INTRODUCTION TO AIRLINES Airli irline nes s are co cons nsid ide ered red to be the fast faste est mode ode of transport. It is one of the emerging industries providing the cus custo tome mers rs
wit with
impe im pec cca cabl ble e
serv servic ice e.
Airli irline ne
indu indust stry ry,,
worldwide is constantly facing threats from attacks or any wide wide spre spread ad dise diseas ase e like like SA SARS RS,, whic which h affe affect cts s its its sa sale les s cons co nsid ider erab ably ly.. This This has has lead lead to bank bankru rupt ptcy cy and and ma mass ssiv ive e layoffs in many airline companies.
Despite of all these exigencies, airline companies have regained their status and continue providing its state-of-art service. It is coming up with a flood of innovative schemes to lure lure the the cust ustom ome ers. rs. The atta attac cks on twin win towe ower had had severely affected the aviation industry, but two years after the attack, it has come to normal and running with all its conf co nfid iden ence ce.. It had had been been a lear learnin ning g expe experi rien ence ce fo forr all all the the airl airlin ines es.. They They now now are are givi giving ng prim prime e im impo port rtan ance ce to the the security measures.
The same is the scenario of Indian Aviation. The history of Indian Aviation dates back to 1912. From then there is no looking back. Gone are the days when flying by air was a distant dream for common people owing to high ticket fares.
Today with the increasing competition, airlines have slashes their prices, but this has not affected their quality of service.
The airline companies have created a great impact in the minds of the customers as the ultimate service provider of all the transports. As airl airlin ine es stru strugg ggle le to gai gain ma mark rke et share hare and and sus sustain tain profitability in today's fiercely competitive and economically demanding environment, they must develop new ways to manage their customer relationships to optimise customer loyalt loyalty y and revenu revenues. es. What What tactic tactics s should should airlin airlines es use to acquire, develop and retain customers with greater precision and improved improved results? Is better better service service sufficient? sufficient? he airline airline indu indus stry try has has reac reache hed d a cro crossroa sroads ds.. The effe ffects cts of the worldwide worldwide economic economic slump and the aftermath aftermath of September September 11th attacks have severely impacted airline economics and viability. While the U.S. and certain European markets were most severely impacted, airlines worldwide are striving to both regain and improve profitability. Many have focused on operational improvements to reduce costs, but the customer cannot be ignored. Customer relationships must be fostered forr airlines to maintain competitive advantage and fo profitability in the long term. Airlines' immediate focus is on cost reductions in driving to more mo re effi effici cien entt oper operat atio ions ns.. Howe Howeve ver, r, ma many ny airl airlin ines es are are turning to customer relationship management (CRM) as a tool for managing customer relationships. Unfortunately, in many cases, they have failed to recognize CRM as a holistic stra strate tegy gy,, inst instea ead d view viewin ing g it as syno synony nymo mous us with with thei theirr frequent flyer programs. In order to manage the customer more mo re effe effect ctive ively ly ac acro ross ss all all line lines s of serv servic ice, e, airl airline ines s must must change their approach to CRM in a number of ways:
Customer segmentation -- Airlines need to recognize that mileage-based segmentation is inadequate, whereas valuebased and needs-based approaches can help guide investment decisions and drive greater insight into the needs of high-value customers. CRM initiative development -- In order to differentiate themselves from the competition, airlines must abandon a "fast follower" approach to CRM initiative development, in favor of investing in initiatives with a high return, which respond to the needs and desires of their own customers. Organizational design and management -- Airlines need to instill a service mentality in their employees, empowering them with a complete view of the customer and clearly articulating the employee's role in the CRM strategy.
AIRLINE TRANSPORTATION SERVICE In the 5 kinds of Market Offer, services of transportation airlines, take the shape of Major Services Accompanying Minor Goods . If we search for the value added by Tangibles Vs Intangible elements of goods and services in the grid, airlines take place in high intangibles and low tangible elements category.
