Search for an essay or resource:

Essay: Competitive Strategies Implemented By Low Cost Carriers In India

Essay details:

  • Subject area(s): Business essays
  • Reading time: 64 minutes
  • Price: Free download
  • Published: May 31, 2021*
  • File format: Text
  • Words: 9,423 (approx)
  • Number of pages: 38 (approx)
  • Competitive Strategies Implemented By Low Cost Carriers In India
    0.0 rating based on 12,345 ratings
    Overall rating: 0 out of 5 based on 0 reviews.

Text preview of this essay:

This page of the essay has 9,423 words. Download the full version above.


India, home to one-sixth of the world’s population, is quickly becoming one the world’s economic engines. Its bureaucratic and outdated regulatory policies have been reformed resulting in a four-fold increase in the number of scheduled airlines and a five-fold increase in the number of aircraft operated. This study attempts to examine, in the light of the competitive strategies adopted by the low-cost model based on cost-leadership and product differentiation that have been deployed by low-cost carriers (LCC) in India. . In addition, this paper attempts to review how the new regulatory roadmap has transformed the supply of domestic air services in the Indian Aviation industry.
Many surveys were conducted in the past to investigate the acceptance of LCCs in India. In addition, it assessed the sensitivity of passengers to a change in fare and which factors or attributes would encourage them to distinguish between LCCs. The study finds that there is immense growth potential for LCCs in India on account of low fares leading passengers to convert from rail to air traffic. However, infrastructural bottlenecks leading to delays and cancellations are hindering the mindset of current or potential passengers. Hence, creating value by attaining customer satisfaction and differentiation in product or services offered is the most effective way for LCCs to gain market share and, with time, be able to sustain it.


“That’s what everybody wants, to be a low-cost airline;their problems aside, it is the place to be”.

Indiais the second most populous country in the world and the world’s largest liberal democracy. A country that has traditionally endured economic challenges has become the world’s second-fastestgrowing nation, behind China and has transformed itself into a true economic powerhouse, resultingin rising income for the estimated 400 million people in its middle class. According to the Airbus
Global Market Forecast (212-2025), both China and India are set to become the world’s largestconsumer markets within the next 25 years, with a combined purchasing power six times greater thanthat of the United States today.
Several economic indicators have shown how far India has progressed. In 2006, India’s companiesrealized better than 21 % on invested capital. From 2006 to 2012, the percentage of non-performingloans dropped from about 16 percent to about 7 percent. In 2006 India’s IT services and back officework showed a fivefold increase to US$60 billion annual export industry compared to US$12 billion in 2001. In addition, its outsourcing business base is The Christian Monitor (2012)’how long can thebig airlines survive, growing at 30-40%per year? India’s GDP measured in terms of Purchasing Power Parity is currently the third largest in the world. According to the Economic Survey 2011-12, the years 2004-07 have been years of record growth in air traffic in India. During the period April-September,
2006, international and domestic passengers recorded growth of 15.8% and 44.6%, respectively, leading to anoverall growth of 35.5% year-on-year. India’s airports handled 63.99 million domestic passengers in 2006/07,as compared to 32.04 million in 2003/04. In 2006, airlines in India placed aircraft orders accounting for
11% of the total.
It’s not a coincidence that India’s Aviation sector has made such a turnaround. A number of factors, specifically liberalization and deregulation, have significantly contributed to the country’s transformation.
‘From being a service that few could afford, the sector has now graduated to being a fiercely competitiveindustry with the presence of a number of private and public airlines and several consumer-oriented offerings.’

Macro Fundamentals that have driven Aviation growth

Market size : India has a population of 1.1 billion of which the middle income group constitutes around 400million, which is more than the population of USA and that of EU countries.
Demographics: 50% of the population is < 25 years old as a result of which the size ofthe economically active segment will continue to grow for a number of decades (unlike developed countriesand even China).

Economic growth: Average GDP growth of 6% p.a. sustained since 1991 and showingsigns of acceleration. The first quarter of FY06/07 registered 9.4% growth and the lastbudget has established a target of 10%.

Trade and Investment: India has an increasingly open economy, with strong growth ininternational trade, healthy foreign exchange reserves and increasing FDI.

Fueled by rising disposable incomes coupled with globalization and partial deregulation,the domestic aviation market in India is witnessing an unparalleled proliferation of new entrants.The majority of new entrants are low-cost carriers who, within 3 years of operation, captured49% of market share presenting a significant challenge to existing public/private sector playersthat operate in a largely oligopolistic market.

The Growth Opportunity in Indian Aviation

India’s airports handled 71.0 million domestic passengers in 2006/07, postinggrowth of almost 40% year-on-year, and over 25 million Internationalpassengers, up approx. 15%Growth is underpinned by economic expansion, increased capacity and pricestimulation resulting from increased competition.

India’s LCC growth phenomenon

India’s domestic airlines now offer 8,600 more flights and 1.7 million more seats everyyear since 2003.62% year on year growth in domestic low cost sector.
Low cost operations account for 44% of all flights within India [compared to 22% in UKand 19% in US].The Indian government recently lifted some very strict civil aviation regulations thataccelerated the process. The number of low-cost airlines has swelled from four to eight in amatter of months; challenging the monopoly of rail services and providing greater options for thecountry’s travelers.

Duncan Alexander, VP Business Development & Industry Relations at OAG, commented:India’s domestic market is experiencing an unprecedented growth, attributed to theincreased operations offered by several low cost carriers. As a result, nearly one in twoflights within India is now operated by a low cost carrier. This is even more impressiveconsidering that the low cost phenomenon is still in its infancy in the Indian market. Ithas already far outstripped the ratio in the UK and US, two of the most established low cost markets. Considerable world aviation attention is now focused on India, as evidenced by the 165aircraft order by Indian carriers at the 2005 Paris air show priced at US$14.3 billion. Accordingto the Centre for Asia Pacific Aviation (2007) , Indian airlines have ordered a total of 3769 OAG aircraft were to be delivered by 2012. India is committed to a fleet growth of164%, compared to a world average of only 2.7%. The sudden surge is the result of three factors:the easing of tight regulatory constraints, a booming economy and the 400 million middle class. Indians that can now afford air travel.
There is a gold rush in the skies over India. In effect, a great number of venture capitalistin the world, with the requisite 444 million rupees (US$10 million) to launch a private airline,want to claim a share in this booming sector. To entrepreneurs who have seen the success of 10low-cost airlines in the US and Europe, India is an enticing prospect in reason of its millions ofprice-conscious consumers. Thus, India has now become the next milestone in global airline 11developments and aviation’s most dynamic market.

Dissertation Objectives

The India aviation sector is one of the fastest growing in the world. Given this thrivingmarket, this study seeks to question what competitive strategies low-cost carriers (LCC) canimplement to gain an advantage and sustain passenger loyalty. It also seeks to assess the level ofdifferentiation strategies adopted by LCCs in account to competition. It is hypothesized that adifferentiated strategy is favorable to gain a sustainable competitive advantage in this market. Inaddition, the outlook for LCCs has a large catchment in the upper fraction of 18 millionpassengers that patronize the Indian Railways daily. That this study is relevant may bedetermined by the immense growth potential of the ICAI, provided that it gathers enough depththrough development of infrastructure in the coming years.

‘ To identify and analyze the core concepts of the low-cost model from available literature.
‘ To examine the competitive situation in the Indian Airline industry followed by anenvironmental scan to scrutinize the current concern faced by LCCs in addition toheightened completion.
‘ To apply core concepts to the current players of the LCC sector and highlight theirstrategic objectives & future potential of competitive advantage.
‘ Evaluate the survey responses to identify the perception of passengers and travel agents,in regard to LCCs.

‘ This dissertation looks at the viability of the low-cost carrier in India by first making anenvironmental scanning and internal analysis of factors that encompass the Indian aviationindustry. Coupled with reports from major newspapers, articles from the internet as well asinterviews with travelers, it molds the strategic positioning that LCCs should take in order tohave an edge over the major air carriers and reason how they should sustain their competitiveadvantage in such a vulnerable competitive industry. In addition, interview data gives a practicalanalysis of the travel preference of the general public thus giving an indication of the acceptanceof these LCCs in India and suggest the necessary changes, if any, required for improvement.

Finally, a critique view of the LCC sector in India will be discussed, recommending the key changes that carriers must embark onto, to remain competitive and sustain passenger growth.
However, due to its vulnerability to the ever changing external environment, it is recommendedthat the analysis may only be valid for the next three years.

Chapter I: Overview of Low-cost Carriers

“Let’s face it; if you’re an airline and your name doesn’t begin with Southwest,you are by default a bankruptcy candidate.”

Low-Cost Carriers (LCCs) have been in the limelight ever since Southwest Airlinesentered revenue service on 14th June 1971 (Knorr and Arndt, 2002). In about more than 30years, SWA has become the fourth-largest airline in the USA (Ibid). Moreover, SWA has createdits own set of records in being ‘the most consistently profitable airlines ever as well as the safestoperator in the domestic US market’.
Not surprisingly the success of Southwest has inspired many other operators both in theUSA and in Europe in the form of JetBlue, Ryanair and EasyJet to name only a few This review will examine the competitive strategies adopted by some of the more successful operators and place them in an appropriate context tohelp assess the relevance of such strategies for the growth of LCCs in the India Civil AviationIndustry (ICAI).

The Low- cost Model

All airlines have four broad components in their profit functions; the product of yield andtraffic equates to revenues and the product of unit costs and output equates to costs.Even so it would be appropriate to list in a condensed form the typical features of the no-frills product as mentioned in Lawton (2000): One-class high-density seating, No-flight food service apart from non-perishable snack items like peanuts. Eliminatingthe galley sections allows for more seats, reduced turnaround times and lower cleaningand cabin crew costs.
No advance seat assignment.
No frequent-flyer programs.
No frequent traveler lounges at the airports.
No costly interlinking agreement with other airlines.
No participation in code-sharing or other forms of airline alliances.
Bypassing computer reservation systems and travels agents through direct selling andtelemarketing.
Introduction of electronic ticket
Specific use of only one type of aircraft in its fleets to save maintenance, training,staffing and scheduling related cost savings
Becoming the launch customer for newer types of aircraft to earn manufacturer’s
Discounts (typically 30% of the list price)
Reducing infrastructure access costs by utilizing un-congested underused secondary airports

Southwest Airline

The case of SWA is the obvious one to begin with especially since it has come to beregarded as the prototype of LCCs and its strategic formula. ‘Low-cost, low-fare, no-frills, highfrequency, short-haul, and point-to-point service instead of the established airlines traditional high-cost, high-fare, full-service, hub and spoke operation’.However theyfeel that it is still too early to make a definitive statement on the viability of LCCs, despite thespectacular example of SWA. One reason for this, in their opinion, is the persistence ofsignificant barriers to entry that ‘shield incumbents effectively from low-fare competitorsincluding, in some cases SWA’. The paper therefore mentions SWA’s survival andsubsequent rise in spite of the barriers as offering valuable insights into the nature of competitionin the airline industry; particularly those relating to the identification of post-deregulationbarriers. However, since SWA is, for historical reasons and on account of its financialperformance, the benchmark for prospective LCCs, it would be worthwhile to examine in detailwhy SWA succeeded where others failed.
Southwest Airlines has focused primarily on reducing unit costs to increase trafficthrough the lowest prices. There are five key elements in their strategy. First, utilize all the sameaircraft (737s) to reduce training and maintenance costs. Second, use less expensive secondaryairports near major centers to reduce transaction cost laden turnaround times and increasesproductivity. Third, pay high attention to customer satisfaction to increase load factors. Fourth,reduce booking costs through an aggressive Internet strategy. Finally, maintain lower labor costsby more closely aligning interests between labor and management (Holloway, 1997).

