“CHALLENGES FACING LOW COST AIRLINES IN INDIA” BY RANJIT SHERGILL MODULE CODE – AE3260 BSc(Honours) AIR TRANSPORT OPERATIONS PART 3 I declare that all work presented in this dissertation is my own work, and where applicable I have credited the work of others by stating the source of certain information in quotes. This project has been overseen by Mr S. K. Ramchandran who is the Regional Director for the Indian Airports Authority in Southern India, who has endorsed the views and the conclusions of my project, which are reflected in his article. See Appendix 1] PERSONAL STATEMENT At the beginning of this project I anticipated a very interesting and challenging title. India is a country close to my heart. Therefore investigating the Indian Aviation industry was of great significance to me, as currently I am a CPL holder with an Instrument Rating, and I aspire to be a pilot for an Indian carrier in the future. This project gave me a personal guide in what to expect working for an Indian airline. The current growth creates the opportunity for a very successful industry.
However India is a country where lack of basic development, organisational and political issues presents the biggest challenges. Overall I have thoroughly enjoyed investigating the Indian airline industry and been thrilled to know what potential exists out there, and if the correct talent is utilised and managed well, the future looks bright, although overcoming the regulators and soaring fuel prices remains inescapable hurdles at present. 2 © – RANJIT SHERGILL 2008 SYNOPSIS The aim of this dissertation is to investigate the “Challenges facing Low Cost Airlines in the Indian Aviation Industry”.
The Indian Aviation Industry is currently one of the most active in the world, with a number of new airlines looking to start up and aircraft orders increasing substantially. This presents many job opportunities for pilots and cabin crew across the world as well as ease of travel across India. The Author starts off by looking at the history of the Indian Aviation Industry. The Author then looks at the present day situation, with regards to the introduction of low cost airlines in 2003, and what effect this has had on the industry. With the aid of data collection, the Author shall be analysing why all the threats and challenges are present.
This involves an examination of the current business models that the LCCs (Low Cost Carriers) use, and looking at the solutions and the steps that can be taken to minimise and perhaps eradicate the current threats and challenges. On conclusion the challenges facing LCCs in India, is high fuel prices, inadequate airport security and facilities, competition from the railways for government support and funds, poor airport infrastructure and punctuality, lack of well trained pilots, and supply exceeding demand leading to several airlines making consistently huge losses.
These are just some of the many challenges that pose a threat to the longevity of the Indian LCCs. The general consensus appears to be the rapid growth of the industry, did not coincide with enough thought and planning going into it. 3 © – RANJIT SHERGILL 2008 CONTENTS CHAPTER 1 – INTRODUCTION CHAPTER 2 – STATUS OF INDIA CHAPTER 3 – OVERVIEW OF LOW COST MARKET 3. 1 3. 2 3. 3 3. 4 Full Service Carriers vs. Low Cost Carriers Market Share of Low Cost Carriers Growth in traffic Future Growth PAGE 11-17 PAGE 5 PAGE 6-7 PAGE 8-10 CHAPTER 4 – MAJOR ISSUES IN INDIAN AVIATION AT PRESENT 4. 4. 2 4. 3 4. 4 4. 5 Airport Infrastructure ATC Fuel Costs Regulations Dependence on Leased Aircraft CHAPTER 5 – CASE STUDIES ON LOW COST CARRIERS 5. 1 Air Deccan 5. 2 Spicejet 5. 3 GoAir CHAPTER 6 – CONCLUSION CHAPTER 7 – RECOMMENDATIONS DEFINTION OF ABBREVIATIONS REFERENCES APPENDICIES PAGE 18-37 PAGE 38 PAGE 39-41 PAGE 42 PAGE 43-45 PAGE 46-51 4 © – RANJIT SHERGILL 2008 CHAPTER 1 – INTRODUCTION J. R. D Tata is the man who should be credited for starting the Indian Aviation Industry, and has played a major role in making the Indian airline industry a huge success.
In 1932 he founded the Tata Corporation and went on to launch Indian Airlines in 1938. In 2003 when Air Deccan, the first Indian LCC took to the sky, they had the aim of covering all areas of the country, hence giving the best opportunity to all travellers to get to their destination at minimum cost. Air travel is proving popular with travellers because of the low cost and time saved compared to other modes of transport, such as the railways. Spicejet was the next low cost airline to enter the industry, and seemed to improve on Air Deccan’s weakness, with far more reliable services and fewer cancellations.
A key difference with India is the fact that unlike most other thriving airline industries in other countries, India is still very much an LEDC (Less Economically Developed Country), so poor infrastructure and pollution are major causes for concern. It could be argued that due to the poor infrastructure and shortage of facilities at most Indian airports LCCs might be tempted to cut corners resulting in general mayhem. The Indian Airline Industry currently finds itself in a situation where demand for additional aircraft by the LCCs is very high whilst the demand for travel is not as high.
Therefore currently supply is exceeding demand. Political instability and bureaucracy in India provides a challenging environment, for airlines considering they invest a vast amount of money in the industry. Pilots from abroad can find themselves being embroiled in politics in order to get a license conversion to work in the country. The uncompromising roles certain companies and people play in India could be detrimental to the prosperity of the Indian LCCs, and it is up to the people with the power to change their philosophies and the airlines to obtain high safety standards.
The Author will cover these areas in great detail and shall be recommending possible changes to the airline’s business models that could improve the current state of affairs. 5 © – RANJIT SHERGILL 2008 CHAPTER 2 – STATUS OF INDIA India is the biggest democracy in the world and home to 1. 1 billion people. The liberalisation of the Indian Aviation Industry paved the way today for LCCs to enter the industry. The 1994 Air Corporation Act deregulated what was a heavily regulated Indian Aviation industry, by allowing private sector airlines to operate scheduled services.
Due to politics and bureaucracy, the reputation of Air India (previously the leading Indian airline) hung in the balance as profits and success was diminishing quickly. The introduction of LCCs bought about a far more competitive environment, with more routes being flown across India, at lower and more customer friendly prices. Approximately 300 million people make up the middle class population of India, and this has been a decisive factor in the growth of LCCs. Middle class people are the main targets of low cost airlines due to their rising levels of income.
Current GDP (Gross Domestic Product) levels in India quoted by online economic sources state an increase in GDP of 8. 5% in 2006 and further increase by 9% in 2007. This has resulted in middle class incomes ranging from between ($4,000 to $21,000) [2. 1]. The lower class sector and people below the poverty line rely heavily on road and railways as forms of transport, or do not need to travel as much as their work and family life is based in their respective town or village. During 2007, 70. 6 million passengers travelled domestically in India, which shows an increase of 19. 0 million from 2006 [2. 2].
Such a rapid increase in numbers is indicative of rise in incomes of middle class people, the need to be able to freely travel across the country, and a testament to the continual consistency in maintaining low air fares. On the Author’s trips to India, he instantly noticed on arrival the change in the lifestyles of people. The middle and upper class are spending lavishly, in top brand stores, which before was never thought possible. Furthermore the number of Indians travelling on domestic flights was clear to see with the lengthy queues at airports and consistently full flights to many destinations across the country.