Explanation : People definitely form a part of the service offered. The airlines have the responsibility of taking care as to which people will use what product. If one customer travels in a ‘B’ class of the airline, he/she will definitely expect a particular class of customer seated next in terms of conduct and behaviour. The service provider (Airline Management) here needs to take care and create a quality by differentiating different people for different services. The airhostesses/cabin crew/staff need to have good technical and interpersonal skills to manage the customer behaviour.
There exists more Variability of Operational Input and Output . The standardization in services becomes a little difficult but not impossible. For example, two people travelling in the Economy class
of Air Sahara, at the same time and use the same services. But still the experience and perception of service will be different by the both of them.
No inventories after production : Physical services cannot be stored and
stocked. However, labour facilities can be kept ready but not the service. Time factor becomes very important here. Service providers always try to speed up their services as people are ready to pay more if they can save a little of their precious time.
Critical Incidents or Critical Moments: Customer/ Passenger forms a part of the Service Delivery through out the service map. He is involved from the pre consumption stage to the post visit feedback. The service provider, (in this case –Airline Management) must anticipate the customer’s needs and reactions at all the stages of the service being provided (especially in the areas of Encounter between the Management and the Customer). Such encounters are called the Critical Moments that are very crucial in Service. In Critical moments, the service manager can design the service delivery systems that will guide interaction between the service provider and the user.
The Quality Aspect Transportation is one important area where a passenger not only spends his/her Time, but also a lot of Money. The transportation industry is slowly coming across a greater need for “Quality Service”. After investing a lot of time and money, if the particular mode of transport (Air) does not satisfy the customer, he/she might not complain of the service but shall probably go ahead with shifting of the service provider. In this industry, from the customer’s point of view, different consumers will assess quality in a different manner. The various determinants of quality for a layman shall be:
The Speed The Food Served Attitude of the Staff The Ambience, Cleanliness etc inside the Air/Rail Bus The Quick service during Reservations etc…
However, in this sector, quality is based more on the “User Based Approach”. This is highly debatable because not all customers have an equal view or an equal experience. For Example: In Airlines someone, might like an Airhostess for her polite
behaviour. At the same time, someone might not like the same Airhostess considering that she is not smart enough. Quality lies in the eyes of the Beholder! Customer as a Co-Producer:
The various modes of transport are now getting more customer focussed and quality conscious. Airlines are gradually finding the need to encourage customers be a part of the organisation. There are 3 Levels to determine the Customer Participation:
Low - Service rendered regardless of any Individual Purchase Moderate – Provision of service requires customer participation High – Service is created from customer’s purchase and active participation
The Transportation Industry as a whole comes under the category of ‘Low Level Customer Participation’. Customer presence is expected during the delivery. But, the service is provided regardless of any Individual Purchase.
AIRLINE HISTORY
WRIGHT BROTHERS.
The Wright Brothers, Orville Wright (1871 1948) and Wilbur Wright (1867 - 1912), are credited with the invention of the airplane and controllable powered heavier-than-air flight.
The brothers grew up in Dayton, Ohio, where they ran a bicycle repair, design and manufacturing company (the Wright Cycle Company). Drawing on the work of Sir George Cayley, they extended the technology of flight with the principles of control still used today. They had researched and initially relied upon the aeronautical literature of the day, including Otto Lilienthal's tables but, finding that the Smeaton Coefficient, a variable in the formula for lift and the formula for drag was wrong, designed and built a wind tunnel to perform practical tests.
In 1903 they went to Kitty Hawk, North Carolina to continue their aeronautical work, choosing Kitty Hawk (actually Kill Devil Hill) because of its strong and steady winds, and on March 23, 1903 they applied for a patent for their airplane design. Then on December 17, 1903 Orville Wright took to the air. Orville's uncontrolled flight, of 120 feet in 12 seconds, was recorded in a famous photograph. In the fourth flight of the same day, the only flight made that
day which was actually controlled, Wilbur Wright flew 852 feet in 59 seconds.