According to Petzinger (1995), SWA emulated the practice of ‘yield management byoffering discounted restricted fares against its own low unrestricted fares’. Given SWA’s alreadyexisting substantial cost advantage, no major carrier could match such fares for a long while.SWA managed to improve and stabilize its profits in consequence (Knorr and Arndt, 2002). Itsfare dispersion is the lowest among all major US carriers. The highest fares on SWA are abouttwice the median fare for all passengers. For the domestic services of all other US carriers, it is at least three times the median. However Knorr and Arndt (2002) argue that SWA’s success should be assessed on thebasis of a broader business model that includes not only the standard features of the low-cost,low-fares model but also ‘its specific approach to labor relations, financial and strategic management. The factors that differentiate SWA from other players and help it to sustain itscompetitive advantages are the following:
‘ High quality of service arising from point-to-point operations enabling them to be morepunctual.
‘ Excellent labor relations in spite of having the highest degree of unionization bycreating a strong corporate culture that aligns the interests of different employee groups.
‘ Unconventional advertising and Public Relations that includes industry recognitionthrough winning service and performance awards.
‘ Adopting conservative financial strategies through relying on internally generated fundsfor its growth, thereby securing better credit ratings and reducing its cost of finance.
‘ Regarding ground transportation as its main competitor.
‘ Protecting its profitable home base to ensure customer loyalty and being cautious inadding new routes (Southwest Airlines 2000).

Entry Barriers

Having examined the features of the SWA model in detail, the entry barriers it faced willbe examined as they are particularly relevant for fresh entrants in the LCC sector. Knorr andArndt (2002) define four types of barriers, namely, legal, infrastructure, strategic and others.
They mention four types of legal barriers in the form of ownership rules, operating licenses,route-specific traffic rights and parameter rules at airports. Infrastructural bottlenecks consistmainly of lack of landing slots due to insufficient runway capacity, strategic hoarding ofavailable landing slots by incumbents and access to vital ground facilities suchas gates.
Other barriers to entry that are specifically significant for new entrants are:
Fear of perceived lower safety standards.
It is not necessary to recount in detail in this review how SWA overcame most of thesebarriers.
According to Lederman and Januszewski (2003) a broader perspective on how SWA andother LCCs have been able to succeed in spite of the barriers is that they offer a new anddifferentiated product not previously available to the consumers. In other words, productdifferentiation is an essential part of the entry strategy for LCCs.
Moreover they believe that to the extent that the LCCs’ strategy is ‘to offer acombination of quality and price targeted at more price-sensitive consumers, high density routesmay be the ones where there is a sufficient demand for the LCCs to focus on only offering these products’. Conversely they find little evidence that LCCs pursue a strategy of serving routes that have little volume. This will be tested in context to India in the following sections to draft a more concrete conclusion.

JetBlue and Ryanair (The Differentiated Followers)

The review will now examine the case of JetBlue and Ryanairmainly to examine the considerations if any that have led them to differentiate their offerings from those of the prototype SWA. JetBlue seems to have obtained an edge primarily through the extensive use of information technology and through adding innovative features that served both to differentiate it and to anticipate customer concerns.

Porter’s Five-Force framework to analyze the competitive environment that emerged after the entry of Ryanair following deregulation of the European airline industry as will be seen in the subsequent section, Porter’s Five-Force framework corresponds closely to the market structure of the Indian Civil Aviation Industry.

Ryanair achieved product differentiation primarily through offering meals and amenities comparable to traditional operators but at a lower cost. It also focused on a simple fare and targeted the large Irish immigrant population working in England, in which segment it secured ‘hero status’. It was only later that Ryanair focused on cost-reduction (on cost-leadership) to build a new pricing model 50% to 90% below that of its competitors. In doing so, it aligned itself on most features of SWA model described earlier, adding incremental revenue through onboard sales and extensive advertising (even on the exterior of the planes).

According to Bhagavan(2004), what Ryanair did was create a sub-segment of the
passenger transportation industry including its rivals from the cheaper on-ground modes and low-cost carriers that sought to mimic the model.

Lawton (1999) seems to support the above conclusions. In his view, low prices cannot be sustained unless a company maximizes its operational efficiencies, which Ryanair did by outsourcing non-core activities i.e. ground handling and partial maintenance to more efficient operators. Moreover Lawton argues for, the creation of capabilities based on reliability and quality of service, corporate culture and route network that an airline builds over time. In this context, he singles out Ryanair for its success based on economies of scale (high-frequency service and extensive route network) and its maverick culture in terms of its non-membership of assorted airlines associations, non-participation in alliance and so on, as helping it build the product differentiation that has contributed to its success.
However, Lawton believes that Ryanair’s strategic advantage may not be enough forlong-haul routes. It may need to refine its strategic fit to become successful in such segments without abandoning its core values of low price, value for money and efficient service.
Furthermore its regional base, like that of Southwest, is its core strength and should not be sacrificed to secure route expansions. It is interesting to note that Ryanair has not focused on yield management, preferring instead to concentrate on load to ensure profitability.
In contrast, Holloway (1997) points out a high load factor alone may not ensure profitability, citing the case of Lingus that did not achieve a profit even with a load factor of 70.4%. What is more important in this context is the break-even load factor, which is best achieved by a relentless trimming of costs, along every element of the value chain.

Competition Based on Product Differentiation

The review will next address the issue of price competition amongst low-cost carriers. Barbot (2004) takes a look at this aspect through an empirical study to confirm a theoretical model. According to her, competition amongst LCCs is based on product differentiation. In this respect Dudden (2004) divides LCCs into two segments, namely lowest cost carriers and lower cost carriers. However Barbot (2004) considers five sources of differentiation as follows:
Airports of departure/arrival: whether they are main airports or secondary in nature.
Types of aircraft: whether Boeing 737 and/or Airbus 319.
Free services during the flight
Passenger loyalty
Differentiation in the supply of services related to the flight.
Alamdari and Fagan (2005) approach the issue of LCC competition in terms of the extent to which their strategies adhere to the Southwest model. Their findings indicate that the profitability or financial performance was correlated to the extent that the LCCs adhered to the original low cost model.
Ryanair, for instance, has rigidly stuck to the SWA model. However, some of the later LCCs have attempted to deviate from the original LCC business model even while they seek to undercut the prices of incumbents on their routes.

‘ Alamdari and Fagan (2005) also examine the strategy of LCC in terms of the parameter suggested by Porter’s model, namely in terms of the type of strategy followed by the LCC.
‘ A cost leadership strategy is when a firm sets out to become the least cost producer in the industry and to do so it exploits all sources at cost advantage. This seems to have been the original price model that LCCs have followed.
‘ A differentiation strategy is one in which a company seems to be unique in its industry alongsome dimensions that are widely valued by buyers. However Alamdari and Fagan (2005) addthat although LCCs have tried out this strategy, they have not been able to extract a pricepremium on this basis.
‘ A focus strategy is based upon the choice of a narrow competitive scope within an industry. In itssimplest terms, it involves adding value to the product or service and targeting it carefully at aniche segment of the market. Corporate jet services could fall into this category.
However the ranking of the 10 LCCs considered in their study is correlated only with the degree of adherence to the SWA model. When this is done, it is found that profitability is strongly positively correlated with the degree of adherence.

Southwest and Ryanair are both very successful no frills budget airlines that operate on the basis of low cost management, more frequent flights per aircraft and truly no frills to offer cheap tickets. A couple of unique differences between the two are:
‘ Southwest focuses on domestic travel, while Ryanair operates across Europe thus having todepend on open skies to operate a new city. Southwest operates on point-to-point service while
‘ Ryanair uses a hub and spoke method. Point-to-point service reduces turnaround time whilehaving to deal with the cons of insufficient demand while the hub and spoke method ensures theflights are full. As both are operating under very different environments, their operatingstructures are chosen to meet their needs. However, the most important similarities are the focuson customer service and safety which was never compromised because of their lower fares.

In sum, the review discusses the features of the LCC model; explains the strategies that LCCs have used to gain market share and profitability in the years following deregulation and suggests reasons why some LCCs have been more dominant than others. How will the no frills market fare in India and how will it affect the airline industry? Its content is relevant for the discussion of the strategies that are likely to be adopted by LCC entrants in the ICAI. Given the context provided by the review, it may be possible to assess the likelihood of success of the strategies that have or may be adopted by Indian LCCs. The analysis that follows will give a clearer picture of the Indian Airline industry for the next 5 years to come.



Chapter II: Indian Aviation Sector

The opening of the aviation sector has ‘resulted in a phenomenal spurt in the number of airlines’ particularly low-cost airlines (Kumar, 2005), resulting in competition that has led to a reduction in fares on routes served by FSCs and the availability of additional seats at low fares and the availability of the routes to all kinds of destinations. The principal players that have emerged over the last few years in this sector and, more importantly, are already operational are GoAir, SpiceJet, and AirDeccan.
It is a phase of rapid growth in the industry due to huge build-up of capacity in the LCC space, with capacity growing at approximately 45% annually. This has induced a phase of intense price competition with the incumbent full service carriers (Jet, Indian, and Air Sahara) dis-counting up to 60-70% for certain routes to match the new entrant’s ticket prices.
This, coupled with costs pressures (a key cost element, ATF price, went up approximately 35% in recent months, while staff costs are also rising on the back of shortage of trained personnel), is exerting bottom-line pressure.
According to the Centre for Asia Pacific Aviation (Sanyal, 2005), about 5 new low-cost airlines are due to start operations in India in the next two years. What is feeding ‘the Gold Rush phenomenon’ is the initial response to the new airlines. For instance, SpiceJet with a fleet of 3 aircraft claims an occupancy rate of 95%, Kingfisher with a fleet of 2 planes has over 80% while Air Deccan and GoAir’s average for the last 18 months is 85%.
The growth in supply is overshadowed by the extremely strong demand growth, led primarily by the conversion of train/bus passengers to air travel, as well as by the fact that low fares have allowed passengers to fly more frequently. There has, therefore, been an increase in both the width and depth of consumption. However, the regulatory environment, infrastructure and tax policy have not kept pace with the industry’s growth. Enactment of the open sky policy between India and SAARC countries, increase in bilateral entitlements with the EU and the US, and aggressive promotion of India as an attractive tourism spot helped India attract 3.7 million tourists in 2005-06 .This market is growing at 15% per annum and India is expected to attract 6 million tourists by 2010. Also, increasing per capita income has led to an increase in disposable 17 incomes, leading to greater spend on leisure and holidays and business travel has risen sharply with increasing MNC presence. Smaller cities are also well connected now. Passenger traffic has increased and over 21 million seats have been sold, resulting in a growth of over 50%. The
Indian travel market is expected to triple to $51 billion by 2011 from $16.5 billion in 2006-07.




The aviation market is under penetrated as its annual passenger traffic is only 50 million.India has only .05 no. of passenger trips per year as compared to 2.02 of United States. This factor also depends upon the relatively low number of airports in India in comparison to the US.

1953: Nationalization of Aircraft Industry
Consequently, assets of 9 existing companies transferred to two entities in the aviation sector controlled by the Government: Indian Airlines, primarily serving domestic sectors
Air India, primarily serving the international sectors
‘ Aviation became a preferred mode of transport for elite class
‘ Restricted Growth of Aviation Industry
‘ High Cost structure
‘ Underdevelopment of infrastructure

1986: Private Sector Players permitted as Air taxi operators
Players including Jet, Air Sahara, NEPC, East West, andetc. started service

1994: Private Carriers permitted to operate scheduled services
Six operators granted license however only Jet and Air Sahara able to service

2003: Entry of low cost carriers
Air Deccan, Spice Jet, Go Air, Indigo
‘ Aviation has become affordable with check fares and discount schemes
‘ Various Operators with different business model
‘ Huge growth foreseen in the Aviation Industry

Environmental Scanning and Analysis
Environmental analysis is fundamental in all industries, to gauge the conditions under which it operates, especially the Airline industry in India that is so vulnerable to external factors such as terrorism, war, disease outbreak and government regulations. These factors constantly evolve through time due to the changing environment and thus affect the strategic decision making of managers.




Business Models
In India, similar to other regions of the world, LCCs with a mix of business models are emerging. Air Deccan, approaches the market as an add-on retailer. ‘We make no efforts to lure high-end passengers; our target is the smart traveler who values his money. Air Deccan does this by offering some of the lowest cost 35 alternatives on key routes.
In October, Air Deccan launched an in-flight shopping scheme called ‘Brand for Less’ with AVA Merchandising, part of the Indian arm of the global merchandising group Envision Merchandising. ‘This will also help us get incremental revenue, which will help us reduce fares further. 36 Other new startups are incorporating a pure-play strategy by focusing on their air product with low fares and low costs. SpiceJet’s stated goal is to be ‘a low-fare, no-frills airline that aims to make air travel accessible to everyone.’ ‘We are looking at purely a low-cost model. Likewise, GoAir expresses its desire to be ‘commoditizing air travel’ and promises ‘a 37 quality-consistent, quality-assured and time efficient product through affordable fares.
Recent trends focus on development of more hybrid business models in India. Paramount, for example, represents an upscale pure-play business model and aspires ‘to provide world-class designer products and unparalleled comfort, giving true value for money.
The airline targets the business travel market and offers premium-class services on its flights but not economy class. Kingfisher Airlines, on the other hand, has adopted many characteristics of traditional full-service carriers. The carrier’s motto says it all.
Similar to their global brethren, Indian LCCs have embraced long-held marketing strategies: price competition and differentiation. Although business models in India may be closely related to their global counterparts, Indian LCCs have uniquely adapted themselves to their market. Some aviation leaders in India dispute that the country’s LCCs really have a cost advantage.

