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Airlines: Service Industry

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Topic Executive summary Service marketing Unique characteristics of service industry Marketing mix for service industry Airline industry Introduction to airline industry History of industry Structure of the industry Indian aviation industry Players in the airline industry Airport infrastructure Development of civil aviation in India Civil aviation policy Infrastructure development Airport privatization Alliance strategy Recent development Case study- Jet airways

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Airlines: Service 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 Neville 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 28 th 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 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

Airlines: Service Industry domestic and foreign parties have evinced interest in the divestment process. Recently, foreign airlines like Virgin Atlantic of Britain and Singapore 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 2005, Indian airports are likely to handle 60mn international passengers and 300,000 tons of domestic and 1.2mn tons of international cargo.

Airlines: Service 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. 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 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). 7 Ps of Service Marketing

Price Produc t

Promotio n


Service Quality

Physical Evidence



The product mix

Airlines: Service Industry 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 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.

The pricing : 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

Airlines: Service Industry 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. The Distribution: In Airlines, they utilise more than one method of distribution.for e.g they sell tickets through travel agents & sell seats on flights to tour operators , whilst also operating direct marketing. Whichever distribution strategy is selected, channel management plays a key role. For channels to be effective they need realiable updated information. For these reason, I.T has been widely adopted such as on-line booking system. Some marketers suggest that the unique requirements of selling services require the manager attend to three additional P's. These are people, physical evidence and process. People: Many services require personal interactions between customers and the firm's employees and these 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

Airlines: Service Industry 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 highquality 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 to woo and 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 ones 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.

Airlines: Service Industry 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. Physical Evidence 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 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. Process Of Service Production 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

Airlines: Service Industry 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.

Airlines: Service Industry


Airlines: Service Industry

INTRODUCTION 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 As of October 30, 2007 the total fleet size of commercial airlines in India was 439. In 1994 the Air Corporation Act of 1953 was repealed with a view to remove monopoly of air corporations on scheduled services, enable private airlines to operate scheduled service, convert Indian Airlines and Air India to limited company and enable private participation in the national carriers. However, beginning 1990 private airline companies were allowed to operate air taxi services, resulting in the establishment of Jet Airways and Air Sahara. These changes in the Indian aviation policies resulted in the increase of the share of private airline operators in domestic passenger carriage to 68.5% in 2005 from 0.4 of 1991.


Airlines: Service 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. 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.


Airlines: Service Industry Air transport in India is now open to any carrier who fulfills the statutory requirements for operation of scheduled services.

Air India Air-India Express Air India Regional Blue Dart Aviation Club One Air Kingfisher Red Deccan Aviation GoAir IndiGo Airlines Jagson Airlines Jet Airways Jet Lite Kingfisher Airlines MDLR Airlines Paramount Airways SpiceJet Hi Flying Group




COMMENCED OPERATIONS October 1932 September 2007



EXPRESS INDIA April 2005 BLUE DART DECCAN DECCAN GOAIR IFLY JAGSON JET AIRWAYS LITEJET KINGFISHER MDLR PARAWAY SPICEJET HIFLY May 1994 August 2005 August 2003 December 1997 June 2004 August 2006 November 1991 May 1993 April 2007 May 2005 March 2007 October 2005 May 2005 December 2005

STRUCTURE OF THE INDUSTRY Types of Airline Certification


Airlines: Service Industry 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 cargoservice 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 DOTs 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. How Major Airlines Are Structured Line Personnel

These include everyone directly involved in producing or selling an airlines 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 airlines employees. Operations


Airlines: Service Industry This department is responsible for operating an airlines 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. Maintenance Maintenance accounts for approximately 11 percent of an airlines employees and 10-15 percent of its operating expenses. Maintenance programs keep aircraft in safe, working order; ensure passenger comfort; preserve the airlines 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 airlines 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 airlines 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.


Airlines: Service Industry 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 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.


Airlines: Service Industry 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 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, 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


Airlines: Service Industry Chhatrapati Shivaji international airport's share of the country's international traffic is around 40%.


Airlines: Service Industry 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. 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 Tymms report, the government appointed a Committee in 1944 under the chairmanship of Sir Mohammad Ushman, a


Airlines: Service Industry 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 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, Indias 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.


Airlines: Service Industry 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. 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. 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 recently 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.


