The secret of flying high

The greatest paradox faced by Indian Aviation Sector is that it is serving one of the worlds fastest growing economies yet it is estimated that the industry has accumulated losses of nearly 15,000 cr in 2010-11, up from 7,038 cr in 2009-10. Lets have a look at what went wrong in the first place. There are a lot of factors that have come together and impacted the airline industry. One of them is the valuation of the rupee, which has fallen substantially against the dollar over the past year. Most of the airline companies costs are in dollars and therefore their bottom lines have taken a hit because of the rupees fall. Fuel is another cost that has proven to be unmanageable for the airlines. Jet fuel, like petrol, is not subsidized by the government and bears the brunt of high prices/taxes to enable oil marketing companies to sell diesel, kerosene and cooking fuel (domestic LPG) at subsidized prices. Fuel costs have risen to almost 30% of total cost for airlines in India compared to around 10-15% for airlines in other parts of the world. Direct investment by foreign airlines could perhaps help, but that proposal has also stalled after the furious uproar that followed the proposal to introduce FDI in retail. The airlines have also suffered because of the price war. This has proved to be beneficial to the travellers but all airlines have made almost nothing out of the huge growth in domestic travel because of the low fares. Looking at all the above issues, the only way to achieve profits in the current aviation sector is redefining business models and a proper focus on effective cost cutting India currently has one of the highest operating cost environments for airlines anywhere in the world. Worse, costs continue to rise: Delhi Airport recently announced it would introduce a 340 percent hike in airport charges from 1 April, spread across two years. The country's biggest carrier, Air India accumulated losses of Rs 13,500 crore and country's second largest private sector airlines Kingfisher accumulated losses of over Rs 4,000 crore. Right now, Indigo Airlines is the only profit making airlines with a yearly profit of Rs 650 crore. Air India has always been monopolizing governments attention and creating problems for the private carriers by discounting fares that they are forced to match. If strong reforms are not implemented to curb this, there is no way the situation can improve by pumping more tax payers money into problem-ridden aviation sector. Government intervention can at best be only a temporary measure to infuse liquidity, but it will not guarantee the industrys revival.

But will all this help in any ways? The main factors resulting in higher costs of airline industry fuel, aircraft leases and maintenance are not going to be solved with the continuous decrease in Indias growth rate and a weak government plagued by corruption and scandals. Kingfisher's poor financial performance stands in contrast to its award-winning performance for service. It is the only Indian airline and one of seven globally to have a five-star rating from UK-based aviation consulting firm Skytrax. But Kingfisher may be a victim of its business model that focuses on the upper-end flier market that was decimated during the slowdown of 2008-2009. But Vijay Mallya showed that he is determined to stick to his model by announcing closure of Kingfisher Red, the low-cost arm. On the other end, the rest of the Indian aviation industry has done well as lowcost carriers. Jet now runs more than half its services under the low-cost brand it started in 2009, Jet Konnect. It is in tough times like these that comparatively newer and smaller IndiGo Airlines has proved to be innovative and shot up to the top of the food chain by reinventing the low-cost airline model slashing costs where its customers wouldn't feel the pinch. Started in 2006, Indigo has built a viable business over the past five years. Kingfisher, in contrast, entered the business by acquiring the low-cost Air Deccan in 2005. Both airlines have operated in the same business environment. If anything, Kingfisher held two advantages. One, it inherited the infrastructure, staff and expertise acquired from Air Deccan; and two, Mallya forged an alliance with Jet Airways, the nations biggest, to smoothen out any competition. Still, Kingfisher eschewed the low-cost model and appears to have concentrated on forcing its airhostesses to wear designer outfits two sizes smaller and signing up cricketers for its commercials. Indigo, on the other hand, built a powerful lowcost model, even though it may be forcing some of its airhostesses to wear standard wigs.

Still, the contrast between Kingfisher and Indigo is telling. While Kingfisher is teetering on the brink, Indigo is believed to be readying an initial public offering. The key innovation was simple. Like Tata Motors did with the Nano, Indigo leveraged India's huge potential market to form a cost-cutting partnership with suppliers by buying 100 new A-320 jets from Airbus, purchasing at volume to ensure a lower price and a partnership-type commitment on maintenance thus reducing its cost of operations before it sold its first ticket. Indigo turned regular business travelers into loyal customers because it never acted like a budget airline. The rapid turnaround of its planes (22-25 minutes

against an industry average of much more than 30 minutes) was the key to the ge company making money. They also have a good replacement policy where the hey airplanes, which are more than 5 years old, are either returned back to the manufacturers or they have been sold at a lesser price to other countries airline companies IndiGo differentiated itself from the word go It has positioned itself as an airline go. that is always on time. And it follows its positioning like a religion. T The aircraft is always near capacity. Even if it takes off late, it makes up for lost time during the journey and never fails to announce that it has arrived on time at the destination, followed by its recently received awards and accolades. It consistently drives the on time every time notion home and gives the impression that customer is part of a prestigious service. For communicating the positioning, a smash hit television commercial was premiered in March 2010 having the tagline on on-time. With conveyor belts and assembly lines and workers indistinguishable in their uniform spiffiness, the ad projects assembly line efficiency. Toward the end of the TVC, the voiceover quips in an upbeat voice, We become the worlds most powerful economy on time. And so brand IndiGo is served up with a side of futuristic patriotic pride. Hows that for subliminal?

Despite market instability, this India's youngest airline has ia's completed a successful first five years of domestic operations and set trends considered fresh for the Indian aviation industry. These include the much-blogged-about about cute hair-dos for airplane crew. dos And adverts like "Sleep with yo your wife tonight" which won IndiGo airlines an award at the world low lowcost airlines Asia Pacific awards in 2010 in Singapore.

Apart from a wonderful positioning perfect communication and an efficient positioning, operations strategy to back the positioning, another thing that highlights IndiGo is its attention to detail. It went beyond the basics to reinvent the first first-time flyer segment. In a country where other carriers shared passenger-stair vehicles and the top airline still had to have disabled passengers carried up the staircase to plane by ground crew Indigo crew, brought in lar larger passenger ramps from day one. Similarly, the company equipped check check-in staff with hand-held scanners that held allowed passengers without baggage to avoid the dreaded scrum at the counter. IndiGo has roving check check-in counters where passengers with only cabin baggage can check-in with an IndiGo official with a handheld device, rather than in lining up at the check-in counter. It also gives the customers the freedom to carry in their own eatables and snacks on board And as a nice little addition, flight attendants manning the beverage carts addressed even lowly economy class passengers by name (with the aid of the seating chart). IndiGo has thus proved that innovation is the only thing that survives even in toughest of times. Also companies should not shy away from cost cutting. All the external factors affecting the industry are affecting this airline too, but it has found a way around them and the other airlines should definitely take a cue from this he this.