A

RESEARCH PROJECT REPORT

ON
Challenges & Growth of Tourism
Industry in India

MASTER OF BUSINESS ADMINISTRATION

SUBMITTED TO: SUBMITTED BY:
Dr.J.N, Giri Name: Buddhi Sagar
Professor Roll No. 1415270008
MIMT
Greater Noida

MANGALMAY INSTITUTE OF MANAGEMENT &

TECHNOLOGYGREATER NOIDA (U.P.)
Dr. A.P.J. ABDUL KALAM TECHNICAL
UNIVERSITY, LUCKNOW

1
 Mangalmay Institute of Management & Technology
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Campus: 8 & 9, Knowledge Park – II, Greater Noida (U.P.) Ph: 0120-2320400, 2320401, 2320680
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Certificate

This is to certify that Mr. Buddhi Sagar, University Roll No. 1415270008 is a regular
student of MBA 2nd year, full time degree course at out institute. Her Research Project
Report work titled, ‘CHALLENGES & GROWTH OF TOURSIM INDUSTRY IN
INDIA ’ submitted as part of the curriculum for the award of the degree of Master of
Business Administration from Dr. A.P.J. Abdul Kalam Technical University, Lucknow,
is an original work done by her.
This work has not been submitted earlier in any form partially or fully to this or any other
Institute/University for any degree or diploma.

Prof. Dr. J. N. Giri Prof. Dr. J. N. Giri

Supervisor Head of Department

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 Student Declaration

I, Buddhi Sagar, bearing University Roll No.1415270008 of Dr. A.P.J. Abdul Kalam
Technical University, Lucknow, enrolled as student of MBA at Mangalmay Institute of
Management & Technology, Greater Noida, solemnly declare that the research project
report titled, ‘CHALLENGES & GROWTH OF TOURSIM INDUSTRY IN INDIA ’
embodies the results of original research work carried out by me and the same has not
been submitted in any form partially or fully for award of any diploma or degree of this
or any other University/Institute.

(Buddhi Sagar)
Roll No.: 1415270008

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 ACKNOWLEDGEMENT

I would like to express and grateful to‘CHALLENGES & GROWTH OF TOURSIM

INDUSTRY IN INDIA’ for giving me the opportunity to carry out the project report in
this esteemed organization.

I am very thankful to all the faculty members for their valuable guidance and support at
all time.

I would like to express my note of gratitude towards all those people who has provided
me all the necessary informations directly or indirectly throughout this project report has
been successfully completed at time.

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 TABLE OF CONTENTS

 INTRODUCTION 06-10
 OBJECTIVE OF THE STUDY 11-12
 EXCUTIVE SUMMARY 13-15
 TOP 10 CHALLENGES TOURSIM GROUTH 16-24
 LITERATURE REVIEW 25-29
 INDAIN TOURSIM INDUSTRY 30-45
 ECOMONICE OF AVIATION IN INDIA 46-48
 DOMESTIC AIRLINES 49-54
 A RAY OG HOPE 55-56
 AVIATION REVIEW 57-61
 MARKETING STRATEGY 62-63
 DISCOUNT & CONCESSION 64-65
 MARKETING STRATEGIES IN PRESENT SCENARIO 66-67
 MARKETING STRATEGIES 68
 4Ps ADOPTED BY TOURISM COMPANIES 69-77
 ANALYSIS OF PASSENGER SURVEY 78-88
 RECOMMENDATIONS 89-91
 SWOT ANALYSIS 92-94
 CONCLUSIONS 95-100
 BIBLIOGRAPHY 101-
102

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INTRODUCTION

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 INTRODUCTION

TRAVEL AND TOURISM

Travel and Tourism sector, the second language foreign exchange earner for the
nation, has come a long way with the center recognizing the tremendous
potential in the sector.

Although the budgetary allocations have been miniscule during the past few
years, the government of India has however, initiated several foreigner - wooing
steps for promoting business.

Tourism having become the world's largest employees with over 200 million, is
anticipated that in, the next four to five years will provide 300 million jobs,
similar to the automobile and communication industries.