Mr Gopinath was responsible for the creation of LCCs in India, by forming Air Deccan. His firm belief was that every Indian should be able to travel by air, even those on relatively low incomes. However Air Travel in India surprisingly remains the least used mode of transport, which is surprising given the size and diversity of the country. The latest DGCA (Director General of Civil Aviation) figures published in 2007 indicate that there are only 0. 014 trips by air per person in India, compared to 2. 02 trips in the USA [2. 3]. These figures would 6 – RANJIT SHERGILL 2008 indicate that there still is a big gap to fill by Indian LCCs in order for the demand to equal the supply. It also indicates that not every Indian citizen can afford air travel. Mr Gopinath could be eating his words for saying that he wanted the average Indian to be able to afford air travel. With the USA being an MEDC (More Economically Developed Country) the greater development of their airline industry along with organisational and managerial skills has lead to them being more successful, than the currently developing Indian LCCs.
Perhaps India could take a leaf out of USA’s book in how to run a steady ship airline and maintain sustainability for many years to come. After all Southwest Airlines was responsible for pioneering the Low cost model, so who better to follow in the footsteps of. The IT industry aims to complement the LCCs because it is evident that they need input of IT to maintain booking and ticketing programmes and the IT industry needs business from LCCs because they are growth industries.
The business plans have to compliment the aspirations and business needs of other groups. Current statistics indicate India is experiencing its biggest rate of inflation since 1995, with the wholesale price index showing an increase to 11% over the last 12 months [2. 4]. As incomes of the middle class increases, inflation appears to be increasing which could mean middle class people might not have as much to spend on air travel, which could affect LCCs revenue. 7 © – RANJIT SHERGILL 2008 CHAPTER 3 – OVERVIEW OF THE INDIAN LOW COST MARKET 3. FULL SERVICE CARRIERS VS LOW COST CARRIERS COMPARISON SOURCE – WWW. SLIDESHARE. COM [3. 1] Graph 3. 1 demonstrates the correlation between the level of service offered by airlines in India and the price they charge. It illustrates that the LCCs are intent on promoting low no frills fares, whereas the full service carriers are promoting more value for money services. With the arrival of Air Deccan as the first LCC in India, they had opened the gateway to many other LCCs starting up with the view to compete with each other on a price basis.
The competitive pressure symbol is evident of the full service carrier’s belief in their quality of service to outplay the LCCs. The brand image of Kingfisher is clear to see by the way CEO Vijay Maliya dresses and the persistency in striving to employ the most glamorous air hostesses’ to enhance their image. India’s middle class sector is predicted to increase to 450 million by 2015 [3. 2]. Many of them may well be earning incomes to afford the full service carriers. Therefore it 8 © – RANJIT SHERGILL 2008 resents the challenge to the LCCs of whether they market a better value for money service, or continue to persist with rock bottom low prices in order to gain a big market share, and consequently try to attract those low income people away from the railways and road transport to the air travel. 3. 2 PIE CHART SHOWING MARKET SHARES (Passenger numbers) OF AIRLINES IN INDIA IN 2007 SOURCE – DGCA [3. 3] Chart 3. 2 indicates Jet Airways at this stage continue to run away with the highest market share, as they are flying international routes on a larger scale now, with a continually good service and brand image they possess.
Jet Airways like Kingfisher aim to employ glamorous models as a showpiece for the airline in general. This is reflected in their ongoing success to be the market’s leader. Kingfisher bought a 41% stake in Air Deccan in 2007, so the Kingfisher-Deccan combined market share is 30%. Air Deccan’s market share dropped from 20. 6% in January 2007 to 16% in August 2007 as a result of a rapid drop in load factors from 85. 7% in January 2007 to 65. 3% in August 2007. This has been in part due to an increase in air fares as a result of the acquisition by Kingfisher Airlines that has potentially deterred many customers [3. ]. Spicejet and Indigo have remained independent, and their load factors remained reasonably consistent. Spicejet ended the year 2007 with a load factor of 72% [3. 5]. Go Air have a 5% market share, but are looking to increase their fleet and routes, which will result in long term future increase in market share. GoAir and Indigo have appeared to demonstrate their intention to gradually enter the competitive field, by offering air travel at affordable rates, rather than aggressively attack the market with excessively low fares. This is manifested in the graph above. 9 © – RANJIT SHERGILL 2008 . 3 GRAPH SHOWING GROWTH IN PASSENGER TRAFFIC IN INDIA FROM PERIOD 2002-2007 SOURCE – DGCA [3. 6] Graph 3. 3 shows the growth in passenger traffic in India domestically and internationally between 2002 and 2007. With the introduction of LCCs in 2003, the domestic travel increased by 2. 5 million from 2002. Between 2005 and 2006 domestic travel saw a rapid increase by 11. 1 million passengers, with further LCCs such as Spicejet and Indigo entering the Low cost sector. In the first nine months of 2007, Indian LCCs accounted for a successful 36% of the passenger growth [3. ]. As a result of this LCCs have decided to increase their fleet, number of flights destinations. By increasing all these factors, there is a hope that passengers will still fly with the respective airlines, and airports will have the facilities and slot availability to accommodate them. It has got to a stage where supply has exceeded demand. The airlines greed to gain bigger market shares at all costs, has proved to be their downfall. It is all very well speculating to accumulate, but it must be within the boundaries of sustainability. 3. 4 FUTURE GROWTH
It is expected that the Indian aviation sector, will see passenger growth increase to 45% in 2008, and this will trend will continue till 2010, according to aviation minister Praful Patel [3. 8]. As a result 5000 new aircraft will be required to meet passenger demand, but however this growth appears to be the biggest weakness at the moment. This is because airlines are ordering aircraft at a rapid rate and the industry is exploding too quickly without consolidation periods. Too much excitement and urge to succeed is getting the better of many LCCs. 10 © – RANJIT SHERGILL 2008
CHAPTER 4 – MAJOR ISSUES IN INDIAN AVIATION AT PRESENT 4. 1 AIRPORT INFRASTRUCTURE The Airports Authority of India (AAI) manages 126 airports, of which 89 are domestic airports, 11 international airports and 26 Civil Enclaves [4. 1]. The shear lack of international airports, linking India to the rest of the world is indicative in lack of open skies in India. For example Cochin Airport, which is government owned, is one of the best organised in India, but lack of direct links between India, Europe and the USA, means great opportunities are being denied to both Indian and foreign carriers.
