airlines industry[1]

Airlines: Service Industry

ACKNOWLEDGEMENT

I take this opportunity to thank Dr. Vijay Wash for giving us an opportunity to work

on the project on Airline Industry for the subject ‘Product & Service Management’,

which has helped us understand the Service Industry to certain extent.

I also thank Prof. P. L. Arya (Director NLDIMSR) for providing us with the facility

of the Computer center and a very good library which has helped us doing our

project.

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Index

Sr No. Topic Page

1 Executive summary 2

2 Service marketing 4

3 Unique characteristics of service industry 4

4 Marketing mix for service industry 8

5 Airline industry 12

6 Introduction to airline industry 15

7 History of industry 15

8 Structure of the industry 17

9 Indian aviation industry 21

10 Players in the airline industry 23

11 Airport infrastructure 26

12 Development of civil aviation in India 28

13 Civil aviation policy 30

14 Infrastructure development 31

15 Airport privatization 33

16 Alliance strategy 36

17 Recent development 39

18 Case study- Jet airways 41

SUMMARY

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We owe it to the Wright brothers for having invented airplanes. The

Wright brothers could not have imagined how airplanes would

change the way people live & do business.

The airline industry has witnessed a sea change from two wheeler

bi-planes to the Boeing 747's that are visible in our skies today. The

passage of time has witnessed competition grow from leaps to

bounds. Today airplanes are present in every country around the

world with expectation of a few places. Even the industry has been

growing year on year

It was JRD Tata who made the first move to build up an airline

industry in India. He with the help of Nevil Vincent, a former RAF

pilot, went ahead and drew a plan for the operation of first flight

from Karachi to Mumbai with single stopover at Ahmedabad. This is

how Tata Airlines was born which was donated to Indian

Government. On 28th May 1953, Air Corporation Act – 1953, the

government of India nationalized the airlines industry. In accordance

with this act, the two air corporations, viz. Indian Airlines

Corporation and Air India International were established. In 1994 the

monopoly was ended and Indian skies were opened for any carriers

who fulfills the statutory requirement

The Indian aviation industry can be broadly classified into two main

segments - Civil and Cargo. In fact, the birth of civil aviation is

attributed to air cargo and mail. In the beginning, mail and air cargo

were the important elements of air carrier services than passengers.

The major players in the Indian context are Air India in the

international segment and Indian Airlines, Jet Airways and Sahara in

the domestic segment.

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Over the years, the aviation sector in India has evolved and today it

is on the threshold of a major shake out with the divestment of the

Indian government's stake in Air India and Indian Airlines on the

cards. A number of domestic and foreign parties have evinced

interest in the divestment process. Recently, foreign airlines like

Virgin Atlantic of Britain and Singapore Airlines have also entered

the Indian skies.

The Indian aviation sector till recently was highly regulated by the

government. As recently as the eighties saw the introduction of

some new initiatives like the air taxi scheme, whose main objective

was to boost tourism.

Domestic and international passenger traffic in India is projected to

grow annually at 12.5% and 7% respectively over the next decade.

At the same time, domestic and international cargo traffic is

expected to grow at 4.5% and 12% respectively. By the year 2005,

Indian airports are likely to handle 60mn international passengers

and 300,000 tons of domestic and 1.2mn tons of international

cargo.

SERVICES MARKETING

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Service industry is witnessing a major boom in India. Services like

banking, car financing, consumer durable credit, cellular, paging,

express, hospitality, travel and tourism, airlines, and, educational

services on are today realizing the importance of marketing. Along

with these big service businesses, many small businesses ranging

from beauty saloons, pubs, gyms, play schools and so on are

realizing the importance of marketing.

UNIQUE CHARACTERSTICS OF SERVICES

What is a service? And why should services receive special

treatment from marketers? A popular definition describes services

as

"any act or performance that one party can offer to another that is

essentially intangible and does not result in the ownership of

anything. Its production may or may not be tied to physical

product."

Although, the distinction between goods and services is somewhat

artificial, since the success of goods manufacturers is vitally

dependent on the service they provide, there are four commonly

cited characteristics of services that make them different to market

from goods: Intangibility, Inseparability, Variability and Perishability.

Intangibility

Pure services such as baby-sitting cannot be seen or touched. They

are ephemeral performances that can be experienced only as they

are delivered. As the above definition of service suggests,

intangibility may represent the most critical difference between

services and goods, and its implications for marketing are great.

Intangible services are difficult to sell because they cannot be

produced and displayed ahead of time. They are therefore harder to

communicate to prospective customers. A passenger cannot feel the

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service that he would encounter in the airplane, however person

may talk to other travelers who have experienced the same service,

but their experience does not necessarily be the same.

Marketers of services can reduce these risks by stressing tangible

cues that will convey reassurance and quality to the prospective

customers. These tangible cues range from the firm's physical

facilities to the appearance and demeanor of its staff to the

letterhead on its stationery to its logo. Life insurance companies are

particularly savvy about this problem. Their service is, after all, the

most intangible service: by definition, the buyer will never know the

ultimate result of what he or she has bought! To compensate for this

intangibility the major companies over the world have developed

strong visual symbols for their firms.

Prudential -The rock of Gibraltar

All state -Protective hands

Traveler’s -A red umbrella

Nationwide -A blanket

Wausau -A train station

Inseparability

Different service marketing marketers interpret this characteristic

differently, but all interpretations point out those special operations

problems exist for the firm's managers. One interpretation of this

term is the inseparability of customers from the service delivery

process. In particular, many services require the participation of the

customer in the production process. A child getting a haircut must

sit still; otherwise, the family photo may have to be delayed for a

month. The person who comes to a Chartered Accountant (C. A.) at

the last minute with boxes of disorganized records may cause the C.

A. to overlook some possible deductions. These examples illustrate

the fact that, unlike goods, which are often produced in a location

far removed from the customer and totally under the control of the

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manufacturing firm, service production often requires the presence

and active participation of the customer - and of other customers.

Depending upon the skill, attitude, and cooperation so on that

customers bring to the service encounter, the results can be good or

bad, but in any event are hard to standardize.

A second interpretation of inseparability refers to the fact that in

some service industries the service delivered is inextricably tied to

particular individual service providers. Customers may have ground

for complaint if their service is not provided by, for example, the

surgeon or lawyer they thought they were paying for.

Variability

The fact that service quality is difficult to control compounds the

marketer's task. Intangibility alone would not be such a problem in

customers could be sure that the services they were to receive

would be just like the successful experiences their neighbors were

so pleased with. But in fact, customers know that services can vary

greatly. Different front-line personnel have different abilities. Even

the same service provider has good days and bad days or may be

less focused at different times of day. Services are performances,

often involving the cooperation and skill of several individuals, and

are therefore unlikely to be same every time. This potential

variability of service quality raises the risk faced by the consumer.

The service provider must find ways to reduce the perceived risk

due to variability. One method is to design services to be as uniform

as possible - by training personnel to follow closely defined

procedures, or by automating as many aspects of the services as

possible. The appeal of some service personnel - particularly, those

involved in such expensive personnel services as beauty parlors

treatments or home decoration - lies in their spontaneity and

flexibility to address individual customer needs. The danger with too

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much standardization is that these attributes may be designed right

out of the services, therefore reducing much of their appeal. A

second way to deal with perceived risk from variability is to provide

satisfaction guarantees or other assurances that the customer will

not be stuck with a bad result.

