The Indian Airline Industry

PEST Analysis: A PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firm's control and sometimes present themselves as threats. For this reason, some say that "pest" is an appropriate term for these factors. Let us look at the PEST analysis of the Indian aviation sector: Political Factors In India, one can never over-look the political factors which influence each and every industry existing in the country. Like it or not, the political interference has to be present everywhere. Given below are a few of the political factors with respect to the airline industry: The airline industry is very susceptible to changes in the political environment as it has a great bearing on the travel habits of its customers. An unstable political environment causes uncertainty in the minds of the air travellers, regarding travelling to a particular country. Overall Indias recent political environment has been largely unstable due to international events & continued tension with Pakistan. The recent Gujarat riots & the governments inability to control the situation have also led to an increase in the instability of the political arena. The most significant political event however has been September 11. The events occurring on September had special significance for the airline industry since airplanes were involved. The immediate results were a huge drop in air traffic due to safety & security concerns of the people. International airlines are greatly affected by trade relations that their country has with others. Unless governments of the two countries trade with each other, there could be

restrictions of flying into particular area leading to a loss of potential air traffic (e.g. Pakistan & India) Another aspect is that in countries with high corruption levels like India, bribes have to be paid for every permit & license required. Therefore constant liasoning with the minister & other government official is necessary. The state owned airlines suffer the maximum from this problem. These airlines have to make several special considerations with respect to selection of routes, free seats to ministers, etc which a privately owned airline need not do. The state owned airlines also suffers from archaic laws applying only to them such as the retirement age of the pursers & hostesses, the labour regulations which make the management less flexible in taking decision due to the presence of a strong union, & the heavy control &interference of the government. This affects the quality of the service delivery & therefore these airlines shave to think of innovative service marketing ideas to circumvent their problems & compete with the private operators. Economic Factors Business cycles have a wide reaching impact on the airline industry. During recession, airline is considered a luxury & therefore spending on air travel is cut which leads to reduce prices. During prosperity phase people indulge themselves in travel & prices increase. After the September 11 incidents, the world economy plunged into global recession due to the depressed sentiment of consumers. In India, even a company like Citibank was forced to cut costs to increase profits for which even the top level managers were given first class railway tickets instead of plane tickets. The loss of income for airlines led to higher operational costs not only due to low demand but also due to higher insurance costs, which increased after the WTC bombing. This prompted the industry to lay off employees, which further fuelled the recession as spending decreased due to the rise in unemployment.

Even the SARS outbreak in the Far East was a major cause for slump in the airline industry. Even the Indian carriers like Air India was deeply affected as many flights were cancelled due to internal (employee relations) as well as external problems, which has been discussed later. Social Factors The changing travel habits of people have very wide implications for the airline industry. In a country like India, there are people from varied income groups. The airlines have to recognize these individuals and should serve them accordingly. Air India needs to focus on their clientele which are mostly low income clients & their habits in order to keep them satisfied. The destination, kind of food etc all has to be chosen carefully in accordance with the tastes of their major clientele. Especially, since India is a land of extremes there are people from various religions and castes and every individual travelling by the airline would expect customization to the greatest possible extent. 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. Another good example would be the case of South West Airlines which occupies a solid position in the minds of the US air travelers as a reliable and convenient, fun, low fare, and no frills airline. The major element of its success was the augmented marketing mix which it used very effectively. What South West did was it made the environment inside the plane very consumer friendly. The crew neither has any uniform nor does it serve any lavish foods, which indirectly reduces the costs and makes the consumers feel comfortable. Technological Factors The increasing use of the Internet has provided many opportunities to airlines. For e.g. Air Sahara has introduced a service through the internet, wherein the unoccupied seats are auctioned one week prior to the departure. Air India also provides many internet based services to its customer such as online ticket booking, updated flight information & handling of customer complaints. USTDA (US trade & development association) is funding a feasibility study and workshops for the Airports Authority of India as part of a long-term effort to promote Indian aviation

