AIRASIA INDIA: CLASH

FOR THE INDIAN SKIES

BY GROUP-1
SURYA DHAR
UPAMA DUTTA
ABHIJEET RANJAN
DIPIKAA S
SUMEET MALLA
VINAY KRISHNA C
Introduction

The Indian Aviation Industry is one of the world's fastest-growing aviation

markets, with private airlines accounting for more than 81% of the domestic
aviation industry. The Indian aviation sector can be broadly divided into the
following main categories:

● Scheduled air transport service includes domestic and international airlines.

● Non-scheduled air transport service consists of charter operators and air taxi
operators.
● Air cargo service, which includes air transportation of cargo and mail.

Timeline of Indian Aviation:

1912: The first domestic air route between Karachi and Delhi was serviced by the
Indian State Air Services in collaboration with Imperial Airways, United Kingdom.

1915: The first private Indian airline, Tata Sons Ltd., started a regular airmail
service between Karachi and Madras.

1946: Tata Airlines is converted into a public company and renamed Air India.

1947: Eight Airport Companies operated in India at the time of independence.

1948: The Government of India, together with Air India, established a joint-sector
company, Air India International Ltd., headed by J.R.D. Tata.

1953: Under the Air Corporation Act, Air India is nationalized. Indian Airlines,
formed through the merger of eight domestic airlines, came to enjoy a monopoly in
the operation of domestic services.

1986: The government opened up the sector to private players in a limited manner
by allowing them to operate as air taxi operators.
1994: The Indian government revoked the Air Corporation Act to enable the entry
of private carriers who could offer scheduled services.

1995: Jet Airways, Archana Airways, Damania Airways, NEPC were granted
Scheduled Airline Status. East-West Airlines, Modiluft were granted Airline status
and shut down in the same year.

1996: Damania Airways and NEPC were shut down.

1997: Alliance Air and Air Sahara were granted Scheduled Airline Status and
Archana Airways shut down its operations.

2003: Air Deccan, the first Indian LCC (Low-Cost Carrier) or ‘no-frill’ airline
emerged as a challenge to the duopoly of Jet and Sahara as private carriers.

2005: Modiluft has been revived as SpiceJet. Paramount and GoAir had started
their operations with LCCs and KingFisher had started its operations as FSC
(Full-Service Carrier).

2006: Indigo Airlines had started operations as LCC.

2007: A series of mergers and acquisitions took place in 2007, including the Indian
Airlines/Air India merger, the Jet-Sahara deal, and the Kingfisher-Deccan deal.

2008: Domestic Air transport Policy was revised to allow Foreign Equity
Participation (By Foreign Investors). However, the sector remained closed to
Foreign Direct Investment (FDI) by International Carriers.

2012: Kingfisher Airlines was grounded under the weight of years of accumulated
losses and heavy debts. The FDI norms in the sector were relaxed and Foreign
carriers were allowed to invest up to 49 percent in Indian carriers under the
government approval route.

2013: Etihad picked up a 24 percent stake in Jet Airways. AirAsia joined with the
Tata Group and Indian Telestra Tradeplace in a three-way joint venture to launch a
Budget Airline. At the same time, Tata Group has also partnered with Singapore
Airlines to launch Full Service Airline.

2014: AirAsia’s received the Air Operator’s Permit (AOP) from the Indian
Aviation Regulator.

About AirAsia

1. AirAsia Berhad is a Malaysian low-cost airline headquartered near Kuala

Lumpur, Malaysia.

2. It is the largest airline in Malaysia by fleet size and destinations and pioneer
of Low Cost travel in Asia.

3. AirAsia had been named as the world's best low-cost airline and a pioneer of
low-cost travel in Asia in 2012.

4. AirAsia Group operates scheduled domestic and international flights to more

than 83 destinations spanning 17 countries.

5. AirAsia carried 21,853,036 passengers and operated with the world’s lowest
unit cost of 13 sen (US$ 0.04) per ASK in 2013, as against a revenue per
ASK of 16.2 sen (US$ 0.05)

6. It has a fleet of 143 aircraft, its aircraft utilization rate was 12.1 hours per
day. It had a passenger load factor of 80 percent and break- even load factor
of 64 percent in 2013.

7. AirAsia India is a three way joint venture between the AirAsia (49%), Tata
Group (30%), and India’s Telestra Tradeplace (21%)
 ENVIRONMENTAL ANALYSIS

(A) PESTEL ANALYSIS (External)

PESTEL Analysis is a tool used by marketers to analyze and monitor

macro-environmental factors that have an impact on an organization.

