INTRODUCTION

Airline Industry in India is one of the fastest growing aviation industries in the world.
With the liberalization of the Indian aviation sector, airline industry in India has
undergone a rapid transformation. From being primarily a government-owned industry,
the Indian airline industry is now dominated by privately owned full service airlines and
low cost carriers. Private airlines account for around 75% share of the domestic aviation
market. Earlier air travel was a privilege only a few could afford, but today air travel has
become much cheaper and can be afforded by a large number of people.

The origin of Indian civil aviation industry can be traced back to 1912, when the first air
flight between Karachi and Delhi was started by the Indian State Air Services in
collaboration with the UK based Imperial Airways. In 1932, JRD Tata founded Tata
Airline, the first Indian airline.

Airline organizations can be classified into a number of segments depending on the

nature and degree of services they provide. Major Indian carriers are pressing their feet
on the accelerator to reach an acme of service level by the year 2010 when their fleet
strength will meet 500 to 550. In the previous two years more than 135 aircrafts have
been introduced to keep up with the increasing number of passenger traffic in Indian
aerospace. A number of domestic airline groups have emerged in a reasonably short span
of time to make the market furiously competitive.
 IMPORTANCE

Growing tourism:
Due to growth in tourism, there has been an increase in number of the international and
domestic passengers. The estimated growth of domestic passenger segment is at 50% per
annum and growth for international passenger segment is 25%. Airlines play an
important role in international tourism. Developing airline services helps the nation to
cash on tourism as more than 85% of the foreign tourist arrives by air.

Improving Infrastructure:
We all know that India's air transport infrastructure is out-of-date. In fact the overall
situation is critical. A recent report by McKinsey suggests that half of India's highly
qualified graduates are located in cities without international airports. Without massive
change, infrastructure will not be able to handle growth. We must move quickly now.
 Benefit all—the government, the airport, shippers, passengers, local communities and
airlines
 Result in greater efficiency—lower costs
 Result in better service levels

Globalization:
Globalization has improved the lives of many in developing nations. Globalization in of
its self is the trading of goods and services of a local economy into an integrated global
economy. Technological advances have made this practice more feasible within the last
50 years. The major milestones were the development of the internet and increased
transportation technology. These two advances made the world coined "flat" and set
the stage for higher living standards.

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 PRESENCE SCENARIO

Revolutionized by privatization along with active participation of the foreign investors,

the Indian airline industry has experienced phenomenal transformation over the last
couple of years. From being a service catering to the needs of the privileged group only it
is now well within the reach of middle class population. This has been the result of
increased competition in the Indian aviation industry due to the presence of a wide
variety of private and public airlines with their low price tags. It was further helped by
the entry of Air Deccan, the first budget airline in India, offering unbelievable tariffs to
the customers.

In the financial year 2006-07 there has been a significant 22.3 percent growth in
passenger traffic in the domestic airports while the aircraft movement recorded a growth
by 14.2 percent.

In terms of the number of flights Jet Airways secures the top position with 8,168 flights
operating till June 2007. Indian Airlines is in second position with 7,562 flights. Sahara
(3,225 flights), Air Deccan (2,889 flights), Spice Jet (483 flights) and Kingfisher Airlines
(367 flights) come thereafter in the list of domestic and national carrier operators.

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 CLASSIFICATION & TYPES

The Indian airline sector can be broadly divided into the following main categories:

1. Scheduled air transport service, which includes domestic and international airlines.

2. Non-scheduled air transport service, which includes charter operators and air taxi
operators.

3. Air cargo service, which includes air transportation of cargo and mail.

Scheduled air transport service: It is an air transport service undertaken between two or
more places and operated according to a published timetable. It includes:

1. Domestic airlines, which provide scheduled flights within India and to select
international destinations. Air Deccan, Spice Jet, Kingfisher Airline and IndiGo are some
of the domestic players in the industry.
2. International airlines, which operate scheduled international air services to and from
India.

Non-scheduled air transport service: It is an air transport service other than the
scheduled one and may be on charter basis and/or non-scheduled basis. The operator is
not permitted to publish time schedule and issue tickets to passengers.

