You are on page 1of 65

AIRLINE INDUSTRY

AIRLINE: THE SERVICE INDUSTRY

S. Topic Page
No No
1. Summary 1
2. Service Marketing 2
3. Unique Characteristics Of Service 2
4. Marketing Mix For Service 8
Marketing
5. Introduction to Airline Industry 17
6. Structure Of The Industry 20
7. Haw Major Airlines Are Structured 21
8. The Indian Aviation Industry 24
9. Airport Infrastructure 29
10. Development Of Civil Aviation 31
11. Civil Aviation Policy 34
12. Infrastructure Developments 36
13. Airport Privatization 38
14. Alliance Strategy 40
15. Benefit To Passengers 43
16. Recent Development 45
17. Future Growth Of Non Metro 50
Airports
18. Case Study – Jet Airways 53
19. Conclusion 63

Page
1
AIRLINE INDUSTRY

SUMMARY

We owe it to the Wright brothers for having invented


airplanes. The Wright brothers could not have imagined
how airplanes would change the way people live & do
business.

The airline industry has witnessed a sea change from two


wheeler bi-planes to the Boeing 747's that are visible in our skies today. The
passage of time has witnessed competition grow from leaps to bounds.
Today airplanes are present in every country around the world with
expectation of a few places. Even the industry has been growing year on
year

It was JRD Tata who made the first move to build up an airline industry in
India. He with the help of Nevil Vincent, a former RAF pilot, went ahead and
drew a plan for the operation of first flight from Karachi to Mumbai with
single stopover at Ahmedabad. This is how Tata Airlines was born which was
donated to Indian Government. On 28th May 1953, Air Corporation Act –
1953, the government of India nationalized the airlines industry. In
accordance with this act, the two air corporations, viz. Indian Airlines
Corporation and Air India International were established. In 1994 the
monopoly was ended and Indian skies were opened for any carriers who
fulfills the statutory requirement

Page
2
AIRLINE INDUSTRY

The Indian aviation industry can be broadly classified into two main
segments - Civil and Cargo. In fact, the birth of civil aviation is attributed to
air cargo and mail. In the beginning, mail and air cargo were the important
elements of air carrier services than passengers. The major players in the
Indian context are Air India in the international segment and Indian Airlines,
Jet Airways and Sahara in the domestic segment.

Over the years, the aviation sector in India has evolved and today it is on the
threshold of a major shake out with the divestment of the Indian
government's stake in Air India and Indian Airlines on the cards. A number of
domestic and foreign parties have evinced interest in the divestment
process. Foreign airlines have also entered the Indian skies.

The Indian aviation sector till recently was highly regulated by the
government. As recently as the eighties saw the introduction of some new
initiatives like the air taxi scheme, whose main objective was to boost
tourism.

Domestic and international passenger traffic in India is projected to grow


annually at 12.5% and 7% respectively over the next decade. At the same
time, domestic and international cargo traffic is expected to grow at 4.5%
and 12% respectively. By the year 2010, Indian airports are likely to handle
60mn international passengers and 300,000 tons of domestic and 1.2mn
tons of international cargo.

Page
3
AIRLINE INDUSTRY

SERVICES MARKETING

Service industry is witnessing a major boom in India. Services like banking,


car financing, consumer durable credit, cellular, paging, express, hospitality,
travel and tourism, airlines, and, educational services on are today realizing
the importance of marketing. Along with these big service businesses, many
small businesses ranging from beauty saloons, pubs, gyms, play schools and
so on are realizing the importance of marketing.

UNIQUE CHARACTERSTICS OF SERVICES

What is a service? And why should services receive special treatment from
marketers? A popular definition describes services as

"Any act or performance that one party can offer to another that is
essentially intangible and does not result in the ownership of anything. Its
production may or may not be tied to physical product."

Although, the distinction between goods and services is somewhat artificial,


since the success of goods manufacturers is vitally dependent on the service
they provide, there are four commonly cited characteristics of services that
make them different to market from goods: Intangibility, Inseparability,
Variability and Perishability.

➢ Intangibility:
Pure services such as baby-sitting cannot be seen or touched. They are
ephemeral performances that can be experienced only as they are
delivered. As the above definition of service suggests, intangibility may

Page
4
AIRLINE INDUSTRY

represent the most critical difference between services and goods, and
its implications for marketing are great.
Intangible services are difficult to sell because they cannot be
produced and displayed ahead of time. They are therefore harder to
communicate to prospective customers. A passenger cannot feel the
service that he would encounter in the airplane, however person may
talk to other travelers who have experienced the same service, but
their experience does not necessarily be the same.
Marketers of services can reduce these risks by stressing tangible cues
that will convey reassurance and quality to the prospective customers.
These tangible cues range from the firm's physical facilities to the
appearance and demeanor of its staff to the letterhead on its
stationery to its logo. Life insurance companies are particularly savvy
about this problem. Their service is, after all, the most intangible
service: by definition, the buyer will never know the ultimate result of
what he or she has bought! To compensate for this intangibility the
major companies over the world have developed strong visual symbols
for their firms.
• Prudential – The rock of Gibraltar
• All state -Protective hands
• Traveler’s -A red umbrella
• Nationwide -A blanket
• Wausau -A train station

➢ Inseparability:
Different service marketing marketers interpret this characteristic
differently, but all interpretations point out those special operations
problems exist for the firm's managers. One interpretation of this term
is the inseparability of customers from the service delivery process. In
particular, many services require the participation of the customer in

Page
5
AIRLINE INDUSTRY

the production process. A child getting a haircut must sit still;


otherwise, the family photo may have to be delayed for a month. The
person who comes to a Chartered Accountant (C. A.) at the last minute
with boxes of disorganized records may cause the C. A. to overlook
some possible deductions. These examples illustrate the fact that,
unlike goods, which are often produced in a location far removed from
the customer and totally under the control of the manufacturing firm,
service production often requires the presence and active participation
of the customer - and of other customers. Depending upon the skill,
attitude, and cooperation and so on that customers bring to the service
encounter, the results can be good or bad, but in any event are hard to
standardize.
A second interpretation of inseparability refers to the fact that in some
service industries the service delivered is inextricably tied to particular
individual service providers. Customers may have ground for complaint
if their service is not provided by, for example, the surgeon or lawyer
they thought they were paying for.

➢ Variability:
The fact that service quality is difficult to control compounds the
marketer's task. Intangibility alone would not be such a problem in
customers could be sure that the services they were to receive would
be just like the successful experiences their neighbors were so pleased
with. But in fact, customers know that services can vary greatly.
Different front-line personnel have different abilities. Even the same
service provider has good days and bad days or may be less focused at
different times of day. Services are performances, often involving the
cooperation and skill of several individuals, and are therefore unlikely
to be same every time. This potential variability of service quality
raises the risk faced by the consumer.

Page
6
AIRLINE INDUSTRY

The service provider must find ways to reduce the perceived risk due
to variability. One method is to design services to be as uniform as
possible - by training personnel to follow closely defined procedures, or
by automating as many aspects of the services as possible. The appeal
of some service personnel - particularly, those involved in such
expensive personnel services as beauty parlors treatments or home
decoration - lies in their spontaneity and flexibility to address individual
customer needs. The danger with too much standardization is that
these attributes may be designed right out of the services, therefore
reducing much of their appeal. A second way to deal with perceived
risk from variability is to provide satisfaction guarantees or other
assurances that the customer will not be stuck with a bad result.

➢ Perishability:
The fourth characteristic distinguishing services from goods is their
time dependence. Services cannot be inventorised, since they are
performed in real time. And time periods during which service delivery
capacity sits idle represent revenue-earning potential that is lost
forever. Periods of peak demand cannot be prepared for in advance by
producing and storing services, nor can they be made up for after the
fact. A service opportunity occurs at a point in time, and when it is
gone, it is gone forever. This can present great difficulty in facilities
planning. A survey of service firms found that the greatest operational
challenges facing them were posed by the Perishability of their
products.
Matching service capacity to demand patterns can involve managing
one or both elements. Perishability often puts a greater burden on
service marketers to manage demand than it does on goods
marketers, who can build up inventories to meet peak demand or can
reduce prices later to move the unsold inventory. The cited survey

Page
7
AIRLINE INDUSTRY

found that the firm's principal method for controlling demand was to
increase personnel selling during potentially slow periods. Surprisingly,
few firms claimed to use the standard economic solution of price
changes to increase or decrease demand, although some service
industries, such as resort hotels with seasonal demand, do this
routinely.
Few service providers had opinion that they developed alternative,
counter seasonal service products to use slack capacity, although that
has long been a common practice by goods marketers. Many service
providers also control demand by requiring appointments. The
alternative to controlling demand is to make service capacity flexible.
Some service firms keep on call frontline personnel who can arrive on
short notice to meet the surges in demand, or cross train support
personnel to assist with customer service during busy periods.

