Aviation-Flight Plan to the Dream Destination

Shweta Srivastava, Debanjana Sinha | IIM S The first quarter of 2010 brought some good news to the Indian airlines industry . According to Directorate General of Civil Aviation (DGCA), domestic air travel in India has reported growth of 20% in the first quarter of 2010. After the dou ble-digit fall in traffic in the first quarter of 2009, this means that passenge r numbers are up around 7% in Q1, 2010. Indias domestic traffic slump began in Ju ne 2008 and it eroded the bottom line of almost all the carriers and led to indu stry consolidation. Battling rising Airline Turbine Fuel costs, excessive low co st carrier challenge, errant employee unions and political interference, the dre am destination for this sector looks quite far. The 9th largest market in the world, the aviation industry in India is one of th ose sectors that saw a constant pace of growth among the other industries in the world over the past many years. One of the most dynamic industries, it has witn essed an exponential growth over the last two decades. Ever since the governments open sky policy was implemented, the industry trudged on a growth path register ing y-o-y growth rate as high as 18% resulting in the entrance of many overseas players. For some time, it seemed that the fairy tale will never end. Then the recession came and the aviation sector that witnessed a double digit gr owth in recent years began resorting to rationalisation. Private Indian airlines , which in the past had experienced massive growth, started demanding a bailout in the form of reduction in taxes and airport charges etc from the government and even threatened to ground their planes if their demands were not met. A case tha t needs special mention in this context is that of Air India. The Maharaja piled up accumulated losses of over Rs 7,000 crore and debt exceeding Rs 16,000 crore . As a result, it was forced to cut salaries and cancel order for new jets. The situation got so grave that it headed for a major government sponsored restructu ring, after being denied bailout. Joining it, among others, were Kingfisher Airl ines, IndiGo and SpiceJet, with accumulated losses of Rs 2,444 crore in 2007-08 and expected to stay in the red in 2008-09 with losses of over Rs 10,000 crore. The following two figuresshows the current condition of the Airlines Industry. Challenges are many and problems need to be overcome. The current status speaks high of the sad plight the industry is in, but we would like to list some reason s as to why I think the industry will revive and be among the top 5 aviation mar kets in 5 years. Standing by the customers Recession, undoubtedly, took its toll over the aviation industry but one must st op awhile and look at what happened in the western airlines. US Airways started charging for blankets, and they already charge for water leading to a seeming de cline in airline provisions and the imposition of new fees on almost every servi ce of value to travellers. Ryanair is famous for being the most hated airline in Europe, since it hardly takes care of its customers. Interestingly, bad times h ave not resulted in a disregard for customer service in Indian aviation. Surprisingly, this is not the trend in Indian carriers. Private airlines have ra mped up their customer service even in the Economy Class with special focus on p ersonalized service. Jet Airways recently won the Best First Class award, and Ki ngfisher does everything it can to uphold its 5-Star Airline status. Indigo star ted the use of automated screening systems to validate passenger names on the bo arding passes, a technology used for the first time by an LCC in India. The airl ines also came up with special deals on all their routes. Is it that someone forgot to tell these airlines that they were in a recession? Probably not! But their focus on keeping the customer happy will definitely pay