Low-Cost Carrier Business Models

A study of low-cost carriers identified five predominant business models, which represent a continuum. There are many carriers that use a hybrid of these models, but they generally represent the uniquestrategies observed in the industry.

Business Model Detail Global India
1. Add-on retailers demonstrate a singular focus on managing Ryanair Air Deccancosts and being the lowest cost player inthe markets they serve. Offer a highly basicproduct and rely on very aggressive lowfares to stimulate demand. Rather thantargeting a specific customer segment,these carriers seek to attract a broad base ofcustomers through low fares. Developingancillary revenues like on board sales andfees for baggage are critical for buildingprofitability and further subsidizing evenlower fares.

2. Pure Plays Build brand based on ‘every day low Southwest SpiceJet
price’ concept and offer a basic product. GoAirUtilize low fares to stimulate new demand, but profitability is driven predominantly by air travel as opposed to ancillary revenues
3. Upscale Pure Plays Maintain cost conscious approach but jetBlue Paramountprovide a more sophisticated product thatoften includes frills such as larger seats, in-flight entertainment and business classseating. Brand is based on customerexperience, while pricing reflects valueversus other similar product offerings inthe market place
4. Transitional Represent a hybrid between low-cost Goal Kingfisher
carriers and traditional carriers. Make Airlines tradeoffs involving complexity of their business model and costs such as developing a network route structure rather than point to point and forming alliances with other carriers through code sharing or interlining

‘With two-thirds of your fixed costs that you can’t touch be it fuel, navigation charges, landing fees, pilots’ salaries it doesn’t make sense to me,’ said NareshGoyal, chairman and founder of Jet Airways in a recent Airline Business article. 41
However, LCCs still are able to achieve numerous benefits due to their business model. KapilKaul from the Centre for Asia Pacific Aviation estimates that Indian LCCs can reduce their costs by 15 percent to 20 percent versus legacy carriers by adhering to a simplified business model. SpiceJet’s Kumar is even more optimistic. ‘What is controllable with us? Staff utilization, distribution costs, operational issues, high route density and aircraft utilization benefits, and manpower capabilities such as multi-tasking,’ he said. ‘With that kind of structure in place, you could probably realistically achieve cost differentiation of 20 percent to 40 percent versus a full-service airline such as Jet Airways or Indian Airlines. To contain costs, Air Deccan doesn’t even provide free newspapers because it would require more time for attendants to clean the aircraft between flights.
LCCs in India are also highly innovative in managing their sales and distribution channels. Like other developing economies, internet and credit card penetration is characteristically low in India. However, rather than relying largely on traditional distribution channels, LCCs have developed new sales channels to reach the broadest possible customer base.
In March 2005, Air Deccan entered a partnership with Hindustan Petroleum Corp. Ltd., a petroleum refiner and retailer with 4,400 retail outlets, which enables the carrier to sell tickets through HPCL’s gas stations. In addition, Air Deccan has recently implemented technology giving its customers the ability to book flights via cell phones using NGPay’s mobile payment platform. The future appears bright for LCCs in India. Yet, while air travel is expected to grow bymore than 30 percent a year in the coming years, many believe that India, like the more mature
LCC regions in the world will eventually see more consolidation
It was predicted that there will be just three large LCCs in India, with other three or four smaller regional players.

The liberalization of the Indian air transport market has created opportunities for new airlines,many of which have adopted an LCC operating model and have announced aggressive fleetgrowth plans. Almost 400 additional aircrafts will be flying the skies over India.

Strategies adopted by LCCs in India

Whether LCCs have a future in India will depend much on whether they can keep costs low. Typically LCCs in other countries have followed in large part, the SWA model described in the previous section to minimize costs, typically at 30% ‘ 40% below those of full-service carriers (FSC). More specifically, these costs are derived from a combination of lower distribution costs, modified aircraft design and lower operational costs.
To examine the issue more comprehensively, the specific strategies of the 4 principal operators will now be compared on the SWA model to obtain a preliminary ranking in terms of their adherence to the model and thereby assess to what extent they emphasize a reduction in cost. In this respect GoAir and SpiceJet match each other very closely in terms of the following parameters.
‘ No free in-flight food service.
‘ No advance seat assignment.
‘ No frequent traveler lounges at the airports.
‘ No interlinking agreement with other airlines.
‘ Introduction of paperless/electronic ticketing.
‘ Competing primarily with ground transportation

Kingfisher may not to be regarded as a true LCC because it provides a fair degree of frills in adherence to the Transitional model with a desire to attract the business class traveler. To that extent, its primary catchment area may be considered to be business travelers from other FSCs. Given these considerations, it may be the case that no LCC in India will be able to duplicate in its entirety the LCC model thereby increasing the break-even load estimated to be as high as 90% . However what tilts the scale in the favor of the LCC is the huge pent-up demand 47 in the domestic aviation sector that has resulted in nearly every LCC flight operating at almost-full capacity, ‘With the outpouring of passengers, Air Deccan, for instance, has managed toshow a profits of INR 1 Crore in the very first year of its operation’ The demand side hence looks extremely bullish given that the Indian Railways carry as many as 17 million long distance passengers every day which is much more than what Indian airlines carry in one year. Even if a small fraction of this were to be diverted to LCCs, it would result in a huge expansion of the market.
It does not astonish that Indian LCCs, even those whose flights are set to become operational, have been active at the recent Paris show and placed orders for as much as 125 of the 280 aircraft that were ordered in all.

Differentiation Strategies
Generally LCCs would seek to pursue a strategy that increases volume to enhance occupancy levels and yet retain customer loyalty, in at least a small niche of the market. For instance Air Deccan is seeking to secure its niche by attracting a new generation of passengers; traditionally those that have travelled by rail and are first-time airline passengers.
It has done so by introducing lower fares than ever before through a graded fare structure in which the earlier you book, the lower the fare.
However not all are of the opinion that a simple low-fare strategy is feasible for every player. It is not possible for 10 or more airlines to perform well in a market that is highly competitive. A dropout of some players is very likely. A major shakeout of players is thus expected.
In order to avoid being smothered by the competition, various players are seeking to position their offerings on factors other than price. Thus SpiceJet is positioning itself as an airline that offers low fares and flies on schedule. While Coimbatore based Paramount Airways using the Upscale Pure Plays model plans to have fares slightly higher than that of low-cost airlines since it plans to offer frills to those of its travelers who would normally travel business class on full-service airlines.
There is a limit to a reduction in airline fares. In this view, LCCs would need to find multiple ways of earning revenue from flights.
Mr. Thiagarajan, Managing Director, Paramount Airways, opines that what air travelers seek are ‘low fares coupled with a comfortable travel experience.
These views appear to be in consonance with the views of Lederman who believe that ‘product differentiation is an essential part of the entry strategy of LCCs’. As of now, the scope for product differentiation seems limited and it may be unnecessary given that there seems to be enough room for growth for all players. Moreover, there may not exist that much scope for product differentiation achieved through cost-leadership strategies mainly because the LCC segment is still in a nascent stage and its infrastructure is not developed to the extent required to support differentiated services.
There are three kinds of competitive scenarios that seem most relevant for a strategic assessment of the LCC sector. These include the following:

Competition between LCCs and FSCs
Although in the longer run, the prime catchment area for LCC will be those customers that currently patronize ground transportation; the short-term impact of their entry is experienced directly by FSCs since its cost differential is a very attractive feature for those travelers who are inclined to consider the frills as dispensable. Hence it is no wonder that FSCs have begun thinking of offering their own low cost alternatives to the services provided by LCCs. However as the American experience showed, these services are likely to cannibalize sales from their own passengers and make the parent airline bankrupt.
This could be one reason why apart from proposals, such services have not taken off. While legacy carriers are all for improving yields, they are under constant pressure from the LCCs, which are offering thousands of tickets at lower prices on the same routes. Defending the budget airlines, Air Deccan MD G.R. Gopinath says, ‘Competition is a business reality in every industry and the fat cats should not expect us to change our model. Our costs are much lower than the others and we can afford to offer lower fares.
Air Transport World, Too Much, Too Soon; Indian airlines have had their boom. Now they are headed for the bust.
However what is evident that the introduction of LCCs on regular metro routes has resulted in a reduction of the airfares traditionally charged by Indian FSCs leading thereby to a rationalization of fare-structure on these sectors to the benefit of the passengers.

Competition amongst LCCs
Over the last few years 5 new LCC have gone operational causing immense competition, by lowering fares to grab market share in a market of rising prices. Yet for the airlines, ground realities are harsh. Relentless oil prices and competition have ensured that most of their growth is profitless. Carriers are overlapping each other’s networks and aggressive pricing has resulted in yields that often are below breakeven levels. Unfortunately, the losses come at a time when most are introducing new aircraft and launching new services, ensuring that cash outflow is even higher. Industry analysts predict a round of consolidation, even as there are no signs that the overcapacity situation will ease anytime soon.
Longtime India watcher Peter Harbison, executive chairman of the Centre for Asia
Pacific Aviation, says, ‘In a market where fares on most routes are probably 25% below sustainable levels, no one can be fully insulated and only the best-funded will survive. Many, like Paramount, IndiGo, GoAir and Kingfisher, were launched by large business groups attracted by the visibility and potential of the airline industry. They are being funded by revenues from more successful businesses such as alcohol sales in the case of Kingfisher and Air Transport World, Too Much, Too Soon; Indian airlines have had their boom. Now they are textiles for Go Air and Paramount. Notwithstanding the pedigree, there is obviously a limit to the cash-burning ability of the promoters.Every airline has to decide on its own pricing. But the difference between average costsand average revenues is now about 50% and so LCC’s need to be more responsible. As in several other markets, there is polarization, with full-fare airlines such as Jet, Indian and Sahara on one side of the fence and LCCs like Air Deccan, SpiceJet, Go Air and Kingfisher on the other. These four together have about 230 aircrafts on order. The big question yet remains whether the market can handle all of this lift.
Air Deccan’s reputation for burning cash to grab market share has been strengthened by its poor financial performance in 2006. It has about 22% of the domestic market but losses for the last year were $24 million and it has run through much of the money it raised in its IPO. Air Deccan’s pursuit of market share has stretched resources and emboldened competition. Adding to its challenges, its service reputation has taken a beating owing to cancellations and delays to the extent that rival LCCs are careful to position themselves as very ‘un-Deccan-like.’
Doubts also persist about the viability of the LCC model in a high-cost market like India where domestic airlines have to pay excise duties of 50%-60%. All the vital input costs like lease rentals, fuel, interest rates and salaries have gone up. The revenue side has to keep pace and with such fierce competition leading to reduced fares and low yields, the scenario looks quite doubtful.
Passenger traffic grew by 28% in 2005-06, whereas domestic seat capacity grew by
almost 40% leaving carriers with an excess of seats and a lower load factor. Most analysts agree that the level of losses is unsustainable and will drive some new and potential entrants out. Despite this challenging environment, up to 4 startups are planning to launch. Among those carrying on unfazed is Bruce Ashby, CEO of India’s newest LCC startup IndiGo. ‘The situation is not the same for every airline and what you do with the market makes a huge difference,’ he says. IndiGo, which has a fleet of six planes, now has a huge stake in the future with an order for 100 aircrafts by 2018. ‘We will focus on relentless cost-cutting and will offer affordable rather than cheap fares’ IndiGo has a target of an average fare of INR 3,000 (about $63) system wide and is aiming for a 65%-70% load factor. Indian carriers have flirted unsuccessfully with the concept of consolidation. New partnerships between airlines are expected to emerge in the months ahead to address overcapacity, skills and airport capacity shortages and to prevent losses. It is quite possible that a full-service carrier may acquire an LCC within the next 12 months, say some analysts. Some airlines also eventually may defer their aircraft deliveries to buy more time. It is very clear that no one is willing to give up easily.