Page
8
AIRLINE INDUSTRY

MARKETING MIX FOR SERVICES MARKETING


The marketing mix refers to the blend of ideas, concepts & features which
marketing management put together to best appeal to their target market
segments. Each target segment will have a separate marketing mix, tailored
to meet the specific needs of consumer in the individual segment.

Peo
Pla
Pri of Service Marketing
7Servi
P’s
Physical
Prod
Promot
ple
ce
Evidence
Proc
ce
uct
ion
ess
Qual
ity
Quali
ty

Service marketing managers have found that the traditional four P's of
marketing are inadequate to describe the key aspects of the service
marketer's job. The traditional marketing mix is said to consist of the
following elements of the total offering to consumers: the product (the basic
service or good, including packaging, attendant services etc.); its price; the

Page
9
AIRLINE INDUSTRY

place where the product is made available (or distribution channels - not
generally a real issue for most services, except perhaps for repair and
maintenance); and promotion (marketing communication: advertising, public
relations and personal selling).

➢ The Product Mix :


The product here refers to Airline service offering. Although service
products are essentially intangible, there are certain pyhsical
characteristics which consumer assess in their evaluation of product
choice. It the service mix, there is passenger services , cargo services,
& the mail services.

Attractiveness of the offering in terms of pyhsical features such as


consumers have high expectation, the food & drinks offered ,
entertainment.

Facilities available, associated level of services such as, quality of


seats & interior decoration. The product is quite complex one since it
comprises of aservice of certain tangibal such as free flight bags or
free bottle or duty free spirit in order to encourage booking.

Thr airline product includes 2 types of services, on the ground services


and in-flight services. The on-the ground, services include car parking
Page
10
AIRLINE INDUSTRY

facilities at the airport, duty free shopping, reservation counter,


efficient checking of baggage, transport etc…

• Reservation :
Reservation of air-line ticket is now easy since it is fully
computerized and now you can reserve your ticket through thr
internet. There are 24 hours reservation, passenger can even
specify their seat preference at the time of reservation.

• Check in :
The check-in and flight handlingsystem has also been
computerized. Kingfisher airline has offered tele-check-in
facilities to the passengers can call their special tele-check-in
numbers at the airport upto 45 minutes before the departure and
confirm their ticket. Their boarding card will await them at the
airport. In order to relax after their check-in special lounges are
provided.

• Baggage facilities :
About 30kgs of check-in baggage is allowed. Passenger, carrying
international tickets are given further allowance of around an
added 30kgs priority baggage delivery is offered to the
members.

• Transport facilities :
Free transport service is provided to passengers in order to help
them reach their destination faster. Apart from these tangibal
elements the seating arrangement in the aircraft should be
spacious and comfortable. The in-flight foods provide physical
evidence to the airline service.
Page
11
AIRLINE INDUSTRY

Page
12
AIRLINE INDUSTRY

➢ The Promotional Mix:

The aims of promotion fall into three


main categories: to inform, to remind, & to pursuade. It will always be
necessary to inform prospective consumers about new products &
services, but other issue may also need this type of communication to
consumers; new uses, price changes, information to build consumer
confidence & to reduce fears, full description of service offering, image
building. Similarly consumers may need to get reminded about all
these types of issues, especially in the off-peak season.

It is vitally important to recognisse that promotion, or marketing


communications generally, may not always be aimed at potential
consumer or end user of service. In many business areas, it is to
design promotions aimed at channel customers to complement end
user promotion.for e.g Airlines will need to promote their services to
tour operaters as well as end user.

Page
13
AIRLINE INDUSTRY

➢ The Pricing Mix:

Pricing in airlines is a fairly complex


issues, since there are price variations
because variations in the level of
demand, particularly due to
seasonality, when every Airlines gives
price discounts & competition is tough.
Airlines will always faced by high levels
of fixed costs, leading to variants of cost-plus pricing or ROI as key
determinants of pricing levels. It is important to includde pricing tactics
which exploit price sensitivities fully. It differentiates service levels &
offer higher price ‘ value added services’, as in business class air
travel.
We have diffenent authorities to manage and control domestic as well
as international air transport busines. The ministry of civil aviation, the
indian airline corporation, the national airport authority, the
international airport authority of india and the air india corporation are
the bodies directly or indirectly influencing the process of pricing
decision.
The cocept of fair price is very important, pricing can be classified in 3
ways.

• Cheap value pricing :


This method of pricing is used to undercut the competition and
trigger immediate purchase. Though the unit profits aer low, the
overall profits are achived.

In order to meet the competition and consolidate their position in


the market. Air india and indian airlines have their price.
Page
14
AIRLINE INDUSTRY

• Value for money pricing :


In this method average price is charged for the product and it is
emphasized that it represents excellent value for money at this
price. This enables the airline to achieve the good level of profit.

• Premium pricing :
In this method the prices are set above the market price either to
reflect the image of quality or the unique status of the product
premium pricing succeeds if the company enjoys a strong
reputation that the brand image alone is sufficient or the product
features are not shared by its competitors.

➢ Place :
The air transport organisation has to make sure that the prospects
don’t face any difficulty while buying the tickets and make necessary
arrangements for the confirmation of the booking. It is also confirmed
that the users booking their luggages do not face any inconveniences.

Another dimension of place is related to the location and management


of offices of airways, travel agent, tour operators, transport operators
etc. Easy accessibility should be the main criteria in selecting the
place. The place should be safe, well connected with all weather proof
roads where all the required infrastructure facilities are available.

The water and sanitation facilities for the users and comfortable
seating arrangements must be made available. Lighting and ventilation
facilities should also be taken care of. The interior decoration
furnishing, plantation needs aesthetic sense so that the user forms a
positive opinion regarding the airway services.

➢ People Mix :
Many services require personal
interactions between customers and
the firm's employees and these
Page
15
AIRLINE INDUSTRY

interactions strongly influence the customer's perception of service


quality. For example, a person's stay at a hotel can be greatly affected
by the friendliness, knowledge ability and helpfulness of the hotel staff
- in most cases the lowest paid people in the organization. One's
impression of the hotel and willingness to return are determined to a
large extent by the brief encounters with the front-desk staffs,
bellhops, housekeeping staff, restaurant wait staff and so on, many of
which take place outside the direct control of the hotel management.
In fact, the average hotel patron has very little contact with the hotel
supervisors and managers.
Therefore, management faces a tremendous challenge in selecting and
training all of these people to do their jobs well, and, perhaps even
more important, in motivating them to care about doing their jobs well,
and, perhaps even more important, in motivating them to care about
doing their jobs and to make an extra effort to serve their customers.
After all, these employees must believe in what they are doing and
enjoy their work before they can, in turn, provide good service to
customers.
For this reason, human resources management policies and practices
are considered to be of particular
strategic importance for in
delivering high-quality services.
Establishing a customer-oriented
culture throughout the firm and
empowering employees to provide
quality service cannot be
established merely by putting up inspiring posters. Management
leadership, job redesign and systems to reward and recognize
outstanding achievement are among the issues that a successful
service manager must address. The term "internal marketing" has
been coined to characterize the sets of activities a firm must undertake
Page
16
AIRLINE INDUSTRY

to win over the hearts and minds of its employees to achieve service
excellence.
The "people" component of the service marketing mix also includes the
management of the firm's customer mix. Because services are often
experienced at the provider's facilities, other customers who are being
served there can also influence one’s satisfaction with a service. Ill
mannered restaurants customers at the next table, crying children in a
nearby seat on an airplane and commercial bank customers whose
lengthy transactions take up the teller's are all examples of unpleasant
service conditions caused by a firm's other patrons.
On the other hand, the right mix of customers can greatly increase the
enjoyment of experience - for example, at entertainment services,
such as nightclubs or sporting events. Determining the desirable
customer mix for a service, segmenting the market into compatible
groups and managing customer arrivals to avoid conflict and enhance
the service experience are essential components of service
management.

➢ The Physical Evidence Mix:


This element of the expanded marketing mix addresses the "tangible"
components of the service experience and firm's image referred
earlier. Physical surroundings and other visible cues can have a
profound effect on the impressions customers form about the quality of
the service they receive. The "services cope" - that is, the ambience,
the background music, the comfort of seating and the physical layout
of a service facility - can greatly affect a customer's satisfaction with a
service experience.
The appearance of the staff, including clothes and grooming, may be
used as important clues. Promotional materials and written
correspondence provide tangible reassurance; they can be

Page
17
AIRLINE INDUSTRY

incorporated into the firm's marketing communications to help reduce


customer anxiety about committing to the purchase. Service firms
should design these items with extreme care, since they will play a
major role in influencing a customer's impression of the firm. In
particular, all physical evidence must be designed to be consistent with
the "personality" that the firm wishes to project in the marketplace.