infrastructure. The Authority is developing modern communication, navigation, surveillance, and air traffic management systems for India's aviation sector that will help the country meet the expected growth and demand for air passenger and cargo service over the next decade. A proposal for restructuring the existing airports at Delhi, Mumbai, Chennai and Kolkata through long-term lease to make them world class is under consideration. This will help in attracting investments in improving the infrastructure and services at these airports. Setting up of new international airports at Bangalore, Hyderabad and Goa with private sector participation is also envisaged. A good example of the impact of technology would be that of AAI, wherein with the help of technology it has converted its obsolete and unused hangars into profit centers. AAI is now leasing these hangars to international airlines and is earning huge profits out of it. AAI has also tried to utilize space that was previously wasted installing a lamination machine to laminate the luggage of travelers. This activity earns AAI a lot of revenue. These technological changes in the environment have an impact on Air India as well. Better airport infrastructure, means better handling of airplanes, which can help reduce maintenance cost. It also facilitates more flights to such destinations. Segmentation: The Airline Industry Most airlines use a very traditional segmentation strategy, dividing passengers into business travelers and economy travelers (mostly leisure travelers). The common strategy is to squeeze as much profit as possible from business class passengers who are attracted by superior services and corresponding high prices and, at the same time, to try and fill the rest of the seats and ensure growth by attracting economy class passengers with lower fares. Business passengers They are crucial for airlines' profitability. With less spare time and more cash in their pockets, they agree to pay a premium price for a premium service.

Today business passengers account for approximately 48% of passengers, and these 48% contribute 66% of airlines' revenue. The premium prices they pay provide wider and more comfortable seats, better choice of meals and seats, luxurious lounges. Airlines can choose from a multitude of premium services to offer to business travelers. Some of these extras range from seats equipped with faxes and telephones, to gambling machines, showers, massage services and suit ironing services in the recently introduced arrival lounges. Business passengers believe it is worth extra money if they can save time and arrive looking fresh for an important meeting. Business passengers will avoid transit flights even if a longer flight could save them money. But amongst other perks, flexible reservation services are probably the most important to them. Reservations for business trips are often made just a couple of days in advance. A no penalty cancellation policy is also very important to business passengers. The best way to reach business travelers is through printed advertising. Business news media, such as "The Economist" or "The Wall Street Journal" are some of the best publications through which airlines can reach business travelers. Many airlines design special promotional programs that target corporate bookers and meeting planners, who are responsible for business trips reservations. Frequent flyer programs are an added bonus for business passengers. Leisure Travelers They represent a totally different market. The most important consideration for most of them is the price. The lower the airfare, the more people will fly the respective airline. By and large, with the exception of wealthy travelers, this segment will not pay extra for premium services and will agree to change several planes during their trip if this option costs less than a direct flight. Despite lower margins provided by this segment, leisure travelers are very important to an airline's bottom line. Part of the reason is that technological progress in the area of tele-conferencing and increased use of the internet for business communications is expected to reduce the number of business travelers. Thus, airlines are counting on the leisure segment to provide further growth.

How can airlines benefit from the growth opportunities in the leisure segment without losing immediate profit opportunities in the business segment? This is a tough issue in airline marketing management. By improving services and reducing prices for economy class passengers, airlines risk that some business passengers will switch to economy class. This has already happened with Japan Airlines, for example, which was forced to eliminate business class seats on some of its flights. On the other hand, if an airline focuses on business class passengers, it risks losing its economy class passengers to another airline. Since business class passengers are not many, a company relying mostly on business travelers will often end up flying half-empty planes, losing the potential revenue generated by lower priced economy seats. On the other hand, few airlines catering solely to economy class passengers can be successful because a low fare carrier must fill the entire plane if it is to generate revenue from its low-margin operations. The allocation of business and economy class seats on a plane is determined through a process called yield management. A good yield manager knows the approximate proportion of business and leisure travelers for each flight in advance, based on sophisticated statistical models. Thus he/she tries to sell early, the economy seats at a cheaper price, while keeping enough seats reserved for business travelers, who usually book at the last minute. Keeping just the right amount of business seats reserved is important: selling too few economy seats in advance may result in a less-than-full plane while selling too many economy seats may result in a full plane, but with insufficient revenue to gain a profit. This kind of segmentation serves airlines well enough when implemented within one company. It would be very difficult for any single airline to target just one of these two segments - business or leisure - successfully. There are exceptions - small regions that serve destinations where the majors do not fly, for example, are in a better position to implement a low price policy. They can even get business travelers to fly them despite the lack of premium services because no other