Competition between LCCs and Rail services
For every passenger who boards an airplane in India, roughly more than 360 passengers board trains. At first glance, these statistics seem like a windfall for the country’s centrally managed rail system, but in fact, they show the enormity of the potential air travel market. And, recently launched LCC’s are stepping in hoping to lure this market into discovering the benefits of flight.
In particular, they are targeting India’s upper-class rail passengers, who account for about20 percent of rail’s revenues. Perhaps for the first time in its more than 150-year history, India’s rail system is facing direct competition. For decades, rail has been the country’s principal mode of passenger and freight transportation, playing a key role in the economic and social development of the country. More than 60,000 kilometers of track and 8,000 trains carry more than 14 million people each day throughout all parts of the country and to neighboring Nepal, Bangladesh and Pakistan.
Air-conditioned express trains, introduced as an alternative to once prohibitively expensive air travel, connect most major cities. The majority of rail passengers, however, travel in overcrowded and sometimes outdated lower-class carriages. For most of India’s population, rail is the least expensive and most popular mode of transportation. But that is all changing.

Indian RAIL vs. AIR Fare Competition

Rail Classes
‘ Rail Full Fare Promotional /Discount
‘ Rail First A/C 4,180 INR NA
‘ 2,230 INR NA Rail Second A/C
‘ Rail Third A/C 1,490 INR NA

Low-Cost Carrier
‘ Airline Full Fare Promotional/Discount
‘ SpiceJet 3,660 INR 2,260 INR
‘ Air Deccan 3,575 INR 2,828 INR
‘ GoAir 3,600 INR 2,250 INR
‘ Kingfisher Airlines 3,970 INR NA

Although rail remains the dominant mode of transport in India, fares offered by LCC may soonbegin to attract passengers, particularly those travelling in First-and Second-class A/C rail cars.The three week advance purchase fares on LCC’s from Delhi-Mumbai, for example, arecomparable to those offered by rail in premium classes.The recent emergence of LCCs is placing air travel within reach of thousands of middle-class Indians eager for alternatives to a sometimes congested and unpredictable rail system. Perhaps more importantly, these airlines are stimulating economic growth and development by focusing services on secondary cities and towns with airstrips that have gone unused since the end of World War II rather than the country’s handful of crowded, big-city airports with established carriers.
For 150 years, rail service has been the most common means of travel in India,but the increase in LCC in the country and a much improved economypresents enormous opportunities to convert these rail passengers to the air.

The results are encouraging. Due to increased accessibility, these secondary locations arenow being evaluated with interest by businesses desiring to expand or relocate fromoverpopulated areas. With fares as low as 487 rupees (?? 6 ), passengers can fly to these destinations once only accessible by train, arriving in a fraction of the time. Does this mean India’s rail system is destined to become obsolete? Not so likely. First, it’s important to realize that the majority of India’s population will most likely continue to utilize the rail system as its primary mode of transportation for a number of reasons. Despite plunging air fares, some will never be able to afford the price of an airline ticket.
Others will have no interest in experiencing the unfamiliar. And for many people, it’s a matter of convenience. For example, an hour and- a-half train or bus ride may be required to reach the nearest airport from a remote village, followed by an average one- to two-hour wait at the airport to check in, clear security and board the aircraft. After a two-hour flight, another hour-long train trip to the final destination is required for a total of 5-6 hours. The same trip via train may take seven hours, but the majority of cities, towns and villages have centrally located train stations with easy access to neighborhoods and businesses. Getting from point A to point B may take longer, but it’s not nearly as complex. What it does mean is that India’s rail system must upgrade and reposition itself to effectively compete in the 21st century. Progress has been slow, but the appearance of LCC’s with competitive fares may prove to be the catalysts needed to jump start this enormous project. As an integral part of India’s past and present culture and economy, the country’s rail system is not likely to disappear despite the challenges it currently faces internally and externally. Even with the upstart of several LCC’s last year, Indian Railways’ passenger traffic grew by 10 percent and its earnings by 12 percent. The good news, therefore, for both the rail and air travel businesses is that India’s transportation sector is experiencing extreme growth in passenger demand fueled by a developing economy. More than ever, this vast nation of more than 1 billion people is on the move, and its citizens now have more choices than ever before for getting to their destination.

Rail stations in India serve 13 million passengers each day to various parts of thecountry and neighboring countries.

India’s Aviation Infrastructure preparing for takeoff
The future of Indian aviation market is glittering .India is sitting on the threshold of air transport revolution .With the emergence of Low Cost Carriers the rules of the game have been changed dramatically. Within four years a lot has been changed in the aviation industry in the form of tumbling Big names and emergence of new players. The low cost carrier is the BUZZ word.
The following is the forecast for the no. of passengers in the coming years.

India’s ‘air travel revolution,’ declared last December by Civil Aviation Minister PrafulPatel, won a major skirmish when the Indian government approved bids by two public/privatepartnerships pledging 184 billion rupees (US$3.5 billion) to modernize the country’s Mumbai and Delhi airports. The airports in Mumbai and Delhi handle half the total air traffic in India 540 and 460 flights/daily, respectively. According to projections, the airports will handle three times moretraffic by 2010, numbers that imply Mumbai and Delhi will be as busy as Hartsfield-Jackson Atlanta International Airport and Chicago O’Hare International Airport are today.

The market is growing. The potential is great. But can the infrastructure support the rapidgrowth?
Detractors have decades of inertia to back them up. Aviation tourism writer RabindraSeth said, ‘Airport infrastructure has always been built for yesterday, never for tomorrow.’
Overregulation and mismanagement have left a legacy of a grossly underdeveloped air transport industry plagued by delays, safety concerns, low customer satisfaction levels and operational problems.
According to the Business Standard, delays of anywhere up to an hour have become par for the course in airports such as Delhi and Mumbai. Both airports typically handle 25 to 28 flights an hour, compared to 40 per hour per runway at most international airports. Lack of adequate runways increases airport turnaround time. Extra fuel for delayed landings and takeoffs in India may cost each air carrier nearly 7 billion rupees (US$131 million) annually.

By 2018, India’s govt. will revamp its main airports, to help relieve congestion due to increased traffic

Skies Cleared for Change
Modernizing India’s airport infrastructure is a monumental task. But India’s Secretary for Civil Aviation Ajay Prasad is optimistic the country’s politicians have finally grasped the need for urgent reforms if the country is to take advantage of the unprecedented upsurge in its economy. He cites ‘blue sky’ reforms currently being implemented based on recommendations of the Naresh Chandra Committee . The Chandra Committee, named for its chairman, recently published an extensive report on problems within the aviation sector, identifying four key steps to solving them: Establish a level playing field and remove the extortionate tax regime via lower taxes and charges across the entire industry. Promote private equity participation by reducing barriers to entry.
Strengthen the Directorate General of Civil Aviation by ensuring it is adequately manned to regulate all important disciplines such as airworthiness, flight operations and monitoring air traffic control services.
Develop institutional mechanisms that provide support for socially desirable but uneconomic services. The New Delhi and Mumbai deals are evidence of the government’s commitment to change. In addition to these international upgrades, Unique Zurich Airport AG recently began constructing a new, privately owned airfield in Bangalore, the ‘Silicon Valley’ of India and verysoon its biotech hub. The Aviation Authority of India has also proposed to modernize 35 non metro airports to world-class standards. Another 50 are being considered for improvement. Under the proposed plan, the government will adopt a ‘cluster approach’ where five airports in a zone will be grouped together under a joint venture.
‘Since there are many small airports in a zone that are loss making, we are going to club them with the profit-making airports in a particular zone or region. ‘This will help fund the modernization program of the airports as well as development of all the airports that will happen simultaneously. By 2018, the work is expected to be completed.’
Other short-term measures meant to clear India’s runways include:
Proposed relief packages aimed at high fuel taxes and navigation charges.
Finalization of a long-term national civil aviation policy
Approval of private companies to sell jet fuel

Agreement allowing third-party ground handling.
Revamping of how routes are awarded.
Incorporating air traffic control
Limited open skies to cater for peak season requirements.
Liberalizing international routes with neighboring countries comprising the 10-member
Association of Southeast Asian Nations
A flexible approach to airport financing and easing of foreign direct investment, with 74% allowed without government approval for airports and up to 49 % in airlines. Non-resident Indians can take a 100 % stake in domestic airlines without approvals.
The government promises major structural reforms are just months away from being announced.
The skies over India are worth watching.

Chapter III: Research Design and Methodology

The primary data consists mainly of inputs derived from answers to two types of questionnaires provided by LCC airline travelers and travel agents. It was also decided to obtain response, by aviation analysts but as will be explained shortly, these responses were not considered in the final evaluation and hence do not form part of this study. One reason the primary research consists mainly of responses to questionnaires, is that the LCC industry is still in its fledgling stages in India and hence hard data regarding operations and financial outcomes is still in a nascent stage and therefore difficult to access. Although it is true that most data that is obtained from the questionnaire format appear to be in the form of attitudinal responses, the questionnaires desired were mainly used to provide identification of factors rather than assess their intensity. Since India has some major shortcomings to be regarded as a true LCC segmenton the world map, these factors are regressed against the world leaders and recommendations have been made accordingly.
Sample Selection
The sample of LCC airline travelers was obtained from those who alighted from flights terminating at DIAL (Terminal 1D) .Also the ratio of frequency of flights per day by these airlines that arrive is roughly 2:3:5 for GoAir (GA), SpiceJet (SJ) and Air Deccan (AD) respectively. Hence the ratio of the responses that were obtained was expected to be in a similar proportion.
The responses were obtained by soliciting passengers emanating from LCC arrivals at DIAL Airport; GoAir, SpiceJet and Air Deccan at Terminal 1-D. This was done through distributing the questionnaire samples. In order to facilitate this process, it was decided to offer these passengers some refreshments as an inducement which proved to be quite helpful in practice. Of the 550 passengers who initially agreed to answer the questionnaire, only about 153 of them completed it. This is not as astounding as it appears, as quite a few of these potential respondents were interrupted during the process of answering the question; by cell-phone calls or found that the process required more time than they could spare on were distracted by other concerns.
Of the 153 responses obtained. GA accounted for 18, SJ for 41 and AD 94 approximately in the ratio of 1:2.3:5.2. However not all responses were chosen since this would bias the sample on the favor of the perceptions of AD travelers. Hence it was decided to use the ratio 2:3:5, the ratio of flights per day and to limit the number of responses considered for selection to 60, 90 or 120. The last two sizes were rejected because that would have meant selecting virtually. Hence the sample size was taken as 60 with responses being selected through a random procedure resulting in a final set of responses containing 12, 18 and 30 from GA, SJ and AD respectively. These are the final set of responses that have been considered in the analysis, which has been described in the subsequent section.
The sample selection process for the travel agents was easier in the sense that they could be contacted via email and selected more consistently of the 40 travel agents who were contacted, 32 were selected, the process terminating with the choice of the last agent. The parameter enabling selection required that the travel agent accept LCC bookings in some form or the other. However this was not as simple as it seems for none of the agents accepted LCC bookings on a commission basis. What they did was to make block bookings of tickets for in-demand sectors and dispose them at a premium to prospective travelers/customers. It must be noted in passing that this implies a high load factor for LCCs which ensures that such tickets are sold out since cancellation charges for low-cost airlines are higher than those for FSCs.
Another factor that distinguished sample selection in this case was that the carrier ratios were not considered since the LCCs in question had not been in operation long enough( <5years) to establish them as brands. Hence the demand ratio for tickets was not considered a significant parameter especially since LCC competition per se is not the chief objective of the study.
As mentioned earlier, it was initially decided to include the responses of analysts from the aviation sector. However this proposal was dropped because the sample size was too small and that the responses that were required could only have been made reliably if more empirical data was available. This limitation was pointed out by one of the sampled analysts and his observations were confirmed by the others.

Presentation of Findings
The two questionnaires used were to gather information on the perception of LCC’s. The passenger survey investigated the sensitivity of passengers to a change in fare and which factors/attributes would encourage them to distinguish between operational LCC’s.