The Wrights established a flying field at Huffman Prairie, near Dayton, and continued work in 1904, using a catapult takeoff system to compensate for the lack of wind in this location. By the end of the year, the Wright brothers had sustained flights of 5 minutes, circling over Huffman Prairie. This was really the world's first airport.
The Wright brother brought great attention to flying by their flight around the Statue of Liberty in New York in 1909.
Contrary to popular belief, the Wrights were not the first to build heavier-than-air machines capable of flying under their own power; that had been done earlier by Samuel Langley and possibly Richard Pearse. However, their three-axis system of control, using wing warping (later supplanted by ailerons) to control roll, elevators to control pitch and angle of attack and a rudder to control yaw, made flight stable and sustainable. The same principles are still in use in all modern aircrafts.
OPEN SKY POLICY
The Open-sky policy came in April 1990. The policy allowed air taxi- operators to operate flights from any airport, both on a charter and a non charter basis and to decide their own flight schedules, cargo and passenger fares. The operators were, however, required to use aircraft with a minimum of 15 seats and conform to the prescribed rules. In 1990, the private air taxi-operators carried 15,000 passengers. This number increased to 4.1 lakh in 1992, 29.2 lakh in 1993, 36 lakh in 1994 and 48.9 lakh in 1995.
The 1996, private air taxi operators carried 49.08 lakh passengers which amounted to a 41.14 per cent share in the domestic air passenger traffic. Seven operators viz NEPC Airlines, Skyline NEPC, Jet Air, Archana Airways, Sahara India Airlines, Modiluft and East West Airlines had since acquired the status of scheduled airlines. Besides this, there were 22 nonscheduled private operators and 34 private operators holding no-objection certificate in 1996.
INSTITUTIONAL FRAMEWORK
MINISTRY OF CIVIL AVIATION (MCA): MCA is responsible for the formulation of national policies and programmes for development and regulation of
civil aviation and for devising and implementing schemes for the orderly growth and expansion of civil air transport.
DIRECTORATE
GENERAL
OF
CIVIL
AVIATION
(DGCA): The DGCA is the main regulatory organisation in the country responsible for regulation of air transport services to/from/within
India
and
for
enforcement
of
civil
air
regulations, air safety and airworthiness.
AIRPORT AUTHORITY OF INDIA (AAI): AAI provides infrastructure facilities. Its aim is to accelerate
the
modernisation
integrated of
the
development,
operational,
expansion
terminal
and
and cargo
facilities, in line with international standards.
INTERNATIONALS AIRPORTS DIVISION (IAD)
IAD manages the eight international airports at Delhi, Mumbai, Calcutta, Chennai, Thiruvananthapuram, Kochi, Hyderabad and Bangalore.
NATIONAL AIRPORTS DIVISION (NAD) NAD manages all domestic airports in the country.
PRESENT STATUS
The
airline
industry
today
faces
challenges
unprecedented in its history. With the global economic slowdown affecting business travel, the airlines were already in crisis before September 11th. But, the tragic events of last September aggravated the situation by weakening consumer confidence further and brought into question the existing security mechanism. The latest IATA estimates suggest that airlines collectively lost close to US $ 12 billion as they experienced a 5.7% decline in total traffic. The increase in costs due to higher insurance costs, security etc has put increasing pressure on airlines and jeopardized their viability leading to widespread layoffs and bankruptcies in the industry.