Perishability

The fourth characteristic distinguishing services from goods is their

time dependence. Services cannot be inventorised, since they are

performed in real time. And time periods during which service

delivery capacity sits idle represent revenue-earning potential that

is lost forever. Periods of peak demand cannot be prepared for in

advance by producing and storing services, nor can they be made

up for after the fact. A service opportunity occurs at a point in time,

and when it is gone, it is gone forever. This can present great

difficulty in facilities planning. A survey of service firms found that

the greatest operational challenges facing them were posed by the

perishability of their products.

Matching service capacity to demand patterns can involve

managing one or both elements. Perishability often puts a greater

burden on service marketers to manage demand than it does on

goods marketers, who can build up inventories to meet peak

demand or can reduce prices later to move the unsold inventory.

The cited survey found that the firm's principal method for

controlling demand was to increase personnel selling during

potentially slow periods. Surprisingly, few firms claimed to use the

standard economic solution of price changes to increase or decrease

demand, although some service industries, such as resort hotels

with seasonal demand, do this routinely.

Few service providers had opinion that they developed alternative,

counter seasonal service products to use slack capacity, although

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that has long been a common practice by goods marketers. Many

service providers also control demand by requiring appointments.

The alternative to controlling demand is to make service capacity

flexible. Some service firms keep on call frontline personnel who can

arrive on short notice to meet the surges in demand, or cross train

support personnel to assist with customer service during busy

periods.

MARKETING MIX FOR SERVICES MARKETING

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The marketing mix refers to the blend of ideas, concepts & features

which marketing management put together to best appeal to their

target market segments. Each target segment will have a separate

marketing mix, tailored to meet the specific needs of consumer in

the individual segment.

Service marketing managers have found that the traditional four P's

of marketing are inadequate to describe the key aspects of the

service marketer's job. The traditional marketing mix is said to

consist of the following elements of the total offering to consumers:

the product (the basic service or good, including packaging,

attendant services etc.); its price; the place where the product is

made available (or distribution channels - not generally a real issue

for most services, except perhaps for repair and maintenance); and

promotion (marketing communication: advertising, public relations

and personal selling).

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Price

Product

Physical Evidence

People

Place

Promotion

Process

ServiceQuality

7 P’s of Service Marketing


The product mix

The product here refers to Airline service offering. Although service

products are essentially intangible, there are certain pyhsical

characteristics which consumer assess in their evaluation of product

choice. It the service mix , there is passenger services , cargo

services, & the mail services.

Attractiveness of the offering in terms of pyhsical features such

as consumers have high expectation, the food & drinks offered ,

entertainment.

Facilities available, associated level of services such as, quality of

seats & interior decoration.

The promotional mix

The aims of promotion fall into three main

categories: to inform, to remind, & to

pursuade. It will always be necessary to

inform prospective consumers about new

products & services, but other issue may also

need this type of communication to

consumers; new uses, price changes,

information to build consumer confidence &

to reduce fears, full description of service offering, image building.

Similarly consumers may need to get reminded about all these

types of issues, especially in the off-peak season.

It is vitally important to recognisse that promotion, or marketing

communications generally, may not always be aimed at potential

consumer or end user of service. In many business areas, it is to

design promotions aimed at channel customers to complement end

user promotion.for e.g Airlines will need to promote their services to

tour operaters as well as end user.

The pricing :

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Pricing in airlines is a fairly complex issues, since there are price

variations because variations in the level of demand, particularly

due to seasonality, when every Airlines gives price discounts &

competition is tough. Airlines will always faced by high levels of

fixed costs, leading to variants of cost-plus pricing or ROI as key

determinants of pricing levels. It is important to includde pricing

tactics which exploit price sensitivities fully. It differentiates service

levels & offer higher price ‘ value added ‘services, as in business

class air travel.

The Distribution:

In Airlines, they utilise more than one

method of distribution.for e.g they sell

tickets through travel agents & sell seats

on flights to tour operators , whilst also

operating direct marketing. Whichever

distribution strategy is selected, channel

management plays a key role. For channels to be effective they

need realiable updated information. For these reason, I.T has been

widely adopted such as on-line booking system.

Some marketers suggest that the unique requirements of selling

services require the manager attend to three additional P's. These

are people, physical evidence and process.

People:

Many services require personal interactions between customers and

the firm's employees and these interactions strongly influence the

customer's perception of service quality. For example, a person's

stay at a hotel can be greatly affected by the friendliness,

knowledge ability and helpfulness of the hotel staff - in most cases

the lowest paid people in the organization. One's impression of the

hotel and willingness to return are determined to a large extent by

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the brief encounters with the front-desk

staffs, bellhops, housekeeping staff,

restaurant wait staff and so on, many of

which take place outside the direct

control of the hotel management. In fact,

the average hotel patron has very little

contact with the hotel supervisors and

managers.

Therefore, management faces a tremendous challenge in selecting

and training all of these people to do their jobs well, and, perhaps

even more important, in motivating them to care about doing their

jobs well, and, perhaps even more important, in motivating them to

care about doing their jobs and to make an extra effort to serve

their customers. After all, these employees must believe in what

they are doing and enjoy their work before they can, in turn, provide

good service to customers.

For this reason, human resources management policies and

practices are considered to be of particular strategic importance for

in delivering high-quality services. Establishing a customer-oriented

culture throughout the firm and empowering employees to provide

quality service cannot be established merely by putting up inspiring

posters. Management leadership, job redesign and systems to

reward and recognize outstanding achievement are among the

issues that a successful service manager must address. The term

"internal marketing" has been coined to characterize the sets of

activities a firm must undertake to woo and win over the hearts and

minds of its employees to achieve service excellence.

The "people" component of the service marketing mix also includes

the management of the firm's customer mix. Because services are

often experienced at the provider's facilities, other customers who

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are being served there can also influence one’s satisfaction with a

service. Ill mannered restaurants customers at the next table, crying

children in a nearby seat on an airplane and commercial bank

customers whose lengthy transactions take up the teller's are all

examples of unpleasant service conditions caused by a firm's other

patrons.

On the other hand, the right mix of customers can greatly increase

the enjoyment of experience - for example, at entertainment

services, such as nightclubs or sporting events. Determining the

desirable customer mix for a service, segmenting the market into

compatible groups and managing customer arrivals to avoid conflict

and enhance the service experience are essential components of

service management.

Physical Evidence

This element of the expanded marketing mix addresses the

"tangible" components of the service experience and firm's image

referred earlier. Physical surroundings and other visible cues can

have a profound effect on the impressions customers form about

the quality of the service they receive. The "services cope" - that is,

the ambience, the background music, the comfort of seating and

the physical layout of a service facility - can greatly affect a

customer's satisfaction with a service experience.

The appearance of the staff, including clothes and grooming, may

be used as important clues. Promotional materials and written

correspondence provide tangible reassurance, they can be

incorporated into the firm's marketing communications to help

reduce customer anxiety about committing to the purchase. Service

firms should design these items with extreme care, since they will

play a major role in influencing a customer's impression of the firm.

In particular, all physical evidence must be designed to be

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consistent with the "personality" that the firm wishes to project in

the marketplace.