Airlines: Service Industry 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 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. New aviation policy to be implemented this year 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. INFRASTRUCTURE DEVELOPMENTS Private sector is now allowed in building airports. Among the private sectoraided 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


Airlines: Service Industry (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 Kochi 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. The AAI has also drawn up a 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. Association


Airlines: Service Industry IATA - The International Air Transport Associations History: 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. 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


Airlines: Service Industry 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 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


Airlines: Service Industry 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. 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 1) 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


Airlines: Service Industry 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.

2) 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. 3) 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. 4) 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


Airlines: Service Industry called as joint pricing where in one of the partner issues a ticket on behalf of the other. 5) Inventory management 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. 6) 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. 7) Joint purchasing by the alliance partners The benefit of scale and bargaining powers can provide great synergies and the cost reduction to the partners. 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.


Airlines: Service Industry 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 codesharing, 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 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 Bransons Virgin Atlantic.


Airlines: Service Industry


Airlines: Service Industry

PEST Analysis: The Indian Airline Industry

A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firm's control and sometimes present themselves as threats. For this reason, some say that "pest" is an appropriate term for these factors. Let us look at the PEST analysis of the Indian aviation sector:

Political Factors
In India, one can never over-look the political factors which influence each and every industry existing in the country. Like it or not, the political interference has to be present everywhere. Given below are a few of the political factors with respect to the airline industry: o 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 travellers, regarding travelling to a particular country. o Overall Indias recent political environment has been largely unstable due to international events & continued tension with Pakistan. o The recent Gujarat riots & the governments inability to control the situation have also led to an increase in the instability of the political arena. o 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. o International airlines are greatly affected by trade relations that their country has with others. Unless governments of the two countries trade


Airlines: Service Industry with each other, there could be restrictions of flying into particular area leading to a loss of potential air traffic (e.g. Pakistan & India) o 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 from archaic laws applying only to them such as the retirement age of the 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.

Economic Factors
Business cycles have a wide reaching impact on the airline industry. During recession, airline is considered a luxury & therefore spending on air travel is cut which leads to reduce prices. During prosperity phase people indulge themselves in travel & prices increase. After the September 11 incidents, the world economy plunged into global recession due to the depressed sentiment of consumers. In India, even a company like Citibank was forced to cut costs to increase profits for which even the top level managers were given first class railway tickets instead of plane tickets. The loss of income for airlines led to higher operational costs not only due to low demand but also due to higher insurance costs, which increased after the WTC bombing. This prompted the industry to lay off employees,


Airlines: Service Industry which further fuelled the recession as spending decreased due to the rise in unemployment. Even the SARS outbreak in the Far East was a major cause for slump in the airline industry. Even the Indian carriers like Air India was deeply affected as many flights were cancelled due to internal (employee relations) as well as external problems, which has been discussed later.

Social Factors
The changing travel habits of people have very wide implications for the airline industry. In a country like India, there are people from varied income groups. The airlines have to recognize these individuals and should serve them accordingly. Air India needs to focus on their clientele which are mostly low income clients & their habits in order to keep them satisfied. The destination, kind of food etc all has to be chosen carefully in accordance with the tastes of their major clientele. Especially, since India is a land of extremes there are people from various religions and castes and every individual travelling by the airline would expect customization to the greatest possible extent. For e.g. A Jain would be satisfied with the service only if he is served jain food and it should be kept in mind that the customers next to him are also jain or at least vegetarian. Another good example would be the case of South West Airlines which occupies a solid position in the minds of the US air travelers as a reliable and convenient, fun, low fare, and no frills airline. The major element of its success was the augmented marketing mix which it used very effectively. What South West did was it made the environment inside the plane very consumer friendly. The crew neither has any uniform nor does it serve any lavish foods, which indirectly reduces the costs and makes the consumers feel comfortable.

Technological Factors


Airlines: Service Industry The increasing use of the Internet has provided many opportunities to airlines. For e.g. Air Sahara has introduced a service through the internet, wherein the unoccupied seats are auctioned one week prior to the departure. Air India also provides many internet based services to its customer such as online ticket booking, updated flight information & handling of customer complaints. USTDA (US trade & development association) is funding a feasibility study and workshops for the Airports Authority of India as part of a long-term effort to promote Indian aviation infrastructure. The Authority is developing modern communication, navigation, surveillance, and air traffic management systems for India's aviation sector that will help the country meet the expected growth and demand for air passenger and cargo service over the next decade. A proposal for restructuring the existing airports at Delhi, Mumbai, Chennai and Kolkata through long-term lease to make them world class is under consideration. This will help in attracting investments in improving the infrastructure and services at these airports. Setting up of new international airports at Bangalore, Hyderabad and Goa with private sector participation is also envisaged. A good example of the impact of technology would be that of AAI, wherein with the help of technology it has converted its obsolete and unused hangars into profit centers. AAI is now leasing these hangars to international airlines and is earning huge profits out of it. AAI has also tried to utilize space that was previously wasted installing a lamination machine to laminate the luggage of travelers. This activity earns AAI a lot of revenue. These technological changes in the environment have an impact on Air India as well. Better airport infrastructure, means better handling of airplanes, which can help reduce maintenance cost. It also facilitates more flights to such destinations.


