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Please fasten your seat belts

1/9/2014

Presented By:
Apoorva Kulshreshtha (1003)
Vipul Aurange (1005)
Bhaswati Chakraborty (1007)
Vishal Dhangar (1010)
Paul Anto (1027)
1
Objectives
• To study what is actually bringing AirAsia to
Indian markets and why it can sustain.
• To formulate strategies; which will help AirAsia
(i) to get an edge over other Indian low cost
airlines like Indigo, SpiceJet and (ii) serve uncatered market segment.
• To assess possible challenges AirAsia can face
in India.
2
Research Methodology
• Descriptive
– Qualitative

• Secondary Research
– Articles reviews, news, case studies
– Report of DGCA, International
Association

Airport

Transport

3
Indian Aviation Industry
overview
• India is currently the 9th largest aviation
market
• Handling 121 million domestic and 41 million
international passengers
• More than 85 international airlines operate to
India and 5 Indian carriers connect over 40
countries.

4
• Total domestic passengers carried by the scheduled domestic airlines between
January and May 2013 were 25.998 million, as against 25.808 million during the
corresponding period of previous year thereby registering a growth of 0.74 per
cent(DGCA)
• No-frill carrier IndiGo lead in terms of market share with 29.7 per cent of the pie,
followed by Jet Airways-Jet Lite combine at 25.3 per cent, Air India Domestic at
19.2 per cent, Spice Jet at 17.5 per cent, and Go Air at 8.3 per cent for the month
of July 2013.
• The air transport (including air freight) in India has attracted foreign direct
investment (FDI) worth US$ 456.84 million from April 2000 to July 2013, as per the
data released by Department of Industrial Policy and Promotion (DIPP).
1/9/2014

5
Market
Share

6
About AirAsia India
• Indian-Malaysian low cost carrier
• Announced on 19 February 2013,
• The airline would be operated as a joint
venture between AirAsia holding 49% , Tata
Sons holding 30% and Amit Bhatia taking up
the remaining 21% in the airline.

7
Vision Statement
To be the largest low cost airline in Asia and serving the 3 billion people
who are currently underserved with poor connectivity and high fares.

Mission Statement
• To be the best company to work for whereby employees are treated as
part of a big family.

• Create a globally recognized ASEAN brand.
• To attain the lowest cost so that everyone can fly with Air Asia.
• Maintain the highest quality product, embracing technology to reduce
cost and enhance service levels.

1/9/2014

8
Key Strategies
• Safety First
•High Aircraft Utilization
•Low Fare, No Frills
•Streamline Operations
•Lean Distribution System

•Point to Point Network
1/9/2014

9
Political
• Open sky policy/ deregulation (+)
• FDI limits(+)
• Unstable government policies (-)

Economical
• Growing middle class income (+)
• Expected GDP growth (+)
• Hike in average income (+)
• Growth in tourism 9% (+)
• Rising ATF price (-)
• High airport fees (-)

1/9/2014

10
Socio – cultural
• Growing middle class (+)
• Domestic leisure travel (+)
• Foreign tourist (+)
• Status symbol (+)
• Security issue and terrorism (-)

Technological
• Modernized airports (+)
• Greenfield airports (+)
• Online ticket booking (+)
• Video conferencing (-)

1/9/2014

11
Threat of entry – low
• Requirement of local permit
• No objection certificate from the aviation ministry and approval from foreign investment
promotion board
• Enhancement of the minimum paid-up equity capital requirement

Power of suppliers – moderately high
• Duopoly in market (Boeing and airbus) in aircraft market leaving low bargaining power with
airlines
• Switch cost to other supplier is high
• Limited supply of suppliers for ATF in India (4 players)

1/9/2014

12
Power of buyers – very high
• Switching cost is minimal because multiple alternatives available. It is not difficult to move
from one airline to another or to switch to a substitute.
• Penetration of internet helped customers to compare different prices of different airline
carriers and go for the best buy.