Air cargo services: It is an air transportation of cargo and mail. It may be on scheduled
or non-scheduled basis. These operations are to destinations within India. For operation
outside India, the operator has to take specific permission of Directorate General of Civil
Aviation demonstrating his capacity for conducting such an operation.
At present, there are 2 scheduled private airlines (Jet Airways and Air Sahara), which
provide regular domestic air services along with Indian Airlines. In addition there are 47
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non-scheduled operators providing air-taxi/non-scheduled air transport services.

Apart from this, the players in airline industry can be categorized in three groups:

 Public players

 Private players

 Start up players.

There are three public players: Air India, Indian Airlines and Alliance Air. The private
players include Jet Airways, Air Sahara, Kingfisher Airlines, Spice Jet, Air Deccan and
many more. The startup players are those planning to enter the markets. Some of them
are Omega Air, Magic Air, Premier Star Air and MDLR Airlines

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 ADVANTAGES

1. Foreign equity allowed: Foreign equity up to 49 per cent and NRI (Non-Resident
Indian) investment up to 100 per cent is permissible in domestic airlines without any
government approval. However, the government policy bars foreign airlines from
taking a stake in a domestic airline company.

2. Low entry barriers: Nowadays, venture capital of $10 million or less is enough to
launch an airline. Private airlines are known to hire foreign pilots, get expatriates or
retired personnel from the Air Force or PSU airlines in senior management positions.
Further, they outsource such functions as ground handling, check-in, reservation,
aircraft maintenance, catering, training, revenue accounting, IT infrastructure, loyalty
and programme management. Airlines are known to take on contract employees such
as cabin crew, ticketing and check-in agents.

3. Attraction of foreign shores: Jet and Sahara have gone international by starting
operations, first to SAARC countries, and then to South-East Asia, the UK, and the
US. After five years of domestic operations, many domestic airlines too will be
entitled to fly overseas by using unutilised bilateral entitlements to Indian carriers.

4. Rising income levels and demographic profile: Though India's GDP (per capita) at
$3,100 is still very low as compared to the developed country standards, India is
shining, at least in metro cities and urban centres, where IT and BPO industries have
made the young generation prosperous. Demographically, India has the highest
percentage of people in age group of 20-50 among its 50 million strong middle class,
with high earning potential. All this contributes for the boost in domestic air travel,
particularly from a low base of 18 million passengers.

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5. Untapped potential of India's tourism: Currently India attracts 3.2 million tourists
every year, while China gets 10 times the number. Tourist arrivals in India are
expected to grow exponentially, especially due to the open sky policy between India
and the SAARC countries and the increase in bilateral entitlements with European
countries, and US.

6. Glamor of the airlines: No industry other than film-making industry is as glamorous

as the airlines. Airline tycoons from the last century, like J. R. D. Tata and Howard
Hughes, and Sir Richard Branson and Dr. Vijaya Mallya today, have been idolized.
Airlines have an aura of glamour around them, and high net worth individuals can
always toy with the idea of owning an airline. All the above factors seem to have
resulted in a "me too" rush to launch domestic airlines in India.

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 7P’s

Product

The airline industry is a service that satisfies customer needs for travelling. In the airline
industry the customers can be divided into two segments, business and leisure. While the
airline industry started out as a luxury item, business travel has changed this industry to a
necessity. As we further become a global economy and communication between
international companies intensifies, travel needs continue to increase. The leisure
traveller has always had the need for the airline industry. Satisfying the customer needs
today involves competitive rates, convenient booking of flights and benefits with those
flights.

Some of the problems with this industry are personally experienced by the customers.
The airlines have a difficult time being punctual and this has become the norm in the
industry, although some companies try to avoid it. The industry is highly susceptible to
situations that result in declines in air travel, such as political instability, regional
hostilities, recession, fuel price escalation, inflation, adverse weather conditions,
consumer preferences, labour instability or regulatory oversight.

Airlines are now in the commodity business as the public demands low-priced
transportation. It has moved from elite to a common form of transportation. Today's
travellers know how to surf the web for bargains through a myriad of sites such as Orbitz,
Expedia, Travelocity, Hotwire, and Cheaptickets. As a commodity, airlines cannot
increase prices to increase profits, so their only choice is to cut operating costs such as
labour costs.