1) How frequently do you currently fly?
Most of the passenger respondents were frequent flyers that flew at least once a week or more often (72%).
2) How frequently did you fly two years back?
However the second response was at variance with the first in the sense that almost 50% of these travelers flew less than once a month two years back.
3) What factors do you rate most highly when selecting an airline?
The factors that they rated most highly when selecting an airline were cost (51%) and punctuality (38%).
4) What of the following alternative modes of transport do you currently use?
Most of the respondents used rail transport (69%) as an alternative mode of transport, making it valid enough to generalize that LCC’s are in direct competition with the Indian Railway system. Although not part of the formal responses required by the study, it was found that, rail transport was used when time was not an issue (recreational travel) and when people travelled in family groups in which case availability of service/frills was a serious consideration.
5) What of the following would you rate the most undesirable attribute of low-cost carriers?
As expected, in line with the response to Question 3, delays were considered the most undesirable attribute of LCCs (88%).
These responses have primarily been elicited to identify the most important factor. However the response percentages for the other factors can be used to determine, if needed to, those which are significant.
Having got the most expected responses from the passenger interview, the same consideration of factor-identification is applicable to the responses obtained from the TravelAgents. However this data complements that obtained from the passengers and gives a more complete description of the demand side of the market structure of the LCC airline industry.

1) To what extent has your volume of air business grown over the last two years?
As for the responses themselves, they point to a significant increase in the volume of air business, (64%)
2) To what do you mainly attribute the increase in airline business travel?
As expected, the increase in business travel was directly proportional to the lower cost of air travel (82%).
3) What segment constitutes the bulk of your bookings?
Most bookings comprised of business travel (39%) although the figure could be higher since some of the travel that is undertaken under the personal head is probably for business purposes.
4) What impact has the introduction of budget airlines had on your airline strategy?
The respondents had some difficulty answering this question, since they felt they could not quantify the impact of the outcome of the introduction of the LCCs with certainty. However most agreed (70%) that the most likely impact was the increase in turnover resulting from lower costs.

5) Which line of other business has been the most affected by the introduction of budgetairline?
Again, as expected about 57% agreed that rail traffic was heavily affected, while 39% held the view that full-service carriers were the ones most affected by the introduction of budget airlines.
Not astoundingly, 85% of these respondents mentioned in passing that they felt threatened by the possibility of online bookings for LCCs since the bulk of their income was obtained from regular air travelers that have been patronizing FSCs all these years, in which case their current increase in turnover may not be sustainable in the future.
In summary, the results of the survey conducted were in line with the survey reports obtained from journals, newspapers and the internet. LCC’s are widely accepted by the majority, giving a positive indication of the success of budget travel in India. Cost is the primary factor distinguishing choice of LCC. While delays were regarded unnecessary, punctuality also lead to an identifiable feature between LCC. Both the surveys confirmed the railway system as the biggest loss bearers. LCC’s have lead to an increase in airline business with both business and leisure passengers getting swirled in by the attractive fares. Finally, most people in the survey felt that there is a market for LCC in India. Some of these feedbacks form very good discussion points later in the dissertation.





Chapter IV: Analysis of Findings

The findings represent the demand side of the LCC structure resulting from the introduction of the LCC in the ICAI. It would be appropriate at this stage to mention their limitations in order to place the analysis in perspective. On account of the relatively recent introduction of LCCs in the ICAI (< 4 years), the LCC segment has yet to stabilize and/or mature as a market. As of now, the three carriers AD, SJ and GA are considered as dominant players and are used as benchmarks for the new entrants in this segment. But the structure is bound to change, as more players enter the market. Their strategies are yet unclear and hence the future of the LCC segment is significantly dependent on how they choose to compete.
Moreover, it should be kept in mind that on account of the small size of the samples, the findings are preliminary in nature and hence need to be substantiated by further studies. Also, for the time being, it has been assumed that LCC traffic at Mumbai is similar in terms of its characteristics to traffic at other airports. However as the LCC industry matures this may not be the case. It is in the context of these considerations that the findings of the present study have been evaluated.

Competitive Price with Good support service
According to the survey, the most attractive feature that draws a traveler to a particular LCC is the price on offer. As the words ‘low-cost’ imply, all the carriers have basically adopted an overall Cost Focus strategy to compete in a particular segment of the market. The competitive scope is narrow since it specializes on short haul flights of 4hrs or less as shown by the success of budget airlines in the US and Europe; and is further substantiated by the survey conducted. A Cost strategy is attractive as air travel has become a search good (known function) rather than an experience good, as more people are exposed to flying compared to before, treating it as a mode of transportation over railways.
Cost Focus positioning strategy certainly works well against traditional FSC but how will it fare against LCC operating in the same sandbox?
‘We have said that when we have more competition, we will just have to lower our price’we can go very low.. However Cost leadership is not sustainable as it can be imitated easily and the proximity in differentiation is lost.
Staff services, punctuality, safety standards, customer satisfaction and feedback; are all good support services that Ryanair uses to differentiate itself from its competitors in Europe. Such is the success in support services that LCCs should try to emulate, as 88% of the respondents regarded delays as the most undesirable attribute. Even a perceived differentiation through the right branding and image will allow carriers to stand out among its competitors.


Product differentiation
Lederman and Januszewskimention that LCCs need to differentiate their services in order to carve out a niche for themselves. However the extent to which GA, SJ and AD have successfully differentiated themselves could not be tested because these airlines have started operations in the recent past and are still in the process of shaping their offerings.
Moreover the primary data could not test the existence of product differentiation because the travelers interviewed most probably would have travelled on only one of GA/SJ/AD. It was primarily for this reason that the questionnaire did not seek to establish how their services differed from one another. However research shows that SJ differentiates itself with Better on-time performance and fewer cancellations than competitors, AD uses in flight shopping and GA by adding new destinations every quarter creates differentiation.
Even so, product differentiation could arise by default if these airlines are distinguished by the routes and type of passengers they cater to, especially if a LCC on a given route does not have to compete with another LCC.

Route structure
Other focus strategies include the routes undertaken by these airlines. From the strategic groups formed in the previous section, we realize that no more than 2 budget airlines offer similar routes. But for instance, if they decide to, on account of the lack of secondary airports or alternative profitable routes, to compete on the same routes as the current operators do, the viability of the LCC segment will probably be doubtful.

The application of cost focus and certain differentiation focus strategy, results in an
overall ‘Best-Cost’ strategy and there have been numerous success stories (EasyJet, JetBlue)behind firms adopting such a ‘Stuck-in-the-middle’ strategy; and prove to be necessary when competing firms are already into such an approach together with implementing firm having a technical lead over its rivals.
Moreover the present study is constrained by the fact that it has not been able to undertake any kind of investigation examining the supply side of the LCC segments, namely an analysis of costs whether current or prospective to be able to critically evaluate the Effective Cost Management strategy deployed by the LCCs.
Although Secondary research shows that LCCs use an overall cost leadership as their primary strategy, having an effective cost management strategy would facilitate them to achieve their business objective of selling at low price yet earning profit. LCCs will thrive by reining in operating costs in the following ways
1) Flying a single type of aircraft to cut maintenance costs: Although SJ is the only carrier operating with a fleet of 18 Boeing 737-800 giving it economies of scale, AD operates 3 different types of fleets resulting in excessive staff thereby increasing its breakeven load.

2) Operating from secondary airports: Due to lack of secondary airports in India all these years, LCC have been forced to pay higher landing fees thereby increasing cost, but with the new reforms of the NCC the scenario is bound to change and LCC can exploit this opportunity to their benefit.
3) Direct E-ticketing sales: The penetration of internet over the past few years in India has shown astounding results, thereby facilitating LCCS to eliminate middlemen mark-up. Travel agents charge an additional 10-20% of the cost in order to cover their own resource cost, thereby defeating the purpose of cost strategy used by LCCs.
4) Change in Airline culture: This would enable resource versatility. Mismanagement and incapable staff of the current LCCs comes at a cost to the entire airline. Pilots and cabin crews need to be trained from first aid to baggage handling to be able to double up when needed. The culture needs to be changed whereby everyone in the company is viewed to be equal, thereby enabling LCCs to save on labor costs and offer lower fares to customers.

Adherence to the prototype model

It would be appropriate to identifying the degree of adherence of Indian LCCs to the prototype SWA model. As discussed and analyzed in the secondary data that examines the features of Indian LCC operators, SJ is the LCC that comes closest to the SWA model. On account of the paucity of time that was available for interviews with LCC travelers, the relevance of some key features was not tested in the interviews, namely, the absence of frills was not tested directly. Hence whether a particular LCC fits the SWA model or not has been assessed only on the basis of published data. Accordingly we may assign equal first ranking to SJ and GA for the extent to which they match the SWA model followed by AD.
What is relevant in this respect is that a limited adherence and differentiation is a good predictor of profitability (Ryanair, Alamdari and Fagan). Since AD has already reported a profit of INR 11 million in its second year of operation (with a load factor of 94.8%), our use of the SWA model seems to be validated.

Determinants of Success
It must be also noted that the SWA model focuses exclusively on cost whereas profitability is a function of both costs and revenues and so the reported profitability of AD may be more dependent on the high load factor it enjoys. In case another LCC chooses to operate on the same routes as AD, the load factor may decrease and lead to losses. Alternatively since both GA and AD still have some more scope in terms of complying with the SWA model (using secondary airports, reducing turnaround times), there is every likelihood that the breakeven load factor could decline from the current value of 90% .Furthermore it is increasingly likely that, the load factor will remain high given the results of this research; more than 50% of the currentpassengers flew less than once a month 2 years back and passenger rail traffic is yet to migrate in significant numbers to LCCs.
However, it must be mentioned that AD reports that as many as 40% of its travelers are first-time flyers, this justifies our findings on rail and FSC being the most affected businesses by the introduction of LCC.
Assuming that the same holds good for GA and SJ, on account of the high load factors reported by them, it seems probable that the high load factor is sustained by business class travelers migrating from FSC. If one assumes further that increasing awareness and familiarity with air travel is likely to provide greater momentum to such migration, the future of the LCC segment seems assured assuming that load factor remains high even as the break-even load factor declines.
Given such a promising scenario, it would be expected that Indian FSCs would be likely to protect their turf by putting in place significant barriers to entry, those that Knorr and Arndt (2012) refer to when SWA began its operations. However no such delicate barriers are on record except those occurring on account of infrastructural bottlenecks, low availability of landing slots or of secondary airports or so on. However there do exist plans on paper for Indian Airlines (IA), the Government owned domestic FSC and Jet Airways (Jetlite) to commence operations on their own version of LCCs by the year end.
The legal barriers that exist have been rendered ineffective because the Government of India through the Naresh Chandra Committee report has gone out of its way to facilitate LCCs growth in India.
Potential Entrants:
This Looks and entry and exit barriers of the airline industry Entry barriers are medium-high, due to the increase of LCC entry in India , the government has decided to levy excess scrutiny on new potential entrants ,owing to overcapacity, hence the need for approval of operating license from the govt. and obtaining the necessary air rights before flying including safety and security audits could take up to 1-3 years .
In addition, huge investment is needed to setup necessary infrastructure, although new aircraft can be leased for a given period of time to assess the viability of a route. Given the huge potential demand for domestic air travel, considerable economies of scale can be affected as can be seen from the fact that IndiGo, one of the new entrants has already placed an order for 100 aircraft with Airbus Industry even through it is yet to commence operations. Though entry barriers are high, the lucrative returns of no frills budget airlines looks set to catapult itself in the airline industry in India. Since all the operational LCCs are rather new, it is difficult to identify any operator with significant brand power in the segment unless AD having the first mover advantage followed by SJ are considered dominant bench markers. Potential entrants are great with major airlines setting up budget subsidiary and other private companies ready to join the battle of budget air travel. Barriers can further be reduced by joint ventures, alliances and bilateral agreemen

Suppliers for such a specialized industry are limited and many command a high to medium threat. Such threats are more evident for LCC than FSC since being bigger with an extended line of aircrafts and other infrastructure enables them to drive supplier price and quality. This could lead to an increase in operating cost for budget airlines. One way to curb this threat is to have the same aircraft type to enjoy economies of scale. As of now, suppliers such as airports do have some power over LCCs due to restriction or landing slots. However, airline manufacturers like Boeing and Airbus Industry are going out of their way to woo Indian LCCs. Hence LCCs may be said to have in an overall sense more leverage with suppliers and hence in a better competitive position.

This looks at the other modes of transport to get from point A to point B besides flying; this would include Train, bus/coach and cars. Some of these could be direct substitutes while others may not, depending on the destination and the mode of transportation able to reach the destination. Hence threat of substitutes is medium as many places accessible by flight in a couple of hours may take other modes a few days and some are not accessible at all.