The sector is one of the world's largest economic forces with a turnover of more
than 200 trillion dollars yearly. Approximately 750 million people are supposed
to be travelling annually and hence India has to procure for itself a sizeable share
of this market, which as present is insignificant.

Tourism sector mainly comprises of the three segments viz., foreign tourist,
outbound Indian tourists and domestic tourists.

Of late it is business tourism that is gaining grounds in India rather than

pleasure-oriented tourism. India’s new tourism strategy designed to attract a

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large number of tourists who cross-national boundaries on pleasure or business,
assign a key role to air transport. Domestic air transport is an essential
component of the tourism infrastructure. According to available statistics, 82% of
foreign tourists travel by air, 11% by sea and 7% by land. Those who come to this
country by air or otherwise prefer to travel within as well by air.

In an emerging market like India it has to be pointed out that the foreigners
coming to India are facing innumerable problems basically due to lack of
infrastructure.

Also time has seen lost for want of a proper aviation policy that would take
care of domestic air seat capacity. Some of the early birds have stopped flying.
The frequent fare hikes and inadequate services to some of the tourists
destinations make clear that the air passengers have yet to receive the full
benefits of competitive aviation environment.

The Tata proposal that would have provided real competition was called off
with the announcement of the new policy. The existing private operations find
that in the view of the civil aviation ministry officials, the team liberalization has
different interpretation. In the circumstances, here too the targets are nowhere
within reach.

AIRLINES AS A TRANSPORT SERVICE

A railway, buses, ships and airplanes provide transport services for moving people and
goods the fastest growth has taken place in air transport.

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 Airlines provide both tangible and intangible benefits to the customer. The
tangible part includes the food they serve the seating comfort, Leg space and
maintenance of cabin etc.

The intangible part of the product includes the experience of a passenger. If

his experience is good with a particular airline then he will travel by it again but
if it is terrible, than he will avoid it next time. The main source of this is the
frontline staff. Thus proper training should be given to the staff in terms of
personal appearance, courtesy, and attitude change.

The service given to the passenger is not at all standardized to sell because
every airline differentiates the product in order to adopt a unique position in the
market. The actual product, which is created, is the same but then they find ways
to augment it. It requires a great art of quality control. Here product delivery, is
very important as it is a one-time experience.

The business of the airlines industry is with respect to the passengers, and
these passengers travel due to a particular reason i.e. tourism, trade promotion
meetings, conference, or certain emergency. This can be termed as the need.

Thus, to fulfill the need of passengers, airlines have provided certain product
features. The product features are made according to the market segments.

The peculiar product features include :

 Perishability
 Changing demand
 Intangibility
 Heterogeneity

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 There are certain peculiar requirements of the industry i.e. vast land, landing
strips, ability to connect to remote places etc.

The inherent strengths of the airlines include :

1. Fastest means of transport

2. Gives captive market
3. Carry large number of people, and
4. Saves Time

The inherent weaknesses of the airlines include :

1. Perishable product
2. High capital cost for the aircraft
3. High running cost such as the aviation turbine fuel
4. High risk sector
Thus, one can say that every airline is trying to market the product i.e. "a seat".
Thus an empty seat on a flight is a product which has perished. Thus it implies
that an airline seat is a perishable product with its life cycle beginning .

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OBJECTIVES OF THE
STUDY

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 OBJECTIVES OF THE STUDY

(1) To study the market potential and the different type of tourism
industry.
(2) To study in detail about major factor, which effect the tourism with
governing factors and social impact.
(3) To study about innovation coming up and Future of Tourism Industry.
(4) To study about access role in tourism industry and facing challenges
& risks.

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EXECUTIVE SUMMARY

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 EXECUTIVE SUMMARY

In the Domestic airlines sector, privatization has taken off despite the
controversies. The virtual monopoly over the domestic skies ended in 1991,
when privately owned Air Taxi Operators (ATOs) were allowed to operate on
the trunk routes for the first time. Privatization has been successful is evident
from the fact that in just five years, the private airlines have wrested 39% of the
market from Indian Airlines and according to the latest report Private Airlines
hold nearly 47% of the market share.

