Air Deccan

Earlier known as Air Deccan the airline is operated by Deccan Aviation. Air Deccan, which started its operations in 23 August 2003 with the vision to empower every Indian to fly by providing the lowest airfares and connectivity to unconnected towns and cities, as an India’s first low-cost carrier, is a business unit of Deccan Aviation Private Limited, India's largest private heli-charter company. Led by Capt. G. R. Gopinath decided to pool in their vast experience and knowledge of aviation and geography to launch India's first Private sector helicopter charter company. Deccan Aviation was started in 1997 with one helicopter, it was having a fleet of 10 helicopters and 2 fixed wing aircraft deployed across eight bases. It used to connect 55 destinations in India with 265 flights daily, making it the second largest domestic airline in India.

New Identity (Merger)

Kingfisher Airlines parent company United Breweries Group's acquired 26% of Air Deccan parent Deccan Aviation (ATW Online, June 1), including, the offer to acquire an additional 20% of Deccan will be priced at the same INR155 ($3.82) per share. The initial stake cost UBG INR5.46 billion. UBG will be the largest shareholder in Deccan. The combined fleet of 71 A320 family and ATR aircraft will operate 537 flights to 69 Indian cities, on 19 December 2007 Air Deccan and Kingfisher Airlines decided to merge.

Kingfisher effectively got merge with Deccan Aviation following which Deccan Aviation is renamed as 'Kingfisher Airlines'. The merger took place on April 2008; Vijay Mallya is now the Chairman and CEO of the new company, while G. R. Gopinath is a vice-chairman. The move also allowed Kingfisher to bypass the 5 year wait to fly to international destinations. It is believed that Deccan will fly to the Gulf and Southeast Asia, while Kingfisher will reserve Europe and North America. The company is currently owned by Deccan Aviation (52%) and the United Breweries Group 46%Entry and Expansion of Air Deccan.

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Air Deccan’s Strategic Assets and Core Competencie

Support Functions Which Work as Strategic Assets for the Company is Information Technology and Human Resource as Core Competencies.

Air Deccan’s two support functions, Information Technology (IT) and Human resources (HR) have played a crucial role in the airline’s growth path and have also been major contributory factors in its success. Information Technology (IT).

The manner in which Air Deccan utilized technology to its advantage was instrumental to its success. The carrier not only used technology as a medium to reduce costs, but also used it to enhance operational efficiency and increase revenues. As noted, Air Deccan opted out of the third-party GDS reservation systems used by other airlines. In doing so, the carrier required rapid implementation of its own customer reservation systems (CRS). Since Air Deccan did not have adequate skills and competencies to develop such a system on its own, it made the strategic decision to outsource it to a third party. Outsourcing offered Air Deccan a distinct advantage. For the reservation system Air decaan were searching for ideal vendor for developing Internet-based reservation system. This was because the online booking channel was expected to become one of the carrier’s major revenue earners and InterGlobe Technology Quotient met all of the airline’s criteria, The IT solution comprised three significant parts—the reservation engine, the inventory engine and the departure control system.

The entire IT solution developed by InterGlobe was up and running in a short span of 40 days, no mean feat by any standards. The CRS deployed by Air Deccan enabled the airline to: Save approximately 20% in distribution costs.

Monitor yield management through available seat occupancy data Connect different geographies Improve cash flow via pre-payments Reduce collection and administrative costs.

The airline’s IT infrastructure also provided web connectivity for various points of sales. Thus, the carrier was not dependent on SITA’s29 (third-party vendor) communication links, which offered limited connectivity and were also far more expensive. Therefore, Air Deccan had far greater market reach as compared to other airlines.

Human Resources (HR)

Air Deccan recorded an impressive employee growth rate; this achievement was a clear indication of the efficient support that the airline received from its HR division. Air Deccan favoured a ‘lean-and-mean’ approach to recruiting and staffing employees in various Departments, its head count has increased proportionally to match its exponential growth.

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As of January 2006, security personnel accounted for 21.7% of the carrier’s employees followed by its cabin crew and engineers, who accounted for 20.4% and 19%, respectively.

The Indian aviation industry, like other industries, is facing the constant challenge of dealing with employee attrition.

As of January 2006, Air Deccan had an annual attrition rate of 15–20%. Recently, the DGCA passed a new rule, which required pilots to give a six-month notice before leaving an airline. This has resulted in a significant decrease in pilot attrition.

