Introduction of Airlines

7/30/2019 Introduction of Airlines

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INTRODUCTION TO AIRLINES

Airlines are considered to be the fastest mode of

transport. It is one of the emerging industries providing the

customers with impeccable service. Airline industry,

worldwide is constantly facing threats from attacks or any

wide spread disease like SARS, which affects its sales

considerably. This has lead to bankruptcy and massive

layoffs in many airline companies.

Despite of all these exigencies, airline companies have

regained their status and continue providing its state-of-art

service. It is coming up with a flood of innovative schemes

to lure the customers. The attacks on twin tower had

severely affected the aviation industry, but two years after

the attack, it has come to normal and running with all its

confidence. It had been a learning experience for all the

airlines. They now are giving prime importance to the

security measures.

The same is the scenario of Indian Aviation. The history

of Indian Aviation dates back to 1912. From then there is no

looking back. Gone are the days when flying by air was a

distant dream for common people owing to high ticket fares.


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Today with the increasing competition, airlines have slashes

their prices, but this has not affected their quality of service.

The airline companies have created a great impact in the

minds of the customers as the ultimate service provider of

all the transports.

As airlines struggle to gain market share and sustainprofitability in today's fiercely competitive and economicallydemanding environment, they must develop new ways tomanage their customer relationships to optimise customer

loyalty and revenues. What tactics should airlines use toacquire, develop and retain customers with greater precisionand improved results? Is better service sufficient? he airlineindustry has reached a crossroads. The effects of theworldwide economic slump and the aftermath of September11th attacks have severely impacted airline economics andviability. While the U.S. and certain European markets weremost severely impacted, airlines worldwide are striving toboth regain and improve profitability. Many have focused on

operational improvements to reduce costs, but the customercannot be ignored. Customer relationships must be fosteredfor airlines to maintain competitive advantage andprofitability in the long term.

Airlines' immediate focus is on cost reductions in driving tomore efficient operations. However, many airlines areturning to customer relationship management (CRM) as atool for managing customer relationships. Unfortunately, in

many cases, they have failed to recognize CRM as a holisticstrategy, instead viewing it as synonymous with theirfrequent flyer programs. In order to manage the customermore effectively across all lines of service, airlines mustchange their approach to CRM in a number of ways:


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Customer segmentation -- Airlines need to recognize thatmileage-based segmentation is inadequate, whereas value-based and needs-based approaches can help guideinvestment decisions and drive greater insight into the

needs of high-value customers.

CRM initiative development -- In order to differentiatethemselves from the competition, airlines must abandon a"fast follower" approach to CRM initiative development, infavor of investing in initiatives with a high return, whichrespond to the needs and desires of their own customers.

Organizational design and management-- Airlines needto instill a service mentality in their employees, empoweringthem with a complete view of the customer and clearlyarticulating the employee's role in the CRM strategy.

AIRLINE TRANSPORTATION SERVICEIn the 5 kinds of Market Offer, services of transportation airlines, takethe shape ofMajor Services Accompanying Minor Goods. If we search for thevalue added by Tangibles Vs Intangible elements of goods and servicesin the grid, airlines take place in high intangibles and low tangibleelements category.

Explanation:

People definitely form a part of the service offered. The airlines havethe responsibility of taking care as to which people will use whatproduct. If one customer travels in a B class of the airline, he/she willdefinitely expect a particular class of customer seated next in terms ofconduct and behaviour. The service provider (Airline Management)here needs to take care and create a quality by differentiating differentpeople for different services. The airhostesses/cabin crew/staff need tohave good technical and interpersonal skills to manage the customerbehaviour.

There exists more Variability of Operational Input and Output. Thestandardization in services becomes a little difficult but notimpossible. For example, two people travelling in the Economy class


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of Air Sahara, at the same time and use the same services. But stillthe experience and perception of service will be different by theboth of them.