Threat of substitute – medium
• Indirect substitutes are railways but not powerful as airline score highly in travel time
• Technological upgradation like Video Conferencing
Rivalry among existing competitors – very high
• Very little product differentiation in services
• Intense competition due to many low cost carriers like indigo, spice jet, GoAir, jet airways etc.
• High exit barriers
• Intense price competition due to high fixed cost and low marginal cost.

1/9/2014

13
Strength
• Effective top management
• Strong strategy and execution –plan on fuel hedging, buying low cost airbuses
• Strong brand name and joint venture with TATA, reputed name in INDIA
• Low cost model
• Single type fleet
• First to market with ICT collaboration
• Multi skilled staff – seamless transition with workforce
Weakness
• Limited human resource
• Heavy reliance on IT

1/9/2014

14
Opportunities
• Vast population
• Enormous size and growing middle class
• Can target one million people traveling by train

Threats
• Rising fuel cost
• Rising labour cost
• Regulatory uncertainty of Indian govt

1/9/2014

15
1/9/2014

16
Promotion
Challenges:
• Spreading awareness in untapped market.
• Reaching to first time fliers and educating them.

Strategy:
• Initially costly advertising
• Following competitors.
• Strategies to educate and attract first fliers.
Execution:
• Movies & Music, football, tourism
• Billboards near railway and bus stations
• Tie ups with banks & hotels, social networking , mails & SMS
1/9/2014

17
Marketing
Challenges:
• Low cost already boasted by airlines like Indigo, SpiceJet.
• Hence creating a POD is necessary as well as difficult.
• Failing to keep promise will harm the brand image.
• Targeting untapped market would require educating the customer and hence cost
escalating.
Segmentation:
Geographic, Demographic & Behavioral

Targeting:
• Income groups of 1,50,000 to 6,00,000
• Small & medium businessmen, migratory workforce, tourists
• South India
• Needful of traveling and not so cautious about extra services
• Price oriented and safety conscious
1/9/2014

18
Positioning:
• Positioning only on low cost will not be sufficient.
• On-time and service: hygiene factors
• Connectivity: differentiator or motivational factors

1/9/2014

19
Sales
Challenges:
•
•
•
•

Higher sales means higher occupancy rate.
To gain more first time fliers per year.
To gain more market share to be the market leader.
To choose cost effective yet profitable channels to sell.

Strategies:
•
•
•
•

Contracts with travel agents
Tie ups with tourism agencies
Contracts with organizations
Price reduction by 25% to 30% than competitors

Execution:
• Deliberate distribution of sales targets
• Sales focus on tier II cities
• Separate targets to various channels according to channel and geographical
potential
1/9/2014

20
1/9/2014

21
1/9/2014

22
Objectives

Financial measure

Targets

Initiatives

Revenue growth

Ticket revenue

Increase sales

Penetrating

in

other

domestic routes

Cost reduction

Lesser cost expense

Decrease in cost

Maximize sister company
partnership

Asset utilisation

Lesser cost expense

Increase in service
capacity

1/9/2014

Purchase of
new modern aircraft

23
Objectives

Financial measures

Targets

Initiatives

High customer satisfaction

Customer ranking

To strive for about 100% Feedback and complaints
satisfaction

Reinforce brand image

1/9/2014

Customer ranking

Ranking improvement

Media marketing

24
Objectives

Performance measure

targets

Initiatives

Payment convenience

Payment methods

Increase in sales %

Payment kiosk

Flight meal

Customization of food menu

Increase % of food choices

Food choices varieties

Cost reduction

Operation cost

Decrease in oil consumption Monitoring of international
cost

1/9/2014

oil price change

25
Objectives

Employee

Performance measure

retention

and Employee satisfaction

productivity

Targets

Initiatives

Increase in work efficiency Increase
and

satisfaction

in

in

salary

and

both retirement plan

employees and customers

Improvement in relationship
with labor union

1/9/2014

Decrease in attrition rate

Dropping the criminal charges
against labor union members

26
Fuel hedging:
Foreign currency hedge up to 66% with a weighted average (based on loans
pertaining to aircraft being deployed to India )

