Case on Air Deccan

Case Study strategic management Evaluation II AIR DECCAN REVOLUTIONISING THE INDIAN SKIES institutionalize break down in India For decades, advertise trip in India was meant for the most elite and powerful in society. An overwhelming majority of make a motionlers who could not afford the prohibitive air stumble fargons, cullred to journey on trains and buses. The revolutionizing effects of liberalization move India with dynamic changes in the melodic phrase sector.From being a service that hardly a(prenominal) could afford, the sector has right away graduated to being a fiercely rivalrous industry with the presence of a number of hidden and public airlines and several(prenominal) consumer-oriented offerings. In ten years of competition in the aviation sector, private airlines permit changed the rules of the game, and they now account for more than than 60 % of the domestic aviation grocery. More and more middle class families in India now prefer air travel to the mor e traditional travel by train. In 2003, 10 meg Indians travelled by air domestically.In 2004, 25 million took to the skies within India and 6 million Indians travelled abroad. The Centre for Asia Pacific Aviation estimates that the domestic Indian market will add 5 million passengers every year for the succeeding(a) five years, ontogeny to 45 million passengers by 2010. Today, the relationship of domestic to international travel stands at 4060 whereas in 1994 it stood at only 2575. tho taking into account a growing middle class with increase and increasing purchasing power, there be 200-210 million potential spenders. The Indian population grows at a rate of 8% per year.Around one hundred million travellers every day on state-owned Indian Railways, If air travel bites into even a blue percentage of this huge pie, thats until now clearly a tremendous growth opportunity. The entry of budget airlines standardised straining Deccan, the introduction of cheap airf atomic number 18s by other domestic carriers, hold in with rising incomes and consumption of the middle class as also their growing aspirations, have created this invigorated paradigm Air travel is no womb-to-tomb for the elite. Air Travel Market The new entrants have caused a deliver in the market share for the old hands.The three legacy airlines, spirt Airways, state-owned Indian and Air Sahara, saw their market share slipping in first quarter of this year. grand Airways, still the leader, found its share of market volumes slipping with 34. 9%. Indian at 23. 9% and Air Deccan at 10% fol mortifieded suit. low-down-cost airlines are certainly giving a sticker time to full service carriers whose market share has dipped, as has their revenue. Fares have been sla mould drastically and both Jet Airways and Indian are causa the consumers with special schemes and promotions.Several new entrants such as Air Deccan, SpiceJet, GoAir, mogulfisher and prevailing have begun to dot Indian airspa ce, garnering a market share of more than 31% in the first quarter of 2006. The leader among this brat-pack is clearly Air Deccan the airline has doubled its market share to 15. 2 per cent. Kingfisher and SpiceJet have captured a market share of 8. 3 per cent and 6 per cent respectively. Coimbatore-based predominate Airways has publicly confirmed garnering 0. 3% of the market. Jeh Wadias GoAir is also going massive guns by cornering 1. 6% of the air traffic in a minuscule time span.These airlines took to the skies after the first quarter of last year. every the airlines have seen an increase in the number of passengers carried in the first quarter. With all the start-ups mean significant increases in capability this year Kingfisher (fleet may go up to 20 planes), Deccan (38 planes), SpiceJet (12/14 planes), Go (7/9 planes) and Paramount (10 planes) the market is nock to sizzle. The market is gearing up for an adventurous ride of price wars as six more lower-ranking-budge t airlines waiting in the wings Jagson Airlines, King Air, Mega Airways, Indus Air and Megapode Airline.IndiGo has made its entry as well, with determined plans to induct 100 aircraft into its fleet. According to analysts, airfares will hold on to nosedive, as nigh 200 new aircraft will be added to the existing 250 aircraft in the outlandish. All this translates to further downward revision of fares and packaged offers for passengers. Lessons The case is replete with illustrations of how senior pilot Gopinath crafted the confederation from scratch. He went on a boot strapping mode, which is the hallmark of a successful entrepreneur. The constancy of advise, focus and humility are evident.His world power to brain opportunities from chance encounters (such as a visit to the USA or the atomic number 34 Asian countries) are out of the ordinary experience. These and many a(prenominal) other qualities are a must have list of qualities of a successful entrepreneur. Anyone aspir ing to fall out in an entrepreneurial venture will do well to copy these qualities, among others. Rise of Air Deccan It fool away me like a ton of bricks. This country has a population of a billion, but only 15 million air passengers. May be the time is right. If one billion hoi polloi can fly, and we get a miniscule percent of the market, imagine how heavy(a) that will be?Its not an impossible imagine. headman Gopinath, in The Hindu, Sunday, venerable 15, 2004 Air Deccan, Indias first Low-cost Airline (LCA), started off with more of a whimper than a bang in September 2003 with an aborted maiden escape valve from Hyderabad that didnt quite make it off the ground when a fire stone-broke out in one of its engines. Adding to the embarrassment was the presence of the then labor union Minister of State for Civil Aviation, Pratap Singh Rudy and other senior Indian politicians on the flight. The press had a field day criticizing the maestro behind the havoc Captain Gopinath, t he Managing Director of Air Deccan.There were many prophesies of doom by competing airlines and industry analysts who were convinced that the bad publicity with which the airline took off would purpose away customers. Captain Gopinath, however, remained unfazed and calmly went about doing what he did best bring home the bacon at the task that he had set out to do. Making a shaky start with just two ATR turbo-prop aircraft in September 2003, Air Deccan now gets 75 flights a day to around 32 destinations in India and has increased its fleet to three Airbus 320s and seven ATR 42s. This flock of aircraft is constantly growing.As of March 2004, Air Deccan has recorded annual revenues of $120 mn (Rs. 5520 mn) with a passenger load as high as 83% across sectors and some routes like Bangalore-Hyderabad and Bangalore-Goa, recording 100% loads (Exhibit 1 and 2). In December 2004 Captain Gopinath cut a deal with Airbus, the worlds largest manufacturer of polite aircraft, for the purchase of 30 A320 aircraft valued at over $1. 