FYP Aviation Industry Analysis

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CHAPTER-1

Understanding & Analysing the Consumer Preference forServices in Aviation Industry
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CHAPTER-1

RESEARCH METHODOLOGY

1.1 RESEARCH OBJECTIVES

The research carried out during the project had many objectives related to the service

quality of the Indian airline industry. Some of the objectives of the research carried out are

listed below:

To study the concept of service quality and dimensions governing service quality.

To study the service quality of different service providers in the Indian aviation

industry.

To measure the service quality with the help of the service quality dimensions for the

service providers.

To compare the service quality of different service providers with Kingfisher airlines

and to find the airline service provider with the best service quality.

To understand the knowledge gap or the gap between the managements perception

about the customer expectations and the customer expectations.

To measure the knowledge gap for the service providers of the Indian aviation

industry.

1.2 RESEARCH METHODOLOGY

The research methodology gives an idea about the type of research design, the sampling

techniques, the process of data collection and the instrument used for data collection. Let us

try to understand all the portions in detail.

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1.3 RESEARCH DESIGN

The research design in this project was descriptive research design. A descriptive

research design describes marketing characteristics or functions. Also it is qualitative in

nature. The project carried out involves measuring service quality with the help of service

quality dimensions which are the attributes for that service provider or the brand. Hence the

project includes describing marketing characteristics or functions and thus it is a descriptive

research design.

1.4 DATA COLLECTION

The data collection in this project was through both the primary and secondary sources.

The primary sources include the customers of the service provider who provided the

primary data. Textbooks, journals, internet websites and othermagazines provided the

secondary data for the project. Hence both primary and secondary data were collected

during the project.

1.5 QUESTIONNAIRE

The instrument used for the collection of the primary data was a structured questionnaire.

The questionnaire is to be filled up by the customers of an airline service provider. The

questionnaire will have closed ended questions or multiple choice questions.

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1.6 SAMPLING TECHNIQUE AND SAMPLE SIZE

The sampling technique used in this project was a non-probability sampling. A non-

probability sampling relies on the personal judgment of the researcher rather than chance to

select samples. The sampling technique in a non-probability sampling was that of a

convenience sampling. Convenience sampling attempts to obtain a sample of convenient

samples. The selection of the samples is left primarily to the interviewer. Often the

respondents are selected because they happen to be in the right place at the right time. The

sample size was kept 200 for the project purpose.

1.7 LIMITATIONS

The limitations of the research carried out for the project are as follows:

Only 4 service providers are taken into consideration while studying the service

quality of the service providers and measuring and comparing them. Hence the

whole industry was not covered.

Moreover only domestic airline services are taken into consideration because of the

constraint of time and accessibility.

Sample size was 200. Hence it cannot be generalized to a larger population.

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CHAPTER-2

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SERVICES

2.1 WHAT IS A SERVICE?

In economics and marketing, service is the non-material equivalent of a good. It is

claimed to be a process that creates benefits by facilitating a change in customers, a

change in their physical possessions, or a change in their intangible assets. Service

provision has been defined as an economic activity that does not result in ownership, and

this is what differentiates it from providing physical goods.

Service has certain characteristics which differentiates it from products or goods. The

features or characteristics of services are as follows:

Intangibility - Services are intangible in nature and this is the basic feature or

characteristic of a service that differentiates it from the products or physical goods. For

example, a student renders educational services cannot see or feel the knowledge

provided by the instructor or the teacher.

Simultaneity - Services are simultaneously produced and consumed. The production

of the service and the consumption of the service take place at the same time. Hence the

services have a characteristic of simultaneity.

Perishability - Services are also perishable in nature which means that if not sold

then cannot be regained. Hence services cannot be stored. In case of an airplane seats not

taken up would remain empty during the entire flight. The service capacity of this flight

has perished and cannot be recouped. Services cannot be returned or resold.
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Inseparability - The services cannot be separated from the people providing the

services. The service can never be separated from the service provider. Hence services

also have the characteristics of inseparability.

Hence these are the characteristics of services. There are many types of services

available. The services can be classified on a particular appropriate basis. Let us try to

classify the service on the basis of industry and target effects.

Heterogeneity - Services are heterogeneous because a service is modified for each

client or each situation. The service delivered can never be the same if delivered again.

Hence mass production of services is difficult. Both inputs and outputs to the processes

involved providing services are highly variable, as are the relationships between these

processes, making it difficult to maintain consistent quality.

Labour intensive - Services are labour intensive. Services usually involve

considerable human activity, rather than a precisely determined process. Human resource

management is important. The human factor is often the key success factor in service

industries.
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CLASSIFICATION OF SERVICES BY INDUSTRY

Services can be classified on the basis of the industry as shown in the table below:

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2.2 TYPES OF SERVICES

There are many types of services and to understand them better, they need to be

classified. The services are broadly classified on the following basis:

CLASSIFICATION OF SERVICES BY TARGET EFFECTS

Services aimed at physical care such as health care, beauty salons, gymnasiums

and restaurants

Services for intangible assets such as banking, legal consultation, accounting,

brokering, insurance and securities services.

Services aimed at the mind of the customer such as education, broadcasting,

information, entertainment and amusement.

Services aimed at physical possessions and tangible assets such as transport,repair and maintenance, cleaning and janitorial, laundry, gardening and veterinary

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2.3 TANGIBILITY SPECTRUM

The dichotomy between physical goods and intangible services should not be given

too much credence. These are not discrete categories.

Most business theorists see a continuum with pure service on one terminal point and

pure commodity good on the other terminal point. This continuum is known as a

tangibility spectrum.

For example, a restaurant provides a physical good (the food), but also provides

services in the form of ambience, the setting and clearing of the table, etc. And although

some utilities actually deliver physical goods like water utilities which actually deliver

water utilities are usually treated as services. Hence there is a pure service and there is

a pure product on the other side of the tangibility spectrum.

Figure 2.3 shows a tangibility spectrum. In the table we can see that salt is a pure

product whereas teaching is a pure service. The fast food outlets can be considered as acombination of services and products as food provided is tangible and service provided in

terms of hospitality and service delivery is intangible.

The airline services are not pure services and not pure products. Airline services are

somewhere in the middle of the tangibility spectrum as shown in the figure by fast food

outlets.