Air Deccan’s HR division focuses on recruiting young professionals with little work experience straight from their university campuses.

This initiative paid off as it substantially reduced attrition. Thus, the airline had a committed and enthusiastic youthful work force, which accepted challenges cheerfully and delivered.

Air Deccan’s Business Model

Air Deccan was the first Indian airline to follow a ‘no-frills, low-cost’ business model. Its success lay in the fact that though the model was inspired by successful low-cost airlines in other countries.

Customized to suit Indian conditions.

The airline’s target passengers comprised leisure, small business and corporate customers.

Belonging to the middle class and cost-conscious customers of the affluent class.

The Carrier’s airfares were comparable to railways’ upper-class fares.

Air Deccan had succeeded in attracting approximately 25–30% of upper-class train passengers. This led to an increase in first-time fliers, which in turn resulted in an increase in the market size.

Air Deccan offered fares which were approximately 30% lower than those offered by full-service airlines. In order to provide low-cost fares and remain profitable, the carrier adopted several measures.

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Reduced its operational costs by simplifying its operations.

By using technology and by outsourcing processes.

The airline did not provide additional services (such as free meals) to its customers. It focused on providing basic transportation services to its customers in an efficient manner.

Air Deccan’s Business Strategies

As a pioneer in the low-cost aviation sector, Air Deccan was determined to make a mark for itself. A mix of strategies contributed to its success.

High Aircraft Utilization :-

High aircraft utilization was the first of Air Deccan’s strategies as it would directly result in high revenue generation.

Reducing the airline’s turn-around time. By doing this, the carrier automatically increased its number of flying hours, which in turn resulted in an increased number of seats available.

Air Deccan meticulously planned other processes Such as aircraft selection, flight scheduling, ground handling and route selection to Increase utilization rates.

Route Planning : -

It’s a planned operational route. The carrier operates from six bases, which are located in the metropolitan cities of Mumbai, Delhi, Chennai, Kolkata, Bangalore and Hyderabad and are connected by trunk routes. These bases are connected to other regional locations through regional routes. Air Deccan followed the worldwide low-cost carrier strategy of flying on point-to-point routes. It did not time its flights to connect with its other flights or with other airlines’ flights; thereby eliminating waiting time between flights. This strategic move contributed significantly towards reducing the carrier’s operational and logistics costs.

Dynamic Pricing : -

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In the dynamic pricing model, seats which were booked well in advance had lower fares, whereas the seats booked closer to the travel date had higher fares. This helped the airline to maximize its revenues from ticket sales as well as maintain high seat occupancy. This balance of load factor and yield enabled the carrier to augment its revenues.

Cost reduction : -

The carrier did not indulge in incurring frivolous expenditure. Therefore, unlike its competitors, Air Deccan refrained from incurring expenditures on fancy offices, lounges and frequent flier program. The airline followed a ‘lean-and-mean’ staffing model and maintained a low employee-to aircraft ratio in comparison to others in the business. Air Deccan significantly reduced its infrastructure usage fees because the landing fees for smaller aircraft were almost 50% lower than the fees for larger aircraft.

Merger of Air Deccan into Kingfisher Airlines

The merger of Air Deccan into Kingfisher Airlines has given quite a bit of relief to the Indian aviation industry. The two airlines have different set of business models. In addition, they cater to totally different passenger segments. Kingfisher Airlines is confident that they will be able to tap synergies and make the merger successful.

It is worth mentioning in this regard that when there is any financially weak player, there is price dilution. In other words, the weaker players pay more attention to cash generation as compared to profitability, and that have an impact on the overall financial health of the industry. Kingfisher Airlines is planning to minimize the number of Airbus A320 planes. In my opinion, UB Group will save around Rs 250 crore annually as a result of combined operations and higher revenues. Another good thing about this merger is that the combined airline will integrate critical departments such as maintenance, flight operations, cabin crew, airport terminal services and marketing support. According to experts, the advantage of the merger will begin to kick at September / October 2008. This merger is good for both the company as per industrial view and as far as Air Deccan is concerned, they wouldn’t have got best partner than Kingfisher Airlines.