No inventories after production: Physical services cannot be stored and

stocked. However, labour facilities can be kept ready but not theservice. Time factor becomes very important here. Serviceproviders always try to speed up their services as people are readyto pay more if they can save a little of their precious time.

Critical Incidents or Critical Moments:

Customer/ Passenger forms a part of the Service Delivery through outthe service map. He is involved from the pre consumption stage to thepost visit feedback. The service provider, (in this case AirlineManagement) must anticipate the customers needs and reactions at

all the stages of the service being provided (especially in the areas ofEncounter between the Management and the Customer). Suchencounters are called the Critical Moments that are very crucial inService. In Critical moments, the service manager can design theservice delivery systems that will guide interaction between theservice provider and the user.

The Quality Aspect

Transportation is one important area where a passenger not only

spends his/her Time, but also a lot of Money. The transportationindustry is slowly coming across a greater need for Quality Service.After investing a lot of time and money, if the particular mode oftransport (Air) does not satisfy the customer, he/she might notcomplain of the service but shall probably go ahead with shifting ofthe service provider.

In this industry, from the customers point of view, different consumerswill assess quality in a different manner. The various determinants ofquality for a layman shall be:

The Speed The Food Served

Attitude of the Staff

The Ambience, Cleanliness etc inside the Air/Rail Bus

The Quick service during Reservations etc


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However, in this sector, quality is based more on the User BasedApproach. This is highly debatable because not all customers havean equal view or an equal experience.

For Example: In Airlines someone, might like an Airhostess for her polite

behaviour. At the same time, someone might not like the sameAirhostess considering that she is not smart enough. Quality lies in theeyes of the Beholder!

Customer as a Co-Producer:

The various modes of transport are now getting more customerfocussed and quality conscious. Airlines are gradually finding the needto encourage customers be a part of the organisation.

There are 3 Levels to determine the Customer Participation:

Low - Service rendered regardless of any Individual Purchase

Moderate Provision of service requires customer participation

High Service is created from customers purchase and activeparticipation

The Transportation Industry as a whole comes under the category ofLow Level Customer Participation. Customer presence isexpected during the delivery. But, the service is provided regardless ofany Individual Purchase.

AIRLINE HISTORY

WRIGHT BROTHERS.


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The Wright Brothers, Orville Wright (1871 -

1948) and Wilbur Wright (1867 - 1912), are credited with

the invention of the airplane and controllable powered

heavier-than-air flight.

The brothers grew up in Dayton, Ohio, where they ran

a bicycle repair, design and manufacturing company (the

Wright Cycle Company). Drawing on the work ofSir George

Cayley, they extended the technology of flight with the

principles of control still used today. They had researched

and initially relied upon the aeronautical literature of the

day, including Otto Lilienthal's tables but, finding that the

Smeaton Coefficient, a variable in the formula for lift and the

formula for drag was wrong, designed and built a wind

tunnel to perform practical tests.

In 1903 they went to Kitty Hawk, North Carolina to

continue their aeronautical work, choosing Kitty Hawk

(actually Kill Devil Hill) because of its strong and steady

winds, and on March 23, 1903 they applied for a patent for

their airplane design. Then on December 17, 1903 Orville

Wright took to the air. Orville's uncontrolled flight, of 120

feet in 12 seconds, was recorded in a famous photograph. In

the fourth flight of the same day, the only flight made that
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day which was actually controlled, Wilbur Wright flew 852

feet in 59 seconds.

The Wrights established a flying field at Huffman

Prairie, near Dayton, and continued work in 1904, using a

catapult takeoff system to compensate for the lack of wind

in this location. By the end of the year, the Wright brothers

had sustained flights of 5 minutes, circling over Huffman

Prairie. This was really the world's first airport.

The Wright brother brought great attention to flying by their

flight around the Statue of Liberty in New York in 1909.