(1)POLITICAL ANALYSIS:

Political factors play a significant role not only in transnational corporations'

investment decisions but also in companies. Some of the political variables are the
structure of government, democracy & institutions, the possibility of armed
conflict, market law and order, etc.

(a) RELAXATION ON FDI ON FOREIGN CARRIERS:

In September 2012, the FDI norms in the sector were relaxed. Foreign carriers
were allowed to invest up to 49 per cent of the paid-up capital of an Indian carriers.
This has provided the opportunity for several foreign airlines to enter India in
response to these relaxed norms which has helped many financially crippled Indian
Carriers to strengthen their Financial Condition as well as negotiate with
Accumulated Losses and Overall Debt.

(b) SLOT ANALYSIS POLICY:

An artificial barrier to entry and the restricted competition was established by the
slot allocation policy within the Indian aviation market. India adopted the global
guidelines of a 'grandfather rule' for slots allocation from the International Air
Transport Association (IATA). The implementation of the 'use it or lose it' rule
allowed the combined organization to maintain access to all infrastructure,
including slots, in the case of mergers. This highly hinders the efficient
performance of the Companies.
 (c) OPEN SKY POLICY:

In India, aviation routes have been split into three groups based on their
profitability. The profitable routes were Category I routes, Category II consisted of
loss-making routes and the remaining routes were Category III. On the other
routes, airlines were expected to deploy a minimum percentage of their capacity on
profitable routes and maximum & on the Non-profitable Routes. This results in
future financial stress on the already financially crippled Aviation companies.

(2) ECONOMIC ANALYSIS:

The economic conditions of a nation and region have a significant impact on a

given market's potential attractiveness. Some of the economic variables are
inflation rate, GDP growth rate, disposable income level, etc.

(a) NATIONAL INCOME GROWTH:

The growth in national income from 2001/02 to 2007/08 was 9.6%. However,
numerous domestic and global factors contributed to a slowdown in growth, and
GDP growth was at its lowest at 5% in 2012/13. In the first and second quarters of
fiscal year 2013/14, the growth rate further declined to 4.4% and 4.8%,
respectively, but this was expected to improve which in turn could further increase
the number of people utilizing the aviation industry.

(b) HIGH AIRPORT CHARGES:

Some of the highest fees in the Asian and Gulf regions have been paid by Indian
airports. Compared to their foreign counterparts, Indian LCCs were further
disadvantaged, as no secondary airports were levying lower airport charges for
such LCCs in India. This was acting as a barrier for many LCCs that were trying to
enter the Indian aviation market.
 (c) EXCHANGE RATE VOLATILITY:

The value of rupee depreciated in a very steep manner against the U.S. dollar
between the period of 2008-09 to 2012-13. This led to substantial increase in the
cost of fuel, insurance and freight, maintenance, repair and overhaul expenses and
various other expenses which was a negative point for the airline companies.

(3)SOCIAL ANALYSIS:

Social factors have an immense impact not only on the economy of the country but
also on the availability of talent for the workforce and the level of consumer
demand. Some of the social variables are demographic trends, society's power
structure, women's workforce participation, etc.,

(a) GROWTH OF MIDDLE CLASS:

Around 25% of the Indian population (1.2 billion) was expected to belong to the
middle class. A McKinsey Global Institute prediction also placed the middle class
of the country at 583 million by 2025, making India the fifth largest consumer
market in the world. This meant that more and more people could start affording
the airline services and drive the Indian consumption.

(b) GROWING URBANIZATION:

The 2011 census placed the urban population at 31.2%, compared to 17% in 1951.
In contrast, a demographic dividend culminated in the working-age community
becoming more than 60 percent of the population of India, and this boosted
economic growth as well as business and leisure tourism.
 (4)TECHNOLOGICAL ANALYSIS:

Technology is increasingly disrupting organization models across diverse sectors.

Some of the technological variables are developments in artificial intelligence, the
use of machine learning, and big data analytics to predict consumer behavior, the
growing importance of platforms over service providers, etc.

(a) AIRPORT INFRASTRUCTURES:

The opening up of the airport facilities to private sector involvement was a

significant factor in the increase in air passenger traffic in India. The private sector
had spent INR 300 billion in the international airports of Hyderabad and Bengaluru
and the modernization of the international airports of Delhi and Mumbai.

(b) E-COMMERCE DEVELOPMENT:

The low-cost model carriers are based on “online ticket booking” and ‘no frills’
service. Online ticket booking will help in the growth of the aviation industry
which may also lead to innovative pricing strategies.