Process Of Service Production

Because customers are often involved in the production of services,

the flow and progress of the production process is more important

for services than it is for goods. A customer who buys a television

set is not particularly concerned about the manufacturing process

that made it. But the customer at a fine restaurant is not merely

interested in the end result - the cessation of hunger. The entire

experience of arriving at the restaurant - of being seated, enjoying

the ambiance, ordering, receiving and eating the meal - is

important. The pace of the process and the skill of the provider are

both apparent to the customer and fundamental to his or her

satisfaction with the purchase.

The importance of the process is true even for less 'sensual"

experiences. A customer who applies for a loan at a bank evaluates

the purchase not only by the amount of the loan received and the

interest rate paid. The speed and sensitivity of the approval process,

the interaction with the bank officers, the accuracy of bank

statements and the ease of getting redress if mistakes are found all

affect the person's attitudes about doing further business with the

bank and his or her willingness to recommend it to others.

Therefore, when designing service production processes, particular

attention must be paid to customer perceptions of that process. For

this reason, marketing and operations are closely related in service

management.

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INTRODUCTION

We owe it to the Wright brothers for having invented airplanes. The

Wright brothers could not have imagined how airplanes would

change the way people live & do business. The airline industry has

witnessed a sea change from two wheeler bi-planes to the Boeing

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747's that are visible in our skies today. The passage of time has

witnessed competition grow from leaps to bounds. Today airplanes

are present in every country around the world with expectation of a

few places. Even the industry has been growing year on year.

Technology has also made a significant contribution to the airline

industry; over the years technological advances have been

incorporated into the science of flying airplanes. The industry has

also propelled the growth of ancillary services like travel agents,

courier services, cargo handling, clearing & forwarding agents etc

HISTORY OF INDUSTRY

Nevill Vincent, a former RAF pilot came to India from Britain in 1929,

on a brainstorming tour to survey a number of possible routes. It

was through providence that he met JRD Tata, the first Indian to

secure an A-license within the shortest number of hours. Vincent

worked out a scheme, secured JRD's approval and together they

presented it to Mr. Peterson, the director of Tata Sons and also JRD's

mentor. Sir Dorab Tata, the then chairman of Tata Sons, pleasantly

surprised all by giving the scheme his okay. So they went ahead and

drew plans for the operation for the first flight from Karachi to

Mumbai with a single stopover at Ahmedabad. All that they asked

was a guarantee from the government for a year for the sum of

Rs.100,000. This, however, was turned down. The Tata-Vincent

combine was naturally disappointed but not dismayed. A second

scheme was prepared. This time the guarantee asked was

Rs.50,000 for the first year, Rs.25,000 for the second year and no

guarantee at all from the third year onwards. This scheme was

rejected too. The team then tried a third time. This time they offered

to donate an air service to the Government of India with no strings

attached. The Government finally agreed and thus was born Tata

Airlines that later became Air India.

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On 28th May 1953, consequent to the coming into force of the Air

Corporations Act, 1953, the Government of India nationalized the

airlines industry. In accordance with this Act, the two air

corporations, viz. Indian Airlines Corporation and Air India

International, were established and the assets of all the then

existing airline companies (nine) were transferred to the two new

Corporations. The operation of scheduled air transport services was

under the monopoly of these two Corporations and the Act

prohibited any person other than the Corporations or their

associates to operate any scheduled air transport services from, to,

or across India.

However, after 40 years, in 1994, the wheel had turned a full circle

as the Air Corporation Act, 1953 was repealed with effect from 1st

March 1994. That ended the monopoly of the Corporations on

scheduled air transport services. Air transport in India is now open

to any carrier who fulfills the statutory requirements for operation of

scheduled services.

STRUCTURE OF THE INDUSTRY

Types of Airline Certification

All airlines hold two certificates from the federal government: a

fitness certificate and an operating certificate. The Department of

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Transportation (DOT) issues fitness certificates - called certificates

of public convenience and necessity - under it's statutory authority.

Basically, the certificate establishes that the carrier has the

financing and the management in place to provide scheduled

service. The certificate typically authorizes both passenger and

cargo service. Some airlines, however, obtain only cargo-service

authority. Commuter airlines that use aircraft with a seating

capacity of 60 or fewer seats or a maximum payload capacity of no

more than 18,000 pounds can operate under the alternative

authority of Part 298 of DOT’s economic regulations.

Operating certificates, on the other hand, are issued by the Federal

Aviation Administration (FAA) under Part 121 of the Federal Aviation

Regulations (FARs), which spell out numerous requirements for

operating aircraft with 10 or more seats. The requirements cover

such things as the training of flight crews and aircraft maintenance

programs. All majors, nationals and regionals operate with a Part

121 certificate.

How Major Airlines Are Structured

Line Personnel

These include everyone directly involved in producing or selling an

airline’s services - the mechanics, who maintain the planes; the

pilots, who fly them; the flight attendants, who serve passengers

and perform various inflight safety functions; the reservation clerks,

airport check-in and gate personnel, who book and process the

passengers; ramp-service agents, security guards, etc. Line

personnel generally fall into three broad categories: engineering

and maintenance, flight operations, and sales and marketing. These

three divisions form the heart of an airline and generally account for

85 percent of an airline’s employees.

Operations

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This department is responsible for operating an airline’s fleet of

aircraft safely and efficiently. It schedules the aircraft and flight

crews and it develops and administers all policies and procedures

necessary to maintain safety and meet all FAA operating

requirements. It is in charge of all flight-crew training, both initial

and recurrent training for pilots and flight attendants, and it

establishes the procedures crews are to follow before, during and

after each flight to ensure safety.

Dispatchers also are part of flight operations. Their job is to release

flights for takeoff, following a review of all factors affecting a flight.

These include the weather, routes the flight may follow, fuel

requirements and both the amount and distribution of weight

onboard the aircraft. Weight must be distributed evenly aboard an

aircraft for it to fly safely.

Maintenance

Maintenance accounts for approximately 11 percent of an airline’s

employees and 10-15 percent of its operating expenses.

Maintenance programs keep aircraft in safe, working order; ensure

passenger comfort; preserve the airline’s valuable physical assets

(its aircraft); and ensure maximum utilization of those assets, by

keeping planes in excellent condition. An airplane costs its owner

money every minute of every day, but makes money only when it is

flying with freight and/or passengers aboard. Therefore, it is vital to

an airline’s financial success that aircraft are properly maintained

Airlines typically have one facility for major maintenance work and

aircraft modifications, called the maintenance base; larger airlines

sometimes have more than one maintenance base. Smaller

maintenance facilities are maintained at an airline’s hubs or primary

airports, where aircraft are likely to be parked overnight. Called

major maintenance stations, these facilities perform routine

maintenance and stock a large supply of spare parts.

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A third level of inspection and repair capability is maintained at

airports, where a carrier has extensive operations, although less

than at its hubs. These maintenance facilities generally are called

maintenance stations.

Sales and Marketing

This division encompasses such activities as pricing, scheduling,

advertising, ticket and cargo sales, reservations and customer

service, including food service. While all of them are important,

pricing and scheduling in particular can make or break an airline,

and both have become more complicated since deregulation. As

explained in the next chapter, airline prices change frequently in

response to supply and demand and to changes in the prices of

competitors’ fares. Schedules change less often, but far more often

than when the government regulated the industry. Airlines use

sophisticated computer reservation systems to advertise their own

fares and schedules to travel agents and to keep track of the fares

and schedules of competitors. Travel agents, who sell approximately

80 percent of all airline tickets, use the same systems to book

reservations and print tickets for travelers.