The Indian aviation industry on the other hand has weathered the storm with greater ease than many of its more illustrious western counterparts. Though it is largely dominated by the public sector and somewhat insulated from market exigencies. Despite the inherent cyclical nature of the aviation sector, its contribution to the economy is indisputable. But with the passage of time, the scenario is changing. The airlines are striving hard to cope up with the crisis. Domestic and international passenger traffic in India is projected
to
grow
annually
at
12.5%yoy
and
7%yoy
respectively over the next decade. At the same time, domestic and international cargo traffic is expected to grow at 4.5%yoy and 12%yoy respectively. By the year 2005, Indian airports are likely to handle 60mn international passengers and 300,000 tons of domestic and 1.2mn tons of international cargo. Over the next decade international and domestic air traffic are expected to grow from the present levels of 42 million to close to 90 million. International air cargo exports from India are expected to rise from 0.7 million tonnes per annum to 2.4 million t.p.a while domestic cargo will rise from 300,000 t.p.a to over 1 million t.p.a. Both Boeing and Airbus Industries expect that with the low penetration of aviation services in India, aviation services would grow
faster than in most countries and ahead of India's GDP growth. However, in order to achieve such levels of growth a number of policy and regulatory constraints will need to be addressed immediately.
ECONOMIC CONTRIBUTION
The aviation industry plays an indispensable role in the growth and efficiency of an economy. The sector acts as an economic catalyst by opening up new market opportunities, moving products and services with speed and efficiency. Therefore, international trade and commerce relies heavily on the aviation sector. The contribution of the aviation sector in India is especially significant taking into account that it only forms a small part of the transportation industry. The sector facilitates international trade, tourism, and foreign direct investment thereby enabling the growth of the economy and making it internationally competitive At present over 40% of India's exports and imports, by value, are carried by air and 95% of foreign tourists arrive into India by air making the tourism industry the third largest
foreign
exchange
earner. According
to NCAER
estimates foreign exchange transactions worth US $ 22.5
billion annually is directly facilitated by civil aviation, while another US $96 billion are moderately facilitated by civil aviation services. A report published by CII and NCAER also establishes that growth in air transport is closely inter-linked with
growth
in
the
Gross
Domestic
Product
both
internationally and nationally. For a percent increase in India's GDP, domestic passengers are expected to increase by 1% , for international passengers this sensitivity is about 1.3%.
PEST ANALYSIS OF AIRLINES INTRODUCTION The airline industry has seen rapid growth in the last few years. Before any kind of analysis is undertaken, it is important to find out what are the main environmental influences that have led to this growth. Also, how the extent to which the changes are occurring, are to be taken care of. This is important because the change in these factors can have significant effect on the way the industry performs The environmental influences can be analyzed by the use of PEST analysis. Within it’s parameters, PEST indicates
the importance of the political, economic, social & the technological changes in the industry. A brief idea about these factors is as follows:
POLITICAL
The
political
legislations,
analysis
regulations
comprises &
of
the
government
various policies
declared for the respective industry.
ECOMONIC
The economic factors’ influencing an industry defines the exchange rate, inflation rates, income growth, debt & saving levels.
SOCIAL
The social factors are those having an impact due to people’s choice and include beliefs, values and attitudes of the society
TECHNOLOGICAL
An impact of the new technology such as Internet, EDI, mobile and increasing advancing in computing are covered under the technological factors of the analytical tool PEST
POLITICAL FACTORS The political factors are the main driving force of the airline industry. The Indian airline industry is built on the backbone of the government support and it cannot sustain itself without it. All the support services like the hotel industry, tourism and other transport industry to name some are heavily dependant
on
the
support
and
co-operation
of
the
government. Any policy that comes into force can have dramatic effect on the way the industry players perform. Focusing on the recent factors concerned with various policies announced by the government are the following facts. The articles mentioned below highlight the influence of the “Open sky policy” announced by the Civil Aviation Ministry.
Stability of the political environment
The airline industry is very susceptible to changes in the political environment as it has a great bearing on the travel habits of its customers.
An unstable political environment
causes uncertainty in the minds of the air travelers, regarding traveling to a particular country.
Overall India’s recent political environment has been largely unstable due to international vents & continued tension with Pakistan. The recent Gujarat riots & the government’s inability to control the situation has also led to a increasing the instability of the political arena.