From this we can also conclude that services are different from the products and

hence the marketing of services is also different from that of products. Let's try to

understand the marketing mix for services which is different from the traditional

marketing mix of products.
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2.4 EXPANDED MARKETING MIX

All elements within the control of the firm that communicate the firm's capabilities

and image to customers or that influence customer satisfaction with the firm's products

are as follows:

1. Product

2. Price

3. Place

4. Promotion

The above given marketing is given for products and is also known as 4 P's of

marketing. In case of services the marketing mix is extended. Services have 7 P's of

marketing as follows:

1. Product

2. Price3. Place

4. Promotion

5. People

6. Physical evidence

7. Process

The additional P's of marketing for services have an important role to play. Each of

them has high level of significance in case of services. Lets us try to understand the

expanded marketing mix of services one after the other in detail with suitable examples.


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PEOPLE The frontline or service-provider employee plays a key role in the services

delivery process since it is this category of employee that executes the service promise to

the customer. The important points about people are as follows:

People are the visible face of the service provider. They are the only ones who are

seen and heard by the service recipient. For example, the receptionist at the tax

office receives the returns at the counters. We are not allowed to go in any further

or meet with the taxation officers.

In many cases, they are the only link between the service provider and the customer.

As frontline employees, who are in touch with the customers, they carry out the

function of marketing of the service to the current and potential customers.

Customer satisfaction can be brought about these employees. Therefore, their

satisfaction and motivation are of crucial interest to the service provider.

Only the employees promise enables the service provider to make the marketing

promise to the customer. More importantly, the employees deliver this service

promise to the customers. Thus, they are the crucial element around which the

entire performance of the service provider revolves.

Hence from this we can say that the service provider employee is the kingpin in the

services delivery. They are also known as internal customers. If a service organization takes

good care of internal customers then only they can ultimately satisfy the external

customers. Hence we need to pay greater importance to their psychological and mental

make up rather than mere qualifications.

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PHYSICAL EVIDENCE the physical evidence of a service comes in different forms

and guises. These include the physical aspects of the location of the service delivery such

as the design, functionality, and aesthetics of the place. The air flow, dcor, temperature,

etc. create the right atmosphere for the service delivery. The dress, uniform, appearance,

and facial expressions of the frontline employees form a crucial part of this physical

evidence.

DIFFERENT PHYSICAL EVIDENCE IN DIFFERENT SERVICE SETTINGS

There are essentially three types of encounters between the customer and the service

provider. These are:

The remote encounter: This type of encounter does not bring the two parties face toface but they may be in touch through letter, e-mail, mail order, delivery machines

such as ATM, etc. Railway reservations through Internet, theatre booking,

enquiries, etc. are some examples of this type of encounters.

The indirect personal encounter: This type of encounter occurs on telephone, on

Internet, etc. The two parties are not in face to face contact but have some means of

instantaneous communication. The examples are after sales service phone numbers

and helplines for credit cards and bank accounts.

The direct personal encounter: This is the most common encounter for the services

provision. The customer is in face to face contact with the service provider. The

appearances of the employees, uniforms, settings, etc. all contribute to the

perception of the service quality.

Internal and external environment and tangible elements together constitute the physical

evidence of a service.

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PROCESS This means procedures, mechanism and flow of activities by which a service

is acquired. Process decisions radically affect how a service is delivered to customers.

For example, at a restaurant the process involves certain steps as following:

1. Providing information with the help of a menu

2. Consulting

3. Order taking

4. Delivering the service as per the order

5. Billing

6. Payment

This is a basic and simple process at a restaurant. There can be many such processes for

different services. A process if changed can change the service delivery and hence can also

change the service quality perceived by the customers. Hence process is supposed to be

designed properly. It is also a very important mix of marketing in services.

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CHAPTER 3

SERVICE QUALITY

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3.1 CONCEPT

Quality is defined as " Degree to which a set of inherent characteristic fulfils

requirements" by ISO 9000.

Quality is also defined as Fitness for use by Joseph M. Juran. Fitness in this

definition is defined by the customer.

Quality can also be defined in simple words as Conformance to Requirements as

defined by Philip B. Crosby. The difficulty with this is that the requirements may not fully

represent what the customer wants; Crosby treats this as a separate problem.

Quality has particular parameters or dimensions of measurement. The quality of a

product can be measured on the basis of certain parameters or dimensions as follows:

1. Performance

2. Features

3. Reliability

4. Conformance

5. Durability

6. Serviceability

7. Aesthetics

8. Perceived Image, reputation, brand name, etc.

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The dimensions of service quality are different from that of product quality. The

determinants of service quality are as follows:

1. Reliability

2. Assurance

3. Tangibles

4. Empathy

5. Responsiveness

Initially there were 10 dimensions of service quality which were then reduced to only 5

dimensions later. Assurance is a combination of competence, courtesy, credibility and

security. Empathy is a replacement of access, communication and understanding the

customer. Hence the previous model of 10 dimensions is reduced to model of 5 dimensions.

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3.2SERVICE QUALTIY DIMENSIONS

The service quality dimensions are already listed earlier and now let us try to

understand each and every dimension in detail.

RELIABILITY DELIVERING ON PROMISES

Reliability is the ability to perform the promised services dependably and accurately.

Normally this may be turned as No excuses service delivery. In its broadest sense,

reliability means that the company delivers on its promises promises about delivery,

service provision, problem resolution and pricing. One company that effectively

communicates and delivers on the reliability dimension is Federal Express (FedEx). Federal

Express a courier service organization has positioned itself as a reliable organization in

terms of handling and delivering the packages.

All firms need to be aware of customer expectations of reliability. Firms that do not

provide the core service that customers think they are buying fail their customers in the

most direct way.

ASSURANCE INSPIRING TRUST AND CONFIDENCE

Assurance is defined as employees knowledge and courtesy and the ability of the firm

and its employees to inspire or convey trust and confidence. This dimension is likely to be

particularly important for services that the customer perceives as involving high risk and/or

about which they feel uncertain about their ability to evaluate outcomes, for example,

banking, insurance, and brokerage, medical and legal service.

Airlines also need to provide an assurance to the customers as flying is considered as a

high risk as compared to railways or road transport. Also ships and cruises have to provide

an assurance to the customers.