4 bn. The words of these new aircraft will commence in 2007. While the airbus will operate on trunk routes, the smaller dromes will be connected with ATRs.The company has signed a deal with ATR for supply of 30 aircraft over the next few years, of which half will be on lease and the perch will be purchased. A distinctive strength of Air Deccan tete-a-tete any of the big three airlines in the country (Indian Airlines, Jet Airways and Sahara) is its ability to penetrate into the small towns of India. This provides the company almost an exclusive access , to 75% of the population of the country that lives in small towns and rural areas. Air Deccan has been subservient in getting the disposal to open up many of these small town airports, some of which had fallen into disuse over the years.In rail line to the swanky airports of the big cities Such as Mumbai and Chennai, these more modest cousins impoverishment very little investment on the pa rt of the government to recommission them and the airport terminal is often no more than a tin shed or a thatched hut. But according to Captain Gopinath, What the hell, they serve their purpose. This obsessive focus o costs and functionality is perhaps what best epitomizes the ism of the main behind Air Deccan. The Low Cost Business precedent A popular mantra Air Deccan triggered the race to the bottom in the low cost sector.Their model forced the industry to move from having simple economy, line of products and first class fares, to multiple slab tariffs such as apex fares, cyberspace auctions, special discounts, bulk purchases and last day fares. Some of the tariffs offered are so low that they have brought airline fares neck-to-neck with upper class railway fares. This low cost model is two-fold offering connectivity between smaller cities and major metros and fashioning air travel a feasible option to a new class of passengers. The features and benefits of the model are lis ted in the table below Features BenefitsTicket little travel & Online ticket sales Reduction of huge costs of printing No international offices and processing tickets. Use of consequenceary city airports Lower landing and parking costs in No frequent flyer points secondary city airports No free food & beverages/in-flight magazines High seat capacity due to nil storage of food No club lounges negligible training (of pilots) and Same aircraft types maintenance (of spares for different types of aircrafts) costs. Separate ticket for each sector/flight No premium class Short drop back flights Quicker turnaround and higher aircraft utilization Challenges and constraints still persist * India is a very cost conscious society, hence market is very sensitive to air fares * Internet based solutions limited-Bandwidth restrictions and low internet penetration * changing needs of the business traveller puts more pressure on the travel agents to offer wide variety * Travel agents still the first survival of the fittest for air bookings * While aviation is centrally managed, the regional structure of Indias government and regulations, combined with the often regional management of airline companies, has created a fragmented market for corporate travel.STRATEGY The challenges that the company has to face are now only beginning. In the initial stages of the company, many of the established players (Indian Airlines, Jet Airways and Sahara) would have trivialized the company and not expected it to reach the level it has reached now . Suddenly, the company has appeared as a big dot on the microwave radar screen ofthese well-established players. The existing paradigm is that running an airline requires large funding, something that Captain Gopinath lacked. Hence, the existing players would have concluded that this venture was bound to fail.However, there was a lot ofentrepreneurial creativity manifested by Captain Gopi that helped him make his dream a reality, and tod ay Air Deccan is a force to reckon with. Besides, many other me too low cost airlines are already on the anvil. The Government and the realities are also things to reckon with. Participant teams may identify other challenges as well. How Captain Gopi and his team will deal with all these determine challenges will make observation interesting. Strategy as per the porters force modelKingfisher Red Oct. 17MUMBAI, India Kingfisher airlines has signed up with Air-Deccan to spoil out the Bangalore-based low-cost airlines extra ASKMs (available seat kilometres) on category 2, 2A and 3 routes. The Vijay Mallya promoted airline will buy about 800,000 ASKMs for the months of October and November, which will enable it to continue its expansion on the metro routes. The DGCA guidelines require airlines flying on the primary election routes to fly a certain percentage of their total flights on other, less popular routes.Growth Indian Travel is on a giveheres why In India, travel and tourism military action is expected to grow by 8. 0% per annum in real scathe between 2007 and 2016. As per World Travel and Tourism Council (WTTC), India will protrude as the second-fastest growing tourism economy globally between 2005 and 2014, second only to by China. Successful promotions such as the Tourism Ministrys hit Incredible India multimedia campaign and the budget air travel apprehend are reckoned to have contributed to the tourism gold rush. SummaryIndian Skies are experiencing a new dawn * Rising income and consumer confidence in expose markets-personal travel demand on an increase * Travel liberalization meeting place pace * Leisure travel increasingly more affordable * Low Cost Carriers are reshaping air travel, leading to regional liberalization * brand hotels with air routes have discovered India in exotic places like Goa and the northmost East * Airport privatisation of Mumbai and Delhi progress and confidence develops in creating tourism base