off in the long run. It is a known fact that it costs 5 times as much to bring i n a new customer, than to keep an existing one. And this mantra was religiously followed by the Indian carriers by utilizing the back to basics of customer servic e. The loyal customers will never ditch them. And when good times return, these same happy customers will contribute their best to generate enough brand awarene ss through word-of-mouth to bring in new passengers. Being resilient pays off Unlike airlines in the Middle East, most airlines in India do not have any speci al privileges like reduced oil prices or backing from a government with deep poc kets. This forced them to act on their own to cut costs to remain afloat in thes e difficult times. And they successfully did it. Instead of bothering the custom er with frivolous charges like in US airlines, Indian carriers cut costs where i t mattered. Kingfisher Airlines swiftly postponed plans for more overseas route launches lik e Singapore, Hong Kong etc since they tend to be resource heavy at the beginning . Jet Airways did away with glamorous but bleeding routes like that to San Franc isco. Moreover, they both either delayed the delivery of new aircraft, or leased them to airlines like Turkish and GulfAir. Most airlines in India switched to f ocused marketing efforts, rather than blanket campaigns to get more bang for the buck. And Kingfisher and Jet Airways came up with a code-share alliance to save costs keeping aside their competitive aspirations. It is this resilience and fa st action that will pay off well in the end. Indian economy among the fastest growing even during recession The word recession has disappeared from the vocabulary now. The International Mone tary Fund (IMF) has raised its India growth forecast for 2010 to 9.4 per cent fr om 8.8 per cent. Despite the fact that India s civil aviation industry was the s econd largest loser after the US due to the recession worldwide, more than anyon e else, its the Indian carriers that will reap the best rewards of a still-active Indian economy, if they play their cards right. And till now, they havent let mo st people down when it comes to crises handling. The Indian Aviation sector has the potential of absorbing up to USD 120 billion of investment by the year 2020. Its high time that the regulatory and policy fram ework is aligned with the needs of the civil aviation industry to encourage seri ous investment in the sector and create a safe, secure, efficient and environmen t friendly system conducive to healthy growth. Kingfisher Airlines- CRM the way forward Kingfisher Airlines (KFA) is positioned as Full Frills - True Value Carrier. In or der to achieve this, KFA had to differentiate itself from the then market leader , Jet Airways. It dedicated itself to Customer Relationship Management to initia te its customer base and retain its profitable customers. Some of the initiative s by Kingfisher Airlines are: Roving Agents KFA combined its IT expertise and customer service to create the concept of Rovin g Agents. The Roving Agent is a Kingfisher staffer carrying a handheld that is co nnected to the main reservation and check-in system wirelessly using Wi-Fi, and a portable thermal printer, attached to the staffer s belt, that links with the PDA using Bluetooth. Guests flying with Kingfisher carrying only hand luggage ca n be intercepted near the entrance. Using a ticket s PNR number, a Roving Agent can help guests choose a seat on their plane, print a boarding pass from the pri nter on the Rover s belt and send passengers straight to security check. On a ty pical day, at a busy airport like Mumbai or New Delhi, this initiative can help save a passenger seven or eight minutes. It might not sound like much, but for a business traveler pressed for time and catching a flight at the last moment, ei ght minutes can come very handy.

Partner Program Although frequent fliers program is done by all major airlines in the world, KFAs partner program tied with best brands in across industries to provide functional quality to its loyalty program, the King Club. It teamed with the stalwarts in various sectors to help its loyalty program members earn and redeem points. All its partnering and co-branding efforts are targeted towards acquiring and retain ing its most valuable customers, i.e., the globe-trotting business traveler. Som e of the examples are: Passengers can earn miles by travelling in the major international airlines arou nd the world. This includes Emirates, Air France, KLM Royal Dutch Airlines, Qata r Airways, Delta Air Lines and Continental Airlines. It tied up with the major banks, both national and international, such that the each brands star and premium credit cards can earn mileage to King Club customers , through each transaction. Their hospitality partners include The Hilton Family, Oberoi Hotels, Leela Hotel s, Ananda, Trident Hotels, Ista Hotels, The Park Hotels, The Paul Hotels and ITC -Welcomgroup. They even tied up with publishing partners like Harvard Business Review and Fort une to expand its global customer base. Such diverse portfolio of partnering is unheard in India and it has provided KFA the competitive advantage over other carriers with true focus that The right Cus tomer is the king Add-On Selling strategies: Kingfisher Airlines have successfully integrated its Customer Relationship Manag ement to cross selling very well. This includes transaction in Air Boutique ONLINE KFAs premium online reward shop. It is the first of its kind in the Indian airline industry. This is a 24 hour s ervice that is exclusive to King Club members and customers can redeem reward po ints merchandise. The reward points or the King Miles for KFA are transferable to family and frien ds at a nominal value unlike many carriers in India. This flexibility allows KFA to acquire newer customers and strengthen its customer base considerably. It ha s also integrated its Kingfisher Holidays with its loyalty program. This complet es the full circle of impact of UB group in hospitality industry. All the above examples show the superiority of Kingfisher Airlines in delivering the right mix of technical and functional quality in its service. Its ability t o manage customer service at the actual touch points and provide newer avenues o f experiencing its superior pre and post journey is unmatched in the India airli nes industry. Only time will tell if its customer focused strategy will help it pass through the difficult times of negative bottom line and an immensely regula ted airlines industry. Way Ahead India is yet to witness a success story like Southwest Airlines where the integr ation of marketing, CRM and technology and route optimization led to record reve nues irrespective of condition of the industry. With the domestic traffic boosti ng up, it is high time that carriers utilize the best practices in customer serv ice from around the world and turn the tables for the Indian aviation industry. Dr. Dinesh A. Keskar, President, Boeing India