TANGIBILITY REPRESENTING THE SERVICE PHYSICALLY

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Tangibles are defined as the appearance of physical facilities, equipment, personnel,

and communication materials. All of these provide physical representations or images of

the service that customers, particularly new customers, will use to evaluate quality. While

tangibles are often used by service companies to enhance their image, provide continuity,

and signal quality to customers, most companies combine tangibles with another dimension

to create a service quality strategy for the firm.

EMPATHY TREATING CUSTOMERS AS INDIVIDUALS

Empathy is defined as the caring, individualized attention the firm provides its

customers. Empathy means treating the customers as individuals. The essence of empathy

is conveying, through personalized or customized services, that customers are unique and

special. Customers want to feel understood by and important to firms that provide service

to them. Building relationships is the key factor and helps in building the service quality.

RESPONSIVENESS BEING WILLING TO HELP

Responsiveness is the willingness to help customers and to provide prompt service. This

dimension emphasizes attentiveness and promptness in dealing with customer requests,

questions, complaints and problems. Responsiveness is communicated to customers by the

length of time they have to wait for assistance, answers to questions, or attention to

problems. Responsiveness also captures the notion of flexibility and ability to customize

the service to customer needs.

3.3 MOMENTS OF TRUTH

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Each and every point where a customer comes in contact with the service organization

is known as a service encounter. These points of contact create an image or impression in

the customers mind about the service provider. This service encounter is also known as

moment of truth. Such points of contact thus form moments of truth for a service

provider. This concept was used and formulated by Jan Carlzon who was the CEO of SAS

(Scandinavian Airline Services) during the period 1981-1993.

For example, among the service encounters a hotel customer experiences are checking

in to the hotel, being taken to a room by a bell person, eating a restaurant meal, requesting a

wake-up call, and checking out. In a hospital context, a study of patients revealed that

encounters with nursing staff were more important in predicting satisfaction than were

encounters with meal service or patient discharge personnel. Side from common key

encounters, there are some momentous encounters that like the proverbial one bad apple

simply ruin the rest and drive the customer away no matter how many or what type of

encounters have occurred in the past.

The Disney Corporation estimates that each of its amusement park customer experiences

about 74 service encounters and that a negative experience in any one of them can lead to a

negative overall evaluation. Mistakes or problems that occur in early levels of the service

cascade are particularly critical, because a failure at one point results in greater risk for

dissatisfaction at each ensuing level.

3.4 GAPS MODEL OF SERVICE QUALITY

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The service quality has five dimensions as explained earlier. Also the service quality

has a gaps model in which we can understand different types of gaps in the service quality

which can be filled or closed so as to provide a zero defect service. Different people have

developed different model for the gaps in service quality. The most extensively used and

accepted gaps model of service quality is known as SERVQUAL.

SERVQUAL model consists of five gaps in the service quality. One of the five gaps is

customer gap and the other four gaps are service provider gaps. The central focus of the

gaps model is the customer gap, the difference between customer expectations and

perceptions. Hence this gap is also known as Expectations Gap. Firms need to close this

gap between what customers expect and receive in order to satisfy the customers and

build long term relationships with them.

The four provider gaps are as follows:

1. Gap 1 Knowledge Gap

2. Gap 2 Standards or Design Gap

3. Gap 3 Delivery Gap

4. Gap 4 Communications Gap

CUSTOMER GAP OR EXPECTATIONS GAP

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The difference between customer expectations and customer perceptions creates the

customer gap. While customer perceptions are subjective assessments of actual service

experiences, customer expectations are the standards of, or reference points for,

performance against which service experiences are compared. Customers perceive that they

get what they think they will and should. In practice, a customer gap typically exists.

The Gap 5 shown in the following figure of service quality is customer gap or expectations

gap

GAPS MODEL OF SERVICE QUALITY

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KNOWLEDGE GAP NOT KNOWING WHAT CUSTOMERS EXPECT

This gap is the difference between customer expectations of service and company

understanding of those expectations. Management perceptions about the customer

expectations can be different from the customer expectations. There can be many reasons

behind this gap. Some of them are as follows: Provider may not interact directly with

customers, be unwilling to ask about expectations, or be unprepared to address them.

The key factors leading to this type of gap are as follows:

Inadequate marketing research orientation

o Insufficient marketing research

o Research not focused on service quality

o Inadequate use of market research

Lack of upward communication

o Lack of interaction between management and customers

o Insufficient communication between contact employees and managers

o Too many layers between contact personnel and top management

Insufficient relationship focus

o Lack of market segmentation

o Focus on transactions rather than relationships

o Focus on new customers rather than relationship customers

Inadequate service recovery

o Inevitable service failures

o Not understanding the importance of service recovery

STANDARDS/DESIGN GAP NOT HAVING RIGHT STANDARDS/DESIGN

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The difference between company understanding of customer expectations and development

of customer driven service designs and standards is known as the standards gap or the

design gap. Customer driven standards are different from the conventional performance

standards that most services companies establish in that they are based on pivotal customer

requirements that are visible to and measured by customers.

The key factors leading to this type of a gap are as follows:

Poor service design

o Unsystematic new service development process

o Vague, undefined service designs

o Failure to connect service design to service positioning

Absence of customer defined standards

o Lack of customer defined standards

o Absence of process for setting service quality goals

o Absence of process management to focus on customer requirements

Inappropriate physical evidence and servicescape

o Inappropriate tangibles and physical setting

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DELIVERY GAP NOT DELIVERING TO SERVICE STANDARDS

This type of gap is the difference between the service standards or the service design and

the service delivery. It is the discrepancy between development of customer driven service

standards and actual service performance by company employees. Thus even when

standards accurately reflect customers expectations, if the company fails to provide

support for them if it does not facilitate, encourage and require their achievement

standards do no good.


Deficiencies in human resource policies

o Ineffective recruitment

o Poor employee-technology job fit

o Inappropriate evaluation and compensation systems

Failure to match supply and demand

o Inappropriate customer mix

o Over reliance on price

Customers not fulfilling roles

o Customer lack knowledge of their responsibilities

o Customers negatively affect each other

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COMMUNICATIONS GAP PROMISES DONT MATCH PERFORMANCE

The difference between service delivery and the service providers external

communications is known as the communications gap. Promises made by a service

company through its media advertising, sales force, and other communications may

potentially raise customer expectations that serve as the standard against which customers

assess service quality. The discrepancy between actual and promised service therefore has

an adverse effect on the customer gap.