Testing the modes of transport from Delhi- Ahmedabad

Connectivity Convenience cost

ROUTEDelhi’ Ahmedabad

Mode of Transport Time taken Cost Comfort /5
‘ LCC : SpiceJet 1hr 10min 2399 INR ( $ 45) 3

‘ Railway : Shatabdi express 6hr 30min 1355 INR ( $ 33) 2

‘ Bus: Volvo A/C Deluxe 7hr 05 min 850 INR ($ 21) 2.5

‘ Car : Self-drive 6hr 600 INR ($ 15) 4

From the test, it is clearly visible that consumers have substitutes to the LCC air travel and their choice depends on their scarce resources.
Since LCCs like GoAir, SpiceJet and Air Deccan are the only operators on the routes they fly (with some exceptions), the threat of substitutes is relatively low. The substitutes that do exist are the FSCs and road/rail network, as tested above. But in the current scenario and as tested in the research, what one sees is that FSCs and the railway networks are losing volume to LCCs and not the other way around.

This threat looks at the bargaining power of passengers which could potentially drive down prices. Since the switching cost is low buyers have preference of carriers to choose, but given the current scenario the LCCs again have a leveraged advantage since buyers cannot switch to other LCCs (since there exists only one LCC on most non metro routes) or will not switch to FSCs. The buyers that exist are sensitive to price as tested above, but since LCCs seek to operate on cost leadership strategy, they will attract buyers rather than lose them.

Industry Rivalry/Competitors:
Inter firm rivalry among LCC in India in on an upsurge with new potential entrants and current players choosing to compete on similar routes. Operations costs are same for all airlines, irrespective of the model. All LCCs pay the same landing and parking charges, route navigation fees, etc. Price competition amongst LCCs in India in the recent months has been on an upsurge, leaving them in an unenviable position in terms of competitive advantage; since a LCC operator is now, more likely to have another LCC competitor on a given route, and new players who slash prices for a piece of market share. Since the primary objective of transporting from Point A to point B is evident, the level of product differentiation is not high as tested above, thus intensifying competition in the industry.
The country’s airlines market leader Jet Airways (FSC) has decided that Air Sahara, which it recently acquired will start operations under the name of ‘Jetlite’. ‘Jetlite will be positioned somewhere in between a so-called low fare and full service carrier. In case of cancellation or delays, passengers flying on Jetlite would be accommodated on Jet Airways.’This kind of differentiation will lead to sustainable competitive advantage in the market.
This feature also enables LCCs to be reminiscent if they wish to follow the Pure Plays model (SWA) in its entirety. In other words, product differentiation is not just necessary but also desirable to establish a pre-emptive campaign to carve a special niche and safeguard it against potential competition. However except for AD, neither SJ nor GA has chosen to depart in any significant way from the prototype Southwest model.

However it must be noted that GA, SJ and AD have all adopted some kind of yield management programs in which tickets are cheaper the earlier one books them. Such is the pent-up demand for air travel that on the day SJ opened up its bookings for the Delhi –Ahmedabad sector; it got as many as 41000 bookings on the first day itself according to Business India Intelligence. LCC correlation if it does occur on routes served by more than one LCC is likely to be in form of competitive yield management programmes, something that would fall under the usual category of a cost-leadership strategy. The research findings substantiated cost as an important consideration and reinforced the view that LCCs need not differentiate their offerings much as long as they provided costleadership. However, punctuality too was rated highly significant and if a player is not a costleader, only differentiated services would help eliminate this negative perception.
More generally, Najda reported that the presence of an LCC on any given route has the effect of lowering prices on that route. This has happened in dramatic fashion to the extent that even FSCs like Indian Airlines (IA) and Jet Airways (JA) have been offering apex and check fares in their own version of yield management to prevent their customers migrating to LCCs. The responses of the travel agents to Question 2 also confirmed this trend and hence supported the conclusions of Najdaas also those of Richards
Given such an impact, the prospects for LCC traffic growth in India are quite bright especially if in the view of Pompeo and Binggeli, LCCs ‘enjoy protection from business cycles.’
To what do you mainly attribute the increase in airline business travel?
Furthermore the Government is in proactive mode to modernize infrastructure, including the building of secondary airports to accommodate the anticipated increase in domestic aviation and facilitating sector growth through the approval of private companies to sell jet fuel which would reason a further reduction of a major cost component for the LCCs. Hence there exists substantial scope for Indian LCCs to adopt a diverse range of business models ranging from an Add-on Retailers model (Air Deccan), to demonstrate a singular focus on managing costs and being the lowest-cost player in the market they serve or a Pure Plays model (SpiceJet , GoAir) obtaining a greater degree of adherence to the SWA model by building brand based on ‘every-day low-price’ and offer a basic product which bodes well for a reduction of the break-even load factor ,unless they wish to go the high-way by using the Upscale pure plays model(Paramount) ; maintaining a cost-conscious approach but provide a more sophisticated product that often includes frills such as larger seats, in-flight entertainment and business-class seating.
The options are galore it’s the direction (market they wish to serve) that is principal.








The conclusions of the study are preliminary in nature since the Indian LCC sector is still in a fledgling state with only five LCC operators in service while AD, the largest in service, has yet to complete four years of service. AD and SJ the principal operators have chosen to adopt the SWA low-cost model although, given the infrastructural constraints that exist, the degree of adherence is not too high. Since these constraints are expected to be eliminated in the short-to-medium term, the future for those LCCs that copy the SWA model seems bright unless they start competing with each other on the same routes. However given the immense scope for growth in the form of air routes between Indian small towns, such competition seems unlikely thereby providing new LCC entrants the flexibility and scope to identify new routes with potential. Having said that, operators like KF that have positioned themselves above LCCs as value for money airlines and others seek to straddle the middle segment between LCCs and FSCs could be in danger if they do not achieve sufficient degree of product differentiation. Being priced higher than the LCCs, KF is not likely to benefit from the rail passengers migrating to LCCs. What KF may be hoping for is that business class passengers migrate from FSCs to its offerings. But the danger here is that this is not a large volume game and that KF may not be able to attract such customers on account of inertia, loyalty or more simply, lack of enough offerings on these routes.
As the Porter’s Five-Force model demonstrates, the strategic outlook for LCCs is bright. Perhaps this explains why we there are so many prospective entrants in the Indian LCC sector. More specifically, there is a huge upside on the demand front, especially if high-end rail travellers migrate from rail services to airline traffic. In addition, the demand scenario looks upbeat on account of the increase in Indian domestic tourism.
In quantitative terms, what all this translates into is a progressive lowering of the breakeven load factor (as Indian LCC airliners move up the learning curve or are able to access aviation fuel at international rates or as more of secondary airports come up leading to lower operational costs) and a high load factor thereby ensuring greater profitability. However it must also be stressed that following the SWA model is not a simple copy-and-paste formulae but may require much by way of corporate and cultural restructuring. In this respect, LCCs may have to adopt some degree of product differentiation if only to acquire the brand power and identity required building customer loyalty.
A look at the future of the Indian Aviation sector seeks to favor LCCs, thus creating a strain on traditional FSCs. Current airlines need to review and reinvent their business models strategically, by emphasizing their focus on customer value, in order to stay competitive. They could benefit from reassessing the core services that customers are offered and clearly differentiate themselves from competitors. They need to recognize the particular market segment that offers them the most niches and focus on those routes, while abandoning or working with other carriers on less profitable routes. However, the primary goal of each low-cost carrier must be to offer a complete solution to the traveler.
Finally, competition will continue to thrive and will reach a point of consolidation, where mergers, acquisitions, alliance and partnerships will lead to the ouster of certain carriers on the grounds of undercapitalization and poor management skills. The redundancy of certain carriers will lead to an oligopolistic market structure with greater market share in the hands of few dominant players. Air Deccan with its first mover advantage coupled with Go Air and SpiceJetwhich are managed in close adherence to the SWA model will probably be the gainers in the expected consolidation process. Finally, although the scope for additional differentiation seems limited owing to market constraints, Kingfisher could well be the surprise performer in this category. However, the ultimate winner in this travel phenomenon is perhaps the air passenger and no more, with numerous choices and low cost.

In conjunction with the above research findings; Cost and Punctuality (Delays) were the highest graded distinguishing factors passengers responded to, when choosing an Airline. Keeping these responses in mind, the following recommendations are made for LCCs to implement:

A. Full Recovery
Through the use of integrated, advanced decision-support systems, LCCs in India can quicklyand effectively overcome unexpected schedule disruptions.

Airline flight schedules and operations are susceptible to unexpected disruptions that result from crew shortages, severe weather patterns, system congestion and aircraft failures.
These problems are exacerbated in emerging countries with still-developing airport and air traffic control systems that are straining to support airline traffic levels. The phenomenal growth of passenger traffic and aircraft movements in India, as a result of deregulation is a case in point. Since 1990, India’s domestic airline industry has experienced more than 100 percent growth in aircraft movements, with almost 6 LCCs in operation and more than 5 new airlines starting or planning to start operations in an already congested environment.

At the same time, there have not been any significant improvements or expansion of Airport facilities. Even before this massive growth in commercial air traffic, India’s airlines were exposed to restrictive operations as it is a well-known fact that airport and air traffic control facilities in the country are barely able to support commercial airline operations.
Like most operating environments, the Indian domestic airline market is often prone to disruptive weather patterns. During November through January, airports in cities such as Delhi are closed for periods of up to five hours due to early morning and late evening fog. This has asignificant impact on the daily operations of scheduled carriers. Airports are sometimes closedfor several days due to extremely heavy rains during the monsoon season. On August 2006, both the international and domestic airports in Mumbai (the financial center and major gateway city) were closed for runway flooding. Granted, they both share the same runways, along with the military base. Once the airports re-opened, scheduled carriers were forced by the government to reduce their operations by 30 percent for three subsequent days. Working under such demanding conditions, LCCs in India need to integrate a fully functional advanced decision-support system as an operational and innovative tool for schedule recovery. An effective schedule recovery system should consider aircraft maintenance routings, crew connection assignments, passenger origin-and-destination itineraries, operational constraints (air traffic slots, airport slots, curfews, gates, weather alerts), and relevant market considerations (coverage, revenue, equipment requirements) to accurately account for typical decision making within an airline. Decisions on whether to cancel or delay a scheduled flight have to be based on the bottom-line benefit to the airline.
It’s not just important to consider the number of passengers on the aircraft, but also what revenue contribution comes from the flight. In addition, an airline controller has to consider all. International Center for Air Transportation, Massachusetts Institute of Technology
Possible solution options including potential equipment substitutions and dynamic flight schedule adjustments. Such decision making procedures require timely access to passenger itinerary data in conjunction with aircraft and crew assignments. An effective decision support system would derive all the requirement data and information directly from the centralized flight operations database, and suggestions proposed by the system would adhere to prevailing operating conditions and restrictions. For instance, if a particular airport is unable to support operations of a specific type of aircraft, the system should not assign that aircraft type to operate into the given airport. Of course, the solution generated by the decision-support system will depend on the integrity and accuracy of the data stored in the centralized database. If an aircraft’s minimum equipment list is not updated after a scheduled maintenance event, the system should inadvertently prevent the aircraft from being assigned to a specific flight with special operational requirements. As such, the successful deployment of Decision-support system will dictate a well-established data management procedure.
One of the benefits of implementing a DSS is establishing consistent decision making across the airline. In many cases, individual airline controllers make split decisions that have a significant impact on the carrier’s profitability. But by standardizing the decision-making process, managers can be confident that the optimum decision has been made based on suggestions provided by DSS. Decisions made that consider all aspects of the airline’s operationsrecovery decision support tool for commercial airlines during irregular operations.
In addition, the ability to make quick yet accurate operations decisions will enable LCCs to maintain their competitive market position in India. For carriers in rapid growth mode such as Air Deccan, SpiceJet and GoAir, having ascalable decision- support tool in place will support smooth operations even in uncharted skies.
After the downturn of the industry in 2000/2001, the domestic India air transportationindustry is displaying significant growth in terms of aircraft in operation, number ofpassengers carried and number of available seat kilometers. Such growth is putting astrain on infrastructure, which can further complicate efforts to recover from scheduledisruptions.

B. Just Checkin’ In
Congestion in India’s airports as a result of the substantial rise in air traffic over the past fewyears can be streamlined through effective self-serve check-in technology.