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Southwest Airlines In 1971, Southwest Airlines was formed by Rollin King and Herb Kelleher in an

effort to start an airline company with low fares that gets their passengers to their destination in a timely manner and that is fun to fly on. Southwest was started in Texas as a commuter airline between Dallas, San Antonio and Houston. Today, Southwest Airline is now a major airline, in fact, the fourth largest airliner in the United States that is trading under the Symbol LUV on NYSE. It took on many marketing strategies in the beginning to try enter the market and gain some market visibility including having flight hostesses dress in colorful hot pants and white knee-high boots, giving passengers free alcoholic beverages on flights, devising plans to lower turnaround time, and cutting fares.

The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit. Southwest Airlines' successful and profitable business model has been driven by several strategies: high aircraft utilization; standard fleet; charismatic leadership; low fare carrier; excellent customer service practice; attractive frequent flier program; innovative and creative marketing program; performance focused organizational culture; strategic human resources management and a lean operations. And all this services among 58 cities (59 airports) in the United States.

Strategic Assets and Competencies

Human Resource Management and Employees Loyalty: -

Southwest treats its employee’s right. The airline adopted the first profit-sharing plan in the U.S. airline industry in 1973. Through this plan, its employees own at least 10 percent of the company stock. It has a highly motivated workforce. The employee retention rate is 92.3%. Its corporate culture really stands out.

Southwest fully utilizes its resources and capabilities to make up its core competencies. It focuses on short-haul, point-to-point routes, no-frills service and less-crowded airports. It minimizes turnaround times and keeps its planes in the air longer than its competitors. The design of these best-fit activities, the superior management skills and the employees’ commitment are its core competencies. They demonstrate three characteristics which are (1) it is valuable to the customers; (2) it is applicable in a variety of markets; and (3) it is difficult for competitors to imitate. That is why they result in a sustainable, competitive advantage.

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Leadership Southwest Airlines:-

Leadership is the key to successful management

The principal aim of management is to maximize the output of a company through administrative implementation. Management usually consists of people who are experienced in their field, and who have worked their way up the company. A manager knows how each layer of the system works and may also possess a good technical knowledge. In the management analysis of Southwest Airlines, one area that stands out is the leadership role played by its founder, Herb Kelleher. Kelleher is not just a manager, he is an extraordinary leader. It is said that managers think incrementally, while leaders think radically. The managers do things by the book and follow company policy, while leaders follow their own intuition, which may in turn be of more benefit to the company.

Southwest Airlines’ unique approach to management starts at the top of the organizational chart. When Herb Kelleher was President, Chairman and CEO, there was no doubt about who was in charge at Southwest. Herb Kelleher's management style has been described as a combination of thriftiness and Robin Williams-style humour and wackiness. He was a highly visible leader whose 16-hour workdays and unflagging energy set an example for other employees

Culture:-

Southwest's organizational culture was shaped by Kelleher's leadership. Kelleher's personality had a strong influence on the culture of Southwest, which epitomized his spontaneity, energy, and competitiveness. Southwest's culture had three themes: love, fun, and efficiency. Kelleher treated all the employees as a "lovely and loving family". Kelleher knew the names of most employees and insisted that they referred to him as Herb or Herbie. Kelleher's personality charmed workers and they reciprocated with loyalty and dedication. Friendliness and familiarity also characterized the company's relationships with its customers

Hiring and Training for Relational Competence:-

Southwest places a great deal of importance on hiring people with the right attitude--people with relational competence--you can't be an elitist.  Through training and "job exchange or "Walk a Mile" employees become familiar with other aspects of the work process or jobs they aspire to move into.

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Business Strategies

Low Cost and No Frills.

The reason for Southwest Airline's success is due to their low-cost model. The Southwest Airlines consists solely of Boeing 737s and offers only coach seats. Southwest Airlines don’t offer in-flight meals, only peanuts and other snacks. Southwest is simple and direct at the goal of their service; "a primarily short-haul airline that flies directly from city to city, with just one type of plane--the Boeing 737 - and the lowest costs".

Air Fare Structure.

Air fare structure that was consistently the simplest and most straight forward of any of the major U.S. airlines. All of Southwest’s different fare options could easily be perused at the company’s Web site, and the company’s restrictions on tickets were more lenient than those of its rivals.

Gradual Expansion into New Geographic Markets.

Southwest generally added one or two new cities to its route schedule annually, preferring to saturate the market for daily flights to the cities/airports it currently served before entering new markets. In selecting new cities, Southwest looked for city pairs that could generate substantial amounts of both business and leisure traffic. Management believed that lots of flights were appealing to business travellers looking for convenient flight times and the ability to catch a later flight if they unexpectedly ran late.