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Amid the competition, airlines have refocused their attention on the customers. The
industry still heavily targets frequent flyers, as members can earn miles through
travelling, car rentals, hotels, and credit card use. On overseas flights, business class
seats convert to real flat beds. Soon passengers will have internet access during flights.
Airlines are also catering to the consumer by offering mostly organic menus, while others
are offering meals-to-go before boarding. For travellers pressed for time, many airlines
offer fast check-in, online at home before leaving for the airport; or self-service check-in
kiosks where passengers identify themselves with a credit card, print their own boarding
pass, change their seat, and purchase meal coupons.

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Price

The following are the pricing strategies:

Premium Pricing:
The airlines may set prices above the market price either to reflect the image of quality
or the unique status of the product. The product features are not shared by its competitors
or the company itself may enjoy a strong reputation that the 'brand image' alone is
sufficient to merit a premium price.

Value for Money Pricing:

The intention here is to charge the average price for the product and emphasize that it
represents excellent value for money at this price. This enables the airline to achieve
good levels of profit on the basis of established reputation.

Cheap Value Pricing:

The objective here is to undercut the competition and price is used to trigger the
purchase immediately. Unit profits are low, but overall profits are achieved. Air India and
Indian Airlines have slashed their prices to meet the competition of private airlines so that
they can consolidate their position in the market.

Airlines usually practice differential pricing. There are three classes: The First Class, The
Executive or Business Class and The Economy Class. Fares for each class are different
since the facilities provided and the comfort and luxury level is different in each class.
Seasonal fares are also fixed, fares rise during the peak holiday times.

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Low-cost Pricing:

With the advent of the low-cost airlines in the Indian aviation industry, a different low-
cost flying concept has come up. Since these low-cost airlines are trying to woo the
customers by providing air travel in exceptionally low prices, a price-band kind of pricing
has to be designed.

In low-pricing strategies, the airlines provide very low prices for the flight tickets. Also,
they prices are made cheaper by booking the tickets long before the flight date.

APEX Fares:
In this scheme, people are given very cheap rates only if tickets are booked at least before
the specified time period. But the draw-back here is that if the booking is cancelled, a
substantial amount of money is not returned.

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Promotion

Integrated Marketing Communication

A successful product or service means nothing unless the benefit of such a service can be
communicated clearly to the target market. An organisations promotional mix can consist
of:

 Advertising

 Public Relations

 Sales Promotion

 Personal Selling

 Direct Mail

 Internet / E-commerce

In airline industry all the above methods are use for promotion purpose.

The aims of promotion fall into three main categories: to inform, to remind, & to
persuade. 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 recognize that promotion, or marketing communications

generally, may not always be aimed at potential consumer or end user of service. In many
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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 operators as
well as end user.

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Distribution (Also known as the place variable in the marketing mix, or the 4 Ps)

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 reliable updated information.
For these reason, I.T has been widely adopted such as on-line booking system.

Channel structures vary somewhat by the nature of the service

 Internet booking system

 Telephone reservation system.

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People
The people section of the Marketing Mix is the most important section of the extended
Marketing Mix. It is broken up into three sections: Employees, Consumers and the
Company.

Do we have enough employees to provide a good service? ; Do they have the necessary
personal and professional skills? , Do they understand the brand-values? , Are they
enough motivated or too tired?
Those are questions that airlines companies have to ask themselves, and which answers
are going to have important consequences in the type of service provided.

The analysis of the buyer behaviour is really interesting in this sector. Every individual
have different needs and expectations in this market, so segmentation and positioning
will be also fundamental. Furthermore, it’s normally an industry where, the user follows
all the steps of the buyer behaviour in the selection and purchase of the service. Special
importance have the Information Search by the customer (which is normally more
complete than in other purchases) and beliefs and attitudes, which are the most important
challenges of this analysis because normally have an important weight in the final
decision of the customer. In a market as competitive as this one, a personal bad
experience or just a non favourable belief or attitude can determine the user's choice
forever. That's why the Brand Image is also fundamental for this kind of Companies.

For e.g. A Jain would be satisfied with the service only if he is served Jain food and it
should be kept in mind that the customers next to him are also Jain or at least vegetarian.

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 to make an extra effort to serve their customers.
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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.

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 are being served there can also influence one’s
satisfaction with a service. For e.g. crying children in a nearby seat on an airplane or ill
mannered customer are all examples of unpleasant service conditions caused by a firm's
other patrons.