An overall surge in air travel expected in India in the coming years will be fueled by more carriers entering the market, pushing airfares down to make air travel more affordable; improved air transport infrastructure, which will make the industry more efficient; and the continued growth of the Indian economy, providing citizens more disposable income. The current volume of 17 million domestic air passengers a year pales in comparison with the rail passenger volume of more than 12.5 million/day. However, air traffic is expected to grow to 50 million passengers a year in the next five years. As air traffic continues to grow in the coming years in India, airlines will need automated solutions to adequately process travelers. With a middle class expected to grow to 450 million by 2010 and with new open-skies agreements and deregulation of India’s air transport industry, many airlines are excited about the prospects of the India travel market.

The test!!
Unfortunately, there is a dark side to all of this optimism, at least in the near term. The Indian government offered open-skies opportunities to the private sector in 1993, creating much- needed competition. The move resulted in the creation of new airlines, such as SpiceJet, GoAirand Air Deccan, with an overall decrease in the cost of air travel and an increase in consumer demand.
But the cost of this liberalization in India has been severe congestion at many of India’s key airports, most of which were built in the 1950s. Two airports Mumbai and New Delhi account for approximately 52 % of India’s air traffic.
Unless Indian LCCs take the necessary steps, increased traffic at India’s airports will lead to longer lines at check-in, which could adversely impact customer satisfaction.

As Newcomers enter the fiercely competitive LCC market and air fares become moreand more affordable, many of the country’s residents are filling up India’s airports,which are rapidly becoming over crowded.


The Solution
By automating some of the check-in functions, India’s LCC have the ability to provide an enhanced level of service while still controlling costs. Automating check-in functions offers customers self-service capabilities, thereby freeing agents to handle special needs. A tool such as Self-serve Check-in, which provides components such as self-service kiosks and Web check-in, can help carriers in India effectively manage traffic flow. The Check- in component’s unsurpassed departure control capabilities simplify traveler processing, both on and off airport grounds, as well as provide the most definitive and much awaited airport automation solution available in today’s transportation industry.
After implementing the Check-in component Southwest and Ryanair, airlines have realized resource cost savings of up to 20 percent, primarily through staff re-allocation or cost voidance achieved, by eliminating the need for additional staff to handle operational increases. Airlines utilizing the Check-in component would realize considerable benefits, including: Increased revenue opportunities: Faster check-in and shorter lines increase traveler satisfaction, resulting in repeat business. Reduced operational costs: Self-service options reduce the need for additional airport staff and enable growth at a lower cost.

Optimized staff utilization: Enhanced traveler-processing options enable staff to improve service to customers outside of the traditional ticketing and check-in counters.
Streamlined deployment: Airport traveler processing solutions simplify application deployment and maintenance through an application service provider approach, ensuring uniformity across an airline’s operational network.
For airports in India, the transition to self-service check-in alone, Internet and CUSS kiosks, could alleviate many of the symptoms of developing infrastructure. Processing passengers away from small, congested ticketing and check-in areas will streamline this airport centric activity, helping key airports in India cope with the increase in passenger volumes until longer-term infrastructure projects are completed. LCCs in India could integrate with the booming IT industry to deliver Web check-in capabilities for domestic travelers. Air Deccan, SpiceJet and GoAir should implement several dozen kiosks during the next few years to help improve the airport experience for its passengers and further differentiate the airline from an ever-increasing number of competitors.
Once perceived as added benefits, services such as electronic ticketing and self-service check-in are now seen as standard offerings by seasoned business travelers across the globe. As India seeks to increase air travel to and from the country, these services must be considered and incorporated into the design of upgraded and new airport infrastructure.
Fortunately, the groundwork has been laid and the Indian government and Indian carriers alike are working towards an improved airport environment to support a very bright future.

Further Research
The findings of this study are necessarily of a preliminary nature, partly on account of the recent emergence of the LCC segment and partly on account of the small number of currently operational players. Even so it was possible to undertake a study of this kind on account of the availability of two kinds of strategic paradigm, namely the SWA model and Porter’s Five-Force model. The former provided a tested strategic approach whose viability has been demonstrated empirically by the successes of Southwest Airlines and Ryanair. The latter provided the strategic underpinning enabling a broader look and derivation of prognostications.
The study focused primarily on the demand-side of the market, namely the practices of the LCC entrants in this respect and sought to corroborate the validity of these practices using primary data.
In sum the study proved to be useful in the sense that it threw up several interesting possibilities for further study. For instance, it indicates the need to examine progress made in eliminating infrastructural and entry barriers to enable LCCs to adhere more closely to the tried and tested SWA model. This could either be done directly by establishing the nature and degree of these changes or by a quantitative study that examines the relationship between break-even pay load and the particular strategy adopted by the LCC. Although it is quite possible that an Indian LCC comes up with an idiosyncratic strategy, this study interprets the emergence of two kinds of strategies, namely those that are more or less strict adherents of the SWA model or those that differentiate their services to exploit a unique feature of the industry. There is also scope for supplementary studies that seek to establish a degree a correlation between LCC passenger traffic and rail traffic on given routes. It would also be interesting to examine whether LCC services in India remain limited to only short-haul routes or whether they enter medium-haul routes without compromising their cost structure.
Finally from the policy angle, there is sufficient scope to examine the impact of various kinds of policy changes such as those enabling greater airport modernizations to accommodate larger aircraft like the Airbus A-380. Hence it would be an interesting exercise to see which of the players are likely to exploit these changes and respond to them proactively to obtain greater market share and profitability.







Abdelghany A., Ekollu G., Narasimhan R., and Abdelghany K. (2004), ‘A proactive crew recovery decision support tool for commercial airlines during irregular operations’, Annals ofOperations Research, 127:309-331.
Alamdari, F. and Fagan, S. (2005), ‘Impact of the Adherence to the Original LowcostModel on the Profitability of Low-cost Airlines’, Transport Reviews

Barbot, C. (2004), ‘Price Competition amongst Low-cost Carriers,’ Faculty of
Economics of Porto

Bard J.F., Yu G., and Arguello M.F. (2001), ‘Optimizing aircraft routines in response to
grounding and delays’, IIE Transactions, 33, pp 931-947.
Binggeli, U. and Pompeo, L. (2002), ‘Hyped hopes for Europe’s low-cost airlines’ , The
McKinsey Quarterly 4

Borenstein, S. (1989), ‘Hubs and High Fares: Dominance and Market Power in the U.S. Airline
Industry,’ RAND Journal of Economics , 20, 344’365.

Borenstein, S. (1991), ‘The Dominant-Firm Advantage in the multi-product Industries: Evidence
from the US Airline,’ Quarterly Journal of Economics , 106, 1237-66.
Borenstein, S. (1992), ‘The evolution of US airline competition’, J Econ Perspect 6 (2), pp. 45-
Box, T. and Saxton, S. (2003), ‘Jet Blue: A New Challenger’, Proceedings of the
International Academy of Case Studies

Business India Intelligence (2005), ‘Reach for the Skies’, Economist
Intelligence Unit, p.01

Clarke L.W., Hane C.A., Johnson E.L., Nemhauser G.L. (1996), ‘Maintenance and crew
considerations in fleet assignment’, Transportation Science, 30 (3): 249-260.
Clarke M. D. D. (1997), ‘The airline schedule recovery problem’, International Center for Air
Transportation, Massachusetts Institute of Technology
Das, M. (2005), ‘Upper Class Rly Fares Fail to Cover Low-End Loss’, Business Line
(The Hindu) , p. 01

Dey S. (2005), ‘Cancellations Cost on Low-Cost Airlines’, The Economic Times

Doganis, R. (2001), ‘The Airline Business in the 21st Century’, (London: Routledge).
Dudden, J. (2004), ‘Hubs under siege- The effects of low cost carriers market
entry on hub and spoke carriers’, the 9th ATRS conference, Istanbul.
Financial Express (2005), ‘Low Cost Airlines off to a Flying Start’, Financial

Financial Express (2005), ‘The Clock’s Ticking”, Financial Express

Freling R., Lentink R.M., and Wagelmans A. P. M. (2001), ‘A decision support system for crew
planning in passenger transportation using a flexible branch-and-price algorithm’, Economic
Institute Report EI 2001-29, Erasmus University Rotterdam, Econometric Institute, 2001. 3.1
Freiberg, K. /Freiberg, J. (1996), ‘NUTS! Southwest Airlines’ Crazy Recipe for Business and
Personal Success’ Bard Press , Austin, Texas.
GCW Research (2004), ‘Reworking the model’, Airline Business , pp. 58’60.
Gopal, M. (2005), ‘Skies Wide Open’, India Today , p. 48

Hussain, S. (2005), ‘All is not ‘Fair’ with Low-Cost’

IL & FS (2006), ‘Aerospace Infrastructure- An opportunity Mapping’, FICCI ‘Indo US Summit

Ito, H. and Lee, D. (2003), ‘Low Cost Carrier Growth in the U.S. Airline Industry:
Past, Present, and Future ‘

Jayanth, V. (2005), ‘The Thrills Without the Frills’, The Hindu , p. 11

Karivate, S. (2003), ‘Low-cost Carriers and Low Fares’, Bangkok Bank PCL,
Consumer Banking Department

Knorr, A. and Arndt, A. (2002), ‘Successful Entry Strategies on the Deregulated
US Domestic Market ‘ The Case of Southwest Airlines’ , University of Bremen

Krishnan, A. (2005), ‘Low-Cost Airlines: They May Need More than a Wing and a
Prayer’, Business Line (The Hindu) , p. 11

Kumar, V. (2005), ‘Low Cost Carriers Make Mass Air Travel a Reality’, The Hindu , p.18

Langner, S. (1995), ‘Contractual aspects of trading slots in the United States’, Journal of Air
Transport Management 2 : 151-161.

Lawton, T. (2000), ‘Flying Lessons: Learning FromRyanair’s Cost Reduction Culture’, Journal
of Air Transportation World Wide 5 (1) : 89-106.
Lawton, T. (1999), ‘The Limits of Price Leadership: Needs-Based Positioning
Strategy and the Long-term Competitiveness of Europe’s Low Fare Airlines’ , Long
Range Planning 32 (6), 573 ‘ 586

Lederman, M. and Januszewski, S. (2003), ‘Entry Patterns of Low-cost Airlines’,
Massachusetts Institute of Technology

Mehra, P. et al. (2005), ‘Airborne Indians’, India Today, p.22

Najda, C. (2003), ‘Low-Cost Carriers and Low Fares: Competition and Concentration
in the U.S. Airline Industry’ , Stanford University Department of Economics
Nichani, M. (2005), ‘Low Airfares Snip Tour Package Costs by 15%’, The Economic
Pandit, Shruti (2006), ‘Air Transport World’, p.48

Paul, C. (2005), ‘Indian airports hit the runway to growth’

Petzinger, T. (1995), ‘Hard Landing’, New York.

