MARKETING PROJECT AIRLINES INDUSTRY
Group –5, Section - C Abhishek Jha (08P119) Amit Maheshwari (08P125) Mangesh More (08P149) Mohit Nagpal (08P148) Parag Raheja (08P153) Tushar Mehta (08P172)
Table of Contents Overview & Scope of the the project project and and Methodologies Methodologies used.......................... ............... ......... .... ..... ..... ....4 Overview Over view ....... ................ ................. ................ ................ ................ ................ ................. ................. ................ ................ ................ ................ ................. ................. .......... ........ 4 Scope and Methodology...................... ............................................ ............................................. .............................................. .................................. ........... ..... ....... 5 .. Overview of the industry....................................................................................................... .........6 Competitive analysis................................................................................................... ...................8 Product level analysis...................... ............................................. ............................................. ............................................. ............................................ ..................... 8. Core product and supplementary supplementary services...................... ............................................. ............................................. ...................... .... ......... ........ ...8 Core Produ Product ct........ ................. ................. ................ ................ ................ ................ ................. ................. ................ ................ ................ .......... ................ ....8 Information Inform ation ....... ............... ................. ................. ................ ................ ................ ................ ................. ................. ................ ........... ... ................ ........9 Consultation...................... ............................................ ............................................. ............................................. .................................. ............ ..... ......... ......... ......9. Order taking..................... ............................................ .............................................. ............................................. ............................... ......... ..... .......... .......... ........ ...9 Hospitality & Caretaking..................... ........................................... ............................................. ............................ ..... ..... .......... .......... ......... ......... ......9. Billing & payment..................... ............................................ .............................................. ............................................. .................................... .............. ....9 Product levels...................... ............................................ ............................................. ............................................. ............................................. ........................... .... ....10 The Core benef benefit it............ .................... ................ ................ ................ ................ ................. ................. ................ ............... ....... ................ ...........10 10 The basic product...................... ............................................. ............................................. ............................................. ........................... .... .... ......... ......... ...... ..10 The expected product.................... ........................................... .............................................. ............................................. ........................ .... ......... .......... ......10 1. 0 The augmented product..................... ............................................ ............................................. ............................................. ........................... .... ..... ........ ...10 10 The potential product...................... ............................................. ............................................. ...................................... ................ .... ......... ......... ......... ........ ...10 10 Brand related aspects...................... ............................................. ............................................. ............................................. ................................... ............ .... ........ .... 11 Brand positioning....................... .............................................. ............................................. ............................................. ................................... ............ ..... ......... ...... ..11 Positioning of a few airline brands operating in India.................... ....................................... ................... ..... .......... ......... ...... ..11 11 Kingfisher Airlines - Full Frills - True Value Value Carrier..................... ........................................... .......................... .... ..... .......11 Spicejet - McDonalds McDonalds of the the skies skies.................... ........................................... ............................................. ........................ .. .... ......... .......... .....12 12 Jet Airw Airways ays ....... ............... ................. ................. ................ ................ ................ ................. ................. ................ ................ ................ ................ .......... .. .......12 Air Deccan - Simplifly Deccan - Kingfisher Kingfisher Red..................... ............................................ ........................... .... .... ......... .......12 12 Brand model for airlines..................... ............................................ ............................................. ............................... ......... .... ......... .......... ......... ......... .......... .....13 13 Pricing...................... ............................................ ............................................. .............................................. ............................................. ...................................... ................ ..... ...... 14 . Pricing Environment...................... ............................................ ............................................. .............................................. ....................... ..... ......... ......... .......... .....15 15 Selecting Selec ting the pric pricee obje objective ctive ........ ................ ................ ................ ................. ................. ................ ................ .............. ...... ................ .........15 15 Premium Pricing:..................... ............................................ ............................................. ............................................. ....................... .... ......... ......... ......... ........ ...15 Value for Money Pricing:...................... ............................................. ............................................. ...................................... ................ .... ......... ......... ...... ..16 16 Determining Demand.................... .......................................... ............................................. .............................................. ................................. .......... .... ......... ......16 . Estimating costs..................... ........................................... ............................................. .............................................. ................................ ......... ..... .......... .......... ........ ...16 Analyzing competitor’s costs, prices and offers offers.................... ........................................... .................................... ............. .... ......... ........ ...17 17 Adapting Prices..................... ........................................... ............................................. .............................................. ........................................... .................... ..... ........ ...17
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Price discounts and allowances..................... ............................................ ............................................. ............................. ....... ..... .......... .......... ......17 1 .7 Differential pricing..................... ............................................ ............................................. ............................................. .................................... ............. .... ...... ..17 17 Initiating and Responding Responding to Price Changes...................... ............................................. ............................................. ........................... ..... .. ..18 18 Supply chain / Inbound logistics..................... ........................................... ............................................. ............................. ...... ..... ......... ......... .......... ...... 18 . Primary activities – Inbound logistics....................... .............................................. ............................................ ..................... ..... .......... ......... ...... ..18 18 Marketing Communications...................... ............................................ ............................................. ........................... .... ..... .......... ......... ......... .......... ........ ...19 Advertis Adve rtising ing........ ................ ................ ................. ................. ................ ................ ................ ................ ................. ................. .............. ...... ................ ...........19 Sales Promotion..................... ........................................... ............................................. .............................................. ................................ ......... ..... .......... .......... ........ ...20 Public Relations..................... ........................................... ............................................. .............................................. ................................ ......... ..... .......... .......... ........ ...21 Telemarketing..................... ............................................ ............................................. ............................................. ............................. ...... .... ......... ......... ......... .......... ......21 . In-flight advertising.................... ........................................... ............................................. ........................................ .................. ..... .......... ......... ......... .......... ........ ...21 21 Costumer segmentation and their distinctive characteristics..................................................... .22 On the basis of usage..................... ........................................... ............................................. .............................................. ........................................... .................... 22 .. Passenger Passe nger........ ................ ................ ................. ................. ................ ................ ................ ................ ................. ................. ................ .............. ...... ................ ......22 Business Passengers....................... ............................................. ............................................. ............................................. ........................... ..... ..... ......... ...... ..22 22 Leisure Travelers..................... ........................................... ............................................. ............................................. ........................................ .................. .... .....22 . Freight.................... ........................................... .............................................. ............................................. ............................................. ....................................... ................ ....23 Air cargo service..................... ............................................ ............................................. ............................................. ............................ ..... .... ......... .......... ........ ...23 On the basis of geography..................... ............................................ ............................................. .................................... .............. ..... ......... ......... .......... ........ ... 23 On the basis of behavior..................... ........................................... ............................................. ............................................. ...................... ..... ......... ......... ........ ... 23 Bargain Hunters...................... ............................................ ............................................. ............................................. ............................. ....... ..... ......... ......... .......... ......23 . Relationship Buyers..................... ........................................... ............................................. ............................................. ............................. ....... .... ......... ......... ...... ..24 Critical factors for success ................................................................................ .........................25 Steps that government should take..................... ............................................ ............................................. .................................. ............ .... ......... ...... 25 . Steps that Industry should take..................... ............................................ ............................................. .......................... .... .... ......... ......... ......... .......... .....26 Insights derived from study................................................................................... ......................26 Annexure nnexure # 01............ 01.................... ................ ................ ................ ................ ................. ................. ................ ................ ................ ............. ..... ................. ..........28 Annexure nnexure # 02............ 02.................... ................ ................ ................ ................ ................. ................. ................ ................ ................ ............. ..... ................. ..........32 Annexure nnexure # 03............ 03.................... ................ ................ ................ ................ ................. ................. ................ ................ ................ ............. ..... ................. ..........32 Annexure nnexure # 04............ 04.................... ................ ................ ................ ................ ................. ................. ................ ................ ................ ............. ..... ................. ..........35 Annexure nnexure # 05............ 05.................... ................ ................ ................ ................ ................. ................. ................ ................ ................ ............. ..... ................. ..........38 References......................... ....................... ...................... ....................... ....................... ............. ...39
Table of figures Competitive advertising between airlines: GoAir vs Kingfisher vs Jet Airways.........................20 Month-wise domestic traffic (aircraft movements) at top 46 indian airports.............................28 Month-wise domestic traffic (Freight Movements) at top 46 indian airports.............................29 Month-wise domestic traffic (passenger movements) at top 46 indian airports.........................30 Airlines - Product level analysis..................................................................................... .............32
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Airline sector advertising skewed towards news channel....................... channel.................................... ............. ......... .... ......... ......... ..... ..... 32 Top 5 advertisers of airline sector in 2007................................................................................... 33 Rise in Average adevertising adevertising frequency frequency of airline sector sector on tv........................ ......... ..... ..... ........34 ..... ...34 Consumer choice parameters..................................................................................... .................35 Flight class.............................. ....................... ....................... ...................... ....................... ....... ...35 .............. ...... ................. ................. ................ ................ ................ ................ ................. ................. ................ ................ ................ ................ ................. ......... ............... .............36 Occasion of use......................... ...................... ....................... ....................... ...................... .. .. ..... 36 Circuits flown................................................................................................... ...........................36 Scheme preference............................ ....................... ...................... ....................... .................... ...37 Customer Loyalty................................ ...................... ....................... ...................... .............. ....... .38 Factors considered while choosing indian airlines.................................................................. ...38 Factors considered while choosing JetAirways................................................. .........................39 Factors considered while choosing SpiceJet........................................................................ .......39
O V E RV RV I E W & S C O P E O F T H E PROJECT AND METHODOLOGIES USED OVERVIEW
What Wh at bu busi sine ness ss do does es an ai airl rlin ine e in indu dust stry ry pa part rtic icip ipat ate e in in? ? Th This is is a fundamental question which needs to be answered before a marketing analysis on the industry is presented. To a layman the airline industry means carrying the passengers and cargo from one place to another. However, for a marketer this perspective is Marketing Myopia. A better way to look at the business is from the point of view of the needs it is trying to satisfy. On this basis we can say that an airlines business participates in the following areas: a reas:
Transportation Transportation of passengers and cargo Communication as travel allows opportunities for face to face meetings
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Leisure as traveling becomes an important part of a holiday
Information as the cargo business is associated with movement of information
Hence, from a business’ perspective airlines industry not just caters to the th e tr trav avel el ne need eds s bu butt a lo lott mo more re an and d ac acco cord rdin ingl gly y th the e co comp mpet etit itio ion n becomes bigger. SCOPE AND METHODOLOGY
The scope of this report is to analyze various Marketing aspects of the airl ai rlin ine e in indu dust stry ry wh whic ich h wo woul uld d in incl clude ude th the e pr prod oduc uct, t, bra brand nds, s, pri prici cing ng,, supply chain and logistics, marketing communications and advertising, customer segmentation and their characteristics and critical factors for success in this industry. The report includes examples from various airlines across the world, butt to ma bu main inta tain in sp spec ecif ific icit ity y it ret etai ains ns an In Indi dian an pe pers rspe pect ctiv ive e an and d compares competitors across the Indian domestic carriers.