Lack of integrated services marketing communications

o Not including interactive marketing in communications plan

o Absence of strong internal marketing program

Ineffective management of customer expectations

o Not adequately educating customers

Over promising

o Over promising in advertising

o Over promising in personal selling

o Over promising through physical evidence cues

Inadequate horizontal communications

o Insufficient communication between sales and operations

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CHAPTER 4

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CHAPTER-4

AIRLINE INDUSTRY IN INDIA

4.1 INTRODUCTION

Airlines vary from those with a single airplane carrying mail or cargo, through full-

service international airlines operating many hundreds of airplanes. Airline services can be

categorized as being intercontinental, intracontinental, regional or domestic and may be

operated as scheduled services or charters.

DELAG , Deutsche Luftschiffahrts-Aktiengesellschaft(German: acronym for "German

Airship Transport Corporation") was the world's first airline. It was founded on November

16, 1909 with government assistance, and operated airships manufactured by Zeppelin

Corporation. Its headquarters were in Frankfurt.

Air India was founded as Tata Airlines in 1932, a division of Tata Sons Ltd. (now

Tata Group) by J. R. D. Tata. On October 15, 1932 the founder, J. R. D. Tata flew a single

engined De Havilland Puss Moth registered VT-and carrying air mail (postal mail of

Imperial Airways) from Karachi's Drigh Road Aerodrome to Bombay's Juhu Airstrip via

Ahmedabad. The aircraft continued to Madras via Bellary piloted by Royal Air Force pilot

Neville Vincent

.

Following the end of World War II, regular commercial service was restored in India

and Tata Airlines became a public limited company on 29 July 1946 under the name Air

India.

The airline was set up underAir Corporations Act, 1953 with an initial capital of Rs.32

million and started operations on 1 August 1953. It was established after legislation came

into force to nationalize the entire airline industry in India.

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At the time of independence, the number of air transport companies, which were

operating within and beyond the frontiers of the company, carrying both air cargo and

passengers, was nine. It was reduced to eight, with Orient Airways shifting to Pakistan.

These airlines were: Tata Airlines, Indian National Airways, Air service of India, Deccan

Airways, Ambica Airways, Bharat Airways and Mistry Airways.

The Open-sky policy came in April 1990. The policy allowed air taxi- operators to

operate flights from any airport, both on a charter and a non charter basis and to decide

their own flight schedules, cargo and passenger fares. The operators were, however,

required to use aircraft with a minimum of 15 seats and conform to the prescribed rules. In

1990, the private air taxi-operators carried 15,000 passengers. This number increased to 4.1

lakh in 1992, 29.2 lakh in 1993, 36 lakh in 1994 and 48.9 lakh in 1995.

There has been a revolution in air travel in India in the last decade. Ever since the

government launched its open sky policy and allowed private players to enter the arena

there has been a sea change in the airline industry in India. Air travel has become cheaper

and more affordable and the number of people traveling by air has gone up drastically.

Consequently, Indian Airports too have changed for the better. Airports in India have

become more swanky and passenger friendly.

In the recent past Indian civil aviation sector has grown manifold. The rapid growth of

Indian economy has resulted in a spillover effect on the airline industry in India. Several

new players have entered the industry and many more are about to enter the arena. The

arrival of cheap airline carriers in India has spiced up the whole affair. Suddenly the air

travel is no more the monopoly of the rich and the mighty. Now it has become a common

mans vehicle and revolutionized the way a common Indian traveler used to travel. Here is

a brief preview of domestic airlines in India. This includes private airlines as well as low

cost airlines in India.

A low-cost carrier orlow-cost airline (also known as a no-frills or discount carrier /

airline) is an airline that offers generally low fares in exchange for eliminating many

traditional passenger services. The first successful low-cost carrier was Pacific Southwest

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Airlines in the United States, which pioneered the concept when their first flight took place

on May 6, 1949. Often, this credit has been incorrectly given to Southwest Airlines which

began service in 1971 and has been profitable every year since 1973.

Air Deccan, SpiceJet, GoAir, IndiGo airlines and paramount airways are some of the

low cost carriers in India. Jet airways, Kingfisher airlines and Air Sahara, Air India, and

Indian are not considered as the low cost carriers.

4.2 AIRLINE INDUSTRY IN INDIAPLAYERS

The airline industry in India has a lot of private players as open-sky policy was given

by government in 1990. After this policy many foreign players entered the airline industry

of India. Also government companies like Air India and Indian airlines were a part of the

airline industry of India. The list of existing players in airline industry is as follows:

1. Air India

2. Indian

3. Jet airways

4. SpiceJet

5. Air Deccan

6. Kingfisher airlines

7. Air Sahara

8. GoAir

9. IndiGo

10. Paramount airways

11. Jagson Airlines

There are many low cost airlines which are going to enter the industry within a year or

so. The list of those players which are waiting to take a wing in 2009/2010 is as

follows:

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1. Dev airlines

2. Omega Air

3. Mega airways

4. Magic Air

5. Indus

6. East West

7. Premier Star Air

8. MDLR airlines

4.3 AIRLINE INDUSTRY(INDIA)-CURRENT SCENARIO

The airline industry in India today is facing a huge loss. According to an article in

Businessworld Jan06, for every passenger flying today in India, airlines are losing on an

average roughly $15 i.e. the gap between the revenue and costs; some airlines are losing

than others. At 32 million passengers expected to fly in 2008-09, that works out to $480

million or Rs 2,200 crore. In September 2009, a total of 100,000 seats were available per

day. By December that went to 120,000. Since April 2008, the industry has added 120

aircraft. Airlines are buying planes like they were peanuts and adding capacity at a frenetic

pace. Industry leader Jet Airways has clocked a loss of over Rs 100 crore in the first half.

That Indian industry suffers from the herd mentality is quite evident by the trends in

telecommunications, information technology, BPOthe list is long. Airline has been no

different. Everyone worth his salt has jumped into it at the same time, so there is too much

capacity. Traffic is growing but capacity is growing faster. So to break even, airlines have

to achieve higher load factors than before. That means severe competition and very low

fares. Making matters a lot worse is the obsession with one or two routes. For example,

Delhi-Mumbai has close to 44 flights operating one way

4.4 MARKET SHARE OF MAJOR PLAYERS(DOMESTIC)

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Source www.wikipedia.com

4.5 OVERVIEW OF MAJOR PLAYERS

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4.5.1 INDIAN AIRLINES

Indian Airline is an airline based in Mumbai, India, and focuses primarily on domestic

routes, along with several international services to neighbouring countries in Asia. Indian

Airlines is state-owned, and is administered by the Ministry of Civil Aviation. It is one of

the two flag carriers ofIndia, the other being Air India.