Airlines: Service Industry

Segmentation: The Airline Industry

Most airlines use a very traditional segmentation strategy, dividing passengers into business travelers and economy travelers (mostly leisure travelers). The common strategy is to squeeze as much profit as possible from business class passengers who are attracted by superior services and corresponding high prices and, at the same time, to try and fill the rest of the seats and ensure growth by attracting economy class passengers with lower fares.

Business passengers
They are crucial for airlines' profitability. With less spare time and more cash in their pockets, they agree to pay a premium price for a premium service. Today business passengers account for approximately 48% of passengers, and these 48% contribute 66% of airlines' revenue. The premium prices they pay provide wider and more comfortable seats, better choice of meals and seats, luxurious lounges. Airlines can choose from a multitude of premium services to offer to business travelers. Some of these extras range from seats equipped with faxes and telephones, to gambling machines, showers, massage services and suit ironing services in the recently introduced arrival lounges. Business passengers believe it is worth extra money if they can save time and arrive looking fresh for an important meeting. Business passengers will avoid transit flights even if a longer flight could save them money. But amongst other perks, flexible reservation services are probably the most important to them. Reservations for business trips are often made just a couple of days in advance. A no penalty cancellation policy is also very important to business passengers.


Airlines: Service Industry The best way to reach business travelers is through printed advertising. Business news media, such as "The Economist" or "The Wall Street Journal" are some of the best publications through which airlines can reach business travelers. Many airlines design special promotional programs that target corporate bookers and meeting planners, who are responsible for business trips reservations. Frequent flyer programs are an added bonus for business passengers.

Leisure Travelers
They represent a totally different market. The most important consideration for most of them is the price. The lower the airfare, the more people will fly the respective airline. By and large, with the exception of wealthy travelers, this segment will not pay extra for premium services and will agree to change several planes during their trip if this option costs less than a direct flight. Despite lower margins provided by this segment, leisure travelers are very important to an airline's bottom line. Part of the reason is that technological progress in the area of tele-conferencing and increased use of the internet for business communications is expected to reduce the number of business travelers. Thus, airlines are counting on the leisure segment to provide further growth. How can airlines benefit from the growth opportunities in the leisure segment without losing immediate profit opportunities in the business segment? This is a tough issue in airline marketing management. By improving services and reducing prices for economy class passengers, airlines risk that some business passengers will switch to economy class. This has already happened with Japan Airlines, for example, which was forced to eliminate business class seats on some of its flights. On the other hand, if an airline focuses on business class passengers, it risks losing its economy class passengers to another airline. Since business class passengers are not many, a company relying mostly on business travelers will often end up flying half-empty planes, losing the potential revenue generated by lower priced economy seats.


Airlines: Service Industry On the other hand, few airlines catering solely to economy class passengers can be successful because a low fare carrier must fill the entire plane if it is to generate revenue from its low-margin operations. The allocation of business and economy class seats on a plane is determined through a process called yield management. A good yield manager knows the approximate proportion of business and leisure travelers for each flight in advance, based on sophisticated statistical models. Thus he/she tries to sell early, the economy seats at a cheaper price, while keeping enough seats reserved for business travelers, who usually book at the last minute. Keeping just the right amount of business seats reserved is important: selling too few economy seats in advance may result in a less-than-full plane while selling too many economy seats may result in a full plane, but with insufficient revenue to gain a profit. This kind of segmentation serves airlines well enough when implemented within one company. It would be very difficult for any single airline to target just one of these two segments - business or leisure successfully. There are exceptions - small regions that serve destinations where the majors do not fly, for example, are in a better position to implement a low price policy. They can even get business travelers to fly them despite the lack of premium services because no other airline would get them there. Southwest is a classic example, proving that low cost carriers can thrive. Major international carriers, however, need to target both the business and the leisure segments they may also target different ethnic and geographical segments differently, depending on the markets from which they draw the majority of their customers. For example, even though Japan Airlines advertise extensively to the American public, their message -"Your needs. Your Airline," seems to work best for the traditional Japanese audience. Inside one country, two national carriers may also focus on different destinations, which is the case with Canadian Airlines and Air Canada. Passengers' tastes determine airlines' strategies. While British Airways focuses on comfort and luxury, valued by European passengers, Air Canada


Airlines: Service Industry equips its business class seats with plugs for laptops and telephones, appreciated by North American business travelers.