Phadnis, A. (2005), ‘For a Pie in the Sky’, Business Line (The Hindu) , p. 01

Porter, M. (1985), ‘Competitive Advantage’, New York: The Free Press

Richards, K. (1996), ‘The Effect of Southwest Airlines on U.S. Airline Markets’,
Research in Transportation Economics , 4, 33-47

Sanyal S. (2005), ‘Addressing Ground Realities of Budget Air-Travel’, Business Line
(The Hindu), p. 06

Shankar T. (2005), ‘Civil Aviation on the Fast Track’, The Hindu

Shruti Pandit (2007), ‘Air Transport World’, p.51

Srinivasan S. (2005), ‘Budget Airlines Unlock Huge Demand in India’

Southwest Airlines (2000), ‘Annual Report 1999’, Dallas.(
swa/annual_reports.html ).
The Hindustan Times (2005), ‘Flying Low’, The Hindustan Times

Transport Research Board, National Research Council. (1999), ‘Entry and Competition in the
U.S. Airline Industry: Issues and Opportunities’, Washington DC

Venu M. K. (2005), ‘The Big Asian Aviation Story’, The Economic Times

News reports and Websites

Air Deccan partners Indiatimes (12/10/2006)’, http://www.m-
Airline Restructuring, (08/09/06),
Air Transport World, ‘Too Much, Too Soon; Indian airlines have had their boom. Now they are
headed for the bust (January 2007)’, p.51,
Asia Times, ‘Boom pangs in India’s Aviation industry (06/12/2005)’,
‘Asian LCCs to take 20% share of Asia Pacific (12/06/2007)’,
Aviation: Airborne, ‘ Every other month, a new low-cost or “value” carrier is taking to the air. A
look at the players, the models – and the sustainability of the business (27/06/06)’,
Aviation industry in India (21/07/07);
BBC (2005), ‘Indian Low cost airline expands (25/08/05)’,
Business line, ‘Air Deccan beats on volume game (14/02/2005)’,
Business line, ‘Paramount orders 15 more Embraers worth $600m ( 21/03/2007)’,
Business Standard (2007), ‘Nortel upgrades networks at four airports(18/08/2007)’,
CAPA (2007), ‘Indian Aviation; Aircraft and fleet plans’,

CAPA (2007), ‘KapilKaul states necessity for Indian sector consolidation (11/06/07)’;
CNN, ‘Self-serve fliers boost airline productivity (03/12/2003)’,

‘Developing a Community Civil aviation policy towards the republic of India’,
Economic survey 2006-2007,
Express Travel World (2007), ‘Game theory of Aviation players (14/01/07)’,
‘Ensuring the travelers enjoy the ‘Good Times’ with Kingfisher Airlines (15/02/2007)’,
Financial Express (2005), ‘Low Cost Airlines off to a Flying Start’, Financial Express , 3 June
Flight Global (2005), ‘NareshGoyal: Jet propelled (21/11/05)’,
Hindu Business Line (2005), ‘Low-cost airlines: They may need more than a wing and a

Hindu Business Line (2006), ‘See the open sky and reach for it(26/01/06)’,

Hindu Business line (2006), ‘SpiceJet plans fleet acquisition (02/06/06)’,

India Business Week (2006),’India Flying high(21/06/06),

India Business week (2006), ‘India Flying High (21/06/06)’,

India set to become World’s leading LCC market (13/08/2006)’,
‘IndiGo takes deliver of its fifth brand new Airbus A320 (23/12/2006)’,
‘Internet Penetration in India (July 2006)’,
Kiosk Marketplace; Paper airline tickets on the decline; self-serve check-in on the rise

OAG (2007), ‘India’s Aviation growth phenomenon (05/06/2007)’,

Paramount Customer Commitment,
‘Paramount to enter western Indian skies (27/02/2007)’,
Rediff (2006), ‘How Praful Patel has changes Indian skies,(24/10/2006)’,
RediffBusiness(2005)’Budget airlines unlock huge demand in India(29/06/05)’,
The Christian Monitor (2005), ‘How long can the big airlines survive (20/04/2005)’,
The Financial Express (2006), ‘SpiceJet on Performance (27/12/06)’,
The Hindu (2006), ‘It is Boom time in the Airline industry (11/12/2006)’,
The Hindu Business line, ‘Common Man’ to endorse Air Deccan (05/05/2005)’,
The Hindu Business Line, ‘Drop in fares boosts Air Deccan’s profits (31/05/06)’,
The tribune (2006), ‘Deepak Arora; Spice, Kingfisher hot up fare war in Indian skies
The Tribune news, ‘Govt awards bids for Delhi, Mumbai airports: Reliance unhappy; Mumbai
airport staff begins stir (01/02/2006)’,
The Tribune, ‘When PM’s plane landed on paraffin lamp-lit runway (16/01/2005)’,
15 Additional ATR Aircraft for Kingfisher Airlines, Toulouse (19/02/06)’,


Appendix I


Market share: 21.3%
Air Deccan, India’s largest and fastest growing low cost carrier , began operations in August 2003 with 1 aircraft and 4 flights a day and is today the fastest growing airline flying over 350 flights a day, spanning the length and breadth of the country while connecting 65 destinations. Air Deccan has the largest network in India and is presently operating a modern fleet of 44 aircraft.

Vision: ‘Empower every Indian to fly’

Mission: To demystify air travel in India by providing reliable, low cost and safe travel to the common man by constantly driving down the air fares as an ongoing mission
Marketing Strategy: Air Deccan has adopted a unique marketing strategy. As evident from its vision statement, it has endeavored to make every Indian fly. Every Indian is not a rich man, so it has targeted the middle class Indian for its market. The middle class population of India is enormous and increasing at a prompt pace, and Air Deccan saw a prosperous future with them.
Some strategies adopted by Air Deccan are:
‘ Inflight magazine for revenue generating
‘ In flight shopping scheme called ‘Brand for less’ ‘ AVA Merchandising
‘ Tie-up with Caf?? Coffee Day
‘ ICICI-Travel agent purchase card
‘ Tie-ups with HPCL and Reliance Web World
‘ Strong focus on ‘Low Fare’
‘ Communicates value proposition through public relations, advertising, direct marketing,
and internet.
‘ Emphasis on ‘fly made possible’ and ‘ better lifestyle through Air travel ‘
‘ Offers ticket package called ‘ Value Flier’ to the Leisure Customers

S.W.O.T Analysis of Air Deccan


First mover advantage; wider coverage Focuses almost exclusively on South of the country than any other carrier; Indian markets better infrastructure available in terms Image plagued by frequent breakdown of parking space and airport counters. Lower lease rents to start with, so lower Very limited advertising costs. Already reached the threshold of cost Dedicated and committed leadership efficiency
‘Lean-and Mean’ approach to staffing,Start-up costs lower than competitors interms of pilot’s and other staff salaries. Economies of scale as most competitors have between two tofive aircrafts. Deccan has a fleet of 44 Highest load efficiency


Extensive network to exploit the High attrition rate.
booming Air cargo business. The threat of new entrants in the LCC
Plenty of scope for expansion of segment esp. GoAir, Spice Jet , Indigo
operations. andJagson airlines
Could start ‘Contractual Employment’ High risk perception
Strengthen its position in the Chartered
Flight segment.

Operational efficiency: reducing delays and flight cancellations
Brand perception: Deccan’s service is associated with poor quality

Processes and training people: poorly-trained staff at airports that falls apart in a
crisis situation
Encouraging everyone in the airline to think ‘low cost’

More aircraft bases needed to be able to exploit economies of scale better

Appendix II

SpiceJet Airlines:
Flying for everyone
Market share: 7.5 %
SpiceJet is a low-cost airline based in New Delhi in India. The CEO and chairman of the company is Mr. Siddhanta Sharma. It is one of India’s newest start-up private airlines promoted by Ajay Singh, Sanjay Malhotra and the Kansangra family. It began its services in May 2005.
Previously it was known as Royal Airways. One of the other cost-cutting features of SpiceJet is to allow only 20 kgs of luggage with each passenger

Vision: SpiceJet’s mission is to be become India’s preferred low-cost airline, delivering the lowest air fares with the highest customer value, to price sensitive customers. We hope to fulfill everyone’s dream of flying!
With India’s economic and business growth, the percentage of traveling population is burgeoning. More and more Indians are traveling for both business and pleasure and everyoneneeds to save both time and money. SpiceJet’s vision is to answer the need, to ensure that flyingis no longer only for CEOs and business travelers, but for everyone.

Mission: To become India’s preferred low-cost airline, delivering the lowest air fares with the highest consumer value, to price sensitive consumers.

Marketing Strategy
‘ Entered with Rs. 99 fares for first 99 days offering ‘low everyday spicey fares’
‘ Aims to compete with Indian Railway’s AC segment
‘ Aims at future fleet expansion to increase market share

S.W.O.T Analysis of SpiceJet


Better on-time performance and less Small fleet structure cancellations than competitors
Concentration only on North-West-South
Brand perception quite positive Indian Sectors
Single fleet type, so costs can be kept Small load efficiency compared to its lower biggest competitor in LCC i.e. Air
A sustainable scaling up plan that’s on Deccan course
Consumers feel fares are lower than other competing carriers’


Future fleet expansion will increase High attrition rate market share. The threat of new entrants in the LCC
Attractive fares and up to date quality segment
Service will generate a huge customer High risk perception base comprising of frequent flyers.

One of the challenges for the company is its small fleet structure.
Processes and training of people: poorly trained staff at the airports
Commitment to the business; three months after it started, one of the main shareholders wanted to sell out Employee: aircraft ratio quite high at present
Encouraging everyone in the air line to think ‘Low cost’ Another challenge for the company is to grab the market


Appendix III

GoAir Airlines

Market share: 3.5%
GoAir Airlines is a low-cost budget airline based in Mumbai, India. The airline is promoted by Wadia Group, which has been synonymous with leading Indian companies, through its brands Britannia and Bombay Dyeing. It is the brainchild of JehWadia, who is the Managing Director of GoAir Airways.
The airline was established in June 2004. On 9 June 2005 GoAir announced that it intended to launch operations in October 2005 with a fleet of 20 leased Airbus A320 aircraft. It started operations on 4 November 2005. An order for 10 aircraft from the Airbus A320 family (with options for 10 more) was announced in July 2006. GoAir announced in mid-January 2007 that it plans to sell a large minority ownership position to assist it with funds for continued expansion as well as to improve chances for the sale and leaseback of additional A320 aircraft.

Vision: Go Air Airlines has been showcased as ‘The People’s Airline’

Mission: ‘Commoditizing air travel’ by offering airline seats at marginally higher train prices to all cities in India. The airlines theme line is ‘Experience the Difference’ and its objective is to offer its passengers a quality consistent, quality assured and time efficient product through affordable fares. GoAir’s business model has been created on the ‘punctuality, affordability and convenience’ model.

‘ GoAir’s route network spans prominent business and leisure destinations, across India.
‘ The route network will provide a value for money option for both business and leisure travelers,without compromising on either safety or service. The airline operates between popular sectorslike Mumbai to Ahmedabad, Delhi to Mumbai, Chennai to Delhi, Bangalore to Ahmedabad andMumbai to Goa, among others. GoAir will soon cover more routes like Bhavnagar, Aurangabad,Kolhapur, Rajkot, Bhopal, Madurai and Kozhikode, at competitive prices in the coming months.
‘ Adding new destinations to facilitate travel will be part of GoAir’s aggressive strategy.



S.W.O.T Analysis of GoAir

‘ Go Air has been promoted by Wadia Small network: Only in Southern and group, Mumbai based and majority Western India with the first nine A30s owner of Bombay Dyeing and
‘ Britannia Industries, so the base is strong.
‘ GoAir free fares.

‘ Future fleet expansion will increase High attrition rate market share.
‘ Flight network extension segment
‘ Attractive fares and up to date quality
‘ Huge risk perception services will generate a huge customer base comprising of Frequent Flyers

Appendix IV

Passenger Interview Questionnaire I:

1. How frequently do you currently fly?

a) Less than once a month
b) Once ‘ twice a month
c) Once a week
d) More often

2. How frequently did you fly two years back?

a) Less than once a month
b) Once ‘ twice a month
c) Once a week
d) More often

3. What factors do you rate most highly when selecting an airline?

a) Cost
b) Punctuality
c) Availability of seats
d) Services

4. What of the following alternative modes of transport do you currently use?

a) Road transport (bus)
b) Rail transport
c) Car
d) None of the above

5. What of the following would you rate the most undesirable attribute of low-cost carriers?

a) Delays
b) Lack of frills / amenities
c) Availability of seats
d) Customer support services

Travel Agents Questionnaire II:

1. To what extent has your volume of air business grown over the last two years?

a) More than 40% per annum
b) Between 25% and 45% per annum
c) Between 10% and 25% per annum
d) Less than 10% per annum

2. To what do you mainly attribute the increase in airline business travel?

a) Lower cost of air travel
b) Increase in domestic tourism
c) Increase in availability of seats
d) Other (please mention)

3. What segment constitutes the bulk of your bookings?

a) Business Travel
b) Personal Travel
c) Tourist bookings
d) Other (please mention)

4. What impact has the introduction of budget airlines had on your airline strategy?

a) Decrease in sales of full-service carriers
b) Increase in turnover resulting from lower costs
c) Increase in profitability
d) Decrease in profitability

5. Which line of other business has been the most affected by the introduction of budget airline?

a) Road traffic
b) Rail traffic
c) Full-service carriers
d) Other services

About Essay Sauce

Essay Sauce is the free student essay website for college and university students. We've got thousands of real essay examples for you to use as inspiration for your own work, all free to access and download.

...(download the rest of the essay above)

About this essay:

If you use part of this page in your own work, you need to provide a citation, as follows:

Essay Sauce, Competitive Strategies Implemented By Low Cost Carriers In India. Available from:<> [Accessed 18-06-21].

These Business essays have been submitted to us by students in order to help you with your studies.

* This essay may have been previously published on at an earlier date.

Review this essay:

Please note that the above text is only a preview of this essay.

Review Content

Latest reviews: