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Nottingham University Business School

MBA Programme
[MARKETING (N14M04-E1)]

AirAsia: The Indian Challenge


(48 Hour Individual Exam Report)

[Racha Zohour Adi]; Student ID: [013142]

Original Copy [1]

Word Count: 3,030 (Excluding Table of contents, Executive Summery, Tables, References and Appendix)
AirAsia: The Indian Challenge

Table of Contents

Executive Summary: ................................................................................................................................ 3


Introduction: ........................................................................................................................................... 4
Marketing Environment Analysis: ............................................................................................................ 4
1. Political-Legal:.............................................................................................................................. 5
2. Economical: ................................................................................................................................. 5
3. Sociocultural: ............................................................................................................................... 6
4. Technological: .............................................................................................................................. 6
5. Natural: ....................................................................................................................................... 6
6. Demographics: ............................................................................................................................. 7
AirAsia Situational Analysis against the Marketing Environment .............................................................. 8
SWOT Analysis ..................................................................................................................................... 8
Strength........................................................................................................................................... 8
Weakness ........................................................................................................................................ 8
Opportunities .................................................................................................................................. 8
Threats ................................................................................................................................................ 9
Product Market Growth: ...................................................................................................................... 9
Market Positioning ................................................................................................................................ 11
Integrated Marketing Communications Strategy.................................................................................... 12
Conclusion:............................................................................................................................................ 15
References: ........................................................................................................................................... 15
Appendix ............................................................................................................................................... 18
Background information about Indian Economy ............................................................................ 18
Business Scenarios of TATA-SIA Joint Venture ................................................................................ 19

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AirAsia: The Indian Challenge

Executive Summary:

AirAsia, the leading low cost carrier in Asia-Pacific region, has started its new expansion plan
into the massive Indian aviation market as an LCC domestic and international operator. As the
first foreign operator in this huge competitive market, it’s crucial for AirAsia to implement
efficient marketing strategies in order to meet its objectives. The marketing environment is
threatening but promising and has high potentials and opportunities, and with the strengths of
AirAsia the decision of entering the Indian market is a worthy challenge. However, AirAsia
should position itself basing on its competitive advantage as an ultra-low cost carrier who is
going to develop the connectivity of Indian aviation routs and with keeping costs as low as
possible by efficient aircraft utilisation. In order to build its brand identity in India, AirAsia must
employ all marketing communication platforms basing on Indian consumers behaviours and
what they are mostly affected with.

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AirAsia: The Indian Challenge

Introduction:

The aviation sector is a major contributor to India’s economy, it provides 1.7 million jobs
through its long supply chain and which are 10 times higher than average jobs in terms of
productivity and income (Oxford Economics, 2011). The aviation market has 150 million
travellers through its airports and is expected to reach 450 million by year 2020 which will make
it the third largest aviation market globally. (IATA-The International Air Transport Association)

These numbers are tempting for any foreign airline operator and indicate a promising
opportunity, according to United Nations Conference on Trade and Development, India is the
second most important foreign investment destination after China. But until late 2012, the
Foreign direct investment policies in relating to foreign companies did not allow these
companies to own more than 20% of stake in Indian carriers, as soon as the 1996 policy has
been revised to allow up to 49%, the major leading low cost carrier in Asia-Pacific (AirAsia)
announced its aggressive expansion plan into the Indian market by forming a joint venture with
TATA Sons and Amit Bhatia by 49%,30% and 21% of holding respectively, forming the subsidiary
(AirAsia India).

Entering the Indian aviation market as the first foreign operator is a huge multi-faceted stride
for AirAsia and upsurges crucial questions. Given the marketing environment forces in India and
the new customers base, is it a feasible opportunity for AirAsia to enter this challenge? What
are the procedures which can be taken by this leading operator to dominate or even survive
this predatory market and how they can be implemented? And what types of marketing
strategies and communications can be employed to gain its market position especially under
the situation where one of its shareholders TATA Sons owns another airline operating in the
same market?

This report is aiming towards addressing those key questions, by analysing the Indian aviation
market environment against AirAsia’s situational analysis, and obtains findings in order to reach
recommendations for strategies which could be implemented to serve the objectives of the
expansion plan of AirAsia.

Marketing Environment Analysis:

An extremely competitive market with 21 currently operational airlines varying between Full
Service Carriers (FSC) such as the national flag carrier Air India and Jet Airways (which offers low
fares on regular basis) and mostly to Low Cost Carriers (LCC) which are currently dominated by

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AirAsia: The Indian Challenge

SpiceJet, IndiGo and GoAir. Multiple other airlines have exited the market due to this stiff
competition which caused financial losses to airlines like (Kingfisher), which was a major
operator but exited the market in 2012.

