Domestic Airlines in India: Leveraging Price

BY Manu Richhoriya

About the Case:

Abstract: The caselet examines the pricing wars resorted to by Indian airline companies to counter the competition and sustain in the marketplace. It discusses the APEX fare schemes launched by various domestic airlines. The caselet talks about some of the innovative promotional schemes that were launched by these companies. Issues: Pricing strategies in Indian airlines industry Sales promotion in airlines Competition as a key consideration for designing marketing strategy

Indian Airline Industry Till 2002

Customer dont Travel by Airplane too Often, as they considered

Airplane as Luxury good and Traveling a Very Costly Affair.

Only Three major players were available in the Market, namely Jet

Airways(JA), Air Sahara (Sahara) and Indian Airlines. Sr No Jet Airways Air Sahara Indian Airlines

Net Sales
Net Profit Jet Airwa ys 6% India n Airlin es

252.6
3.18 Air Saha ra 3%

138.4
1.92

4101.5
-196.56

Net Revenues

Source: Balance Sheet of Individual Companies

About The Company

Indian Airlines
The airline was set up under the Air Corporations Act, 1953 with an

initial capital of 32 million and started operations on 1 August 1953

It was state-owned, and was administered by the Ministry of Civil

Aviation. It was one of the two flag carriers of India , the other being Air
India.
Air India took over international routes and Indian Airlines Corporation

(IAC) took over the domestic and regional routes.

Later Air-India and Indian-Airlnes were merged. Till 1990, Indian Airlines enjoyed a monopoly in the Indian air space.

After liberalization Indian Airlines faced tough competition from private airlines like Jet Airways, Air Sahara, East-West Airlines and Modiluft

Air Sahara
The Indian government opened its domestic air market to

private carriers in the early 1990s.

Air Sahara began operations as Sahara Airlines Limited

on December 3, 1993
On October 2, 2000, Sahara Airlines was rebranded as Air

Sahara
Air Sahara reported a turnover of INR 40 cr. in the 2000-01

fiscal year, and was profitable

Jet Airways buyout Air Sahara on 20th April 2007 for $400

million and renamed it as Jetlite

Jet Airways
It was incorporated as an air taxi operator on April 1, 1992. Jet

Airways started its commercial airline operations on 5 May 1993

In October 2008, Jet Airways announced an alliance with

Kingfisher Airlines that included an agreement on code-sharing on domestic and international flights, common ground handling, join fuel management, join utilization of crew and sharing of similar frequent flier programs.
In May 2009, Jet Airways introduced another low-cost airline Jet

connect with spare aircraft that were earlier discontinued due to

low passenger load factors.

Strategies
Indian Airlines
3-15% cut in fares for all classes on the western classes and on

Delhi-Srinagar, Delhi Jammu and Delhi Khajuraho routes. Launched Advance Purchases Excursion (APEX) fare under its U can fly Scheme Under this scheme Passengers who book their tickets 3 weeks in advance, got a huge discount in fares and cancellation will result into charge of 50% of tickets fare. On 15th Aug-2002, Launched Wings of Freedom Scheme valid from Aug-15 to Mar-3103. This offered Unlimited travel on domestic network for seven Days for Rs 15,000 (Economy Class) and Rs 20,000 (Business Class) Also Launched Bharat Darshan Allows Unlimited travel for passengers who bought tickets more than Rs.80,000

Advantages:
Around 1600 passengers fly every day under U can Fly

scheme only Revenue generation and passenger load factor also increased.

Strategies
Jet Airways
Reduce prices by Rs 635 for the economy class on

Mumbai-Nagpur and Mumbai-Goa Route. Launched Advance Purchases Excursion (APEX) fare under its Everyone can Fly Under this scheme: Passengers who book their tickets 3 weeks in advance, got a huge discount in fares and cancellation will result into charge 50% of its fare. Increase the Commission of its agents and offer incentives for the most productive agents.

Advantages:
Around 1500 passengers fly every day under this

scheme. Revenue generation and passenger load factor also

Strategies
Air Sahara
The smallest of the Three was most aggressive, launched

novel bid schemes, Offered highest agent commission to increase volumes and maintained lowest fares. In Mar02, launched Wings and Wheel Scheme. This offered Complementary AC Coaches as pick and drop facility. During July-Aug, launched Sixer offer Enabled passengers to buy a six fly coupon and fly in any six sectors for Rs.25,000 Steal a Seat an online bid scheme in Aug02 and in this scheme Base price was kept at Re1 for min 25 days advance bookings and unsuccessful bidders will have Steal Buy Scheme for 24-15 days in advance booking.

Advantages:
Number of Passengers traveling from Air Sahara increased

exponentially. Revenue generation and passenger load factor also increased.

Earlier You Book, Higher the Discount

Apex Fare:
Air ticket at a discount of 2050%. Tickets have to be booked at least seven days in advance. Available only on economy class and on select routes, up to 30 days in advance. No Flexibility to reschedule Flights. Disadvantage for Business class. Hefty Cancellation fee, ranging from 50-100% Infants and children are not eligible for apex fares.

SWOT Analysis

Strength

Weakness

Opportunity

Threat

SWOT Analysis
Most experienced player Full Fledged International operations. Largest Fleet Size Loosing market share to LCC Burecracy Inefficiency

Indian National Carrier Huge Infrastructure and Real estate

Employee Attrition Political/Govt Interference Bankrupsy

SWOT Analysis
Most experienced pvt player Full fledged International operations Large Fleet Size Loosing market share Scope of improvement in in-flight services.

Untapped air cargo market Scope in international service and tourism

Strong Competitors Fuel Prices Overseas Market Competition

SWOT Analysis
Strong Brand Value , with major sponsor of Cricket Team Quality of Service Most Novel Bid Schemes Profit Margins are very Low. Tough Competitions from Competotors

Untapped Air Cargo Market International Market Non-Penetrated Domestic Market

Strong Competitors Fuel Prices Infrasture Issues Promotions and Sponsorship Declining

Environmental Factors Influencing the Pricing Decisions

Fuel Price Seasonal and Festival Season Safety Regulations Currency Fluctuation Change in Technology (Advance Flights, and

Restructuring of Airport Costs) Competitors Terrorism (Sep11, Huge drop in Air Traffic due to safety and regulations concerns. Recession (Airlines are considered as Luxury) Taxation Govt. Policies as Civil Aviation Policy

Whether Price Fall will Work???

1. Can be determined thru Price Elasticity of Demand:

Thus, Clearly revenues increase but not in proportionate to the fall in prices, due to this, Even though the revenues increased but losses of the Companies Increased further

Strategies to Enhance Market Share

Making Distribution More Effective
Making it Easier and Better to Book Online Grow The proportion of Direct Revenue

Decrease Employee Turnover Rate

Dynamic pricing based on demand and Supply, and not

on time of travel. Focus on customer delight more than only on price.