LOW COST STRATEGY FOR DOMESTIC AIRLINES IN SMALL TOWNS.

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1 International Journal of Sales & Marketing Management Research and Development (IJSMMRD) ISSN Vol.2, Issue 3 Sep TJPRC Pvt. Ltd., LOW COST STRATEGY FOR DOMESTIC AIRLINES IN SMALL TOWNS. 1 RAJESH U.KANTHE & 2 JAGADISH G PATIL 1,2 Associate Professor, Bharati Vidyapeeth Deemed University, IMRDA, SANGLI ABSTARCT Airline s product is a service consisting basically of an experience for the passenger; it has to result in various degrees of pleasure or dis-satisfaction from that experience. An airline's market consists of various market segments with different service outlook, Different price sensitivities, different travel motivations The current economic crisis has affected the volume of business class and private flights which have been partially redirected to the offers of low cost carriers. This flow is related to the need of many companies to reduce costs, but does not mean that if the price is right, there is no demand for the service, especially when savings in the ticket price may be counterbalanced by the long hours company executives spend in boarding queues, check in desks, and waiting for delayed flights, missed connections, etc This in turn affects perception about the product. Besides, competition among airlines is hard and the market dynamics of pricing, promotion and distribution are liable to change very rapidly. The challenge for an airline in marketing lies in manipulating its marketing mix viz. product, price, promotion and distribution. This is done to get a passenger in front of its check-in and willing to fly those particular airlines after paying good money; and then transporting him or her away happily to the destination so that the passenger is willing to come back another time and always to the same airline on any route. This is the essence of airline s marketing, unfortunately in country like India the present cost structure of airlines is very much centered on so called rich people. This makes a niche market. KEYWORDS: Airlines, Marketing, Low Cost, Passenger, Railways. Strategies. INTRODUCTION A good business house would be proactive in its viewpoint, and look forward to the needs of customers so that those needs can be integrated into the organization s decision-making process at an early stage (Kotler et al., 1996). This paper is an attempt to figure out the new business model in small cities {three-four tier cities) where the average Indian dream of travelling by air once in life time by paying more than average rail fare. Factors influencing customer satisfaction were investigated through a survey of passengers at miraj junction railway reservation counter.the human interactions, revealed that check-in procedures, source of recommendations on choice of airline, as well as monetary incentives do not influence level of

2 2 Rajesh U.Kanthe & Jagadish G Patil customer satisfaction. On the other hand, the only factor which was discussed was the airfare which found to be the greatest influence on customer satisfaction in INDIAN AVIATION INDUSTRY The first commercial flight in India took-off in, 1911, when a French pilot Monseigneur Piguet flew airmails from Allahabad to Naini, covering a distance of about 10 km in as many minutes. Tata Services became Tata Airlines and then Air-India and spread its wings as Air-India International. The domestic aviation scene, however, was chaotic. When the American Tenth Air Force in India disposed of its planes at throwaway prices, 11 domestic airlines sprang up, scrambling for traffic that could sustain only two or three. In 1953, the government nationalized the airlines, merged them, and created Indian Airlines. For the next 25 years JRD Tata remained the chairman of Air-India and a director on the board of Indian Airlines. After JRD left, voracious unions mushroomed, spawned on the pork barrel jobs created by politicians. In 1999, A-I had 700 employees per plane; today it has 474 whereas other airlines have 350. The Indian Aviation Industry has been going through a chaotic phase over the past several years facing multiple headwinds high oil prices and limited pricing power contributed by industry wide over capacity and periods of subdued demand growth. Over the near term the challenges facing the airline operators are related to high debt burden and liquidity constraints - most sheet. operators need significant equity infusion to effect a meaningful improvement in balance Improved financial profile would also allow these players to focus on steps to improve long term viability and brand building through differentiated customer service. Over the long term the operators need to focus on improving cost structure, through rationalization at all levels including mix of fleet and routes, aimed at cost efficiency. At the industry level, long term viability also requires return of pricing power through better alignment of capacity to the underlying demand growth Historically, the Indian aviation sector has been a foot-dragger relative to its growth potential due to unnecessary, government ownership and regulations of airlines and resulting high cost of air travel. However, this has changed rapidly over the last decade with the sector showing explosive growth supported by structural reforms, airport modernizations, entry of private airlines, adoption of low fare - no frills models and improvement in service standards. Like elsewhere in the world, air travel is been transformed into a mode of mass transportation and is gradually shedding its elitist image.. CIVIL AVIATION POLICY IN INDIA In the context of a multiplicity of airlines, airport operators (including private sector), and the possibility of oligopolistic practices, there is a need for an autonomous regulatory authority which could work as a watchdog, as well as a facilitator for the sector, prescribe and enforce minimum standards for all agencies, settle disputes with regard to abuse of monopoly and ensure level playing field for all agencies. Orderly growth of air transport can be possible in country like india only through low cost