The methodology adopted in preparing this report has been as follows: 1) Und Unders erstan tandin ding g of the theoreti theoretical cal concepts concepts with re regar gards ds to the aspects mentioned in scope. 2) Map Mappin ping g the concept concepts s to the airline airline ind indust ustry ry.. Fo Forr ex examp ample, le, the concept of product levels has been mapped to the difference in services offered in airline industry. 3) Compa Comparison rison of competi competitors tors based based on the mapped mapped concepts. concepts.
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4) Pr Prep epara arati tion on of di diag agram rams/ s/ch char arts ts for th the e cl clari arity ty of co comp mpari ariso son n across competitors. 5) Ident Identifica ification tion of factors factors which make make this business business a success and registering the insights gained during the study (mentioned in the last section). 6) The report report is majorly majorly based on secondary secondary data which which includes includes a num nu mbe berr of su surv rvey eys s ext xtrrem eme ely rele leva vant nt to th the e st stud udy y. Th The e references referenc es are duly mentioned in the ‘refere ‘references’ nces’ section.
O V E RV RV I E W O F T H E I N D U S T R Y Airlines Industry in India is one of the fastest growing airlines industries in the world. Post-liberalization, airlines industry in India has undergone
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a rap rapid id tra transf nsform ormati ation. on. From bei being ng pri primar marily ily a gove governm rnment ent-ow -owned ned industry, the Indian airlines industry is now dominated by privately owned airlines and low cost carriers. In 1990 government adopted open-sky policy. Indian Airlines, which had dominated the Indian air travel industry, began to lose market share shar e to Jet Air Airway ways s and Sah Sahara. ara. Today oday,, Ind Indian ian air airlin lines es ind indust ustry ry is dominated by private airlines and these include low cost carriers such as Dec Deccan can Air Airlin lines es (no (now w a par partt of Kin Kingfi gfishe sher), r), GoA GoAir, ir, Spi SpiceJ ceJet, et, etc, which have made air, travel affordable. The following chart shows the market share of various airlines:
Source: www.domain-b.com
A detailed analysis of the present Air traffic scenario is presented in the atta tach ched ed.. Ai Airl rlin ine e in indu dust stry ry in In Indi dia a is pl plag ague ued d wi with th Annexure Annexure #01 at several problems lik like e hig high h air airlin lines es tur turbin bine e fue fuell (A (ATF) TF) pri price ces, s, ris rising ing labor costs and shortage of skilled labor, rapid fleet expansion, and intense price competition among the players. But one of the major challenges facing Indian airlines industry is infrastructure constraint.
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C O M P E T I T I V E A N A LY LY S I S PRODUCT LEVEL ANALYSIS
The product offered by airlines is essentially a service, although it can be supplemented by a number of physical products too. The services offered are:
In-flight services
On ground services
The The ser servic vices es pro provid vided ed ins inside ide the fli flight ght inc includ lude e the cor core e ser servic vice e of travel, crew, ambience and comfort, in-flight entertainment etc. This is highly variable across competitors as per brand and different classes of travel. The The on on-t -the he-gr -grou ound nd se servi rvice ces s in incl clud ude e a co conv nveni enien entt ai airp rport ort wi with th ca carr parki par king ng fa faci cili liti ties es,, wa wait iting ing lo loun unge ges, s, du duty ty fr free ee'' sh shopp oppin ing g qu quic ick k an and d efficient checking of baggage, efficient service at reservation counter, transport to the airplane, etc. Although the physical infrastructure part of th the e on gr grou ound nd se serv rvic ices es ar are e us usua uall lly y ma main inta tain ined ed by th the e ai airp rport orts s authority but airlines like Kingfisher have gone a step ahead to make separate lounges for their customers to make them feel special. CORE PRODUCT AND SUPPLEMENTARY SERVICES
CORE PRODUCT
The core product of the airlines industry is the service of transporting passengers and goods to different destinations. This is supplemented by
various other services mentioned ahead. SUPPLEMENTAR SUPPLEME NTARY Y SERVICES
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Information Upto date information regarding flight schedules, ticket fares, promotion schemes, new policies and systems, etc are available to customers.
Consultation Airlines are suggesting and designing products like packaged tours to the customer. Also, providing the customer with various options regarding the route of flight, in-flight cuisine & benefits asks them to play a role of consultant.
Order taking The order taking procedure is essentially the booking procedure of the airlines. The important aspect to be noted here is that the procedure should be smooth, easily understood and fast. Also provision of instantly updated information about availability of seats and fares is required.
Hospitality & Caretaking
With the increased competition today hospitality has emerged as a key-differentiating factor. It is tested right from the time of booking till the post flight help extended. It also includes safeguarding the baggage.
Billing & payment
Billing options available to the customer are plenty including credit card & travelers cheque. Airlines use the open account system with thei th eirr co corpo rpora rate te cl clie ient nts. s. Freq eque uent nt fl flie iers rs ar are e al also so gi give ven n sp spec ecia iall payment privileges.
