial Aviation in India – Statistics Q 43.29 million  Domestic Passenger Base. (4th highest in the world, after US, China, Japan.) Q 15  No. of scheduled passenger airline operators. Q 400 total no. of aircraft. Q 82  Total no. of Airports in India. Q 706  No. of International flights per week. Q 69  Foreign airlines, 49 countries. Q 103  countries India has Bilateral air services agreement with. Source:
  14. 14. 26% 20% 19% 16% 13% 6% Jet Airways & Jet Lite Kingfisher NACIL IndiGo Spice Jet GoAir Current market share of Indian carriers in the domestic aviation market Source:
  15. 15. Pioneers of the Indian Aviation Industry Jehangir Ratanji Dadabhoy Tata Known as the father of Indian civil aviation. One of the first Indians to be granted a commercial pilot licence. Founded India's first commercial airline, 'Tata Airlines', in 1932, which in 1946 became Air India. In 1948, JRD Tata launched Air India International as India's first international airline. In 1953, appointed as Chairman of Air-India and a director on the Board of Indian Airlines - a position he retained for 25 years.
  16. 16. Pioneers of the Indian Aviation Industry Capt. Gorur Ramaswamy Gopinath Considered the father of low cost air travel in India His dream was to enable "every Indian to fly at least once in his lifetime." Observed that nobody in India was targeting the middle class as consumers for aviation 2003 - Launched India's first low cost airline, Air Deccan. September 24, 2003, first Air Deccan flight took off from Hyderabad to Vijayawada
  17. 17. Pioneers of the Global Aviation Industry Herb Kelleher Co-founder, Chairman Emeritus and former CEO of Southwest Airlines  Kelleher and one of his law clients, Rollin King, created the concept on a cocktail napkin in a San Antonio, Texas restaurant. From its birth in 1971 Southwest has succeeded by daring to be different: offering low fares to its passengers by eliminating unnecessary services During his tenure as CEO of Southwest, Kelleher's colorful personality created a corporate culture which made Southwest employees well-known for taking themselves lightly—but their jobs seriously
  18. 18. Ref. to Mindmap
  19. 19. “Look at what the competition is doing, and do the opposite” Strategy canvas of Virgin America vis-à-vis Southwest Airlines and Regular fare airlines in the US.
  20. 20. Value Parameters Q Safety Q Pricing Q Comfort Q In-flight Service & hospitality Q On- Ground Facilities (Lounges, business centres etc. for privilege customers) Q Frequency Q On-time Performance Q Convenient operations (e.g. check-in, booking/cancellation, website, customer support, luggage, transfers, airport formalities, etc.)
  21. 21. 0 1 2 3 4 5 6 7 8 9 10 Offerings Factors of Competition Strategy Canvas for Regular-fare Airlines Kingfisher Jet Air India Indian Airlines
  22. 22. 0 1 2 3 4 5 6 7 8 9 10 Offerings Factors of Competition Strategy Canvas of Low-cost Airlines Kingfisher Jet Lite IndiGo Spicejet GoAir Regular cost carriers
  23. 23. Competitors’ additional offerings Frequent flyer rewards Student schemes Exclusive First class service State-of-the-art technology (Eg. Airbus A380) Travel Insurance / Insurance for lost baggage Business / First class lounges at airport Childrens’ center
  24. 24. Affordable Flying
  25. 25. Comfort
  26. 26. On-time performance
  27. 27. In-flight service
  28. 28. Convenient operations
  29. 29. International operations
  30. 30. “The Kingfisher Airlines family will consistently deliver a safe, value-based and enjoyable travel experience to all our guests.” - Welcome aboard an airline where warm Indian hospitality flawlessly blends with international expertise. –Jet Airways IndiGo team uses all of its resources to design processes and rules that are safe and simple, that make sense, and that cut waste and hassles, which in turn ensures a uniquely smooth, seamless, precise, gimmick-free customer experience at fares that are always affordable. GoAir is positioned as ‘The Smart People's Airline’. Its captivating theme, ‘Fly Smart’ is aimed at offering passengers a consistent, quality-assured and time-efficient service. With a dynamic fare structure, SpiceJet offers fares that are affordable and significantly lower than most airlines. With contemporary interiors, modern graphics and vibrant colours, SpiceJet is very much like today’s traveler - practical yet stylish. Airline Value Statements
  31. 31. Friendly Competition???
