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Aviation Market
— The Indian aviation industry is one of the fastest growing aviation
industries in the world, with a growth rate of 18 p.c. p.a .
— Today, private airlines account for around 75 percent share of the
domestic aviation market.

— India has jumped to 9th position in the worlds aviation market from 12th
position in the 2006
— Domestic and international traffic 45% and 15.1% respectively

— Over 135 aircraft have been added in the past two years alone

  
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Market
 size
  

— Currently there are eight


scheduled airlines in the
Jet Airways Jet Light
domestic market in India, four
of which are Kingfisher Airlines Air India domestic

— Low cost carriers (LCCs) - The Indigo Airlines Paramount


full service carriers are also
Others
competing on low fares with
the LCCs.  
2
— Merger of two private full 
service carriers. 6

— Also two state owned full


2 
service carriers.

Demand Drivers
Gdp growth has been more than 7% in the last 4 yrs

The increase in consumerism and affordability of air travel

The rising middle class - 300 mn fuelling the growth

Government liberal policy to allow private carriers

Entry to low cost carriers

Domestic tourism and international business travel


÷upply Drivers

Behaviour of competition

Government regulation

Cost of resources
(fuel, labor, maintenance, te
chnology)
   
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— The aviation industry in India, especially with regard to


passenger airlines, follows a strictly oligopoly-type structure
with the characteristics.
— An industry dominated by a small number of large firms

— Firms sell either identical or differentiated products (the only


differentiation here being in service quality and frills offered)
, and

— The industry has significant barriers to entry (which holds true


both with respect to regulations and huge capital investment
required).
Implication
One sees the following characteristics with respect to the Indian passenger airlines
market
— 1. Few number of firms contributing to majority of the market share
— 2. Products are differentiated in terms of service quality and offerings
— 3. MR=MC
— 4. p>MC
— 5. Entry Barriers
— 6. Firm is a price-setter
— 7. Long run profit >= 0
— 8. ÷trategy dependent on individual rival firm͛s behaviour

— When one airline company decides to cut fares or one car company decides to cut
new car prices, the other industries will usually cut theirs as well. Price wars
happen because some company is trying to grab a larger percentage of the
market, and the other companies lower their prices to not lose market share.
| | | 
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— ||Ô Ô   cargo and air freight service providers
through scheduled air routes for perishables such as vaccines, medicines and fruits that may
often require cold storage facilities

— m|       likely to travel several times throughout the


year and they tend to purchase the upgraded services that have higher margins for the
airline. The business class travelers are often lured by full service airlines by on flight premier
services, luxury seats, in-flight entertainment and gourmet meals and valet services on the
ground.

—  |      vacationing or visiting friends and family or for


personal needs. Leisure travelers are less likely to purchase the premium services and are
typically very price sensitive. They are often prepared to make sacrifices in terms of product
frills
ÔÔ | m
— Domestic market can be divided into 2 segments:       
     
        |     compete and  

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      and |  .

— The LCC boom in India started with Low Price Tags, Apex Fares, Internet Auctions, Bulk
Purchases and Last Day Fares.

— The factors that have contributed to enormous growth of LCCs are:

— ͻ Low Entry barriers


— ͻ Permit for flying to Foreign ÷hores

— ͻ Rising income levels and demographic profile of India͛s population

— ͻ Rise in Industrialization
LCC
— LCC͛÷ and other new entrants together new command a
market share of around 46%
— Legacy carriers forced to match low LCC fares, during a
time of escalating costs
— Increasing growth prospects have attracted & likely to
attract more players
— More players more competition lower fares a continuous
cycle
PRICE DI÷CRIMINATION:

— Airlines use several different types of price discrimination:


— Bulk discounts to wholesalers, consolidators, and tour operators
— Incentive discounts for higher sales volumes to travel agents and
corporate buyers
— ÷easonal discounts, incentive discounts, and variance in price by
location
— Timing of the purchase

Airlines mostly practice the third degree of price discrimination that involves dividing
customers into segments based on some distinguishing characteristic, thereby allowing
the charging of different rates to different groups.
summation
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