airline would get them there. Southwest is a classic example, proving that low cost carriers can thrive. Major international carriers, however, need to target both the business and the leisure segments they may also target different ethnic and geographical segments differently, depending on the markets from which they draw the majority of their customers. For example, even though Japan Airlines advertise extensively to the American public, their message -"Your needs. Your Airline," seems to work best for the traditional Japanese audience. Inside one country, two national carriers may also focus on different destinations, which is the case with Canadian Airlines and Air Canada. Passengers' tastes determine airlines' strategies. While British Airways focuses on comfort and luxury, valued by European passengers, Air Canada equips its business class seats with plugs for laptops and telephones, appreciated by North American business travelers. Overall, airlines seem to achieve best results when they subscribe to the segmentation theory, supported by yield management techniques and a careful monitoring of the economic changes in their geographical markets. Product Mix Getting the product right is the single most important activity of marketing. If the product isn't what the market wants, no amount of price adjustment or brilliant promotion will encourage consumers to buy it. The airline product is quite a complex one since it comprises of a service of incorporating the temporary user of airline seat and certain tangible products such as free flight bags or a free bottle of duty free spirit to encourage booking. The airline product includes of two types of services: 1. on the ground services, 2. In-flight services. The on-the-ground services include a convenient airport with car parking facilities, duty free' shopping quick and efficient checking of baggage, efficient service at reservation counter, transport to the airport, etc.

The service provided inside is intangible and is highly variable. The airhostesses are trained to provide polite, warm and courteous service. The courteous service that the representatives at the baggage counter, reservation counter provide goes a long way in developing customer loyalty. The travel agents of the airlines also need to be efficient and polite. Differentiating the Product It is important to recognize that what the consumers are demanding are not products, or features of products but the benefits they offer. Producing added benefits thus helps the marketer to distinguish one product from another. Good design or style of service can form the basis of differentiation. This enables the company to create a personality for its service. The design and decor of the aircraft provides opportunities to personalize their product as well as periodically to update them when differentiation under IATA regulations was virtually excluded, nonetheless, certain airlines were able to develop distinct personalities. Eagle Airlines created an entirely new market between New I York and Bermuda, for e.g. by developing an image of a friendly airline distinctive from other airline serving the route. A similar style was evident in Richard Branson's Virgin Airways. CORE PRODUCT AND SUPPLEMENTARY SERVICES Many services products consist of a bundle that includes a variety of service elements and even some physical goods. It is important to distinguish between the core product that the customer buys and the supplementary services that accompany that product. THE FLOWER OF SERVICE Core product surrounded by clusters of supplementary services Source: Christopher Lovelock pg. 233 The core service of an airline is the service of transport. The supplementary services are classified into eight clusters & each one is analyzed with respect to the airline industry:

Information This aspect of supplementary service is common for every person that needs information about the organization. In case of airline industry, upto date information regarding flight schedules, ticket fares, information about promotion schemes etc available to customers. Customers can avail of this information literally at their fingertips today with every airline starting its own website which gives complete details to the customer & also entertains queries. It also includes providing information to employees regarding new policies affecting the airline & equipping them with enough information, which the customers might demand. Extensive training is provided to in-flight attendants regarding handling customer queries, knowledge about the airplane itself, knowledge about cuisine etc. Consultation This aspect of supplementary services can be customized according to the needs of the customer. It is more in the case of people processing and high personnel-contact services. Airlines are moving more actively into the role of consultant today. They are doing away with the travel agents & designing & selling packaged tours to consumers directly. In this aspect they often act as consultants to the customer, by giving him advice & suggestions regarding the type of plan he can choose, the benefits he will get the mode of travel he should choose etc. Another aspect to consultation at airlines is when the customer approaches the airline regarding traveling to particular destination, the airline gives him a variety of choices of routes that he can take. In some cases airline may also design special menus & benefits in consultation with its frequent fliers by keeping in constant touch with them & asking them for suggestion as to what they want in their airline which will make their experience more comfortable.