Contrary to popular belief, the Wrights were not the

first to build heavier-than-air machines capable of flying

under their own power; that had been done earlier by

Samuel Langley and possibly Richard Pearse. However, their

three-axis system of control, using wing warping (later

supplanted by ailerons) to control roll, elevators to control

pitch and angle of attack and a rudder to control yaw, made

flight stable and sustainable. The same principles are still in

use in all modern aircrafts.

OPEN SKY POLICY
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The Open-sky policy came in April 1990. The policy

allowed air taxi- operators to operate flights from any

airport, both on a charter and a non charter basis and to

decide their own flight schedules, cargo and passenger

fares. The operators were, however, required to use aircraft

with a minimum of 15 seats and conform to the prescribed

rules. In 1990, the private air taxi-operators carried 15,000

passengers. This number increased to 4.1 lakh in 1992, 29.2

lakh in 1993, 36 lakh in 1994 and 48.9 lakh in 1995.

The 1996, private air taxi operators carried 49.08 lakh

passengers which amounted to a 41.14 per cent share in the

domestic air passenger traffic. Seven operators viz NEPC

Airlines, Skyline NEPC, Jet Air, Archana Airways, Sahara

India Airlines, Modiluft and East West Airlines had since

acquired the status of scheduled airlines. Besides this, there

were 22 nonscheduled private operators and 34 private

operators holding no-objection certificate in 1996.

INSTITUTIONAL FRAMEWORK

MINISTRY OF CIVIL AVIATION (MCA):

MCA is responsible for the formulation of national

policies and programmes for development and regulation of


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civil aviation and for devising and implementing schemes for

the orderly growth and expansion of civil air transport.

DIRECTORATE GENERAL OF CIVIL AVIATION

(DGCA):

The DGCA is the main regulatory organisation in the

country responsible for regulation of air transport services

to/from/within India and for enforcement of civil air

regulations, air safety and airworthiness.

AIRPORT AUTHORITY OF INDIA (AAI):

AAI provides infrastructure facilities. Its aim is to

accelerate the integrated development, expansion and

modernisation of the operational, terminal and cargo

facilities, in line with international standards.

INTERNATIONALS AIRPORTS DIVISION (IAD)
http://www.tatry.sk/Images/Doprava/Sky/sky01_m.jpg


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IAD manages the eight international airports at Delhi,

Mumbai, Calcutta, Chennai, Thiruvananthapuram, Kochi,

Hyderabad and Bangalore.

NATIONAL AIRPORTS DIVISION (NAD)

NAD manages all domestic airports in the country.

PRESENT STATUS

The airline industry today faces challenges

unprecedented in its history. With the global economic

slowdown affecting business travel, the airlines were already

in crisis before September 11th. But, the tragic events of

last September aggravated the situation by weakening

consumer confidence further and brought into question the

existing security mechanism. The latest IATA estimates

suggest that airlines collectively lost close to US $ 12 billion

as they experienced a 5.7% decline in total traffic. The

increase in costs due to higher insurance costs, security etc

has put increasing pressure on airlines and jeopardized their

viability leading to widespread layoffs and bankruptcies in

the industry.


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The Indian aviation industry on the other hand has

weathered the storm with greater ease than many of its

more illustrious western counterparts. Though it is largely

dominated by the public sector and somewhat insulated

from market exigencies.

Despite the inherent cyclical nature of the aviation

sector, its contribution to the economy is indisputable.

But with the passage of time, the scenario is changing.

The airlines are striving hard to cope up with the crisis.

Domestic and international passenger traffic in India is

projected to grow annually at 12.5%yoy and 7%yoy

respectively over the next decade. At the same time,

domestic and international cargo traffic is expected to grow

at 4.5%yoy and 12%yoy respectively. By the year 2005,

Indian airports are likely to handle 60mn international

passengers and 300,000 tons of domestic and 1.2mn tons of

international cargo.