The private airlines have formed a cartel, with their fares always marginally
higher than those charged by Indian Airlines.

There were restrictions on 100% foreign ownership. The aviation Industry has
consistently soared as more and more reforms have been injected into the
system. The private operators were allowed to operate only as air taxis with
considerable restrictions on the types of aircraft they could operate. These
restrictions have been gradually relaxed and the private airlines are now
permitted to operate regular services on the profitable domestic trunk routes.

The present environment is very different, it is characterized by competition

in a stagnant market leading to a decline in market shares and adversely
affecting the financial health of Indian Airlines. The Product needs to be
improved in all aspects such as safety, punctuality, a clean and comfortable
environment, efficient in flight and ground services and courteous behaviour by
all those coming in contact with the customer.

Marketing strategies are to be developed so as to identify key markets and

formulate strategies for thrust customers and agents.

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 Indian Airlines aims to increase its market share with improved product
quality and increasing its fleet operating capacity, improving on punctuality
and service standard. This would require the employees to integrate and direct
the efforts towards a single objective of restoring Indian Airlines.

Employees should appreciate organization for which they are working as it

should be healthy and strong.

The open sky policy adopted by the domestic air operations has enlarged and
improved the industry considerably. The latest Privatization norm by the
government has added to the upliftment of the Airlines standard in the Indian
Domestic market. Now air travel has become more comfortable and easy.
Courtesy is slowly becoming the norm rather than surprise smiles.

Now smiles are back and so are "thank you" which have become quite
common.

These airlines are more oriented towards customer service. They have a
multipronged action plan for punctuality, restoring flight timings, improving
fitting and fixtures, extra in-flight services, upgradation in service, recruiting
special sales force, liberalized appointment of agents, increase in commissions,
computerized reservation systems, frequent flier schemes and discounts etc.

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TOP 10 CHALLENGES FOR TOURISM
GROWTH IN INDIA

Top 10 Challenges for Tourism Growth in

India

The global economic meltdown compelled the tourism industry

internationally to divert its focus on the BRIC (Brazil, Russia, India and
China) nations. These economies, especially India weathered the downturn
much better than Western countries. Indian tourism industry focused
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aggressively on the large domestic market, which helped reduce the impact
of the economic slowdown to a huge  extent. With the global economy on
the verge of a total recovery this year and travel picking up across segments,
as well as the Commonwealth Games taking place in Delhi in October this
year, the industry has a great opportunity to realise the full potential of
Incredible India. However, the country is still faced with a number of road
blocks for tourism development. Lack of proper policies and
implementation, absence of single window clearance, security, scarcity of
Public-Private-Partnerships and lack of circuits complete the list of top ten
challenges faced by the industry. The need of the hour is for the government
to address these problems and work with the industry to put India on a
prominent position on global tourism map.  

Policies and proper implementation

The last Tourism Policy announced by the Government of India was in
2002. This policy gave the right to the central and state governments to
individually, as well as collaboratively develop the Indian tourism sector.
This policy also boosted the infusion of Foreign Direct Investment in the
country. However, times have drastically changed since 2002. 

Today, tourism has become more inclusive of new concepts which require
the support of the government to develop and flourish. Some of these would
be Cruise Tourism, Adventure Tourism, Agri Tourism or Rural Tourism.
There is a need to propagate these concepts with dedicated policies formed
for their development. Effective implementation of these policies will help
in the growth of the industry overall. Few states like Kerala, Gujarat,
Madhya Pradesh Karnataka are taking pro-active measures in policy
formation and implementation. Some of them have also drafted separate
policies for specific segments like Ecotourism. This has helped the states
immensely to develop tourism infrastructure and increase their tourist
arrivals. Such initiatives are required from other dormant states to create a
uniform development of tourism infrastructure. 

