airline report final

8/6/2019 Airline Report Final

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Table of Contents

Executive summary ............................. .......................... ............................... ............................ ................ 2

Scope of the project ............................. .......................... .......................... ............................ ................ 2

Introduction ............................................................................................................................................ 3

Research Methodology ............................................................................................................................ 8

Research Objectives: ............................................................................................................................ 8

Research Design:.................................................................................................................................. 8

Data Analysis and Interpretation............................................................................................................ 10

Customer Perspective ........................................................................................................................ 10

Employees/ Operators Perspective ...................................................................................................... 22

Observational Findings .......................................................................................................................... 33

Limitations ............................................................................................................................................. 44

Recommendations, Conclusions and Suggestions .................................................................................. 45


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Executive summary

Scope of the project

The project aims to bring about a comparative study and effect of pricing on low cost carrier

customers. Low cost airlines have been a phenomenon in India since 2002-03. Low cost

carriers have completely revolutionized the way we perceive air travel in India. Traditionallyair travel was always associated with luxury and high costs. Air Deccan for the first time made

flying affordable and routine for the masses. Since then, many more low cost airlines have

been introduced. The current decrease in spending power of consumers has once again

highlighted the importance of low cost airlines as a means of survival by increasing occupancy

In order to proceed with the detailed analysis, the team incorporated the survey research

methodology. This entailed systematic gathering of information from respondents for the

purpose of understanding and/or predicting some aspect of the behavior of the population of

interest. Furthermore, the team launched the survey online using social media to get an

additional perspective. Members of the team engaged in questionnaire design and then

subsequently carried out the administration of questionnaires to individuals through personal

interviews. There were 2 questionnaires designed with the specific intent to capture the

perspectives of the consumer and the company. Surveys of consumers or distributors of

consumer products are frequently in the form of census.

The survey was carried out on a sample size of 125 respondents through which quantitative

data was generated. This assisted in formulating requisite data sets for methodical data

analysis. By analyzing the data, the team had certain observations or key findings which have

been explained in this project report. Following are the key findings in brief:

Customer Side:

Paradigm shift in consumer behavior due to LCC

Preferred LCC and Reasons

Branding and Advertising

Compromising factors in selection of LCC

Company Side:

Price Influencers

Cost Drivers

Direct Distribution

Correlation between Passenger volume & Price

Increasing customer Base

Yield Management on Unprofitable routes

Shaping the Differential Advantage


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Introduction

a) Topic: Comparative SurveyofPricing andits Effects on LowCost Airlines CustomersFlying High: LowCostCarriers

A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or

airline) is an airline that generally has lower fares and less comforts. To make up for revenue lost

in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat

allocating, and baggage etc.

Air Deccan introduced low cost airlines in India in September 2003, carving a niche for

passengers travelling in train, reducing air travel prices by 17%. It started with a fleet strength of

35 with 20,000 seats per day. The trend then followed with SpiceJet, Kingfisher, Paramount

Airways, GoAir and Indigo entering the market in 2005-2006. In April 2007, Jet acquired Air

Sahara, and rebranded it JetLite, another entrant in the low cost airline industry. Kingfisher

bought 26% stake of Air Deccan in 2007, later acquiring it completely, and launching it in the low

cost segment as Kingfisher Red.

Themain characteristicsoflow costairlines in Indiaare:

i. High seating density and load factors.

ii. Uniform aircraft types (usually the 737-300).

iii. Direct booking (internet/call centre booking), hence reducing cost on sales commission.

iv. No frills, such as free food or beverages, lounges or air miles.

v. Simple systems of Yield Management (Pricing).

vi. Use of secondary airports to cut charges and turnaround time.

With a growth rate of 18 per cent per annum, the Indian aviation industry is one of the fastestgrowing aviation industries in the world. By 2020, Indian airports are expected to handle more

than 100 million passengers including 60 million domestic passengers and around 3.4 million

tons of cargo per annum.

Airline traffic growth in India remained in double digits in Nov-2010 for two consecutive

Novembers of strong traffic growth with passenger numbers now well above pre-

recession levels. Passenger traffic increased 25.1% in the month following four months of

growth under 20%. Despite a steep increase in airfares in the month, the seven domestic airlines

reported the highest carriage of passengers during a single month of 2010. Indian aviation,

which entered negative territory earlier than other Asian nations and the rest of the world, hasalso been one of the quickest to recover, with domestic traffic now some 62% above Nov-2008

levels. According to the Indian Ministry of Civil Aviation overall domestic passenger numbers in

India increased 25% year-on-year to 4.9 million in Nov-2010 to reach the highest monthly level

so far in 2010.