Working capital=current assets- current liabilities
=610224-4828745
=-4218521( negative working capital means that the service industry takes time to
repay the debt)

Cost Initiatives
Sharklets on Aircraft
Fuel Savings of approximately 3%
Pushing for LCC Terminal
1/9/2014

27
ATF Prices
Airport Charges

Restricted FDI
Cost Controls
Insurance

Predatory Action by Major Carriers
Undercapitalisation

1/9/2014

28
Revenue per mile = Number of seats occupied * Number of miles * Price per seat

Available seat per mile = Number of seats available * Number of miles * Price per seat

Load factor = Revenue per mile / Available seat per mile

1/9/2014

29
Invest in joint ventures.
• Maintain international development across Asia in association with local budget
airlines.
•

It would increase the airline’s offer.

Diversification
• Acquire new know-how in a view to offer more service to the consumer.
• E.g. To take over an online travel agency.

1/9/2014

30
1/9/2014

31
PROBLEMS

• Huge operating cost
• Capacity utilization
• Service level
1/9/2014

32
• All fleets with LCC service.
• Bring capacity utilization upto 70-80%, NO delay & cancellation of flight.
• Earlier, AIR ASIA was planning routes having low Passenger Load Factor (53%)
.INCREASE PLF TO 65% i.e. industry avg. & then increase to 70-80%.
• Turn Around Targets :Not more than 30MINUTES for A320s

1/9/2014

33
• Fleet selection
• Reduction in cancellation, no frill service for LCC

• MRO (Maintenance, Repair and Operating expenses)
• Luggage
• Airbus-320, ATR-72 will be installed with single-engine
taxiing:

1/9/2014

34
• Shutting down of engines during delays: such as taxi queuing and
standing at the jet way.

• Flying at high altitude has lower air resistance so needs less fuel.
• Redesign hubs/schedules for less congestion—in the air and on the
ground.

• Interline operations agreement

1/9/2014

35
1/9/2014

36
1/9/2014

37
Air Asia India’s competitive advantage is based
on cost leadership
Innovation

Responsiveness

Efficiency

1/9/2014

38
1/9/2014

39
Experienced in dealing with the public
Physically fit with a good attendance record in previous position
Hard working, flexible & willing to operate on a shift roster
Over 18 years of age
Between 5'2 (1.57m) and 6'2 (1.85) in height with weight in proportion
Of normal vision (contact lenses acceptable)
Able to swim well
You must be in possession of a valid passport and have the right to work anywhere in the
world
Fluent in English (both written and spoken)

Prepared to live within one hour's travelling time of any Air Asia base
Ready to meet the challenge of dealing with people and demanding situations
Friendly and outgoing with a lively personality
1/9/2014

40
Check the
prerequisites

Uniform
checks

Water
confidence test

Psychometric
test and attend
a tea party
Direct Entry
through outsourced
Training and
Recruitment

1/9/2014

41
1/9/2014

42
• Outsourced Training and Recruitment
• Multiple skill Training
• Functional Training
• Other Trainings
• Job Rotation

1/9/2014

43
Managerial
Judgment

Delphi
Technique

HR Audit

1/9/2014

44
• “Efficiency" and "functional flexibility" as
key components
• Ground crew can become flight
attendants and vice versa
• Unit crewing
• Operational efficiency

1/9/2014

45
Performance related pay structure

Incentives based on team work

Low Base Pay

1/9/2014

46
Varied job
content

International
accolade

Communication

Fun at work
1/9/2014

47
1/9/2014

48
1/9/2014

49
• A theoretical Framework for determiming the relationship between
competitive strategies and Human Resources practices; Journal of
Naval Science and Engineering 2010, Vol. 6, No. 3, pp. 76 – 87
• “Linking Corporate Strategy and HR Strategy: Implications for HR
Professionals,” In R. Padaki, N.M. Agrawal, C. Balaji and G.
Mahapatra (eds.) Emerging Asia: An HR Agenda, New Delhi: Tata
McGraw-Hill, 2005, pp. 215-223
• http://www.caspianlearning.co.uk/Whtp_caspian_airlines.pdf
• The lowest of low-cost carriers: the case of AirAsia; The
International Journal of Human Resource Management, Vol. 21,
No. 2, February 2010, 197–213
• Reports of DGCA
• Annual Report of Air Asia
1/9/2014

