A Project Report on Airline Industry

A PROJECT REPORT ON AIRLINE INDUSTRY

Marketing plan

&

Strategy for Omega airlines

SUBMITTED TO:

SHUBRA BAHEL

SUBMITTED BY:

KARAN GAUR

RACHNA SHARMA

SAGAR DWIVEDI

VIKAS KUMAR JAIN

Table of content

1. Executive summary

objective

scopePage | 1

Research methodology

2. External environment analysis

Pest analysis

Porter’s five force model

3. internal environment analysis

SWOT analysis

airline industry value chain analysis

4. competitive analysis

5. Ansoff’s matrix for omega airlines

6. STP for omega airlines

7. 7 p’s for omega airlines

8. SWOT matrix

9. Blueprinting model

10. RATER analysis

11. Moment of truth

12. Critical incident

13. Zone of tolerance

14. Service recovery

15. Bibliography

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EXECUTIVE SUMMARY

This report is the analysis of airline industry as a whole. , competitive analysis is been done and explained in detail. In this analysis we applied different type of models that have applied to this analysis and try to get the results whether to enter airlines service sector is a good decision for Omega or not . Our finding of results tell that they have made Quit good decision by entering into this market but they have pay some serious attention as this is that type of service required huge investment for entrance and exit both the cases. In this report we find all the possibilities that might affect to them and at the same time we suggested them solution to how to get over these problem. We have formed an marketing plan and strategy for the same their implication surely help them to enter in this market.

OBJECTIVES

The objective of this report is to study the external environment of the Aviation Industry in India.

1. Subsequently, internal environment analysis is conducted for Indian Airlines. With the help of this comprehensive study, we have prepared a marketing plan for start-up players.

2. To understand the utilization of strategic marketing tools like porters five force model ,value chain analysis and

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Tows matrix etc. and important factors responsible for the formulation of corporate strategy

SCOPE

The scope of this report is to analyze various Marketing aspects of theairline industry which would include the product, brands, pricing, supply chain and logistics, marketing communications and advertising, customer segmentation and their characteristics and critical factors for success in this industry. The report includes examples from various airlines across the world, but to maintain specificity it retains an Indian perspective and compares competitors across the Indian domestic carriers.

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem.It may be understood as a science of studying how research is donescientifically. In it we study the various steps that are generally adopted by aresearcher in studying his research problem along with the logic behindthem. It is necessary for the researcher to know not only the researchmethods or techniques but also the methodology.

Data Source

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The data can be collected from two sources, i.e. Primary and Secondary. Wehave collected the entire data of this project on Airlines industry fromSECONDARY SOURCES like websites, books, newspapers and magazines.

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CURRENT SITUATION ANALYSIS

PEST Analysis: The Indian Airline Industry

A PEST analysis is an analysis of the external macro-

environment that affects all firms. P.E.S.T. is an acronym for the

Political, Economic, Social, and Technological factors of the

external macro-environment. Such external factors usually are

beyond the firm's control and sometimes present themselves as

threats. For this reason, some say that "pest" is an appropriate

term for these factors. Let us look at the PEST analysis of the

Indian aviation sector:

Political Factors

The airline industry is very susceptible to changes in the

political environment as it has a great bearing on the travel

habits of its customers. An unstable political environment

causes uncertainty in the minds of the air travellers, regarding

travelling to a particular country.

The most significant political event however has been

September 11. The events occurring on September had special

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significance for the airline industry since airplanes were

involved. The immediate results were a huge drop in air traffic

due to safety & security concerns of the people.

Economic Factors

Business cycles have a wide reaching impact on the airline

industry. During recession, airline is considered a luxury &

therefore spending on air travel is cut which leads to reduce

prices. During prosperity phase people indulge themselves in

travel & prices increase.

The loss of income for airlines led to higher operational costs

not only due to low demand but also due to higher insurance

costs. This prompted the industry to lay off employees, which

further fuelled the recession as spending decreased due to the

rise in unemployment.

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Social Factor

The changing travel habits of people have very wide

implications for the airline industry. In a country like India,

there are people from varied income groups. The airlines have to

recognize these individuals and should serve them accordingly.

The destination, kind of food etc. all has to be chosen carefully

in accordance with the tastes of their major clientele.

