PRINCIPLES OF MANAGEMENT 1. Assume that you are the CEO of a commercial airline.

The airline has a long-standing

history in the airline industry but now it has to compete with the low-cost airline. From your experience determine how you can formulate and implement an effective policy to improve its performance. Ans: Introduction: Airline Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, airline industry in India has undergone a rapid transformation. From being primarily a government-owned industry, the Indian airline industry is now dominated by privately owned full service airlines and low cost carriers. Private airlines account for around 75% share of the domestic aviation market. Earlier air travel was a privilege only a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people.

The origin of Indian civil aviation industry can be traced back to 1912, when the first air flight between Karachi and Delhi was started by the Indian State Air Services in collaboration with the UK based Imperial Airways Airline organizations can be classified into a number of segments depending on the nature and degree of services they provide. Major Indian carriers are pressing their feet on the accelerator to reach an acme of service level by the year 2010 when their fleet strength will meet 500 to 550. In the previous two years more than 135 aircrafts have been introduced to keep up with the increasing number of passenger traffic in Indian aerospace. A number of domestic airline groups have emerged in a reasonably short span of time to make the market furiously competitive. PRESENCE SCENARIO: Revolutionized by privatization along with active participation of the foreign investors, the Indian airline industry has experienced phenomenal transformation over the last couple of years. From being a service catering to the needs of the privileged group only it is now well within the reach of middle class population. This has been the result of increased competition in the Indian aviation industry due to the presence of a wide variety of private and public airlines with their low price tags. In the financial year 2006-07 there has been a significant 22.3 percent growth in passenger traffic in the domestic airports while the aircraft movement recorded a growth by 14.2 percent.

CLASSIFICATION & TYPES The airline sector can be broadly divided into the following main categories: 1. Scheduled air transport service, which includes domestic and international airlines. 2. Non-scheduled air transport service, which includes charter operators and air taxi operators. 3. Air cargo service, which includes air transportation of cargo and mail.

Scheduled air transport service: It is an air transport service undertaken between two or more places and operated according to a published timetable. It includes: 1. Domestic airlines, which provide scheduled flights within India and to select international destinations. Air Deccan, Spice Jet, Kingfisher Airline and IndiGo are some of the domestic players in the industry. 2. International airlines, which operate scheduled international air services to and from India. Non-scheduled air transport service: It is an air transport service other than the scheduled one and may be on charter basis and/or non-scheduled basis. The operator is not permitted to publish time schedule and issue tickets to passengers. Air cargo services: It is an air transportation of cargo and mail. It may be on scheduled or nonscheduled basis. These operations are to destinations within India. For operation outside India, the operator has to take specific permission of Directorate General of Civil Aviation demonstrating his capacity for conducting such an operation. At present, there are 2 scheduled private airlines (Jet Airways and Air Sahara), which provide regular domestic air services along with Indian Airlines. In addition there are 47 non-scheduled operators providing air-taxi/non-scheduled air transport services.

ADVANTAGES 1. Foreign equity allowed: Foreign equity up to 49 per cent and NRI (Non-Resident Indian) investment up to 100 per cent is permissible in domestic airlines without any government approval. However, the government policy bars foreign airlines from taking a stake in a domestic airline company. 2. Low entry barriers: Nowadays, venture capital of $10 million or less is enough to launch an airline. Private airlines are known to hire foreign pilots, get expatriates or retired personnel from the Air Force or PSU airlines in senior management positions. Further, they outsource such functions as ground handling, check-in, reservation, aircraft maintenance, catering, training, revenue accounting, IT infrastructure, loyalty and programme management. Airlines are known to take on contract employees such as cabin crew, ticketing and check-in agents. 3. Attraction of foreign shores: Jet and Sahara have gone international by starting operations, first to SAARC countries, and then to South-East Asia, the UK, and the US. After five years of domestic operations, many domestic airlines too will be entitled to fly overseas by using unutilised bilateral entitlements to Indian carriers. 4. Rising income levels and demographic profile: Though India's GDP (per capita) at $3,100 is still very low as compared to the developed country standards, India is shining, at least in metro cities and urban centres, where IT and BPO industries have made the young generation prosperous. Demographically, India has the highest percentage of people in age group of 2050 among its 50 million strong middle class, with high earning potential. All this contributes for the boost in domestic air travel, particularly from a low base of 18 million passengers. 5. Untapped potential of India's tourism: Currently India attracts 3.2 million tourists every year, while China gets 10 times the number. Tourist arrivals in India are expected to grow exponentially, especially due to the open sky policy between India and the SAARC countries and the increase in bilateral entitlements with European countries, and US. 6. Glamor of the airlines: No industry other than film-making industry is as glamorous as the airlines. Airlines have an aura of glamour around them, and high net worth individuals can