  32. 32. THEN NOW The Evolution
  33. 33. Multi-channel Distribution DIRECT INDIRECT Airport Ticket counters Mobile Ticketing Airlines’ Website Ticketing Offices Partner Sites Online Travel Portals Global DistributionSystem Telecom Operators Travel Agents Corporate Tie-Ups Call Center Sales Codesharing Partners Travel Package Deals
  34. 34. Airline Customer Distribution Chain
  35. 35. Travel Agents Airline GDS Website User Call Center Partner Websites
  36. 36. Airline User Mobile Ticketing Website Airport Counter Airline Sales Office Direct Sales
  37. 37. Airlines Users Websites Co. Travel Desk Travel Agents GDS Corporate Sales
  38. 38. Yield Management Systems Strategic control of inventory to sell it to the right customer at the right time for the right price. Used when the resources available for sale are of a fixed amount and are perishable When the aircraft departs, the unsold seats cannot generate any revenue and thus can be said to have perished. Airlines use a software to monitor how seats are being reserved and react accordingly, e.g. by offering discounts when it seems probable that seats will remain unsold.
  39. 39. Ministry of Civil Aviation AAI DGCA BCAS AERA ICAO Civil Aviation - Regulatory Authorities
  40. 40. • Responsible for regulation of air transport services to/from/within India.Regulatory body •Primarily dealing with safety issues. Safety • Enforcement of civil air regulations, air safety, and airworthiness standards. Standards & Enforcement • Also co-ordinates all regulatory functions with the International Civil Aviation Organisation (ICAO). International coordination • Licensing of pilots, aircraft maintenance engineers, flight engineers, ATCs, and conducting examinations and checks Licensing & Certification The Directorate General of Civil Aviation (DGCA)
  41. 41. Initially set up as a Cell in the Directorate General of Civil Aviation (DGCA) in January 1978 Reorganized into an independent department on 1st April , 1987 under the Ministry of Civil Aviation Main responsibility - to lay down standards and measures pertinent to security of civil flights at International and domestic airports in accordance with ICAO Guidelines. Coordinate, monitor, inspect and train personnel in Civil Aviation Security matters. 4 Regional Offices located at International airports i.e. Delhi, Mumbai, Kolkata and Chennai. Bureau of Civil Aviation Security (BCAS)
  42. 42. Airports Authority of India (AAI) • Of international and domestic airports and civil enclaves. (Includes passenger info systems) Design, Development, Operation, Maintenance • Control and Management of the extending beyond the territorial limits of the country. Indian airspace • Expansion and strengthening Runways, Taxiway etc. Operation area • Provision of Communication and Navigation aids, viz. ILS, DVOR, DME, Radar etc. Communication and Navigation Founded, 1st April 1995
  43. 43. Airports Economic Regulatory Authority (AERA) The Airports Economic Regulatory Authority (AERA) is a statutory body constituted under the Airports Economic Regulatory Authority of India Act, 2008. Functions: To determine the tariff for the aeronautical services taking into consideration the capital expenditure incurred and timely investment in improvement of airport facilities. The service provided, its quality and other relevant factors. The cost for improving efficiency. Economic and viable operation of major airports. To monitor the set Performance Standards relating to quality, continuity and reliability of service.
  44. 44. International Civil Aviation Organization (ICAO) Specialized agency of the United Nations, HQ in Montreal, Canada Sets standards and recommended practices concerning air navigation, its infrastructure, facilitation of border-crossing procedures for international civil aviation. Defines the protocols for air accident investigation • Procedures for Air Navigation ServicesPANS • Standards and Recommended PracticesSARPs • Regional Supplementary ProceduresSUPPs
  45. 45. International Air Transport Association (IATA) The International Air Transport Association (IATA) HQ - Montreal, Canada. Represents 230 airlines - 93% of scheduled international air traffic. 150+ countries, 101 offices around the globe. Assigns 3-letter IATA Airport Codes and 2-letter IATA airline designators, which are commonly used worldwide. Worldwide accreditation of travel agents. Over 80% of airlines' sales come from IATA accredited agents. Publishes standards for use in the airline industry. The Bar Coded Boarding Pass (BCBP) - 2-Dimensional (2D) bar code printed on paper boarding passes or sent to mobiles phones for electronic boarding passes.
