Low Cost Airlines Strategy

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Situation

It’s a chilly winter evening in Bangalore and Vijay Mallya looks out of the window with a Kingfisher Beer pint in his hand. He looks out at the reddish horizon and contemplates the future of his airlines - The Kingfisher Airlines. He has recently bought the first low cost carrier in India, Air Deccan. With the sale of Air Deccan, the industry has seen a correction of sorts, in terms of the cost of travel. With increasing oil rates and the turmoil that the airlines’ industry is currently in, Mallya needs to come up with a strategy to make best of the low cost carrier. He also needs to pull out the airlines of the losses it has been making since the past few years.

Objective
The objective is to study the current scenario in the Airlines Industry in India and to analyse the possible strategies that Kingfisher Airlines can adopt to increase the market share of Kingfisher Red to be the market leader in the low cost airlines segment.

Company Background:

Kingfisher Red, known formerly as Simpli-fly Deccan and prior to that as Air Deccan, is a low-cost airline run by Kingfisher Airlines. It is headquartered in Mumbai, India. Formerly known as Air Deccan, the airline was previously operated by Deccan Aviation. It was started by Captain G. R. Gopinath. Less than expected growth in the Indian aviation sector coupled with overcrowding and the resultant severe competition between airlines resulted in almost all the Indian carriers, including Air Deccan, running into heavy losses. After initially trying to get in fresh capital for running the airline, Captain Gopinath eventually succumbed to pressures for consolidation. On 19 December 2007, it was announced that Air Deccan would merge with Kingfisher Airlines. Since Indian aviation regulations prohibited domestic airlines from flying on international routes until they had operated in the domestic market for five years, it was decided to instead merge Kingfisher Airlines into Deccan Aviation, following which Deccan Aviation would be renamed Kingfisher Airlines. In its present avatar as Kingfisher Red, the airline faces stiff competition from SpiceJet, IndiGo Airlines, Jet Lite and GoAir. Kingfisher Airlines posted a net loss of Rs 1,608.82 crore for fiscal 2009.

Airlines Industry in India

Indian aviation industry ranks 4th in the world after USA, China, and Japan in terms of domestic passenger volume, with a domestic passenger base of 43.29 million. The Indian aviation industry is among one of the fastest growing industries. The number of scheduled passenger airline operator has grown to 15 and the number of aircraft in their fleet has risen to more than 400. India now has 82 operational airports against 50 in 2000. International flights have increased to 706 flights per week. Due to enhanced opportunities for international connectivity, 69 foreign airlines from 49 countries are flying into India.

The government's open sky policy has lead to many overseas players entering the market and the industry has been growing both in terms of players and number of aircrafts. With the liberalization of the Indian aviation sector, the aviation industry in India has under gone a rapid transformation. From being primarily a government-owned industry, the Indian aviation industry is now dominated by privately owned full-service airlines and low-cost carriers. Private airlines account for around 80-85 per cent share of the domestic aviation market. Earlier, air travel was a privilege only a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people.

According to Director General of Civil Aviation(DGCA) passenger data, passenger carried by domestic airline operators have grown to 33.9 million during January-August 2010 as against 28.4 million over the same period a year ago....
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