Low Cost Strategy

Low Cost Strategy Group Members Roll nos. Saima Khan 22 Mithun Nair 32 SuhasNambiar 33 Pallavi Pande 35 SandeepPeety 41 AdityaSahasrabudhe 45 y Jet Airways is the No.1 airline in India, with a market share of 27 per cent. y While Jet Airways has a market share of 19.5 per cent, its subsidiary JetLite has a share of 7.5 per cent. y Jet Airways commenced operations in India in 1993. y Kingfisher Airlines is at the No.2 position with a market share of 20 per cent. y Kingfisher Airlines was established in 2003. y The airlines started commercial operations in 2005. y It started international operations in September 2008. y Company employs around 7,590 people. Indian aviation sector y During the January-August 2010 period, 339.09 lakh (33.9 million) passengers travelled across India, as against 284.24 lakh (28.42 million) in the corresponding period of year 2009, registering a growth of 19.3 per cent. y The National Aviation Company of India takes the third position with a market share of 18.3 per cent. y In 2007, Indian Airlines was merged with Air India along with Air India Express and Alliance Air to form NACIL. Indian Airlines y Indian Airlines started its operations on 1 August 1953. y On 7 December 2005, the airline was rebranded as Indian Air India y It operates to 95 destinations all across the country and globe. Air India Express y The airline started its operations on April 29, 2005. y With a market share of 16.4 per cent, IndiGo is ranked at fourth position. y IndiGo took off its inaugural flight on August 4, 2006. y SpiceJet comes next with a market share of 12.6 per cent. y Recently, media magnate Kalanithi Maran acquired a majority stake in SpiceJet for an estimated Rs 750 crore (Rs 7.5 billion). y GoAir is ranked sixth with a market share of 5.7 per cent. y GoAir was established in June 2004 and launched its air service with two leased Airbus A320s in October 2005. y It was founded in October 2005. y MDLR Airlines started operations on 14 March 2007. History of the Low Cost Carrier (LCC) y Rollin King and Herb Kelleher said ´If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares and make damn sure they have a good time in doing so, people will fly your airline.µ y LCC now commands approximately 30% market share of the domestic USA traffic. y In Europe, the LCC phenomenon spread much later with Ryanair in 1991. y Southeast Asia embraced the LCC concept last . y The LCC concept continued to spread throughout the world with WestJet in Canada in 1996, Virgin Blue in Australia in 2000, GOL in Brazil in 2001, AirAsia in Malaysia in 2002, Kulula in South Africa in 2003 and Air Deccan in India in 2004. AirAsia - Introduction y AirAsia is a Malaysian low-cost airline. y Initially it was a Malaysian Govt. controlled company. y It was re-launched in Jan 2002 as an LCC(Low Cost Carrier) after takeover by Tony Fernandes. y In a very short time, after launching as an LCC, Air Asia converted from a debt ridden company to a profit making company. y It operates scheduled domestic and international flights. y AirAsia is a pioneer of low-cost flights in Asia and is the largest Asian no-frills airline. Air Asia Route Map High Aircraft Utilisation - Implementing the regions fastest turnaround time at only 25 minutes,Assuring lower costs Identifying Air Asia·s and higher productivity Strategy Streamlined Operations ² Single type of aircraft, Single class Low Fare, No Frills ² No free food seating, Standard Operating & beverages, Free seating, Ticketless Procedures airlines, No refund, No loyalty programme THE PATTERN OF Investment in the Latest TI AC ONS AND Technology and Efficient I BUS NESS Use of Aircraft - new aircraft APPROACHES THAT are more efficient to operate Safety First ² partnering with the DEFINE A and more fuel efficient world·s most renowned maintenance COMPANY·S T T providers to ensure that its fleet is S RA EGY always in the best condition and complying Point to Point Network ² applying with the world airline operation. The point-to-point network keeps operation simple and lower cost J AirAsia join forces - with etstar and Lean Distribution System - Internet Sales, Sales office, Qantas to combined annual running costs Travel agents, Call centres which will translate into lower fares for travelers Yield Management - always maintain high load factor to achieve cost effective Fare structure based on time value relationship for seats Earlier booking will have cheaper fare Once revenue collected is sufficient to cover the operational cost, the system will move to top tier fare ² to earn profit Strategy Formulation y To provide basic airline experience to customers by curtailing costs. Air Asia Strategic Objectives Low Cost Carrier (LCC) Business Model Planes with narrow seating and only a single class Simple product No seat assignment No frequent flyer programme Positioning Non-business passengers, especially leisure traffic and price-conscious business passengers Short-haul point to point traffic with high frequencies Aggressive marketing Secondary airports Competition with all transport carriers Low wages Low operating Low airport fees costs Low costs for maintenance, cockpit training and standby crews due to homogeneous fleet High resource productivity Short ground waits due to simple boarding processes No air freight, short cleaning times, and high percentage of online sales Appraising Air Asia͛s Resource and Capabilities Air Asia Resources and Importance Relative Comments Capabilities Strength RESOURCES R1. Constructive and Encouraging and listening to its employee supportive 5 4 management for any ideas in reducing cost. R2. Highly skilled The experience and knowledge which they 5 5 employees had were hard to imitate by competitors. R3. Capabilities to 4 5 reduce cost Top in low cost air carrier competition. Appraising Air Asia͛s Resource and Capabilities Air Asia Resources and Importance Relative Comments Capabilities Strength CAPABILITIES C1. Quick turnaround 5 5 Higher productivity time Management conferred with mechanics on how to C2. Low-cost short haul 4 3 coddle spare parts so they can last longer. C3. High rate aircraft 3 5 Higher profit & lower cost utilization Lowest Cost Airline In The World Higher labor productivity Air Asia assigned multi-skilled cabin crews (2-3) Providing guest with the choice crews per flight) of customizing services without Provide cost-effective training compromising on quality and Performance based reward and incentives systems services Having a single, standard aircraft model throughout the whole fleet reduces inventory costs, delivers greater productivity, and increases fuel efficiency One type of aircraft, so training time can be reduced and eventually reducing cost. Big advantage in staff cost Costs 41% lower than other LCCs based on staff cost, fuel & oil, Maintenance & overhaul etc. COMPETITIVE ADVANTAGES INDIAN HOTELS COMPANY GROUPED INTO 4 CATEGORIES y LUXURY y LEISURE y BUSINESS y SMART BASICS* Details of budget hotels y Competitive pricing technique y Located in cities with business traffic y Outsourcing of food and beverage industry y Minimum staff y Ginger hotels y -simple ,unique, reasonable, basic and innovative y Roots corporations limited - Smart Basics y Conceptualized by IHC in association with Dr. C K Prahalad (Strategy thinker) y Test marketing in the name of INDIONE in Bangalore Smart basics of Ginger hotels y Smart sleep y Smart space rooms y Safe zone y Smart planet y Square meal y Give and take meal Targeting y Demographics -middle class -high tech youths Geographical -tourism takes place all the year round -cities and towns which have consisitent flow of business traffic Positioning y No frills but smart basics y No parking person, no bell boy ,automatic check in y 100 or 200 rooms SWOT ANALYSIS STRENGTHS: y Natural and cultural diversity y Demand supply gap y Government support y Increase in market share WEAKNESS y Poor support infrastructure y Slow implementation y Susceptible to uncertain events OPPORTUNITIES y Rising income y Open sky benefits y New business opportunities THREATS y Fluctations in international toursits arrivals y Increasing competition y Event risk Cost cutting strategy of GINGER y LIGHT ASSET POLICY Management contracts Government support Franchise option Full house Right places Getting real Attracting customers Lease model .

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