  46. 46. Acts Governing the Civil Aviation Sector in India • An Act to make better provision for the control of the manufacture, possession, use, operation, sale, import and export of aircraft. THE AIRCRAFT ACT, 1934 • An Act for the better administration and management of airports and civil enclaves where air transport services are operated and of all aeronautical communication stations. THE AIRPORTS AUTHORITY OF INDIA ACT, 1994 • An Act for the implementation of certain rules relating to international carriage by air signed at Warsaw in 1929, to non-international carriage by air THE CARRIAGE BY AIR ACT, 1972 • An act pertaining to offences committed on board an Aircraft • Any act or omission taking place on board an Indian registered aircraft while in flight outside India which, would constitute an offence under any law in force in India. THE TOKYO CONVENTION ACT, 1975 • Anyone who seizes or exercises control of an aircraft in flight, unlawfully, by force or any other form of intimidation, commits the offence of hijacking. • The offender punished with life imprisonment and shall also be liable to fine. THE ANTI-HIJACKING ACT, 1982 • An Act for the Suppression of Unlawful Acts against the Safety of Civil Aviation THE SUPPRESSION OF UNLAWFUL ACTS AGAINST SAFETY OF CIVIL AVIATION ACT, 1982 • An act to provide for the establishment of an AERA to regulate tariff and other charges for the aeronautical services rendered at airports and to monitor performance standards of airports. THE AIRPORTS ECONOMIC REGULATORY AUTHORITY OF INDIA ACT,2008
  47. 47. The road to recovery The number of travellers taking to the skies jumped 10.1 percent in October, according to figures released November 25 by the International Air Transport Association (IATA). People are flying five percent more than they were before the economic crisis. air-travel-continues-to-grow-2143719.html Region % increase in demand compared to October 2009 Middle East 18% Africa 13.3 North America 12.4% Europe 9.6% Asia Pacific 7.3% Latin America 4.9%
  48. 48. Liberalization and Privatisation Global air transport industry has moved away from government control and ownership towards deregulation and private ownership , last 25 years. Following deregulation of U.S. airline industry in the late 1970s, leading to lower fares and higher, improved productivity. Alongside, another trend of privatization of government owned airlines designated by a country’s government to operate international air services e.g. Australia (Qantas Airways), U.K. (British Airways), Germany (Lufthansa) and Japan (Japan Airlines).
  49. 49. Airline Alliances Alliances between various Airlines, Domestic and International Enables its member airlines to offer their customers more services and benefits than any airline can provide on its own. Benefits to flyers --broader route network, opportunities to earn and redeem frequent flyer miles and points across the combined network and more airport lounges. Upcoming – Alliances between Domestic airlines in India. American Airlines British Airways Finnair Iberia Royal Jordanian Cathay Pacific Mexicana Kingfisher Etc. Air France Alitalia Delta Air Lines Kenya Airways KLM Korean Air Etc. Air Canada Continental Lufthansa United Airlines Etc.
  50. 50. More Trends Credit cards offers enabling conversion of reward points into air miles. Co-branded credit cards (Eg. Citibank +Kingfisher Airlines) “Standing room / standing seats on short-haul flights (Eg. Ryanair) Travel Packages (e.g. Kingfisher Holidays) Per-plane tax rather than Air Passenger Duty, i.e. a per-plane duty, where each plane is taxed according to its emissions,
  51. 51. Carbon tax According to the European Union Emissions Trading Scheme (EU ETS) all airline companies with routes entering or operating inside the EU will face a carbon tax. EU, Australia and the United States The solution aims to realize zero carbon emission increases in 2020 and reach an average annual fuel efficiency increase of 1.5 percent between 2009 and 2020. The International Air Transport Association has also set a goal to reduce net CO2 emissions 50% by 2050 as compared to 2005 levels.