Industry players need dynamic and far sighted policies by

the government to help them boost tourism. Often, the
major problem is that policies are formulated but are not
clear and lack proper implementation.“Policy makers need
to be more proactive in their approach to boost hospitality
development in the country. There is a huge need for
transparency in policy formation and clarity in their
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implementation. Government and industry need to work together to create
strong hospitality and tourism development across the country,” opined Anil
Madhok, Managing Director, Sarovar Hotels. 

The industry has been eagerly awaiting the announcement and

implementation of the Civil Aviation Policy since 2007. Recently, Civil
Aviation Minister, Praful Patel, announced in the Lok Sabha that the Centre
had implemented the Policy. However, the nitty-gritty’s of the Policy are
still unclear to the industry. This highlights another issue in the policy
making process in the country. Policies are usually difficult to decipher by
stakeholders of the industry. Hence, little use to them. 

The cruise industry has been one of the most promising industries in India,
but barely noticed. Several state governments have been talking about the
potential of river cruises. The country has also seen interest from several
international cruise liners like MSC Cruises to initiate operations. However,
none have been able to sustain operations in the country. States like Kerala
have dabbled with the concept but to no major success. 

This highlights the demand for a

structured policy for Cruise Tourism
in the country. The central
government realised the potential for
the same and announced the Cruise
Shipping Policy of India in 2008.
However, this has barely attracted any
foreign cruise operators to start
operations in India. Even domestic
operators are pulling out. One of the
major issues hampering development of Cruise Tourism in India is the lack
of adequate infrastructure including deep drafted berth ports and marinas for
cruise liners to operate. The country today requires a policy dedicated to
Cruise Tourism which will help private and public entrepreneurs to develop
this infrastructure. 

Similarly, with India’s vast coastline and number of pristine beaches, the
potential of Beach Tourism has not been tapped. For a long time industry
players have been demanding easing of the Costal Regulatory Zone (CRZ)
policy to develop Beach Tourism, but their pleas have yielded no result so
far. Even though there has been efforts on part of the government, centre and
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individual states to come up with policies to aid development of niche
segments, for example Caravan Tourism policy by the centre or Adventure
Tourism policy by some states, there are host of other potential segments
like Medical and Wellness which are still awaiting the formation of a proper
policy. The solution is not only drafting policies but also doing it swiftly and
implementing them efficiently. The latter is certainly a major challenge
which is hampering tourism development in the country.    

Lack of single window clearance

The tourism and hospitality industry is not new to project commissioning
delays due to non-attainment of all licenses and approvals on time. The
insistent and repeated demand of the industry for single
window clearance to fasten the process of development
and operations has been a long standing one. However,
only recently it was paid heed to and the Cabinet accorded
it importance and discussed the idea. 

Speaking at the inauguration of the Great Indian Travel

Bazaar 2010 in Jaipur, Kumari Selja, Union Minister for
Tourism said, “A Committee of Secretaries (CoS) has
cleared the proposal for single-window clearance of hotel projects and is
currently awaiting an approval from the Cabinet.” Under the proposal,
hoteliers will need to submit one uniform application for their projects.
Committees will be formed at the central and state level for clearance of
these projects.

While this comes as a welcome move for the industry, its

implementation is eagerly awaited. The government had
planned to develop a single window clearance for speedy
delivery of licenses for projects in Delhi- NCR region.
Attaining licenses and approvals for tourism and
hospitality projects is a major issue for private
entrepreneurs. These approvals are not restricted to hotel
and tourism infrastructure development projects. 

In Maharashtra itself, a company needs to acquire 132 licenses to develop a

star category hotel. Art and cultural events, festivals, concerts attract
domestic and international tourists. Events like Mardi Gras, Oktoberfest,
Edinburgh International Festival attract huge amount of tourists’ year-on-
year. However, India lacks such festivals except major college festivals like
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Mood Indigo, which attracts crowds from across the country. “Organising
one festival or entertainment event in India requires a minimum of 30
licenses to be procured. The absence of a single window clearance to obtain
all the approvals becomes a major obstacle,” stated Kaveer Shahani,
Founder & CEO, Groove Temple Entertainment.