➢ The Process Mix:


Because customers are often involved in the production of services,
the flow and progress of the production process is more important for
services than it is for goods. A customer who buys a television set is
not particularly concerned about the manufacturing process that made
it. But the customer at a fine restaurant is not merely interested in the
end result - the cessation of hunger. The entire experience of arriving
at the restaurant - of being seated, enjoying the ambiance, ordering,
receiving and eating the meal - is important. The pace of the process
and the skill of the provider are both apparent to the customer and
fundamental to his or her satisfaction with the purchase.
The importance of the process is true even for less 'sensual"
experiences. A customer who applies for a loan at a bank evaluates the
purchase not only by the amount of the loan received and the interest
rate paid. The speed and sensitivity of the approval process, the
interaction with the bank officers, the accuracy of bank statements and
the ease of getting redress if mistakes are found all affect the person's
attitudes about doing further business with the bank and his or her
willingness to recommend it to others. Therefore, when designing
service production processes, particular attention must be paid to
customer perceptions of that process. For this reason, marketing and
operations are closely related in service management.

Page
18
AIRLINE INDUSTRY

INTRODUCTION TO AIRLINE INDUSTRY


We owe it to the Wright brothers for having invented airplanes. The Wright
brothers could not have imagined how airplanes would change the way
people live & do business. The airline industry has witnessed a sea change
from two wheeler bi-planes to the Boeing 747's that are visible in our skies
today. The passage of time has witnessed competition grow from leaps to
bounds. Today airplanes are present in every country around the world with
expectation of a few places. Even the industry has been growing year on
year.

Technology has also made a significant contribution to the airline industry;


over the years technological advances have been incorporated into the
science of flying airplanes. The industry has also propelled the growth of
ancillary services like travel agents, courier services, cargo handling,
clearing & forwarding agents etc
Page
19
AIRLINE INDUSTRY

HISTORY OF INDUSTRY
Nevill Vincent, a former RAF pilot came to India from Britain in 1929, on a
brainstorming tour to survey a number of possible routes. It was through
providence that he met JRD Tata, the first Indian to secure an A-license
within the shortest number of hours. Vincent worked out a scheme, secured
JRD's approval and together they presented it to Mr. Peterson, the director of
Tata Sons and also JRD's mentor. Sir Dorab Tata, the then chairman of Tata
Sons, pleasantly surprised all by giving the scheme his okay. So they went
ahead and drew plans for the operation for the first flight from Karachi to
Mumbai with a single stopover at Ahmedabad. All that they asked was a
guarantee from the government for a year for the sum of Rs.100,000. This,
however, was turned down. The Tata-Vincent combine was naturally
disappointed but not dismayed. A second scheme was prepared. This time
the guarantee asked was Rs.50,000 for the first year, Rs.25,000 for the
second year and no guarantee at all from the third year onwards. This
scheme was rejected too. The team then tried a third time. This time they
offered to donate an air service to the Government of India with no strings
attached. The Government finally agreed and thus was born Tata Airlines
that later became Air India.

On 28th May 1953, consequent to the coming into force of the Air
Corporations Act, 1953, the Government of India nationalized the airlines
industry. In accordance with this Act, the two air corporations, viz. Indian
Airlines Corporation and Air India International, were established and the
assets of all the then existing airline companies (nine) were transferred to
the two new Corporations. The operation of scheduled air transport services
was under the monopoly of these two Corporations and the Act prohibited
any person other than the Corporations or their associates to operate any
scheduled air transport services from, to, or across India.

Page
20
AIRLINE INDUSTRY

However, after 40 years, in 1994, the wheel had turned a full circle as the Air
Corporation Act, 1953 was repealed with effect from 1st March 1994. That
ended the monopoly of the Corporations on scheduled air transport services.
Air transport in India is now open to any carrier who fulfills the statutory
requirements for operation of scheduled services.

Page
21
AIRLINE INDUSTRY

STRUCTURE OF THE INDUSTRY

Types of Airline Certification

All airlines hold two certificates from the federal government: a fitness
certificate and an operating certificate. The Department of Transportation
(DOT) issues fitness certificates - called certificates of public convenience
and necessity - under it's statutory authority. Basically, the certificate
establishes that the carrier has the financing and the management in place
to provide scheduled service. The certificate typically authorizes both
passenger and cargo service. Some airlines, however, obtain only cargo-
service authority. Commuter airlines that use aircraft with a seating capacity
of 60 or fewer seats or a maximum payload capacity of no more than 18,000
pounds can operate under the alternative authority of Part 298 of DOT’s
economic regulations.

Operating certificates, on the other hand, are issued by the Federal Aviation
Administration (FAA) under Part 121 of the Federal Aviation Regulations
(FARs), which spell out numerous requirements for operating aircraft with 10
or more seats. The requirements cover such things as the training of flight
crews and aircraft maintenance programs. All majors, nationals and regionals
operate with a Part 121 certificate.

Page
22
AIRLINE INDUSTRY

HOW MAJOR AIRLINES ARE STRUCTURED

➢ Line Personnel:
These include everyone directly involved in producing or selling an
airline’s services - the mechanics, who maintain the planes; the pilots,
who fly them; the flight attendants, who serve passengers and perform
various inflight safety functions; the reservation clerks, airport check-in
and gate personnel, who book and process the passengers; ramp-
service agents, security guards, etc. Line personnel generally fall into
three broad categories: engineering and maintenance, flight
operations, and sales and marketing. These three divisions form the
heart of an airline and generally account for 85 percent of an airline’s
employees.

➢ Operations:

This department is responsible for operating an airline’s fleet of aircraft


safely and efficiently. It schedules the aircraft and flight crews and it
develops and administers all policies and procedures necessary to
maintain safety and meet all FAA operating requirements. It is in
charge of all flight-crew training; both initial and recurrent training for
pilots and flight attendants, and it establishes the procedures crews
are to follow before, during and after each flight to ensure safety.

Dispatchers also are part of flight operations. Their job is to release


flights for takeoff, following a review of all factors affecting a flight.
These include the weather, routes the flight may follow, fuel
requirements and both the amount and distribution of weight onboard
the aircraft. Weight must be distributed evenly aboard an aircraft for it
to fly safely.

Page
23
AIRLINE INDUSTRY

➢ Maintenance:

Maintenance accounts for approximately 11 percent of an airline’s


employees and 10-15 percent of its operating expenses. Maintenance
programs keep aircraft in safe, working order; ensure passenger
comfort; preserve the airline’s valuable physical assets (its aircraft);
and ensure maximum utilization of those assets, by keeping planes in
excellent condition. An airplane costs its owner money every minute of
every day, but makes money only when it is flying with freight and/or
passengers aboard. Therefore, it is vital to an airline’s financial success
that aircraft are properly maintained

Airlines typically have one facility for major maintenance work and
aircraft modifications, called the maintenance base; larger airlines
sometimes have more than one maintenance base. Smaller
maintenance facilities are maintained at an airline’s hubs or primary
airports, where aircraft are likely to be parked overnight. Called major
maintenance stations, these facilities perform routine maintenance
and stock a large supply of spare parts.

A third level of inspection and repair capability is maintained at


airports, where a carrier has extensive operations, although less than
at its hubs. These maintenance facilities generally are called
maintenance stations.

➢ Sales and Marketing:

This division encompasses such activities as pricing, scheduling,


advertising, ticket and cargo sales, reservations and customer service,
including food service. While all of them are important, pricing and
scheduling in particular can make or break an airline, and both have
become more complicated since deregulation. As explained in the next
chapter, airline prices change frequently in response to supply and
demand and to changes in the prices of competitors’ fares. Schedules

Page
24
AIRLINE INDUSTRY

change less often, but far more often than when the government
regulated the industry. Airlines use sophisticated computer reservation
systems to advertise their own fares and schedules to travel agents
and to keep track of the fares and schedules of competitors. Travel
agents, who sell approximately 80 percent of all airline tickets, use the
same systems to book reservations and print tickets for travelers.

➢ Subcontractors:

While major airlines typically do most of their own work, it is common


for them to farm out certain tasks to other companies. These tasks
could include aircraft cleaning, fueling, airport security, food service
and in some instances, maintenance work. Airlines might contract out
for all of this work or just a portion of it, keeping the jobs in house at
their hubs and other key stations. However, whether an airline does
the work itself or relies on outside vendors, the carrier remains
responsible for meeting all applicable federal safety standards.

➢ Security measures:
The government will most probably accept the recommendations of
the technical up gradation committee, set up to look into the different
aspects of air security

For international flights Air India & Indian airlines, security personnel
have been trained in passenger profiling, supposed to be the "most
fool-proof" security arrangement to identify suspicious traits among
passengers. The government is willing to spare more highly trained
commands, but the airlines have to be prepared to pay the price of
having the sky on board, it is learnt

THE INDIAN AVIATION INDUSTRY

The civil aviation activities can be broadly classified into three areas:

Page
25
AIRLINE INDUSTRY

➢ Operational,
➢ Infrastructure
➢ Regulatory-cum-developmental.
On the operational front, Air India provides international air services while
Indian Airlines is involved in the field of domestic air services. Pawan Hans
supplies helicopter support services, primarily to the petroleum sector. Air
India, Indian Airlines and its subsidiary Alliance Air (which also provides
domestic services) and Pawan Hans are government-owned. Other than
them, there are a few private domestic operators too. Airports Authority of
India (AAI), which was formed in April 1995 through the Airports Authority of
India Act, by merging the separate ‘national’ and ‘international’ airport
authorities that existed earlier supply infrastructural facilities.