  52. 52. Carbon footprint calculator
  53. 53. Anticipated Tech trends
  54. 54. Possible upcoming Technology trends Self service kiosks for boarding, self bag tagging RFID tags for baggage to avoid mishandling Increased use of Mobile and Internet Ticketing, check-in Outsourcing customer service, bookings, etc. to call centres Automated customer service Cloud computing to minimize costs, outsource, and decrease carbon footprint
  55. 55. Above: Using mobile telephone to check in for airline flight boarding pass
  56. 56. The Airline: Jet Airways • Claims to have redefined the quality standards of air travel amongst the Indian public, and is looking to expand the brand beyond India. • Spends up to Rs 50 crore per year on marketing • Has increased its budget after it bought and rebranded Sahara into JetLite. The Creative Agency: M&C Saatchi • London-based advertising agency, 10 other offices across Asia, recently Delhi. • Handles Jet Airways’ global advertising business. Other clients - British Airways and Qantas • "This campaign is to communicate and celebrate the changes which are taking place, across the product. This campaign reflects Jet Airways as India's finest international airline.” -Kamal Oberoi, Chaiman and CEO, M&C Saatchi
  57. 57. The Airline: IndiGo • IndiGo, the low budget airline carrier promoted by the travel conglomerate InterGlobe Enterprises, launched a new ad campaign for 2010. • Focus on IndiGo's formidable track record, operational efficiency and clockwork precision. • • 360-degree campaign focused on TV, digital, print and outdoor media. The Creative Agency: Weiden + Kennedy • Based in Portland, Oregon. Has offices all around the world, including Amsterdam, London, New York, Tokyo, Shanghai and Delhi. • The ad was directed by Wieden + Kennedy, and produced by BangBang Films. • The point of our campaign is that only IndiGo ensures that you get from A to B without wasting your time and money” • - V Sunil, executive creative director, Wieden+Kennedy
  58. 58. The Airline: Kingfisher • Over 375 daily flights to 71 destinations, with regional and international services • Frequent use of Ambush Marketing, recently taking on Jet Airways, GoAir & IndiGo • Their previous ad agencies were Equus Red Cell, Rediffusion Y&R Pvt. Ltd The Creative Agency: J Walter Thompson • JWT will now aid in building brand awareness for Kingfisher airlines in selected target markets both in India and abroad. • Provides advertising, market research and public relations services. • Current market leader in India
  59. 59. The Airline: Indian Airlines • State owned domestic airline of India. • Major drop in market share from almost 100% in 1990, to about 30 per cent in 2004 due to emergence of private carriers. • Major brand makeover – changed everything from the name to the Logo, the ticket, the counter, the colour of the floor inside the aircraft, to the uniforms and the standard of service. etc. The Creative Agency: RK Swamy BDDO •Their services include General Advertising, Media Planning & Buying, Oudoor Management, Brand Consultancy, Production of TV Commercials / Audio Visuals / Films / Radio Commercials etc. •Handled the complete makeover- identity change of Indian Airlines to 'Indian, designing of the new logo, brand campaign. •"It was a major challenge to us, to capture the essence of the brand, and to deliver a distinct and bold look. The result is there for all to see.” –Ajit Shah, ED
  60. 60. The Airline: GoAir • Low-cost Airline owned by the Wadia Group • India's first low fare carrier to win the prestigious international award for "Excellent Services" awarded by the Pacific Area Travel Writers Association (PATWA) The Creative Agency: Law & Kenneth •Law & Kenneth is a Delhi-based Ad agency which has worked with companies like Dabur Healthcare, Dabur Foods and Unitech, among others •Tagline of the campaign: 'Chalo India, Let's Fly Smart' , Preity Zinta to be its Brand Ambassador •Aim to position GoAir as a youthful, fun, exciting, energetic, dynamic, vibrant, colourful, on the go, and forward-looking airline for the people of India.
