The Indian Aviation Industry: Price Wars and More

In 1930,Indian business house Tatas,set Tata airline

In 1953, the Air Corporations Act 1953 came into

force and all the assets of the then existing nine airline companies were transferred to two corporations - Indian Airlines Corp. (IA) and Air India International (Air India). In 1993, the Air Corporations Act 1953 was abolished, which put an end to the monopoly in the scheduled air transport services market.

March 1994,govt approved open skies

policy and along with 8 private carriers entered in market JA,SAHARA,INDIAN INTERNATIONALARCHANA,EASTWEST,NPEC,MODILUFT AND DAMANIA In 1995, . The AAI offered infrastructural facilities to all airlines. At this point of time, there were 449 airports.

 Damania airline, was sold to NEPC in September 1995. NEPC airline, landed in serious financial problems and the company defaulted on payments. East West airline was eventually closed down in August 1996. ModiLufts airline, the world's most expensive airline, was into problems right from the start.

WHY failures ?
Damania, established by a poultry-farm owner ,NOT FINANCIAL STRONG. , NEPC ran into problems after the acquisition when the SEBI revealed that the deal was an UNFAIR TRADE PRACTICE. , serious financial problems and the company defaulted on payments. East-West airline, OWED $3mn TO PLM EQUIPMENT as lease rentals and change in government regulations was also reason. ModiLufts airline mistake was that they HIRED THE MOST EXPENSIVE AIRLINE in the world to give us aircraft and services".

Cont
The reasons were aplenty lack of experience in the business, lack of proper planning and poor promoter support. Lack of professional expertise required in the aviation industry. financially extremely weak in market. Poor management

The Survivors
It was JA,IA and SAHARA

companies, by mid-2001, only JA and SAHARA managed to stay along with IA in the Indian market. SAHARA ,operated in 12 sectors with a fleet strength of 9, all of which were Boeing Aircrafts. . All the carriers hired planes at international prices and their maintenance was also undertaken by global companies at international rates. The only 'Indian advantage' was the availability cheap labor.

Despite the intense marketing efforts of various

Cont MARKET SHARE(2000-01)

Airlines IA JA Sahara

Market Share(%) 51 42 7

Aircrafts Owned 57 33 9

AirFare

WAR

INDIAN AIRLINES
Indian Airlines came up with a new apex

fare slab for purchase of tickets in eight sectors, 28 days in advance two days less than those offered by Air Sahara and Jet Airways.

The D-28 fares would be available for sale on

one way or round trips as against round trip fares offered by Air Sahara.

JET AIRWAYS
Frequent Flyer Scheme APEX pricing Scheme

Cash Back Offer

Jet Privilege Scheme : Extended its points partnerships to Luxury Hotels . Internet Auction

What is Apex?
Apex IS ADVANCE PURCHASE EXCURSION FARE. It is a non-

cancellable return fare offered at a heavy discount on the

conditions: Tickets are purchased at least 21 days in advance

Minimum gap between departures range from one to six weeks. Maximum gap between departures is 12 to 24 weeks.

There are no stopovers.

Effects of APEX
Led to increase in the number of customers. Loss of airline companies minimized as with the increase of passengers the aircraft ran to their full capacity.

It brought a veritable boom in tourism sector.

It was able to lure the middle class people who preferred to travel by trains.

AIRSAHARA
First Airlines to start innovative Pricing model rather than APEX Model. Sixer and Super Sixer Schemes in 2002 Six refers

to the six zones for 25k.These schemes offered more to

the customers than their competitors.

Square Drive Scheme ( Family Pack) 4k-2.5k Steal a Seat - Bidding process started from Base price Re 1/-

Key characteristics of low cost airlines

High seating density and load factors Uniform aircraft types (usually the 737-300) Direct booking (internet/call centre - no sales commissions) No frills such as free food/drinks, lounges or air miles

Simple systems of yield management (pricing)

Use of secondary airports to cut charges and turnaround times

CONSUMER BUYING BEHAVIOR

India Airlines Monopoly for a long time Competition in 90s Bought new aircrafts Modern aircrafts Modern airport terminals Still losing market share What went wrong

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 Importance of understanding consumer behavior

WHAT DO WE OBSERVE

Organization need to understand

Why customers buy? When customers buy?

What customers buy?

What are the factors influencing his buying?

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CONSUMER BEHAVIOR
HIGH INVOLVEMENT PRODUCTS Characteristics Price Complex features Large differences between alternatives High perceived risks

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CONSUMER BEHAVIOR
LOW INVOLVEMENT PRODUCT Characteristics Less reflection of buyers self concept Alternatives within the same product class are similar Frequent brand switching behavior

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PSYCHOLOGICAL FACTORS
These are: Motivations Learning Perceptions

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 Example : CRICKCITEMENT SCHEME adopted by

MOTIVATION
Sahara.

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LEARNING
Lure of rewards

Example - Holiday trip to Goa See attractive offer of Taj holidays Visit Goa

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PERCEPTIONS

Daily exposed to information Newspaper Internet Television Friends

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 Human being see or hear only what they want to

anticipate This is perception Issues related to perception

Selection attention Selection distortion

Selection retention

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Selective attention Do we pay need to all advertisements We skip many Why? We pay selective attention to certain stimuli We pay attention to things which we feel will help us Marketers try to understand this

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Selection distortion When we see messages We add our own values/beliefs Filter the original message Distort
Example Feviquick advertisement

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CONSUMER BEHAVIOR
Selection retention How many advertisements you saw yesterday are able to recall? Very few Results show less than 5% Marketers need to create message in a manner which customers are able to recall?

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SWOT ANALYSIS
Strengths

Liberal environment
Modern Fleet High Quality

Signs of economic growth

Political Stability

Weakness
Airport infrastructure
Airways Infrastructure High Cost Structure

Skilled Resources

Opportunities
Market Growth
Geographic Location Lower costs, higher Quality

Threats
Aggressive approach of Railways
Slowdown in the economy affecting the tourism

Conclusion
The price cutting schemes will be feasible as long as external factors for pricing are under control
Government should encourage private participation