Order taking The order taking procedure is essentially the booking procedure of the airlines. The important aspect to be noted here is that the procedure is smooth, easily understood & fast. Reservation of airline tickets is now easy and reliable since it is fully computerized. There are 24 hours reservations. Passengers can specify their seat preferences at the time of reservation. Most airlines use the telephone, fax, and email methods of booking. The emphasis here is on fast booking & at the same time getting the required information form the customer. This is done by establishing a standard reservation procedure & format thus reducing the risk of inconsistent service delivery. The online booking system also facilitates better order taking & processing. The scheduling aspect assumes importance as reservations on the wrong flight to the wrong place are likely to be unpopular. Hospitality & Caretaking With the increased competition today in the airline industry & the increasing similarity of services offered by each airline, hospitality has emerged as a key-differentiating factor between one airline & the other. The hospitality aspect of an airline is tested right form the time of the reservation (courtesy of the booking official) to the airlines desk at the airport to the actual in-flight travel (the attitude of the flight attendants) to the post flight help extended. Safekeeping In airlines the safekeeping issue is that of safeguarding the customers baggage. Baggage allowances are offered about 30 kgs of check-in baggage is allowed. Passengers carrying international tickets are given further allowance of around an added 3Okgs Priority baggage delivery is offered to members. The customers entrust his baggage o the airline & it is the airlines responsibility to keep it in a proper condition.

Children and infants usually travel along with their parents and guardian. In case of unaccompanied minors, customer service staff renders all assistance like checking in and escorting up to the aircraft and handing over to the senior-most cabin attendant on board the flight. He is looked after on board the flight right upto the point flight reaches the destination and he is received by his guardian. Exceptions Special requests airline very often receive special requests form customers with regards to meal preferences, special amenities for elderly people or children., medical needs etc. these needs have to considered & acceded to wherever possible Handling of customer suggestions / complaints every airline today has a customer service center which entertains customer suggestions & complaints. On the flight, customers are often asked for their opinion regarding service equality. Many corporate frequent travelers are consulted when the airline decides to make any new change. Billing & payment The billing procedure in airlines is simple. The options available to the customer are plenty including credit card & travelers cheque. Airlines use the open account system with their corporate clients. Frequent fliers are also given special payment privileges. LEVELS OF PRODUCT FIVE PRODUCT LEVELS The Core Service The core service of the airlines industry is to transport goods and services to various destinations. As the needs of the people increased the entire system became more organized and formal. After this stage comes the various supplementary services.

The Supplementary Services The airline industry has many players they had a brand name like Air India, Jet Airways, British Airways. All of them had some common services to offer like connecting flights, through check-in, tele check in, food on board, and complementary gifts etc. Different classes like economy class, business class were introduced. Air concessions are given to school students, old people etc. Singapore airlines was the first to introduce small 8television screen for every passenger. The freebies are actually win-win deals between airlines and other services. Sahara, for example, offers its passengers a business-plan on two-way economy class ticket, which includes a nights stay with breakfast, STD facility for 3 minutes and boardroom facility at the Park Hotel, New Delhi. To Delhi based fliers to Mumbai, it offers a nights stay with breakfast, airport transfers and VIP amenities at The Orchid, Mumbai. For business class, the plan includes a stay at The Leela, with buffet breakfast and late checkout. All these added service helps the customer to decide upon which airlines he wants to travel. As competition increased and the customers wanted more the next phase evolved and that is the augmented service. The Augmented Service This phase is where the customers expectations are met; the service providers kept working on new methods to meet the ever-changing customers demands. The players introduced online booking, which was very convenient for the service users. British Airways business class has showers; its more spacious and comfortable. Sahara airlines offer its passengers six different types of cuisine like vegetarian, fat free, diabetic etc. They also have auction going on board. Virgin airlines have gambling on board, they also have body massage to offer to their passengers. Air Emirates has something called cab service, they have customized pick up and drop cab service. This phase is the most crucial one; with increased competition service will become the final differentiation.