Especially, since India is a land of extremes there are people

from various religions and castes and every individual travelling

by the airline would expect customization to the greatest

possible extent. For e.g. A Jain would be satisfied with the

service only if he is served Jain food and it should be kept in

mind that the customers next to him are also Jain or at least

vegetarian.

Technological Factors

The increasing use of the Internet has provided many

opportunities to airlines. For e.g. Air Sahara has introduced a

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service, through the internet wherein the unoccupied seats are

auctioned one week prior to the departure.

Air India also provides many internet based services to its

customer such as online ticket booking, updated flight

information & handling of customer complaints. USTDA (US

trade & development association) is funding a feasibility study

and workshops for the Airports Authority of India as part of a

long-term effort to promote Indian aviation infrastructure. The

Authority is developing modern communication, navigation,

surveillance, and air traffic management systems for India's

aviation sector that will help the country meet the expected

growth and demand for air passenger and cargo service over the

next decade.

A proposal for restructuring the existing airports at Delhi,

Mumbai, Chennai and Kolkata through long-term lease to make

them world class is under consideration. This will help in

attracting investments in improving the infrastructure and

services at these airports. Setting up of new international airports

at Bangalore, Hyderabad and Goa with private sector

participation is also envisaged.

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These technological changes in the environment have an impact

on Air India as well. Better airport infrastructure, means better

handling of airplanes, which can help reduce maintenance cost.

It also facilitates more flights to such destinations.

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Porter’s five forces model for airlines industry

1. Threat of New EntrantsProduct differentiation:In low cost carriers, there is not much differentiation in the basic service that is being provided to the customers. Differentiation can only be achieved by Value Added Services. Switching cost: 1. The switching cost is not high. Customers can easily choose other low cost carriers.2. The switching cost of an airline company to other business/industry is high as the exit cost is high.

In aviation industry the major entry barriers can be:Government regulations:1. The government's open sky policy has encouraged many overseas players to enter theaviation market.

2. Aviation was primarily a government owned industry. Due to liberalization Indian aviation industry is now dominated by privately owned full-service airlines and low-cost carriers. Private airlines account for around 75 per cent share of the domestic aviation market.

Indian Civil Aviation Policy1. Private sector is allowed to operate scheduled and non-

scheduled services.

2. Operator should be a citizen of India or a company or a body corporate which is

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registered in India and whose principal base of business is in India.

3. Chairman and at least two –thirds of its Directors are Indian citizens.

4. Foreign equity participation up to 49 percent and investment by Non- ResidentIndians (N.R.I), Overseas Corporate Bodies (OCBs) up to 100% is allowed. The representation of the foreign investing institution/entity on the Board of Directors of the company shall not exceed one-third of the total.

5. Foreign airlines are not permitted to pick up equity. Foreign financial institutions andother entities who seek to hold equity in the domestic air transport sector shall nothave foreign airlines as their shareholders.

6. As regards safety and security arrangements, the operators must ensure compliancewith relevant regulatory requirements stipulated respectively by the Director Generalof Civil Aviation (DGCA) and the Bureau of Civil Aviation Security (BCAS).

7. For green field airports, foreign equity up to 100 percent is allowed through automaticapprovals. For upgrading present airports, foreign equity up to 74% is allowedthrough automatic approvals and 100 percent through special permission (from FIPB).

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Setup costs : Nowadays, venture capital of $10 million or less is enough to launch an airline.1. In order to overcome the shortfall of aircrafts during the peak seasons, airlines can utilize an ACMI lease agreement for the extra aircraft. If the airline has many aircrafts, either owned or leased, then they can offer their surplus aircrafts in their low season to another airline that is facing peak season.

Strategic Ma2. An airline company will bear the cost of purchasing an aircraft if it wants to start or expand its fleet, leasing allows the cost to be spread across several years. At the lease term end, the lease can be renewed or aircraft can be returned, to be replaced with more modern aircraft. Fuel prices :

Domestic ATF prices have increased by over 160 per cent from the beginning of 2005 till last year and by over 80 per cent from a year-ago levels. In India, oil companies do not import ATF directly; instead they refine it from imported crude oil. With rising crude oil prices, imports are becoming expensive day by day and at the same time, the government is unable to pass on the full impact of this rise to the consumer. As a result, the state owned oil marketing companies (almost 95 per cent of the market is with state owned firms) are forced to sell diesel, petrol, kerosene and LPG at way below cost, a cost they are trying to somewhat make up by raising the price of ATF, which

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is under their control. As a result prices of ATF in India are much higher than some of the other Asian countries.