3 Low Cost Strategy for Domestic Airlines in Small Towns 3 airlines for small towns of india where an average Indian wants to fly once in his/her life time.and secondly a watchdog agency which can set Objectives of Civil Aviation like. a) Aviation safety, security b) Effective regulation of air transport in the country in the liberalized environment c) Safe, efficient, reliable and widespread quality air transport services are provided at reasonable prices d) Flexibility to adapt to changing needs. e) To provide all players a level-playing field f) Private participation g) Encourage Trade, tourism and overall economic activity and growth h) Security of civil aviation operations is ensured through appropriate systems, policies, and practices ROARING FARES AND COSTS OF AN AIRLINE OPERATOR IN INDIAN SKIES Indian railways connectivity is phenomenal throughout the nation and at a feasible cost even IIA.C. or 1st A.C..Domestic airlines have to bring up a model which will compete with Indian railways and not with international airlines. Airline is an costlier business but at the same time profitable. Present situations in ATF market and passengers running away from company to company and the availability of substitute in domestic airlines. Railways do operate on large scale and at different fare structure with minimum cost.

4 4 Rajesh U.Kanthe & Jagadish G Patil Source:airlines,indian airways report.2009 Passengers. The cost in airlines maybe true for long journeys but it can be reduced to a massive level in domestic route where the journey will be of maximum 4 hrs.where an Indian middleclass will always carry his water bottle and food with him and secondly he is happy with the entertainment he carries with him. So taking into consideration the costs can be reduced at a noticeable level. The Indian aviation business has been witnessing a remarkable growth in recent years with key drivers being optimistic monetary factors, growth in consumer spending and availability of low fares. It is estimated that by 2010, Indian airports will be handling between 90 and 100 million passengers per year, as against the current 34 million passengers. It is also expected that nearly the low cost carrier segment [LCC] will drive 80% of this growth. The increase in percentage growth rate of domestic sector is far more than that of the international sector. The other factors, which will boost up the domestic sector in next few years, are as follows,: Increase in middle class: A sudden increase in middle class and higher middle class is also seen as the growth factor of certain industries and airlines is one of them. High disposable income: though India s GDP is very low as compared to the developed country standards, but as India s economy is growing even now, the common person can afford to fly by air. LCC (low cost carrier): Due to the emergence of the low cost airlines, every common person can afford to travel which was a rare scenario in earlier days.

