Air India Strategy Assignment

Air India Strategy Assignment Words: 3112

Executive Summary Air India began its services in 1932 and has been operating in India for the last 78 years. It is the oldest passenger flight of India. The government of India holds 49% of Air India’s share with an option to acquire 2% more since 1946. This made Air India a public sector thus enabled it to operate flights internationally. In spite of being a public sector company Air India has been running in loss for the past 10 years.

A SWOT analysis was conducted to analyze the strength of Air India that sets it apart from its competitors and its weakness were identified which would provide an insight as to why Air India were running a loss and the opportunities and threats provide information of the possible areas of improvement that can bring in more revenue and the threats that can affect its growth. The competitor analysis of Air India is a comparison Air India against its competitors. The analysis shows that Air India needs to put in more effort in improving its loyalty programmes, safety and security, advertising and its financial position is one of the poorest.

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Based on Air India’s market position a plan is prepared to improve Air India’s condition. The plan involves, reducing Air India’s human resource, expanding network routes to Asia Pacific region, moving into singles market and rebranding its image. The implementation of the plan would provide revenue of 1 billion and reduce human resource cost by 8 million. The total cost for implementing the plan would be 33. 5 million. 2. 0Introduction Air India is the national carrier of India and offers flights to 96 destinations. Air India Express, a Low Cost Carrier (LCC, subsidy to Air India, commenced its services from 2004.

Air India Express operates its services to Middle East and South East Asian. In 2007, Air India merged with Indian Airlines and a new company called the National Aviation Company of India Limited (NACIL) was approved by the government to facilitate the merger (Air India 2010). Air India’s merger with Indian Airlines in 2007 was initiated with the intention of boosting Air India sales but the market crash in 2008 and rise in fuel prices led to Air India’s international and domestic share dropping to 35% and it incurred a loss of 1. 4 billion USD (Mansuri 2009). Air India’s debt increased with increase in Air India’s expenditure on flights. In 2009 Air India’s debt rose to 3. 2 billion USD (Waldron 2009). Air India’s human resource management is very poor. They were overstaffed. With a total of 31,000 employees who work total of 2300 hours as compared to 3055 hours which employees of other airlines worked, 60% of Air India’s expenditure went to playing wages of the staff (Majumdar 2009). On 22 May 2010, Air India Express crashed in Mangalore killing 158 people and 6 crew members.

According to Directorial General of Civil Aviation (DGCA) the cause of accident was due to engineering problems and negligence of the Air India’s engineering team this led to cancellation of many of Air India’s flights (The Hindu 2010). The report focuses on improving Air India’s financial condition by venturing into newer routes and targeting new market segments to increase sales and reducing expenditures by restructuring and training human resource. 3. 0SWOT Analysis

SWOT analysis refers to the analysis of the organization’s internal environment (strength and weakness) and the external environment of the organization (opportunities and threats) (Lynch 2009). Strength 1)Strong brand name 2) Large Fleet Size of 111 aircrafts 3) Domination on international routes 4) 180 Bilateral Agreements and rights to fly to 96 destinations Weakness 1) Slacking human resource management 2) High expenditures 3) Deteriorating customer service 4) Drop in domestic and international market share 5) Poor aircraft maintenance

Opportunities 1) Increasing demand for Low Cost Carrier 2) Expansion of tourism industry 3) Unexplored markets-Asia Pacific, and Singles Market Threats 1) Stiff competition 2) Improvement in the Indian Railway 3) Increase in fuel prices 4) Recession (Created for assignment) Strength 1) Strong brand name: According to the ‘Economic Times Brand Equity Survey 2010’, Air India was ranked 28th among the top 50 service brands (The Times of India 2010). 2) Large fleet size: Air India has the largest fleet size when compared to its competitors in India.

It has a total of 111 fleets and 16 leased fleets. Out of the 111 fleets 27 of them are Boeing Dreamliner (Jhadav 2009). 3) Domination on international routes: The Government of India has restricted the usage of traffic rights when flying international routes to Air India. This prevents other private carries from attaining competitive advantage in global market (Bhatia et. al 2003). 4) 180 Bilateral Agreements and rights to fly to 96 destinations: Apart from flying to 96 destinations. Air India’s strategic relations with Lufthansa led to attainment of 19 slot pairs to Frankfurt.