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PRODUCT LEVELS
Various product levels at which the airlines compete are: THE CORE BENEFIT
It is the benefit which the customer is actually buying. In our case it is the service of traveling or transportation of goods. THE BASIC PRODUCT
At this level the core benefit is converted into a basic service package. This includes from buying the ticket to reaching the destination. The low cost airlines like Indigo, GoAir, Spicejet offer the product at this level and compete on the basis of price. THE EXPECTED PRODUCT
Thi This s in incl clud udes es a se sett of se serv rvic ices es an and d pr prod oduc ucts ts th that at th the e co cons nsum umer er normally expects to receive along with the core benefit. For example: In flight snacks, comfortable seats, on time departure and arrival etc. The low cost model of airlines labels these addition services as ‘frills’ and tries either to eliminate or charge separately for these.
THE AUGMENTED PRODUCT
An augmented product exceeds customer’s expectations. For example: Serv Se rvin ing g ho hott fo food od,, war arm m an and d fr frie iend ndly ly cr crew ew,, pr prov ovis isio ion n of in fl flig ight ht entertainment etc. Jet Airways, Kingfisher Class, Air India IC compete in this segment.
THE POTENTIAL PRODUCT
At this level all possible augmentations are offered and the companies try tr y to en enco comp mpas ass s ne new w an and d in inno novat vativ ive e wa ways ys to sa sati tisf sfy y cu cust stom omers ers.. Where Emirates airline offers onboard shower spas for the first class
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customers, Thai Airways offers a limousine service at the airport and Virgin Atlantic offers an onboard massage. As the level moves from the core benefit to the potential potential product, the comp co mpet etit itio ion n mo move ves s fr from om pr pric ice e to se serv rvic ice e an and d exp xper erie ienc nce e of th the e customer. Various competitors operating at different product level in India are shown in the diagram in Annexure
# 02.
BRAND RELATED ASPECTS
BRAND POSITIONING
In a highly competitive scenario it is imperative for any airline to build its brand and have a focused marketing strategy. strategy.
POSITIONING OF A FEW AIRLINE BRANDS OPERATING IN INDIA
Kingfisher Airlines - Full Frills - True Value Carrier
The The Br Bran and d Ki King ngfi fish sher er ha has s be been en ma made de sy synon nonym ymou ous s wi with th `G `Goo ood d Times’ in India. Coherent and clear positioning has also enabled Kingfisher Airlines to differentiate itself in a market. Kingfisher has
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implemented this positioning by making service and hospitality their main focus.
Spicejet - McDonalds of the skies
SpiceJet Spice Jet seeks to positi position on itse itself lf as an innova innovative, tive, modern, modern, safe and custom cus tomer er fri friend endly ly air airlin line. e. The air airlin line's e's phi philos losoph ophy y is to mak make e air travel accessible to a growing market of time and cost conscious consumers yet at the same sa me time open newer markets.
Jet Airways
Jet Jet Ai Airw rway ays s is po posi siti tion oned ed as a gl glob obal al ai airl rlin ine e wi with th th the e hi high ghes estt inte in terrna nati tion onal al st stan anda dard rds s bu butt wi with th a to touc uch h of In Indi dia. a. Th They ey ha have ve retained many of the familiar elements of our corporate identity, but have hav e con contem tempori porized zed the them m to mak make e the brand mor more e re relev levant ant to global markets.
Air Deccan - Simplifly Deccan - K ingfisher Red
Air Deccan had substantial brand equity among the consumers and had ha d be bec cam ame e sy syno nony nymo mous us wit ith h low ow-c -cos ostt tr trav ave el in In Indi dia. a. Th The e rebranding followed an exhaustive market study which showed that although the brand was closely associated with pioneering the lowcost co st ai airl rlin ine e bu busi sine ness ss,, it wa was s pe perrce ceiv ived ed as a ca carr rrie ierr th that at wa was s consistently late and suffered serious service issues. The brand’s makeover by Kingfisher to first Simplify Deccan and then to Kingfisher Red has also brought a change in its positioning.
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It is no now w be bein ing g po posi siti tion oned ed be betw twee een n a fu full ll se servi rvice ce an and d lo low w co cost st carrier. BRAND MODEL FOR AIRLINES
Brand Br andin ing g of ai airli rline ne in indu dust stry ry ha has s to be ba base sed d on de deli live veri ring ng on it its s promises, long term customer engagement and continuous innovation in its services. For the airlines to build a brand image consistent with these, the following brand model proposed: 1) Brand Expectation - Making an authentic promise
This promise is a reflection of the brand’s identity and its differentiation from other brands. Kingfisher airlines for fo r example clearly promise its guests an unparalleled experience in the skies. Air deccan (when it existed) promised promised the lowest lowest fares. 2) Brand Experience - Keeping the word
The promise has has to be kept kept as literally as possible. For example example Virgin Airlines in the US promises to “reinvent air travel” and does a great job in not just meeting them but exceeding them too. 3) Brand Expression - Engaging the customer
It refers to extending the engagement with the customer beyond the flight hours. The engagement should ensure constant touch with them. For example: few airlines give away their headphones and in-flight magazines to passengers, which they subsequently shar share e with with mor more peop people le.. Low Low cost cost carr carrie iers rs lose lose out out on this this opportunity to invest in engagement with the customer. customer. Externalities - Dealing with industry uncertainty 4) Brand Externalities
The externalities could be as small as a flight being delayed to a pilot union strike or a government regulation to a plane crash.