Indian Airports are generally below par when it comes to basic infrastructure, such as roads, pathways, traffic and lane discipline, cleanliness and general facilities that in the West people take for granted. Flight delays are a common day to day problem in India, which is reflected in the pace of life in the country, being very slow and laid back. Few cities have adequate transport networks connecting the major airports. The aviation industry in India has to provide the entire infrastructure required to make an operation successful, rather then it being a formality in many countries, where the overnment provides routinely. As soon as passengers step out of major airports such as Delhi, crowds of Taxis, Auto rickshaws and porters all wait in droves, waiting to capture tourists’ money. There must be regulations where this is done in an orderly fashion. Auto Rickshaw drivers should be banned from major airports and taxis that are only registered by recognised companies should be allowed near the airport. Basic sanitation is lacking, as most airports do not have western style toilets, which is crucial in attracting tourists. tourist’s first impression of the country is deemed by the state of the airport.
Mumbai Airport has slums on either side of the runway, which is not only an unattractive prospect but a danger to safety, as any skid on landing could be detrimental to people on the ground. These areas could be occupied as green fields and landscape. It is furthermore a safety hazard as anybody could run onto the runway and impede the aircraft path, hence susceptible to acts of terrorism. Safety is not negotiable in aviation, so no shortcomings can be accepted. India is a heavily polluted country already, so more airlines in the sky will only add to the problem.
LCCs try to cut corners in security to expedite the departure. The fundamental ethos of LCCs is that they focus on quick turnarounds with a view to keeping to a tight time schedule. However this is not compatible with the current security situation in India that is constantly at risk from terrorist attacks. One A 11 © – RANJIT SHERGILL 2008 way around this is for LCCs to invest more in top level airport security. LCCs at airports, fail to present a certificate of security that should be presented to the commander, once the Captain has taken charge of the aircraft.
However the airlines that do present this certificate only cover security of baggage, cargo and passengers [4. 2]. One worker trying to do three jobs at once, further exposes the airline to greater risk of a terrorist threat. There are no airline workers in the area where check in baggage is separated for different destinations. Basic security procedures are lacking particularly among LCCs who do not even have members of staff guarding their expensive jet aircraft. On the Author’s visits to India, he became well aware of the basic infrastructure problems.
The airports are struggling to cope with the numbers, as flight delays and passenger numbers build up to the extent where passengers have to sleep on the floor or an uncomfortable plastic seat. Tents are built to cater for crowds of people who have had flights cancelled, particularly during fog season when this is common due to lack of suitably qualified pilots and certified aircraft to handle landings in fog. Few airports in India have a direct air bridge link to the plane, as they normally have to drive to the plane via a bus, which can not only be uncomfortable but also impractical for those with children.
Changi Airport and The new Hong Kong Airport are world class airports, built in small countries with thriving economies. India will struggle to make all airports in India of a high standard, given the massive divides between rich and poor and unequal distribution of government funds. Nevertheless they should aim to make the metro airports world class, and strive to make all airports of a satisfactory standard that cater to all passengers and airlines with a free flowing traffic management system. A major reason behind airport delays in India is due to poor airport organisation and lack of well trained staff.
Too many of them dress in casual unprofessional clothes, which is reflected in the attitude they take to their work, which is lethargic, slow and not commercially expeditious. Bangalore has recently built a new international airport 35 km from the main city and the current airport will be used to serve domestic flights. However concerns remain about accessibility to both airports, due to poor road connectivity. The current Bangalore Airport, from the Author’s experience, does not possess adequate number of check in facilities, nor is the baggage collection system well coordinated, and also has poor passenger amenities.
A grave problem is lack of secondary airports in India. This means LCCs are forced to operate from the primary airports, which the main legacy carriers operate from. This causes fundamental problems such as lack of parking, basic air traffic control facilities, low availability of takeoff and landing slots, as they 12 © – RANJIT SHERGILL 2008 are competing with the legacy carriers many of whom have grandfather rights. Therefore LCCs tend to incur the heavy parking and landing fees prevalent at primary airports. The government has proposed to build new secondary airports and further develop 35 regional airports around the country.
However due to the bureaucracy in India, things are not moving at the rapid rate they should be in line with the growth of the Indian Airline Industry. Ultimately poor airport infrastructure with current plans yet to be implemented will deter future investors, including foreigners from investing in India’s Airlines. Delhi Airport is currently developing a domestic terminal which is expected to be used for the LCCs to operate from. This would reduce airport charges and flight delays. However nothing is yet to be confirmed [4. 3]. 4. 2 AIR TRAFFIC CONTROL
Air Traffic Control is of great importance in the world of aviation all levels, and even more so in busy airspace. The AAI (Airports Authority of India) manage ATC in India. As the AAI manages airports and ATC together, charges for ATC services can sometimes be over priced and not in line with the service being offered, as is the case with airport charges. This trend must change unless facilities are improved, because at present India has the second highest rate of en route charges in Asia. Mumbai and Delhi Airport have now been handed over to private consortiums for the next 30 years [4. ], which could be detrimental to the long term revenues of the AAI, and therefore they are reluctant to hand over ATC services to private institution. The ATC and CNS (Communication, Navigation and Surveillance system) departments within AAI are massively short on staff numbers. This is illustrated by the fact that from a possible budgeted 2,713 staff just 1,891 staff is on board [4. 5]. The AAI needs to invest heavily in training new ATC and CNS staff, because if the skies in India are going to become more congested, it must be managed with great numbers of trained staff to avoid traffic management flow problems. 4. 3 FUEL COSTS
Fuel in India on average costs 60% to70% higher than international standards [4. 6]. This is proving to be detrimental to the longevity of LCCs. This problem is interlinked with poor infrastructure, as there can quite often be delays in landing of aircraft, resulting in greater airborne time. Fuel costs on average accounts for 45% of an airline’s operating costs [4. 7]. The almost relentless increase in fuel prices is causing much distress among LCCs, and consequently they are looking to reduce other costs, by 13 © – RANJIT SHERGILL 2008 employing experienced type rated pilots from abroad, as this means less training costs.
However an article from the Times of India in July 2007 stated a lack of English proficient pilots, particularly those from Eastern Europe [4. 8]. 4. 3. 1 FLOW CHART TO SHOW COMPONENTS OF COST OF FUEL TO AIRLINES SOURCE – FROST AND SULIVAN [4. 9] This Flow Chart 4. 3. 1 illustrates that by the time the airline comes to purchasing the fuel, import parity, marketing margin add-on fees and government taxes constitute a 76% increase in the cost of purchasing fuel. The Aviation Turbine Fuel (ATF) supplied by the Indian Petroleum companies is refined from crude oil imported from abroad.
As a result the Indian oil companies charged a 20% surcharge on the cost of refining the oil to ATF. The process of fuel being converted and reaching the airline, goes through many chains and ultimately reaches the airline when the cost has increased significantly. 4. 3. 2 BAR CHART TO SHOW COMPARISON OF GOVERNMENT FUEL TAX IN STATES ACROSS INDIA SOURCE –FROST AND SULIVAN [4. 9] From Chart 4. 3. 2 it can clearly be seen that the major states in India such as Maharashtra and Karnataka incur between 25%-30% fuel tax. In essence the major cities that airlines operate to like Mumbai and Bangalore cannot evade the high tax on fuel.