In terms of characteristics, the aviation industry is seasonal in nature. In the


period April to May and again from November to December, demand is high.
However, in the June-July period demand falls.

Domestic Players in Airlines:


Till recently, Indian Airlines had a monopoly in the sector. However, in 1993
the skies were opened for private participation and 8 airlines got the nod to
commence operations. Of these, only two have survived - Jet Airways and
Sahara Airlines. Another airline, called Crown Express, has very recently got
an approval from the government to start domestic operations.

The market share of major players in 2000-06

Airlines Percentage Aircraft’s owned

Page
26
AIRLINE INDUSTRY

Indian airlines 51 57

Jet airways 42 33

Sahara airlines 7 9

Market Share of Major Players

Market
Share
7%

Indian airlines
Jet airways
42% Sahara airlines

51%

Over the past few years, Indian Airlines has lost market share and is
currently second to private operators. Its market share has fallen from 50.5%
in 1999 to 46.8% in 2000. The major gainers are the two domestic operators
Jet and Sahara, the major beneficiary being Jet Airways. The combined
market share of both of them has risen from 49.5% in 1999 to 53.2% in
2000. In terms of plant load factor too IA lags behind. While the average for
all domestic operators was around 63.4%, Indian Airlines clocked a
performance of 61.9%. Jet had the highest plant load factor of around 71.8%.

Operators

Indian Airlines:

Page
27
AIRLINE INDUSTRY

The network of Indian Airlines spans from Kuwait in the west to Singapore in
the East and covers 75 destinations - 59 within India and 16 abroad. The
Indian Airlines international network covers Kuwait, Oman, U. A. E, Qatar and
Bahrain in West Asia, Thailand, Singapore, Yangoon (Rangoon) and Malaysia
in South East Asia and Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and
Maldives in the South Asian subcontinent.
Indian Airlines flight operations center on its four main hubs the main metro
cities of Delhi, Mumbai, Calcutta and Chennai. Together with its subsidiary
Alliance Air, Indian Airlines carries a total of over 7.5mn passengers annually.
At present, Indian Airlines has a fleet strength of 55 aircraft's. Out of them,
are 11 Airbus A300, 30 Airbus A320, 11 Boeing B737 and 3 Dorniers D0228.
Indian Airlines has total staff strength of around 22,000 employees. Its
annual turnover, together with that of its subsidiary Alliance Air, is over
Rs.40bn.

Jet airways:

Jet Airways, India's most preferred airline, is now giving the world a better
choice in the skies.

The airline operates over 350 flights daily across 44 destinations within India

and also operates flights to Nepal, Sri Lanka, Singapore, Malaysia, United Kingdom, Thailand,

Belgium, United States of America & Canada on one of the youngest and best
maintained fleets. Jet Airways plans to extend its international operations
further in North America, Europe, Africa & Asia in the coming years with the
induction of wide-body aircraft into its fleet years.

There are many more domestic airlines operating in India Eg:-Air Deccan, Go
Air etc.

International Airlines:
Page
28
AIRLINE INDUSTRY

In the international sector, Air India is the sole Indian service provider.
However, in the international market, the share Air-India is negligible
compared to that of the likes of British Airways and Emirates Air.

Air India:
Air-India International was registered on March 8, 1948
and it inaugurated its international services on June 8,
1948, with a weekly flight from Mumbai to London via
Cairo and Geneva with a Lockheed Constellation aircraft. Later on in 1962,
the word 'International' was dropped. Effective March 1, 1994, the airline has
been functioning as Air-India Limited.
At present, Air India has a fleet strength of 23 aircrafts. Out of them are 6
Boeing 747-400, 4 Boeing 747-200, 2 Boeing 747-300 Combi, 8 Airbus 310-
300 and 3 Airbus 300-B4. The airline has plans to induct 4 more A-310-300
aircraft on dry lease effective December 2000. From a total of three stations
served at the time of nationalization, Air-India's network today covers 44
destinations. In addition, Air India has a so-called 'code sharing' arrangement
with a number of foreign airlines. These include Swiss Air, Bellview Airlines,
Austrian Airlines, Asiana Airlines, Air France, Virgin Atlantic, Scandinavian
Airlines, Singapore Airlines, Aeroflot, Air Mauritius, Kuwait Airways and
Emirates.Air India carried a total of 3.35mn passengers in FY2000 as against
3.17mn in FY99. This made for a plant load factor of 70.3%.

Financials:
Air-India has posted an operating profit of Rs.760mn in FY2000. This is good
news given the fact that the airline had recorded its highest operating loss of
Rs.4.13bn only three years ago i.e. in FY97. The airline had made its last
operating profit in FY95. The net loss has been contained at Rs.370mn partly
due to an additional payout of Rs.1.78bn during the fiscal due to a hike in
Page
29
AIRLINE INDUSTRY

global and domestic fuel prices. Air-India's total turnover during the year was
Rs.46.62bn as compared to Rs.42.36bn last year - a growth of 10%.
While PBIDT was a negative Rs.6.48bn, the firm succeeded in raking in a
cash profit of Rs.4.12bn during the year. Air-India has also achieved a
positive return on its investments of over 5% in FY2000 on capital employed
in the business as compared to a negative return in the last couple of

Page
30
AIRLINE INDUSTRY

AIRPORT INFRASTRUCTURE

There are a total of 449 airports/airstrips in the country. Airports are


presently classified as international and domestic airports.

International Airports:
These are available for scheduled international operations by Indian and
foreign carriers. Presently, Mumbai, Delhi, Chennai, Calcutta and
Thiruvananthapuram fall into this category.

Domestic Airports:
In this category fall those airports which have custom and immigration
facilities for limited international operations by national carriers and for
foreign tourist and cargo charter flights. These include airports Bangalore
(CE), Hyderabad, Ahmedabad, Calicut, Goa (CE), Varanasi, Patna, Agra (CE),
Jaipur, Amritsar, Tiruchirapally, Coimbatore, and Lucknow.

Yet another type of airports are known as Model Airports. These have a
minimum runway length of 7,500 feet and are capable of handing A320 type
Airbuses. They can cater to limited international traffic, if required. These
airports are in Bhubaneswar, Guwahati, Nagpur, Vadodara, Imphal and
Indore.

There are 71 domestic airports, which fall in the category of 'Other' Domestic
Airports. There are also 28 civil enclaves (CE) in Defense airfields. Twenty of
them are currently in operation. Mumbai airport is the busiest in India and
handles about 30% of the total passenger traffic in the country. The

Page
31
AIRLINE INDUSTRY

Chhatrapati Shivaji international airport's share of the country's international


traffic is around 40%.

Airports Authority of India:


The Airports Authority of India (AAI) was formed after the merger of
International Airports Authority of India and the National Airports Authority
by way of the Airports Authority Act (No.55 of 1994). It came into existence
on 1st April 1995. AAI manages 5 international airports, 87 domestic airports
and 28 civil enclaves. It provides air traffic services over the entire Indian
airspace and adjoining oceanic areas.
The AAI also undertakes assignments like airport feasibility studies, airport
design project implementation, project supervision and manpower training.
The AAI has undertaken consultancy projects in Libya, Algeria, Yemen,
Maldives, Nauru and Afghanistan.

Page
32
AIRLINE INDUSTRY

DEVELOPMENT OF CIVIL AVIATION IN INDIA


Travel by air in the modern sense began in India only in 1877, when Joseph
Lyna took off from the Lalbagh Gardens in Bombay, and ascended to an
altitude of about 7,500 feet and landed at Dadra. In the years that followed,
there was a tremendous development of air transportation in India as in any
other countries due to technological advances and cooperation from the
government.

In 1920, the Indian Air board was set up as a part of the Department of
Industries and Labour to provide safe navigation and landing places and live
up to its International Commitments.

With a view to draw up a plan in anticipating the post-war needs for civil air
transport, the government of India appointed in 1943 the Reconstruction of
Air Services Committee under the chairmanship of the Director of Civil
Aviation. Captain F.C. Tymms, M.C., (later Sir Frederick Tymms). Armed with
vast technical and administrative experience and an alarming capacity for
work, Sir Frederick submitted by September 1943, a series of carefully
thought out papers on all aspects of post-war aviation. Accepting the basic
recommendation of the Tymm’s report, the government appointed a
Committee in 1944 under the chairmanship of Sir Mohammad Ushman, a
member of the Post and Air Department to follow up the Tymms plan. After a
critical examination of the development of civil aviation in India, USA and
European countries, the Committee suggested certain measures for the
construction of new aerodromes and air routes by recommending that more
local air services be started and that India should participate in the
establishment of governmental assistance in the form of subsidy atleast in
the initial stage, and introduction of the system of licensing for air carrier

Page
33
AIRLINE INDUSTRY

companies. However it had not suggested any ceiling on the number of such
licenses as recommended by the Tymms Committee.