2. Bargaining Power of Suppliers

Any airlines in general face a duopoly of two major suppliers of aircrafts i.e. Airbus and Boeing. There are other suppliers like Dauphin, Dronier, Bell, ATR-42 but do not meet the requirements to serve the low cost commercial aircraft carriers. Thus, suppliers are few and thus in better position to bargain as they always finds customers for their aircrafts.

The switching cost is high due to the limited number of suppliers.

Due to shortage of commercial aircraft pilots in India the supply of pilots is concentrated, hence increasing their power.

There are only four suppliers for ATF (Aviation Turbine Fuel); IOC, Hindustan Petroleum Corporation, Bharat Petroleum and ONGC and since their number is limited, they possess more power.

The proof of evidence for high power enjoyed by ATF suppliers lies in the fact that the ATF prices constitute 35-40% of the costs in India compared to 20-25% globally.

The brand value of suppliers is high due to their less number and results in higher bargaining power for them.

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The suppliers are few and thus in better position to bargain as they always finds customers for their aircrafts.

3. Bargaining Power of BuyersBuyers in airlines industry are large in number and highly fragmented thus lowering their power .With the growing Indian economy and increasing low cost carriers, the buyers have increased and so have the growth opportunities.

The switching cost is minimal since there are multiple alternatives available. It is not difficult to move from one airline to another or to switch to a substitute.

Furthermore the players in the particular strategic group do have minimalistic differentiating points.

Backward integration from the buyers end is very difficult and next to impossible.

4. Competitive RivalryThe aviation industry is a highly competitive industry because of which it is difficult to earn high returns in this sector. Below are the major reasons for the high competition in the low-cost carrier airlines:• Very little scope for differentiation between competitors’ products and servicesS• Aviation is a mature industry with very little growth. The only way to grow is by stealing away customers from competitors• Suppliers of aircrafts are the same, i.e., Boeing and Airbus. Hence supplier’s bargaining power is high.

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• Switching cost of customers is high for low cost carriers, i.e., there is no brand loyalty.

Thus, to compete small player players are trying to follow cost leadership strategy by bringing down the ticket rates to the minimum possible value. However, it is clear that, to sustain in this cutthroat competition, each player will have to come up with different strategies to improve the non price factors

5. Availability of SubstitutesThe substitute for low cost airline company is the railways. But this substitute is not very powerful due to the following reasons:1. Customers use airline transport as it is convenient and saves travelling time. So trains cannot work as a substitute to save time.2. Secondly, many customers use airlines as a status symbol. So again, trains cannot substitute for prestige.

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SWOT analysis of airlines industry

A SWOT analysis -- a review of strengths, weaknesses, opportunities, and threats a core requirement of any organization, and essential to understand any industry. The volatile airline industry is no exception. While individual airlines each analyze and make decisions based on their own situations, there are overall industry similarities that all airlines face, with each endeavoring to maximize strengths and opportunities while minimizing weaknesses and threats.

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Strengths:

1. A major strength of any airline is the product itself -- air travel. Despite downturns, over time air travel continues to grow, not only due to population growth, but also due to an increased propensity to fly.

2. Safety record and the associated public acceptance of air travel as both a fast and safe way to travel. Both traditional, brand recognized airlines and new low cost carriers share this strength.

3. Airline staff is highly trained and experienced, from pilots and flight attendants to mechanics and ground staff.

4. Business-wise, airlines have the ability to segment the market, even on the same routes. This allows airlines to establish different levels of service and make associated pricing decisions.

Weakness:

1. Airlines have a high "spoilage" rate compared to most other industries. Once a flight leaves the gate, an empty seat is lost and non-revenue producing.

2. Aircraft is expensive and requires huge capital outlays. The return on investment can be different than planned.

3. Large workforces spread over large geographic areas, including international points, require continual communication and monitoring. This can be exacerbated

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during operational irregularities, e.g. bad weather.

4. While the business climate can change quickly, airlines have difficulty making quick schedule and aircraft changes due to leases, staffing commitments and other factors.

