Hi, all
I am a Mgmt student analysing Low-cost airlines industry in India as apart of my research work.
The discussion on the site prompted me to write this...
Deccan Air’s success will depend upon how the company defines its business. Low-cost (LCA)/ No-frills/ budget airlines are common terms used to define the way they do business. But all these terms are subjective and as Sourab’s Review has raised it, he defines these terms as commonly accepted or from a lehman’s view. However it has critical implications on stripping costs.
An example here would be Easyjet and Ryanair two low-cost airlines operating in Europe. Both are ’’low-cost’’ but do not directly compete with each other. Yes you heard it they avoid competing with each other, it does this by differentiation. There are several differences in how both these airlines define low-costs.
One obvious difference is Ryan air serves passengers from Secondary airports: (Secondary airports are smaller airports or military bases converted into airports about 40-50 miles from main cities and towns). By doing so the airport costs are reduced this results in Industry lowest costs.
A dis-advantage here is passengers do not complete their journey only by flying, they also have to travel by car/bus to and from the airports at least about 40 miles at both ends. In contrast Easyjet flies to major airports thus it commands lowest costs however on the routes it operates (i.e. Primary airports to primary airports).
The implication here is that both are low-cost however their product offers something different from the other. This brings us to question what product LCA’s offer. Simple, they sell passenger seats, and they use ’’yield management’’ i.e.: Pricing slabs also mentioned by Sourab, to sell maximum possible seats. Therefore they are more like a bus service/ a simple means of transport.
We can therefore define low-costs by how good they are at reducing costs. And the race will surely be on to have lowest costs and thus lowest prices however this will begin once more competitor?s enter the market.
The future of Deccan Airways will depend on a lot of factors, some other means used to reduce costs are:
?Low wages, low airport fees
?Low Operating Costs
?Low costs for maintenance, cockpit training and standby crews due to homogeneous fleet
?High resource productivity: short ground waits due to simple boarding processes, no air freight, no hub services, and short cleaning times
?Lean sales (high percentage of online sales)
?Using a common fleet of aircraft that helps reduce training and repair costs
LCA’s will not be able to create its own market in India (due to infrastructure concerns and Government policies) and most of their customers are people switching from other means of transport. People using rail services, domestic airlines and possibly ’’low costs’’ will be an excuse to travel for a weekend holiday (this is one excuse that helped Ryanair create its own market in UK)
Success will also depend on:
?Government policies (can we have secondary airports???)
?Competitor strategies and their lobbying (Vijay Mallaya!!)
?Government taxes
?Capacity- Volume growth in airline market and increasing load factors in LCA’s- No doubt Deccan Air is increasing aircraft and fleet size!!
?Ancillary Sales: Stuff sold online and on the flight!!!
One main concern personally is that once competition intencifies, everyone is fighting for important timeslots in the airports, which are so limited in infrastructure in India. This will mean that they will be a blood bath once the industry begins to grow at a faster pace. The larger companies that are financially stable will compete in the price war and successfuly sustain, to grow in the future.
The question is
How many will handle the situation and sustain?
How do they define their business? and
How many players will survive?
This only time can tell!!!
At the end of it all customers will benefit and so will early enterers of the market like Deccan Air, however this could be short-lived as competition intensifies.
But let me end by saying this : You havent seen the best of it, as far as prices go....!!!!!!!!
I would be grateful if any of you could contribute any knowledge and information on the topic. It will help me with my research.
Cheers,
Guru