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Nonetheless, all need to be handled effectively to maintain the brand image. For example: Airlines like Jet Airways and Singapore Airlines have been upgrading to newer, more fuel efficient planes in good times to hedge fuel costs to counter the rising oil prices. 5) Brand Extensibility - Staying consistent over time
Deli Delive veri ring ng an expe experi rien ence ce requi require res s meti meticu culo lous us plan planni ning ng and and persistence. An opinion blog about Kingfisher Airlines said “ The amazin ama zing g obs observ ervati ation on on Kin Kingfi gfishe sherr is tha thatt all the em emplo ployee yees s (cabin crew, ground staff and others) project a consistent and common kingfisher brand image and lifestyle which is 'live king styl st yle e an and d fl fly y go good od ti time mes' s'.. Th This is is pr prov oved ed by ve very ry pl plea easa sant nt approach and attitude of its employees towards all customers. Consumer satisfaction Index about a particular airline as perceived by consumers is given below :
PRICING
Pricing is the value perceived by the customer. customer. Pricing decisions cannot be mad made e in iso isolat lation ion of pr produc oduct. t. Pr Produc oductt and pric pricing ing dec decisi isions ons are
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made together. Deregulation in airline pricing has given the companies an edge to charge fares. PRICING ENVIRONMENT
With the advent of sophisticated systems for managing the sale of seats it is easier easier to develop sound sound pricing policie policies. s. Seat Seats s are sold on first fi rst-c -com ome e fi first rst-s -ser erve ve ba basi sis, s, so pa pass ssen enge gers rs ge gett ch chea eape perr fa fare res s by booking earlier. Airlines adjust prices as per demand and there is no difference in conditions. SELECTING THE PRICE OBJECTIVE
When Airlines put in capacity (seats) and frequency (flights) between any two points, they market research the route in order to arrive at the total potential potential for that segment segment.. Size of the market market is determ determined ined to decide the price. Pricing or fare levels are arrived at after taking into consid con sidera eration tion var variou ious s fac factor tors s lik like e typ type e of air aircra craft ft,, con config figurat uration ion of aircraft (number of seats), density of route, competitor activity and minimum breakeven cost.
PREMIUM PRICING: PRICING :
The airlines may set prices above the market price benefited by its ‘bran ‘br and-i d-ima mage ge’’ to re refl flec ectt th the e qu qual alit ity y of th thei eirr se servi rvice ce.. Ex Exam ampl ple: e: Je Jett Airways, Kingfisher, Indian Airlines, etc charge a premium price for providing frills and extra comfort to the customer. They provide options like first class, executive and economy. A trip from Mumbai to New Delhi will cost anywhere between Rs 6000 to Rs 23000 depending on the class and time of flight.
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VALUE FOR MONEY PRICING:
Low Cost Airlines like Air Deccan, Spicejet, Indigo, Goair, etc go for value for money to charge lower by operating cost cuts. Low cost carrier model go for dynamic pricing strategy. They follow low and simple fare structure .They point-to-point links between primary and second sec ondary ary air airport ports s wit with h hig high h fr frequ equenc ency y. The air airlin lines es pr provi ovide de bas basic ic serv se rvic ices es an and d ju just st on one e cl clas ass. s. Th The e ob obje ject ctiv ive e he here re is to un unde derc rcut ut th the e competition and price is used to trigger the purchase immediately immediately.. Unit profits are low, but overall profits are achieved by volume. Prices are as low as Rs 4000 which includes mostly the tax component.
DETERMINING DEMAND
price e sensi sensitive tive. Wi This This ind indust ustry ry is hig highly hly pric With th th the e de deve velo lopm pmen entt of
Global Distribution Systems the customer can assess all the tariffs; they shop on internet where it is easy to compare ticket price, flight time and number of stops in route. In case of recessionary periods when supply exceeds demand, airlines find it difficult to fill seats and pricing pric ing bec become omes s ex extre tremel mely y im import portant ant to gat gather her mar marke kett shar share. e. Fo Forr example, for a flight leaving to a business destination on a Monday morning, very few seats will be sold at low prices. Almost all the tickets will be sold at high fares and bookings sold at relatively shorter time. ESTIMATING COSTS
The aviation turbine fuel (A (ATF) TF) and staff( flight, ground, reservation and ticketing staff) form the major part of the operating cost. Other part includes
nav aviigation,
landi din ng
and
parking
costs,
repair
and
mainte mai ntenan nance. ce. Apa Apart rt fro from m ope operat rating ing cos costs ts the there re is ins insura urance nce,, Inl Inland and Aviation travel Tax(IATT) and Passenger Service Fee (PSF).
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ANALYZING COMPETITOR’S COSTS, PRICES AND OFFERS
LCC reduces their prices by having high seat density, reducing costs by providing no frill. They also go for uniform aircrafts to share parts; they go for high airtime and generate revenue through alternate resources. Full Service Providers charge extra premium for extra services like inflight cuisines, magazines, entertainment, the flexibility and comfort provided to the customers.
ADAPTING PRICES
PRICE DISCOUNTS AND ALLOWANCES
Price discounts need to be carefully done otherwise it may result in dilut dil utin ing g th the e re reve venu nue e of ai airl rlin ines es and af affe fect ctin ing g th thei eirr br bran and-i d-ima mage ge.. Discounts are given on off-peak flights which might go empty if not filled. Discounts can also be given by provided fewer services to the customer.
DIFFERENTIAL PRICING
Airlines usually practice differential pricing. There are three classes: The First Class, The Executive or Business Class and The Economy Class. Fares Fares for each class are different since the facilities provided and the comfort and luxury level is different in each class. Though all the passengers get the same tangible product features but the intangible fe feat atur ures es li like ke fl fle exib xibil ilit ity y is dif diffe fere rent. nt. Th This is ju just stif ifie ies s differential pricing.