Opportunities:

1. Airline market growth offers continual expansion opportunities for both leisure and business destinations. This is particularly true for international destinations.

2. Technology advances can result in cost savings, from more fuel efficient aircraft to more automated processes on the ground. Technology can also result in increased revenue due to customer-friendly service enhancements like in-flight Internet access and other value-added products for which a customer will pay extra.

3. Link-ups with other carriers can greatly increase passenger volumes. By coordinating schedules, airlines can offer service to destinations via a code share agreement with a partner carrier.

Threats:

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1. A global economic downturn negatively affects leisure, optional travel, as well as business travel.

2. The price of fuel is now the greatest cost for many airlines. An upward spike can destabilize the business model.

3. A plague or terrorist attack anywhere in the world can negatively affect air travel.

4. Government intervention can result in new costly rules or unexpected new international competition.

SWOT matrix for omega airlines

Strengths Weakness

Opportunities

Product differentiation

Advance technology

Link with other carrier

Market growth

Expensive and requires huge capital

Large workforce Environmental

condition

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Highly trained staff

Threat

Competition Infrastructure

issue

High attrition in top brass

Global economic downturn

Government intervention

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Breaking of cost in percentage

Category 1

05

101520253035

infrastructure

hrm

technological

procurement25

20

30

35

infrastructurehrmtechnologicalprocurement

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Market share of airlines in India

26.08; 26%

16.72; 17%

7.39; 7%

17.66; 18%

13.75; 14%

11.72; 12%4.29; 4% 2.27; 2%

Airlines

kingfisherjet airwaysjet liteair indiaindigo spice jetgo air paramount

It is clearly visible through this chart that at present scenario kingfisher is market leader and it is the only player who plays in premium segment so this is the sole and big competitor for Omega airlines.

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Ansoff’s matrix for Omega

Current product New product

Current market Omega

New market Omega

If we put omega into this matrix then result would be that they

are trying to develop new differentiated airlines in the niche

market of premium segment it means they try to develop a new

market only for those who wants to fly only in luxury.

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Product developmen

t strategy

Market developmen

t strategy

STP for omega airlines

• Segmentation

Geographic Region

Density

Social Classes

Income Level

• Targeting

Omega express

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Business class

Omega premium

upper middle, upper segment

• Positioning

Lifestyle

Benefits

Quality

Luxury

This is the possible STP for the Omega airlines as they are playing in premium segment so they have to position them in this condition where upper class society have reach and what they believe to live in.

Market mix for omega airlines

Product

On the ground services

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On the ground services include a convenient airport with

car parking facilities, duty free shopping, quick and

efficient cheeking of baggage, efficient services at

reservation counter, transport to the airport.

In flight services

Services provided are intangible and is highly variable. The

air hostess are trained to provide polite warm and courteous

services The courteous service that the representatives at the

baggage counter, reservation counter provide goes a long way in

developing customer loyalty. The travel agents of the airlines

also need to be efficient and polite.

The Core Service

The core service of the airlines industry is to transport goods

and services to various destinations. As the needs of the people

increased the entire system became more organized and formal.

The Supplementary Services

connecting flights

through check-in,

tele check in,

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food on board,

and complementary gifts etc.

Air concessions are given to school students, old people

etc.

small 8”television screen for every passenger.

STD facility for 5 minutes

The Enhancing services

Online booking

Spa and body massage

Different types of cuisines

Customized pick up and drop services

Pricing

Premium pricing:

The Omega airlines may set prices above the

market price either to reflect the image of quality or the unique

status of the product. The product features are not shared by its

competitors or the company itself may enjoy a strong reputation

that the 'brand image' alone is sufficient to merit a premium

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price. The price segment is a higher income group as well as the

upper middle class background.

Place

Distribution channel

Consolidatio

n:Thedirectsaleofticketsfromairporttothepassenger onthe

airline desk.

Tour Operator/ TravelAgent: Customers

approachtrave

lagentsortouroperatorswhobooktheticketsfromtheairlineand

takecommission. E.g. SOTC

Affiliated with companies:As then ame defines, airlines

gets affiliated with companies who carry all its trips with a

same airline who in turn gives special discounts or offers

in return.

