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AirAsia India
AirAsia India
AirAsia India
36.1%
30.8%
12.1%
11%
90%
2560
2011-12
Indigo
Kingfisher
Jet Airways
Nacil
19.7%
19.6%
18.2%
14.6%
72.1%
1611
2013-14
Indigo
Spicejet
Nacil
Jet Airways
29.5%
19.8%
19.1%
17.1%
85.5%
2030
In the year 2005-06, there was high concentration as the industry was being majorly
dominated by top 4 companies.
In the year 2011-12, the concentration toned down and became moderate with a new player,
Indigo acquiring the highest percentage of share in the market and the 5th player having
about 14% of market share.
In the year 2012-13, the concentration once again became high with Indigo dominating the
market with 29.5% share. Also, the total number of players reduced from 8 to 7 and then to
6 players.
So, the market initially was highly concentrated, then it went on to become moderately
concentrated and then once again becoming highly concentrated with some of the old players
like Air Deccan and Kingfisher leaving and new player like Indigo coming in the market.
Q2. What are the barriers to entry faced by new entrants, such as AirAsia India, in the
Indian aviation market?
The new entrant in the Indian aviation industry faces the following barriers:
Costs: There are multiple costs that any player in the aviation market will have to
incur so as that it can operate. The following are the costs:
a. High Airport charges: The airport charge in India is among the highest fees
charged in the Asian and Gulf region.
b. High taxes and fees: There are multiple taxes that needs to be paid by the
airline company. These taxes are collected on fuel, aircraft lease, airport
Threat of
of
Threat
Substitutes
Substitutes
Supplier
Supplier
Power
Power
Rivalry
Rivalry
between
between
Coke
Coke and
and
Pepsi
Pepsi
Buyer
Buyer
Power
Power
Threat of
of
Threat
new
new
entrants
entrants
1. Threat from new entrant There is possibility of high threats from new entrant. The
reason for the same is that there is not much of investment required to enter the aviation
sector in India. To start an airline company, a company initially require airplanes which
can be taken on lease. Thus, the company need not require capital initially to purchase
them. Other expenses like the working capital requirements may not be so high that
may hinder a player to enter the market. However, there are certain barriers for new
entrant as discussed above, we still believe that it can enter the market and pose a threat
to the existing player.
2. Threat from supplier There is a possibility of high threat from the supplier too. The
reason being that there is limited supply of ATF and therefore, a supplier gets a better
bargaining power in this case. Moreover, there is duopoly in the aircraft market as well,
thus, giving low bargaining power to the airline company.
3. Threat from substitutes Again, there is a high threat from substitutes as there are
alternate means to transport like train and bus available. So a buyer may not be ready to
buyer extremely high price for air ticket. Further, a person who mostly travels to attend
meetings for business purpose may opt for video-conferencing, thereby, reducing his
travel.
4. There from buyer: The switching cost for buyer is quite low. They can opt for other
means of transport, and thus we can say that the buyers can exercise reasonably high
bargaining power. Further, penetration of internet has helped customer to compare the
fare prices of other airlines carrier and then select the one offering lowest fare.
5. Rivalry: There is little scope for product differentiation. Further, any new type of
service introduced by one airline can be easily imitated by others. There is a high
competition prevailing in the industry. Thus, we can conclude that there is a high threat
from rivals available as well.
Considering all these factors, we feel that Indian Aviation market can be contestable.
Q4. Analyse the demand-supply dynamics within the Indian aviation market. How do
these dynamics impact AirAsia India?
We can see from the graph that both demand i.e. revenue passenger kilometers (RPK) and
supply i.e. available seat kilometers (ASK) have been moving in tandem since 1993-94 and
have continuously kept on increasing. So, with the increase in demand for each year,
companies have increased their supply by adding new fleets. Also, different reports suggest
that growth of the middle class will continue which will drive the consumption. Along with it,
urbanization in India, educated young India with disposable income and the need for business
travel is on the rise. All these factors suggest that the demand will keep on rising for low-cost
carriers.
Air Asia is a low cost carrier which firmly believes in its low cost model which can help them
tap the future growth. It's founder also believes that Indian market is still not a competitive
market though the market will pose its own challenges. Air Asia should continue to maintain
its brand image as a low cost carrier based on cost leadership which can also be there point of
differentiation. Though it could start a pricing war which can reduce the operating margins of
all the companies in the industry.
Q5. How will an assessment of rival firm reactions shape AirAsia India pricing
strategies?
We have seen that majorly there are four players that are dominating the market and so the
market is highly concentrated. There are lots of barriers that Air Asia will have to cross to
have a competitive advantage in terms of pricing.
1) Airport charges - There are no secondary airport with lower charges thus making it
difficult to keep a low price.
2) Infrastructure - The infrastructure is not good enough to deal with congestion at the
airports thus once again making it difficult for Air Asia to keep a low turnaround time.
Air Asia will also have to find the solution related to the prime slots that will be offered to the
older players in the market.
Even after all this Air Asia is able to maintain its low price the other firms can reduce their
own price thus waging a price war as it is not that Air Asia strategy will not be imitable.
Q6. What strategies should AirAsia follow to survive and grow in the Indian aviation
market?
AirAsia should try to capitalise on its strength and minimise its weakness. Needless to say
they should look for opportunities and remove threats. Hence, before we answer this
question, it would be viable if we do the SWOT analysis of the company first.
Strength
Weakness
Brand Image
High experience as a low cost carrier
Largest low cost carrier in Asia
First foreign LCC airline to expand out
of its market.
Economies of Scale
Wide operation
Efficient utilization of aircraft and
operation
Opportunities
Threats
1. They should ensure that they provide the best of the services to its customers.
2. They can also form a tie up with an online travel portal. This will ensure more
awareness about the company and its services. Further, it would also boost its
revenue.
3. Creating awareness about the company should be the top most priority for the
company. Hence, they should indulge in extensive marketing, maybe through creative
advertisement.
4. The company can provide extra luggage allowance. This may also help them to gain
customers who had to pay extra to other carriers for carrying additional luggage
beyond the permissible limit.
5. AirAsia should also ensure that they are on time. In India, we know Indigo is known
for its on time performance, hence, AirAsia need to be on time as well if they want to
survive in Indian market.
6. Finally, they should look for expansion. At present, they are mostly flying in South
India. Hence, they should increase their routes.