Airlines: Service Industry Overall, airlines seem to achieve best results when they subscribe to the segmentation theory, supported by yield management techniques and a careful monitoring of the economic changes in their geographical markets.

Product Mix
Getting the product right is the single most important activity of marketing. If the product isn't what the market wants, no amount of price adjustment or brilliant promotion will encourage consumers to buy it. The airline product is quite a complex one since it comprises of a service of incorporating the temporary user of airline seat and certain tangible products such as free flight bags or a free bottle of duty free spirit to encourage booking. The airline product includes of two types of services: 1. on the ground services, 2. In-flight services. The on-the-ground services include a convenient airport with car parking facilities, duty free' shopping quick and efficient checking of baggage, efficient service at reservation counter, transport to the airport, etc. The service provided inside is intangible and is highly variable. The airhostesses are trained to provide polite, warm and courteous service. The courteous service that the representatives at the baggage counter, reservation counter provide goes a long way in developing customer loyalty. The travel agents of the airlines also need to be efficient and polite.

Differentiating the Product

It is important to recognize that what the consumers are demanding are not products, or features of products but the benefits they offer. Producing added benefits thus helps the marketer to distinguish one product from another. Good design or style of service can form the basis of


Airlines: Service Industry differentiation. This enables the company to create a personality for its service. The design and decor of the aircraft provides opportunities to personalize their product as well as periodically to update them when differentiation under IATA regulations was virtually excluded, nonetheless, certain airlines were able to develop distinct personalities. Eagle Airlines created an entirely new market between New I York and Bermuda, for e.g. by developing an image of a friendly airline distinctive from other airline serving the route. A similar style was evident in Richard Branson's Virgin Airways.


Many services products consist of a bundle that includes a variety of service elements and even some physical goods. It is important to distinguish between the core product that the customer buys and the supplementary services that accompany that product.


Core product surrounded by clusters of supplementary services Source: Christopher Lovelock pg. 233 The core service of an airline is the service of transport. The supplementary services are classified into eight clusters & each one is analyzed with respect to the airline industry:

This aspect of supplementary service is common for every person that needs information about the organization. In case of airline industry, upto date information regarding flight schedules, ticket fares, information about promotion schemes etc available to customers. Customers can avail of this information literally at their fingertips today with every airline starting its own website which gives complete details to the customer & also entertains queries.


Airlines: Service Industry It also includes providing information to employees regarding new policies affecting the airline & equipping them with enough information, which the customers might demand. Extensive training is provided to in-flight attendants regarding handling customer queries, knowledge about the airplane itself, knowledge about cuisine etc.

This aspect of supplementary services can be customized according to the needs of the customer. It is more in the case of people processing and high personnel-contact services. Airlines are moving more actively into the role of consultant today. They are doing away with the travel agents & designing & selling packaged tours to consumers directly. In this aspect they often act as consultants to the customer, by giving him advice & suggestions regarding the type of plan he can choose, the benefits he will get the mode of travel he should choose etc. Another aspect to consultation at airlines is when the customer approaches the airline regarding traveling to particular destination, the airline gives him a variety of choices of routes that he can take. In some cases airline may also design special menus & benefits in consultation with its frequent fliers by keeping in constant touch with them & asking them for suggestion as to what they want in their airline which will make their experience more comfortable.

Order taking
The order taking procedure is essentially the booking procedure of the airlines. The important aspect to be noted here is that the procedure is smooth, easily understood & fast. Reservation of airline tickets is now easy and reliable since it is fully computerized. There are 24 hours reservations. Passengers can specify their seat preferences at the time of reservation.


Airlines: Service Industry

Most airlines use the telephone, fax, and email methods of booking. The emphasis here is on fast booking & at the same time getting the required information form the customer. This is done by establishing a standard reservation procedure & format thus reducing the risk of inconsistent service delivery. The online booking system also facilitates better order taking & processing. The scheduling aspect assumes importance as reservations on the wrong flight to the wrong place are likely to be unpopular.