The most significant political event however has been September 11. The events occurring on September had special significance for the airline industry since airplanes were involved. The immediate results were a huge drop in air traffic due to safety & security concerns of the people.
impact on Air India: After the terror strikes, Asian Airlines seemed relatively unaffected and the demand was relatively stable a week after the attacks – a far cry from the marked downturn in bookings that airlines in the US have seen. Drop In air traffic leading to financial problems: For Air India, initial cancellations caused a loss of Rs. 9.5 crores in terms of grounded flights and hotel accommodation
for stranded passengers. The airline has now curtailed its direct flights to New York and Chicago, stopped its weekly London
terminator
service
and rerouted
a
service
to
Singapore. Despite this, and the pull out of United Airlines, Air India flights are still not full to the U.S. and London. Insurance conditions from leasers have forced the airline to ground all four of its recently leased aircraft.
Trade relations with other countries –
International airlines are greatly affected by trade relations
that
their
country
has
with
others.
Unless
governments of the two countries trade with each other, there could be restrictions of flying into particular area leading to a loss of potential air traffic (e.g. Pakistan & India)
India could find itself one airline short on the European sector as Richard Branson’s Virgin Atlantic is reported to be reviewing its strategy for its young unprofitable Indian operations. During its short stay in this country, Virgin Atlantic has already notched up losses on the Delhi-London sector and its exit from India may be a distinct possibility if
bilateral talks between the UK and the Indian government do not yield more ground in India for the airline soon.
Political interference & bureaucracy
This is another major area of consideration for airlines. This is because most governments recognize the huge revenue potential of the airline industry. This leads to a lot of politicians & ministers try to interfere with its operation hoping to gain come benefit. Another aspect is that in countries with high corruption levels like India, bribes have to be paid for every permit & license required. Therefore constant liasoning with the minister & other government official is necessary. The state owned airlines suffer the maximum from this problem. These airlines have to make several special considerations with respect to selection of routes, free seats to ministers, etc which a privately owned airline need not do. The state owned airlines also suffers form archaic laws applying only to them such as the retirement age of the
pursers & hostesses, the labour regulations which make the management less flexible in taking decision due to the presence
of
a
strong
union,
&
the
heavy
control
&
interference of the government. This affects the quality of the service delivery & therefore these airlines shave to think of innovative service marketing ideas to circumvent their problems & compete with the private operators. Air India is fully controlled by the state. This cause many problems in its functioning due to the indecisiveness of the government & slow decision-making. An example of how political interference has caused problems for air India is the recent proposed disinvestment of Air India. The sluggishness of the government & its hesitation to sell
Air
India
to
foreign
buyers
due
to
the
political
implications has cost the airline some huge bids by Air France & Singapore Airlines. The TATA group is the only one left
in
the
race,
which
effectively
means
that
the
government will have no choice, but to sell it to them & therefore won’t be in the power to negotiate on price. Besides major decision making, the daily decisions of Air
India
also
face
interference
from
bureaucrats
&
government officials who are not qualified to do so with regards to the airline industry. AIRLINES AS A SERVICE SECTOR
Unique Service Characteristics
INTANGIBILITY Services are intangible in nature. Unlike goods, which are tangible and can be seen and touched, services can only be experienced. It means that services are high in credence
qualities
whereas goods
are
high in search
qualities. A company can differentiate its service from its competitors by providing tangible clues.
A company can provide tangibility to its services by –
Association with physical goods or items,
Association with the physical environment,
Performance and involving customers
As we know that services are intangible, a service marketer has to face many problems. In the airline industry transportation is the core product. Since it is intangible in nature a service company can distinguish itself from its competitors by providing several tangible clues like –
Food / Beverages
Newspapers
Movies
Music
Staff uniforms
Logos
Color and design
Seats and cushions
Assistance with work
Audio / Video facilities for work or pleasure
Fax, laptops, etc.
