11

Low Cost CarriersLow Cost Carriers

BUZZBUZZ

Section BSection B

Image courtesy of Boeing

22

AirlinesAirlines

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

“This is a nasty, rotten business.”

“Air transport is just a glorified bus operation.”

33

Global CarriersGlobal Carriers

US

Ireland

Ireland

Malaysia

Australia

Saudi Arabia

Singapore

Germany

UK

US

Southwest Airlines

Ryanair

Easy jet

AirAsia

Virgin Blue

Air Arabia

Valueair

Air Berlin

Air Southwest

US Airways

44

World Scenario - Low Cost AirlinesWorld Scenario - Low Cost Airlines

The successful low cost airlines are more profitable than established carriers

Ryanair has a market capitalisation of about £3 billion Globally, the largest and most successful low cost airline is

Southwest in the US Operating Margins of different international airlines:

RyanairSouthwestUnited AirlinesLufthansaAir FranceKLMBritish Airways

22.7%21.8%11.9%

5.7%3.5%1.5%0.9%

55

Aviation Industry in India : Aviation Industry in India : CharacteristicsCharacteristicsHuge PotentialUnder penetrated market

o Total Passenger Traffic : 50 milliono Passenger trips per annum :

India : 0.05

United states : 2.02

Untapped air cargo market

66

Aviation Industry in India : Aviation Industry in India : CharacteristicsCharacteristics

India GDP : 9.6 % per annum

Domestic air travel : 20 – 25 %

WTTC Travel & Tourism : 8.8 %Over next 10 years

Medium Term Growth Forecast :

77

Aviation Industry in India : Aviation Industry in India : CharacteristicsCharacteristics

Constraints :o Infrastructure constraintso Shortage of airport facilitieso Parking bayso Air traffic control facilitieso Takeoff and landing slots.o Less than 100 airports having more than one daily service.

88

Macro Environment AnalysisMacro Environment AnalysisMain Factors :

Political EconomicSocio-cultural

TechnologicalOther Factors :

Demographic Natural Environment

99

Macro Environment Analysis : Macro Environment Analysis : PoliticalPolitical

Open Sky PolicyDeregulations in different spheresLow entry barriersFDI limits :

o 49 % for airlines o 100% for airports

1010

Macro Environment Analysis :Macro Environment Analysis :EconomicEconomic Growing middle class income Consistent GDP growth of more than 8%

and projected rate in two digits Hike in average salary 14%(highest) in the

world Tourism industry growth :8.8 %in 2005

1111

Macro Environment Analysis :Macro Environment Analysis :Socio-culturalSocio-culturalGrowing middle class :

o 1993-1999 : 39.5 m to 56.7 m householdso 2005 : 300 mo 2010 : 400 m (Estimated)

Increase in leisure travel by tourists by 15 % in 2005

Foreign tourists in 2006 : 3.2 mnStatus symbol to travel in plane.

1212

Macro Environment Analysis :Macro Environment Analysis :TechnologicalTechnologicalModernization & Privatization of Airports

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

Example : ILS, CAT-3

Developing Greenfield Airports with Private Sector

Example : Bangalore Airport Corporation Ltd.

1313

Macro Environment Analysis :Macro Environment Analysis :Demographic and NaturalDemographic and NaturalChanging pattern of consumersHighest percentage people of age group 20-

25Educational environmentShift towards family conceptHigh energy cost

1414

Low Cost Carriers in IndiaLow Cost Carriers in India

Air DeccanSpiceJetIndiGo AirlinesGo AirJetlite (Formerly known as Air Sahara)

1515

Business Model of Low Cost Business Model of Low Cost CarriersCarriers A single Passenger class A single type of airplane reducing training

and service cost No frills such as free food/drinks, lounges etc.Emphasis on direct sale of ticket through Internet

avoiding fee and commission paid to travel agents.Employees working in multiple rolesUnbundling of ancillary charges to make the

Headline fare lower

1616

Aviation Industry in India : Aviation Industry in India : Market ShareMarket Share

The Domestic Aviation Market Share

34%

20%21%

8%

8%6%

2%

1%

Jet airways

Indian

Air Deccan

Air Sahara

Kingfisher

Spicejet

Goair

Others

1717

Market Share in LCC SegmentMarket Share in LCC Segment

1818

Airline Industry in India : Airline Industry in India : Service Vs Price GraphService Vs Price Graph