Subcontractors

While major airlines typically do most of their own work, it is

common for them to farm out certain tasks to other companies.

These tasks could include aircraft cleaning, fueling, airport security,

food service and in some instances, maintenance work. Airlines

might contract out for all of this work or just a portion of it, keeping

the jobs in house at their hubs and other key stations. However,

whether an airline does the work itself or relies on outside vendors,

the carrier remains responsible for meeting all applicable federal

safety standards.

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Security measures

The government will most probably accept the recommendations of

the technical up gradation committee, set up to look into the

different aspects of air security.

For international flights Air India & Indian airlines, security personnel

have been trained in passenger profiling, supposed to be the "most

fool-proof" security arrangement to identify suspicious traits among

passengers. The government is willing to spare more highly trained

commands, but the airlines have to be prepared to pay the price of

having the sky on board, it is learnt

THE INDIAN AVIATION INDUSTRY

The civil aviation activities can be broadly classified into three

areas:

Operational,

Infrastructure

Regulatory-cum-developmental.

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On the operational front, Air India provides international air services

while Indian Airlines is involved in the field of domestic air services.

Pawan Hans supplies helicopter support services, primarily to the

petroleum sector. Air India, Indian Airlines and its subsidiary Alliance

Air (which also provides domestic services) and Pawan Hans are

government-owned. Other than them, there are a few private

domestic operators too. Airports Authority of India (AAI), which was

formed in April 1995 through the Airports Authority of India Act, by

merging the separate ‘national’ and ‘international’ airport

authorities that existed earlier supply infrastructural facilities.

In terms of size, the Indian aviation industry's turnover was

approximately Rs.40 billion in FY99. 14 million passengers traveled

using its services in FY99. The growth profile of the industry in the

last three decades is given below.

Year Aircraft

(mn km flown)

Passengers

flown ('000 nos)

Passengers

(mn km flown)

1970-71 37.8 2,123 1,559.0

1980-81 41.2 4,850 3,917.2

1990-91 58.7 7,912 7,028.1

1995-96 88.8 10,356 9,249.3

1996-97 112.5 12,312 11,047.3

1997-98 109.4 11,549 10,702.9

1998-99 117.2 12,017 10,820.3

No of Passengers flown During 1970-1999

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Source: Indiainfoline.com

From the above table, it is clear that the aviation industry in the

country has grown by leaps and bounds in terms of kilometers flown

and also number of passengers serviced. However, as compared to

the previous decades, the rate of growth has fallen in recent years.

In fact, in the period FY97 to FY99, the number of passengers has

fallen and so has the length of passenger kilometers traveled.

In terms of characteristics, the aviation industry is seasonal in

nature. In the period April to May and again from November to

December, demand is high. However, in the June-July period

demand falls.

Domestic Players in Airlines

Till recently, Indian Airlines had a monopoly in the sector. However,

in 1993 the skies were opened for private participation and 8

airlines got the nod to commence operations. Of these, only two

have survived - Jet Airways and Sahara Airlines. Another airline,

called Crown Express, has very recently got an approval from the

government to start domestic operations.

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The market share of major players in 2000-01.

Market share

Airlines Percentage Aircraft’s owned

Indian airlines 51 57

Jet airways 42 33

Sahara airlines 7 9

Source: ICMR Research Team

Market Share of Major Players

Source: ICMR Research Team

Over the past few years, Indian Airlines has lost market share and is

currently second to private operators. Its market share has fallen

from 50.5% in 1999 to 46.8% in 2000. The major gainers are the

two domestic operators Jet and Sahara, the major beneficiary being

Jet Airways. The combined market share of both of them has risen

from 49.5% in 1999 to 53.2% in 2000. In terms of plant load factor

too IA lags behind. While the average for all domestic operators was

around 63.4%, Indian Airlines clocked a performance of 61.9%. Jet

had the highest plant load factor of around 71.8%.

Indian Airlines

The network of Indian Airlines spans from Kuwait in the west to

Singapore in the East and covers 75 destinations - 59 within India

and 16 abroad. The Indian Airlines international network covers

Kuwait, Oman, U. A. E, Qatar and Bahrain in West Asia, Thailand,

Singapore, Yangoon (Rangoon) and Malaysia in South East Asia and

Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and Maldives in

the South Asian subcontinent.

Indian Airlines flight operations center on its four main hubs the

main metro cities of Delhi, Mumbai, Calcutta and Chennai. Together

with its subsidiary Alliance Air, Indian Airlines carries a total of over

7.5mn passengers annually.

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51%

42%

7%

Indian airlinesJet airwaysSahara airlines

Market Share


At present, Indian Airlines has a fleet strength of 55 aircraft's. Out of

them, are 11 Airbus A300, 30 Airbus A320, 11 Boeing B737 and 3

Dorniers D0228. Indian Airlines has total staff strength of around

22,000 employees. Its annual turnover, together with that of its

subsidiary Alliance Air, is over Rs.40bn.

Other Airline operators:

The number and type of aircrafts owned by the two main private operators are as

follows.

Operator No. of Aircraft Type of Aircraft

Jet Airways 12 B-737-400

Sahara India Airline 2 B-737-200

International Airlines

In the international sector, Air India is the sole Indian service

provider. However, in the international market, the share Air-India is

negligible compared to that of the likes of British Airways and

Emirates Air.

Air India

Air-India International was registered on March 8, 1948 and it

inaugurated its international services on June 8, 1948, with a weekly

flight from Mumbai to London via Cairo and Geneva with a Lockheed

Constellation aircraft. Later on in 1962, the word 'International' was

dropped. Effective March 1, 1994, the airline has been functioning

as Air-India Limited.

At present, Air India has a fleet strength of 23 aircrafts. Out of them

are 6 Boeing 747-400, 4 Boeing 747-200, 2 Boeing 747-300 Combi,

8 Airbus 310-300 and 3 Airbus 300-B4. The airline has plans to

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induct 4 more A-310-300 aircraft on dry lease effective December

2000. From a total of three stations served at the time of

nationalization, Air-India's network today covers 44 destinations. In

addition, Air India has a so-called 'code sharing' arrangement with a

number of foreign airlines. These include Swiss Air, Bellview Airlines,

Austrian Airlines, Asiana Airlines, Air France, Virgin Atlantic,

Scandinavian Airlines, Singapore Airlines, Aeroflot, Air Mauritius,

Kuwait Airways and Emirates.Air India carried a total of 3.35mn

passengers in FY2000 as against 3.17mn in FY99. This made for a

plant load factor of 70.3%.

Financials

Air-India has posted an operating profit of Rs.760mn in FY2000. This

is good news given the fact that the airline had recorded its highest

operating loss of Rs.4.13bn only three years ago i.e. in FY97. The

airline had made its last operating profit in FY95. The net loss has

been contained at Rs.370mn partly due to an additional payout of

Rs.1.78bn during the fiscal due to a hike in global and domestic fuel

prices. Air-India's total turnover during the year was Rs.46.62bn as

compared to Rs.42.36bn last year - a growth of 10%.

While PBIDT was a negative Rs.6.48bn, the firm succeeded in raking

in a cash profit of Rs.4.12bn during the year. Air-India has also

achieved a positive return on its investments of over 5% in FY2000

on capital employed in the business as compared to a negative

return in the last couple of years.

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AIRPORT INFRASTRUCTURE

There are a total of 449 airports/airstrips in the country. Airports are

presently classified as international and domestic airports.

