STRATEGIC MANAGEMENT

PRESTIGE INSTITUTE OF MANAGEMENT AND RESEARCH

Assignment -1 ETOP analysis of Aviation industry

Submitted to- Submitted by- Prof. Ranjana patel Azhar mohd.

Rohan Saini Susheel Paraste

Rohit Soni

AIRLINE INDUSTRY IN INDIA 454 airports and airstrips

(includes Operational, Non Operational, Abandoned and Disused Airports) 127 are owned & operated by AAI

16 - international, 7 custom airports, 28 civil enclaves Scheduled domestic air services - available from 82 airports

May 2007- May 2008 25.5 million domestic & 22.4 million international passengers 20% growth – highest in the world

Growth Rate Projections (for next 5 yrs) 15% p.a (Passenger Traffic) 11.4% p.a (Cargo Traffic)

HISTORY1911

19321938

1946

1948

1953

First commercial flight Airmails from Allahabad to Naini(10 km) The Aviation Department of Tata Sons Ltd. Established Tata Airlines (successor to aviation division of Tata Sons) Tata Air Lines converted into a public Company and

renamed Air India Limited Air India International incorporated

Nationalization of Aircraft Industry Air India (serving the international sectors) Indian Airlines (serving domestic sectors)

Deccan Airways, Airways India, Bharat Airways, Himalayan Aviation, Kalinga Airlines, Indian National Airways and Air Services of India

HISTORY1986

1990199420032007

2008

Private Sector Players permitted as Air taxi operators

Players including Jet, Air Sahara, NEPC, East West, Modiluft,etc started service

Open Sky Policy Private Carriers permitted to operate scheduled services Entry of low-cost carriers Merger of Indian Airlines into Air India Acquisition of Air Sahara by Jet Airways Kingfisher acquired 49% stake in Deccan Aviation

WHAT IS ETOP ? The environment in which business operates has

a greater influence on their successes or failures. There is a strong linkage between the changing environment, the strategic response of the business to such changes and the performance. It is therefore important to understand the forces of external environment the way they influence this linkage. 

The organisations while attempting at strategic realignments, try to capture these opportunities and avoid the emerging threats. At the same time the changes in the environment affect the attractiveness or risk levels of various investments of the organizations or the investors.

CONT…. BROAD DIMENSIONS OF EXTERNAL

ENVIRONMENT The macro environment in which all

organizations operate broadly consist of the economic environment, the political and legal environment, the socio cultural aspects and the environment related issues like pollution, sustainability etc. The technological temper and its progress has been the key driver behind the major changes witnessed in the external environment making it increasingly complex.

CONT.. The external forces can be classified into six

broad categories: Political, Economic, Social, Technological, Environmental and Legal Forces. Changes in these external forces affect the changes in consumer demand for both industrial and consumer products and services. These external forces affect the types of products produced, the nature of positioning them and market segmentation strategies, the types of services offered, and choice of business. Therefore, it becomes important for the organizations

ETOP OF INDIAN AVIATION INDUSTRY

An airline provides air transport services for passengers or freight. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit. Generally, airline companies are recognized with an air operating certificate or license issued by a governmental aviation body.

Airlines vary from those with a single aircraft carrying mail or cargo, through full-service international airlines operating hundreds of aircraft. Airline services can be categorized as being intercontinental, intra-continental, domestic, or international, and may be operated as scheduled services or charters.

POLITICAL FACTORS  In India, one can never over-look the political factors which influence each and

every industry existing in the country. Like it or not, the political interference has to be present everywhere.

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 travellers, regarding travelling to a particular country.

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.

Another aspect is that in countries with high corruption levels like India, bribes have to be paid for every permit & license required.

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.

OTHER POLITICAL FACTOR

- Liberalization of the Sector 

- Excise Duty and Sales Tax on Aviation Turbine Fuel 

- Modernization of Airports  - Entry Barriers for New Players

ECONOMIC

-Decrease in passenger numbers.-Competition from low cost airlines.-Increase in cost i.e. Insurance.-Deregulation has exposed airlines, previously operating at inefficient cost levels.-Many airlines in serious financial trouble e.g. Indigo.

SOCIAL -Reluctance to fly

-Need to rebuild confidence in air travel-Sub losses with knock on social affect

Technological-Economies of scale in production due to expanding market size-E-commerce method of selling tickets, therefore less infrastructure required, overhead savings

-Growth of Electronic Ticketing - Satellite based Navigation Systems

SWOT ANALYSIS Strengths: 

1. Growing tourism: Due to growth in tourism, there has been an increase in number of the international and domestic passengers. The estimated growth of domestic passenger segment is at 50% per annum and growth for international passenger segment is 25% 

2. Rising income levels: Due to the rise in income levels, the disposable income is also higher which are expected to enhance the number of flyers.