50
Thank You!

NOW EVERYONE CAN FLY
1/9/2014

51

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AirAsia India: Strategies for Next 3 Years

  • 1. We proudly present to you….. Please fasten your seat belts 1/9/2014 Presented By: Apoorva Kulshreshtha (1003) Vipul Aurange (1005) Bhaswati Chakraborty (1007) Vishal Dhangar (1010) Paul Anto (1027) 1
  • 2. Objectives • To study what is actually bringing AirAsia to Indian markets and why it can sustain. • To formulate strategies; which will help AirAsia (i) to get an edge over other Indian low cost airlines like Indigo, SpiceJet and (ii) serve uncatered market segment. • To assess possible challenges AirAsia can face in India. 2
  • 3. Research Methodology • Descriptive – Qualitative • Secondary Research – Articles reviews, news, case studies – Report of DGCA, International Association Airport Transport 3
  • 4. Indian Aviation Industry overview • India is currently the 9th largest aviation market • Handling 121 million domestic and 41 million international passengers • More than 85 international airlines operate to India and 5 Indian carriers connect over 40 countries. 4
  • 5. • Total domestic passengers carried by the scheduled domestic airlines between January and May 2013 were 25.998 million, as against 25.808 million during the corresponding period of previous year thereby registering a growth of 0.74 per cent(DGCA) • No-frill carrier IndiGo lead in terms of market share with 29.7 per cent of the pie, followed by Jet Airways-Jet Lite combine at 25.3 per cent, Air India Domestic at 19.2 per cent, Spice Jet at 17.5 per cent, and Go Air at 8.3 per cent for the month of July 2013. • The air transport (including air freight) in India has attracted foreign direct investment (FDI) worth US$ 456.84 million from April 2000 to July 2013, as per the data released by Department of Industrial Policy and Promotion (DIPP). 1/9/2014 5
  • 7. About AirAsia India • Indian-Malaysian low cost carrier • Announced on 19 February 2013, • The airline would be operated as a joint venture between AirAsia holding 49% , Tata Sons holding 30% and Amit Bhatia taking up the remaining 21% in the airline. 7
  • 8. Vision Statement To be the largest low cost airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares. Mission Statement • To be the best company to work for whereby employees are treated as part of a big family. • Create a globally recognized ASEAN brand. • To attain the lowest cost so that everyone can fly with Air Asia. • Maintain the highest quality product, embracing technology to reduce cost and enhance service levels. 1/9/2014 8
  • 9. Key Strategies • Safety First •High Aircraft Utilization •Low Fare, No Frills •Streamline Operations •Lean Distribution System •Point to Point Network 1/9/2014 9
  • 10. Political • Open sky policy/ deregulation (+) • FDI limits(+) • Unstable government policies (-) Economical • Growing middle class income (+) • Expected GDP growth (+) • Hike in average income (+) • Growth in tourism 9% (+) • Rising ATF price (-) • High airport fees (-) 1/9/2014 10
  • 11. Socio – cultural • Growing middle class (+) • Domestic leisure travel (+) • Foreign tourist (+) • Status symbol (+) • Security issue and terrorism (-) Technological • Modernized airports (+) • Greenfield airports (+) • Online ticket booking (+) • Video conferencing (-) 1/9/2014 11
  • 12. Threat of entry – low • Requirement of local permit • No objection certificate from the aviation ministry and approval from foreign investment promotion board • Enhancement of the minimum paid-up equity capital requirement Power of suppliers – moderately high • Duopoly in market (Boeing and airbus) in aircraft market leaving low bargaining power with airlines • Switch cost to other supplier is high • Limited supply of suppliers for ATF in India (4 players) 1/9/2014 12
