Airline Industry Service Sector Management
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G N KHALSA COLLEGE MATUNGA MUMBAI-400019 SERVICE SECTOR MANAGEMENT AIRLINE INDUSTRY SERVICE SECTOR MANAGEMENT SUBMITTED TO- PROFESSOR VIJAY KAPOOR INDEX Table of Content Pg.No i. Introduction 3 ii. Importance 4 iii. Presence Scenario 5 iv. Classification & Types 6 v. Advantages 8 i. PEST Analysis: The Indian Airline Industry 10 ii. Five product levels 15 i. 4 P’s 17 i. Extended Marketing Mix 24 i. Segmentation 29 i. Role of Technology 31 i. 8 Quality Dimension 33 i. Conclusion ii. Future 35 36 Reference 37 ACKNOWLEDGEMENT Page | 2 This project will serve as an internal assessment project for the subject service sector management. We the group members are thankful to Professor Vijay Kapoor who gave us this opportunity to study this topic of airline industry in depth. Suggestions and corrections are most welcomed. GROUP MEMBERS Page | 3 Gagandeep Singh Ahluwalia 01 Ashika P Suresh 05 Indersharan Kaur Bamrah 06 Harmeet Kaur Dhinsa 10 Harpreet Kaur 18 Varun Parekh 22 Suraj Singh Bhui 37 Abhijeet Singh Longiany 40 Page | 4 INTRODUCTION Airline Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, airline industry in India has undergone a rapid transformation. From being primarily a government-owned industry, the Indian airline industry is now dominated by privately owned full service airlines and low cost carriers. Private airlines account for around 75% share of the domestic aviation market. Earlier air travel was a privilege only a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people. The origin of Indian civil aviation industry can be traced back to 1912, when the first air flight between Karachi and Delhi was started by the Indian State Air Services in collaboration with the UK based Imperial Airways. In 1932, JRD Tata founded Tata Airline, the first Indian airline. Airline organizations can be classified into a number of segments depending on the nature and degree of services they provide. Major Indian carriers are pressing their feet on the accelerator to reach an acme of service level by the year 2010 when their fleet strength will meet 500 to 550. In the previous two years more than 135 aircrafts have been introduced to keep up with the increasing number of passenger traffic in Indian aerospace. A number of domestic airline groups have emerged in a reasonably short span of time to make the market furiously competitive. Page | 5 IMPORTANCE Growing tourism: Due to growth in tourism, there has been an increase in number of the international and domestic passengers. The estimated growth of domestic passenger segment is at 50% per annum and growth for international passenger segment is 25%. Airlines play an important role in international tourism. Developing airline services helps the nation to cash on tourism as more than 85% of the foreign tourist arrives by air. Improving Infrastructure: We all know that India's air transport infrastructure is out-of-date. In fact the overall situation is critical. A recent report by McKinsey suggests that half of India's highly qualified graduates are located in cities without international airports. Without massive change, infrastructure will not be able to handle growth. We must move quickly now. Benefit all—the government, the airport, shippers, passengers, local communities and airlines Result in greater efficiency—lower costs Result in better service levels Globalization: Globalization has improved the lives of many in developing nations. Globalization in of its self is the trading of goods and services of a local economy into an integrated global economy. Technological advances have made this practice more feasible within the last 50 years. The major milestones were the development of the internet and increased transportation technology. These two advances made the world coined "flat" and set the stage for higher living standards. Page | 6 PRESENCE SCENARIO Revolutionized by privatization along with active participation of the foreign investors, the Indian airline industry has experienced phenomenal transformation over the last couple of years. From being a service catering to the needs of the privileged group only it is now well within the reach of middle class population. This has been the result of increased competition in the Indian aviation industry due to the presence of a wide variety of private and public airlines with their low price tags. It was further helped by the entry of Air Deccan, the first budget airline in India, offering unbelievable tariffs to the customers. In the financial year 2006-07 there has been a significant 22.3 percent growth in passenger traffic in the domestic airports while the aircraft movement recorded a growth by 14.2 percent. In terms of the number of flights Jet Airways secures the top position with 8,168 flights operating till June 2007. Indian Airlines is in second position with 7,562 flights. Sahara (3,225 flights), Air Deccan (2,889 flights), Spice Jet (483 flights) and Kingfisher Airlines (367 flights) come thereafter in the list of domestic and national carrier operators. Page | 7 CLASSIFICATION & TYPES The Indian airline sector can be broadly divided into the following main categories: 1. Scheduled air transport service, which includes domestic and international airlines. 