Introduction:

Air Deccan is the amazing story of Indias first low-cost airline. It has become one of the nations
largest airlines in less than four years. They have done this through a cleaver combination of
innovation and outsourcing. More importantly, from a strategic perspective, it gives powerful
evidence to how technology can be a key factor in changing industry dynamics, even in what
were once considered fairly stable or conservative industry. While Air Deccan was able to
capture the imagination of the public and demand grew rapidly for its services thanks to its
throwaway fares, the airline itself was plagued by operational problems as it sought to
aggressively expand its network and fleet size. In the process, it developed a reputation for
delays, poor service and lack of reliability.

Air Deccan Journey:

Leading the pack was Captain Gopinaths Air Deccan that promised to revolutionize air travel by
allowing everyone to fly by offering hitherto unheard of fares. Gopinath was a serial
entrepreneur who had earlier been a commissioned officer in the Indian army. After discharge
from the army he took up the challenge of farming barren land given to his family as
compensation for land that had been submerged due to a dam project. Since it proved to be
difficult to grow conventional crops in this land, Gopinath finally turned to sericulture and
developed environmentally-friendly and innovative ways of cultivating silk worms. He won the
Rolex Challenge award for his work, and his farm became a destination for governments and
NGOs seeking innovations in farming. Gopinath entered the aviation business as a response to a
pilot friend who did not have a job as he felt that there was good scope for a charter company in
India given the distances and the economic development taking place. He started Deccan
Aviation in 1997 providing chartered helicopter and small aircraft across India. Many times
people would approach Gopinath (at Deccan Aviation) to travel to smaller towns but back away
when they found out the price of the cha rter. He saw tremendous potential for aviation in India if
flying could be brought down to a reasonable price (everyone can fly). Inspired by the lowcost airline model pioneered by Southwest Airlines in the United States (see Exhibit 2 for the
Southwest model) and later emulated by other successful carriers such as JetBlue and Ryan Air,
Air Deccan sought to cut the frills out of airline operations and pass on the benefit to customers.
Starting in August 2003 with turboprop aircraft that connected small towns to large cities, Air

Deccan soon expanded to Airbus A-320 jet operations connecting major cities. Air Deccan
offered a single class point-to-point service, did not serve free meals or even free water on its
flights, sold all tickets only through the internet or its call center, did not pay commissions or
give credit to travel agents (thereby avoiding the expensive process of managing credit and
reconciliation with the travel trade), had limited staff, and outsourced as many operations as
possible. To reach more customers, Air Deccan created a new network of travel intermediaries
who would sell their tickets. The airline also tied up with a major oil company and the
Department of Posts (Post Offices) to enhance reach. While Air Deccan was able to capture the
imagination of the public and demand grew rapidly for its services thanks to its throwaway fares,
the airline itself was plagued by operational problems as it sought to aggressively expand its
network and fleet size. In the process, it developed a reputation for delays, poor service and lack
of reliability. While the established players Indian Airlines, Jet and Sahara - initially ignored
Air Deccan, the obvious demand for air travel at lower fares and the urge to fill vacant seats
prompted them to start discounting fares as well. This took the form of a limited number of seats
sold at lower prices. Later, as other low-cost carriers entered the airline industry, discounting
without the repurchase requirements of the Apex fares became the norm. By September 2007;
Air Deccan had reached a fleet size of 40 aircraft (10 ATR-42, 8 ATR-72, and 22 A-320 aircraft).
It had achieved some success in connecting distant places it was the only carrier offering
service to twelve of its destinations, and one of only two carriers offering services to six
others.xii Air Deccan had 75 aircraft on order for delivery by December 2012.

Reasons for Success:

The element of Air Deccans no-frills, low-cost air carrier business model is the main reason
behind its success. It includes:

Offering low fares to stimulate demand: We believe low fares will help Air Deccan
generate new business throughout India not only in new and under-served markets, but
also in established markets that have so far failed to offer Indian middle-class consumers
and cost-conscious businesses a choice of sufficiently cost-effective fares. Air Deccan
targets leisure, small business and corporate customers, and seeks passengers from the

Indian middle class as well as from the cost-conscious segments of more well off classes.
Selecting routes to stimulate demand: As of November 30, 2005, Air Deccan offers
passengers a choice of 62 routes and 44 destinations. As at November 30, 2005, it is the
only carrier providing service to 9 of its destinations and one of only two carriers
providing service to 7 of its destinations. We believe that Air Deccans route strategy will
help it grow new markets for air travel in India, as well as help it serve major urban
centers with cost-effective fares. As it grows, we expect Air Deccan to increase the
frequencies of its flights on certain existing routes, connect new city pairs among
destinations it already serves and initiate service to new destinations, including some

already served by other airlines and some currently not served by airlines at all.
Reducing costs, increasing utilization: To help make its low-fare strategy as profitable
as possible, Air Deccan strives to:
(i)
Reduce the costs of its operations. It does so in part by seeking to when such use
can complicate operations, such as in passenger check-in, and outsource non-core
(ii)

business processes.
Provide a no-frills service. Air Deccan seeks to provide a simple service in
exchange for its low fares. Product and service extras that are not reasonably
necessary to the core task of flying passengers safely and efficiently are
eliminated. Practices that many other airlines engage in regularly, such as
providing help to passengers during layovers or offering Frequent flier
programmers, are not offered. Air Deccan passengers experience a pared-down
version of flying compared to what many other airlines offer. But, they can pay

less for an Air Deccan ticket and still get the basic transportation service they
(iii)

require.
Seek high aircraft utilization. Air Deccan employs dense, single-class seating
arrangements in its aircraft and follows scheduling, ground handling and
operational strategies designed to keep its planes in the air as long as practical
every day. These measures help Air Deccan to increase its available seats flown.
Air Deccan then uses load factor and yield management techniques in order to
help maximize the revenues earned from, and help minimize the operating costs
associated with, those available

Providing a safe and on-time service: We consider the provision of safe travel to be of
essential importance to their service. We believe that customers also demand on-time

service and expect a minimum of delays, flight cancellations, baggage handling

Increasing additional revenues: In addition to charging for tickets, Air Deccan earns
revenues from charging for in-flight food and drink, selling advertising space on the
Interior and exterior of its aircraft and in a number of other ways. The airline regularly
seeks to earn ancillary revenues where opportunities.

Assignment on

Reasons for success

Of
Air Deccan

Submitted to
Dr. ATM Nazrul Islam
Southeast University

Submitted by
Name

ID

Imam Hossain

2014210004005

Nusrat habib

2014210004006
Section: D

Date of submission: 18-02-2015

Southeast University