Hospitality & Caretaking

With the increased competition today in the airline industry & the increasing similarity of services offered by each airline, hospitality has emerged as a key-differentiating factor between one airline & the other. The hospitality aspect of an airline is tested right form the time of the reservation (courtesy of the booking official) to the airlines desk at the airport to the actual in-flight travel (the attitude of the flight attendants) to the post flight help extended.

In airlines the safekeeping issue is that of safeguarding the customers baggage. Baggage allowances are offered about 30 kgs of check-in baggage is allowed. Passengers carrying international tickets are given further allowance of around an added 3Okgs Priority baggage delivery is offered to members. The customers entrust his baggage o the airline & it is the airlines responsibility to keep it in a proper condition. Children and infants usually travel along with their parents and guardian. In case of unaccompanied minors, customer service staff renders all assistance like checking in and escorting up to the aircraft and handing over to the senior-most cabin attendant on board the flight. He is looked after


Airlines: Service Industry on board the flight right upto the point flight reaches the destination and he is received by his guardian.

Special requests airline very often receive special requests form customers with regards to meal preferences, special amenities for elderly people or children., medical needs etc. these needs have to considered & acceded to wherever possible Handling of customer suggestions / complaints every airline today has a customer service center which entertains customer suggestions & complaints. On the flight, customers are often asked for their opinion regarding service equality. Many corporate frequent travelers are consulted when the airline decides to make any new change.

Billing & payment

The billing procedure in airlines is simple. The options available to the customer are plenty including credit card & travelers cheque. Airlines use the open account system with their corporate clients. Frequent fliers are also given special payment privileges.


Airlines: Service Industry



The core service of the airlines industry is to transport goods and services to various destinations. As the needs of the people increased the entire system became more organized and formal. After this stage comes the various supplementary services.

The Supplementary Services

The airline industry has many players they had a brand name like Air India, Jet Airways, British Airways. All of them had some common services to offer like connecting flights, through check-in, tele check in, food on board, and complementary gifts etc. Different classes like economy class, business class were introduced. Air concessions are given to school students, old people etc. Singapore airlines was the first to introduce small 8television screen for every passenger. The freebies are actually win-win deals between airlines and other services. Sahara, for example, offers its passengers a business-plan on twoway economy class ticket, which includes a nights stay with breakfast, STD facility for 3 minutes and boardroom facility at the Park Hotel, New Delhi. To Delhi based fliers to Mumbai, it offers a nights stay with breakfast, airport transfers and VIP amenities at The Orchid, Mumbai. For business class, the plan includes a stay at The Leela, with buffet breakfast and late checkout. All these added service helps the customer to decide upon which airlines he wants to travel. As competition increased and the customers wanted more the next phase evolved and that is the augmented service.


Airlines: Service Industry The Augmented Service This phase is where the customers expectations are met; the service providers kept working on new methods to meet the ever-changing customers demands. The players introduced online booking, which was very convenient for the service users. British Airways business class has showers; its more spacious and comfortable. Sahara airlines offer its passengers six different types of cuisine like vegetarian, fat free, diabetic etc. They also have auction going on board. Virgin airlines have gambling on board, they also have body massage to offer to their passengers. Air Emirates has something called cab service, they have customized pick up and drop cab service. This phase is the most crucial one; with increased competition service will become the final differentiation.

Future Service
As mentioned above the customer needs keep changing, the future is unknown. The customers may be looking in for more frequent inexpensive air travel, something like air taxis, super sonic speed. This decreases the time thus reducing the cost.


Airlines: Service Industry The diagrammatical representation of the core and supplementary services in the airline industry is shown below:









Airlines: Service Industry

Price Mix
Price plays as much a tool of marketing as promotion plays a critical role in the marketing mix. The concept of 'fair price' is paramount. Buyers judge whether a product is fairly priced by seeing whether it represents value for money. Pricing can be classified in three ways.

The final fares charged to the passengers include the following components: Basic fares Insurance Inland Aviation Travel Tax (IATT). Passenger Service Fee (PSF) The basic fares include the operating cost incurred by the airlines and the profit margin. The major constituents of the operating cost in respect of domestic airlines in India are the Aviation Turbine Fuel (ATF) the basic raw material for this service industry, varies 30-40 % depending on aircraft utilization; Navigation, Landing & Parking costs 7-10%; Repair and Maintenance 13%, Manpower 12%; Acquisition/ Depreciation & Insurance 13% and balance other expenses.