Build Relationships with Your Suppliers.

External parties are treated to the same kind of relationship building efforts that exist throughout Southwest Airlines.  Southwest stands apart from the rest of the airline industry in the emphasis it places on building partnerships with the airports it serves, air traffic controllers, and aircraft manufacturers. Southwest effectively extends its sphere of influence beyond its employees to encompass its entire value chain.

Turnaround Time.

Southwest serves secondary airports which are typically less congested than other airline hub airports. This causes southwest to have high asset utilization because aircraft stay on the ground for the minimum amount of time. This also reduces the number of aircraft and gate facilities required that thus lowers costs. One unique aspect of Southwest is that the aircrew themselves turnaround the aircraft during stops, this also reduces costs, and enhances the speed of the turnaround.

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Appendix

Aviation Industry in America

A Basic Description of the Airline Industry Industry - The nature of the service

The Airline Industry is a service industry but due to all the equipment and facilities involved in transportation, it is easy to lose sight of that fact. Airlines perform a service for their customers-transporting them and their belongings (or their products, in the case of cargo customers) from one given point to another for an agreed price. The objective is to provide a service at a price that people are willing to pay and to keep costs below that price so that a profit can be made.

Industry - Information about Customers and Channels of Distribution There are several types of airlines, defined by the type of service they offer, annual revenues and the type of aircraft they use. All federal safety requirements are pegged to aircraft size. Major Airlines earning revenues of $1 billion or more annually in scheduled service. They generally provide nationwide and in some cases worldwide service. There were 12 major U.S. airlines in 1997: Delta, United, American U.S. Airways, Southwest, Northwest, Continental, Trans World, American West, Alaska, Simmons, and Reno. National carriers are scheduled airlines with annual revenue, which will lead to more air service, more competition, and lower fares on many routes.

Industry - Adoption of New Governmental Regulations Affecting the Industry Among the functions shifted to other parts, the government was the responsibility for awarding landing rights and other privileges in foreign countries to U. Southwest was able to negotiate a compromise called the Wright Amendment, that allowed flights from Love Field to the four states contiguous to Texas. Airlines through the years have earned a net profit between one and two percent compared to an average of five percent for U. These systems help airlines and travel agents keep track of fare and service changes, which occur much more rapidly today than they did when the government controlled such things.

Aviation Industry in India

In 1953, the government enacted the Air Corporations Act to merge nine existing air Companies into two, Indian Airlines, catering to the domestic market, and Air India, servicing the international market. The government controlled all the key operations of these entities for almost 40 years. However, in the 1970s, the US government pioneered the deregulation of its airline industry, which led to benefits such as lower Fares, improved productivity and better asset and capital utilization. The success of the US government’s initiative triggered the process of deregulation and privatization of the airline industry in several other countries also. The Indian aviation industry experienced similar winds of change, which were further fuelled by the liberalization of the Indian economy.

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In 1986, private players were permitted to operate only as air taxi operators. This led a host of private carriers such as Jet Airways, Air Sahara, Modiluft, Damania Airways, NEPC6 Airlines and East West Airlines to start their operations as air taxi operators. In 1994, the Air Corporations Act of 1953 was revoked, allowing private carriers to also provide scheduled services. Now the number had gone up of private air taxi operators like Jet Airways and Air Sahara, Indigo, Spice jet, Go Air, kingfisher and Indian Airlines operate in the country currently.

PEST Analysis Aviation Industry

The utilization of a PEST analysis with regard to Southwest and Deccan takes into account the political, economic, social and technological environment the industry is embroiled in and how this has, is and will threaten to impact its operations and profitability. It must be remembered that the number of possibilities concerning macro-environmental aspects is almost limitless, thus concentration will be paid to those areas perceived to have the highest impact.