(5)ENVIRONMENTAL ANALYSIS:

The influence of the surrounding environment and the impact of environmental

factors are related to these factors. Some of the environmental variables are
climate, recycling procedures, carbon footprint, waste disposal, sustainability, etc.

(a) INCREASE IN AIR AND NOISE POLLUTION:

Fuel is a very significant industry investment and that raised concerns about the
rising levels of air pollution. Also, with the huge sound levels produced by the
airplanes, there was a concern regarding the rise in noise levels too.
 (6)LEGAL ANALYSIS:

Within the jurisdictions in which they work, an organization must recognize what
is lawful and permitted. They must also be mindful of any change in law and the
effect on business activities that this could have. Some of the legal variables are
employment legislation, consumer law, health, and safety, international as well as
trade regulation and restrictions.

(a) VARIOUS GOVERNING LAWS:

National policies framed by the Ministry of Civil Aviation like Policy on Regional
and Remote Area Air Connectivity, Policy Guidelines of Air Freight Stations,
Policy for Training of Officers under IATA Training Programs, and Policy on
Airport Infrastructure, 2011, The Airports Authority of India Act, 1994 (“AAI
Act”), The Aircraft Act, 1934 (“Aircraft Act”) read with the Aircrafts Rules, 1937
(“Rules”) The Airports Economic Regulatory Authority of India Act, 2008
(“AERA Act”), The Suppression of Unlawful Acts against Safety of Civil Aviation
Act, 1982, etc. We can also mention principles of various International
Conventions such as the Chicago Convention on International Civil Aviation, 1944
(“Chicago Convention”), Convention for the Unification of Certain Rules for
International Carriage by Air, 1999 (“Montreal Convention”), The Cape Town
Convention on International Interests in Mobile Equipment, 2001 (“Cape Town
Convention”), Other Bilateral Agreements, etc.

(b) HIGH TAXES AND FEES:

Multiple fees and input taxes were imposed on the Indian aviation sector, which
was either missing or lower in developed aviation markets. Production charges and
taxes such as petrol, airplane rentals, airport charges, air passenger fares, air traffic
fee charges, maintenance fees, fuel quality charges, and service taxes on other
items thus significantly increased fees, which resulted in the Indian aviation sector
having larger operating losses than the global counterparts.
 (B) MICHAEL E PORTER’S FIVE FORCES ANALYSIS
(External)

Michael E Porter, Harvard Business School professor designed "FIVE FORCES

ANALYSIS" in 1979. It is used for analyzing the competitive sensitivity of any
industry. It is frequently used to identify an industry's structure to determine
corporate strategy.

1. COMPETITIVE RIVALRY:

There are many players in the aviation sector but the top players with whom
AirAsia has to compete are Indigo, Air India, Spice Jet, Jet Airways, Jet Konnect,
and Go Air. There are many instances in the industry where many companies like
KingFisher or Paramount had Shut down their operations due to heavy competition
in terms of price and accumulated losses as well as overall debts. Various Mergers
and Acquisitions also implies the competitive nature of the Industry.

So the Competitive Rivalry among the current players of the Market is High.

2. THREAT OF NEW ENTRANTS:

As there is an increase in the number of airline competitors such as Singapore

Airlines Ltd., Abu-Dhabi’s Etihad Airways and Malaysia’s AirAsia Berhad etc
which are also promoting low-cost fares may decrease the shifting cost of the
customer leading to a decrease in AirAsia’s customer loyalty.

Relaxation of FDI Norms has resulted in opening up of Indian Markets to

International Air Carriers who were ready to grab the monstrous opportunities in
Indian Market.

Though the Indian Market provides great market potential, If we look at Capacity
vs Demand parameters, the increase in the gap between ASK and RPK especially
after 2005/2006 was indicative of excess capacity creation in relation to demand
(i.e) there are more number of companies competing for a relatively small Market
which hasn’t increased as per expectations.

The startup cost is very high as there are high capital requirements such as setting
up of headquarters, purchasing or hiring aircraft, the appointment of pilots and
other staff like air supervisors. So this can act as a barrier of entry for the
competitor. The government regulations are also strict and it is quite difficult to
apply for licensing and permit for operating an Airline Company.

So the Threat of New Entrants in the industry is Moderately High

3. THREATS OF SUBSTITUTES:

For international travel, Water Transportation is the only other option which does
not pose much of a threat to the Aviation Industry but for domestic transport,
airlines have to compete with Road and Rail Transport (Especially Low Cost
Carriers) which are most preferred due to reasons like lack of Airport facilities in
many geographical Locations and cost parameters.