  • 13. Power of buyers – very high • Switching cost is minimal because multiple alternatives available. It is not difficult to move from one airline to another or to switch to a substitute. • Penetration of internet helped customers to compare different prices of different airline carriers and go for the best buy. Threat of substitute – medium • Indirect substitutes are railways but not powerful as airline score highly in travel time • Technological upgradation like Video Conferencing Rivalry among existing competitors – very high • Very little product differentiation in services • Intense competition due to many low cost carriers like indigo, spice jet, GoAir, jet airways etc. • High exit barriers • Intense price competition due to high fixed cost and low marginal cost. 1/9/2014 13
  • 14. Strength • Effective top management • Strong strategy and execution –plan on fuel hedging, buying low cost airbuses • Strong brand name and joint venture with TATA, reputed name in INDIA • Low cost model • Single type fleet • First to market with ICT collaboration • Multi skilled staff – seamless transition with workforce Weakness • Limited human resource • Heavy reliance on IT 1/9/2014 14
  • 15. Opportunities • Vast population • Enormous size and growing middle class • Can target one million people traveling by train Threats • Rising fuel cost • Rising labour cost • Regulatory uncertainty of Indian govt 1/9/2014 15
  • 17. Promotion Challenges: • Spreading awareness in untapped market. • Reaching to first time fliers and educating them. Strategy: • Initially costly advertising • Following competitors. • Strategies to educate and attract first fliers. Execution: • Movies & Music, football, tourism • Billboards near railway and bus stations • Tie ups with banks & hotels, social networking , mails & SMS 1/9/2014 17
  • 18. Marketing Challenges: • Low cost already boasted by airlines like Indigo, SpiceJet. • Hence creating a POD is necessary as well as difficult. • Failing to keep promise will harm the brand image. • Targeting untapped market would require educating the customer and hence cost escalating. Segmentation: Geographic, Demographic & Behavioral Targeting: • Income groups of 1,50,000 to 6,00,000 • Small & medium businessmen, migratory workforce, tourists • South India • Needful of traveling and not so cautious about extra services • Price oriented and safety conscious 1/9/2014 18
  • 19. Positioning: • Positioning only on low cost will not be sufficient. • On-time and service: hygiene factors • Connectivity: differentiator or motivational factors 1/9/2014 19
  • 20. Sales Challenges: • • • • Higher sales means higher occupancy rate. To gain more first time fliers per year. To gain more market share to be the market leader. To choose cost effective yet profitable channels to sell. Strategies: • • • • Contracts with travel agents Tie ups with tourism agencies Contracts with organizations Price reduction by 25% to 30% than competitors Execution: • Deliberate distribution of sales targets • Sales focus on tier II cities • Separate targets to various channels according to channel and geographical potential 1/9/2014 20
  • 23. Objectives Financial measure Targets Initiatives Revenue growth Ticket revenue Increase sales Penetrating in other domestic routes Cost reduction Lesser cost expense Decrease in cost Maximize sister company partnership Asset utilisation Lesser cost expense Increase in service capacity 1/9/2014 Purchase of new modern aircraft 23
  • 24. Objectives Financial measures Targets Initiatives High customer satisfaction Customer ranking To strive for about 100% Feedback and complaints satisfaction Reinforce brand image 1/9/2014 Customer ranking Ranking improvement Media marketing 24
  • 25. Objectives Performance measure targets Initiatives Payment convenience Payment methods Increase in sales % Payment kiosk Flight meal Customization of food menu Increase % of food choices Food choices varieties Cost reduction Operation cost Decrease in oil consumption Monitoring of international cost 1/9/2014 oil price change 25
  • 26. Objectives Employee Performance measure retention and Employee satisfaction productivity Targets Initiatives Increase in work efficiency Increase and satisfaction in in salary and both retirement plan employees and customers Improvement in relationship with labor union 1/9/2014 Decrease in attrition rate Dropping the criminal charges against labor union members 26