Future Service As mentioned above the customer needs keep changing, the future is unknown. The customers may be looking in for more frequent inexpensive air travel, something like air taxis, super sonic speed. This decreases the time thus reducing the cost. The diagrammatical representation of the core and supplementary services in the airline industry is shown below:

COMFORT/ SPACE

TICKETS

CONNECTIN G FLIGHTS AUCTION Core TRANSPORT BRAND NAME (Air India, Jet Airways)

FOOD MULTICUISINE CONCESSION S

COMPLEMENTARY GFITS

CAB SERVICE

Price Mix Price plays as much a tool of marketing as promotion plays a critical role in the marketing mix. The concept of 'fair price' is paramount. Buyers judge whether a product is fairly priced by seeing whether it represents value for money. Pricing can be classified in three ways. DIVISION OF FARES: The final fares charged to the passengers include the following components: Basic fares Insurance Inland Aviation Travel Tax (IATT). Passenger Service Fee (PSF) The basic fares include the operating cost incurred by the airlines and the profit margin. The major constituents of the operating cost in respect of domestic airlines in India are the Aviation Turbine Fuel (ATF) the basic raw material for this service industry, varies 30-40 % depending on aircraft utilization; Navigation, Landing & Parking costs 7-10%; Repair and Maintenance 13%, Manpower 12%; Acquisition/ Depreciation & Insurance 13% and balance other expenses. How are fares arrived at? When Airlines put in capacity (seats) and frequency (flights) between any two points, they market research the route in order to arrive at the total potential for that segment. In other words, the capacity and frequency is tailored to the size of the market. Accordingly, the pricing structure is also arrived at. Pricing or fare levels are arrived at after taking into consideration various factors; type of aircraft, configuration of aircraft (number of seats), density of route, competitor activity, and minimum breakeven cost. In order to achieve the breakeven seat factor and thereafter maximize loads, the airline embarks upon a serious of marketing activities. These will vary from a publicity campaign highlighting various facets of the Product, to sales, service, punctuality, ideal

departure and arrival timings, connections and so on. In short, the entire focus is to increase the yield and load factor (seat factor). The yield or the bottom line is the income generated from ticket sales less costs incurred on the route. Why do fares fall? When the yield drops or the seat factor falls, the airline is immediately alerted to enquire into the causes for this. This leads to a fare war wherein the airline either tries to protect its market share or responds to another airline which tries to increase its own market share. The reasons for these can be multifarious. It could be that the route is not profitable due to intrinsic reasons such as a very short haul route, or the potential or total size of the market for this route is too small to sustain a profitable flight or there is too much capacity deployed by various airlines on the route Yields may also fall due to increase in costs. Then the airline has two options; increase fares to compensate for the increased costs. The second option is, to drop fares in order to increase the seat factor. (Increase in volume number with low fares can achieve breakeven cost) It could be that the type of aircraft deployed on the route is not suitable and hence is making cash loses. Extraneous reasons also contribute to non-profitability of routes. The event of September 11, 2001 is an instant example wherein passengers simply stopped flying and several airlines went into bankruptcy. Also poor economic conditions lead to shrinkage of market. Prices of fuel also fluctuate and can result in sudden increase in basic costs. Insurance premiums have recently increased considerably, further adding to the burden. Apart from the above. Competitor activities can also lead to a drop in market share or drop in yields. For example, the most common cause is a reduction in fares by one

airline forces the other to reduce fares. This reduction in fares could be due to any of the above three reasons enumerated above. Reduction in fares, apart from the above reasons is also due to introduction of a more suitable aircraft, which is fuel efficient, modern, and with greater seating capacity at lower cost. In other words reduction in fares is not always due to negative factors but can be due to modernization. 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.