The government’s move for the single window clearance and rationalisation
of licensing and approvals process will not only help in developing tourism
and hospitality infrastructure fast, but also attract new players in the market,
while elevating Indian tourism to international levels.

Security
The terror attacks that struck Mumbai in November 2008 lead to a strong
blow to tourism in the country. Security has been among the major problems
for tourism growth for a number of years. For more than a decade Jammu
and Kashmir, known as ‘Paradise on Earth’ and a popular destination was
completely cut off for tourism due to insurgency. The scenic North East
region was also similarly affected by insurgency for many years. While, in
recent years normalcy has returned to both these regions, barring a few
incidents, and also tourist traffic, terror attacks like the ones in Mumbai
bring forth a question mark about safety and security in the mind of
international tourists. The violent Maoist movement in central and some
eastern parts of India is also marring the image of the country as a safe
destination.     

India is a vast country and travel advisories issued by Western countries

against travel to the country has been protested against as the incidents have
been in pockets and do not affect the entire nation. However, the Mumbai
terror attacks have been an eye opener for the government
and its security measures. Security at tourist spots, airports
and hotels has been beefed up to regain the confidence of
travellers. But these measures cannot be knee jerk
reactions for a brief period. A long term strategy has to be
put in place. With the Central Industrial Security Force
(CISF) act being amended to enable the force’s
deployment in private sector and joint venture enterprises
on cost-reimbursement basis, the government has put five
star-hotels much lower on the CISF’s priority list. 

Post the terror attacks in Mumbai, reputed hotel chains including Taj and
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Trident have sought CISF cover. Manjari Jaruhar, Additional Director
General, CISF said, “Hotels are low on our priority right now. They have
security from the state governments and they can always hire private
security on their own.” While IT, power and oil industries have been put on
the top priority list, five-star hotels are on the third priority as of now. Post
the terror attacks in Mumbai, reputed hotel chains including Taj and Trident
have sought CISF cover. “Safety and security is another area of concern
which needs improvement along with strengthening of the tourist police,”
said Arjun Sharma, Chairperson, WTTC India Initiative. 

Apart from making the destination safe, the tourism

industry is faced with another challenge, cyber crime. The
issue of online security for the travel industry is becoming
critical as some of the biggest frauds have been detected in
this segment. The penetration of Internet is increasing
rapidly and travel is among the major segments for online
spend. Online Travel Agents (OTAs) are registering an
impressive year-on-year growth. However, a majority are
still not convinced about the security of online transactions. There is a need
for the industry to make the process of online bookings more secure and
transparent and create awareness about the same. 

Efforts in this regard have been initiated. Travel Agents Federation of India
(TAFI) along with India Payment Card Risk Council (IPCRC) organised an
event in end of May this year to create awareness about E-Commerce
Security for Travel Industry. It was a part of the Cyber Safety Week 2010
organised by Mumbai Police and NASSCOM. Speaking at the event about
card payment frauds and cyber crimes which affect the travel industry,
Nandkumar Saravade, Chairman, IPCRC said, “The issue of online security
for the travel industry is becoming critical as some of the biggest frauds have
been detected in this segment. However, the general population is not aware
of its risks. Hence, there is a dire need to create awareness among customers
so that they are more alert.” Himanshu Singh, Managing Director India,
Travelocity stated that though fraud rates in India are as low as 0.001 per
cent, it is essential to build repository of intelligence and make it available to
all stakeholders. “The purchase time of tickets online should also be kept to
the minimum. Online transactions worth about Rs 30,000 crore are
conducted in India. It is essential to lay guidelines and enforce it so that both
the travel industry and customers can avoid risks safely,” stated Singh. 

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 Private-Public-Partnerships
Tourism development in the
country, especially infrastructure
has been bogged down by lack of
Public-Private-Partnerships (PPP).
While PPP model in recent times
has gained pace in tourism sector, there is a desperate need to refine the
model to make it successful. Archana Capoor, Chairman
and Managing Director, Tourism Finance Corporation of
India Ltd said, “PPP model enables the public sector to
benefit from commercial dynamism, the ability to raise
finances in an environment of budgetary restrictions,
innovations and efficiencies, harnessed through the
introduction of private sector investors who contribute
their own capital, skills and experience.”   