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INITIATING AND RESPONDING TO PRICE CHANGES
Airlines went for a price cut with the entry of Air Deccan in 2003. It was done to re retai tain n the their ir mar marke kett sha share re.. In a pri price ce sen sensit sitive ive ma mark rket et li like ke airlines increasing the price might lead to considerable drop in market shar sh are e so an any y ma majo jorr pr pric ice e in incr crea ease ses s ar are e don done e in co coor ordi dina nati tion on wi with th competitor airlines. Price increase leads to higher profits.
S U P P LY LY C H A I N / I N B O U N D L O G I S T I C S
PRIMARY ACTIVITIES – INBOUND LOGISTICS •
Aircraft acquisition o
Airlines must negotiate deals with w ith aircraft manufacturers to acquire planes.
•
Route selection o
Flight routes are selected as per desire, and deals negotiated with the airports. Airports are selected for their prime location to allow consumers to get to their desired location. This entails the scheduling of flights and crew.
•
Passenger services system o
Software which allows the airlines to function "comprehensive passenger reservations, inventory control, fares, ticketing, and
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departure control functions". This allows airlines to reduce their costs of wages, paper transactions and maximize utilization. •
Stock control o
Airlines must store and handle fuel, food, and drinks. Stock is managed to ensure reductions in stock turnover, thus reducing costs and wastage.
•
Crew scheduling o
Crew Crew schedu schedulin ling g proble problems ms at the planni planning ng level level are are typica typically lly solved in two steps: first by creating working patterns, and then assi assign gnin ing g thes these e to indi indivi vidu dual al crew crew and and seco second nd by a setsetpartitioning model.
M A R K E T I N G C O M M U N I C AT AT I O N S
The users of air services typically include business executives, cine artists arti sts,, pol politi iticia cians ns and dom domest estic ic and int intern ernati ationa onall tou touris rists. ts. Hen Hence, ce, creativity becomes an important criterion. With the looming worldwide financial crisis, airlines are facing financial crunch and it has become imperative to use different components of marketing communication optimally: ADVERTISING
Advertising should be done keeping in my mind the quality and nature of the target audience as well as level of expectations. Advertisement
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slogans, message and campaigns need to be proactive. Air India has been facing the image problem but advertising may be efficacious in transmitting the facts and removing the image problem. COMPETITIVE ADVERTISING
BETWEEN AIRLINES:
GOAIR VS K INGFISHER INGFISHER VS JET AIRWAYS
** Annexure # 03 provides in-depth analysis of data of various airlines in India who advertised through television. SALES PROMOTION
Many Ma ny do dome mest stic ic lo low w co cost st ca carr rrie iers rs (L (LCC CC)) li lik ke In Indi digo go,, GoGo-Ai Airr ma main inly ly advertise the low base ticket prices and promote advance bookings to avoid poor occupancy. Also to improve the brand recall, promotional incentives are given out e.g. Indigo has a crazy assortment of gifts being bei ng hand handed ed out whi which ch inc includ ludes es LCD TVs TVs,, Refri efriger gerato ators, rs, lap laptop tops, s, mobile handsets, etc.
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PUBLIC RELATIONS
Streng Str engthe thenin ning g pub public lic re relat lation ions s act activi ivitie ties s is ess essent ential ial to pro promot mote e the business airlines or airways. The Public Relations Officer, Receptionists, Travel Agents, Travel Guides, Media people are some of the important people who publicize the business. But, the most crucial point in this is the th e coco-op oper erat atio ion n of me medi dia a as it di dire rect ctly ly af affe fect cts s th the e br bran and d im imag age e manifold. TELEMARKETING
Booking counters, enquiries, reception counters, users’ complaints cell, announcers are found playing an incremental role in promoting the air business because most of the travelers make an impression about the airlines depending upon the tele-support that they get while using the airlines service. IN-FLIGHT ADVERTISING
This concept which is originated overseas has recently been identified as an ef effe fect ctiv ive e pr prom omot otio ion n me medi dium um in wh whic ich h au audi dien ence ce is hu hund ndre red d percent captive. This is achieved through airing advertisements during entertainm enter tainment ent prog programs rams on tele televisio vision n sets installed installed on the aircraft. aircraft. Other than advertising via television screens, advertisers hop on board and co comm mmun unic icat ate e th thro roug ugh h la late test st ad fi film lms s in insi side de an and d out outsi side de th the e aircraft. Kingfisher Red, formerly Air Deccan had partnered with Cutting Age Med Media ia to eff effect ective ively ly com commun munica icate te thr throug ough h thi this s non non-tra -tradit dition ional al niche media.
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C O S T U M E R S E G M E N TA T AT I O N A N D THEIR DISTIN CTIVE CHARACTERISTICS ON THE BASIS OF USAGE
PASSENGER
BUSINESS PASSENGERS
They are very important for the profitability of the airline. They are willing to pay a premium price. Business passengers believe that it is worth extra money if they can save time and arrive looking fresh for an important meeting. A flexible reservation services is very critical to them as most of their tickets are not booked in advance and also have a chance of cancellation. The best way to reach Business passengers is through Business media such as The Economic Times or CNBC. Also since they are frequent fliers they would certainly look for certain extra facilities.