Over the next decade international and domestic air

traffic are expected to grow from the present levels of 42

million to close to 90 million. International air cargo exports

from India are expected to rise from 0.7 million tonnes per

annum to 2.4 million t.p.a while domestic cargo will rise

from 300,000 t.p.a to over 1 million t.p.a. Both Boeing and

Airbus Industries expect that with the low penetration of

aviation services in India, aviation services would grow


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faster than in most countries and ahead of India's GDP

growth.

However, in order to achieve such levels of growth a

number of policy and regulatory constraints will need to be

addressed immediately.

ECONOMIC CONTRIBUTION

The aviation industry plays an indispensable role in the

growth and efficiency of an economy. The sector acts as an

economic catalyst by opening up new market opportunities,

moving products and services with speed and efficiency.

Therefore, international trade and commerce relies heavily

on the aviation sector. The contribution of the aviation

sector in India is especially significant taking into account

that it only forms a small part of the transportation industry.

The sector facilitates international trade, tourism, and

foreign direct investment thereby enabling the growth of the

economy and making it internationally competitive

At present over 40% of India's exports and imports, by

value, are carried by air and 95% of foreign tourists arrive

into India by air making the tourism industry the third

largest foreign exchange earner. According to NCAER

estimates foreign exchange transactions worth US $ 22.5


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billion annually is directly facilitated by civil aviation, while

another US $96 billion are moderately facilitated by civil

aviation services.

A report published by CII and NCAER also

establishes that growth in air transport is closely inter-linked

with growth in the Gross Domestic Product both

internationally and nationally. For a percent increase in

India's GDP, domestic passengers are expected to increase

by 1% , for international passengers this sensitivity is about

1.3%.

PEST ANALYSIS OF AIRLINES

INTRODUCTION

The airline industry has seen rapid growth in the last

few years. Before any kind of analysis is undertaken, it is

important to find out what are the main environmental

influences that have led to this growth. Also, how the extent

to which the changes are occurring, are to be taken care of.

This is important because the change in these factors can

have significant effect on the way the industry performs

The environmental influences can be analyzed by the

use of PEST analysis. Within its parameters, PEST indicates


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the importance of the political, economic, social & the

technological changes in the industry.

A brief idea about these factors is as follows:

POLITICAL

The political analysis comprises of the various

legislations, regulations & government policies

declared for the respective industry.

ECOMONIC

The economic factors influencing an industry defines

the exchange rate, inflation rates, income growth,

debt & saving levels.

SOCIAL

The social factors are those having an impact due to

peoples choice and include beliefs, values and attitudes

of the society

TECHNOLOGICAL

An impact of the new technology such as Internet,

EDI, mobile and increasing advancing in computing

are covered under the technological factors of the analytical

tool PEST


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POLITICAL FACTORS

The political factors are the main driving force of the

airline industry. The Indian airline industry is built on the

backbone of the government support and it cannot sustain

itself without it.

All the support services like the hotel industry, tourism

and other transport industry to name some are heavily

dependant on the support and co-operation of the

government. Any policy that comes into force can have

dramatic effect on the way the industry players perform.

Focusing on the recent factors concerned with various

policies announced by the government are the following

facts. The articles mentioned below highlight the influence of

the Open sky policy announced by the Civil Aviation

Ministry.

Stability of the political environment

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. An unstable political environment

causes uncertainty in the minds of the air travelers,

regarding traveling to a particular country.


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Overall Indias recent political environment has been

largely unstable due to international vents & continued

tension with Pakistan. The recent Gujarat riots & the

governments inability to control the situation has also led to

a increasing the instability of the political arena.

The most significant political event however has been

September 11. The events occurring on September had

special significance for the airline industry since airplanes

were involved. The immediate results were a huge drop in

air traffic due to safety & security concerns of the people.

impact on Air India: -

After the terror strikes, Asian Airlines seemed relatively

unaffected and the demand was relatively stable a week

after the attacks a far cry from the marked downturn in

bookings that airlines in the US have seen.