Each two of three seats flying through domestic routes are operated by LCCs which makes it of
the highest percentage in the world. This is a very competitive market and each airline is
striving to provide high levels of quality service and more focus on customer satisfaction. LCC
on-time performance and reliability, consistency, cabin crew service standards and ground
product mostly on IndiGo, are equivalent with or even better than on FSCs. The Baggage
allowances on discount fares are the same on all carriers.

However, the costing structure for these airlines is significantly different, which will lead to
these operators shaping distinguished market propositions which may range from the ultra-low
cost model to the hybrid and the premium full service level.

There are major environmental forces which affect the marketing environment for aviation
sector in India, these factors are as following:

1. Political-Legal:

The new updated rule by FDI of allowing 49% for foreign airline investments rather than only
institutional and individual investors has shifted Indian aviation sector from regional to global. It
will open the Indian airlines to more opportunities but also to high threats. The foreign
operators will be able to control their revenue from Indian market and thus control the local
growth ambition, strategic and financial gains. All in all, the local airlines are not under the
protection of the state anymore, and foreign investments are queuing to enter the market. The
government has also allowed the code sharing policy to take place among certain airlines,
which increases flight costs efficiency.

2. Economical:

Indian aviation sector counts for 1.5% of the GDP. The strong growth for passenger traffic by
19% (ICRA 2012) is aided by floating economy, higher disposing income and low penetration
levels compared to the US where a person takes 2 trips per year in average, this shows a large
gap between the current penetration levels and potentials which indicates an enormous growth
opportunity.

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AirAsia: The Indian Challenge

3. Sociocultural:

 The travel trends in the diverse Indian society are rapidly changing. Google India latest
travel trends perspective indicated growing number of Indians preferring destinations
outside India. However, the same survey showed that travellers are looking for budget
trips through long haul low cost carriers. Also new untapped destinations are being
explored more by Indian travellers where most of these places lack airline connectivity
or airport infrastructure.
 Large numbers of Travellers in south India still use railways and do not afford flight
tickets even on LCCs; another reason is the lack of full connectivity in this part.
 Millions of Indians work in the gulf countries and they perform regular trips to India
during holidays. Long haul low cost airlines in India still do not provide full routes to
these destinations.
 Furthermore, the merging of Indian LCC and FSC products has resulted in a rising
acceptance of LCCs, even amongst business travellers.

4. Technological:

 The aviation sector in India is continuing to operate in a high cost environment: High taxes
on Aviation Turbine Fuel (ATF), high charges for using airports, high congestion in major
airports, , increased fleets by airlines.
 The issue of shortage of operational, managerial and commercial experienced pilots has
been addressed by Indian government, and the process of establishing an aviation
university has been started. Where advanced aviation studies and professional training,
research and development will be offered and endorsed. (Indian Government National
Portal)

5. Natural:

Besides the uncontrollable whether conditions, the ministry of environment in India sets
policies on airports to ensure meeting environmental objectives. However, these policies are
still not strictly enforced especially in secondary airports where it decrease costs in comparing
to European airports. This overall affects the surcharges of airports on airlines.

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AirAsia: The Indian Challenge

6. Demographics:

The major impact on aviation sector in India is the income and occupation, where education
level has no impact. It affects the prices charged by airlines and the media platform of
advertisement. (The Journal of Sri Krishna International Research & Educational Consortium)

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AirAsia: The Indian Challenge

AirAsia Situational Analysis against the Marketing Environment

SWOT Analysis
 A well established regional brand with a long experience as a low cost
Strength airline and it is successful at utilization efficiency
 The larger LCC in Asia with 122 aircrafts
 It holds operational freedom and full control in the joint venture
 It has operations in a good number of destinations and hubs in many
airports internationally
 It has subsidiaries in other countries in Asia-Pacific which serves its
operations
 AirAsia is a strong promoter and has a successful history in marketing
communications
 It has the advantage of the first LCC airline to expand out of its
market and the first mover into the Indian market
 A business model depends on economies of scale where volume
matters over yield

Weakness  Not too many routes especially in comparison to Indian market


leaders
 Intense competition from other rivals especially SpiceJet, AirGo and
IndiGo

