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Question: 1
What is the market structure prevalent in the Indian aviation sector?
The number of airline players in the Indian aviation declined by nearly
half between 2005 & 2014. Can this statement be taken to safely
conclude that the degree of market power within Indian aviation
increased/doubled during the period?
The market structure prevalent in the Indian aviation industry is
oligopoly. This can be measured by the CR4 index i.e. the
concentration ratio of the top four players. Concentration ratios are
the most common measures of market power. The four-firm
concentration ratio measures the percentage of total industry output
attributable to the top four companies. Another measure of
concentration is
the Herfindahl-Hirschman Index.
2005:
Players
JET AIRWAYS
NACIL
AIR DECCAN
AIR SAHARA
2014:
Players
INDIGO
SPICE JET
NACIL
JET AIRWAYS
Market share
36.1
30.8
12.1
11
Total
Market share
29.5
19.8
19.1
17.1
90% (Oligopoly)
HHI-2500
Total
85.5% (Oligopoly)
HHI-2000
From the above table it can be inferred that the market power has
reduced currently when compared to 2005. But this can be accounted
to a number of new players evolving, mergers and acquisitions etc.. In
this type of market the biggest threat is new entrants. Only the players
who were able to operate effectively still remain. There have been
cases of price wars between them. Thus the market power is still low
and the demand supply curve will be kinked. If one player raises the
price, the others wont. Where as if one lowers the prices the other
players will try to offer even lower prices. This has limited the power of
the airline operators in the market since they do not operate by
collusion or cartels.
Question: 2
What are the barriers to entry faced by new entrants, such as
AirAsia India, in the Indian aviation market?
From the above analysis it is obvious that the Indian aviation industry is
not suitable for new entrants but for a company who are well established
abroad and are known for LCC operation, the Indian market with (60-70%)
being held by LCC should be a very easy target. But this requires the right
set of strategies like routes, pricing, promotions and the must of all the
efficient operations. It is known that a dozen or so operators went out
because of their operational losses than any other factor.
Allianc
Spice
Jet
Go
Jet
Air
e
Factor Indigo Jet
Airways
Air Kingfisher Lite India
Air
PLF
85.1 82.5
78.6
78.2
78
72.9 66.6
BELF 71.7 81.2
78.6
79.3
95
70.3 99.6
AirAsia
80
64
AUR
10.9
9.8
11.9
13.5
10.9
9.9
7.4
16
100
90
80
70
60
50
40
PLF
BEL
F
30
20
10
0
AUR
From the above charts it can be inferred that AirAsia has the lowest
breakeven load factor of 64% and also it has the highest operating
time of 16 hours and also a record turn around time of 20 minutes.
These parameters will lead to operational efficiency, which is the
prime need in the aviation industry. Thus the pricing policy of any
rivals will not affect AirAsia is anyway because of the following
reasons
1
2
3
4
5
Also AirAsia has promised to cut the fares by 35% because it can
afford to do so. Whereas the other players do not have the freedom
or resources to take a loss by lowering their prices. Thus in any
pricing war, AirAsia can quote the lowest and be safe.
Question: 6
What strategies should AirAsia follow to survive and grow in the
Indian aviation market?
VRIO analysis:
Resource
Valuable
Rare
Costly to
Organizatio
n
Advantage
Aircraft
Yes
Load factor Yes
No
Yes
imitate
No
No
Human
Resource
Yes
Yes
Yes
Operations Yes
Yes
Yes
Yes
Temporary
Temporary
Sustainabl
e
Yes
Sustainabl
e
Sustainabl
Breakeven Yes
Yes
Yes
Yes
e
load factor
AirAsia must capitalize on its internal strengths to compete in the Indian
market.
Aircraft: The aircraft must be leased rather than owning them. This
gives a competitive edge because the average age of the fleet will be
less when compared to others. The maintenance costs will be low. This
is an effective strategy adopted by airlines like Indigo.
Load factor: The load factor of 80% though appears to be satisfactory,
other Indian LCCs like Indigo and Spice Jet have a load factor of
around 85%. This means effective scheduling and operations. AirAsia
must concentrate on increasing its load factor to gain a competitive
advantage.
Human resource: A well-motivated human resource is the success
behind every operation. Thus the focus on trainings and other skill
development should be high. Also analysis says that the lack of skilled
manpower may be a problem in the future. Lack of adequate trained
and skilled workforce would pose a challenge.
Operations: All the airlines that have shut down all these years are
due to poor operations and operation losses. Data says that the total
operation losses amount to around INR 260 billion. This explains the
importance of efficient operations in the airline industry. Thus to
facilitate effective operations the following must be done;
1 Fuel hedging
2 Fuel saving aircrafts in the crew
3 Optimizing crew and aircraft utilization
4 Superior airline management system
5 Automation of baggage handling process
6 Lowest turnaround time