These metro cities are vital to the operations of low cost carriers, and ultimately if high fuel tax is inescapable, the longevity of certain 14 © – RANJIT SHERGILL 2008 carriers is questionable. The government and the oil companies appear to be a major reason behind the demise of many airlines. Therefore it defeats the whole purpose of airlines trying to link the whole country, and could be unfavourable to many parts of their route networks. 4. 3. 3 GRAPH COMPARISON OF INTERNATIONAL FUEL PRICES AGAINST INDIAN DOMESTIC FUEL PRICES DURING PERIOD JANUARY 2005 TO APRIL 2008 SOURCE – FROST AND SULIVAN [4. ] Graph 4. 3. 3 indicates the staggering difference between prices of fuel in India and Internationally. There appears to be no consolidation period in the price of fuel in India. In 2007, airlines in India lost up to $500 million, and that is set to increase to a staggering $1. 8 billion in the financial year 2008-09. It is estimated that fuel costs for Indian carriers constitute 45% whereas for their European counterparts it is approximately 33% [4. 9]. As the European counterparts are struggling with fuel costs, it can only be further detrimental to developing Indian carriers. . 4 REGULATIONS The regulations set out by the DGCA stipulate that no Indian Carrier can go international without 5 years of flying domestically [4. 10]. Therefore it would appear the authority still want to protect the favourable government airlines of Air India and Indian Airlines. Kingfisher has acquired a major stake in Air Deccan, who is going to complete 5 years of operation in 2008. This will allow Kingfisher to go international. Compared to Europe where the regulations are quite different, many low cost carriers go internationally around Europe within one or two years.
The effect of such regulations, also leads to the greater impact of fuel prices on airlines, as continuously flying short haul creates a high cost allocation. Clearly the DGCA seem reluctant to open the skies up to allow more carriers to fly internationally from 15 © – RANJIT SHERGILL 2008 more airports, between India and the rest of the world. As a result a lot of carriers are forced to fly via major hubs such as Dubai en route to London. 4. 4. 1 GREAT CIRCLE ROUTE – LONDON TO PERTH SOURCE – GREAT CIRCLE MAPPER [4. 11] The above chart 4. 4. 1 outlines the direct (Great Circle) route from London, UK to Perth in Australia.
The majority of carriers which fly the route, stopover in Singapore or Hong Kong en route to Perth. The route fly’s through the West coast of India where Cochin and Goa are located, and further demonstrates the lack of open skies in India, as airlines cannot fly directly between London and Cochin en route to Perth. For example a Jet Airways flight that would want to go from Cochin to London, would have to go via Mumbai. A great potential for success and revenue is being sorely denied, by not opening the skies to carriers to fly from smaller airports in India to international destinations.
LCCs in India will aspire to go internationally one day, but however if they cannot obtain direct service to the rest of the world, it will go against their low cost models, as having to fly a route via a second stopover will result higher operating costs to the airline’s and ultimately the routes might prove to be non profitable. These restrictions allow Emirates and Qatar Airlines to take the passenger loads on routes going from India to the Middle East, while many Indian carriers miss out on major market opportunities.
The DGCA must start opening the skies up to more carriers to fly to any destinations across India, and go away from their traditional thinking of wanting to protect the main government carrier Air India, and start allowing other carriers in India to exercise open sky privileges given the vast sums of money they have invested and the potential for an even more competitive environment. Pilot Licence conversion in India is a very complex procedure due to the slowness of the DGCA in processing applications, and enabling candidates to sit the English proficiency and Indian Air Law tests. 16 © – RANJIT SHERGILL 2008
This has led to several complaints from major Indian carriers such as Jet Airways, proclaiming that the DGCA is stopping them from expanding at a faster rate, stating they are investing millions in new aircraft fleets, but a lack of well trained pilots is slowing the whole process down dramatically [4. 12]. 4. 5 INDIAN LCCs DEPENDENCE ON LEASED AIRCRAFT Although many low cost carriers have a big fleet and big orders are being made, many of them are leased aircraft, as shown by the table below. 4. 5. 1 TABLE SHOWING NUMBER OF LEASED AIRCRAFT BY EACH INDIAN LCCs (AUGUST 2008) AIRLINE SPICEJET INDIGO KINGFISHER GOAIR
FLEET SIZE 18 18 21 6 NUMBER OF AIRCRAFT LEASED 16 16 21 6 SOURCE – WWW. RATI. COM [4. 13] Table 4. 5. 1 demonstrates majority of India’s main LCCs are heavily relying on leased aircraft from other companies. This presents many financial and operational problems. Firstly the cost of the aircraft ultimately ends up being greater in the long term than if you purchase it outright. Generally the price of leasing will increase with each contract renewal, and potentially there could be restrictions from the Lessor on how you can operate the aircraft, and ultimately this could affect the airline’s operation.
Furthermore as a company financially you will have less fixed assets, which could prove critical if the company goes into recession or bankruptcy. 17 © – RANJIT SHERGILL 2008 CHAPTER 5 – ANALYSIS ON EACH INDIVIDUAL AIRLINE 5. 1 AIR DECCAN Air Deccan was the first low cost airline to enter the Indian Airline industry in 2003. Air Deccan operates 65 routes across India, and their main base is Bangalore, which is the number one city for IT India. Bangalore is building a new international airport, while the current one will be used solely for domestic flights. This should help Air Deccan in quicker turnaround times and slot availability.
Air Deccan’s vision was to allow every Indian to fly. This was a very bold statement given the extreme divisions between the rich and poor in India. Majority of Indians living in poverty would struggle to afford railway travel let alone by air. Furthermore how low can their air fares possibly go in order to remain a profitable organisation? It would be unrealistic to predict the future without studying the past, as the past is the architect for the future. Air Deccan can be considered the Ryanair of India, with its low-cost no frills attributes. Turns around times are aimed to be between twenty to thirty minutes.
High aircraft utilisation to coincide with multiple frequencies is the theme of Air Deccan. GRAPH TO SHOW AIR DECCAN GROWTH FROM PERIOD MARCH 2004 TO APRIL 2008 SOURCE – WWW. AIRDECCAN. COM [5. 1] This graph indicates Air Deccan’s constant growth and today they have flown 17. 4 million passengers. As an airline grows that presents a challenge in itself, as it must be decided whether to continue growing without improving their service, or maintain low costs, which in the current economic downturn will prove very difficult. 18 © – RANJIT SHERGILL 2008 AIR DECCAN ROUTE STRUCTURE SOURCE – AIR DECCAN WEBSITE [5. ] This map shows the destinations Air Deccan fly’s to across India. They are extremely well covered in South India in particular, with their main base being at Bangalore. Majority of their flights do travel from major hubs, such as Bangalore, Chennai and Mumbai. This enables the interested population who want to take advantage from a wealthy mobile middle to upper class. For example a passenger can take a flight from Mumbai to visit their family in Kandla. Conversely people in non metro cities such as Jaipur who want to visit their family in Kolkata or Mumbai, are also able to fly directly.