So the threat of substitutes is Moderately High.

4. BARGAINING POWER OF SUPPLIERS:

Supplier concentration in a few hands. Due to a few suppliers in the market, this
has increased the bargaining power of suppliers. Aircraft suppliers could be the
ones who gain the most bargaining power as there are only two in operation,
Boeing or Airbus. This market is influenced by Duopoly. We can see that switching
costs from one supplier to another is very High. Another supplier of the Aviation
Industry is “Fuel Supplier”, who has great bargaining power. Such fuel is traded as
a commodity in the international market with many International rules and
regulations. Companies cannot bargain for lower Fuel Rates. The supplier decides
the price of the Oil Barrel.

So, the Bargaining power of the supplier is High.

 5. BARGAINING POWER OF CUSTOMERS:

Customers are the blood of any industry. Customers can switch almost at Zero cost
or nominal cost from one Airline to another as there are multiple options available
in the market with very little differentiation in the product/service offered.

The Internet has helped the various customers to compare different prices for
Airlines and opt for the best one according to their requirements. In India,
customers tend to be very price sensitive and there is a reason why the LCC model
has become a huge success. Such price sensitivity results in very less Customer
loyalty which makes it difficult for the Companies to retain the customers.

So, the Bargaining power of the buyer is High.

(C) SWOT ANALYSIS (Internal & External)

STRENGTH (Internal) WEAKNESS (Internal)

1. Pioneer of Low-Cost Travel in 1. The availability of skilled

Asia and has experience of over resources is scarce. Training and
10 years. Named as World’s best retaining costs are high.
low-cost airline in 2012.
2. Late entry into the Indian
2. Its strategy of “Cost Out Aviation Industry and thus lack
Avoidance” is one of the best behind in economies of scale
and very fruitful in results. compared to competitors.
Strong Strategic Formulation as
well as the exceptional 3. Implementation of their
implementation of such a Low-Cost Carrier Model in India
strategy. is difficult compared to other
countries, the company has
3. Efficient management of overall operated because of high fuel
Operating Costs using various cost, choice of routes, labor
techniques to reduce such costs engagement, etc.
and thereby increasing the
 profitability. 4. Has ancillary and adjacency
income streams as a source of
4. Air Asia is the industry leader in supplementary revenues in other
the Malaysian Aviation Industry countries but collecting such
which is a very small country but revenues is not permitted in
has more Airlines compared to India which results in absence of
India which suggests strong its ancillary-revenue stream.
leadership at the top.

5. Strategic Joint Venture “TATA

Group” who were the 1st Private
Indian Airline and also possesses
a very strong local brand image.

OPPORTUNITIES (External) THREAT (External)

1. India is the fastest-growing 1. Higher airport charges for an

aviation market as of 2013 and is LCC Operator is an ever-lurking
estimated to be the same for the threat. There is a serious lack of
next 7 years and also has great low-cost airports.
untapped market potential in
terms of Air Traffic Density. 2. Multiple Fees and Taxes on
Inputs might result in larger
2. Indian Gross GDP and per capita operating loss.
Income are increasing which
presents the perfect opportunity 3. Lack of proper airport
for the Indian Civil Aviation infrastructure results in higher
Industry to grow exponentially. costs and also possesses a greater
threat regarding Air Security.
3. The Growing Population
especially in Urban and 4. High Cost of Aviation Turbine
Middle-class is expected to drive Fuel (ATF) in addition to the
Indian Consumption and thus cascading effect of Taxes on
expected to increase demand for such fuel might seriously affect
Air Travel. profitability.
4. Increased Private Investment in 5. Exchange Rate Volatility might
Airports and related have a higher impact on the
infrastructure. profitability as most of the
expenses such as Fuel Cost,
5. India’s Air Traffic Density is just Maintenance and Repair of
72 by 2010 as compared to 282 aircraft, etc are paid as per
in China, 231 in Brazil, 1225 in Exchange Rates.
Malaysia, 2896 in the United
States, and 530 in Sri Lanka, 6. Rigid Rules and Strict Policy
which was very low. This Regulations contributing to
indicated the untapped market financial non-viability in the
potential. Indian Aviation Industry.

7. Industry performance as a whole

in India is not very good. Almost
all the companies have been
reporting losses over the past
few years (except for one
company) and are also
overburdened by overall debts.