Baggage retrieval
Flight bookings
A
service
marketer
can
overcome
the
difficulties
intangibility of services through:
Reducing service complexity
Stressing on tangible clues
Facilitating word – of - mouth recommendations
Focusing on service quality
of
Here are a few examples of leading airline companies that provide tangibility to its services through various tangible elements – 1.Indian Airlines – The Maharaja – Logo, also they describe themselves as ‘The Peoples Carrier – The National Carrier’. 2.Jet Airways – the airline for businessmen, easy booking facilities, easy custom clearances and baggage retrieval, good in-flight services. 3.Southwest – friendly, no frills, low fare airline. 4.Air Canada – provides laptop connections and helps in sending fax messages – favourite with North American business travelers.
INSEPARABILITY Another involvement
in
characteristic production
of i.e.
services
is
customer
inseparability.
The
inseparability of services leads to –
Customer being co-producer
Often customer being co-consumers with other customers and
Customer traveling to the point of service production
All the above three problems are faced by the service marketer in the airline industry. So the service marketer has to think of ways in which he can satisfy his consumers in an efficient manner. Customers are separated on the basis of price – business and economy class. Also
airline
are
trying
to
overcome
inseparability
by
providing facilities such as – Games for kids – Air Canada On-line Booking – Sahara
INCONSISTENCY Inconsistency refers to the variability in the service. Service
variability
leads
to
difficulty
in
projecting
a
consistent image and developing a strong brand. As it is difficult to standardize to blueprint the service process there is inconsistency in service quality. Also services rely on human inputs there is a high amount of variability. This can be
overcome
by
providing
personalized
services
and
focusing on employee training. Up to an extent, automation and mechanization also can help to reduce inconsistency. E.g.: most airlines include online booking resulting in a standardized procedure & fewer mistakes due to human errors.
Another way of reducing inconsistency in airlines is the standardization of in-flight procedures for example the security instructions given at the beginning of the flight.
INVENTORY: It is not possible to store services. Also the service capacity cannot be increased, as it can be limited. Services also face irregular demand patterns. Again the service can be short-lived. The inventory for airline industry is mainly the food and the aircrafts spares and parts. Airlines face the problem of inventory mainly due to irregular demand patterns. E.g.: The Boeing Company and British Airways announced today that the airline will be the first launch customer for the Global Airline Inventory Network(SM), an innovative new service in which Boeing will manage British Airways' supply chain for expendable airframe spare parts used in its fleet of Boeing airplanes. This includes parts from Boeing as well as other suppliers.An
expendable part is one that is typically replaced rather than repaired after use. These range from fasteners and brackets to floor panels and airplane skins. The Global Airline Inventory Network (SM) is designed to attack costly inventory inefficiencies in the airline industry, where both airlines and suppliers incur extra costs because of
duplicated
distribution
channels
and
unnecessary
inventory levels. Congestion occurs during peak periods like vacations and festivals and at other times there is unused capacity. Thus special discounts & offers are offered during these periods to boost seat capacity (called the PLF -- passenger load factor)
LIBERALISATION OF THE AIRLINE SECTOR
Liberalisation
- Opening up of a country's markets to
foreign/ private players.
The liberalisation process in the
airline sector has been
going on since 1992, but it has seen a lot of turbulence.
The main effects of liberalisation in this sector are: more players, less fares and better service. Before 1992 there was
just one airline - Indian Airlines. When the government liberalised the sector in 1992 a lot of airlines came in (Damania, East-West, Jet), but with a market shake-up in the mid 90's only the fittest have survived. Today there are 3 major national players (IA, Sahara, Jet) and several regional players (NEPC, Span, Gujarat). As a result of liberalisation, the services of all airlines have gone up and along with that the fares have dropped noticeably.
GOVERNMENT POLICY
The policy of the government in the 50's was to connect all of India via air. Hence today we find that almost all small towns of India have airports. The policy failed because not many people could afford to fly and almost no one flew to small towns. Today when small towns are finally getting flights it is found that the equipment at the airports is outdated (eg - The Patna airport was built in the 60's but use of the airport and all it's facilities began only in the 80's. That is, for twenty years the equipment in the airport was just lying around).
After 1992, however, the government has adopted an "Open skies" policy. In this policy, players are allowed to enter and leave the market as they seem fit.