The cabinet after much discussion and deliberation decided to nationalize


the civil air transport scheduled carriers and to create two monopoly
corporations in the public sector. In March 1953, India’s Parliament passed
the Air Corporation Act, which received the assent of the President on 20 th
May.

The main provisions of the Act were that:

“There shall be transferred to and vested in:

• Indian Airlines, the undertaking of all the existing Air Companies (other
than Air India International Limited) and

• Air India International, the undertaking of the Air India International


Limited (AIIC)”.

The saga of Indian Airlines began on the 1st of August 1953, following the
amalgamation of eight private airlines. The journey began with a modest
fleet but high aspirations and over the years, Indian Airlines innovated and
upgraded its fleet to emerge as one of the largest domestic airlines in the
world. Today, Indian Airlines, along with its subsidiary airline, Alliance Air,
provides an extensive network, which encompasses the whole of India - a
geographical area equivalent to Western Europe, besides reaching out to 17
International Stations.

In the last four decades, Indian Airlines has progressed by leaps and bounds
and built an excellent track record of manpower and infrastructural
development. It has thus emerged as a proud symbol of modern India.

Some of the highlights of this glorious period of evolution include:

• Increase in passenger carriage from 0.5 million in 1954-55 to 8.4


million in 1997-98.

Page
34
AIRLINE INDUSTRY

• Spread of network from 23,000 kilometres in 1953 to 1,18,000


kilometres in 1997-98.

• Growth of assets from Rs.21 million to Rs.30, 000 million in 1997-98.

• A manifold increase in system seat capacity from 3,070 seats per day
in 1955 to 35,700 seats per day.

Page
35
AIRLINE INDUSTRY

CIVIL AVIATION POLICY

The Ministry of Civil Aviation is the main central agency responsible for the
formulation of national policies and programs for development and
regulation of Civil Aviation and for devising and implementing schemes for
orderly growth and expansion of Civil Air Transport. Its functions also extend
to overseeing the provisions of airport facilities, air traffic services and
carriage of passengers and goods by air.

The Government has approved a new policy to promote private investments


in the Aviation Sector. The highlights of the policy are as follows.
• Foreign equity upto 40% and investment by non-resident Indians
(NRIs) or overseas corporate bodies' (OCBs) upto 100% will be
permitted in domestic air transport services.
• Equity from foreign airlines will not be allowed directly, or indirectly,
in domestic air transport services. Existing companies in which
equity is held by foreign airlines will be advised to disinvest this
equity.
• Entry and exit barriers have been removed. There will be a scrutiny
of applications to verify financial soundness and maintenance,
security and safety aspects of operations.
• The choice of aircraft type and size is left to the operator.
• To achieve economies of scale, the minimum fleet size for a
scheduled operator has been raised from the existing three aircraft
to five. Also the minimum amount of shareholders' funds has been
increased from the existing Rs.50mn (US$ 1.4mn) to Rs.100mn
(US$ 2.9mn) for aircraft of all-up weight below 40,000 kg and from

Page
36
AIRLINE INDUSTRY

Rs.100mn (US$ 2.9mn) to Rs.300mn (US$ 8.7mn) for all-up weight


exceeding 40,000 kg.
• Total capacity requirements in the air transport sector are being
projected for a period of at least five years on an annual basis, to
help the developer make investment decisions.

• In the distribution of this capacity, while preference will be given to


Indian Airlines according to its fleet augmentation plan, private
operators' proposals to induct new capacity will be considered,
based on the demand, load factor, past track record and financial
soundness.

• All scheduled operators are required to deploy 10 per cent of their


capacity in NorthEast, Jammu and Kashmir, Andaman and Nicobar
Islands and Lakshadweep.

Mr. Shahnawaz Hussain has announced that the Aviation Policy would also
focus on the need for setting up joint ventures to develop smaller airports,
lease out the bigger airports and improve the existing aviation infrastructure.

Page
37
AIRLINE INDUSTRY

INFRASTRUCTURE DEVELOPMENTS

Private sector is now allowed in building airports. Among the private sector-
aided airports to be developed in the next five years are Hassan (Karnataka),
Mumbai, Goa and Bangalore. These airports are capital-intensive projects
that have to be run efficiently to make them commercially profitable. The
Mumbai project, for instance, will cost an estimated Rs.16bn (US$457mn).
The Government has also decided to concentrate on developing existing
airports rather than on new airports. The AAI is investing Rs.4.4bn
(US$125.7mn) to develop model airports in 12 cities, with state-of-the-art
equipment.

Part financing of facilities through a tax paid by embarking international air


passengers is an idea being tried out at Kozhikode, which generates large
West Asia-bound traffic. A similar method may be adopted for development
of airports in Rajasthan and Goa that are popular tourist destinations.

Among airport construction projects with private participation, the


Hyderabad International Airport has progressed the furthest. It has passed
the initial planning and the land acquisition stage. The project is expected to
cost around Rs.1.6bn (US$45.7mn) in the first phase, and go up to around
Rs.3bn (US$85.7mn) finally. In the first phase, equity will account for
Rs.640mn (US$18.3mn), 26% of which the government of the State of Kerala
holds, and the rest by non-resident Indians, banks, users (airline firms) and
contractors. Term loans and short-term borrowings for working capital from
banks will fund the rest of the project.

Page
38
AIRLINE INDUSTRY

The AAI has also drawn up an Rs.40bn (US$1.1bn) plan to modernize and
expand its airspace infrastructure to meet the demand growth projected for
the coming five years. The growth strategy envisages not only better
passenger facilities but also improved navigational and communication
systems. The first phase will involve upgradation of conventional
communication, navigational and surveillance systems as an immediate
measure. The second will be a transition from the present ground-based ATS
systems to satellite-based CNS/ATM by the year 2000.

The internal resources generated at present being inadequate, the AAI plans
to enhance revenues through rationalization of the tariff structure, as well as
from commercial, cargo and duty-free shops.

IATA - The International Air Transport Associations


IATA - The International Air Transport Association- was founded in Haryana,
CUBA, IN APRIL 1945. It is the prime vehicle for inter-airline cooperation in
promoting safe, reliable, secure and economical air service - for the benefit
of the world's consumers.

The international scheduled air transport industry is now more than 100
times larger than it was in 1945. Few industries can match the dynamism of
that growth, which would have been much less spectacular without the
standards, practices and procedures developed within IATA.

At its foundation IATA had 57 members from 31 nations, mostly in Europe


and North America. Today it has over 230 members from more than 130
nations in every part of the globe.

Page
39
AIRLINE INDUSTRY

AIRPORT PRIVATIZATION
The Airport Authority of India, which manages five international airports, 87
Domestic airports and 28 civil enclaves at defense airfields, is facing an
uphill task, as it for funds, management talent and its adherence to the
government procedures. Government policies provide for privatization of
airports at Delhi, Mumbai, Calcutta and Chennai through long lease and new
developments at existing airports and Greenfield airports through private
initiative.

It's true that there is risk in privatization of airports, since airports essentially
provide public utility services in monopolistic situations. There are
apprehensions that private enterprises are profit motivated and with
privatization users may not get quality services at affordable prices.

To begin with, for four airports which the government has decided to
privatize, consultants should immediately put the website details of assets,
traffic figures for the past 10 years and figure projections, revenue figures
existing and projected, profit & loss for last 10 Years, details of manpower,
business plans, capital investment programs etc. This would enable potential
investor to start preparatory work on their due diligence investigations.

Consultants should immediately develop draft terms and conditions


governing lease of these airports clearly bringing out obligations of new
managements in terms of service levels, commitment to minimum
investments for development of airport facilities, operational standards to
meet our national and international obligations, clauses to deal with
emergency situations, termination in event of breach, etc. These should be
discussed with the aviation industry and finalized.

Government should set up a regulatory Authority whose main functions


would be economic regulation and operational safety audit. This authority

Page
40
AIRLINE INDUSTRY

through its statutory powers and intervene if standards of airport services in


terms of safety, reliability and cost effectiveness are not met.

Some of the states are taking initiative for development of Greenfield


airports and they should be assisted by the Ministry of Civil Aviation in
adopting more professional approach. In the first instance state governments
should develop techno -economic feasibility reports for airport projects
through experienced organizations / consultants of repute.

Airport Authority of India (AAI) has a large number of airports where the
traffic volumes are low. Private entrepreneurs are not likely to be interested
in such airports, which are not financially viable. These airports should be
commercialized by exploiting the commercial potential of airport lands, cost
containment, increased productivity and improved cost recoveries. Thus,
some of these airports may in the next few years reach a stage when they
can also be privatized.

There are some other airports with AAI, which could be transferred to state
governments, local bodies or tourism agencies who are in an advantageous
position to operate and manage them more cost effectively. It is conceded
that privatisation is not likely to remove all the hiccups in the development
of aviation sector .We need to have a model tailored to Indian Conditions,
keeping in view the local laws, rules and regulations in tune with the political
philosophy and psychology of local travelers. The funding pattern should be
such that the investment made is beneficial to the investors due to
monopoly nature of airport business.