  61. 61. The Airline: SpiceJet • Launched a new brand campaign which communicates their unique brand offerings, crystallized into a clear brand message "Get more when you fly SpiceJet". • While the brand has in the past focused on ‘price point' or ‘promo' driven advertising, • The new "Get More When You Fly" campaign in 2009-10 used major Indian magazines and on radio - nationally. The Creative Agency: Contract (India) •"Get more when you fly SpiceJet" is the first brand campaign for SpiceJet by Contract Advertising Agency. •Working on a national mandate for refining the communication of the brand across all media including outdoor and online. •Won this account in a competitive pitch which included O&M, Bates 101, M&C Satchi, Leo Burnett and Lowe.
  62. 62. Air India Ltd. State-owned flag carrier of India, is working with 4 agencies – Crayons Advertising, Draftfcb+Ulka, Saatchi & Saatchi, Interpub as its creative and media partners. Selected these agencies after a multi-agency pitch. The overall business size is pegged in the region of Rs-50-60 crore. The empanelment is for a period of 3 years. DraftFCB Ulka and Interpub were already on Air India’s roster. All four agencies will be responsible for mix of creative and media duties for the brand which will include ATL and BTL campaigns both.
  63. 63. The Conventional Airline Conventio nal Airline Resources Revenue Streams Ticket sales 3rd Party Loyalty programs Fleet FnB Manpowe r Fuel Partnership s Direct Customer Offerings Reservation s Transfers Lounges Entertainment Food
  64. 64. Southwest Airlines World's first and largest low-cost carrier. The largest U.S. airline by domestic passenger numbers. --US Market share -28.73% Has carried more passengers than any other U.S. airline since August 2006 for combined domestic and international passengers* 3,200 flights daily One of the world’s most profitable airlines, posting a profit for the 37th consecutive year in January 2010. The 15 minute TAT defines all processes, procedures and policies for Southwest Airlines.
  65. 65. The Southwest way Southwest Airlines Low ticket prices all year round Point-to point 15-minute TAT Simplified boarding Vacation Packages Fuel Hedging Single Aircraft type- Boeing 737- Culture sharing Limited passenger services Frequent departures
  66. 66. The LCC model • Have as many seats on board the aircraft as possible • Fill seats as much as possible • Fly the aircraft as often as possible. Optimization • As opposed to the Hub-and-spoke model followed by legacy airlines • Minimize costs Point-to-point services • By having only one aircraft type • Pilots and cabin crew can operate on any aircraft in the fleetSingle type fleet- • Emphasis on direct sales of tickets, especially over the Internet • Avoid travel agency commissions and computer reservation system fees Direct ticketing • Less elaborate on-board service. • Unreserved seatingNo frills • paying a pre-determined price for future jet fuel purchases. • Anticipate future jet fuel prices will be higher than current pricesFuel hedging • Commision-based sales, Advertising in-flightAncillary revenue
  67. 67. The Elitist Revolution Since the mid 80’s the trend in the airline business has been to cut costs. Rather than going the LCC way, Virgin Atlantic chose to redefine the travel experience for business and first-class travellers Positioned itself as a first-class airline focused on providing passengers with fun, class, and comfort. Offers limousine services, lounges featuring spas, rooftop gardens, massage bays, sun-tan booths and hydro-pools! Recently also the first to fly one of its planes using biofuels.
  68. 68. Codesharing & Airline Alliances One of the first airline partnerships was that of KLM & Northwest Airlines. Involves one airline selling tickets for another airline's flights under its own airline code. To expand one's service offerings and to increase sales. Airline alliances have become prevalent since the late 1990s. Coordinate passenger service programs (e.g. lounges and frequent-flyer programs), offer special interline tickets, extensive codesharing (sometimes systemwide). Often the companies combine IT operations, or purchase fuel and aircraft as a bloc.
  69. 69. Almost 15% market share in India Focus on the Experience, high service standard, even in a low cost flight Complimentary meal on all flights. In-flight entertainment system on some flights. Loyalty program and co-branded credit cards Access to the Kingfisher Lounge for privilege customers.
  70. 70. References alliance.aspx
  71. 71. References