 Many LCCs are moving towards hybrid model, such as IndiGo and
Opportunities GoAir where they provide low cost flights and also full service flights,
this means those airlines are moving up the value chain and leaving a
space for an ultra-low cost business model to be occupied. (CAPA)
 Long haul flights on Indian LCC has been proved to be
underperformance such as IndiGo when it exited Delhi/Mumbai-
Singapore routes, this is an advantage for AirAsia as it became
experienced in long haul flights through AirAsia x with more aircraft
utilization.
 As AirAsia has hubs in Kuala Lampur, Bangkok and Jakarta, AirAsia
India can aggressively expand on short haul international routes from
points such as Chennai and Cochin in south India and offer one stop
service to various destinations across Asia.
 Chennai is the capital of Tamil Nadu and has large movement thru
Southeast Asia and Gulf countries, it has a big potential to be a robust
LCC hub which connects the ASEAN, South Asia and the Middle East

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AirAsia: The Indian Challenge

with one stop flights on routes such as Jakarta-Riyadh.


 The other two foreign entries into the market: Etihad-Abu Dhabi with
Jet Airways and TATA-SIA will focus on using Abu Dhabi and
Singapore airports as hubs and will provide full premium service and
align their strategies with their partners, this is an opportunity for
AirAsia to operate as a new long haul nonstop competitive LCC flights
using India ‘a LCC hubs and advantages from its geographical
location. (CAPA)
 Three billion unserved potential travellers in poor connectivity
locations, AirAsia can create the demand in this market.


Threats he rising on fuel costs and government taxes and airports surcharges
 New other foreign or local Entrants into the market especially after
the new FDI policy

Table 1: SWOT Analysis of AirAsia India

Product Market Growth:

According to the Product-Market Growth Matrix by Ansoff, the combination of which AirAsia
India is now considering is the market penetration strategy. Here, AirAsia India is entering an
existing aviation market for LCC offering an existing product by other competitors. The best way
to accomplish this is by acquisition of competitors' customers (meaning acquiring part of
competitors’ market share). Another way is acquiring consumers who did not use the product
before and in this case AirAsia India is the candidate to target the three billion potential
travellers in poor connectivity locations such as South India. Airasia is a strong advertiser and
promoter and is able to achieve this, giving it’s the minimum risky technique for a company to
grow.

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AirAsia: The Indian Challenge

Figure 1: the position of Airasia India in Product/Market Growth Matrix

Based on the previous analysis for the Indian aviation marketing environment and AirAsia India
situational analysis, we can notice that the factors in the marketing environment and the
opportunities and strengths of AirAsia nominates and recommends the decision of entering the
market. First, AirAsia will offer its service in locations underserved by other Indian LCC airlines,
it will gain new customers base by providing (ultra-low costs) which are not provided by other
airlines, it will also use a secondary airport which reduces high airport surcharges in New Delhi
and Mumbai airports, it will avoid high congestion and therefore improve efficiency utilization
and with its long experience in managing the lowest costs and efficient supply chain, AirAsia is
likely to successfully deal with the costs of fuel and other supplies. The future opportunities for
expanding its fleet size and offering long haul services as mentioned earlier is promising giving
that AirAsia has international hubs. The partnership with TATA group will ease its governmental
procedures and provide aid in dealing with local market suppliers. Airasia has a high potential of
being the market leader in India giving its experience in its business model and marketing
communications. However, AirAsia entry will increase the competition in the market intensively
towards the end of 2014 and must consider exceptionally firm marketing strategies to meet its
expansion objective.

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AirAsia: The Indian Challenge

Market Positioning

Airasia India is segmenting its marketing towards customers based on geographical and
demographics segmentation. First, it will focus on south India like no other rival has done
before. It will open new routes and tourist destinations in the region. Travel Trade experts
indicated that most travellers to Southeast Asia are from southern Indian states.

Second, based on demographics segmentation, AirAsia is planning to target the segment of


customers who has a low income in a way they cannot afford an airline flight ticket even on the
lowest fares and depend only on roads and railways. Airasia is benchmarking its fares to first
class rail tickets in order to offer the ultra-low cost fares. Yet it will still keep 20 of 185 seats on
its aircrafts for fliers who are willing to pay extra cost for higher services.

However, AirAsia will need an innovation plan for positioning and marketing itself in the
aviation market. The competition is high and differentiation strategies must be employed as
following:

 Airasia firstly need to identify its competitive frame of reference, which are the LCC rivals in
India such as SpiceJet, IndiGo and AirGo.

 Then it needs to analyse the points where it can differentiate itself from its competitors
(Point Of Difference POD) where it needs to create strong, favorable and unique brand
associations based essentially on low cost and new untapped routs options.

 It needs to educate the targeted customers on the favourability of the ultra-low cost flights
it offers on roads and rail options. It needs to communicate its PODs clearly for potential
travelers and create the customer advantage with its competitive advantage which
eventually will lead to customer value and satisfaction and expanding its customer base.