International Airports: These are available for scheduled

international operations by Indian and foreign carriers. Presently,

Mumbai, Delhi, Chennai, Calcutta and Thiruvananthapuram fall into

this category.

Domestic Airports: In this category fall those airports which have

custom and immigration facilities for limited international operations

by national carriers and for foreign tourist and cargo charter flights.

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These include airports Bangalore (CE), Hyderabad, Ahmedabad,

Calicut, Goa (CE), Varanasi, Patna, Agra (CE), Jaipur, Amritsar,

Tiruchirapally, Coimbatore, Lucknow.

Yet another type of airports are known as Model Airports. These

have a minimum runway length of 7,500 feet and are capable of

handing A320 type Airbuses. They can cater to limited international

traffic, if required. These airports are in Bhubaneswar, Guwahati,

Nagpur, Vadodara, Imphal and Indore.

There are 71 domestic airports, which fall in the category of 'Other'

Domestic Airports. There are also 28 civil enclaves (CE) in Defense

airfields. Twenty of them are currently in operation. Mumbai airport

is the busiest in India and handles about 30% of the total passenger

traffic in the country. The Chhatrapati Shivaji international airport's

share of the country's international traffic is around 40%.

Airports Authority Of India

The Airports Authority of India (AAI) was formed after the merger of

International Airports Authority of India and the National Airports

Authority by way of the Airports Authority Act (No.55 of 1994). It

came into existence on 1st April 1995. AAI manages 5 international

airports, 87 domestic airports and 28 civil enclaves. It provides air

traffic services over the entire Indian airspace and adjoining oceanic

areas.

The AAI also undertakes assignments like airport feasibility studies,

airport design project implementation, project supervision and

manpower training. The AAI has undertaken consultancy projects in

Libya, Algeria, Yemen, Maldives, Nauru and Afghanistan.

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DEVELOPMENT OF CIVIL AVIATION IN INDIA

Travel by air in the modern sense began in India only in 1877, when

Joseph Lyna took off from the Lalbagh Gardens in Bombay, and

ascended to an altitude of about 7,500 feet and landed at Dadra. In

the years that followed, there was a tremendous development of air

transportation in India as in any other countries due to technological

advances and cooperation from the government.

In 1920, the Indian Air board was set up as a part of the Department

of Industries and Labour to provide safe navigation and landing

places and live up to its International Commitments.

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With a view to draw up a plan in anticipating the post-war needs for

civil air transport, the government of India appointed in 1943 the

Reconstruction of Air Services Committee under the chairmanship of

the Director of Civil Aviation. Captain F.C. Tymms, M.C., (later Sir

Frederick Tymms). Armed with vast technical and administrative

experience and an alarming capacity for work, Sir Frederick

submitted by September 1943, a series of carefully thought out

papers on all aspects of post-war aviation. Accepting the basic

recommendation of the Tymm’s report, the government appointed a

Committee in 1944 under the chairmanship of Sir Mohammad

Ushman, a member of the Post and Air Department to follow up the

Tymms plan. After a critical examination of the development of civil

aviation in India, USA and European countries, the Committee

suggested certain measures for the construction of new aerodromes

and air routes by recommending that more local air services be

started and that India should participate in the establishment of

governmental assistance in the form of subsidy atleast in the initial

stage, and introduction of the system of licensing for air carrier

companies. However it had not suggested any ceiling on the

number of such licenses as recommended by the Tymms

Committee.

The cabinet after much discussion and deliberation decided to

nationalize the civil air transport scheduled carriers and to create

two monopoly corporations in the public sector. In March 1953,

India’s Parliament passed the Air Corporation Act, which received

the assent of the President on 20th May.

The main provisions of the Act were that:

“There shall be transferred to and vested in:

Indian Airlines, the undertaking of all the existing Air

Companies (other than Air India International Limited) and

Air India International, the undertaking of the Air India

International Limited (AIIC)”.

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The saga of Indian Airlines began on the 1st of August 1953,

following the amalgamation of eight private airlines. The journey

began with a modest fleet but high aspirations and over the years,

Indian Airlines innovated and upgraded its fleet to emerge as one of

the largest domestic airlines in the world. Today, Indian Airlines,

along with its subsidiary airline, Alliance Air, provides an extensive

network, which encompasses the whole of India - a geographical

area equivalent to Western Europe, besides reaching out to 17

International Stations.

In the last four decades, Indian Airlines has progressed by leaps and

bounds and built an excellent track record of manpower and

infrastructural development. It has thus emerged as a proud symbol

of modern India.

Some of the highlights of this glorious period of evolution include:

Increase in passenger carriage from 0.5 million in 1954-55 to 8.4

million in 1997-98.

Spread of network from 23,000 kilometres in 1953 to 1,18,000

kilometres in 1997-98.

Growth of assets from Rs..21 million to Rs.30, 000 million in

1997-98.

A manifold increase in system seat capacity from 3,070 seats per

day in 1955 to 35,700 seats per day.

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CIVIL AVIATION POLICY

The Ministry of Civil Aviation is the main central agency responsible

for the formulation of national policies and programs for

development and regulation of Civil Aviation and for devising and

implementing schemes for orderly growth and expansion of Civil Air

Transport. Its functions also extend to overseeing the provisions of

airport facilities, air traffic services and carriage of passengers and

goods by air.

The Government recently approved a new policy to promote private

investments in the Aviation Sector. The highlights of the policy are

as follows.

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Foreign equity upto 40% and investment by non-resident

Indians (NRIs) or overseas corporate bodies' (OCBs) upto

100% will be permitted in domestic air transport services.

Equity from foreign airlines will not be allowed directly, or

indirectly, in domestic air transport services. Existing

companies in which equity is held by foreign airlines will be

advised to disinvest this equity.

Entry and exit barriers have been removed. There will be a

scrutiny of applications to verify financial soundness and

maintenance, security and safety aspects of operations.

The choice of aircraft type and size is left to the operator.

To achieve economies of scale, the minimum fleet size for a

scheduled operator has been raised from the existing three

aircraft to five. Also the minimum amount of shareholders'

funds has been increased from the existing Rs.50mn (US$

1.4mn) to Rs.100mn (US$ 2.9mn) for aircraft of all-up weight

below 40,000 kg and from Rs.100mn (US$ 2.9mn) to

Rs.300mn (US$ 8.7mn) for all-up weight exceeding 40,000 kg.

Total capacity requirements in the air transport sector are

being projected for a period of at least five years on an annual

basis, to help the developer make investment decisions.

In the distribution of this capacity, while preference will be

given to Indian Airlines according to its fleet augmentation

plan, private operators' proposals to induct new capacity will

be considered, based on the demand, load factor, past track

record and financial soundness.

All scheduled operators are required to deploy 10 per cent of

their capacity in NorthEast, Jammu and Kashmir, Andaman

and Nicobar Islands and Lakshadweep.

New aviation policy to be implemented this year

Mr. Shahnawaz Hussain has announced that the Aviation Policy

would also focus on the need for setting up joint ventures to develop

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smaller airports, lease out the bigger airports and improve the

existing aviation infrastructure.