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Physical Evidence

The service is intangible because unlike a product it can't be experienced before it is

delivered. It is the ability and environment in which a service is delivered. Because it is
intangible customers are at greater risk when deciding whether to use a service, so to
reduce this risk, and improve success, potential customer are offered the chance to see
what the service would be like with the use of testimonials, demonstrations etc. Physical
layout is not only relevant to its promotional materials, but also to the layout and
structure of the organization, and websites. Customers have far higher expectations and
therefore they select the particular service which they know will satisfy their want.

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

They can offer to the consumer more than a fly: additional services, and so they focus
their promotional efforts in communicating that to the potential user.

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Process

The customer service department of any airline company deal with a number of processes
involved in making marketing effective in an organisation e.g. processes for handling
customer complaints, processes for identifying customer needs and requirements,
processes for handling requirement etc.

Example of Jet (Entire Process)

Purchasing process

According to epinions.com, travelers' overall purchasing experiences with Jet have been
very positive. People like how easy it is to choose from the different one-way fares
online to make up a round-trip reservation. Some travelers prefer to use Jettelephone
reservation agents for purchasing their tickets. Overall, these reservation agents have
been described as very courteous and helpful.

Destination Choices

We found many negative reviews on epinions.com when it came to Jet destination

offerings. Several people complained that Jet doesn't offer service (either non-stop or
connecting) to enough destinations. Some complained about Jet operating out of smaller,
less convenient airports (like Poona and Nasik). People also complained that Jet only
offers limited flights per day to some destinations, making travel less convenient for
some.

Overall Customer Service

The 7 Ps - price, product, place, promotion, people, process and physical evidence
comprise the modern marketing mix that is particularly relevant in service industry, but is
also relevant to any form of business where meeting the needs of customers is given
priority.
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 CONCLUSION

Airline industry in India is plagued with several problems. These include high aviation
turbine fuel (ATF) prices, rising labour costs and shortage of skilled labour, rapid fleet
expansion, and intense price competition among the players. But one of the major
challenges facing Indian aviation industry is infrastructure constraint. Airport
infrastructure needs to be upgraded rapidly if Indian aviation industry has to continue its
success story. Some steps have been taken in this direction. Two of India's largest
airports-Mumbai and New Delhi-were privatized recently. Two Greenfield airports are
coming up at Bangalore and Hyderabad in southern India. Investments are pouring into
almost all aspects of the industry, including aircraft maintenance, pilot training and air
cargo services. The future prospects of Indian aviation sector look bright.

The Indian aviation industry has witnessed remarkable growth in recent years, with key
drivers being positive economic factors, including high GDP growth, good industrial
performance, and corporate profitability and expansion. Other factors include higher
disposable incomes, growth in consumer spending, and availability of low fares.

FUTURE PROSPECTS OF INDIAN AIRLINE SECTOR

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Consolidation in the aviation industry: Consolidation will ease competition and give
pricing power to the dominant players and as a result of higher fares even smaller players
like SpiceJet stand to benefit. The air fares for SpiceJet are expected to increase by 7.4%
and 3.6% during FY08E and FY09E respectively.

Due to booming economy, it is believed that the growth in the aviation industry will
continue in the scenario of increased airfares. Generally it is believed that the aviation
sector in any country grows at twice the growth rate of its GDP. In India, the GDP is
growing at more than 7-8% per annum, which makes the growth rate in the aviation
sector to be in excess of 15%. Aviation industry in India is expected to grow at a much
better rate than this because the industry is at a nascent stage with lower base and low
penetration.

Strong passenger growth to boost top-line and profit: Strong passenger growth would
lead to 86% CAGR (Compound Annual Growth Rate) growth in revenues for the next two
years. Increased passenger volume would also help in spreading fixed cost over larger
passenger base there by bringing down per unit cost.

Domestic Passengers: In the last three years, the number of passengers travelling by air
has more than doubled with industry carrying 34mn passenger during FY07. On back of
conversion of upper class rail passengers to air travel and the surging tourism industry we
expect the number of people travelling by air to increase at a CAGR of 25% to 67mn by
FY10E. We expect the revenue passengers for SpiceJet to increase from 2.8mn in FY07
(12 months) to 6.8mn in FY09E, a CAGR of 58%. The expected growth in revenue
passenger is on account of aggressive increase in fleet size from 11 aircrafts in FY07 to
23 aircrafts by FY09E.

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