Though the company that owns and operates the airline continues to be named Indian

Airlines Limited, on 7 December 2005, the airline was rebranded as Indian for advertising

purposes as a part of a program to revamp its image in preparation for an initial public

offering (IPO). The airline operates closely with Air India, India's national carrier. Alliance

Air, a fully-owned subsidiary of Indian Airlines, was renamed Air India Regional.

In 2007, the Government of India announced that Indian Airlines would be merged into Air

India. As part of the merger process, a new company called the National Aviation

Company of India Limited (NACIL) was established, into which both Air India (along with

Air India Express) and Indian Airlines] (along with Alliance Air) will be merged. Once the

merger is complete, the airline - which will be called Air India - will continue to be

headquartered in Mumbai and will have a fleet of over 130 aircraft.

History

The airline is set up under the Air Corporations Act, 1953 with an initial capital of Rs. 32

million and started operations on 1 August 1953. It was established after legislation came

into force to nationalise the entire airline industry in India. Two new national airlines were

to be formed along the same lines as happened in the United Kingdom with British

Overseas Airways Corporation (BOAC) and British European Airways (BEA). Air India

took over international routes and Indian Airlines Corporation (IAC) took over the

domestic and regional routes.

Seven former freedom domestic airlines, Deccan Airways, Airways India, Bharat Airways,

Himalayan Aviation, Kalinga Airlines, Indian National Airways and Air Services of India,

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were merged to form the new domestic national carrier. Indian Airlines Corporation

inherited a fleet of 99 aircraft including 74 Douglas DC-3 Dakotas, 12 Vickers Vikings, 3

Douglas DC-4s and various smaller types from the seven airlines that made it up.

Vickers Viscounts were introduced in 1957 with Fokker F27 Friendshipsbeing delivered

from 1961. The 1960s also saw Hawker Siddeley HS 748s, manufactured in India by

Hindustan Aeronautics Limited, join the fleet.

The jet age began for IAC with the introduction of the pure-jet Sud Aviation Caravelle

airliner in 1964, followed by Boeing 737-200s in the early 1970s. April 1976 saw the first

three Airbus A300 wide-body jets being introduced. The regional airline, Vayudoot, which

had been established in 1981, was later reintegrated.

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Old orange logo of Indian Airlines until the mid-2000s

By 1990, Airbus A320-200s were introduced. The economic liberalisation process initiated

by the Government of India in the early 1990s ended Indian Airlines' dominance of India's

domestic air transport industry. Indian Airlines faced tough competition from Jet Airways,

Air Sahara (now Jet Lite), East-West Airlines, Skyline NEPC, and ModiLuft. As of 2005,

Indian Airlines was the second largest airline in India after Jet Airways while Air Saharacontrolled 17% of the Indian aviation industry.

East-West Airlines, Skyline NEPC and ModiLuft discontinued flight operations but the

entry of several low-cost airlines in India, such as Air Deccan, SpiceJet, IndiGo (Interglobe

Enterprise) and others like Kingfisher Airlines continue to give competition in its market,

forcing Indian to cut down air-fares. However, as of 2006, Indian Airlines was still a profit

making airline.

Indian Airlines Limited is wholly owned by the Government of India through a holding

company and has 19,300 employees as of March 2007 Its annual turn-over, together with

that of its subsidiary Alliance Air, is well over Rs.4000 crores (around US$ 1 billion).

Together with its subsidiary, Alliance Air, Indian Airlines carries a total of over 7.5 million

passengers annually.

In December 2007, Air India was invited to join the Star Alliance. Since Indian Airlines is

in the midst of merging with Air India, it too will effectively be a member.

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4.5.2 INDIGO

INTRODUCTION

IndiGo is a private domestic low-cost airline based in Gurgaon, Haryana, India. It operates

domestic services linking 20 destinations. Its main base is Delhi's Indira Gandhi

International Airport. It was awarded the title of Best Domestic Low Cost Carrier in India

for 2008.

5.3.2History

IndiGo Air is owned by an Indian named Mr Rahul Bhatia. The airline commenced

operations on 4 August 2006 with a service from Delhi to Imphal via Guwahati. The airline

is owned by InterGlobe Enterprises. It took delivery of its first Airbus A320 aircraft on 28

July 2006 and received six aircraft during 2006. Nine more aircraft were delivered in 2007

taking the total to 15. Former US Airways Executive Vice-President, Marketing and

Planning Bruce Ashby joined IndiGo as theirChief Executive Officer. The airline has also

acquired 3 parking spots in Indira Gandhi International Airport and Chhatrapati Shivaji

International Airport.

IndiGo placed an order for 100 Airbus A320 family aircraft during the 2005 Paris Air

Show. The total order was worth US $6 billion, one of the highest by any domestic carrier

during the show. The carrier has set a target of serving approximately 30 Indian cities by

2010 with a fleet size of 40 A320 aircraft. The airline will receive all 100 A320 family

aircraft by 2016. The Indian Government has approved the airline's aircraft import plan "in

principle".

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4.5.3 JET AIRWAYS

INTRODUCTION

Jet Airways is an airlinebased in Mumbai, India. It is India's second largest airline after

Air India and the market leader in domestic sector. It operates over 400 daily flights to 80

destinations worldwide.

In July 2008, Which? magazine ranked Jet Airways as the world's best long-haul airline

afterSingapore Airlines.In a poll conducted by SmartTravelAsia.com in September 2008, it

was voted as the world's seventh best airline overall. Jet Airways has also won a surveyaward for the quality of its catering from Which? magazine. Jet Airways also operates two

low-cost airlines, namely JetLite (formerly Air Sahara) and Jet Airways Konnect.