Foreign investors do not want to investment in aviation sector in India, due


to abnormal delays in decision making, undue interference, non- consistent
policies of government and to some extent inflated fear of corruption in
India. It's therefore essential that sectors like aviation be left in hands of
professional managers and the role of bureaucracy should be only custodial
and regulatory

Page
41
AIRLINE INDUSTRY

ALLIANCE STRATEGY

Alliances in various manifestations have come to stay and airlines around the
world are spending agonizing hours deciding who they will marry and on
what terms. The basic reason for all these alliances and equity partnerships
is that the competition is growing and the World Trade Organization (WTO) is
spurring the move towards “open skies” in the real sense of the word.
Multilateralism in the field of aviation would mean any airline could fly
anywhere in the world without being bound by bilateral agreements like that
exist at present. The impact of these global handshakes is being felt by
smaller airlines, as about 70 percent of the large carriers have become a part
of the various groupings. No individual airline can match the reach and the
connectivity of the large groupings and the smaller carriers can only watch
as the globe is carved up among the various mega alliances.

As a strategy, an alliance involves

➢ Extensive code sharing and the frequent flier plans

Code- Sharing is where an airline flies on behalf of the other on a


particular sector. The Indian example is that of Indian Airlines and Air
India that share codes in the Delhi-Mumbai as well as in the Gulf
sector. The frequent flier programmes are yet another advantage. The
miles earned on domestic flights can be redeemed on international
flights. The Jet Airways has an alliance with KLM/Northwest and the
British Airways. The passenger who flies on any of these airlines is
eligible for the “Jet Privilege” card subject to the fulfillment of terms
and conditions.

Page
42
AIRLINE INDUSTRY

➢ It also involves co-ordination of schedules to


maximize loads:
By this it implies that the two airlines that were earlier competing with
each other on a particular route compete no longer because of the
alliance. They instead time their flights so that their payload is
maximized and they do not compete against each other. Effective
scheduling of flights does this. When a domestic airline goes into an
alliance with an International airline then the scheduling is done in
such a way that the domestic flight can act as a connecting flight for
the passengers of the international flight. The Indian example of such
an alliance is that of Jet Airways with KLM/Northwest and British
Airways. By this not only the domestic airline has an increased load
factor but the international airline also has an increased load factor
through better connectivity.

➢ Route planning:

In route planning the alliance partners join hands for a particular route
or a combination of routes. For example if Air Lanka has got scheduled
flights from Colombo to Mumbai, then a passenger from Colombo can
be issued a ticket from Colombo to New Delhi. From Mumbai to Delhi
the alliance partner will carry the passenger.

➢ Joint pricing:
As stated above the passenger from Colombo to Delhi can be issued
one single ticket though he shall be availing of the services of two
airlines. This is called as joint pricing where in one of the partner issues
a ticket on behalf of the other.

➢ Inventory management:

Page
43
AIRLINE INDUSTRY

In the aviation industry the inventory costs form a major part of the
cost. The inventories are quite expensive as well. The alliance partners
maintain common set of inventories and this helps in the reduction of
the inventory costs, as a large amount of capital is not blocked for this.

➢ Integration of information technology:

This is yet another highlight of a successful alliance. The partners can


have joint reservation, check in and check out systems and can also
use the information technology infrastructure of the alliance partner.

➢ Joint purchasing by the alliance partners:

The benefit of scale and bargaining powers can provide great


synergies and the cost reduction to the partners.

Page
44
AIRLINE INDUSTRY

BENEFIT TO PASSENGER
➢ Easy connections across the globe:

An easy connection across the globe is made possible as the


passenger has the advantage of flying to such locations where the
international flights do not operate. In such a case the alliance partner
provides the connecting services (provided it has the same in that
region).

➢ Lounge access at various airports:

The advantage of the frequent flier program is also that the passenger
who holds the frequent flier status is eligible for availing of the lounge
services of the alliance partner as well. For example the “Gold Card”
holder of Jet Airways is eligible to avail of the lounge services of
KLM/Northwest and British Airways.

Times have changed to an extent that carriers, who were bitter rivals
once, are now talking about joint sales incentives, sharing revenues
and profits.

Though no Indian carrier is yet a part of the giant global alliances, Air-
India, Indian Airlines and Jet Airways are already in other alliances like
code-sharing, joint frequent flier programs. Airlines hold hands with
each other in several ways depending on their needs. Of course, the
most drastic measure is taking an equity stake, a method that is
actually going out of vogue these days. Other common ways are Code-
Sharing where an airline flies on behalf of the other on a particular
sector. Examples in India are Air-India and Air Lanka on flights to Delhi,
Air- India and Indian Airlines on domestic flights to Delhi and flights to
the Gulf, Jet Airways and KLM / Northwest. Joint marketing and frequent
flier programs co-operation is another popular measure to tie-up. An

Page
45
AIRLINE INDUSTRY

example is Jet Airways frequent flier program “Jet Privilege”, where it


has a joint co-operation with British Airways and KLM /Northwest. This
primarily means that the miles earned on domestic Indian routes can
be redeemed on international flights. A corollary of this is the joint
utilization of reservation, through check in and operational systems.

Other ways of alliance between the airlines for


greater synergies:
1. Block seat arrangements:

In this the airlines agree to take up a certain percentage of seats on


another carrier on a particular route.

2. Block cargo schemes:

For cargo, airlines have block cargo undertaking to provide a certain


tonnage to another carrier; they can also have Cargo Code Shares
between them.

3. Strategic partnership:

This is another amorphous term wherein airline tie-up for long-term


commercial gains. This sort of relationship usually ends up in equity
partnership or more permanent commercial arrangements. The latest
example is that of Singapore Airline taking a 49 percent stake in
Richard Branson’s “Virgin Atlantic”.

Page
46
AIRLINE INDUSTRY

RECENT DEVELOPMENTS

Going by the developments in the Indian aviation sector in the last few
years, there stands no doubt that there is enormous scope for growth in
India’s air traffic over the next few years. Today, the Indian aviation market
is estimated to be around Rs 25,000 crore and is growing rapidly with the
entry of numerous new players.
The aviation industry in India began with the birth of Tata Airlines, through
the business relationship between Mr Nevill Vintcent, a Royal Air Force pilot
and Mr JRD Tata, the first Indian to get an A-licence. Tata Airlines became Air
India in August 1946. In 1953, the Air Corporation Act nationalised all
existing airline assets and established the Indian Airline Corporation and Air
India International for domestic and international air services, respectively.
These two companies enjoyed monopoly power in the industry until 1991,
when private airlines were given permission to operate charter and non-
scheduled services under the ‘Air Taxi’ scheme to boost tourism. These
carriers were not allowed at the time, to fly scheduled flights or issue air
tickets to passengers. In 1994, following the repeal of the Air Corporation
Act, private players were permitted to operate scheduled services.
The next big change in the industry came in late 2003 with the emergence of
India’s first no-frill airlines, Air Deccan. It revolutionized the industry, offering
fares as low as INR 500 (roughly $ 10), compared to full service fares.
The key headlines in 2007 are going to be on dramatic increase in tourism
and the "de-seasoning" of many destinations, which will again stir a surge in
the aviation industry. The Indian tourism sector now accounts for 320 million
domestic travelers and three million inbound travelers, mostly comprising
Non- Resident Indians (NRIs) and People of Indian Origin (PIOs). This double-

Page
47
AIRLINE INDUSTRY

digit growth expected in the travel and tourism industry will surely reflect on
the Indian aviation industry.
While international tourism, both inbound and outbound is growing rapidly,
India will be most impacted by domestic growth. The reason being that
several destinations that were purely seasonal (for e.g. Goa from December
to March) are now witnessing the flattening of these peaks to some extent
and it’s believed that this process will continue and gain further momentum.
E-ticketing has also played a pivotal role by reducing the obscure task of
manual booking of airline tickets and the cost of issuing e-tickets is expected
to reduce drastically.
However, there are some hindrances that the Indian aviation industry needs
to overcome like more airports, pilots, flight crew and less-stressed air traffic
controllers. Apart from the visible infrastructure level improvements,
modernisation, HR issues, aviation methodology, technological growth and
controlling traffic congestion are some of the other issues that demand
careful and timely attention.
But, right now the scales seem to be in the favour of the Indian aviation
industry, for which the sky is not the limit.
Indian skies are more open than ever before. International airlines are
servicing passengers right from Amritsar to Ahmedabad to Kochi, Greenfield
airports are emerging at Hyderabad and Bangalore and plans to modernize
and restructure the two gateway airports are moving ahead aggressively. On
the other hand, private domestic carriers are now flying to international
routes like Kuala Lumpur, Singapore and London and have ambitious plans to
expand and spread wings to the US as well.
Model of the new Hyderabad
Airport to be operational by
March 2008

Page
48
AIRLINE INDUSTRY

During the year 2004-05, air transport witnessed a growth of nearly 25 per
cent, giving reason for the government to have an optimistic outlook and
expect an average growth rate of 10 per cent by the year 2010 in the sector.
The years 2004-05, 2005-06 and 2006-07 have been years of record growth
in air traffic in the country. During the period of April- December 2005,
domestic and international traffic grew by 24.2 per cent and 18 per cent,
respectively. While international and domestic cargo during the same period
recorded a growth of 11.7 per cent and 6.6 per cent. This growth has been
the second highest in the world, next to China.
Further, during the period April- September 2006, international and domestic
passengers recorded a growth of 15.8 per cent and 44.6 per cent,
respectively, leading to an overall growth of 35.5 per cent. During the same
period, international and domestic cargo recorded growth of 13.8 per cent
and 8.7 per cent, respectively, resulting in an overall growth of 12.0 per
cent.