LEISURE TRAVELERS
They
are
a
totally
diff ffe erent
market
and
the
most
import rta ant
consideration for them is price. They won’t pay premium prices and woul wo uld d ag agre ree e to ch chan ange ge se seve veral ral pl plan anes es du duri ring ng th thei eirr tr trip ip.. De Desp spit ite e providing low margins they are very crucial for every airline. Since business customers are small in size and therefore to fill the flight Economy passengers are essential.
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The The al allo loca cati tion on of bu busi sine ness ss an and d ec econ onom omy y cl clas ass s se seat ats s on a pl plan ane e is yield d mana managemen gementt. A good deter det ermi mined ned thr throug ough h a pro proce cess ss cal called led yiel
yield yie ld ma manag nager er kno knows ws the appr approx oxima imate te pr propor oportio tion n of bus busine iness ss and leisur lei sure e tra travel velers ers for eac each h fli flight ght in adv advanc ance, e, bas based ed on soph sophist istica icated ted statistical models. FREIGHT
AIR CARGO SERVICE
With exports and imports increasing this has become a major source of revenues for airlines. In the domestic segment with the need for an increase in the turnaround time airline has been used as a source of carrier. Most airlines therefore need to target both these segments. ON THE BASIS OF GEOGRAPHY
Major travelers in India are located in some of the major cities and a small customer base in other cities. Therefore Flight schedules should be made such that the needs of these smaller cities could also be cate ca tere red. d. Ex Exam ampl ple e fl flig ight hts s ca can n be mad ade e on ro rout utes es su such ch as De Delh lhiiBagdogra- Kolkata. This not only enhances the seat utilization but also generates extra revenues. ON THE BASIS OF BEHAVIOR
BARGAIN HUNTERS
They are the ones who are the most sensitive to price. They have nil loyalty and would travel by any carrier. They are the least profitable consumer segment in the market. Therefore a company should not
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spend amount on barga bargain in buyers. Rat Rather her they would be autom automatica atically lly attracted if you have the most competitive prices in the market.
RELATIONSHIP BUYERS
They are the ones who look for long term relationship with the airline. They are one of the most profitable segment as they are relationship builders and not much likely to jump from one airline to another. But for retaining them a certain level of expected and augmented service should be provided to them. They don’t mind paying a premium.
Ther Theref efor ore e on th the e ba basi sis s of se segm gmen enta tati tion on th the e ab abov ove e de desi sira rabi bili lity ty of services
should
be
Further insights can be derived from Annexure # 04 .
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offered.
C R I T I C A L FA FA C T O R S F O R SUCCESS STEPS THAT GOVERNMENT SHOULD TAKE
Implement codesharing i.e. selling seats on a flight operated by anothe anotherr carrie carrierr. This This saves saves direct direct costs costs and incre increase ase marke markett presence
Allow foreign carriers cabotage rights( carriage for passengers and freight simulateneously) to increase competition
Eliminate regulatory structure completely to boost new entrants and allow more profit for existing
Eliminate the fuel tax
Eliminate category III restrictions i.e. operator needs to deploy on less popular routes as well
Improve quality of and access to airports and hangars
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STEPS THAT INDUSTRY SHOULD TAKE
Reduce Reduce labour costs
Simplify flight operations
Offer more transparent pricing
Get smart on fuel
Stop chasing market share
INSIGHTS DERIVED FROM STUDY Following are the insights that we derived from this project:
The Airlines industry is cyclical in nature due to uncertainties which are beyond its control. Due to this the brands have to be built in such a manner that they survive the lean periods on their strength of being able to differentiate themselves with others. Thi This s mu must st be do done ne by be bein ing g cl clea earr as to wh what at on one’ e’s s br bran and d represents and sticking to its core values and not by raging a price war all the time.
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Through the study we have found out that the Low cost Airlines have positioned themselves in competition to railways by making trav tr avel el af affor forda dabl ble. e. Th They ey ar are e co comp mpar ared ed to ra rail ilwa ways ys an and d ro road ad transports on the pricing front. But the reality is that it's not possible for them to compete with railways on price front. Rather they should try to highlight features such as lesser travel time and better in-flight facilities.
Price discounts need to be carefully done to attract customers and an d si simu mult ltan aneo eous usly ly en ensu sure re th that at it do does es no nott af affe fect ct th the e br brand and image or result in considerable reduction in revenue.
In-fli Inflight ght adv advert ertisi ising ng is an eff effect ective ive pro promot motion ion me mediu dium m as the audien aud ience ce is hun hundre dred d per percen centt cap captiv tive. e. The They y can hel help p air airlin lines es promote the brand image, promote new schemes, improve the brand bra nd re recal calll and gen genera erate te ex extra tra re reven venue ue if done without without the passengers perceiving it as a forceful.
Pricing is the most sensitive issue in airline industry and is done depe de pend ndin ing g on th the e de dema mand nd of th the e ma mark rket et.. Sw Swit itch chin ing g is mo morre frequent freq uent in case of low fare airlin airlines es whereas business business segme segments nts are more brands loyal.
Fro rom m the mar marke kett re resea search rch we cou could ld inf infer er tha thatt whi while le dec decidi iding ng among low cost airlines fare acts as the deciding factor while in case cas e of cho choosi osing ng amo among ng ful fulll ser servic vice e pr provid oviders ers the det deter ermin mine e factors facto rs are flight sched schedule, ule, reliability, reliability, quali quality ty and conne connection ctions s with not much emphasis on fare. Annexure # 05 illustrates the same fact.