2. Non-scheduled air transport service, which includes charter operators and air taxi operators. 3. Air cargo service, which includes air transportation of cargo and mail. Scheduled air transport service: It is an air transport service undertaken between two or more places and operated according to a published timetable. It includes: 1. Domestic airlines, which provide scheduled flights within India and to select international destinations. Air Deccan, Spice Jet, Kingfisher Airline and IndiGo are some of the domestic players in the industry. 2. International airlines, which operate scheduled international air services to and from India. Non-scheduled air transport service: It is an air transport service other than the scheduled one and may be on charter basis and/or non-scheduled basis. The operator is not permitted to publish time schedule and issue tickets to passengers. Air cargo services: It is an air transportation of cargo and mail. It may be on scheduled or non-scheduled basis. These operations are to destinations within India. For operation outside India, the operator has to take specific permission of Directorate General of Civil Aviation demonstrating his capacity for conducting such an operation. At present, there are 2 scheduled private airlines (Jet Airways and Air Sahara), which provide regular domestic air services along with Indian Airlines. In addition there are 47 Page | 8 non-scheduled operators providing air-taxi/non-scheduled air transport services. Apart from this, the players in airline industry can be categorized in three groups: Public players Private players Start up players. There are three public players: Air India, Indian Airlines and Alliance Air. The private players include Jet Airways, Air Sahara, Kingfisher Airlines, Spice Jet, Air Deccan and many more. The startup players are those planning to enter the markets. Some of them are Omega Air, Magic Air, Premier Star Air and MDLR Airlines Page | 9 ADVANTAGES 1. Foreign equity allowed: Foreign equity up to 49 per cent and NRI (Non-Resident Indian) investment up to 100 per cent is permissible in domestic airlines without any government approval. However, the government policy bars foreign airlines from taking a stake in a domestic airline company. 2. Low entry barriers: Nowadays, venture capital of $10 million or less is enough to launch an airline. Private airlines are known to hire foreign pilots, get expatriates or retired personnel from the Air Force or PSU airlines in senior management positions. Further, they outsource such functions as ground handling, check-in, reservation, aircraft maintenance, catering, training, revenue accounting, IT infrastructure, loyalty and programme management. Airlines are known to take on contract employees such as cabin crew, ticketing and check-in agents. 3. Attraction of foreign shores: Jet and Sahara have gone international by starting operations, first to SAARC countries, and then to South-East Asia, the UK, and the US. After five years of domestic operations, many domestic airlines too will be entitled to fly overseas by using unutilised bilateral entitlements to Indian carriers. 4. Rising income levels and demographic profile: Though India's GDP (per capita) at $3,100 is still very low as compared to the developed country standards, India is shining, at least in metro cities and urban centres, where IT and BPO industries have made the young generation prosperous. Demographically, India has the highest percentage of people in age group of 20-50 among its 50 million strong middle class, with high earning potential. All this contributes for the boost in domestic air travel, particularly from a low base of 18 million passengers. Page | 10 5. Untapped potential of India's tourism: Currently India attracts 3.2 million tourists every year, while China gets 10 times the number. Tourist arrivals in India are expected to grow exponentially, especially due to the open sky policy between India and the SAARC countries and the increase in bilateral entitlements with European countries, and US. 6. Glamor of the airlines: No industry other than film-making industry is as glamorous as the airlines. Airline tycoons from the last century, like J. R. D. Tata and Howard Hughes, and Sir Richard Branson and Dr. Vijaya Mallya today, have been idolized. Airlines have an aura of glamour around them, and high net worth individuals can always toy with the idea of owning an airline. All the above factors seem to have resulted in a "me too" rush to launch domestic airlines in India. Page | 11 PEST Analysis: The Indian Airline Industry A PEST analysis is an analysis of the external macro-environment that affects all firms.