History

Jet Airways was incorporated as an air taxi operator on 1 April 1992. It started Indian

commercial airline operations on 5 May 1993 with a fleet of four leased Boeing 737-300

aircraft. In January 1994, a change in the law enabled Jet Airways to apply for scheduledairline status, which was granted on 4 January 1995. It began international operations to Sri

Lanka in March 2004. While the company is listed on the Bombay Stock Exchange, 80% of

its stock is controlled by Naresh Goyal (through his ownership of Jets parent company,

Tailwinds, and has 10,017 employees (at March 2007)

Jet AirwaysAirbus A340-300E at London Heathrow Airport in 2005 with the 1993-2007

liveryNaresh Goyal, who already owned Jetair (Private) Limited, which provided sales and

marketing for foreign airlines in India, set up Jet Airways as a full-service scheduled airline

to compete against state-owned Indian Airlines. Indian Airlines had enjoyed a monopoly in

the domestic market between 1953, when all major Indian air transport providers were

nationalised under the Air Corporations Act (1953), and January 1994, when the Air

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Corporations Act was repealed, following which Jet Airways received scheduled airline

status.

Jet Airways Boeing 777-300ERat San Francisco International Airport in the airline's new

livery introduced in 2007Jet Airways and Air Sahara were the only private airlines to

survive the Indian business downturn of the early 1990s. In January 2006, Jet Airways

announced that it would buy Air Sahara forUS$500 million in an all-cash deal, making it

the biggest takeover in Indian aviation history. The resulting airline would have been the

country's largest] but the deal fell through in June 2006.

On 12 April 2007, Jet Airways agreed to buy out Air Sahara for 14.5 billion rupees

(US$340 million). Air Sahara was renamed JetLite, and was marketed between a low-cost

carrier and a full service airline. In August 2008, Jet Airways announced its plans tocompletely integrate JetLite into Jet Airways.

In October 2008, Jet Airways laid off 1900 of its employees, resulting in the largest lay-off

in the history of Indian aviation. However, later, the employees have been asked to return

to work. Civil Aviation Minister Praful Patel said that the management reviewed its

decision after he analyzed the decision with them.[9][10]

In October 2008, Jet Airways and rival Kingfisher Airlines announced an alliance whichprimarily includes an agreement on code-sharing on both domestic and international flights,

joint fuel management to reduce expenses, common ground handling, joint utilization of

crew and sharing of similar frequent flier programs.[11]

On 8 May 2009, Jet Airways launched another low-cost airline, Jet Airways Konnect. The

new airline uses spare aircraft from Jet Airways' routes that were discontinued due to low

passenger load factors. It also uses the same operator code as Jet Airways. The decision to

launch a new brand instead of expanding the JetLite network was taken considering the

regulatory delays involved in transferring aircraft from Jet Airways to JetLite, as the two

have different operator codes.[12]

Starting 8 September 2009, several Jet Airways pilots went on a simulated strike by

reporting sick and failing to turn up for duty. The stated reason for the pilots' action is that

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the pilots "are protesting against the dismissal of two senior pilots last month by the

airline."[13] On 9 September 2009, the airline had to cancel over 160 domestic flights due to

this reason.[14]. The five-day strike by pilots ended on 13 September 2009. It led to a

cancellation of 800 flights where more than 400 of the company's pilots called in sick.

According to Indian media reports, the strike cost the airline some $8m (4.79m) a day. [15]

Services

Cabin classes

With the arrival of its new Boeing 777-300ERand Airbus A330-200 aircraft, Jet Airways

has introduced a new cabin with upgraded seats in all classes. The Boeing 777-300ER

aircraft has three classes of service: First, Premire (Business), and Economy. The Airbus

A330-200 aircraft have two classes: Premire and Economy. All Airbus A330-200 and

Boeing 777-300ER aircraft have this feature. Boeing 737 aircraft are configured differently.

Jet Airways has a three-star rated Business and First Class, and is in the top twenty-five

business classes reviewed by Skytrax. Economy class has been reviewed as a three-star

product by Skytrax.Jet Airways First Class Suite on board a Boeing 777-300ER.

First Class

First class is available on all Boeing 777-300ER aircraft. All seats convert to a fully-flat

bed, similar to Singapore Airlines first class seat but much smaller. It was the twenty-

second airline in the world to have private suites All seats in First have a 21-inch

widescreen LCD monitor with audio-video on-demand systems (AVOD), in seat power

supply, and USB ports etc. Jet Airways is the first Indian airline to offer fully-enclosed

suites on its aircraft; each suite has a closable door, making for a private compartment.

Skytrax consumer airline reviewers recently rated Jet Airways First Class as being 14th

best in the world.

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Premire

Premire (Business Class) on the Airbus A330-200 and Boeing 777-300ER international

fleet has a fully-flat bed with AVOD entertainment. Seats are configured in a herringbone

pattern (1-2-1 on the Boeing 777-300ER, and 1-1-1 on the Airbus A330-200), with each

seat offering direct access to the aisle. Premire seats on the A330-200s leased from ILFC

are configured differently in a 2-2-2 non-herringbone pattern. Each Premire Seat has a

15.4-inch flat screen LCD TV with AVOD. USB ports and in-seat laptop power are

provided.

On the short-haul/domestic Boeing 737-700/800, all new aircraft are equipped with AVOD.

All seats are standard recliner business-class seats with a few newer aircraft with electronic

recline and massager.

Economy Class

Economy class on Jet's Airbus A330-200, Boeing 737-700/800 and Boeing 777-300ER

aircraft has 32-inch seat pitch. Seats on the Boeing 777-300ER/Airbus A330-200 have a

"hammock-style" net footrest. The cabin is configured in 3-3-3 abreast on the Boeing 777-

300ER, 2-4-2 on the Airbus A330-200, and 3-3 in the Boeing 737. Each Economy seat on

the 777-300ER/A330-200 has a personal 10.6-inch touch screen LCD TV with AVOD.

Some recently acquired Boeing 737-700/800 aircraft also feature Personal LCD screens

with AVOD.

All three classes feature Mood lighting on the Airbus A330-200 and Boeing 777-300ER,

with light schemes corresponding to the time of day and flight position.

4.5.4 SPICE JET

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INTRODUCTION

SpiceJet is a low-cost airline based in Delhi, India. It began service in May 2005 and by

2008, it was India's second-largest low-cost airline in terms of market share.