How are fares arrived at?

When Airlines put in capacity (seats) and frequency (flights) between any two points, they market research the route in order to arrive at the total potential for that segment. In other words, the capacity and frequency is tailored to the size of the market. Accordingly, the pricing structure is also arrived at. Pricing or fare levels are arrived at after taking into consideration various factors; type of aircraft, configuration of aircraft (number of seats), density of route, competitor activity, and minimum breakeven cost.


Airlines: Service Industry In order to achieve the breakeven seat factor and thereafter maximize loads, the airline embarks upon a serious of marketing activities. These will vary from a publicity campaign highlighting various facets of the Product, to sales, service, punctuality, ideal departure and arrival timings, connections and so on. In short, the entire focus is to increase the yield and load factor (seat factor). The yield or the bottom line is the income generated from ticket sales less costs incurred on the route.

Why do fares fall?

When the yield drops or the seat factor falls, the airline is immediately alerted to enquire into the causes for this. This leads to a fare war wherein the airline either tries to protect its market share or responds to another airline which tries to increase its own market share. The reasons for these can be multifarious.

1. It could be that the route is not profitable due to intrinsic reasons such as
a very short haul route, or the potential or total size of the market for this route is too small to sustain a profitable flight or there is too much capacity deployed by various airlines on the route

2. Yields may also fall due to increase in costs. Then the airline has two
options; increase fares to compensate for the increased costs. The second option is, to drop fares in order to increase the seat factor. (Increase in volume number with low fares can achieve breakeven cost)

3. It could be that the type of aircraft deployed on the route is not suitable
and hence is making cash loses.

4. Extraneous reasons also contribute to non-profitability of routes. The

event of September 11, 2001 is an instant example wherein passengers simply stopped flying and several airlines went into bankruptcy. Also poor economic conditions lead to shrinkage of market. Prices of fuel also 48

Airlines: Service Industry fluctuate and can result in sudden increase in basic costs. Insurance premiums have recently increased considerably, further adding to the burden.

5. Apart from the above. Competitor activities can also lead to a drop in
market share or drop in yields. For example, the most common cause is a reduction in fares by one airline forces the other to reduce fares. This reduction in fares could be due to any of the above three reasons enumerated above. Reduction in fares, apart from the above reasons is also due to introduction of a more suitable aircraft, which is fuel efficient, modern, and with greater seating capacity at lower cost. In other words reduction in fares is not always due to negative factors but can be due to modernization.

Pricing Strategies Premium Pricing:

The airlines may set prices above the market price either to reflect the image of quality or the unique status of the product. The product features are not shared by its competitors or the company itself may enjoy a strong reputation that the 'brand image' alone is sufficient to merit a premium price.

Value for Money Pricing:

The intention here is to charge the average price for the product and emphasize that it represents excellent value for money at this price. This enables the airline to achieve good levels of profit on the basis of established reputation.

Cheap Value Pricing:

The objective here is to undercut the competition and price is used to trigger the purchase immediately. Unit profits are low, but overall profits are achieved. Air India and Indian Airlines have slashed their prices to meet the competition of private airlines so that they can consolidate their position in the market.


Airlines: Service Industry

Airlines usually practice differential pricing. There are three classes: The First Class, The Executive or Business Class and The Economy Class. Fares for each class are different since the facilities provided and the comfort and luxury level is different in each class. Seasonal fares are also fixed, fares rise during the peak holiday times.

Low-cost Pricing:
With the advent of the low-cost airlines in the Indian aviation industry, a different low-cost flying concept has come up. Since these low-cost airlines are trying to woo the customers by providing air travel in exceptionally low prices, a price-band kind of pricing has to be designed. In low-pricing strategies, the airlines provide very low prices for the flight tickets. Also, they prices are made cheaper by booking the tickets long before the flight date.

APEX Fares:
In this scheme, people are given very cheap rates only if tickets are booked atleast before the specified time period. But the draw-back here is that if the booking is cancelled, a substantial amount of money is not returned.


