DOMESTIC AIRLINES IN INDIA-LEVERAGING PRICE

AKSHIMA AGARWALANSHUL GUPTABHANUSHREE GOYALCHINAY KHANDELWALSHIVANI SRIVASTAVASUKRITI NAMAVISHAL SINGH

INTRODUCTIONPrevious Scenario

• Travellers rarely travelled by air as the fare were much higher than those for road and rail travel.

• Indian Airlines was the only player in the market before 2002.

• For the first time in history of airline industry ,efforts were made to make air travel affordable to large section of population, leading to unprecedented development in the commercial aviation industry in the country.

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Indian Scenario: Air Sahara and Jet Airways

Jet Airways• Took off with four Boeing 737-300’s in April 1992 at Mumbai• 100% Subsidiary of Tailwinds Ltd, situated in Cayman island• Indian promoter, Naresh Goyal bought the entire stake,

became sole owner

Air Sahara• Started operation in 1993, between new Delhi and Mumbai

sectors• By 2001, it expanded its flying routes to 12 sectors• Won many excellence award• Turnover of Rs. 3.5 billion in 2001

Indian Airlines

• (Indian airlines limited from 1993 and Indian airlines corporations from 1953 to 1993) It was a major based in Delhi and focussed primarily on domestic routes along with several international services to neighbouring countries in Asia.

• State owned and administered by Ministry of Civil Aviation

Schemes implemented by Indian Airlines and Jet Airways

• June 2002: announced 3-15% cut in fares for all classes on the western sector.

• Next day JA reduces its prices by Rs. 635 for economy class on Mum-Nagpur & Mum-Goa route.

Both Introduces APEX (Advance Purchase Excursion – book ticket in advance and get huge discount). IA- “U Can Fly”, JA- “Everyone Can Fly”.

2 Disadvantages of APEX were:• Planning advance travel was not very convenient.• Cancellation charges were high (50% ticket price deducted if ticket

cancelled less than 21 days).But still both Airlines were in profit.

What Sahara implemented

March 2002: Launched ‘Wings & Wheels’ scheme in 4 metros: Scheme offered complementary A/C coach services for picking up passengers at designated points in the cities and dropping them at airport. They also offered add-ons like magazine, newspaper, soft drinks etc.

July/August: Sahara went for a different approach – ‘Sixer’ Scheme (Limited Offer): Buy a six flight coupon ticket and fly any six sectors on the carrier’s network for Rs. 25,000

August 2002: Most attracted scheme, ‘Steal a Seat’ – Online bid scheme.Base price was Re 1 (prior 25 days of flight).For unsuccessful bidders: Scheme ‘Steal Buys’, in which they could bid 24-15 days in advance. Which worked out much cheaper than APEX fares.

They also offered Delhi – Mumbai ticket @ Rs. 4000, bought between 15-19 days in advance (prices of IA: 5,535 & JA: 5,404)

August 15th, 2002: IA launched ‘Wings of Freedom’ (valid from August 15 to March 31st, 2003) –Offered unlimited travel on the domestic network for 7 days, Rs. 15,000 (economy class) & 20,000 (business class).

IA increased the commission of its agent & offer incentives for most productive agents.

They launched ‘Bharat Darshan’ from the passengers who bought tickets worth more than Rs. 80,000.

Price War

• Price war is commercial competition characterized by the repeated cutting the prices below those of the competitors. One competitor will lower its price then other will lower their prices to match.

• In short term price wars are good for buyers but not good for companies because the lower price is reduce the profit margin and threaten their survival.

• In long term price wars can be good for the dominant form in the industry.

• IA announced 3-15%cut in fares in June 2002• JA reduced prices by Rs.635 for economy class.• Sahara the smallest of the Big three was the most aggressive.

Paid highest commission to its agents.

Environmental Factors that influence the pricing

decision in Airline Industry

Political Factors affecting Indian Aviation Industry

• The airline industry is very susceptible to changes in the political environment as it has a great bearing on the travel habits of its customers.

• India’s recent political environment has been largely unstable due to international events & continued tension with Pakistan.

• Another aspect is that in countries with high corruption levels like India, bribes have to be paid for every permit & license required.

Legal Factors affecting Aviation Industry in India

• FDI Limits• Bilateral Treaties• Airlines acquisition and the leasing costs.

Economical factors affecting Aviation Industry in India

• Contribution to the Indian Economy.• Rising cost of Fuel.• Investment in the sector of Aviation.• The growth of the middle income group family affects the

Aviation sector.

Strategies to enhance market share and increase customer base in INDIAN AVIATION INDUSTRY

Strategy of Low Cost Airlines

Business Strategy

Aggressive marketing

Efficiency in operations and maintenance

Increasing the aircraft seat capacity

Charging for all additional

Outsourcing some operations

Using secondary airports

Keeping operating costs to a minimum

Business Design for Low Cost Airlines

Conclusion

16

• Remarkable growth in recent years in Indian aviation industry.

• Bright future of Aviation industry in India.• Infrastructure Constraint.• Liberalise rules & regulations governing civil aviation.• Reduction in prices and lease rentals.