  • 27. Fuel hedging: Foreign currency hedge up to 66% with a weighted average (based on loans pertaining to aircraft being deployed to India ) Working capital=current assets- current liabilities =610224-4828745 =-4218521( negative working capital means that the service industry takes time to repay the debt) Cost Initiatives Sharklets on Aircraft Fuel Savings of approximately 3% Pushing for LCC Terminal 1/9/2014 27
  • 28. ATF Prices Airport Charges Restricted FDI Cost Controls Insurance Predatory Action by Major Carriers Undercapitalisation 1/9/2014 28
  • 29. Revenue per mile = Number of seats occupied * Number of miles * Price per seat Available seat per mile = Number of seats available * Number of miles * Price per seat Load factor = Revenue per mile / Available seat per mile 1/9/2014 29
  • 30. Invest in joint ventures. • Maintain international development across Asia in association with local budget airlines. • It would increase the airline’s offer. Diversification • Acquire new know-how in a view to offer more service to the consumer. • E.g. To take over an online travel agency. 1/9/2014 30
  • 32. PROBLEMS • Huge operating cost • Capacity utilization • Service level 1/9/2014 32
  • 33. • All fleets with LCC service. • Bring capacity utilization upto 70-80%, NO delay & cancellation of flight. • Earlier, AIR ASIA was planning routes having low Passenger Load Factor (53%) .INCREASE PLF TO 65% i.e. industry avg. & then increase to 70-80%. • Turn Around Targets :Not more than 30MINUTES for A320s 1/9/2014 33
  • 34. • Fleet selection • Reduction in cancellation, no frill service for LCC • MRO (Maintenance, Repair and Operating expenses) • Luggage • Airbus-320, ATR-72 will be installed with single-engine taxiing: 1/9/2014 34
  • 35. • Shutting down of engines during delays: such as taxi queuing and standing at the jet way. • Flying at high altitude has lower air resistance so needs less fuel. • Redesign hubs/schedules for less congestion—in the air and on the ground. • Interline operations agreement 1/9/2014 35
  • 38. Air Asia India’s competitive advantage is based on cost leadership Innovation Responsiveness Efficiency 1/9/2014 38
  • 40. Experienced in dealing with the public Physically fit with a good attendance record in previous position Hard working, flexible & willing to operate on a shift roster Over 18 years of age Between 5'2 (1.57m) and 6'2 (1.85) in height with weight in proportion Of normal vision (contact lenses acceptable) Able to swim well You must be in possession of a valid passport and have the right to work anywhere in the world Fluent in English (both written and spoken) Prepared to live within one hour's travelling time of any Air Asia base Ready to meet the challenge of dealing with people and demanding situations Friendly and outgoing with a lively personality 1/9/2014 40
  • 41. Check the prerequisites Uniform checks Water confidence test Psychometric test and attend a tea party Direct Entry through outsourced Training and Recruitment 1/9/2014 41
  • 43. • Outsourced Training and Recruitment • Multiple skill Training • Functional Training • Other Trainings • Job Rotation 1/9/2014 43
  • 45. • “Efficiency" and "functional flexibility" as key components • Ground crew can become flight attendants and vice versa • Unit crewing • Operational efficiency 1/9/2014 45
  • 46. Performance related pay structure Incentives based on team work Low Base Pay 1/9/2014 46
  • 50. • A theoretical Framework for determiming the relationship between competitive strategies and Human Resources practices; Journal of Naval Science and Engineering 2010, Vol. 6, No. 3, pp. 76 – 87 • “Linking Corporate Strategy and HR Strategy: Implications for HR Professionals,” In R. Padaki, N.M. Agrawal, C. Balaji and G. Mahapatra (eds.) Emerging Asia: An HR Agenda, New Delhi: Tata McGraw-Hill, 2005, pp. 215-223 • http://www.caspianlearning.co.uk/Whtp_caspian_airlines.pdf • The lowest of low-cost carriers: the case of AirAsia; The International Journal of Human Resource Management, Vol. 21, No. 2, February 2010, 197–213 • Reports of DGCA • Annual Report of Air Asia 1/9/2014 50
  • 51. Thank You! NOW EVERYONE CAN FLY 1/9/2014 51