Dr. Dinesh A. Keskar is President of Boeing India and Vice President of Boeing I nternational. He is responsible for leading Boeings efforts in pursuit of new gro wth and productive initiatives in India. Before joining Boeing, Dr. Keskar worke d as a research associate in the Flight Dynamics and Control Division at NASA La ngley Research Centre. He has served on several boards and organizations includi ng the American Society of Engineers of Indian Origin and as the chairman of FIC CIs civil aviation committee. Markathon: Please tell us about the various sales and marketing approaches and s trategies involved in the aircraft manufacturing industry? Dr. Keskar: The most critical marketing approach in the aircraft manufacturing i ndustry is to ensure that the customers requirements are well understood. These r equirements are with regard to aircraft performance characteristics such as weig ht, range, speed, fuel efficiency, strike capability (in the case of defence air craft) and so on. Such a customer-centric approach may be said to be common for any industry but it assumes even more importance in the aircraft manufacturing s ector. This is because aircraft manufacturing is extremely cost and time intensi ve which means that any error in comprehending customer requirements invariably means heavy penalties either in terms of product modifications or lost sales. The second most important marketing approach is to appeal to a customers airline economics particularly for commercial airplane customers. As a result, it is ess ential to get the product pricing right - not just the initial acquisition cost but also the total lifecycle cost of operating an aircraft. Given that the typical service life of an aircraft can range from 30-40 years, t he after-sales support is another key differentiator in the sales process. Finally, aircraft sales are often accompanied by reciprocal obligations to inves t a certain proportion of the sale back into the purchasing country to offset its purchase of the aircraft. In India too, offset obligations are incurred by an ai rcraft manufacturer when making a sale to government customers (Air India and th e Indian Armed Forces). Boeings approach towards fulfilling offset requirements h as been to demonstrate its commitment to partnership with India. This commitment is evident through high-technology manufacturing that Boeing has initiated with the Indian industry as well as through our technology collaborations with resea rch institutions and government labs. Markathon: The airline industry has been deeply affected by the recession and th us the aircraft manufacturers are also feeling the heat. What steps are you taki ng to counter this? Dr. Keskar: The aerospace industry is a cyclical industry. In times of downturn, we continue to focus our efforts on both customers and suppliers to drive costs down at various stages of the value chain. To do so, we leverage tools such as Lean+ and Six Sigma to drive operational efficiencies. We also work with the cus tomer in areas such as route optimization, flight scheduling and crew management so as to help them make adjustments that optimize yields in times of reduced de mand. Developing a strong and long term relationship with the customer enables u s to serve as their trusted partner to help them consolidate and utilize their r esources effectively. Markathon: What are the important characteristics that should be analyzed, to fi nd out the market potential for airline manufacturer like you? Dr. Keskar: At a macroeconomic level, the demand for both commercial aircrafts a nd military products is directly correlated to a countrys GDP. To gain a deeper u

nderstanding of the drivers of market potential, one has to start by examining t he customers motivation to purchase. In the commercial airline business, the objectives for air travel could be any o f the following: tourism, conduct of business, Visit Friends and Relatives (VFR) or connectivity to remote parts where travel by other modes of transport is dif ficult. One of the most important driving factors that influence these objective s is disposable income. The quality and network of associated aviation infrastru cture such as airports and Air Traffic Control (ATC) services is another key dri ver. A proper fuel policy to help reduce the cost to fly is another important dr iver. Finally, air travel is driven by the relative availability of air services as compared to other modes of transport. This could be either in terms of low t icket prices or the number of available flight options to the customer. By analy zing these and many other drivers for India, we estimate a demand for 1000 comme rcial aircraft valued at $100 billion over the next 20 years. From a defence standpoint, a countrys motivation to purchase is driven by its nee d to safeguard its economic interests, protect its borders and combat terrorism. The Indian government has embarked on an ambitious fleet modernization drive, p ositioning India among the top 10 military spenders in the world today. Boeing e stimates an addressable market potential of $31 billion in Indian defence over t he coming 10 years. Markathon: How is Boeing planning to take on competition in the Indian market by other players especially Airbus? Dr. Keskar: The Boeing Company has focused on continuous innovation throughout t he history of its evolution. The 787 Dreamliner will be the most advanced and ef ficient commercial airplane in its class and will set new standards for environm ental performance and passenger comfort. Its exceptional performance will come f rom improvements in engine technology, aerodynamics, materials and systems. It c omprises over 50% composites, an industry first, that makes it 15% more fuel eff icient than previous generation aircraft. Another discriminator for Boeing is that our product strategy is based on a poin t to point transportation paradigm. Boeing believes that passengers would want t o fly from their port of origin directly to their end destination with no interm ediate stops. The 777 aircraft transformed inter-continental travel by offering non-stop travel to the US. Similarly, the 787-8 and 787-9 variants offer a range of over 15,000 kms non-stop. Point to point travel reduces overall travel time as well as the likelihood of lost baggage and missed connecting flights. Markathon: In India, Boeing is mainly focusing on the defence and the government carriers and not on the private players. What are your opinions on this? Dr. Keskar: Boeing is committed to the growth of the entire aerospace market. We focus on both private and government carriers in civil aviation and defence. Th e close relationship between Boeing and India goes back over 60 years when India entered the jet age on the wings of Boeing commercial jetliners. Boeing jets co ntinue to be the mainstay of the countrys domestic and intercontinental commercia l fleets not only through the national carrier, Air India but also through estab lished private players like Jet Airways and SpiceJet. As in other parts of the w orld, the efficient 737 aircraft has become Indias preferred choice for domestic and low cost flights. Jet Airways has one of the youngest aircraft fleet in the world and is dominated by Boeing aircrafts such as the 737 and 777. In addition, Jet Airways has also placed orders for the 787 Dreamliner. New opportunities for partnership with India have also emerged in the area of de fence. In January 2009, the Government of India selected the P-8I to fulfil its long-range maritime reconnaissance and anti-submarine requirements. Boeing has a