IndiGo handled 843,000 passengers, becoming the third largest carrier in the domestic market

ahead of Air India with 836,000 passengers. The most dramatic growth was, as is generally the


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case, witnessed by the LCCs, driven by GoAir with a 64% year-on-year increase to 337,000. Other

LCCs, including Indias largest LCC, IndiGo (+53%) and SpiceJet (+36% to 650,000) also continued

their rapid traffic expansion. Together, IndiGo, GoAir and SpiceJet accounted for 38% of the

domestic market up from 32% in Nov-2009.

IndiGo reported the highest load factor of 91% in Nov-2010. SpiceJet, Kingfisher, GoAir and

JetLite also reported load factors of above 80% for the month, with Air India reporting the

lowest load factor at 76.9%.

Airlines in India have now well and truly emerged from the global slump that has been affecting

the industry. And, with the holiday season in full swing, full service and LCCs are seeing heavy

demand with airfares, as a result, rising strongly, to the concern of consumers and the

government.

Mr Praful Patel, Minister for Civil Aviation, expressed concern over exorbitant fares recently

charged by airlines, stating the aviation industry should keep in mind that the phenomenal

growth in the sector has been due to the low fares offered earlier.He added: For five years, the

aviation sector has grown on the back of low fares. We cant ignore this fact. The benefits of low

fares have gone to the travelling public." He has previously stated that the government cannot

be a mute spectator to the exorbitant spot or last-minute fares that were charged by carriers

in Nov-2010 and Dec-2010.

The traffic outlook for Indias carriers remains optimistic for the remainder of the peak festival

and holiday season with full-year growth expected to be in the 18-20% range, led by LCCs which

continue to expand their share of the market. This trend is expected to continue into 2011, with

expansion by LCCs in both the domestic and international market.

Indias airlines have also done well in managing capacity, ensuring that load factors and yield

improvements continue although recent fare transparency regulations by DGCA could have aslight impact on this. The nations aviation industry has also benefitted in its brisk recovery due

to higher disposable incomes and increased demand for business travel.

b) Companies Visitedi. Jet Airways

ii. SpiceJet

iii. Go Air

iv. Kingfisher Airlines ltd

v. Indigo

vi.

Cox

and Kings India ltdvii. Yatra

viii. Makemytrip

ix. Amdocs

x. Arzoo

xi. JK Tours and Travels

xii. Travel Hut Tours and Travels


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xiii. Kaycees Air Tours and Travels

xiv. HMA Travels

xv. Prasanna Tours and Travels Pvt ltd

xvi. Kass Travels Pvt ltd

xvii. Silver Jubilee Travel ltd

xviii. JM Mehta Travel and Tour Pvt ltd

xix. Shalan Tours and Travels

xx. Lara Tours and Travels

c) Servicelinesofcompanya. Jet Airways:

Jet Airways is an airline based in Mumbai, India. It is Indias third largest airline. Jet Airways

also operates two low cost airlines, namely JetLite and Jet Airways Konnect.

b. SpiceJet:

SpiceJet is a Low Cost Carrier based in Delhi, India. It has second largest market share in

Indian LCC, after Indigo. SpiceJet is known to offer world class services within your travelbudget.

c. Go Air:

GoAir is a Low Cost Carrier based in Mumbai, India. Currently, it has the fastest growing

market share. Operated by the successful Wadia group, the aim of this domestic airline is to

provide affordable and good value flights to both business and leisure travellers to major

cities across the country.


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d. Kingfisher Airlinesltd:

Kingfisher Airlines is an airline based in Banglore, India. It December 2007, Air Deccan

merged with Kingfisher and entered low cost segment with the introduction of Kingfisher

Red. Kingfisher airlines are best known for the high level of service provided on board. This

pattern continues in Kingfisher Red, which is known for excellent services known only in full

service carriers, at a much lower cost.

e. Indigo:

Indigo Airlines is based in Delhi and flies to around 15 destinations all over India. This

privately owned airline started operating in mid 2006, and has a market share of almost

11%. It's considered to be India's best low cost carrier.

f.