SpiceJet was voted as the best low-cost airline in South Asia and Central Asia region by

Skytrax in 2007. Rising fuel costs and increasing competition resulted in SpiceJet posting a

loss in the first quarter of 2008-09. In August 2008, SpiceJet announced plans to raise

US$100 million through foreign investment.

History

SpiceJet was earlier known as jadoo airlines , a reincarnation ofModiLuft. It is promotedby Ajay Singh and the Kansagra family.

SpiceJet marked its entry in service with Rs. 99 fares for the first 99 days, with 9,000 seats

available at this rate.

This deal was followed it up with a Rs. 999 promotional scheme on select routes. Their

marketing theme "offering low 'everyday spicy fares' and great guest services to price

conscious travelers. Their aim is to compete with the Indian Railways passengers travellingin air conditioned coaches.

On 15 July 2008 Billionaire Wilbur Ross suggested he would invest $80 million (about Rs

345 crore) in the low cost airline. The board of directors of SpiceJet accepted an offer in-

principle from the US-based PE firm that would make available about Rs 345 crore to

SpiceJet, a joint statement issued by SpiceJet and WL Ross & Co.

Spicejet names their airlines as the Modi family owns the group which is called the SpiceGroup and also have GSM mobile services in India called Spice Telecom

4.6 Fiscal Issues in Aviation Industry

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Airlines are an important part of the Indian economy. Apart from contributing considerably

to the national exchequer and providing significant employment opportunities, a whole host

of industry sectors from tourism to hospitality.

The high operating-cost environment in India, coupled with the competitive nature of the

Airline business, has resulted in a continued strain on the health of the airlines in India.

Fiscal Issues:

Rationalizing ATF Prices to International

Benchmarks

Withholding tax on leased aircraft

Fringe Benefit Tax

Service Tax

Sales Tax

Cenvat Credit on ATF

Hedging of Aviation Turbine Fuel (ATF)

ATF

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Fuel currently accounts for close to 40% of the total operating costs for airlines in India.

The estimated annual fuel bill for the industry is around USD 1.7 billion, based on

September 2006 rates. There is also a tremendous wastage of fuel in the air & at the tarmac,

due to traffic congestion in Delhi and Mumbai that the airlines have to bear.

Current ATF prices in India (Dec 2009)

Domestic Flights Rs. 39,000 / kilolitre

Following the dismantling of the Administered Price Mechanism (APM) effective April

1, 2001, the prices of ATF in India are based on the International Import Parity Prices,

and directly linked to the benchmark of Platts publication of FOB Arabian Gulf ATFprices (AG); and do not relate to the actual cost of producing ATF in India. ATF prices for

domestic operations also include Freight charges from Gulf to India, Customs Duty of 10%,

domestic transportation and other charges, Excise Duty of 8.16% (including cess).

Even though the ATF supplied at Indian airports (both for domestic and international

operations) is not imported into India but is the product of crude refined in Indian refineries

from imported crude, the 10% Customs Duty is taken into account in fixing .

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Withholding tax on leased aircraft

Section 10(15A) of IT Act of 1961 provides exemption from payment of withholding tax

on lease rental incomes on aircraft and engines earned by a non-resident Lessor from an

Indian company, subject to respective agreements being approved by the Indian

Government. This exemption is currently valid only for lease agreements which have been

signed prior to 31 March, 2007. The non-availability of this exemption subsequent to

March 2007 will significantly increase fleet acquisition costs of Indian carriers, particularly

in a market where demand for aircraft is greater than supply.

The aircraft leasing finance companies have a gross up clause in their agreements whereby

the WHT is paid not by the lessor (lease company), but by the lessee (Indian Airline). The

vast majority of countries too, impose no withholding tax on lease rentals. The few

countries that do impose a WHT, have allowed planning and structural alternatives to

minimize the taxes, such as leasing the aircraft through our existing foreign subsidiaries.

Previously, Australia and Japan had withholding tax laws, but those.

The leasing route is an established industry practice for airlines globally. Major

international leasing companies indicate that the vast majority of countries do not impose

withholding taxes on lease rentals payable. In all cases, the lessors require the leasing

companies to assume the liabilities for any withholding taxes imposed as also of all indirect

taxes applicable such as value added and property taxes. All aircraft and engine lease

agreements thus inevitably contain clauses that require the lessee to gross-up the payments.

The non-availability of this exemption will significantly increase the fleet acquisition costs

of Indian carriers, particularly in a market where demand for aircrafts is greater than the

supply.

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Fringe Benefit Tax

This tax has also been made applicable on

free / concessional passages granted to airline

executives and family

expenses for crew

hotel accommodation provided to passengers due to

delays & cancellations; and

expenses on catering and inflight entertainment.

None of these items can be considered as fringe benefits. There is thus a need to remove

these from the coverage of FBT.

Service Tax

F& J Class tickets: This tax is not global practice, and therefore puts Indian carriers

potential as International network carriers in jeopardy as it increases the total amount a

passenger connecting through India must pay as compared to connections via any other

point.

Service tax on landing, airport & air navigation fees: India has imposed a 10.2% service tax

fee on landing, airport and air navigation fees. This greatly reduces the competitiveness of

India's air transport sector.

Sales Tax

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There is a disparity in the fuel sales tax between Turbo Props and Regional Jets (less than

100 seaters). While Turbo Props enjoy substantially lower sales tax concessions, Regional

Jets which are also deployed on the same routes are charged higher sales tax for their fuel

needs. This is not helpful for the promotion and good health of Indias Regional Carriers.

Sales Tax / VAT are payable on all supplies meant for international voyages irrespective of

the jurisdiction of its consumption. There is a need for extending the same benefit to the

airlines as in the case of exporters where they are exempt from payment of any Excise

Duty / Sales Tax on their inputs on all its procurements dedicated for its international

operations.

Cenvat Credit on ATF

Non-allowance of credit to the airlines on ATF is against the fundamental principle of the

CENVAT provisions resulting in the cascading effect of taxes.

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Hedging of Aviation Turbine Fuel (ATF)

De-regulation of Commodity Hedging is proceeding on a slow path. Domestic airlines haveto procure ATF only through domestic refineries at International Prices. Since they are not

physically importing the commodity, the airlines are not permitted to hedge the commodity.

In a upward moving oil regime, the airlines have no option but to see their input costs

explode and whenever possible, pass on the same to passengers. A similar situation was

faced by local refiners on hedging their refinery margins where the Government and RBI

came out with a notification permitting national oil companies to hedge their refinery

margins without having physical import/exports. At a time when there are concerns of

crude continuing to be floored at USD 50-55 with no apparent ceiling in sight.