INFRASTRUCTURE DEVELOPMENTS

Private sector is now allowed in building airports. Among the private

sector-aided airports to be developed in the next five years are

Hassan (Karnataka), Mumbai, Goa and Bangalore. These airports are

capital-intensive projects that have to be run efficiently to make

them commercially profitable. The Mumbai project, for instance, will

cost an estimated Rs.16bn (US$457mn). The Government has also

decided to concentrate on developing existing airports rather than

on new airports. The AAI is investing Rs.4.4bn (US$125.7mn) to

develop model airports in 12 cities, with state-of-the-art equipment.

Part financing of facilities through a tax paid by embarking

international air passengers is an idea being tried out at Kozhikode,

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which generates large West Asia-bound traffic. A similar method

may be adopted for development of airports in Rajasthan and Goa

that are popular tourist destinations.

Among airport construction projects with private participation, the

Kochi International Airport has progressed the furthest. It has

passed the initial planning and the land acquisition stage. The

project is expected to cost around Rs.1.6bn (US$45.7mn) in the first

phase, and go up to around Rs.3bn (US$85.7mn) finally. In the first

phase, equity will account for Rs.640mn (US$18.3mn), 26% of which

the government of the State of Kerala holds, and the rest by non-

resident Indians, banks, users (airline firms) and contractors. Term

loans and short-term borrowings for working capital from banks will

fund the rest of the project.

The AAI has also drawn up a Rs.40bn (US$1.1bn) plan to modernize

and expand its airspace infrastructure to meet the demand growth

projected for the coming five years. The growth strategy envisages

not only better passenger facilities but also improved navigational

and communication systems. The first phase will involve

upgradation of conventional communication, navigational and

surveillance systems as an immediate measure. The second will be

a transition from the present ground-based ATS systems to satellite-

based CNS/ATM by the year 2000.

The internal resources generated at present being inadequate, the

AAI plans to enhance revenues through rationalization of the tariff

structure, as well as from commercial, cargo and duty-free shops.

Association

IATA - The International Air Transport Associations

History:

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IATA - The International Air Transport Association- was founded in

Haryana, CUBA, IN APRIL 1945. It is the prime vehicle for inter-

airline cooperation in promoting safe, reliable, secure and

economical air service - for the benefit of the world's consumers.

The international scheduled air transport industry is now more than

100 times larger than it was in 1945. Few industries can match the

dynamism of that growth, which would have been much less

spectacular without the standards, practices and procedures

developed within IATA.

At its foundation IATA had 57 members from 31 nations, mostly in

Europe and North America. Today it has over 230 members from

more than 130 nations in every part of the globe.

AIRPORT PRIVATIZATION

The Airport Authority of India, which manages five international

airports, 87 Domestic airports and 28 civil enclaves at defense

airfields, is facing an uphill task, as it for funds, management talent

and its adherence to the government procedures. Government

policies provide for privatization of airports at Delhi, Mumbai,

Calcutta and Chennai through long lease and new developments at

existing airports and Greenfield airports through private initiative.

It's true that there is risk in privatization of airports, since airports

essentially provide public utility services in monopolistic situations.

There are apprehensions that private enterprises are profit

motivated and with privatization users may not get quality services

at affordable prices.

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To begin with, for four airports which the government has decided

to privatize, consultants should immediately put the website details

of assets, traffic figures for the past 10 years and figure projections,

revenue figures existing and projected, profit & loss for last 10

Years, details of manpower, business plans, capital investment

programs etc. This would enable potential investor to start

preparatory work on their due diligence investigations.

Consultants should immediately develop draft terms and conditions

governing lease of these airports clearly bringing out obligations of

new managements in terms of service levels, commitment to

minimum investments for development of airport facilities,

operational standards to meet our national and international

obligations, clauses to deal with emergency situations, termination

in event of breach, etc. These should be discussed with the aviation

industry and finalized.

Government should set up a regulatory Authority whose main

functions would be economic regulation and operational safety

audit. This authority through its statutory powers and intervene if

standards of airport services in terms of safety, reliability and cost

effectiveness are not met.

Some of the states are taking initiative for development of

Greenfield airports and they should be assisted by the Ministry of

Civil Aviation in adopting more professional approach. In the first

instance state governments should develop techno -economic

feasibility reports for airport projects through experienced

organizations / consultants of repute.

Airport Authority of India (AAI) has a large number of airports where

the traffic volumes are low. Private entrepreneurs are not likely to

be interested in such airports, which are not financially viable. These

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airports should be commercialized by exploiting the commercial

potential of airport lands, cost containment, increased productivity

and improved cost recoveries. Thus, some of these airports may in

the next few years reach a stage when they can also be privatized.

There are some other airports with AAI, which could be transferred

to state governments, local bodies or tourism agencies who are in

an advantageous position to operate and manage them more cost

effectively. It is conceded that privatisation is not likely to remove

all the hiccups in the development of aviation sector .We need to

have a model tailored to Indian Conditions, keeping in view the local

laws, rules and regulations in tune with the political philosophy and

psychology of local travelers. The funding pattern should be such

that the investment made is beneficial to the investors due to

monopoly nature of airport business.

Foreign investors do not want to investment in aviation sector in

India, due to abnormal delays in decision making, undue

interference, non- consistent policies of government and to some

extent inflated fear of corruption in India. It's therefore essential

that sectors like aviation be left in hands of professional managers

and the role of bureaucracy should be only custodial and regulatory.

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ALLIANCE STRATEGY

Alliances in various manifestations have come to stay and airlines

around the world are spending agonizing hours deciding who they

will marry and on what terms. The basic reason for all these

alliances and equity partnerships is that the competition is growing

and the World Trade Organization (WTO) is spurring the move

towards “open skies” in the real sense of the word. Multilateralism

in the field of aviation would mean any airline could fly anywhere in

the world without being bound by bilateral agreements like that

exist at present. The impact of these global handshakes is being felt

by smaller airlines, as about 70 percent of the large carriers have

become a part of the various groupings. No individual airline can

match the reach and the connectivity of the large groupings and the

smaller carriers can only watch as the globe is carved up among the

various mega alliances.

As a strategy, an alliance involves

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1) Extensive code sharing and the frequent flier plans

Code- Sharing is where an airline flies on behalf of the other on a

particular sector. The Indian example is that of Indian Airlines and

Air India that share codes in the Delhi-Mumbai as well as in the Gulf

sector. The frequent flier programmes are yet another advantage.

The miles earned on domestic flights can be redeemed on

international flights. The Jet Airways has an alliance with

KLM/Northwest and the British Airways. The passenger who flies on

any of these airlines is eligible for the “Jet Privilege” card subject to

the fulfillment of terms and conditions.

2) It also involves co-ordination of schedules to maximize

loads

By this it implies that the two airlines that were earlier competing

with each other on a particular route compete no longer because of

the alliance. They instead time their flights so that their payload is

maximized and they do not compete against each other. Effective

scheduling of flights does this. When a domestic airline goes into an

alliance with an International airline then the scheduling is done in

such a way that the domestic flight can act as a connecting flight for

the passengers of the international flight. The Indian example of

such an alliance is that of Jet Airways with KLM/Northwest and

British Airways. By this not only the domestic airline has an

increased load factor but the international airline also has an

increased load factor through better connectivity.

3) Route planning

In route planning the alliance partners join hands for a particular

route or a combination of routes. For example if Air Lanka has got

scheduled flights from Colombo to Mumbai, then a passenger from

Colombo can be issued a ticket from Colombo to New Delhi. From

Mumbai to Delhi the alliance partner will carry the passenger.

