Air Asia plans to enter the Indian aviation market through a joint venture. This will change the competitive dynamics in India's oligopolistic airline sector. Air Asia aims to leverage its low cost business model of streamlined operations, lean distribution, point-to-point networks, and high aircraft utilization. While this presents opportunities due to India's growing aviation market and underserved smaller cities, Air Asia also faces challenges of high costs and taxes in India. The entry of Air Asia and other new carriers will make conditions more difficult for existing players but increase capacity and competition to benefit consumers in the long run.
Air Asia plans to enter the Indian aviation market through a joint venture. This will change the competitive dynamics in India's oligopolistic airline sector. Air Asia aims to leverage its low cost business model of streamlined operations, lean distribution, point-to-point networks, and high aircraft utilization. While this presents opportunities due to India's growing aviation market and underserved smaller cities, Air Asia also faces challenges of high costs and taxes in India. The entry of Air Asia and other new carriers will make conditions more difficult for existing players but increase capacity and competition to benefit consumers in the long run.
Original Description:
Entry of Air Asia in airline sector in India –
How it would change the business dynamics in India
Air Asia plans to enter the Indian aviation market through a joint venture. This will change the competitive dynamics in India's oligopolistic airline sector. Air Asia aims to leverage its low cost business model of streamlined operations, lean distribution, point-to-point networks, and high aircraft utilization. While this presents opportunities due to India's growing aviation market and underserved smaller cities, Air Asia also faces challenges of high costs and taxes in India. The entry of Air Asia and other new carriers will make conditions more difficult for existing players but increase capacity and competition to benefit consumers in the long run.
Air Asia plans to enter the Indian aviation market through a joint venture. This will change the competitive dynamics in India's oligopolistic airline sector. Air Asia aims to leverage its low cost business model of streamlined operations, lean distribution, point-to-point networks, and high aircraft utilization. While this presents opportunities due to India's growing aviation market and underserved smaller cities, Air Asia also faces challenges of high costs and taxes in India. The entry of Air Asia and other new carriers will make conditions more difficult for existing players but increase capacity and competition to benefit consumers in the long run.
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Entry of Air Asia in airline sector in India
How it would change the business dynamics in India ?
"Now Everyone Can Fly". Participants Group 9 Gaur Hari (39) Abhinav Garg (19) Samit Daragari (09) Rohit Sarangi (49) Shweta Thapliyal (59) Sumedh (29) Overview Indian Aviation Industry Evolution Air Asia and its entry to India Key Strategies of Air Asia Porters Chart Analysis Business Opportunities of Air Asia Impending Challenges Change Dynamics & Conclusion
Indian Aviation industry-Evolution
Indian Aviation Industry India is currently the 9th largest aviation market
Handling 121 million domestic and 41 million international passengers
More than 85 international airlines operate to India and 5 Indian carriers connect over 40 countries.
Market share concentration
Market Structure and Implications Oligopoly market structure
Small number of large firms
Identical or differentiated products
Industry has significant barriers to entry
Firm is a price-setter
Strategy dependent on individual rival firms behaviour
A differentiated Oligopoly AirAsia: How did it start? From two ageing aircraft and a USD11mil (MYR 40 million) debt to becoming the worlds best low-cost airline
It started in 2001 with 2 old aircrafts, having bought the then loss making AirAsia from its Malaysian owner DRB-Hicom, for a token of MYR1 (USD0.25 cents) and MYR40 million (USD11 million) in debt How did they do it? a) Low fares i. Committed to low fares
Their service targets guests who can do without the frills of full- service airlines in exchange for low fares ii. 25-minute turnaround
Less time on the ground and more time in the air means they get the most of every flight through high aircraft utilisation, lower costs and greater airline and staff productivity b) Low cost carrier model
i. Self automation The more we DIY (self check-in), the more they save on operational costs that means lower fares for us
ii. No frills Pay only for what you want (Just essentials). If you want additional in- flight comfort, just add-on iii. Cost-saving innovations
Constantly on the lookout for the latest advancement in savings, they are the first airline to use the new Airbus A320 aircraft installed with sharklet wing tips to lower wind drag and provide better fuel consumption 180 single class seats (No business class), hence more guests share the cost of the flight
Operating on one aircraft type allows for streamlined maintenance
Board and disembark guests with steps instead of an aero-bridge
Joint Venture in India Announced on 19 February 2013, the airline is a joint venture with Air Asia Berhad holding 49% of the airline, Tata Sons holding 30% and Telestra Tradeplace taking up the remaining 21% in the airline Why India? The Indian market certainly has potential. Less than 3% of Indians fly, and as a major LCC in this region, entry into India is a natural choice.