For example AirAsia can consider its competitive advantage is offering the lowest fares,
consuming under-utilized airports and improving the connectivity within India.

 In Malaysia and other Asian countries where AirAsia operates, it applies the policy of zero
allowed baggage and relies on the revenue from ancillaries. The situation in India is
different. Airlines are not permitted to charge a fee for preferential seats or baggage.
Airasia have to create a “distinctive identity” to compensate for this absence of its ancillary-
revenue stream. AirAsia cannot create a brand identity on the foundation of gaps in the

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AirAsia: The Indian Challenge

market. It will need to create a conclusive differentiator in the value proposition of the
airline. In India small segments, a source of concern for the travellers is the absence of a
guarantee that the supposed flight will even take off. In busier airports there are many
flights at diverse times during the day. Secondary and Smaller airports have less clutter of
flight boards. Sometimes only a single flight is taking off in a day. And if that doesn't
happen, the traveller is trapped. AirAsia India can build its brand as a reliable operator that
ensures operational efficiency.

 An airline Brand identity saturates commencing the entire experience a traveller has with
the airline. Begins from the check-in counter and encompasses to the time of landing at
destination. The Designing of the facilities uniquely and giving attention to the airline visual
identity is the key success factor for building the brand perception in the mind of the
traveller

 The tie-up between AirAsia and TATA can strongly serve AirAsia’s identity building if for
example TATA name was used as suffix or prefix or at any particular manner through its
marketing communications, it will boost the credibility characteristics of AirAsia India.

 India is a wholly different subcontinent from south East Asian countries which hosts
different cultures. Indians consider food as an equivalent of respectable hospitality. Airasia
India can differentiate itself by adding complementary food which is suitable with the Indian
palette. A traveller may forget everything related to his trip but surely not the food he/she
has been served. It can by this way or by adding other cultural relevant services to form an
“all- inclusive Asian brand identity”; Indian travellers will be far more comfortable in
accepting the airline and narrate to it.

Integrated Marketing Communications Strategy

Under the expected circumstances and scenarios of business models of TATA-SIA (please see
appendix for further information), AirAsia should prepare the right strategy to secure its
position in the market by differentiating itself on all possible levels and by using the correct
marketing communication mix to attract the largest number of customers.

As its focus on a new segment in areas of poor connectivity, AirAsia should follow an aggressive
marketing communications which has the highest impact on low income consumers. Based on
the previous marketing environment in India and situational analysis for AirAsia India, it should

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AirAsia: The Indian Challenge

educate potential customers on its products and services and clearly differentiate itself of other
competitive airlines. It should make sure to raise the awareness among its targeted customers

 Word of mouth is the first communication method to focus on. Consumers in this
segment are more affiliated with their groups as a source of reliable information and
reference. There are cultural differences between this segment and high-income
segment as the second segment feel more individualism to generate an independent
purchasing decisions (Burgess and Steenkamp, 2011), (Cayla and Arnould, 2008). The
first key success factor for AirAsia is fulfilling its promises of providing ultra-low costs
and value for money without compromising quality of service. This will be spread into
the targeted segment firstly by word of mouth of travellers.

 Hiring Indian cabin crew and customer service representatives is essential to emerge
within Indian market and better communicate and understand customers’ needs and
pursue their satisfaction.

 Advertising through billboards, posters, display signs and print ads in these areas with
large images, bright colours and less text will attract customers and deliver the message
to recall when deciding on a travel trip.

 Sales promotions through contests and lotteries can be of high impact. For example,
when a customer purchases a ticket online this entitles him to enter a draw to win
another free ticket to a desired destination, or offering two tickets in price of one ticket
on seasonal basis. Consumers perceive this as value for money.

 Direct and interactive marketing communications through weekly or monthly online


newsletters which advertises upcoming promotions and discounts on flight fares and
services is an effective method and low in cost.

 Indians love watching the TV, movies and music. And this is a huge field for AirAsia to
benefit in. In-film branding featuring AirAsia especially in movies released by languages
dominant in south India is a powerful technique for building the brand connection with
customers. TV advertisements and Radio advertisements are also an essential type of
communications.

 Celebrity endorsements and celebrity ambassadors to AirAsia India has a great effect on
promoting the airline. Consumers in India are affected by celebrities of desired qualities

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AirAsia: The Indian Challenge

and it affects the buying behaviour, it attracts and rises purchasing of the product
(Shekhar, B. Raja & Bhaskar, N. Udaya., 2009). The spirit of the AirAsia brand is always
promoted as innovative, bold, progressive and dynamic. And it affects every aspect of
AirAsia, aircrafts, cabin crew attires, website, etc. The brand ambassador to be chosen
should also represent those criteria, and must be recognized across the nation,
especially in south India. She/he could be an actor and a performer/singer that reflects
the spirit of Airasia and fits in the Indian culture.