Drop In air traffic leading to financial problems:

For Air India, initial cancellations caused a loss of Rs. 9.5

crores in terms of grounded flights and hotel accommodation


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for stranded passengers. The airline has now curtailed its

direct flights to New York and Chicago, stopped its weekly

London terminator service and rerouted a service to

Singapore. Despite this, and the pull out of United Airlines,

Air India flights are still not full to the U.S. and London.

Insurance conditions from leasers have forced the airline to

ground all four of its recently leased aircraft.

Trade relations with other countries

International airlines are greatly affected by trade

relations that their country has with others. Unless

governments of the two countries trade with each other,

there could be restrictions of flying into particular area

leading to a loss of potential air traffic (e.g. Pakistan &

India)

India could find itself one airline short on the European

sector as Richard Bransons Virgin Atlantic is reported to be

reviewing its strategy for its young unprofitable Indian

operations. During its short stay in this country, Virgin

Atlantic has already notched up losses on the Delhi-London

sector and its exit from India may be a distinct possibility if


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bilateral talks between the UK and the Indian government

do not yield more ground in India for the airline soon.

Political interference & bureaucracy

This is another major area of consideration for airlines.

This is because most governments recognize the huge

revenue potential of the airline industry. This leads to a lot

of politicians & ministers try to interfere with its operation

hoping to gain come benefit.

Another aspect is that in countries with high corruption

levels like India, bribes have to be paid for every permit &

license required. Therefore constant liasoning with the

minister & other government official is necessary.

The state owned airlines suffer the maximum from this

problem. These airlines have to make several special

considerations with respect to selection of routes, free seats

to ministers, etc which a privately owned airline need not

do. The state owned airlines also suffers form archaic laws

applying only to them such as the retirement age of the


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pursers & hostesses, the labour regulations which make the

management less flexible in taking decision due to the

presence of a strong union, & the heavy control &

interference of the government. This affects the quality of

the service delivery & therefore these airlines shave to think

of innovative service marketing ideas to circumvent their

problems & compete with the private operators.

Air India is fully controlled by the state. This cause

many problems in its functioning due to the indecisiveness

of the government & slow decision-making. An example of

how political interference has caused problems for air India

is the recent proposed disinvestment of Air India.

The sluggishness of the government & its hesitation to

sell Air India to foreign buyers due to the political

implications has cost the airline some huge bids by Air

France & Singapore Airlines. The TATA group is the only one

left in the race, which effectively means that the

government will have no choice, but to sell it to them &

therefore wont be in the power to negotiate on price.

Besides major decision making, the daily decisions of

Air India also face interference from bureaucrats &

government officials who are not qualified to do so with

regards to the airline industry.

AIRLINES AS A SERVICE SECTOR


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Unique Service Characteristics

INTANGIBILITY

Services are intangible in nature. Unlike goods,

which are tangible and can be seen and touched, services

can only be experienced. It means that services are high in

credence qualities whereas goods are high in search

qualities. A company can differentiate its service from its

competitors by providing tangible clues.

A company can provide tangibility to its services by

Association with physical goods or items,

Association with the physical environment,

Performance and involving customers

As we know that services are intangible, a service

marketer has to face many problems. In the airline industry

transportation is the core product. Since it is intangible in

nature a service company can distinguish itself from its

competitors by providing several tangible clues like

Food / Beverages

Newspapers

Movies


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Music

Staff uniforms

Logos

Color and design

Seats and cushions

Assistance with work

Audio / Video facilities for work or pleasure

Fax, laptops, etc.

Baggage retrieval

Flight bookings

A service marketer can overcome the difficulties of

intangibility of services through:

Reducing service complexity

Stressing on tangible clues

Facilitating word of - mouth recommendations

Focusing on service quality


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Here are a few examples of leading airline companies that

provide tangibility to its services through various tangible

elements

1.Indian Airlines The Maharaja Logo, also they describe

themselves as The Peoples Carrier The National Carrier.