To provide momentum to infrastructure construction in the country, the

government has formulated policy framework for PPP model, effected
regulatory changes, established institutional procedures and drawn the road
map for implementing the PPP projects. For instance, major airports across
India, the new ‘Maharaja Express’, etc are some successful examples of PPP
model in India. However, there are still hurdles faced by this model to
successfully operate in India. 

India has witnessed a spurt in growth by using PPP model in various

segments of tourism, aviation and hospitality industry. However, the model
faces major hurdles which make private developers think twice before
investing in PPP business. The biggest challenge in PPP model is the time.
According to private players, time period for the process of allocation and
implementation of the project is unpredictable and often not viable.
According to Nikhil Thakurdas, Director, CruiseBay; the PPP model can be
used to accelerate infrastructure development and faster implementation of
projects in the tourism industry. He said, “There is a lack of clarity on
incentives and tax benefits offered by the government for PPP projects.
While the Planning Commission and Finance Ministry have cleared the
ground for issuing policy, the implementation ministries have not kept pace
with the process. This creates bottlenecks and hampers the speed of
implementation and thus growth as well. 

The PPP model needs to be refined further and the government needs to
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resolve certain issues to allow the private sector to earn a reasonable RoI
(Return on Investment) along with certain tax benefits and incentive
packages. The government has provided tax holidays and land for
construction in certain PPP projects in India. However, government can look
for further opportunities in PPP model. For instance, there is no dearth of
projects in the airport sector as several airports in India have been or need to
be upgraded. Government can work on PPP model for airport maintenance,
airport security, communications, designing the interiors, etc. A successful
infrastructure development strategy depends crucially on implementation.
Both the central and state governments have to accord top priority to
strengthening the implementation capabilities.  There is certainly a need for
detailed PPP policy and planning. 

Creating circuits 
The Golden Triangle (Delhi-Agra-Jaipur) is India’s only circuit which is
world famous. For a vast country like India with diverse tourism offerings,
development of circuits for various segments like heritage and culture,
adventure, religious, eco, beach, wellness, agri and rural
etc. is required to showcase the country properly and cater
to greater number of tourists according to their interests.
Creating circuits will also give a boost to niche tourism
segments and help in prioritising destination development
and infrastructure.  

“It is important for Ministry of Tourism (MoT) to identify

circuits and bring them up to international standards, if that
is not possible at least to a level acceptable to tourists. Circuit identification
can be undertaken with the help of tour operators as they know exactly what
tourism product will work in the market,” stated Rakesh Lamba, President,
Association of Domestic Tour Operators of India.Circuits within a state can
help promote lesser known destinations and inter-state circuits can help
states create synergies in areas like sharing resources for marketing the
circuit, offer a wider range of products and destinations and leverage on each
others USP’s to attract huge tourist traffic. 

The idea of connecting a region and marketing it jointly for example South
India has been talked about but has not witnessed any concrete results. The
challenge is for various state governments to come together and work in
collaboration. Speaking about the potential of promoting inter-state
destinations, E M Najeeb, Chairman, ATE Group said, “India is a diverse
23
product and each state has varied offerings. The need of
the hour is for the states to come together and strategise
on building these destination with adequate infrastructure
and strong marketing plan. With specifics to South India,
formation of South India Tourism Promotion Body will
help chalk out the necessary strategies to promote the destinations. Also a
master plan to identify potential tourist locations, attractions, infrastructure
needs and investment opportunities, formation of an investment cell, land
banks and a ‘South India Tourism Finance Corporation are a must.”

“The destinations that have potential lack necessary infrastructure and are in
dire need for more hotel rooms, good roads and waterways, wayside
amenities, uninterrupted water and power supply, information centers etc.
The destinations also require good connectivity and this requires
coordination by the states,” opined Vijay Thakur, President, Indian
Association of Tour Operators. While few states have realised the potential
of developing circuits and have in recent times chalked out a few, there is a
need for Master Plan by MoT for Circuit Tourism.  The Master Plan will be
able to address the issues raised by Thakur and if implemented accurately
will help take India n tourism to the next level.