A challenge for Air Deccan could be to open up more routes to the Northern Areas of India as a heavy reliance seems to be on Southern routes around their main base at Bangalore. The advantage of operating majority southern routes can be attributed to the high corporate movement between these cities due to the booming IT sector. 19 © – RANJIT SHERGILL 2008 AIR DECCAN MARKETING STRATEGIES In 2006 Air Deccan carried 8 million passengers, and priced their fares at 30% lower than the major airliners and favourably similar upper railways class tickets [5. 3].
It was not a case of simply making fancy statements, but also about ensuring committed and honest delivery to a price sensitive consumer. This can be attributed to their no frills low cost model. It is literally what it says it is supposed to be. A passenger walks onto an Air Deccan flight and won’t so much as even get a complimentary drink or snack, unless you pay extra for it. Passengers can simply fly from place to place. The Author believes this is a fantastic implementation in a country where punctuality still remains an unfavourable factor to the general progress of the industry.
Air Deccan’s philosophy seems to be why have airline food, it is very poor quality, so don’t bother catering for it. AIR DECCAN PROMOTION APRIL 2007 SOURCE – WWW. INDIANAIRLINESBLOG. COM [5. 4] The above advertisement indicates Air Deccan’s competitive pricing strategy. The slogan “can anyone beat this”, suggests they will go to all lengths to out price the major carriers and attracts customers to fly for them. The promotion during the period of July to October, which is generally the lean season, as corporate movement is not high and domestic travel is fairly low, as monsoon season is prevalent.
It is questionable if the airline should slash its prices, if it results in losses being made, just for the sake of maintaining a high load factor and market share. This was evident when Air Deccan reported losses of Rs 253. 1 Lakhs during the July to September period [5. 5]. The advertisement also states in small print that the consumer has to just pay taxes and surcharges. Current figures indicate that on average the total taxes and surcharges in India amounts to Rs 1575 (? 20) [5. 6], and for an average Indian citizen that would be considered anything but free.
The general public would be very disappointed if they don’t get hold of this deal, the airline may not do it again, 20 © – RANJIT SHERGILL 2008 and all those expectation levels from the public are diminished. When cheap fares are promoted the expectation is that that they will be maintained. The moment the airline start to increase prices, without improving service, the customers turn elsewhere for business, because they feel they are not getting value for money. AIR DECCAN DISTRIBUTION CHANNELS Air Deccan’s distribution channels are heavily reliant on Internet transactions.
This cuts out the middleman and allows direct interfacing between the passenger and the airline. TABLE 5. 1. 1 – NUMBER OF INTERNET USERS IN INDIA COMPARED TO THE REST OF THE WORLD (PERIOD 2000-2008) SOURCE – INTERNET WORLD STATS [5. 7] Unfortunately a lot of India does not have direct access to the Internet as demonstrated by Table 5. 1. 1. Out of a population of 1. 1 billion people, only 60 million users have access to internet. Although the growth is 1,100%, for such a huge population the ratio of users is extremely low.
The poor internet connectivity makes booking online increasingly difficult, and the attraction of railways increases, as tickets can be purchased at the train station office with no difficultly or reliance on technology. Air Deccan has recently struck a deal with Amadeus to provide a global distribution system (GDS) whereby they can compete with the major full service carriers. It allows easier integration of Air Deccan into the GDS [5. 8]. However by increasing distribution channels the airline becomes susceptible to potential fraud, as the wider a network the more difficult it is to manage.
An increase in technology results in higher costs, which may be brought back to the customer, in the form of air fares. 21 © – RANJIT SHERGILL 2008 AIR DECCAN CUSTOMER SERVICE The flight attendants on Air Deccan are very unhelpful. Customers have to insist they are provided with basic Helpance to reach their destination and not miss the connecting flights. A greater work ethic and professionalism needs to be shown among all members of staff to achieve quality outcome and customer satisfaction.
On The Author’s trip to India, we had a flight cancelled at Kulu Airport bound for Delhi, and we asked the customer service people if we could use their telephone to make a call regarding another flight. They said it’s not our fault the flight got cancelled, therefore we will not let you use our services, rather than allowing us to do so as a matter of courtesy. Air Deccan must employ well trained and well crewed people and not just local people who are willing to do the job at a cut of the wage that the more professional type would do.
English proficiency is vital in order to maintain a good standard of customer friendly communications. Air Deccan charge Rs 70 for every kilogram of excess baggage [5. 9]. They clearly take advantage of the fact that people in India never travel light! This is a very cost effective way of recovering losses in ticket sales. This theme might have to be exploited further if the airline continues to make losses on ticket sales. AIR DECCAN – AIRPORT INFRASTRUCTURE Majority of the flights from Kulu Airport do not take off due to weather being below minima. There needs to be better technology implementations with instrument approach patterns.
At the moment Visual approaches only are being allowed, which make it very hard to fly there especially in winter, as the high terrain of the airport, to go with days of constant fog and low visibility. Flight delays and cancellations are a common occurrence, so although Air Deccan is one of the few low cost airlines to fly to and from Kulu, it is not really feasible unless frequency of flights increases. Flight cancellations means passengers find themselves in precarious situations in trying to find other modes of transport especially in mountainous regions, where transportation to the main cities is not brilliant.
Plans are coming into place to build an extended runway at Kulu Airport to accommodate Jets, and facilities to allow night landings [5. 10]. However this could take time due to the cost implications in funding the project. The military have the final say if a flight departs from Kulu, so ultimately as much as the airfield may be equipped to handle night approaches, if the military deem it unsafe, then that 22 © – RANJIT SHERGILL 2008 creates a problem of consistency and continuity in decision making. Furthermore fog is prevalent in the mountainous areas, especially during the day, which could cause problems.
KINGFISHER-DECCAN MERGE IMAGE – Simplifly Deccan, the new brand image of Air Deccan, taking the emblems of Kingfisher Airlines In 2007 Air Deccan’s load factor dropped dramatically from 87. 3% in January to 65. 7% in August 2007 [5. 11]. This is believed to be as a result of Kingfisher Airlines acquisition of Air Deccan. Air Deccan was consequently rebranded Simplifly Deccan. Kingfisher base their business model on delivering a high quality product at an affordable price, which somewhat goes the opposite of Air Deccan’s philosophy of cheap air fares and no frills.
Therefore Air Deccan has increased its prices, indicating that the low almost zero priced tickets are no longer going to be the norm of their business model. The challenge for Air Deccan now becomes how they will adapt their new business model to suit their needs. As they have been low cost and no frills throughout it will prove difficult to change overnight. In March 2008, Kingfisher decided to merge with Air Deccan. However the Supreme Court wants to stop the full merger between Air Deccan and Kingfisher, because they claim the Indian Aviation Authority state a combined merger cannot boast a market share of greater than 25%.
Currently the Merger boasts a market share of 27. 8% [5. 12]. This could threaten Kingfisher’s plans to fly internationally, as they might have to wait longer to fulfil their ambitions. 23 © – RANJIT SHERGILL 2008 FUTURE REMAINS UNCERTAIN Forward looking and cautionary statements “Certain statements in this release concerning our future growth prospects are forward looking statements which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward looking statements.