5 Low Cost Strategy for Domestic Airlines in Small Towns 5 Glamour s industry. No other industry other than Indian film making industry is as glamorous as the airlines. Airline business person have been admired. Airlines have an sensation of glamour around them, and high net worth individuals can always have an idea of owing an airline The above factors have resulted in a me too rush to launch domestic airlines in India. Apart from this, there are many reasons for shutting down of this industry such as hike in fuel rise, low maintenance etc but due to the above- mentioned factors it will never go down. RESEARCH METHODOLOGY This paper is an attempt to figure out the new business model in small cities {three-four tier cities) where the average Indian dream of travelling by air once in life time by paying more than average rail fare. Factors influencing customer satisfaction were investigated through a survey of passengers at Miraj junction railway reservation counter.the human interactions, revealed that low fares, choice of airline, as well as monetary incentives,brand awareness, influence level of customer satisfaction. On the other hand, the only factor which was discussed was the airfare which found to be the greatest influence on customer satisfaction. Table No. 1 - Table Showing Brand Awareness Level BRAND AWERNESS No. of Respondents Percentages AIR DECCAN 30 40% AIR INDIA 20 27% JET 15 20% SAHARA 10 13% Air Deccan ranked number one in brand awareness. This could be credited to its stay in the market with very low cost. Today, air Deccan has become the same with reliability and efficiency. Air India is offering stiff competition and ranks second in the list. Jet airlines are providing value-add services and is following strongly. The concept of a low-cost, no-frills airline is being merged into having high quality, low-cost carriers. Air Deccan, following the low-cost airlines model, being a relatively new entrant in the market, comes in high on brand awareness. Table No. 2 - Table Showing Customers Travelled By Airlines COMPANIES No. of Respondents Percentages AIR DECCAN 30 40% AIR INDIA 20 27% JET 15 20% SAHARA 10 13% %

6 6 Rajesh U.Kanthe & Jagadish G Patil RATE OF TRAVEL A majority of Passengers travelling on business were found to be more frequent users, while those flying on holidays and emergencies were those that tended to make up the segment that flew less than once a year. Secondly classes of passenger were also found travelling by air as a substitute for train on the kolhaapur-mumbai route when the flights of AIR Deccan were regularly taking off from Kolhapur. Table No. 3 - Consumer Option Factor Opinion No. of Respondents Percentages Price 30 40% Service 20 27% Promotional Schemes 15 20% Flight Schedules 5 7% Comfort with the brand 5 7% % Price appears to be most important factor for the consumer followed by service provided and flight schedules. Services have made it second most popular under services. Whereas promotional activities were seen as a part of marketing strategy by most of respondents. Brand in small towns played very little impact on the consumers in small towns indicating low price as a major driver for growth and substitute for railways. CONCLUSIONS Low cost airfares for the average middleclass who travels by train almost every year is the bigest market for low cost airline and secondly in doing so the overheads or luxury costs like air hostess, tea, lunch, packaged drinking water etc on airlines should not have any place. Secondly the small airport in small cities where a single window operations will work need to be established. Consumer from small towns expects a simple product no meals; drinks and snacks for free, contracted seating, no seat reservation; free-seating. A non-business passengers, reduction traffic, point-to-point traffic with high frequencies, aggressive marketing, secondary airports and competition with all transportation carriers,with these a model like Air Deccan can lead success. Even every state government can start domestic airlines with low fares and earn profits. REFERENCES 1.Study of the Indian Aviation Industry: Ashish Dhawan, Nidhi Mishra, Nithya R, Payal Yadav, B, Siddharth Dahiya, Siddhartha Butalia Rajesh 2. White Paper on India Initiative: Issues in Civil Aviation by the World Travel and Tourism Council 3. Retrieved from

7 Low Cost Strategy for Domestic Airlines in Small Towns 7 4. India Today, Kingfisher in trouble: Vijay Mallya refuses to accept his business model is to be blamed for crisis, 19 November 2011, retrieved 4 December The World's official 5-Star Airlines - SKYTRAX 6. Retrieved from html 7."Domestic Passengers carried by Indian Scheduled Airlines in the Month of May, 2009". Pib.nic.in. Retrieved The Civil Aviation Act, 2000 (Draft) 9 Aviation Week & Space Technology 10 Low-fare Airlines, (2004, July 8). Economist.com. 11 Crises at 50, Business World, Sept. 15, The Sky s The Limit, Indian Express 13. Retrieved from /quotes/ Retrieved from Retrieved from Retrieved from Retrieved From: //