An urgent re-look at the present oil/petro products hedging regulations is needed. Domestic

airlines should be permitted to hedge their ATF price risk. Many global airlines have used

fuel hedging for effective risk management for themselves.

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CHAPTER 5

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CHAPTER-5

KINGFISHER AIRLINES

Kingfisher Airlines Limited is a majorIndian airline. Kingfisher operates more than 400

flights a day and has a network of 80 destinations, with regional and long-haul international

services.[1]. Kingfisher Airlines, through one of its holding companies United Breweries

Group, has a 50 percent stake in low-cost carrierKingfisher Red.

Kingfisher Airlines is one of six airlines in the world to have a five-star rating from

Skytrax, along with Asiana Airlines, Malaysia Airlines, Qatar Airways, Singapore Airlines

and Cathay Pacific Airways. In May 2009, Kingfisher Airlines carried more than a million

passengers, giving it the highest market share among airlines in India.

Kingfisher has its registered office in the UB Towerin Bangalore and its head office in the

Kingfisher House in Mumbai.

5.1History:

Kingfisher Airlines registered office at the UB Group Towers in Bangalore, India

The airline started operations on 9 May 2005, following the dry lease of four new Airbus

A320-200 aircraft.[7] Its first flight was from Mumbai to Delhi. At the launch of the airline,

Dr. Mallya said that he is "committed to achieving our ambition of making Kingfisher

Airlines India's largest private airline both in capacity and market share by 2010."

Kingfisher was the first Indian airline to have in-flight entertainment (IFE) systems on

every seat even on domestic flights. All passengers were given a "welcome kit" consisting

goodies such as a pen, facial tissue and headphones to use with the IFE system.

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On 14 July 2008, Kingfisher unveiled its first everWide-body aircraft, a Airbus A330-200

(registered VT-VJL) at the 46th Farnborough Airshow held in July 2008.

On 3 September 2008, Kingfisher started its international operations by connecting

Bangalore with London. On 15 September 2009 the London service was withdrawn.

On 23 February 2010 Kingfisher announced that it would be joining the Oneworld airline

alliance by 2011 subject to regulatory approval

5.2 Cabin classes:

Domestic

Kingfisher First

The domestic Kingfisher First seats have a 48 inch seat pitch and a 125 degree seat recline.

There are laptop and mobile phone chargers on every seat. Passengers can avail of the latest

international newspapers and magazines. There is also a steam ironing service on board

Kingfisher First cabins. Every seat is equipped with a personalized IFE system with AVOD

which offers a wide range of Hollywood and Bollywood movies, English and Hindi TV

programmes, 16 live TV channels and 10 channels of Kingfisher Radio. Passengers also get

BOSE noise cancellation headphones.

Domestic Kingfisher First is only available on selected Airbus A320 family aircraft.

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Kingfisher Class

The domestic Kingfisher Class has 32-34 inch seat pitch with footrests. Every seat is

equipped with personal IFE systems with AVOD on-board the Airbus A320 family aircraft.

As in Kingfisher First, passengers can access the latest movies, English and Hindi TV

programmes, live TV and Kingfisher Radio.

On-board the ATR 72-500s there are 17 colour LCD drop-down screens mounted along

with loudspeakers for audio in the cabin overhead, a head-end unit to handle CDs and

DVDs, and a crew control panel. The screens measure 12.7 cm by 9.3 cm, weigh 0.2 kg

each and are spaced every two or three seat rows along both sides of the cabin.Economy

class meal on-board a Kingfisher Airlines domestic flight

Kingfisher Red

After Kingfisher Airlines acquired Air Deccan, its name was changed to Simplifly Deccan

and subsequently to Kingfisher Red. Kingfisher Red is Kingfisher Airline's low-cost class

on domestic routes. Passengers are given complimentary in-flight meals and bottled water.

A special edition ofCini Blitzmagazine is the only reading material provided.

Kingfisher Airlines is the first airline in India to extend its King Club frequent flyer

program to its low-cost carrier as well. Passengers can earn King Miles even when they fly

Kingfisher Red, which they can redeem for free tickets to travel on Kingfisher Airlines or

partner airlines.

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International

Kingfisher First

The international Kingfisher First has full flat-bed seats with a 180 degree recline, with a

seat pitch of 78 inches, and a seat width of 20-24.54 inches. [15]Passengers are given Merino

wool blankets, a Salvatore Ferragamo toiletry kit, a pyjama to change into, five-course

meals and alcoholic beverages. Also available are in-seat massagers, chargers and USB

connectors.

Every Kingfisher First seat has a 17 inch widescreen personal television with AVOD

touchscreen controls and offers 357 hours of programming content spread over 36

channels, including Hollywood and Bollywood movies along with 16 channels of live TV,

so passengers can watch their favorite TV programmes live. There is also a collection of

interactive games, a jukebox with customisable playlists and Kingfisher Radio. Passengers

are given BOSE noise cancellation headphones.

The service on board the Kingfisher First cabins includes a social area comprising a full-

fledged bar staffed with a bartender, a break-out seating area just nearby fitted with two

couches and bar stools, a full-fledged chef on board the aircraft and any-time dining. A

turn-down service includes the conversion of the seat into a fully-flat bed and an air-hostess

making the bed when the passenger is ready to sleep.

Both Kingfisher First and Kingfisher classes feature mood lighting on the Airbus A330-200

with light schemes corresponding to the time of day and flight position.

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Kingfisher Class

The international Kingfisher Class seats offer a seat pitch of 34 inches, a seat width of

18 inches and a seat recline of 25 degrees (6 inches). Passengers get full length modacrylic

blankets, full size pillows and business class meals. There are in-seat chargers and USB

connectors.

Each Kingfisher Class seat has a 10.6 inch widescreen personal television with AVOD

touchscreen controls. The IFE is similar to that of the international Kingfisher First class.

In-flight entertainment

Kingfisher's IFE system is the Thales TopSeries i3000/i4000 on-board the Airbus A320

family aircraft, and Thales TopSeries i5000 on-board the Airbus A330 family aircraft

provided by the France-based Thales Group

Documents

FYP Aviation Industry Analysis