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4) Joint pricing

As stated above the passenger from Colombo to Delhi can be issued

one single ticket though he shall be availing of the services of two

airlines. This is called as joint pricing where in one of the partner

issues a ticket on behalf of the other.

5) Inventory management

In the aviation industry the inventory costs form a major part of the

cost. The inventories are quite expensive as well. The alliance

partners maintain common set of inventories and this helps in the

reduction of the inventory costs, as a large amount of capital is not

blocked for this.

6) Integration of information technology

This is yet another highlight of a successful alliance. The partners

can have joint reservation, check in and check out systems and can

also use the information technology infrastructure of the alliance

partner.

7) Joint purchasing by the alliance partners

The benefit of scale and bargaining powers can provide great

synergies and the cost reduction to the partners.

Benefit To Passenger

Easy connections across the globe

An easy connection across the globe is made possible as the

passenger has the advantage of flying to such locations where the

international flights do not operate. In such a case the alliance

partner provides the connecting services (provided it has the same

in that region).

Lounge access at various airports

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The advantage of the frequent flier program is also that the

passenger who holds the frequent flier status is eligible for availing

of the lounge services of the alliance partner as well. For example

the “Gold Card” holder of Jet Airways is eligible to avail of the

lounge services of KLM/Northwest and British Airways.

Times have changed to an extent that carriers, who were bitter

rivals once, are now talking about joint sales incentives, sharing

revenues and profits.

Though no Indian carrier is yet a part of the giant global alliances,

Air-India, Indian Airlines and Jet Airways are already in other

alliances like code-sharing, joint frequent flier programs. Airlines

hold hands with each other in several ways depending on their

needs. Of course, the most drastic measure is taking an equity

stake, a method that is actually going out of vogue these days.

Other common ways are Code- Sharing where an airline flies on

behalf of the other on a particular sector. Examples in India are Air-

India and Air Lanka on flights to Delhi, Air- India and Indian Airlines

on domestic flights to Delhi and flights to the Gulf, Jet Airways and

KLM / Northwest. Joint marketing and frequent flier programs co-

operation is another popular measure to tie-up. An example is Jet

Airways frequent flier program “Jet Privilege”, where it has a joint

co-operation with British Airways and KLM /Northwest. This primarily

means that the miles earned on domestic Indian routes can be

redeemed on international flights. A corollary of this is the joint

utilization of reservation, through check in and operational systems.

Other ways of alliance between the airlines for greater

synergies:

1. Block seat arrangements- In this the airlines agree to take up

a certain percentage of seats on another carrier on a particular

route.

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2. Block cargo schemes- For cargo, airlines have block cargo

undertaking to provide a certain tonnage to another carrier; they

can also have Cargo Code Shares between them.

3. Strategic partnership- This is another amorphous term

wherein airline tie-up for long-term commercial gains. This sort of

relationship usually ends up in equity partnership or more

permanent commercial arrangements. The latest example is that of

Singapore Airline taking a 49 percent stake in Richard Branson’s

“Virgin Atlantic”.

RECENT DEVELOPMENTS

The government has given the final nod for the divestment of Air

India. It has been proposed that the government will not fix any

price for sale but will let the market decide the price. The

government has put up 40% of the equity in the airline for sale. The

strategic partner, which the airline has been scouting for, will take

up 40% stake with only a 26% cap to foreign airlines. The line up of

suitors is formidable with a combine of British Airways and Jet

Airways, Singapore Airlines and the Tata's, a consortium led by Air-

France and Delta, Reliance and ITC. Then came British steel baron

Laxmi Mittal who has decided to take the plunge along with Kotak

Mahindra, British Airways and Qantas of Australia.

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As far as Indian Airlines is concerned, the Tata group has bid for it in

addition to its bid for Air India. The Hindujas, the SkyTeam

comprising of Air France and Delta, Emirates and the Indian Pilots

Guild have also submitted their expression of interest. Reliance had

earlier pulled out from the race.

The Disinvestment Minister Arun Shourie has said that the end of

FY01 will see the completion of the privatization process for Air-

India. The government is sadly way off the target (Rs.100bn) as far

as the program for disinvestment goes. It remains to be seen

whether the proposed divestment in Air India does come about by

the set date.

lities as a way to encourage air traffic.

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The Take Off:

Naresh Goyal, Chairman of Jet airways was the one-man show

behind Jet airway’s birth. Goyal started his career as a marketing

executive at the General Sales Agent (GSA) with Lebanese

international airlines in Delhi. He than worked with Iraqi airways for

a couple of years, before joining Royal Jordanian Airlines as a

regional manager. Goyal's diligence & incredible ability to memorize

flight schedules caught the attention of Ali Ghandour, who was then

president & chairman of Royal Jordanian Airlines. Ghandour

introduced Goyal to the wider world of aviation outside India.

In 1974, Goyal decided to get into the GSA business himself

establish Jet air Transportation representing Kuwait Airways & Air

France. Simultaneously, Goyal was appointed regional manager of

Philippine Airlines. Over the next few years, Goyal expanded his

network picking up agencies for some more airlines. He was regular

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member at the AGM of International Air Transport Association(IATA)

the global aviation body .

Meanwhile Goyal turned into NRI & shifted his base to London.

During the same time, Goyal also toyed with the idea of setting up

his own airlines. The opportunity came in early 1990s, with the GOI's

open skies policy permitting private investment (including NRI's) in

the domestic aviation. In April 1992, Jet airways India was set up as

a 100 % subsidiary of tailwind ltd., a company registered I Cayman

islands (situated in the northwest Caribbean sea ) . Kuwait Airway's

& Gulf Air had 40 % stake in tailwind ltd. Soon after being

incorporated as a privately owned airline, Jet airways hired lintas

the ad agency to develop Jet airways 's corporate logo, IMRB the

market research firm to do a consumer survey & Anderson

consulting to do feasibility study & help prepare the business plan.

By 1992, goyal put his start-up team in place. Saroj datta &

B.P.balinga, both directors at Air India, Rolland Thomas from

Malaysia Airlines & Steven Jagannathan from Singapore Airlines

joined the board.

The Success Formula

Jet airways started its operation with leased aircraft's. The idea was

to expand faster by using funds to lease more aircraft's than buying

one or two. Boeing 737 could cost anywhere between $ 40 to $ 50

mn, whereas a monthly lease could be as low as $ 0.4 mn. The most

crucial decision was the choice of aircraft. While Damania, East

West & Modiluft who also started their operations at the same time

opted for the older Boeing 737.200s, Jet airways chose newer

737.300s whose least cost were atleast 40 % higher. four planes

(about three years old) were leased from Ansett Airlines. Although

the 737.300s were more expensive to lease they were more fuel-

efficient (consumed 8% less fuel) & were cheaper to maintain. goyal

felt that young fleet would help attracting customers.

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Analyst felt that by having one type of aircraft-the 737-in its fleet,

Jet airways made the maintenance & flight crew training far

simpler. Spares were common & inventories were lower as well. for

engineers, dealing with one type of aircraft. Balinga claimed that Jet

airways technical dispatch reliability was 99.6 % , which meant that

a Jet airways flight was rarely held up on account of technical

snags.

Jet airways also had another advantage in the form of a readymade

distribution network in sister company Jetair's 85 offices

countrywide through which it had access to a larger market beyond

metros. Unlike other start-ups that started with manual

reservations, Jet airways went in for computerized from day one.