Coxand Kings Indialtd:

Cox & Kings is the longest established travel company in the world. Its Indian operations are

headquartered at Mumbai. The status is of a limited company. It has over 12 fully owned

offices in India across key cities. The principal services offered by the company are:

y Destination Management

y Outbound Tourism

y Business Travel

y Incentive & Conference Solutions

y Domestic Holidays

y NRI

y Trade Fairs

y Foreign Exchange


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y Insurance

g. Yatra:

Based in Gurgaon, India, Yatra is a one-stop-shop for all travel-related services. Yatra.com is

Indias leading online travel company. We provide information, pricing, availability, and

booking facility for domestic and international air travel, railway reservation, hotel bookings,

holiday packages, buses, and car rentals. We offer a host of travel services designed to make

business and leisure travel easier.

h. Makemytrip:

MakeMyTrip.com, Indias leading online travel company was founded in the year 2000 by

Deep Kalra. Created to empower the Indian traveller with instant booking and

comprehensive choices, the company began its journey in the US-India travel market. It

aimed to offer a range of best-value products and services along with cutting-edge

technology and dedicated round-the-clock customer support.

i. Amdocsj. Arzoo

k. JK Tours and Travels

l. Travel Hut Tours and Travels

m. Kaycees Air Tours and Travels

n. HMA Travels

o. Prasanna Tours and Travels Pvt ltd

p. Kass Travels Pvt ltd

q. Silver Jubilee Travel ltd

r. JM Mehta Travel and Tour Pvt ltd

s. Shalan Tours and Travelst. Lara Tours and Travels


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Research Methodology

Research Objectives:

1. To understand the purchase behaviour of LCC customers

2. To understand the pricing decisions of LCC

3. To understand the impact of pricing on LCC customers

Research Design:

1. Qualitative

a. Exploratory: Focus Group Discussion

Sampling Frame: MBA students

Sample Size: 10

Objective: To evaluate customer behaviour to price of LCC tickets and pricing

strategies of LCC.

2. Quantitative

a. Conclusive: Web Survey

Sampling Frame: MBA Students, Self Employed, Consultants, Assistant

Managers and Consultants.

Sample Size: 30


strategies of LCC.

b. Conclusive: Field Survey

Sampling Frame: Working Professionals, SelfEmployed, Service Providers(Airline

Offices, Travel Agencies)

Sample Size: 150


strategies of LCC.


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Data Analysis and Interpretation

Questionnaires:

Customer Perspective

1. What was your preferred mode of transport before and after introduction of Low Cost

Carriers?

BEFORE AFTER

a) Full Service Carriers a) Low Cost Carriers

b) AC FIRST CLASS b) Full Service Carriers

c) AC II/AC III Tier c) AC FIRST CLASS

d) Road Transport d) AC II/AC III Tier

e) Road Transport

e) Others

Please Specify:

f) Others

Please Specify:

The findings from the survey:

2

19

51

23

42

1

6

11

8

15

98

0 20 40 60 80 100 120

Others(Sleeper Class)

Road Transport

AC II/AC III Tier

FIRST CLASS

Full Service Carriers

Low Cost Carriers

After

Before


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Reasons/Objectives Analysis

Price Sensitivity High price sensitivity Full Service Carriers

Low price sensitivity Rail Transport

Target Market

Segment

All modes of transport

Percentage of

Mercenaries

50 % (approx)


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2. Which Low costCarrier do you prefer the most?

a) Kingfisher Red

b) JetLite

c) GoAir

d) Indigo Air

e) Air India Express

f) SpiceJet


Preference ofTravelers Kingfisher Red

Competitive positions of the

players

Kingfisher Red Market Leader

JetLite, Indigo Air, SpiceJet- Market

Challengers

Air India Express, GoAir- Market

Followers

48

29

28

27

11

8

0 10 20 30 40 50 60

Kingfisher Red

SpiceJet

Indigo Air

JetLite

GoAir

Air India Express


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3. What is/are the reasons for your preference?

A)

Online booking

Check-in procedures and waiting time

Boarding procedures and efficiency

Cabin cleanliness and appearance

Seat comfort

Availability of food and beverages

Efficiency and attention of Cabin crew

Friendliness and Attitude of cabin crew

On time performance

B)

Value for money

Easy reimbursement procedure and refunds

Offers and Promotions

Prices of food and beverages

Clarity of fares


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Perceived importance of theadditional services

People seek more value for theirmoney and they consider On Time

Performance and Seat Comfort as a

Big Value Add.

Elements leading to customer

satisfaction

1. On Time Performance

2. Seat Comfort

3. Online Booking

Weight-age to monetary and

non monetary elements

Operators perceive their customers

to be price conscious, however

customers give more or less equal

weightage to non monetary

elements offered by the airlines

14

7

5

3

9

5

4

4

10

2

12

10

40

27

24

49

22

12

71

14

22

13

15

20

94

0 10 20 30 40 50 60 70 80 90 100

Online booking

Check-in procedures and waiting time

Boarding procedures and efficiency

Cabin cleanliness and appearance

Seat comfort

Availability of food and beverages

Efficiency and attention of Cabin crew

Ontime Performance

Friendliness and Attitude of cabin crew

Clarity of fares

Prices of food and beverages

Offers and Promotions

Easy reimbursement procedures

Value for Money

Chart Title

Customer

Operator


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4. Rank the following criteria for selecting the airline in the order of importance:

CRITERIA RANKING

a. On time performance

b. Convenient flight timings

c. Price


Identification of dis-satisfier and their

order

It indicates that price is not the main

deciding factor in selecting a LCC.

32

33

35

74

4

22

0 20 40 60 80

Price

Ontime performance

Convenient Flight Timings

Chart Title

Operator

Customer


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5. Does the brand name and its advertisements influence your choice of the LowCostCarrier?

a) Yes

b) No


Level of importance of Brand

visibility

Data shows branding is an

influential factor.

Extent of expenditure to be

incurred on branding and

advertising by airlines

Moderate as 54% customers

consider it important.

54%46%

YESNO


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6. Would you shift to another operator if you have to pay a:

a) Higher price for additional services

b) Lower price for lesser services


Price sensitivity Relatively high

Importance of additional services in LCC Relatively low

Changes to be incorporated in the LCC

services (w.r.t price and services

provided)

Scope for enhancing passenger volume

by introducing 2-3 classes catering to

different needs.

46%

54%

Higher price for

additional

services

Lower price for

lesser services


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7. Which parameter are you willing to compromise on for a lesser price?

a) Flight timings

b) Seating space

c)

Baggage allowanced) In flight service (cabin crew, food and beverages etc)


Services perceived as the ones that

customers are willing to forego.

Operators have correctly identified

the factors which customers are

willing to compromise / not

compromise for a lesser price

21

9

25

43

18

9

35

38

0 10 20 30 40 50

Flight timings

Seating space

Baggage allowance

In flight service (cabin crew, food and

Chart Title

Operator

Customer


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8. Would you change your preferred airline for a marginal increase in its price?

a) Yes

b) No

c) May be


Price sensitivity v/s Brand loyalty Passengers are loyal to their

preferred airline regardless of a

marginal increase in price

Customer Perceived Value for a brand Total customer benefit is higher than

the total customer cost and thus

customers stick with their preferred

airline.

Yes

29%

No

48%

May be

23%

May be depends on:

Depends on:

Availability

Time ofTravel

Cheaper Fare

Additional Services Difference in Price

Seating Space


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9. Would you prefer to fly with aFull ServiceCarrier over a LowCostCarrier if the difference

in prices is not very significant?

A. Yes

B. No

If YE

S please select the difference (in Rs) that you are willing to pay

a) 500-1000

b) 1000-1500

c) 1500-2000

d) 2000-2500


Price sensitivity Low

Percentage of customer LCC may

lose because of price reduction by

FSC and/or reduction by LCC

88% people are ready to switch to

FSC if price difference is less

significant.

Extent to which customers are

ready to pay additional money for

FSC

Only for less significant price

difference customers are ready to

switch from LCC to FSC.