Direct through homel eased system, e.g. Phone, fax, email

and also online e-booking.

Promotions

Advertisements

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Magazine and Newspaper ads

Exposure at corporate event

Participation in International Air shows

Endorsement by high profile celebrities and business

persons

People

This was the backbone of any industry so as for Omega so

they need to recruit highly trained staff. Focus of the training

is making them in hospitality, in flight training, interpersonal

skills. All they need to have a staff having understanding of

the customer of high class as they are planning to play in

premium class segment targeting higher income level group.

Process

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Online booking of ticket, home delivery of tickets if customer

wants us them to deliver, telephone booking, outlets opened

by omega.

Physical evidence

Personal valets

Exclusive lounge space

Gourmet cuisine

world class cabin

Blue printing for omega airlines

Physical evidence

Line of interaction

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Reservation through agents or

other channels

Custom clearing Boarding the flight/interaction

with crew: experiencing

ambience

Alighting the aircraft

Baggage retrieval

Arrival at airport Obtaining Immigration/Boarding

pass

Receiving tickets

F

r

o

n

t

s

t

a

g

e

Line of visibility

line of internal physical relation

Support system

Qualit y Dimensions : RATE R Analysis

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Selecting aircraft Recruitment and selection

Training and development

scripting

Designing the ambience

Arranging for tangible cues/local

news paper , magazine B

a

c

k

s

t

a

g

e

Customers don’t assess the quality of service on one

dimension only,

th

eyusemultipleparameterstojudgethequalityoftheservicethattheya

re beingoffered.These characteristics which people consider vary from

persont on person,industry to industry. Even depend upon the

product on offer.

Because of the intangibility and multifaceted nature of

many services, it may be harder to evaluate the quality of a

service than a good. Because the customers are often involved

in the service production a distinction need sto be drawn

between the process of service delivery and the actual output of

the service. The most extensive research into service quality

is strongly user oriented.

Airlines are broadly classified into 4 dimensions namely:

Reliability – flights to promised destinations depart and

arriveon schedule

Assurance –trusted name, good safety record,

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Competent employees

Tangibles – aircraft, ticketing counters, baggage area,

uniforms

Empathy – understanding of special individual needs,

anticipates customer needs handling

Moment of truth

• Making areservation

• Gettingtickets

• Boarding

• Flying

• Retrievingbaggage

Critical incidence

Critical incidents are specific encounters between

customers and service employees that are especially satisfying

or dissatisfying for one or both parties. In the airline industry

critical incidents are very important as they help the company

evaluate and measure satisfaction level of the

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customer

s.Thecriticalincidenttechniqueisamethodologyforcollectingand

categorizingsuch incidentsinserviceencounters.

Zone of tolerance

In the airline industry, the customer expects a minimum

level of

servi

cebelowwhichheisdissatisfiedwiththeserviceprovidedbytheairlin

e company.

Thisincludeseasyavailabilityoftickets,quickinformationabout

rescheduli

ngoffightsoranyotherimmediatechangesmade,cleanaircrafts,

hygienic food,safekeepingofbaggage

andadequatesafetymeasures(oxygen masks,parachutes)incase

ofanemergency.

Service recovery

If the omega airlines fails to deliver what they promise than

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this could be the possible steps through which they can recover.

1ststep: acknowledgement andapologyforthefact.

2ndstep: listeningtothecustomers.

3rdstep:avoid defendingthecompany

andofferarationalexplanation.

4th step:offersomeextrabenefits

5

thstep:haveaproperfollowupandmakesurenomistakesthistime,so

thathecaneasilyforgetabouttheservicefailure andis retained.

Bibliography

White Paper on ‘India Initiative: Issues in Civil

Aviation’ by the World Travel and Tourism Council

Aviation Week & Space Technology

Low-fare Airlines, . Economist.com.

Crisis at 50, Business World,

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Businessline,

The Sky’s The Limit, Indian Express

Oil Prices drown out Airlines profit, Star Tribune,

A Feel for Airline Security. Time Canada,

To Cope With Travel Slump, Airlines Turn to Smaller

Jets. (cover story) Wall Street Journal - Eastern

Edition,

Wikipedia, the free content encyclopedia

India Transportation Infrastructure Blueprint

Discounted IA fares to take on no-frills Deccan Times of

India

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