 Airasia can sponsor sporting events and sport teams in India which gives a great
opportunity to massively reach the market. Indians love sports-especially cricket- and
are greatly attached to the Indian premier league tournaments. This national obsession
cannot be replaced towards other sports like football; therefor the ownership of Queens
Park Rangers club by AirAsia will not benefit its objective in the Indian market. Unless
the trend moved towards football in the near future. But the nationwide passion to
cricket will remain and hence Airasia must sponsor a team in the IPL and promote
events for it.
 AirAsia India can partner with the famous Indian travel websites to sell its tickets to
Indian market with no added fees. Through its presence in these websites and all online
advertising mediums it can guarantee a larger range of distribution and customer reach.
 Social media such as Facebook and twitter should be vital in AirAsia’s IMC plan, Indian
customers are heavy users of social media. Here, marketing intelligence can be
effectively used. By tracking the preferences of customers and place ads accordingly.
 Mobile communications such as customised AirAsia application that enables the
customer to book a flight through mobile, receive e-ticket barcodes and scan it at
airport.
 Tie-in with famous national brands will keep the brand in the customer’s memory for
longer period.

The proposed strategies should be creatively executed and results should be assessed and
evaluated consistently to ensure sustaining a differentiation marketing strategy for AirAsia
among its competitors.

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AirAsia: The Indian Challenge

Conclusion:

Airasia entry into the Indian market as a domestic and future international low cost carrier is a
great but promising challenge. The environmental and situational analysis shows a horizon of
opportunities for AirAsia to grow in Indian aviation market. However, the competition is fierce
and increasing by time and the newly formed joint venture should be prepared with aggressive
market positioning plans and market communications strategy. India is a sub-continent with a
highly diverse culture which differentiates it from Southeast Asian countries where AirAsia has
experience in. It is a tough mission for Airasia to create the brand identity and loyalty.
Executives should carefully study the Indian market and understand customers’ behaviours,
wants and needs and act upon results. By following precise strategies, AirAsia can achieve
customer value and satisfaction and therefore obtain its competitive advantage.

References:

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AirAsia: The Indian Challenge

International Air Transport Association (IATA) 2014 Website, [Viewed on 6th January, 2014], Available
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AirAsia: The Indian Challenge

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AirAsia: The Indian Challenge

Appendix
Background information about Indian Economy

India is a sub-continent with population exceeded 1.2 billion, it’s ranked as tenth largest in the
world by nominal GDP, and has the third largest PPP (Purchasing Power Parity). (International

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AirAsia: The Indian Challenge

Monetary Fund,2013). It has a fast growing economic rate and expected to surpass the United
States in the coming decades (Goldman Sachs, 2007). It has a great diverse geography, culture
and societies, which makes it a huge potential market with a stiff competition on all levels.
However, India will continue to stay a low-income country which will always affect the
consumer behaviour and purchasing decisions.

Business Scenarios of TATA-SIA Joint Venture

In light on the tie-up between TATA and Singapore airlines, there are two scenarios of expected
future business between the two. The first scenario, and as declared, is that Singapore airlines
will serve in full service segment which is not the same segment where AirAsia is operating and
there for the two airlines will not compete with each other.

However, the competition is difficult to avoid in domestic routes. If TATA-SIA offered a hybrid
service rather than premium to match the market realities, the differentiation gap with AirAsia
will be reduced. Giving that AirAsia is pursuing an aggressive expansion and growth plan; the
two carriers are probably going to come up against each other.

It could be easier to segment the traveler markets on the international routes as there is a great
differentiation between both airlines in long haul services and destinations. Airasia must focus
on labour and leisure routes. TATA-SIA will target corporate markets. In terms of destinations,
TATA-SIA will operate to major airports while Airasia will operate to secondary and smaller
airports. (CAPA)

The other scenario is that TATA-SIA may end up like Jet Airways, which initiated as a full-service
carrier, and then had ventured into the LCC market (with JetLite and Konnect), to retort to the
changing market conditions, and now almost 50% of Jet Airways capacity is in LCCs. Singapore
airlines have also two LCC (Tiger Air and Scoot) and locked with Airasia in intensive competition
in Southeast Asia, China and Australia, and if both airlines started international flights from
India, the competition is going to be more intense.

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