Indias market size is projected to multiply in the next ten years from the current 60 million to 450 million passengers
Indias smaller cities are underserved
There is a lack of innovation in pricing and strategy, and 20% seats are empty on most flights
Streamline Operations: Making processes as simple as possible
Lean Distribution System: Wide and innovative range of distribution channels
Point to Point Network: Applying the point-to-point network keeps operations simple
Safety First: Partnering with most renowned maintenance providers Complying with safety standards of airline operations.
Key Strategies
High Aircraft Utilization: Fastest turnaround of only 25 minutes
Low Fare, No Frills: Choice of customizing services
Using one type of aircraft. Smaller inventory, Better purchasing power. Reduction in training time It also cut down the learning curve. Eventually reducing cost. Key Strategies (Continue..) Porters Chart Air Asia 5 Forces Analysis Rivalry among existing competitors: As Porters generic strategies (1985), Airline operation can divide into two kinds of styles: differentiation and cost leadership. Some airlines will try to provide a good service to reach differentiation and the others will atte-mpt to reduce the price and Air Asia is position as them. So industry rivalry is moderately high as the price competition is really popular in the airline industry.
Threat of new entrants:
Medium. Vistara , a JV between Tata sons & Singapore airlines. It will further divide the market and might lead to price war among competitors.
Bargaining of Suppliers: Fairly High. Boeing & Airbus are its sole airplane provider. Uncertainty in global price of Airplane Turbine Fuel (ATF) Bargaining of Buyers: Threat of Substitute Services: The power of buyer is moderately high due to almost no switching cost for customers. Customers can compare each airline by the Internet so the information about the price and service is quite clearly Risk of losing Passengers especially those travelling by economy class to shift to 1st/2nd AC train travel.
AirAsia's USP is in its low fares all year round.
Air Asia's USP is in its low fares all year round.
AirAsia's unit costs are significantly lower than Indian carriers due to use of low cost terminals, lower distribution costs, single aircraft type operation and higher aircraft utilization amongst others. Unit costs or cost per available seat kilometer (CASK) refers to expenses incurred on flying a seat (filled or empty) over a kilometer
No domestic carrier can fly international before completing five years of operations in domestic market. Advantages of Air Asia Challenges in India Relatively very low cost structure and tax High cost structure and taxes Air Asia's unit costs are significantly lower Indian carriers unit cost are more by a minimum of 30% They dont leave any major cities in the countries they operate Mumbai and Delhi airport operators because their fees are very high Air Asia's unit costs are significantly lower than Indian carriers due to use of low cost terminals, lower distribution costs, single aircraft type operation and higher aircraft utilization amongst others. Unit costs or cost per available seat kilometer (CASK) refers to expenses incurred on flying a seat (filled or empty) over a kilometer
No domestic carrier can fly international before completing five years of operations in domestic market. Market growth Expansion potential Economic growth Large untapped Indian market Tier 2 and Tier 3 cities Geographical location Crossroads between Europe, Middle East and Asia Pacific Lower costs, higher quality Improvement in airports and airspace infrastructure Indigenous training and maintenance facilities Indian Aviation industry - opportunities BY 2020 121 MILLION 336 MILLION 41 MILLION 85 MILLION Domestic Passengers International Passengers According to International Air Transport Associations (IATA) Airline Industry Forecast 2012-2016, India's domestic air travel market would be among the top five globally, experiencing the second highest growth rate at CAGR of 13.1%.
AirAsia India - Opportunities Indians prefer budget airlines cost conscious Growing middle class Long haul flights Expand on short haul international routes One stop service to various destinations across Asia Changing Dynamics AirAsia (India), Quickjet Cargo Airlines, Ligare Aviation and LEPL Projects (Air Costa) are given permits Giving permission to new airlines will mean a lot of capacity being added by the next fiscal. Without addressing key issues that impact the viability of running airlines, getting additional capacity will further deteriorate industry financials and hurt the entire system Entry of New airlines will make conditions for existing players more difficult
Flip Side of this Traffic is going to increase in the years to come which will be able to accommodate more airlines
Traffic at all Indian airports will shoot up.. By 5.3 per cent in terms of passengers carried and By 4.3 per cent in terms of aircraft movements The gap between the potential and current air travel penetration is huge in India. Indias air trips per capita a year ratio is 0.04 Emerging economies like China and Brazil (0.3 air trips). Conclusion Industry dynamics are best left to market forces.
Some of the new airlines may prove to be trailblazers
Others may simply fold up or get acquired by larger players