always toy with the idea of owning an airline. All the above factors seem to have resulted in a "me too" rush to launch domestic airlines in India. Price The following are the pricing strategies: Premium Pricing: The airlines may set prices above the market price either to reflect the image of quality or the unique status of the product. The product features are not shared by its competitors or the company itself may enjoy a strong reputation that the 'brand image' alone is sufficient to merit a premium price. Value for Money Pricing: The intention here is to charge the average price for the product and emphasize that it represents excellent value for money at this price. This enables the airline to achieve good levels of profit on the basis of established reputation. Cheap Value Pricing: The objective here is to undercut the competition and price is used to trigger the purchase immediately. Unit profits are low, but overall profits are achieved. Air India and Indian Airlines have slashed their prices to meet the competition of private airlines so that they can consolidate their position in the market. Airlines usually practice differential pricing. There are three classes: The First Class, The Executive or Business Class and The Economy Class. Fares for each class are different since the facilities provided and the comfort and luxury level is different in each class. Seasonal fares are also fixed, fares rise during the peak holiday times.

Low-cost Pricing: With the advent of the low-cost airlines in the Indian aviation industry, a different low-cost flying concept has come up. Since these low-cost airlines are trying to woo the customers by providing air travel in exceptionally low prices, a price-band kind of pricing has to be designed. In low-pricing strategies, the airlines provide very low prices for the flight tickets. Also, they prices are made cheaper by booking the tickets long before the flight date. APEX Fares: In this scheme, people are given very cheap rates only if tickets are booked at least before the specified time period. But the draw-back here is that if the booking is cancelled, a substantial amount of money is not returned.

Situation :If I am a CEO of a commercial airline. The airline(assumption : ANBU airlinles) has a long-standing history in the airline industry but now it has to compete (assumption Jet airways) with the low-cost airline. From my experience determine how I formulate and implement an effective policy to improve its performance. Strategy: 1. Low cost per average seat kilometer ANBU airlines focused on ensuring a competitive cost structure as its main business strategy. It has been able to achieve a cost per average seat kilometer (ASK) Rs.2000, half that of spice jet. ANBU airlines will lease the B737-300s aircraft at a very competitive market rates due to the harsh global market conditions for the second-hand aircrafts .On the other hand, the operating cost of the company is also dropped drastically. 2. Low distribution cost ANBU airlines focus on Internet bookings and ticketless travel allowed it to lower the distribution cost. 3. Attractive ticket price With the average fare being 40-60 % lower than its full-service competitor, ANBU airlines has been able to achieve strong market stimulation in the domestic Indian air market . For instance, the fare for the trip from mumbai to chennai on ANBU airlines starts from Rs.1500. Comparing to trip by bus charges Rs.1600 and Rs.4000 by car. The effect of attractive low fare is more travelers switching from bus to air. 4.Good Management Team ANBU airlines value proposition is more sophisticated. Maintaining equal emphasis on brand reputation and customer service/people management, by a senior advisor to ANBU airlines top management team. 5. Join venture with Virgin Group ANBU airlines should put more effort to set up a pan-Asian low cost airline with Virgin Blue, which is a low cost carrier of Virgin Group serving Australia and New Zealand mainly. Virgin Blue has suggested it may extend services to south-east Asia. Therefore, setting up a join venture with Virgin Blue can help ANBU airlines to grow in Asia even further, and help Virgin Blue to extend services to south-east Asia. 6. Induction of smart cards ANBU airlinesa will issue a smart card which is compatible with the existing ticketless booking. It can offer 2 kinds of smart cards. The first kind of smart card, aimed at ordinary travellers, will offer instant rewards when topped up, offering greater value than its purchase price. For

example a Rs 5000 card may be worth Rs.5,500. The card can also be used by other people with the same family name as the cardholder. The second kind of smart card will offer unlimited travel for frequent flyers. Priced provisionally at Rs.20,000, cardholders will be allowed make as many trips as they want within a specified period. conclusion If this strategy is implemented (2015) confirms that ANBU continues to offer attractive conditions for the air transportation industry. With thirteen out of worlds top twenty-five major urban centres located in the Asia Pacific region and a rapidly increasing urbanization trends, the ANBU air travel market is bound to continue to grow. Urbanization is highlighted as one of the key drivers for the growth in air travel. It is estimated that ANBU would account for 30% of the world market by 2019 or one third of growth between now and then. These enable low cost airlines to grow even further.