Airlines: Service Industry

Recent Projections, facts and figures about Indias airline


Airlines: Service Industry

Strong long-term growth projected for the 20-year global forecast

Airlines will need about 29,000 new airplanes


Airlines: Service Industry

29,000 new airplanes delivered to a wide mix of regions and operating segments

India GDP growth has averaged 7% over the last 10 years


Airlines: Service Industry


Airlines: Service Industry

Potential travel market growth is high

Liberalization significantly expanded the industry, market forces have led to contraction


Airlines: Service Industry

Current Market Outlook for India 2009 - 2028

Indias airlines will need 1,000 new airplanes


Airlines: Service Industry

India Market Summary

State of the airline industry IATA Outlook and Information


Airlines: Service Industry

State of the Indian airline industry


Airlines: Service Industry

Domestic India capacity is down 11%

India domestic fuel prices have started to increase from March 2009


Airlines: Service Industry

Case Study:
King fisher vs. Jet Airways


Airlines: Service Industry

Jet Airways is an airline based in Mumbai, India. It is India's third largest airline after Air India and Kingfisher Airlines. It operates over 400 daily flights to 65 destinations worldwide. In July 2008, Which? magazine ranked Jet Airways as the world's best longhaul airline after Singapore Airlines.[1] In a poll conducted by SmartTravelAsia.com in September 2008, it was voted as the world's seventh best airline overall.[2] Jet Airways has also won a survey award for the quality of its catering from Which? magazine.[3][4] In February 2009, Jet Airways had 846,000 passengers, making it the second largest airline in India behind Kingfisher Airlines.[5] Jet Airways also operates two low-cost airlines, namely JetLite (formerly Air Sahara) and Jet Airways Konnect. Jet Airways was incorporated as an air taxi operator on 1 April 1992. It started Indian commercial airline operations on 5 May 1993 with a fleet of four leased Boeing 737-300 aircraft. In January 1994, a change in the law enabled Jet Airways to apply for scheduled airline status, which was granted on 4 January 1995. It began international operations to Sri Lanka in March


Airlines: Service Industry 2004. While the company is listed on the Bombay Stock Exchange, 80% of its stock is controlled by Naresh Goyal (through his ownership of Jets parent company, Tailwinds, and has 10,017 employees (at March 2007).

Jet Airways Airbus A340-300E at London Heathrow Airport in 2005 with the 1993-2007 livery Naresh Goyal, who already owned Jetair (Private) Limited, which provided sales and marketing for foreign airlines in India, set up Jet Airways as a fullservice scheduled airline to compete against state-owned Indian Airlines. Indian Airlines had enjoyed a monopoly in the domestic market between 1953, when all major Indian air transport providers were nationalised under the Air Corporations Act (1953), and January 1994, when the Air Corporations Act was repealed, following which Jet Airways received scheduled airline status.

Jet Airways Boeing 777-300ER at San Francisco International Airport in the airline's new livery introduced in 2007 Jet Airways and Air Sahara were the only private airlines to survive the Indian business downturn of the early 1990s. In January 2006, Jet Airways announced that it would buy Air Sahara for US$500 million in an all-cash deal, making it the biggest takeover in Indian aviation history. The resulting airline would have been the country's largest[7] but the deal fell through in June 2006. On 12 April 2007, Jet Airways agreed to buy out Air Sahara for 14.5 billion rupees (US$340 million). Air Sahara was renamed JetLite, and was marketed between a low-cost carrier and a full service airline. In August 2008, Jet Airways announced its plans to completely integrate JetLite into Jet Airways.[8] In October 2008, Jet Airways laid off 1900 of its employees, resulting in the largest lay-off in the history of Indian aviation.[9] However, later, the employees have been asked to return to work. Civil Aviation Minister Praful Patel said that the management re iewed its decision after he


Airlines: Service Industry analyzed the decision with them. [10][11] In October 2008, Jet Airways and rival K

Kingfisher Airlines announced an alliance which primarily includes an agreement on code-sharing on both domestic and international flights, joint fuel management to reduce expenses, common ground handling, joint utilization of crew and sharing of similar frequent flier programs.[12] In May 2009, Jet Airways launched another low-cost airline, Jet Airways Konnect. The new airline uses spare aircraft from Jet Airways' routes that were discontinued due to low passenger load factors. It also uses the same operator code as Jet Airways. The decision to launch a new brand instead of expanding the JetLite network was taken considering the regulatory delays involved in transferring aircraft from Jet Airways to JetLite, as the two have different operator codes.