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 atleast 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.

Porters 5 Forces Model:

Bargaining Power of Suppliers: The bargaining power of suppliers in this industry is relatively low. Since the two main suppliers of aircrafts used in this day in age are supplied by Boeing and Airbus there is a low concentration of suppliers in this market. The end effect is that Boeing and Airbus dont really have a whole lot of room to leverage against one another like in another industry where there are a significantly larger amount of suppliers. Since both companies offer relatively the same product at different magnitudes its hard for them to play each other against one another. There is also little to no threat of either Boeing or Airbus doing forward integration and staffing, maintaining and operating their own airline in an industry already so established and global.

Bargaining Power of Customers: The airline ticket market is purely a buyers market. Even with the hike in fuel cost and service cost airlines are offering tickets at prices that are not even profitable. Airlines have been trying to combat low budget carriers recently with moves to limit baggage and reduce load levels to increase profitability. Many carriers have limited the amount of carry-on and checked luggage to 1 in each category with additional fees for additional and overweight items. However the biggest key factor as to why the buyer has the bargaining power is because of the internet. Pricing information on tickets is all over the net, so the information is less fragmented. This gives the buyer a huge advantage because they know all the prices. There is very low switching cost in the airline industry. All the buyer really wants is just a seat on a plane to a certain destination. This is why airline prices are usually pretty similar to one another in terms of price. This clearly benefits the buyer. Threat of New Entrants: The threat of entry at the current time for the airline industry is pretty high. New value carriers such as virgin air allow customers to save substantial money on ticket prices and wipe out industry returns for the already established carriers. Banks at the current times can lend out at pretty good rates due to the current situation in the economy with the interest rates. Equity markets dont look to be very good for raising capital at the moment because of the current situation with the economy at hand. However, opportunities such as Sahara airlines closing down allow for a potential low fixed cost entry when it comes towards purchasing aircraft. Having a whole fleet up for potential sale could be a very attractive option for someone looking to enter the market when compared towards purchasing all new equipment instead. Older carriers still have their legacy and brand names however low-cost alternatives provide customers with better bargains. The biggest benefit the older carriers have is their

hubs which are already established. It is hard for a new entrant to come into the market and establish a hub when the market is already oversaturated. Threat of Substitutes: The availability of substitutes is becoming more of a reality in the transportation industry. Indian countries already have Rajdhani trains sending people across the country at 200 mph. The trains are extremely environmentally friendly when compared to air travel. Environmental friendliness and reducing greenhouse gas emission could encourage people to ride trains even in India if they existed in the transportation market like they do in Europe. Airliners fly on average around 500-550 mph this is not a significant difference between the two speeds of the transportation. Unfortunately for the Indian transportation industry we have not seen this mode of high-speed train transportation finds its way to India. Its a good thing for airlines that it is not because of the environmental advantages and potential convenience of not having to deal with airport security. On a local note towards the industry in the India we could see driving from Hyderabad to Delhi as a better option now because of the increases in traffic safety inspection wait times and other factors. Driving from Delhi takes roughly Two and a half hours while a plane takes almost an hour in the air. However in order to board the plane you have to arrive to the airport at least two hours early and when you arrive in Delhi you have to get your luggage and might have to rent a car. Adding the time wasted at the airport and getting a rental car could easily push the time for air travel over 5 hours. Not to mention it might be more cost effective to drive depending on when the flight is booked. For longer flights rail travel might be an attractive option however a significantly limiting factor in the India is the speed at which rail cars travel at and the fact that the price of rail is not government subsidized like it is in many parts of India. Competitive Rivalry between Existing Players:

India unlike many other airlines is not operating under chapter 11 bankruptcy protection. The India airline industry as a whole just saw one competitor exit in ATA airlines closing down its doors last week. India sees relatively good returns in the market when compared to its competitors. India largest competitor based on the means of the chart created based of the stock prices of the past 5 years. Its important to note that the other 2 major airlines noted in this chart dont have data available before April 2007. The reason for this is because both Jet Light and Indian Airlines operated under chapter 11 bankruptcy. They both started reissuing stock at that time. Indian Airlines does not have stock at the current time because they are currently under chapter 11 bankruptcy. Its important to notice the only stock coming out with a total gain over five years is Kingfisher. Its important to note that both Kinfisher and Jet Light the main competitor to Indian Airlines both bought back stock in the recent financial year. This only makes Kingfisher Airline look even better when compared to Jet Light Airline their main competitor when it comes from in an investment standpoint. Reducing the amount of shares outstanding in the quantity that Kingfishers did was to increase there share price. Their share price has not increased at all when compared to Kingfisher. Competitive rivalry in the airline industry is extremely high. With such a competitive industry and the internet providing direct knowledge on prices across the industry it makes the industry purely a buyers market. Another key factor of the airline industry is that there is very little differentiation between the products sold between companies. Essentially the airline company is selling a plane ticket to a certain destination. With value carriers entering the market we see less importance on service and extra features. Instead customers look for the lowest prices. Industry growth is also slow in this industry because of its maturity. The industry also has very high barriers to exit. Selling off whole fleets of airlines in order to exit the industry is not really realistic. This is why we see so many airline companies operating under chapter 11 all while still remaining competitive in the industry. With the possibility of airlines failing like ATA there might be a chance that its easier to gain entry to the industry but leaving the industry will always be

difficult. Leaving the industry in the style ATA did, leaves an incredible amount of asset losses behind because of the fleet cost. Key Success Factors: The key success factor for airline companies is customers. The attractiveness of the airline to the customer and the ability to get the customer onto the plane is the main key success factors of this industry. In order to fill a plane full of passengers and have minimal open seats the airline must find ways to bring customers on board. Promotional items such as frequent flier miles and business members class allow airlines to create repeat customers. The main thing influencing a travels decision on which airline he/she chooses is the price of the ticket. As seen above in the bargaining power of buyers the airline market is completely a buyers market. Ticket information is available all over the web there is very little thats not known about prices in this industry. The Airline industry as a whole has to really manage its fleets better with the recent information on the FIA and the fines issued to select carriers seen above. These fines are extremely costly and should be avoided at all cost based from an operating standpoint. Another key success factor to the airline industry is also the service provided. Most recently however there has been a drop in demand for services with the amount of passengers selecting low cost carriers such as Kingfishers. Service still remains a key success factor because of the image portrayed by the staff. A larger trend in the industry is the family image. Slogans such as from our family to your family are often seen in this industry. Airline companies like to brand their employee base as a family rather than just an employee base. Kingfishers has been able to avoid offering many services that other airlines offer through this method of friendliness and being part of their family when you fly with them. Lastly an additional key success factor could be the financing side of the airline operation. In an industry with such large equipment cost the ability to finance with both equity and debt markets is a key. Fleet synergy is also a key component to profitability managing large amounts of maintenance parts with large cost associated with them can be difficult.

Having complete fleet synergy can significantly minimize cost. Kingfishers and Jet Light primarily use one aircraft the 737 opposed to the others that have planes ranging from low, mid and long range. The companys filing for chapter 11 above are losing the abilities to access equity markets which are extremely harmful to their business from a financing standpoint. You can see this in the stock diagram above with Indian Airlines and Indigo Airline with how they have just started issuing equity. Its important to note that United is under chapter 11 and has no stock equity. Fleet age is also a significant threat to many companies in the industry with fleets averaging over 20 years old. This brings financing into the question because the companies in bankruptcy may not be able to cover cost associated with replacing aircraft at this time.