Air India shares code with 14 other airlines which provides it joint marketing and code sharing facilities. Through 180 Bilateral Agreements, Air India has obtained 38. 09million seats (Singla 2009). Weakness 1) Slacking human resource management: Compared to other airlines whose plane-to-staff ratio is 150 and each cabin crew member works 70 hours a week, Air India’s is 210 and 50-55 hours a week respectively. The staff’s performance linked incentive at Air India is 65. 92%. 60% of Air India’s expenditure goes into paying the employee’s wages but staff productivity is low (Majumdar 2009). ) High expenditure: Air India high expenditure is attributed to its purchase of 111 new aircrafts for 10 billion USD. Currently Air India holds 48 of the new aircrafts whose servicing sums up to 3 million USD. With dropping market share and in flight occupancy and increase in fuel prices, Air India’s working capital is 125 million USD (Basu 2009). 3) Deteriorating customer service: According to DGCA’s on time performance of flights reports, Air India’s on time performance was 74. 6% indicating high flight delays. Statics of customer complaints against Air India was 0. 6 complaints per 10,000 passengers (Press Trust of India 2010). ) Drop in domestic and international market share: Air India’s domestic market share dropped from 25% to 17. 7% and international markets share fell from 40% to 10% in 2009 (Upadhyay 2010). 5) Poor aircraft maintenance: Air India has had two major accidents and in 1985 and May 2010 due to technical difficulties on both the occasions (The Hindu 2010). Opportunities 1) Increasing demand for Low Cost Carrier: Increase in air travel and price sensitive travelers has increased the demand for low cost carrier thus providing business opportunities for Air India Express (Upadhyay 2010). ) Expansion of tourism industry: In 2009 the Indian tourism industry saw a growth of 0. 6%. There has been a rise of 25% in demand for air travels in India therefore indicating potential increase in demand for air travel (Indian Tourism Report 2009). 3) Unexplored markets-Asia Pacific and Singles Market: These market segments have remained untouched by Air India and its competitor therefore sales can be maximized by venturing into these market segments (Wensveeen 2007). Threats )Stiff Competition: In 1990 the Indian Government relaxed its restrictions on private airlines flying in international routes hence allowing private airlines to fly international routes hence causing stiff competition (Bhatia et. al 2003). 2) Improvement in the Indian Railway: With improvement of Indian railway network and fares being 2%-6% lesser than the low cost carriers there has been increase in the number of people travelling via railways (Muqbil 2007). 3) Increase in fuel prices: In 2008 fuel prices increased to 150 USD per barrel therefore slowing down air traffic by 10% (Govindasamy 2010).

With the increase in fuel prices it was recorded that in 2009 Air India lost 1. 19 billion USD in the financial year 2009 (Shukla 2009). 4) Recession: With the sudden crash if economy in 2007, Air India running short of financial resources due to the merger and the hike in fuel prices decreased air travel thus resulting in Air India loosing 1. 24 billion USD in 2009 (Mansuri 2009). 4. 0Competitor Analysis Ratings: 1(low) – 5 (high) Criteria Weight Allotted Rating Weighted Score Rating Weighted Score Rating Weighted Score Rating Weighted Score Resources 0. 11 4 0. 44 4 0. 44 3 0. 33 0. 33 Flyer Programmers 0. 10 3 0. 30 3 0. 30 2 0. 20 1 0. 10 Price 0. 11 3 0. 33 4 0. 44 4 0. 44 3 0. 33 Advertising 0. 13 2 0. 26 2 0. 26 3 0. 39 2 0. 26 Customer complaints 0. 10 3 0. 30 4 0. 40 3 0. 30 4 0. 40 Safety and Security 0. 15 2 0. 30 4 0. 60 4 0. 60 4 0. 60 Financial Position 0. 15 2 0. 30 4 0. 60 3 0. 45 3 0. 45 Global Expansion 0. 15 4 0. 6 3 0. 45 2 0. 30 2 0. 30 Total 1. 0 2. 83 3. 49 3. 01 2. 77 (Created for assignment) In terms of resources, Air India has the largest fleet size of 111 flights as compared to Jet Airways (89), Kingfisher (69) and SpiceJet (11).