S

E

R

V

I

C

E

P R I C E

1919

Air DeccanAir DeccanCome SIMPLIFLY With Us…Come SIMPLIFLY With Us…

Market Share : 21.2 %

Image courtesy of Air Deccan

2020

Vision and MissionVision and Mission

Vision : Empower every Indian to fly

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

2121

Marketing StrategyMarketing Strategy

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

Free Tickets :

Images courtesy of Air Deccan

2222

Marketing StrategyMarketing Strategy

Advertisement through print, radio and billboardsIn flight magazine for revenue generatingIn flight shopping scheme called “Brand for less” –

AVA MerchandisingTie-up with Café Coffee DayICICI-Travel agent purchase cardTie-ups with HPCL and Reliance Web World

2323

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

2424

SWOT AnalysisSWOT Analysis

Strengths : Leader in LCC segment :

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

2525

SWOT AnalysisSWOT Analysis

Weaknesses : Focuses mostly on South Indian market Image plagued by frequent breakdowns and near

misses Very limited advertising Reached at the threshold of cost efficiency

2626

SWOT AnalysisSWOT Analysis

Opportunities : Extensive network to capitalize Air Cargo

business Plenty of scope for expansion of operations Strengthen its position in Chartered flight

segment Could start ‘Contractual Employment’

2727

SWOT AnalysisSWOT Analysis

Threats :

High attrition rate The threat of new entrants into Low Price Segment

especially IndiGo, Go Air and SpiceJet High Risk Perception

2828

SpiceJetflying for everyone

Market Share : 6 %

Image courtesy of SpiceJet

Source : http://www.airteamimages.com

2929

Vision and Mission Vision and Mission

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

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

3030

Marketing StrategyMarketing Strategy

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

Aims to compete with Indian Railway’s AC segment

Aims at future fleet expansion to increase market share

3131

ChallengesChallenges

Small fleet structureSmall load efficiency compared to Air

DeccanCompetition with new entrantsMarket share of East-central IndiaHigh attrition rate

3232

GoAirThe People’s Airlines – to FLY SMART

Market Share : 2 %Image courtesy of GoAir

3333

Strengths and WeaknessesStrengths and Weaknesses

Strengths :Promoted by Wadia groupGoAir FreeFares

Weaknesses : Small network : Only in Southern and Western IndiaSmall fleet structureLoad efficiency

3434

IndiGoAlways affordable, no gimmicks, hassle free

Market Share : 0-1%

Image courtesy of IndiGo

3535

Marketing StrategyMarketing Strategy

Focuses on One thing :

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

Uses new Airbus A320-200 aircraftEfficient processes

3636

An ExampleAn Example Images courtesy of www.chillnite.com

3737

Current Trends :Current Trends :Consolidations All AroundConsolidations All Around

Kingfisher-Air Deccan Dealo Kingfisher buys out 26 % stake for Rs.550 crore.o They have combined Market share of 33%o They are second biggest player after Jet Sahara deal

Jet airways and Air Sahara mergero Air Sahara name changed to JetLite

3838

Future TrendsFuture Trends

The projection for Indian Aviation for 2020 is estimated at:

o 400 million passengers o Including 180 million domestic passengers o 1,000 aircraft in the civil aviation sector

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

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

3939

Future Trends : Passenger ForecastFuture Trends : Passenger Forecast

Source : www.civilaviationweek.com

4040

Future Trends : Proposed AdditionFuture Trends : Proposed Addition

Source : www.civilaviationweek.com

4141

Thank YouThank You

Jai Prakash Mundhra -071221

Kamal Agarwal -071222

Kartik Rawal -071223

Kaushal Dixit -071224

Ketan Mardikar -071225Image courtesy of Boeing

4242

ReferencesReferences

http://www.wikipedia.org

http://www.flyairdeccan.net

http://www.goair.in

http://www.spicejet.com

http://www.hinduonline.com

http://www.civilaviationweek.com

http://www.businesstravelindia.com

http://www.yahoo.com

http://civilaviation.nic.in

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

http://www.flykingfisher.com

http://www.goindigo.in

http://indiaaviation.aero