➢ LLCs are here to stay:


The Centre for Asia Pacific Aviation forecasts Asia Pacific and Middle
East LCCs will expand their seat capacity by over 230 per cent by 2012
over current levels – or around 40-50 per cent capacity growth each
year over the next five years, according to the Outlook 2007 report.
"A key story in the Asia-Pacific region for 2006 was the capacity
restraint of the full service airlines, resulting in higher load factors. But
there was a price. They lost market share, particularly to European and
Middle East carriers, as well as the fast-growing Asia-Pacific LCCs",
informed Mr. Peter Harbison, Executive Chairman of the Centre for Asia
Pacific Aviation.
According to the Outlook report, Asia is a two-speed market, with flag
carriers growing much more slowly than other airlines, including
carriers of India and China and the LCC sector. Association of Asia

Page
49
AIRLINE INDUSTRY

Pacific Airlines carriers increased aggregate capacity (ASKs) by just 0.9


per cent in 2006, while Asia-Pacific LCC capacity surged 55 per cent
year-on-year in 2006 to account for 8.9 per cent of the regional total
and close to 11 per cent in the last quarter of 2006.
"Based on recent LCC growth rates and aircraft orders, their share
could reach 20 per cent by the end of this decade, with much higher
levels of penetration in such markets as India, Thailand, Australia,
Malaysia and Indonesia. The LCC share in Asia was less than 1 per cent
in 2001. Such an outcome would eclipse the pace of LCC development
in every other geographic region, albeit a delayed development in this
region", said Mr. Harbison.
Aircraft deliveries over the next five years will also be focused on the
fastest growing markets – in particular, China and India — where there
is great potential for demand growth to absorb new capacity additions,
according to the report.

➢ Exploring New Destinations:

AI has identified the need for non-stop operations to the US and is


planning 12 new destinations in a phased manner to San Francisco,
Washington, Houston, Toronto, Manchester, Beijing, Seoul, Taipei,
Sydney, Lagos, Mauritius and South Africa. It has already started flights
to Shanghai, Los Angeles, Seoul, Manchester and Toronto.

Private airlines too have started operating to Kathmandu, Colombo,


Kuala Lumpur, Bangkok and Singapore. Jet Airways has mounted flights
to London from Delhi and Mumbai and plans to begin operations to the
US.

The open sky policy and liberalised bilateral agreements with number
of countries have led to a quantum jump in forging greater
connectivity to and from India, beginning with the UK whose carriers
have been given access to Bangalore, Hyderabad and Kochi, besides

Page
50
AIRLINE INDUSTRY

the four metro destinations. Reciprocally, Indian carriers can fly to


Glasgow, Edinburgh and Bristol in addition to London, Manchester and
Birmingham.

A revised air services agreement was signed with US on April 14, 2005
granting unlimited access for the designated airlines to any points of
call in each other’s territory as against four airports under the earlier
agreement. Thus, there is American Airlines mounting direct, non-stop
flights on the Chicago- Delhi sector in code-sharing agreement with Air
Sahara (now part of Jet Airways) and Continental Airlines operating
non-stop long haul flights on Delhi-New York sectors.

➢ Surging demand for air cargo:


While the passenger transportation sector is already bustling with
activity, the interest of various aviation players—passenger as well as
air cargo operators—is shifting to the largely untapped air cargo
sector. Civil aviation minister Mr Praful Patel has indicated that the
government is looking progressively at liberalising the air cargo sector,
with plans to allow 74 per cent foreign direct investment (FDI).

According to analysts, air cargo has not even scratched the surface of
cargo industry in India. As per the Airbus market outlook for the next
20 years, the number of dedicated freighters in India will go up from
the current dismal figure of 8 to around 165 aircraft by 2025.

Air cargo accounts for only 5 per cent to 7 per cent of the total cargo in
terms of volume, but in terms of value, air cargo stands for 35-40 per
cent of the total cargo trade, according to sources.

Though Indian air-cargo is a fairly nascent industry, IATA is, however,


bullish on the positive outlook for India.

Page
51
AIRLINE INDUSTRY

FUTURE GROWTH OF NON – METRO AIRPORTS

Traffic growth at non-metro airports is expected to exceed that of the metro


airports in near future. According to research undertaken by the rating
agency Crisil, India’s non–metro airports are expected to host as many as 74
million passengers by the year 2009-10—almost four times than the 19
million passengers at the metro airports. The basis behind the projections
are that there are 35 non-metro airports in the country, compared to 5 metro
airports.

Right on the cue, private airlines have lined up plans to reach 31 new
destinations. These include tourist destinations like Pathankot and Bagdogra
as well as commercial and crucial destinations like Coimbatore and
Porbander. Of the nine airlines, Air Deccan has the maximum number of non-
metro airports on its radar. Needless to say, such growth in the air traffic
entails major improvement in airport facilities.

And this spells mammoth opportunities for the private sector. The total
investment for the 35 non-metro airports is expected to be well over Rs
6,000. Of this, Rs 3,266 crore is to be spent on building airport facilities,
while Rs 1,396 crore will go towards air side development, which will be
primarily handled by AAI. However, it is likely that many private sector
players will want to be involved in the city side development. The total
investment in this area is expected to cost about Rs 1,500 crore.

Government’s initiative to carry on the programme of upgrading the metro


and the non-metro airports augurs much too well for the country’s civil
aviation industry. However, it would be well imperative that the initiatives
are effectively implemented and sustained policy reforms are undertaken to
make the sector remain buoyant for the time to come.

➢ Opportunity in India:

Page
52
AIRLINE INDUSTRY

In India, we at present stand witness to a major economic boom. As


more and more sophisticated, high-tech products are being
manufactured, assembled, and distributed in the country, the need for
integrated air express service is subsequently increasing.

Air cargo has started showing increased growths in the last year in line
with GDP growth, to which it has a direct correlation. Currently, the
size of the domestic organized Indian express market is pegged at Rs
10.75 billion, according to A C Neilson Report and we estimate the
market growth in double-digit figures following last year’s trends.

India is still not a mature market. However, with encouraging GDP


growths projected, current increase in manufacturing, development of
various industries, and India emerging as an important sourcing hub,
opportunities exist like never before.

➢ Challenges to overcome
It is a fact that growth and challenges always go hand-in-hand, and the
air express industry is no exception to this rule. While we have reason
to be optimistic about the macroeconomic indicators like the
encouraging GDP growths that augur well for our business, there are
issues that we constantly need to address.

For instance, fuel prices are a concern as they account for a significant
part of our operating expenses. And even though we have a fuel
surcharge mechanism in place, there is always a risk that prices would

escalate beyond control. Any kind of political disturbance or disruption


is also detrimental to our business.

Another important factor that particularly needs consideration in India


is infrastructure. Infrastructure related to cargo terminals, cold storage,

Page
53
AIRLINE INDUSTRY

automatic storage and retrieval systems, mechanized transportation of


cargo, computerization and automation, and needs to be improved.

In short, the much-talked airport modernisation across the country has


to step up pace.

Page
54
AIRLINE INDUSTRY

Page
55
AIRLINE INDUSTRY

➢ The Take Off:


Naresh Goyal, Chairman of Jet airways was the one-man show behind
Jet airway’s birth. Goyal started his career as a marketing executive at
the General Sales Agent (GSA) with Lebanese international airlines in
Delhi. He than worked with Iraqi airways for a couple of years, before
joining Royal Jordanian Airlines as a regional manager. Goyal's
diligence & incredible ability to memorize flight schedules caught the
attention of Ali Ghandour, who was then president & chairman of Royal
Jordanian Airlines. Ghandour introduced Goyal to the wider world of
aviation outside India.

In 1974, Goyal decided to get into the GSA business himself establish
Jet air Transportation representing Kuwait Airways & Air France.
Simultaneously, Goyal was appointed regional manager of Philippine
Airlines. Over the next few years, Goyal expanded his network picking
up agencies for some more airlines. He was regular member at the
AGM of International Air Transport Association (IATA) the global
aviation body .