Kingfisher and SpiceJet’s flyer programmes have not been able to gain much of customer loyalty but Jet Airways’s JetPrivileges and Air India’s Flyer Programme have comparatively larger customer loyalty. Kingfisher takes the lead when it comes to advertising. Apart from airline industry Kingfisher also has its own beer brand and has stakes in Indian Premier League therefore hence its places a lot of focus on advertising (Chopra 2010). Air India has the poorest safety and security system with 2 major accidents in 1989 and 2010. Air India has the highest amount of debts of 1. 4 million and has lost 35% of domestic and international market share thus making it financially weak as compared to the other airlines (Mansuri 2009). The government of India strongly supports Air India and hence has created restrictions on the international routes taken by private airlines such as Jet Airways, Kingfisher and SpiceJet. Therefore in terms of global reach and expansion Air India scores the highest (Bhatia et. al 2003). 5. 0 Key Current Market Changes Before providing any form of consultation to the organization it is essential to evaluate the market in which the organization operates (Kotler et. l 2006). The following is the analysis of Indian market segment and the current growth and trends in the domestic market. The Indian Civil Aviation industry has is experiencing increase in the number of domestic passenger. Passengers in the domestic sector increased by 14% and reached 4,161,000 in 2010. The total number of passengers in domestic sector from the month of January to July summed up to 29. 87 million in 2010 as compared to 27. 74 million passengers the previous year (Fintech 2010). There has been an increase in demand for aircrafts and figures show that India will need 935 more aircrafts by 2020.

In 2005 one paying passenger flown one kilometer was 20 billion but it is projected to increase to 52 million by 2020. Customers are not affected by increase in airfares (Mitra 2007). International Air Transport Association (IATA) reported an increase in international air travel. There has been a 13. 8% increase in premium travel segment and 8. 8% in economic air travel in July 2010. Asia and Middle Eastern routes have recorded the highest in international travel and it is expected to increase further (The Economic Time 2010). 6. Operational opportunity: Unexplored Asia Pacific Market and Singles Market Air India’s biggest loss so far has been the loss of its market share both in domestically as well internationally which can be regained by entering market segments that are unexplored by its competitors. This will help boost it sales which would help Air India to regain its market share and also reduce its debts. The demand for air travel in the Asia Pacific region increased as there has been increase in the number of tourists flying to these destinations and there are very little flights that fly to these regions.

Cathay Pacific Airlines reported that the number of passengers travelling to Hong Kong was 19. 5% more and despite increase in prices it was carrying 2. 48 million passengers to Hong Kong in the month of July. IATA expects the international air traffic to increase by 7. 1% in 2010. Hence by flying in Asia Pacific routes using 27 Dreamliner Air India can attain some its international market share by adopting focus based on geography strategy (Kleymann and Seristo 2004).

Air India can focus on market segments that have been so far eluded by its competitors which are the singles market. The single market refers to singles between the ages of 25 to 35 years of age, who can spend on travelling without worrying about the price like those travelling families. They have the purchasing power and more leisure time. They are not bound by “school holiday” months. Adventure packages such as ski packages and mountaineering packages which includes air fare, accommodation and adventurous activities can be offered to them (Wensveen 2007). . 0 Implementation Plan Stage 1: Data collection. Before implementing the strategies it is essential to analyze the Air India’s current market position and its target market’s potential. The data about the Asia Pacific markets and Singles market can be obtained by reading reports and documents and conducting questionnaires. By conducting questionnaires the single markets perception about the special airfares and information on their expectations from such deals can be obtained (Greiner and Poulfelt 2005).

Statistics show that international tourism arrival in the Asia Pacific region rose by 10%, there was a 16% in Southeast Asia, 8% in Northeast Asia and 6% in the Pacific region but the demand for the air travel has not been met as flights flying to this region is lesser as compared to other destinations (Travel Blackboard 2010). Hence indicating venturing into this region would be financially feasible and this expansion is expected to bring in close to 80 million USD and increase sales by 50% and from the singles market revenue of 20 million USD can be earned (estimated).

Stage 2: Managing human resource Air India should first reduce the number of employees which is currently 31,000 to 25,000 (estimated) and should hire more part time or seasonal employees during peak period. The 25,000 should receive incentives based on productivity. Wages of the staff have to be negotiated with the Union and the percentage of wage that would be cut should be promised to be returned back to the staff from the profit the company earns later (Doganis 2006).

This would help to save 8 million USD for Air India Training programme has to be organized where in staff in customer service and aircraft maintenance among operational staff and leadership training for managers. Training includes on the job training and off the job training. The entire cost of conducting the training programme would be 10 million USD (estimated). See Appendix 1 pp. 12. Off the job training will be provided to operational staff for a period of 2 weeks 3 times a week. The training would be conducted by industry professionals.