LITERATURE REVIEW
24
 LITERATURE REVIEW

The terms tourism and travel are sometimes used interchangeably. In this context
travel has a similar definition to tourism, but implies a more purposeful journey.
The terms tourism and tourist are sometimes used pejoratively, to imply a shallow
interest in the cultures or locations visited by tourists.

Sustainable tourism is becoming more popular as people start to realize the

devastating effects poorly planned tourism can have on communities. Receptive
tourism is now growing at a very rapid rate in many developing countries,
where it is often the most important economic activity in local GDP.

25
In recent years, second holidays or vacations have become more popular as
people's discretionary income increases. Typical combinations are a package to
the typical mass tourist resort, with a winter skiing holiday or weekend break to
a city or national park.

Tourism is travel for predominantly recreational or leisure purposes or the

provision of services to support this leisure travel. The World Tourism
Organization defines tourists as people who "travel to and stay in places outside
their usual environment for not more than one consecutive year for leisure,
business and other purposes not related to the exercise of an activity
remunerated from within the place visited". Tourism has become a popular
global leisure activity. In 2006, there were over 842 million international tourist
arrivals.[3]

Tourism is vital for many countries, due to the income generated by the
consumption of goods and services by tourists, the taxes levied on businesses in
the tourism industry, and the opportunity for employment in the service
industries associated with tourism. These service industries include
transportation services such as cruise ships and taxis, accommodation such as
hotels, restaurants, bars, and entertainment venues, and other hospitality
industry services such as spas and resorts.

Hunziker and Krapf, in 1941, defined tourism as "the sum of the phenomena and
relationships arising from the travel and stay of non-residents, insofar as they do
not lead to permanent residence and are not connected with any earning
activity."[4] In 1976 Tourism Society of England defined it as "Tourism is the
temporary, short-term movement of people to destination outside the places
where they normally live and work and their activities during the stay at each
destination. It includes movements for all purposes." In 1981 International
Association of Scientific Experts in Tourism [5]
defined Tourism in terms of

26
particular activities selected by choice and undertaken outside the home
environment.

The United Nations classified three forms of tourism in 1994 in its

Recommendations on Tourism Statistics: Domestic tourism, which involves
residents of the given country traveling only within this country; Inbound
tourism, involving non-residents traveling in the given country; and Outbound
tourism, involving residents traveling in another country

The small hilly state, geographically located in the north-western part of the
country, is surrounded by four states, namely, Uttar Pradesh, Punjab, Haryana
and Jammu & Kashmir with Tibet on the other side. Himachal Pradesh is among
the most advanced socio-economic states and has shown promising growth over
the years. Over the last decade the strong agro-based economy has shifted
towards services, particularly tourism. The state is sparsely populated with less
than half of Delhi's population and about 40 times its area. Endowed with
natural attractions, tourism is one of the key contributors to the state’s income.
Some of the tourist attractions include tribal areas, mountaineering, winter sports
like skiing, besides a large number of pilgrim centres. It is a hub for domestic and
foreign tourists. The state is largely an agro-based economy with about 71 per
cent of its population dependent on farming, horticulture and livestock for their
livelihood. The main crops are wheat, corn (maize), barley, rice and potatoes. It is
one of the leading fruit and vegetable producing states in the country. The State
Government has steadily been focusing on improvement of industrial
infrastructure. A slew of industrial parks and estates including export-oriented
parks for agro-processing units have been set up, thus, strengthening the
agriculture sector in the state. Several fruit and food processing units and other
allied industries like warehousing and packaging have come up in various parts
of the state. The state’s agro-processing units have highest per capita output and
value addition in the country. Himachal Pradesh has one of the highest levels of

