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