Meanwhile Goyal turned into NRI & shifted his base to London. During
the same time, Goyal also toyed with the idea of setting up his own
airlines. The opportunity came in early 1990s, with the GOI's open

Page
56
AIRLINE INDUSTRY

skies policy permitting private investment (including NRI's) in the


domestic aviation. In April 1992, Jet airways India was set up as a 100
% subsidiary of tailwind ltd., a company registered I Cayman islands
(situated in the northwest Caribbean sea ) . Kuwait Airway's & Gulf Air
had 40 % stake in tailwind ltd. Soon after being incorporated as a
privately owned airline, Jet airways hired lintas the ad agency to
develop Jet airways 's corporate logo, IMRB the market research firm to
do a consumer survey & Anderson consulting to do feasibility study &
help prepare the business plan. By 1992, goyal put his start-up team in
place. Saroj datta & B.P.balinga, both directors at Air India, Rolland
Thomas from Malaysia Airlines & Steven Jagannathan from Singapore
Airlines joined the board.

➢ The Success Formula:


Jet airways started its operation with leased aircraft's. The idea was to
expand faster by using funds to lease more aircraft's than buying one
or two. Boeing 737 could cost anywhere between $ 40 to $ 50 mn,
whereas a monthly lease could be as low as $ 0.4 mn. The most crucial
decision was the choice of aircraft. While Damania, East West &
Modiluft who also started their operations at the same time opted for
the older Boeing 737.200s, Jet airways chose newer 737.300s whose
least cost were atleast 40 % higher. four planes (about three years old)
were leased from Ansett Airlines. Although the 737.300s were more
expensive to lease they were more fuel-efficient (consumed 8% less
fuel) & were cheaper to maintain. goyal felt that young fleet would
help attracting customers.

Analyst felt that by having one type of aircraft-the 737-in its fleet, Jet
airways made the maintenance & flight crew training far simpler.
Spares were common & inventories were lower as well. for engineers,

Page
57
AIRLINE INDUSTRY

dealing with one type of aircraft. Balinga claimed that Jet airways
technical dispatch reliability was 99.6 % , which meant that a Jet
airways flight was rarely held up on account of technical snags.

Jet airways also had another advantage in the form of a readymade


distribution network in sister company Jetair's 85 offices countrywide
through which it had access to a larger market beyond metros. Unlike
other start-ups that started with manual reservations, Jet airways went
in for computerized from day one. This airlines reservation system,
though expensive, delivered superior service.

Jet airways’s number of employee per aircraft was 163 & total
employee strength of 4,000 as against Indian Airlines's 397. The focus
was on productivity & cost control. A jet airway was not a lavish
paymaster & increments were modest. Salaries provided were not as
high as foreign airlines offered. Jet airways also invested heavily to
train his pilots. An aviation academy housing the state-of-art Boeing
737 700 /800 flight simulator & flight training device for 737-400s was
set up at a cost of $ 10 mn.

Jet airways’s success was mainly due to its service excellence. Jet
airways always ensured that its service surpassed customer
expectations. Goyal ensured that the attendants & front line staff were
fresh recruits trained in the "jet way"& not people from other airlines
who would bring with them old culture. According to the frequent
travelers, the hallmark of Jet Airways's service was its cheerful
attitude. If flight was delayed, travelers were phoned & informed in
advanced. Jet Airways's managed to achieve service excellence,
because of being strictly disciplined from the start. Lapses were not
tolerated & the focus was on performance.

➢ Innovations in service:
• Cabin bag-only passengers can check in at any city counter

Page
58
AIRLINE INDUSTRY

• Returning passengers can get two boarding passes at one check


in

• Business class passengers can customize their meal & drinks

• In flight mail-order shopping offers premium products at a discount

• JetMobile offers automated flight schedules over the cell phone

Jet Airways always focused on the business traveler. To attract & retain
business traveler, it had to offered superior services. Jet Airways's
picked up Indian Airlines's service module as a framework & borrowed
a few ideas from KLM Royal Dutch Airlines for managing systems. Jet
Airways's always believed in keeping close watch on its customer's
service. On all its flights more than 20 minutes long, light refreshments
were served & on longer flight passengers were served non-alcoholic
drinks, cold towels & a three coarse meal. Jet Airways received 16,500-
service monitor questionnaire (SMQ's) every month & they were
analyzed at various levels to plug loopholes in service. Every new flight
attendant was put through at least three months of training in the first
year & thereafter several more hours of in-flight & class room training.

In December 1999, Jet Airways relaunched its frequent flier program


under the 'jet privilege' (JP) name the (frequent flier program was
initially launched in 1994). JP customers were not required to pay
membership fees. They also did not have to produce boarding cards or
other proof of travel. A passenger can earn free JP miles (points) by
taking a Jet Airways flight. The new programme offered three different
levels of privileges: J.P Blue, J.P Silver, J.P Gold, depending on the
number of miles accrued or the number of flights flown. J.P Silver &
Gold members could earn bonus miles on all Jet Airways flights &
enjoyed lounge access, Tele check-in benefits. Jet Airways tied up with
international carriers like KLM Royal Dutch Airlines & Northwest Airlines
as a result of which JP members could earn miles on these airline

Page
59
AIRLINE INDUSTRY

networks too. They could redeem their miles when they had earned
atleast 10,000 miles or had flown 10 flights. Jet Airways had tied up
with Oberoi Hotels & Resorts, Radisson Worldwide. Members of JP could
earn miles on each stay at any of these hotels.

In 2001, Jet Airways launched an in-flight; Jet Airways launched an in-


flight mail order catalogue, JetMall for high quality products. The in-
flight shopping programme enabled passengers to browse through a
specially design mail order catalogue which helped those select
products & get them products delivered at home within two to four
hours anywhere in India. Jet Airways claimed that that the mail order
catalogue was at par with the in-flight shopping catalogue on
international flights.

In early 2001, Jet Airways finalized a Rs. 16 bn loan for the purchase of
10 Boeing 737s to be delivered over next two years. This was the first
deal in India that involved the US Exim Bank & an Indian Bank along
with two offshore special purpose vehicles (SPVs). According to
analyst, the beauty of the deal was that Jet Airways would finally end
up borrowing from Indian investors & not from foreign bank.

➢ Performance of jet airways:


Performance of jet airways since its formulation in 1992.Over the
years, jet airways has significantly improved its market share from 6.6
% in 1993-94 to 42 % in 2000-01. Right from the start, jet airways
focused more on customer service rather than anything else. It was
because of its superior customer service, that jet airways had become
the most popular airline in India.

➢ Strategies of jet airways:


Its operations started in India with leased aircraft because buying an
aircraft would have cost jet airways around $ 0.4 million. Jet airways

Page
60
AIRLINE INDUSTRY

also started its operation with the new Boeing 737-300s & not the
older Boeing 737-200s. This was because the new aircraft were fuel-
efficient & maintenance costs were low. Jet airways' aircraft utilization
& number of flights a per day more than of Indian Airlines. Another
reason of jet airways was it's lean structure. Compared Air India’s 397
employees per aircraft, Jet airways had only 163 employees per
aircraft.

➢ Flying High In The Indian Sky:


In 2001, with revenues of $ 542.18 MN, Jet Airways emerged as the
most popular domestic airlines in India. Jet Airways stated its operation
in 1993; the number of its passengers increased from 0.663 million in
2000-01.by 2001, when other private airlines had stopped their
operations, Jet Airways not only continued to survive, but had become
a formidable competitor to indias national domestic airlines -(AIR
INDIA). Jet Airways seemed to be lone challenger to AIR INDIA with
Sahara Airlines in the third position. Jet Airways's market share
increased to 42 % in 2001 from 6.6 % in late 1990s. In 2001 , Jet
Airways ran 215 flights per day compared to INDIAN AIRLINES's
208.Unlike the loss making INDIAN AIRLINES, Jet Airways is making
profits. At the end of the first year, Jet Airways achieved average seat
factor close to break-even level of 71 %. Thereafter it broke even & has
been making profits ever since. In 2001, Jet Airways recorded profits of
rupees 125mn compared to AIR INDIA which recorded a loss of Rs
1.77bn. The following pie diagrams will show the growth made by Jet
Airways in the market share, passenger carried and the fleet size.

Page
61
AIRLINE INDUSTRY

Page
62
AIRLINE INDUSTRY

Page
63
AIRLINE INDUSTRY

CONCLUSION

In spite of all these challenges, India’s air express industry presents exciting
opportunities. What is required to exploit this opportunity is a strong
commitment from private sector operators, coupled with determined efforts
by the government and regulators to transform the sector. With rapid
technology development and improvement of infrastructural facilities, India
can play a significant role in the global logistics industry. Opportunities
abound, and as we deliver business in the 21st century, we shall make our
dream a reality by bringing people and markets together for a stronger and
more prosperous India.

Page
64
AIRLINE INDUSTRY

BIBLIOGRAPHY

➢ India info line.com


➢ Web site of Airport Authority of India.
➢ CMIE Journal
➢ Business Strategy
➢ Author: Sanjib Dutta & A. Mukund
➢ Title of the Book: Business Strategy
➢ Publication: 2002
➢ Publisher: ICFAI Press
➢ www.google.co.in

Page
65

You might also like