2.Jet Airways the airline for businessmen, easy booking

facilities, easy custom clearances and baggage retrieval,

good in-flight services.

3.Southwest friendly, no frills, low fare airline.

4.Air Canada provides laptop connections and helps in

sending fax messages favourite with North American

business travelers.

INSEPARABILITY

Another characteristic of services is customer

involvement in production i.e. inseparability. The

inseparability of services leads to

Customer being co-producer

Often customer being co-consumers with other customersand

Customer traveling to the point of service production


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All the above three problems are faced by the service

marketer in the airline industry. So the service marketer has

to think of ways in which he can satisfy his consumers in an

efficient manner.

Customers are separated on the basis of price business

and economy class.

Also airline are trying to overcome inseparability by

providing facilities such as

Games for kids Air Canada

On-line Booking Sahara

INCONSISTENCY

Inconsistency refers to the variability in the service.

Service variability leads to difficulty in projecting a

consistent image and developing a strong brand. As it isdifficult to standardize to blueprint the service process there

is inconsistency in service quality. Also services rely on

human inputs there is a high amount of variability. This can

be overcome by providing personalized services and

focusing on employee training. Up to an extent, automation

and mechanization also can help to reduce inconsistency.E.g.: most airlines include online booking resulting in a

standardized procedure & fewer mistakes due to human

errors.


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Another way of reducing inconsistency in airlines is the

standardization of in-flight procedures for example the

security instructions given at the beginning of the flight.

INVENTORY:

It is not possible to store services. Also the service

capacity cannot be increased, as it can be limited. Services

also face irregular demand patterns. Again the service can

be short-lived.

The inventory for airline industry is mainly the food and the

aircrafts spares and parts. Airlines face the problem of

inventory mainly due to irregular demand patterns.

E.g.: The Boeing Company and British Airways announced

today that the airline will be the first launch customer for the

Global Airline Inventory Network(SM), an innovative new

service in which Boeing will manage British Airways' supplychain for expendable airframe

spare parts used in its fleet of Boeing airplanes. This

includes parts from Boeing as well as other suppliers.An


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expendable part is one that is typically replaced rather than

repaired after use. These range from fasteners and brackets

to floor panels and airplane skins.

The Global Airline Inventory Network(SM) is designed to

attack costly inventory inefficiencies in the airline industry,

where both airlines and suppliers incur extra costs because

of duplicated distribution channels and unnecessary

inventory levels.

Congestion occurs during peak periods like vacationsand festivals and at other times there is unused capacity.

Thus special discounts & offers are offered during these

periods to boost seat capacity (called the PLF -- passenger

load factor)

LIBERALISATION OF THE AIRLINE SECTOR

Liberalisation - Opening up of a country's markets to

foreign/ private players.

The liberalisation process in the airline sector has beengoing on since 1992, but it has seen a lot of turbulence.

The main effects of liberalisation in this sector are: more

players, less fares and better service. Before 1992 there was


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just one airline - Indian Airlines. When the government

liberalised the sector in 1992 a lot of airlines came in

(Damania, East-West, Jet), but with a market shake-up in

the mid 90's only the fittest have survived. Today there are

3 major national players (IA, Sahara, Jet) and several

regional players (NEPC, Span, Gujarat). As a result of

liberalisation, the services of all airlines have gone up and

along with that the fares have dropped noticeably.

GOVERNMENT POLICY

The policy of the government in the 50's was to connect

all of India via air. Hence today we find that almost all small

towns of India have airports. The policy failed because not

many people could afford to fly and almost no one flew to

small towns. Today when small towns are finally getting

flights it is found that the equipment at the airports is

outdated (eg - The Patna airport was built in the 60's but

use of the airport and all it's facilities began only in the 80's.

That is, for twenty years the equipment in the airport was

just lying around).


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After 1992, however, the government has adopted an

"Open skies" policy. In this policy, players are allowed to

enter and leave the market as they seem fit.

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Introduction of Airlines

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