We do not undertake to update any forward looking statement that may be made from time to time by us or on our behalf. ” SOURCE – AIR DECCAN WEBSITE[5. 10] The above is a statement from UB group chairman Vijay Maliya. Media speculation remains widespread as to whether the new Simplifly Deccan will be doing metro or non metro routes. Nothing is yet set in concrete. One Indian article [5. 13] quotes that Simplifly Deccan will take the non metro city routes like Indore, which would further emphasise their slogan of wanting to allow every Indian to fly with better accessibility.
Kingfisher would then take the busy metro routes of Delhi and Bangalore, due to the brand image they have, which they believe can be enhanced on this network. Air Deccan’s frequency has been reduced on the major route between Bangalore to Delhi, with only two daily flights between the destinations.. However Times of India [5. 14] states Kingfisher’s ambition to go international would result in them taking the long haul routes, while Simplifly Deccan would fly the metro city routes, which would go against their slogan, as it would not allow them to reach every Indian.
As the chairman of Kingfisher Vijay Maliya, has not committed to any forward looking statements, it indicates even he is not clear where the merged entity will go. It is further questionable how can you make a full service carrier and a low cost carrier think alike and be successful, especially when their inventories are different, and both sets of staff of each airline remain moulded into their airline’s way of thinking. These quotes were representative of an article written by the regional Director for Airports in South India [See Appendix 1].
Prior to merging The Kingfisher-Deccan merge should have agreed on a set route structure and schedule. Jet Lite and Jet Airways have managed to make a merger work, by the latter charging slightly lesser fares. On the other hand Air Deccan have been low cost for such a length of time, with no consideration for the current market and climate, it is questionable if they can suddenly change their thinking. Air Deccan would have to change their slogan and mission statement to target its suitable audience. 4 © – RANJIT SHERGILL 2008 AIR DECCAN RECESSION First Officer Pilot Programmes for both Kingfisher and Air Deccan have frozen job appointments in the near future, as a result of rocketing fuel prices and worldwide recession [5. 15]. This is very disadvantageous to non type rated pilots, as they will not be considered for recruitment in the immediate future. Furthermore Air Deccan does not have their own cadet scheme whereby they can train their own pilots and then bond them to the airline.
Due to the length of time it takes to train pilots in India, future job prospects look bleak for many prospective candidates and coincides with a knock on effect to airlines as they struggle to find pilots to fly their increasing aircraft fleets. On the Author’s trip to India, he interviewed a Captain of Spicejet (Mr Rajesh Chibundaram), who was quoted as saying that “you cannot put a time limit on anything in Indian Aviation”. In no uncertain terms this message indicates a lack of structure and organisation in getting tasks completed to a set time, such as development f airport infrastructure, training pilots quickly and efficiently, and also delivering the best quality all remain major concerns. AIR DECCAN FINANCIAL STATISTICS TABLE 5. 1. 2 1 Lakh = Rs 100,000 3 Months ended 31. 03. 2008 (In Rs Lakhs) Revenue Fuel Costs Net Profit 56000 (US $128 Million) 32000 (US $73 Million) 20000 (US $46 Million) Corresponding 3 months in the previous year 31. 03. 2007 (in Rs Lakhs) 44000 (US $100 Million) 23000 (US $53 Million) 21000 (US $48 Million) SOURCE – WWW. AIRDECCAN. COM [5. 16] SO From Table 5. 1. 2 it can be seen that fuel costs have increased substantially over the past year.
For the first 3 months of 2008, Air Deccan’s fuel costs amounted to Rs 31988 Lakhs. This has culminated in massive losses to the airline of Rs 19965, period ending 31/03/2008. Fuel is one aspect which will only rise in price, particularly in India, where inflation is high, and the government regulations stipulate fixed costs of fuel. The substantial increase of almost Rs 10 Lakhs the previous period last year is indicative of the major difference in aviation turbine fuel prices India, than compared with the rest of the world. 25 © – RANJIT SHERGILL 2008
TABLE 5. 1. 3 (Figures in Rs Lakhs) Traffic Parameters Number of Departures ASKMs Mlo RPKMs Mlo Passenger Load Factor % Block Hours Total Airline Revenue Revenue Passengers Revenue Per Passenger Period end Fleet Size Aircraft Utilisation July 2007 – March 2008 68,732 6,393 4,593 72% 101,047 15,151 5,098,048 (US $11 Billion) 2,973 (US $67) 41 9. 54 July 2006 – March 2007 60,081 5,456 4,301 79% 89,701 12,273 4,769,288 (US $10 Billion) 2,573 (US $63) 40 9. 56 % Change FY06 vs FY07 14 17 -7% 13 23 7 15 3 0 -0. 18 SOURCE – AIR DECCAN WEBSITE [5. 17] Table 5. 1. indicates improved yield management by Air Deccan has lead to an increase in passenger revenue from the period July 2007-March 2008, and possibly the increase in ticket prices, which is further indicative of the lower load factors and the change in theme with the new Simplifly Deccan, taking up the Kingfisher emblems. It further shows those virtually zero priced tickets, are something of the past. This will surely disappoint many travellers, especially those in the lower class, as they will no longer be part of Air Deccan’s dream to let every Indian Fly.
AIR DECCAN – CHALLENGES The challenges facing Air Deccan are deciding if they should continue routes such as Kulu which are not very profitable and instead finding alternatives. The use of more non metro routes would be beneficial as long as a good customer clientele exists. Railway prices (0. 65 cents per km) are generally cheaper than airfares [5. 18] so competing with them will prove very difficult, especially as poor accessibility is a major problem in the more rural parts of India.
It is questionable whether the new theme of Simplifly Deccan can maintain the low cost image. Souring fuel prices are prevalent and have resulted in Air Deccan making consistent losses, so therefore the price of air fares must be raised to cover the difference in cost. There must be some comparison in thinking between Kingfisher and Air Deccan, as the business models are far too different, which is reflective in the attitudes of the workers. The customer service must be improved dramatically to maintain a respectable image. 26 © – RANJIT SHERGILL 2008
AIR DECCAN – RECOMMENDATIONS The Author’s recommendations to Air Deccan would be to have more rigorous and regular testing in English proficiency of all ground staff, particularly customer service staff. They should dispense with the services to Kulu and Shimla that are not very profitable, and continue to focus on vastly developing mini cities such as Indore. Their aim to let every Indian fly is being put to detriment with the acquisition of Kingfisher Airlines. They should change their mission statement or start up an Air Deccan railway service, to work in tandem with the airline.
Travelling by railways is ingrained into the Indian mindset as it is cost effective, large numbers can travel, and the railways reach parts that air travel may find it difficult to do so (remote village and mountain areas). Air Deccan could learn from the Virgin example and buy into the railways and offer it as part of the airline package by encouraging consumers to for example fly from Bangalore to Hyderabad and then link by rain to reach a far flung village area where they may have family they want to visit.