Weaknesses:

1.Under penetrated Market : The total passenger traffic was only 50 million as on 31st Dec 2005 amounting to only 0.05 trips per annum as compared to developed nations like United States have 2.02 trips per annum. 

2.Untapped Air Cargo Market: Air cargo market has not yet been fully taped in the Indian markets and is expected that in the coming years large number of players will have dedicated fleets. 

3. Infrastructural constraints: The infrastructure development has not kept pace with the growth in aviation services sector leading to a bottleneck. Huge investment requirement for physical infrastructure for airports. 

CONT…. Opportunities: 

1.Expecting investments: investment of about US $30 billion will be made.

2.Expected Market Size: Average growth of aviation sector is about 25%-30% and the expected market size is projected to grow upto100 million by 2010.

Threats Huge investments are expected to take place in aviation sector in near future. It is estimated that by 2012. 

1.Shortage of trained Pilots: There is a shortage of trained pilots, co-pilots and ground staff which is severely limiting growth prospects. 

2.Shortage of Airports: There is a shortage of airport facilities, parking bays,air traffic control facilities and takeoff and landing slots. 

3. High prices: Though enough number of low cost carriers are already existing in the industry, majority of the population is still not able to fly to other destinations. 

Jet-airways

ETOP ANALYSIS Political Issue

License issue for international operation

Infrastructural constraint ATF price policy(Air turbine

policy)

Economic Effects Rising income level Reduced fare but yet not enough

Social Effects Sound Pollution Plane hijacking 9/11 Incident

Technology Effects Modernization of aircrafts Modern technology like CAT3

and ILS

SWOT ANALYSIS Strengths

Market driver Experience exceeding 14 year Only private airline with

international operation Market leader Largest fleet size

Weaknesses Loosing domestic market share Old fleet with average age around

4.79 years Scope for improvement in

in-flight service Weak brand promotion

Opportunities Untapped air cargo market Scope in international service and

tourism

Threats Strong competitors Fuel price hike Overseas market competition

kingfisher

POLITICAL FACTORS 1) Open sky policy 2) FDI limits: 100% for Greenfield airports 74% for the existing airports 100% through special permission 49% for airlines.

ECONOMICAL FACTORS 1) Contribution to the Indian economy. 2) Rising cost of fuel. 3) Investment in the sector of aviation. 4) The growth of the middle income group family affects the

aviation sector

SOCIAL FACTORS 1) Development of cities leads to better services and

airports. 2)Employment opportunities. 3)Safety regulations. 4) The status symbol attached to a plane travel.

TECHNOLOGICAL FACTORS 1) The growth of e-commerce and e-ticketing. 2) Satellite based navigation system. 3) Modernisation and privatisation of the airports. 4) Developing green field airports with private sector for

example in Bangalore the airport corporation limited.

ENVIRONMENTAL FACTORS 1)The increase in the global warming. 2)The sudden and unexpected behavior of the atmosphere and

the dependency on whether. 3)Shortage of the infrastructural capacity 4)Tourism saturation.

LEGAL FACTORS 1) FDI limits 2) Bilateral treaties 3) Airlines acquisitions and the leasing cost.

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MARKETING STRATEGY

Focuses on One thing :One type of airplane, fare, customer service, route etc.

Uses new Airbus A320-200 aircraft Efficient processes

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MACRO ENVIRONMENT ANALYSIS Main Factors :

Political EconomicSocio-cultural

Technological Other Factors :

Demographic Natural Environment

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MACRO ENVIRONMENT ANALYSIS : POLITICAL

Open Sky Policy Deregulations in different spheres Low entry barriers FDI limits :

o 49 % for airlines o 100% for airports

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MACRO ENVIRONMENT ANALYSIS :ECONOMIC Growing middle class income Consistent GDP growth of more than 8%

and projected rate in two digits Hike in average salary 14%(highest) in the

world Tourism industry growth :8.8 %in 2005

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MACRO ENVIRONMENT ANALYSIS :SOCIO-CULTURAL

Growing middle class :o 1993-1999 : 39.5 m to 56.7 m householdso 2005 : 300 mo 2010 : 400 m (Estimated)

Increase in leisure travel by tourists by 25 % in 2009

Foreign tourists in 2009 : 5.2 mn Status symbol to travel in plane.

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MACRO ENVIRONMENT ANALYSIS :TECHNOLOGICAL

Modernization & Privatization of AirportsModern Technology for efficient handling of aircraft, passenger and cargo.

Example : ILS, CAT-3 Developing Greenfield Airports with Private

SectorExample : Bangalore Airport Corporation Ltd.

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MACRO ENVIRONMENT ANALYSIS :DEMOGRAPHIC AND NATURAL

Changing pattern of consumers Highest percentage people of age group 20-

25 Educational environment Shift towards family concept High energy cost

THANK YOU !!