Strategic Management Assignment on "Low-Cost Carriers in India - Spice Jet's Perspective" Q1. How did the concept of LCC emerge in India? Which factors encouraged the growth of LCCs? Ans. After the liberalization policy which was introduced in 1991 the Indian market witnessed the entry of privately owned airlines and LCC. By march 1994, the government had approved six private carriers. However, by 1998 many of these airlines failed. In this closure game, a total of IMR 10 billion of capital was wiped out. By 2003, there were just four carriers operating in India –Air India, Indian Airlines, Jet Airways and Air Sahara - all operating full service models. And private carriers in those days were limited to operating domestic routes only. In 2003 the first LCC entered in India which was the Air Deccan. The entry of this first LCC in India constituted a turning point in Indian aviation industry. It led to a shift from traditional economy and business fares to special discounts, promotional fares, check fares, web fares and corporate discounts. India witnessed a compounded annual growth rate of 19.14% in the air passenger traffic and 9.91 % in cargo movements over the period from 2003-2004 to 2007-2008. This complemented the success of the LCC model referred to as the “no frills airlines” business model. This encouraged other private airlines to emerge. The entry of LCC along with increased FDI inflows, tourist inflows, higher corporate travel, higher household incomes, sustained business growth and supporting government policies, all contributed to the growth of the Indian aviation industry. Today, there are effectively seven major airlines operating 11 different brands. * Air India + Air India Express;
* Jet Airways + Jet Konnect + JetLite;
* Kingfisher Airlines + Kingfisher Red;
* Go Air;
Out of which GoAir, IndiGo, SpiceJet, JetLite are LCC airlines. The most significant recent strategic development in the Indian domestic market is that it is rapidly turning low cost. An operating model that did not exist in the Indian market until six years ago, could account for almost 70% of domestic capacity by the end of 2010, as predicted by the Centre for Asia Pacific Aviation as early as 2005. The shift to low cost has been accelerated recently by moves by Jet Airways and Kingfisher Airlines to reconfigure the majority of their domestic aircraft to operate all-economy, no-frills service. Air India is also planning to follow suit. As of Mar-2010, on the domestic front, the three large airline groups – Air India, Jet Airways and Kingfisher Airlines commanded a 59.7% market share, while the independent LCCs controlled 39.0%.
Indian carriers domestic market share: Mar-2010
Low-cost airline principles:
All Low-cost airlines have a different service offering, by definition they offer some or most of the below. * Standardized fleet (Lower training, maintenance costs. purchase aircraft in bulk) * Remove non-essential features (Non-reclining seats, no pilot auto throttle, no frequent flyer schemes) * Use of secondary airports (Lower landing fees, marketing support) * Rapid turnaround (Less time on the ground, more flights per day) * On-line ticket sales (No call-centers or agents)
* On-line check in (Fewer check in desks)
* Impose baggage charges (Less bags mean quicker loading of aircraft, extra revenue for checked bags) * Do not use jet-ways (Avoid extra airport charges)
* Have staff do multiple jobs (Cabin crew also check tickets at the gate, clean aircraft) * Hedge fuel costs (Buy fuel in advance when it is cheaper) * Charge for all services (On board services, reserved seating, extra baggage) * Do not use reserved seating (Slows down the loading of the aircraft) * Fly point to point (Passenger transfers to other flights not accommodated)
Q.2 what factors should SpiceJet consider before strategizing its operations in India....
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