diverse portfolio of products on offer to India such as the combat-proven F/A 1 8 Super Hornet multi-role strike fighter, the C-17 Globemaster strategic-lift ca rgo aircraft, the Harpoon missile, the CH-47F heavy-lift Chinook helicopters and the AH-64-D Apache attack helicopters. We are also a leading provider of aerosp ace support systems and systems that enable Network-Centric Operations. Markathon: How do you see Indias potential as R&D and manufacturing hub for Boein g? Dr. Keskar: Indias technological prowess through the evolution of its 5000 year o ld civilization is world renowned. With over 380 universities, 11,200 colleges a nd 1,500 research institutions, India has the second largest pool of scientists and engineers in the world. Boeings belief in Indias potential for technology coll aboration was reaffirmed when we opened our Research and Technology centre in Be ngaluru earlier this year. This is only our third such centre anywhere in the gl obe outside of the US and will serve as a nodal point to further collaborate and grow our relationships with research institutes in India in the areas of R&D, E ngineering and IT. The Indian Institute of Science (IISc) has been established as only one of the e ight Boeing Strategic Universities worldwide and only one of the two internation ally. In addition, several collaborative research projects are being undertaken with NAL, HAL, IITs and other leading public and private sector organizations in India. These projects span a wide range of aerospace technology from Computatio nal Fluid Dynamics, Radio Frequency Identification (RFID) and computational elec tromagnetism to composites, manufacturing processes, high strength alloys and sm art structures. We have formed an alliance with industry and academia to form an Aerospace Network Research Consortium (ANRC) to collaborate on next-generation wireless and network Boeing is also undertaking several high-technology manufacturing projects with I ndian industry. These include both commercial as well as defence related work pa ckages. Flight critical parts such as the floor beams and flaperons will be manu factured by Indian companies for Boeing aircraft sold around the world. These co mponents incorporate some of the latest technologies involving hybrid composites and are being used first time anywhere in the world. Another good example of the growth of the ecosystem is the recently started faci lity in Belgaum. Magellan and Quest together started a much needed sheet metal m anufacturing facility and a precision machining facility. This is one of a kind facility and we believe is another important milestone in the growth of the aero space ecosystem in India Markathon: With so many Indian companies planning to enter in the aero component market, how it is going to help Boeing? Dr. Keskar: Boeing follows a collaborative model in its supply chain. Boeing air craft comprise components manufactured by suppliers from all over the world, inc luding India. Boeing is strategically working with its Tier 1 partners to grow t he network of Small and Medium Enterprises in India. The objective is to enhance collaboration that will lead to development of a mature aerospace ecosystem in India. Such an approach will not only increase number of jobs and enhance Indias industrial output but will also make Indian manufacturing capabilities available for the benefit of the global aerospace supply chain. Markathon: Finally, we would like to hear about the scope of management graduate s in the aircraft manufacturing industry. Dr. Keskar: One of the most important constituents of any industry ecosystem is the presence of a large and skilled technical and managerial workforce. This is

especially a critical constituent for our sector given the relatively nascent st age that the Indian aerospace ecosystem is in. This rapidly growing sector offer s tremendous opportunities for management graduates across various functional di sciplines. Operational experts can help incorporate quality and reliability best practices into aerospace manufacturing. Supply chain and logistics specialists are required to help Indian companies get better integrated into the global supp ly chain. Business development professionals will help highlight awareness of In dian aerospace capabilities across the globe. And finally, finance specialists w ill be crucial to identify innovative business models to drive investments in In dian aerospace as well as to ensure that products delivered are in line with ove rall budgetary estimates.