This package could even be attractive to foreign travellers who could be persuaded to fly by Air Deccan for example from Delhi to Chandigarh and then take the rail to the village. The concept could also be made attractive to the financially challenged villager in Agra for example who can travel by Air Deccan rail to Delhi and the fly to Ahemdabad to see his or her relatives The British left behind a good railway network linking all of India, so the foundations are well laid to have a good network.
During times of low corporate movement particularly between July and September, the railway network would still generate sufficient business to make up for any losses incurred, given the number of lower class people who use the network. Air Deccan’s railway network could link the rural villages to the major cities where the airports are located, for the poorer people to have easier access to air travel. The Kingfisher-Deccan Merger could erode the foundation delivery commitment of Air Deccan make air travel accessible for ALL Indians not just the rich.
It will be very hard to justify this in the public eye, especially in a country such as India, where poverty is rife. The Author’s recommendation to the Kingfisher-Deccan merge is to work as one unit and have one image and strategy. For example the attitudes of staff and general customer service needs to be the same on both sides. They should follow the example of Jet Airways and Jet Lite, where a successful low cost version of the airline and the full service version have worked well in tandem to produce good load factors and revenue. 27 © – RANJIT SHERGILL 2008 . 1) SPICEJET Spicejet is the second largest low cost airline in India behind Air Deccan. They operate an aircraft fleet of Boeing 737’s across 15 routes in India, with their main base in New Delhi. Their philosophy is quite different to that of Air Deccan’s. The following is their mission statement:“SpiceJet’s air fares mission with the is to become India’s preferred value, to low-cost airline, sensitive delivering the lowest to highest consumer price consumers. We hope fulfil everyone’s dream of flying! ” SOURCE – WWW. SPICEJET. COM[5. 21]
From this statement, Spicejet appear to be marketing more of a value for money service, which would appear to be more sustainable in the long run. Although they state their dream is to fulfil everyone’s dream of flying, this may rule out the possibility of every Indian citizen to fly, due to the vast poverty in India. However with India’s booming middle class sector it appears to be plenty of scope for success. SPICEJET ROUTE NETWORK SOURCE – WWW. SPICEJET. COM[5. 22] From this route structure Spicejet tend to focus on the bigger more cosmopolitan cities, and not so much on rural and suburban cities, that Air Deccan focus on.
Spicejet can be compared with European Low Cost Carrier, Easyjet due to their frills services they provide such as on board meals, on 28 © – RANJIT SHERGILL 2008 various sectors. Spicejet have gained huge credibility for their longevity in India as a low cost carrier. The challenge for them now is to expand to the more non metro cities to serve as many cities and towns in India, to remain the country’s favourite low cost airline. SPICEJET – CUSTOMER CRITICISMS Spicejet operate from Pune, and have been criticised for making passengers walk in the rain, rather than supplying umbrellas that Indigo do [5. 3]. On a route from Calcutta to Bangalore a customer stated the cabin AC had been turned off in the sweltering heat while waiting for take off clearance [5. 23]. This presents a customer service challenge because it resembles a low cost carrier stereotype, of neglecting customer care. As much as fuel prices and inflation play a massive part in the sustainability of the airline financially, customer service is also a major factor, as you must maintain high standards of courtesy and customer care keep the your customer clientele.
Therefore as a recommendation to the airline, they should supply temporary raincoats, and once they are safely on board the aircraft, they can be returned. The cabin AC should also be kept on at all times particularly given the humidity present at Indian airports. If Spicejet aspire to one day go international, they must look at constant ways to improve customer service, even in the most basic ways. SPICEJET – ONLINE FRAUD Online fraud has become a recent major problem with Spicejet according to the Indian Aviation Aero website [5. 24]. Spicejet have to invest heavily in dealing with the problem, with a company called Cybersource.
Furthermore by having to invest huge amounts of money into fraud, they may well have to raise the air fares to maintain costs. In the public’s eye this may take away their low cost image, and the customers would start wanting reasons why fares are going up. The Author would recommend the airline should employ internal IT experts, to deal with the problem long term internally. Outsourcing the issue to a third party could prove expensive in the future. SPICEJET – CADET SCHEMES Spicejet have a cadet sponsorship scheme open to Ab-initio Pilots.
However it is only accessible to Indian residents, which is extremely disadvantageous to expat pilots with better quality training. In the UK pilots are exposed to some of the busiest airspaces. The lack of established flight schools in India 29 © – RANJIT SHERGILL 2008 who can train pilots quickly and efficiently, means Spicejet having to send their students to the USA, resulting in license conversion issues when returning to India [5. 25]. “Another disadvantage for fresh CPL holders is that some airlines have started their own cadet programmes. Take SpiceJet. Its cadet programme was started one-and-a-half years back.
Fresh students are sent abroad for CPL training every quarter. “Already, 110 pilots are in different stages of it,” says Dhillon. “We’ve 19 planes now, and 6-7 will be inducted every year. That means we need about 60-80 pilots yearly. These will be filled up by our own cadets, not CPL holders from the market. ” SOURCE – TIMES OF INDIA[5. 26] The above quotes indicate the Cadet Scheme is very disadvantageous to those who have gone through the training privately. The selection procedure needs to be viewed dramatically as the cadet scheme might be favourable to certain ethnic backgrounds in India.
As Spicejet is to take on its own trained pilots, they might not get the best pilots out there, who have done their training privately. Sponsored students sent to flight schools may well be rushed through the training in order to deliver them back to the airline quickly. The standard and quality may not have been achieved by all individuals. Spicejet are currently only accepting type rated first officers, or those who have at least 1000 hours flying experience. The Times of India also quotes that by 2010 the Indian government, will no longer allow expat pilots to be recruited by Indian carriers [5. 7]. It will prove hard to find the required experience in India, especially if fuel costs keep rising, training costs will become harder to cover through cadet schemes. Furthermore employing home citizen pilots would prove more expensive, as it is the cheaper to hire expat pilots from Eastern Europe due to the weak rupee [5. 28]. 30 © – RANJIT SHERGILL 2008 SPICEJET FINANCIAL STATISTICS Spicejet can boast the lowest direct operating costs of any low cost carrier in India, due to their fleet type commonality. TABLE 5. 2. Finance (in million’s) Figures in US Dollars Rate Period start Period end Passenger Revenue Cargo Revenue Other Revenue Total Revenue Operating result Net result Net margin 2007 USD 40. 13 01-Apr-07 31-Mar-08 Na Na Na 358. 52 -28. 47 -33. 27 -9. 28% 2006 USD 45. 2 01-Jun-06 31-Mar-07 141. 7 na 23. 86 165. 55 -14. 69 -15. 65 -9. 45% 2005 USD 46. 23 01-Jun-05 31-May-06 na na na 97. 35 15. 58 na na SOURCE – WWW. RATI. COM[5. 29] Table 5. 2. 1 shows Spicejet made greater revenues in 2007 compared to last year, but however they made an overall greater loss, as a result of surging fuel prices.