8. The increasing gap in ASK and

RPK after 2005/2006 indicates
that there is excess capacity
creation compared to demand
which implies that the market
has not grown as expected and
more players are competing for a
relatively small market.
 (D) ANSOFF’S PRODUCT-MARKET GROWTH

AirAsia India is planning to enter an existing Aviation Market in India by offering

an existing product (LCC) which is being offered by many competitors. Thus
according to the Product-Market Growth Matrix by Ansoff, the target of AirAsia
India can be Growth in the Market using the strategy of Market Penetration.

Market Penetration can be achieved in two ways - by acquiring the competitor's

customers (i.e) competitor’s Market Share or by tapping into the potential
customers who haven’t used the product/service earlier.

The best way to accomplish this is by providing its services with a dynamic and
aggressive pricing strategy to attract the existing customers as we have already
discussed in the external environment analysis that customers in India are price
sensitive and also create new customers by targeting the potential travellers in poor
connectivity locations, by offering fast and reliable ancillary services, etc.

Positioning of AirAsia India in Ansoff’s Product-Market Growth Matrix

 RECOMMENDED STEPS FOR STRATEGY
IMPLEMENTATION & MARKET POSITIONING

AirAsia needs an innovative plan for positioning and marketing itself in the Indian
Aviation Market. As the competition is high, AirAsia must implement various
strategic moves such as:

1. The first step of AirAsia’s strategic Decision making is to identify its

competitive frame of reference, which are the LCC rivals in India such as
SpiceJet, IndiGo and AirGo. Then AirAsia has to identify the points of
differentiation from its competitors. These are the products/services where
AirAsia must create a Strong and Favorable Brand Image. For example
providing routes to poor connectivity locations or cheapest travel options at
any point of time compared to competitors, etc.

2. AirAsia can implement aggressive discount sales techniques to improve the

average aircraft utilization rate thereby ensuring the maximum occupancy of
the aircraft.

3. AirAsia has to create Value for the Customers by providing superior quality
services such as maintaining on time performance with little or no delay,
Baggage Self Tagging Services, etc. It has to implement its own successful
strategies (in other countries) regarding Customer Satisfaction here in India
in order to retain the customers as well as to attract new customers.

4. AirAsia must strive towards the brand name of most reliable service
provider by ensuring proper Operational Efficiency such as No Cancellation
or Delay of flights, ensuring secure and safe handling of baggage, etc.

5. AirAsia can start the operations of its joint venture project with Expedia in
order to provide hassle free online ticket booking as well as its BIG Loyalty
program which can be effective in retaining as well as to attract new
customers.
6. AirAsia has to formulate and implement proper Marketing Strategies so as to
inform and educate the customers about its Extreme Low Prices and faster
reach to the destinations in order to attract potential road/rail travellers
towards air travel.

7. It also has to properly communicate about its Value Creation to the

Customers by the means of various ancillary services provided by the
company.

8. AirAia must effectively and efficiently utilize the Brand Image of TATA
Group in India through marketing channels in order to improve the
credibility of the company as well as services provided.

9. It can also choose the Celebrity Endorsement Route as it is one of the most
effective ways of advertising in India.

10.In order to succeed, AirAsia must follow its well tested “Cost Out
Avoidance” (COA) Program very strictly and efficiently in India.

11.AirAsia should concentrate on aircraft utilization rates to maintain efficiency

of the carriers and thus maximizing the yield and reducing overall operative
costs incurred by the company.

12.In order to match the economies of scale of competitors, AirAsia may look
into the option of Horizontal Integration (Merger or Acquisitions of the
competitors/substitutes).

13. Employees play a very crucial role in providing superior quality of services
and on time performance. AirAsia must implement adequate and efficient
training to its crew as well as Airport Employees and also maintain morale
of the employees with proper monetary and non monetary benefits. As there
is a lack of skilled Human Resources, AirAsia must strive to retain the
talented employees of the company as well as attract the skilled resources of
its competitors by improving the overall value created to its employees.
Conclusion

Indian Aviation Market provides a great as well as extremely challenging

opportunity to the Civil Aircraft Operators. The External Environmental Analysis
of the Market has shown us the tremendous opportunities to grow if one can
negotiate with the ever lurking threats it poses. With an aggressive pricing strategy
(35% cheaper fares than the competitors) combined with various operation
efficiency improvement approaches (Higher Aircraft Utilization Rates) AirAsia
had started to take steps towards effective implementation of its Low Cost Carrier
Strategy. By ensuring the proper implementation of the strategies and improving
the Brand Image, AirAsia can achieve customer satisfaction and thereby achieve
competitive advantage.