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ANNEXURE # 01 MONTH-WISE DOMESTIC TRAFFIC (AIRCRAFT MOVEMENTS) AT TOP 46 INDIAN AIRPORTS
28
MONTH-WISE DOMESTIC TRAFFIC (FREIGHT MOVEMENTS ) AT TOP 46 INDIAN AIRPORTS
29
MONTH-WISE DOMESTIC TRAFFIC (PASSENGER MOVEMENTS) AT TOP 46 INDIAN
30
AIRPORTS
31
ANNEXURE # 02 AIRLINES - PRODUCT
LEVEL ANALYSIS
ANNEXURE # 03 AIRLINE SECTOR ADVERTISING
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SKEWED TOWARDS NEWS CHANNEL
TOP 5 ADVERTISERS
OF AIRLINE SECTOR IN
2007
Top five Domestic Airline advertisers together contributed 98 per cent share of overall Domestic Airline advertising on TV during 2007. (Merger of Deccan Aviation and Kingfisher Airlines took place in Dec 07. Hence, the two entities are separate above)
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R ISE ISE IN AVERAGE ADEVERTISING
FREQUENCY OF AIRLINE SECTOR ON TV
Average Ave rage advertising frequency of International Airlines aired per day on TV increased by 2 per cent and that of Domestic Airlines saw a rise of 11 per cent during 2006 over 2007.
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ANNEXURE # 04 CONSUMER CHOICE PARAMETERS
The following chart provides us with information information which are decis decisive ive in making the choice of the Airline.
FLIGHT CLASS
The The fl flig ight ht cl clas ass s gr grap aph h in indi dica cate tes s th that at th the e pr prop opor orti tion on tr trav avel eled ed by business class is very small in comparison to that traveled by economy class. This indicates that most business travelers are flying Economy class as well.
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OCCASION OF USE
The most important occasion of use is business followed by emergency situations.
CIRCUITS FLOWN
The The mo most st fr freq eque uentl ntly y fl flow own n ci circ rcuit uit is th that at be betw twee een n ma majo jorr me metr tros os,, followed by other state capitals and Delhi-Mumbai. Delhi and Mumbai airpo ai rport rts s ac acco coun unts ts fo forr ro roug ughl hly y ha half lf of pa pass ssen enge gers rs fl flow own, n, and me metr tro o airports account for 66% of the passengers flown.
36
SCHEME PREFERENCE
With the entry of new players in the market, airlines are competing for pass pa ssen enge gers rs on no nonn-pr pric ice e par param amet eter ers. s. Th This is in incr crea ease ses s th the e pr prod oduc uctt differentiation in order to decrease elasticity of demand in the market. Given the key differentiators that substitute for price, consumers have rated Apex fares as their most preferred scheme. Indian Airlines, Jet and Air Sahara offer apex fares. Next most preferred to Apex fares is the frequent flyer program, a trend noticed predictably in the high frequency repeat users and those traveling on business.
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CUSTOMER LOYALTY
The The fol follo lowi wing ng gr grap aph h sh show ows s th the e lo loyal yalty ty of th the e cu cust stom omer er to towa ward rds s a particular brand. This helps us in identifying the Bargain Hunters and the Relationship Buyers.
ANNEXURE # 05 FACTORS CONSIDERED WHILE CHOOSING INDIAN AIRLINES
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Flight Schedule 3.2 2.41.7
7.3
18.5
Reliability
10.7
Quality Connections 15.2
11.2
Frequent Flier P rogram rograms s Company Company P olicy
15
14.8
Fare
FACTORS CONSIDERED WHILE CHOOSING JETAIRWAYS
6.2
2.63.2 2.1
Flight Schedule
17
Reliability
8.1
Quality Connections
18.1
13.2 10.8
Fare Frequent Flier P rogram rograms s Company Company P olicy
18.7
FACTORS CONSIDERED WHILE CHOOSING SPICEJET
10.1
Flight Schedule
2.4
Reliability Quality Connections Fare
87.5
Frequent Flier P rogram rograms s Company Company P olicy
REFERENCES •
The Civil Aviation Act, 2000 (Draft)
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•
AVIATION
Week & Space Technology echnol ogy
•
Low-fare Airlines, (2004, July 8) - www.economist.com.
•
Crisis at 50, Business World, Sept. 15, 2004
•
Businessline, Sept. 15, 2004
•
The Sky’s The Limit, Indian Express
•
Oil Prices drown out Airlines profit, Star Tribune, Sept. 1, 2004
•
A Feel for Airline Security. Time Canada, Sept. 13, 2004 To Cope With Travel Slump, Airlines Turn to Smaller Jets. (cover
•
story) Wall Street Street Journal - Eastern Edition, Sept. 2004 •
Wikipedia, the free content encyclopedia
•
India Transportation Transportation Infrastructure Blueprint
•
Discounted IA fares to take on no-frills Deccan Times of India
•
http://www.foolonahill.com/mbaaviation.html#_Toc83227621
•
http://books.google.co.in/books?id=cVu4E4eB5lA http://books.google.co.in/books?id=cV u4E4eB5lAC&dq=airline+mar C&dq=airline+mar keting+and+management&printsec=frontcover&source=bl&ots=4v MNQ6lUGu&sig=UdUBqpKpdwctx53BT8u0GCY9EYU&hl=en&sa=X& oi=book_result&resnum=3&ct=result
•
Refere Re ference: nce: industry.html
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http://www http:/ /www.ilove .iloveindia. india.com/ com/econom economy-of y-of-indi -india/avia a/aviationtion-