Airlines: Service Industry Kingfisher Airlines Limited, is a major Indian airline. Kingfisher operates more than 400 flights a day and has a network of 72 destinations, with regional and long-haul international services.[1]. Kingfisher Airlines, through one of its holding companies United Breweries Group, has a 50 percent stake in low-cost carrier Kingfisher Red, formerly known as Air Deccan.[2] Kingfisher Airlines is one of six airlines in the world to have a five-star rating from Skytrax, along with Asiana Airlines, Malaysia Airlines, Qatar Airways, Singapore Airlines and Cathay Pacific Airways.[3][4] In May 2009, Kingfisher Airlines carried more than a million passengers, giving it the highest market share among airlines in India.[5] Kingfisher Airlines also has a strategic code-sharing agreement with Jet Airways, and an alliance with the Hilton Hotels Corporation. Kingfisher has its registered office in the UB Tower in Bangalore and its head office in the Kingfisher House in Mumbai

The airline started operations on 9 May 2005, following the dry lease of four brand new Airbus A320-200 aircraft.[8] Its first flight was from Mumbai to Delhi. At the launch of the airline, Dr. Mallya said that he is "committed to achieving our ambition of making Kingfisher Airlines India's largest private airline both in capacity and market share by 2010." The airline ushered in a new era of luxury in India's domestic aviation sector with its brand new aircraft with stylish red interiors, and smartly dressed crew and ground staff. Kingfisher was the first Indian airline to have in-flight entertainment (IFE) systems on every seat even on domestic flights. All passengers were given a "welcome kit" consisting goodies such as a pen, facial tissue and headphones to use with the IFE system. Initially, passengers were able to watch only recorded TV programming on the IFE system, but later an alliance was formed with Dish TV to provide live TV inflight.[9] And in a marked departure from tradition, Kingfisher Airlines decided to have an on-screen safety demonstration using the IFE system. In January 2007, Kingfisher entered into a multi-year partnership deal with Toyota Motorsport to be an official partner of the Toyota F1 racing team.[10] In September 2008, Kingfisher announced its plans to raise US$ 100 million through equity.[11] On 13 October 2008, as a result of the worsening economic scenario and the resultant drop in passenger traffic and increase in costs, Kingfisher chairman Vijay Mallya and his Jet Airways counterpart Naresh Goyal announced a strategic alliance after a meeting in Mumbai. The alliance was formed to implement code-sharing between the two airlines on both domestic and international flights, joint fuel management to reduce expenses, common ground handling, joint utilisation of crew and sharing of their frequent flier programmes, namely King Club and Jet Privilege.


Airlines: Service Industry On 12 January 2009, Kingfisher Airlines announced its alliance with Hilton HHonors, the guest rewards program for the more than 3,000 hotels of the Hilton Hotels Corporation worldwide. The new alliance allows members of the King Club frequent flyer programme to earn both King Miles and Hilton HHonors points when they stay at Hilton Hotels

Kingfisher Airlines Statistics[15] Year Ended April 07 - March 08 April 08 - March 09 Passengers Carried 12,414,336 10,850,359 % Change Average Load factor (%) 60%



Airlines: Service Industry

Kingfisher Vs Jet Airways Kingfisher is one of the latest Airlines in INDIA. Overall growth in year 2006-07 is 37%. Kingfisher acquired 46% share in Air Deccan. Domestic airlines poised to go international flights. In a short span of 2 years its market share has become 28% including Air Deccan. Personal in-flight entertainment in every seat. It was awarded the Best New Airline Of the Year award. Already have training academy -Jet Airways is the experienced airline in INDIA. Overall growth in year 2006-07 is 16%.


Airlines: Service Industry Jet airways acquired Air Sahara in 2006. Jet Airways already has domestic as well as international flights. Jet Airways has its market share 31% including Air Sahara. Average entertainment services. Jet Airways won Double Honour Travel Trade Gazette Travel award. They are plan to start training academy.


Airlines: Service Industry S.W.O.T. Analysis Kingfisher Airlines Key Attraction Market driver Experience exceeding 14 year Only private airline with international operation Market leader Largest fleet size Key Problem Loosing domestic market share Old fleet with average age around 4.79 years Scope for improvement in in-flight service Weak brand promotion Opportunities Untapped air cargo market Scope in international service and tourism Threats Strong competitors Fuel price hike Overseas market competition

S.W.O.T. Analysis Jet Airways Key Attraction First airline with full new fleet of aircraft Brand image with Flamboyant Personality of Vijay Mallya Unmatched in flight service Exclusive Terminal Share Deal Route rationalization Key Problem Service delivery to metros and other big cities Yet not in profit High ticket pricing High attrition in top brass Opportunities


Airlines: Service Industry Under penetrated domestic market International market Untapped air cargo market Expanding tourism industry Fleet size expansion

Threats Existing Operators Infrastructure issue Fuel price hike


Airlines: Service 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.com