Case on Air Deccan

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Case Study
Strategic management
Evaluation II

AIR DECCAN: REVOLUTIONISING THE INDIAN SKIES

Air Travel in India
For decades, air travel in India was meant for the most elite and powerful in society. An overwhelming majority of travellers who could not afford the prohibitive air travel fares, preferred to journey on trains and buses. The revolutionizing effects of liberalization swept India with dynamic changes in the aviation sector. From being a service that few could afford, the sector has now graduated to being a fiercely competitive industry with the presence of a number of private and public airlines and several consumer-oriented offerings. In ten years of competition in the aviation sector, private airlines have changed the rules of the game, and they now account for more than 60 % of the domestic aviation market. More and more middle class families in India now prefer air travel to the more traditional travel by train. In 2003, 10 million Indians travelled by air domestically. In 2004, 25 million took to the skies within India and 6 million Indians travelled abroad. The Centre for Asia Pacific Aviation estimates that the domestic Indian market will add 5 million passengers every year for the next five years, growing to 45 million passengers by 2010. Today, the relationship of domestic to international travel stands at 40:60 whereas in 1994 it stood at only 25:75. But taking into account a growing middle class with increased and increasing purchasing power, there are 200-210 million potential spenders. The Indian population grows at a rate of 8% per year.  Around 100 million travellers every day on state-owned Indian Railways, If air travel bites into even a small percentage of this huge pie, that’s still clearly a tremendous growth opportunity. The entry of budget airlines like Air Deccan, the introduction of cheap airfares by other domestic carriers, combined with rising incomes and consumption of the middle class as also their growing aspirations, have created this new paradigm: Air travel is no longer for the elite.

Air Travel Market
The new entrants have caused a shift in the market share for the old hands. The three legacy airlines, Jet Airways, state-owned Indian and Air Sahara, saw their market share slipping in first quarter of this year. Jet Airways, still the leader, found its share of market volumes slipping with 34.9%. Indian at 23.9% and Air Deccan at 10% followed suit. Low-cost airlines are certainly giving a tough time to full service carriers whose market share has dipped, as has their revenue. Fares have been slashed drastically and both Jet Airways and Indian are wooing the consumers with special schemes and promotions. Several new entrants such as Air Deccan, SpiceJet, GoAir, Kingfisher and Paramount have begun to dot Indian airspace, garnering a market share of more than 31% in the first quarter of 2006. The leader among this brat-pack is clearly Air Deccan – the airline has doubled its market share to 15.2 per cent. Kingfisher and SpiceJet have captured a market share of 8.3 per cent and 6 per cent respectively. Coimbatore-based Paramount Airways has publicly confirmed garnering 0.3% of the market. Jeh Wadia’s GoAir is also going great guns by cornering 1.6% of the air traffic in a short time span. These airlines took to the skies after the first quarter of last year. All the airlines have seen an increase in the number of passengers carried in the first quarter. With all the start-ups planning significant increases in capacity this year — Kingfisher (fleet may go up to 20 planes), Deccan (38 planes), SpiceJet (12/14 planes), Go (7/9 planes) and Paramount (10 planes) — the market is set to sizzle. The market is gearing up for an adventurous ride of price wars as six more low-budget airlines waiting in the wings - Jagson Airlines, King Air, Mega Airways, Indus Air and Megapode Airline. IndiGo has made its entry as well, with ambitious plans to induct 100 aircraft into its fleet....
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