110

15

0 50 100 150

Yes

No

54

45

5

6

0 20 40 60

500-1000

1000-1500

1500-2000

2000-2500

Ifselected Yes


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10.In case of air travel price hike, would you change your mode of transport to?

a) Railways

b) Road Transport

c) Will not change


Best substitutes for LCC For a steep price hike LCC will lose a

significant number of customers to

railways

65

12

50

0 10 20 30 40 50 60 70

Railways

Road Transport

Willnot change


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Employees/ Operators Perspective

1. Rank the following factors in the order of its importance for setting the price per seat.

FACTORS RANK

a) On board service

b) Flight timing

c) Taxes

d) Government regulations

e) Seat spacing

f) Air turbine fuel price

g) Disposable income

0 5 10 15 20

On board service

Flighttiming

Taxes

Governmentregulations

Seatspacing

Airturbinefuelprice

Disposable income

RANK7

RANK6

RANK5

RANK4

RANK3

RANK2

RANK 1


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Combined Analysis


Major Price determinants of an

air ticket

Cost based pricing strategy due

to High figures of Fuel, Taxes,

Govt Reg.

Importance of value adds v/s

cost drivers

Cost drivers hold higher

weightage in price determination

94103

12099

90

15140

0 50 100 150 200

On board service

Taxes

Seat spacing

Disposable income


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4. Which are the top 3 costs contributing to cost per seat?

In flight services costs

Air craft maintenance costs

Distribution costs

Station costs

Advertising and Promotion costs

Sales and Reservations costs

Airport charges

! Operating costs (salaries, office expenses etc)

" Fuel prices


Major determinants of cost per seat Fuel Prices, OC, Airport charges,

Advertisings & Promotions

Identification of Fixed and/or Variable

costs

Variable costs are larger contributors to

cost per seat

Identification of leakages and scope of

reduction

Scope of Reduction in Advertising and

Promotion costs

6

5

0

4

10

210

16

21

0 5 10 15 20 25

Inflight services costs

Air craftmaintenance costs

Distribution costs

Station costs

Advertisingand Promotion costs

Salesand Reservations costsAirport charges

Operating costs (salaries,officeexpensesetc)

Fuelprices


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5. Does direct distribution of tickets influence the price of tickets?

a. Yes

b. No


Effect of direct distribution on price of

tickets

Non- conclusive

12

13

0 5 10 15 20

No

Yes


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6. Rank the following days according to maximum passenger volume:

DAY RANK

MONDAY

TUESDAYWEDNESDAY

THURSDAY

FRIDAY

SATURDAY

SUNDAY

171147

115 10564 63

350

20

406080

100120140160180


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7. Rank the following days according to maximum price of the ticket:

DAY RANKMONDAY

TUESDAY

WEDNESDAY

THURSDAY

FRIDAY

SATURDAY

SUNDAY

168143

112 11173 58

380

2040

6080

100120140160180


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Combined Analysis


Fluctuation of volume on different daysof the week and its effect on price

Volume is directly proportional to price.

Highest volumes are observed on

weekends and thus prices as well.

11173 58 38

112168 143

0

50

100

150

200

0

50

100

150

200

Price Passenger Volume


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8. What parameter(s) do you think will make you capture additional passenger volume?

# More value addition to customers

$ On time performance

% New improved aircrafts

& Introduction of New routes

' Others please specify

Reasons/Objectives

Areas for scope of improvement to

capture additional passenger volume

14

16

4

16

2

0 2 4 6 8 10 12 14 16 18

Morevalueadditionto customers

Ontimeperformance

New improved aircrafts

IntroductionofNewroutes

Others pleasespecify

NEWROUTES

VALUE ADD


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9. How would Low Cost Carriers ensure high aircraft utilization on unprofitable routes?

a. Offering the lowest prices in the industry

b. On time performance and high turnaround time

c. Faster check-in

d.

All of the above

11

10

0

9

0 2 4 6 8 10 12

Offeringthelowestprices inthe industry

Ontimeperformanceand high

Faster check-in

Alloftheabove


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10. Which of the following offers and/or sales promotions do you use to attract customers?

b) Loyalty programs and membership

c) Discount on tickets

d) Corporate tie-ups

e) Cash Back offers

f) Others


Type of promotional activities

used by operators to attract

customers.

Offers directly affecting the price

are used more extensively

0 5 10 15 20

Loyalty programs and

Corporate tie-ups

Others

Please specify:


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Web Survey Snapshots on Facebook


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Observational Findings


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Limitations

y Head Offices of Airlines are not located in Pune city

y Operator Employees were reluctant to provide answers to the questionnaire.


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Recommendations, Conclusions and Suggestions


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airline report final

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