These days of training would be considered a working day hence 100% attendance can be obtained. The estimated time of completion is 6 months (Eaton 2001). On the job training would be provided for the crew and engineering staff. On board service training will provide better perspective and practical understanding of the situation. The engineering staff would be provided training in terms of aircraft maintenance and servicing (Eaton 2001). On the job training would stretch over a period of 2 weeks and estimated time of completion would be 8 months.

Leadership training should be provided to the managers. In order for the staff to be more productive they to be empowered and motivated which requires leadership skills which Air India’s manager lack. (Fjot 2007). This training programme would be conducted over 2 days. Stage 3: Marketing Partnership marketing: Air India can enter into partnership with Points International Ltd which is the world’s largest reward management website. This means customers under Air India’s travel programme can purchase miles and get more points through the Points International’s website, The Points. om. They can buy gifts using their points and through the partnership some of benefits that the customer would gain for obtaining outstanding travel points are free flight tickets which would include air charges and taxes, hotel accommodation, car rentals and guided tours by Eurostar (Marketing Weekly News 2010). This would encourage the Air India’s frequent flyer programme members to purchase miles and enjoy the benefits and this would attract more customers to sign up for Air India’s travel programme.

With expansion of rotes to Asia Pacific and with air travel programme more sales and registration for travel programme can be expected. Revenue of 20 million USD is expected to be the earned through this strategy (estimated). Affiliate marketing: Through affiliation with matrimonial and dating websites Air India can advertise its single packages. Hence singles that enter the matrimonial or dating sites can have a look at Air India’s offer for singles. This can create awareness about Air India’s product and by clicking on the link singles can make bookings.

Information is readily available and just a click away. This will in turn boost Air India’s sales (Business Wire 2005). Revenue of 30 million is expected from the implementation of this strategy (estimated). Rebrand: Customers place value on products and services based on the value they associate with the brand. The value associated depends on how customers perceive the products to be and how much familiar they are with the products (Kotler et al. 2006). Air India has a strong brand name but does not have high brand following. This can be achieved by re-vamping Air India’s brand image.

Since Air India has purchased 27 Boeing Dreamliner and expansion into Asia Pacific and singles market, Air India can have an international celebrity endorse Air India. This will increase Air India’s brand recognition both in international and domestic markets (Airline Industry Information 2010). The expected revenue from this strategy is 50 million (estimated). The estimated costs of implementing the marketing strategies are 23. 5 million. The estimated expected revenue from the marketing after the implementation of strategy is 1billion (estimated). See Appendix 2 pp. 13.

Stage 4: Evaluation of changes In order to analyze a timeline was prepared that entails the time span for each activity. This timeline acts as a guide which would show if the strategies are being met. If the strategies are being achieved on time and have there been in any discrepancies during the implementation phase and if these has been any deviation from strategies how much is the deviation and why is the deviation caused are some of the essential questions to be asked the end of implementation plan. 8. 0 Conclusion The implementation of the mentioned strategies would boost Air India’s sales.

By diversifying into newer routes Air India can gain a competitive edge over its competitors. With Indian market becoming less price sensitive, it will help Air India maintain a considerably high price. Singles market is one the untargeted market segment but high profits can be expected from this market segment as they travel all year round and do not worry much about the cost of travelling. Partnership marketing and affiliate marketing provides marketing support for Air India since larger marketing segment can be targeted as access to the loyal customers of the partner company and affiliate company can be easily obtained.

This will increase the number of people signing up for Air India’s flyer programmes. Endorsement by an international celebrity will provide higher brand recognition and familiarity among the customers hence bringing in more sales. Telecasting of Ad films and publishing brochures, billboards and posters on major cities, along the highways, at airports and in all travel agencies will create more awareness about Air India’s single packages and its expansion into newer market segments. Training in areas such as customer service and engineering is essential in order for the marketing strategies to show positive effects.

Managers need to develop good leadership skills so that they can create a positive and productive workforce. Reduction of staff would bring down operational cost and minimize issues related to over staffing. This will increase each staff’s contribution and increase productivity and each strive will work to gain incentives since incentive will now be related to each staff’s work contribution and quality. By building good rapport with the union a reasonable amount of pay cut can decided without the staff going on a strike. Hence, this will prevent any bad press. Therefore, by implementing the plan many of Air India weakness can be tackled.

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