Political

The political stability of the aviation industry was severely shaken by the terrorist events of September 11, 2001, and this directly resulted in a catastrophic drop in business as well as personal air travel. The preceding along with the following areas has impacted negatively on earnings as well as profitability among the majors:

Pricing regulations Wage legislation and union requirements Deregulation policies of 1978 Increased emphasis on national and airport security

Economic

The overall economic climate in United States and India prior to the events of September 11, 2001 called for a mild recession and the airline industry was wrestling with discount carriers. The pre 9-11 airline climate forecast a slight contraction as a result of the reversionary climate which was dramatically impacted by the events of 9-11 and the resulting economic aftermath:

Dramatic slowdown of the economic growth rate Increase in fuel costs Balance of trade accounts Inflationary and fluctuations of the dollar against the Euro, Rupee and Yen

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Social

The emphasis on September 11th throughout these varied analysis is due to the sweeping impact that event had on global events in all theatres. The social implications thus shaped or amplified are as follows:

Increased layoffs impacting all income groups Sharp decrease in lower and middle class travel Decline in airline related vacations destinations Negative impact of air travel safety brought on by the events of 9-11 Decrease in general airline related travel plans by consumers Low-fare travel stigma attitude shift to an acceptable alternative

Technological

The Internet’s impact on business and consumer purchasing habits heralded in a new age of information exchange which changed the manner in which airline tickets are sold.

Airline SABRE  system Decrease in airline travel agencies Introduction of Internet airline ticket reservations and ticketing Entry of EBay, Yatra.com, Makemytrip.com, Travelocity, Orbitz, Cheap

tickets, Expedia and other best price shopping services The availability of the Internet as a consumer and business fare and flight

shopping tool

Porter’s Five Forces

Michael Porter’s ‘Five Forces” model provides a framework to view the airline industry from the perspective of five forces that influence it:

Rivalry

Low-fare airlines grew up with, 1. Jet Blue, 2. Alaska, 3. Indigo, 4. America West 5. Go Air, 6. Air Sahara, 7. Jet Lite. The remaining airlines are8. AirTran, 9. United, 10. ATA, 11. American, 12. Delta, 13. American Eagle and 14 Atlantic Southeast, 15. US Airways, 16. Northwest, 17. Continental, 18. Air India, 19. Jet Airways, 20. Kingfisher and other foreign airlines. Some of the more important facets within this category of the Five Forces model are:

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slow market growth since 9-11 high fixed operating costs low relative levels of product differentiation among the majors inroads of the low-fare carriers in the changing perception of air

travel shake out of the industry since 9-11 in terms of bankruptcies and

failures

Threat of Substitutes

Within Porter’s model substitute services come into play when demand exceeds supply, or vice versa. In the airline industry the excess supply has been attacked by other low-fare carriers who have continually gained market share. Railways and road travel too is increasing its supply.

Buyer Power

The airline industry suffers from oversupply as well as fixed costs which served as the foundation for low fare carriers who offer no frill flights in return for discounted fares. This approach effectively pulled the casual traveller and spread to frequent travellers and some classes of business travel for companies seeking to cut costs. Buyer demand is re-shaping the airline industry as a result of these options. A tough competition is given by railways and road services

Supplier Power

In terms of this category, fuel is the single largest airline cost expenditure item which affects all firms equally. Low Fare carriers by eliminating frills lower their per flight operating costs which have and is attracting scores of travelers to their fold.

Barriers to Entry / Threat of Entry

Traditionally, the high cost of entry in the airline industry reduced the treat of entry by competitive companies. However the business model offered by low fare carriers exploited the lower end segment of the market via price and provided a foundation for the entry of Jet Blue, America West, Go Air, Indigo, Air Sahara and others.

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Vision and Mission

Air Deccan

Vision: - To be the preferred airline of air traveller in India.

MissionMission: - To demystify air travel in India by providing reliable, low-cost air travel to theCommon man by constantly driving down the airfares as an ongoing mission.

Southwest Airlines

Vision: - The long term vision for Southwest is very clear. They want to operate the safest, most reliable, most efficient airline in the world. Southwest must achieve all this while staying true to their low-fare, low-cost Brand that they made famous. In 2007, Southwest announced their plans to update their strategy to better equip them to compete with more low-fare competition and overcome higher fuel prices.

Mission: - The mission of Southwest Airlines is devotion to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. Southwest Airlines' success is primarily because they have focused sharply on their goals. This is evident by their no-frills, low-cost model: their goal is to provide the cheapest form of short air travel between two cities; providing the bare necessities.

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Bibliography:-

1. http://www.southwest.com

2. www.southwest.com

3. www.flyairdeccan.net

4. www.airdeccan.net

References:-

Crafting and Executing Strategy - Thompson

1) Southwest Airlines Annual Report 2007

2) Air Deccan Share Prospectus February 2006

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