Spicejet Chief Operating Officer Patha Sarathi Basu, said fares have been increased by Rs300 for short haul routes and Rs500 for longer routes. They now face the challenge of having to continually increase fares in order to even break even, as Patha said they will not break even till 2010. Spicejet plan to open up new routes in the future, but if current routes are making a loss at present, the Author would recommend they avoid opening up new routes, and ground some of their fleet during off peak times, like Ryanair are doing this winter.
This method will help escape some of the fuel costs. TABLE 5. 2. 2 Traffic and statistics Period start Period end Passenger millions Passenger load factor Revenue passenger km (mill) Available seat km (mill) Freight tonne km (mill) Revenue tonne km (mill) Total employees 2007 1 Jan 2007 31 Dec 2007 3. 760 72. 69 % 3,929. 42 5,405. 01 na 373. 30 na 2005 1 Jan 2005 31 Dec 2005 0. 670 83. 08 % 712. 78 857. 85 na na na SOURCE – WWW. RATI. COM[5. 3] Table 5. 2. 2 shows Spicejet’s load factor has dropped dramatically over the last two years from 83. 08% in 2005 to 72. 69% in 2007.
A low cost carrier should be using the benchmark of Ryanair’s 85% load factor 31 © – RANJIT SHERGILL 2008 [5. 31]. Their low load factor in tandem with high fuel costs has culminated in big losses. Load factors in the region of 70% are simply too low, unless the air fares are raised substantially, which would consequently mean less passengers wanting to fly with the airline. SPICEJET – CHALLENGES The challenges to Spicejet are maintaining their image as India’s preferred low cost airline, in spite of their increase in air fares. Customers may move towards lower fare airlines or alternative forms of transport.
Spicejet have a very reserved pilot selection policy, by only employing pilots on their cadet scheme. Many CPL holders would be ready to start a type rating with the company straightaway, which would mean they would be on line faster then cadet trainees. Spicejet would then not have the added pressure of pursuing flight training organisations for their students to finish quickly in order for them to begin a type rating. Online fraud will remain a challenge for years to come, as when a company finds one way of tackling it, the fraudster will find another way of tapping into the system.
India is a massive country with millions of internet users ranging from the urban cities to the rural areas. It only requires is a small network of people to cause major fraud. Spicejet operate a sole fleet of Boeing 737’s, which do not yet have the operational capabilities to reach the far flung non metro destinations such as Kulu and Shimla. If Spicejet want to continue to be India’s preferred low cost carrier, they must be accessible to as many people as possible, particularly those living in very rural areas.
SPICEJET – RECOMMENDATIONS The Author recommends Spicejet invest in a fleet of turboprops to reach the more far flung destinations of India, because if they aspire to one day go international the Author believes they must first aspire to reach all ends of India, given the fact it is a sub continent in itself. Furthermore they can create connecting flights between rural areas and urban areas of India, so that tourists can catch flights from the metro cities to their respective countries.
Spicejet should get a top IT firm such as Dell or Microsoft to give Spicejet a second opinion on how to manage their online fraud. This would make a major statement to all potential fraudsters out there, that the airline is choosing the top companies to manage their network and possibly deter future frauds. Spicejet must also look outside the box at other CPL holders already out there, rather then relying on their Cadet Scheme continuously, especially given the major lack of pilots in India. Furthermore the 32 © – RANJIT SHERGILL 2008 election policy for cadet schemes might be bias to certain ethnic groups and those cadets chosen may not aspire to proclaim the best pilots out there and are simply going for the sponsorship as they see it as a high earning job. The aim must be not only to find those pilots who are committed to Spicejet for many years but those who enjoy the work their doing and can promote the name of Spicejet. 33 © – RANJIT SHERGILL 2008 5. 3) GoAir GoAir are another more recent low cost airline in India, which was established in June 2004. They fly a fleet of A320’s. As like Spicejet, it seems the emphasis is on fleet type commonality.
They accommodate a high seating capacity of 180 passengers. Their headquarters are in Mumbai, one of India’s most cosmopolitan cities, and are owned by the Wadia Group [5. 32]. GOAIR ROUTE NETWORK SOURCE – WWW. GOAIR. COM[5. 33] From this route network it can be seen that they operate to select destinations and are still a relatively small carrier. All the cities they operate look to be cosmopolitan and tourist destinations, which is advantageous as they are guaranteed a good customer clientele, but at the same time they are very competitive routes, which makes competing for passengers even more difficult. 4 © – RANJIT SHERGILL 2008 GOAIR ROUTE STRUCTURE – FOG SEASON GoAir are planning to fly during the fog season (November to February) and have stated they will make sure that all pilots flying fog approaches are CAT III compliant, which includes the following DGCA regulations:“There are special authorisations prescribed by DGCA for pilots involved in CAT-III operations (related to fog).
GoAir pilots operating flights in Fog conditions adhere to these prescribed regulations. The prescribed CAT III regulations specify that the Pilot-In-Command (PIC) should have a total flying experience of 2500 hours out of which 500 hours for initial authorisation, 200 hours for additional aircraft type authorization, 100 night flying hours, 100 hours on instrument flying including not more than 50 hours on Full Flight Simulator of the type.
The regulations prescribed for Co-Pilot includes total flying experience of 750 hours which include 300 hours for initial authorization, 200 hours for additional aircraft type authorization, and 100 hours on instrument flying including not more than 50 hours on Full Flight Simulator of the type. ” SOURCE – PEANUTS LOW COST AIRLINES [5. 34] The regulations have strict stipulations, particularly in India. Pilots with the levels of experience stated above can perhaps only be recruited from the Military.
Looking for pilots abroad will prove difficult given the complications for license conversion in India. It can take many months and is not a simple process. Therefore the whole recruitment process is slowed down dramatically which in turn effects future operations of the airline. 35 © – RANJIT SHERGILL 2008 GOAIR FINANCIAL STATISTICS TABLE 5. 3. 1 Finance (in million’s) 2006 USD 45. 2 01-Apr-06 31-Mar-07 75. 41 1. 45 0. 19 77. 06 -47. 61 -52. 54 -68. 18% SOURCE – WWW. RATI. COM[5. 35] Figures IN US Dollars
Rate Period start Period end Passenger Revenue Cargo Revenue Other Revenue Total Revenue Operating result Net result Net margin TABLE 5. 3. 2 Traffic and statistics Period start Period end Passenger millions Passenger load factor Revenue passenger km (mill) Available seat km (mill) Freight tonne km (mill) Revenue tonne km (mill) Total employees 2007 1 Jan 2007 31 Dec 2007 1. 790 78. 88 % 1,569. 00 1,989. 00 na 136. 66 na 2006 1 Jan 2006 31 Dec 2006 0. 910 62 % 842. 28 1,358. 43 na 74. 76 962. 00 SOURCE – WWW. RATI. COM[5. 36] Tables 5. . 1 and 5. 3. 2 show the substantial losses GoAir made in the perio
