Price War in Aviation Industry

Topics: Airline, Low-cost carrier, Indira Gandhi International Airport Pages: 10 (3076 words) Published: December 24, 2011
Price Wars in Aviation Industry – Boon or Bane?
Aviation Industry in India is a significant one among those industry segments that have experienced a phenomenal growth across the globe over the past years. The open sky policy of the Indian government is one of the key factors that have allured international players into the aviation industry in India. Since long, the aviation industry in India has been growing in terms of number of air travel firms and number of aircrafts. Today, private airlines alone bear the burden of not less than 75% of the domestic aviation requirements. Indian aviation industry is the 9th largest in the world. As per the statistics released by the Ministry of Civil Aviation, in the year 2008 alone not less than 29.8 million people travelled to and from India which was a 30% surge from 2007. Industry experts have predicted that not less than 50 million passengers will be served by the India aviation industry by 2015. Widening opportunities in India will create room for over 69 foreign airlines entering the Indian aviation sector from about 49 countries. What is a Price war? A price war is a period in which the firms in an industry or market set prices that are significantly below the usually prevailing prices, generally implying a change in strategy within a set of oligopolists. The concept of low cost carries: A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline or cheap flight) is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc. The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors. While the term is often applied to any carrier with low ticket prices and limited services, regardless of their operating models, low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares. Background: The Indian Aviation Industry

The first commercial flight in India was made on February 18, 1911, when a French pilot Monseigneur Piguet flew airmails from Allahabad to Naini, covering a distance of about 10 km in as many minutes. The history of Indian aviation industry's dates back to the early 1930s, when one of the leading Indian business houses, the Tatas set up the Tata Airlines. There was limited activity in the field over the next two decades despite eight more private companies entering the fray. In 1953, the Air Corporations Act 1953 came into force and all the assets of the then existing nine airline companies were transferred to two corporations - Indian Airlines Corp. (IA) and Air India International (Air India).

While Air India offered international air services, IA offered domestic services. The Air Corporations Act 1953 prohibited any person or company to operate any scheduled air transport services from, to or across India.

Therefore, two corporations enjoyed a monopoly status in the scheduled air transport services market. In 1962, Air India International was renamed Air India Ltd.| In 1986, private airlines were allowed to operate chartered and non-scheduled services under an 'Air Taxi' scheme. The scheme was introduced to boost tourism and augment domestic air services. The carriers were however, not allowed to publish time schedules or issue tickets to passengers. Reasons for price crunch

It all started in the year 2002 when the major players in the aviation sector adopted various marketing strategies in terms of price-reduction, innovative customer service efforts and other promotional activities to attract an entirely new set of customers. -------------------------------------------------

'Everyone Can Fly' Through 'Steal A Seat'
The months of July and August 2002 witnessed...
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