This airlines reservation system, though expensive, delivered

superior service.

Jet airways 's number of employee per aircraft was 163 & a total

employee strength of 4,000 as against Indian Airlines's 397. The

focus was on productivity & cost control. Jet airways was not a

lavish paymaster & increments were modest. Salaries provided were

not as high as foreign airlines offered. Jet airways also invested

heavily to train his pilots. An aviation academy housing the state-of-

art Boeing 737 700 /800 flight simulator & flight training device for

737-400s was set up at a cost of $ 10 mn.

Jet airways 's success was mainly due to its service excellence. Jet

airways always ensured that its service surpassed customer

expectations. Goyal ensured that the attendants & front line staff

were fresh recruits trained in the "jet way"& not people from other

airlines who would bring with them old culture. According to the

frequent travelers, the hallmark of Jet Airways's service was its

cheerful attitude. If flight was delayed, travelers were phoned &

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informed in advanced. Jet Airways's managed to achieve service

excellence, because of being strictly disciplined from the start.

Lapses were not tolerated & the focus was on performance.

Innovations in service

Cabin bag-only passengers can check in at any city counter

Returning passengers can get two boarding passes at one check

in

Business class passengers can customize their meal & drinks

In flight mail-order shopping offers premium products at a

discount

JetMobile offers automated flight schedules over the cell phone

Jet Airways always focussed on the business traveler. To attract &

retain business traveler, it had to offered superior services. Jet

Airways's picked up Indian Airlines's service module as a framework

& borrowed a few ideas from KLM Royal Dutch Airlines for managing

systems. Jet Airways's always believed in keeping close watch on its

customer's service. On all its flights more than 20 minutes long,

light refreshments were served & on longer flight passengers were

served non-alcoholic drinks, cold towels & a three coarse meal. Jet

Airways received 16,500-service monitor questionnaire (SMQ's)

every month & they were analyzed at various levels to plug

loopholes in service. Every new flight attendant was put through at

least three months of training in the first year & thereafter several

more hours of in-flight & class room training.

In December 1999, Jet Airways relaunched its frequent flier program

under the 'jet privilege' (JP) name the (frequent flier program was

initially launched in 1994). JP customers were not required to pay

membership fees. They also did not have to produce boarding cards

or other proof of travel. A passenger can earn free JP miles (points)

by taking a Jet Airways flight. The new programme offered three

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different levels of privileges: J.P Blue, J.P Silver, J.P Gold, depending

on the number of miles accrued or the number of flights flown. J.P

Silver & Gold members could earn bonus miles on all Jet Airways

flights & enjoyed lounge access, Tele check-in benefits. Jet Airways

tied up with international carriers like KLM Royal Dutch Airlines &

Northwest Airlines as a result of which JP members could earn miles

on these airline networks too. They could redeem their miles when

they had earned atleast 10,000 miles or had flown 10 flights. Jet

Airways had tied up with Oberoi Hotels & Resorts, Radisson

Worldwide. Members of JP could earn miles on each stay at any of

these hotels.

In 2001, Jet Airways launched an in-flight, Jet Airways launched an

in-flight mail order catalogue, JetMall for high quality products. The

in-flight shopping programme enabled passengers to browse

through a specially design mail order catalogue which helped them

select products & get them products delivered at home within two

to four hours anywhere in India. Jet Airways claimed that that the

mail order catalogue was at par with the in-flight shopping

catalogue on international flights.

In early 2001, Jet Airways finalized a Rs. 16 bn loan for the purchase

of 10 Boeing 737s to be delivered over next two years. This was the

first deal in India that involved the US Exim Bank & an Indian Bank

along with two offshore special purpose vehicle (SPVs). According to

analyst, the beauty of the deal was that Jet Airways would finally

end up borrowing from indian investors & not from foreign bank.

Performance of jet airways

Performance of jet airways since its formulation in 1992.Over the

years, jet airways has significantly improved its market share from

6.6 % in 1993-94 to 42 % in 2000-01. Right from the start, jet

airways focussed more on customer service rather than anything

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else. It was because of it's superior customer service, that jet

airway's had become the most popular airline in India.

Strategies of jet airways:

It's operations started in India with leased aircraft because buying

an aircraft would have cost jet airways around $ 0.4 million. Jet

airways also started it's operation with the new Boeing 737-300s &

not the older Boeing 737-200s. This was because the new aircraft

were fuel- efficient & maintenance costs were low. Jet airways'

aircraft utilization & number of flights a per day more than of Indian

Airlines. Another reason of jet airways was it's lean structure.

Compared Air India’s 397 employees per aircraft, Jet airways had

only 163 employees per aircraft.

Flying High In The Indian Sky:

In 2001, with revenues of $ 542.18 MN, Jet Airways emerged as the

most popular domestic airlines in india. Jet Airways stated its

operation in 1993;the number of its passengers increased from

0.663 million in 2000-01.by 2001, when other private airlines had

stopped their operations, Jet Airways not only continued to survive,

but had become a formidable competitor to indias national domestic

airlines -(AIR INDIA). Jet Airways seemed to be lone challenger to AIR

INDIA with Sahara Airlines in the third position. Jet Airways's market

share increased to 42 % in 2001 from 6.6 % in late 1990s. In 2001 ,

Jet Airways ran 215 flights per day compared to INDIAN AIRLINES's

208.Unlike the loss making INDIAN AIRLINES, Jet Airways is making

profits. At the end of the first year, Jet Airways achieved average

seat factor close to break-even level of 71 %. Thereafter it broke

even & has been making profits ever since. In 2001, Jet Airways

recorded profits of rupees 125mn compared to AIR INDIA which

recorded a loss of Rs 1.77bn

Table 1 Table 2

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Passenger Carried Market

Share

Years In million Years Numbers

1993-94 0.663 1993-94 6.6

1994-95 1.241 1994-95 11.0

1995-96 1.606 1995-96 12.7

1996-97 2.367 1996-97 19.0

1997-98 3.131 1997-98 25.6

1998-99 4.013 1998-99 32.8

1999-00 4.875 1999-00 38.4

2000-01 5.931 2000-01 41.9

Source: Business Today, July 21, 2001

Table 3

Fleet size

Year Numbers

1993-94 4

1994-95 6

1995-96 8

1996-97 12

1997-98 19

1998-99 25

1999-00 29

2000-01 30

July 2001 33

Source: Business Today, July 21, 2001

Growth of Fleet Size of Jet Airways

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0

10

20

30

40

93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01

years

numbers

Jet airways a favorite with travelers because of its friendlier

approach & new generation cleaner planes more importantly,

seasoned air travelers were that if they have crucial appointments

to keep in other cities, jet airways was reliable than Air India. Jet

airways on time performance & schedules attracted business

travelers who accounted for 80 % of its customer. Jet airways had a

fleet of 33 planes in 2001,(table-3) as against AIR INDIA that had a

57 planes. But Jet airway’s fleet was much younger & average daily

flying time of Jet airways was greater than IA. Greater utilization

meant higher revenues & more efficient utilization of capital assets.

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Bibliography:-

India info line.com

Web site of Airport Authority of India.

CMIE Journal

MMS (Final) Project on Service Industry By Janet Quadris

Business Strategy

Author: Sanjib Dutta & A. Mukund

Title of the Book: Business Strategy

Publication: 2002

Publisher: ICFAI Press

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airlines industry[1]

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