27
telecom penetration in the country. The state has a well-developed banking
sector with a high density of bank branches. It has the highest hydel power
generation potential in the country and has fostered private sector participation
in the sector.
The Government of Himachal Pradesh has formulated its policies with an
objective to improve the industrial sector in the state. It has initiated many
welfare programmes to improve the economic well being of its people. The state
provides special package of incentives to the investors and ranks highest on the
incentives index. The state enjoys a healthy investment climate with the presence
of several domestic and multinational corporations. The state attracted an
investment of US$ 1.1 billion approximately, in 2003-04.
The Indian State of Himachal Pradesh is a mostly mountainous area, neighboring
Tibet and China in the East, the Indian states of Jammu and Kashmir in the north
and northwest, Punjab, Haryana, Uttaranchal and Uttar Pradesh to the south. It
has a geographical area of 55,673 sq. Kms. and a population of 6.1 million people
and is located at altitudes ranging from 350 to 7000 meters (1050 ft. to 21000 ft.).
Nestled in the Western Himalayas, it has provided refuge and abode to the
Buddhist leader, the Dalai Lama and his Tibetan followers. This majestic, almost
mythic terrain is famous for its beauty and serenity
The forests of Himachal Pradesh (H.P) constitute two-thirds of the state’s
geographic area and are crucial to the region’s environmental and economic
well-being---a storehouse of rich bio-diversity, vital in preserving the fragile
Himalayan eco-system, and a primary livelihood source for its rural population.
The ‘forest sector’ encompassing the entire biophysical and environmental
components, highly sensitive to the uniqueness of the mountain environment,
must place its people at the centre
Accordingly a new course has been charted to shift forest policy in a way that
recognizes the ecological and social value of environmental services as well as its
economic values. Tapping environmental services through eco-tourism offers a
way to alleviate poverty and enhance livelihood options

28
INDIAN TOURISM INDUSTRY

29
 BUSINESS OF TOURISM INDUSTRY

There has been a remarkable growth, in the recent years, in foreign tourist
arrivals to India due to the various efforts made by the Ministry, including
promoting India through the 'Incredible lndia' campaign in overseas markets.
Incredible India is a multi-pronged promotional campaign launched by the
Ministry in order to position the country as a preferred tourist destination for the
travellers the world over. As a result of all such efforts, India's share in
international tourist arrivals, which was 0.34 per cent in 2002, has increased to
0.49 per cent during 2005. The foreign tourist arrivals has increased by about 65
per cent from a level of 2.38 million in 2002 to 3.92 million in 2005. In the year
2006, it has risen to 4.43 million, registering an impressive increase of around 13
per cent. Similarly, the foreign exchange earnings from tourism have also shown
a phenomenal growth from US$ 5730.86 million in 2005 to US$ 6569.34 million in
2006, achieving an increase of 14.6 per cent. According to the World Tourism
Organisation (WTO), in the year 2005, about 808 million tourists travelled
internationally (registered a growth of 5.6 per cent over 2004) and the tourism
receipts have been about US$ 682 billion.

To give recognition to tourism as a source of income and employment generator

in the economy, a 'Tourism Satellite Accounting (TSA)' has been developed. TSA
enables the Ministry to quantify the benefits of tourism in terms of contribution
to gross domestic product (GDP) and employment (both direct and indirect
impacts). India is among the few countries in the world to develop TSA. As per
the TSA study, the contribution of tourism in GDP of the country has been 5.90
per cent in 2003-04, while employment in tourism sector (both direct and
indirect) has been 41.8 million in the same year, thus accounting for 8.78 per cent
of total employment in the country.

30
'WORLD TRAVEL AND TOURISM COUNCIL (WTTC)' is the forum for
business leaders in the travel and tourism industry. It addresses challenges and
opportunities that affect all sectors of the industry globally. It works to raise
awareness of travel and tourism as one of the world's largest industries,
employing approximately 231 million people and generating over 10.4 per cent
of world GDP. It is firmly committed to realizing Indian tourism industry's
potential for growth and ensuring maximum and sustainable benefits for
everyone involved. According to the WTTC, tourism accounted for 10.6 per cent
of global GDP, 12.0 per cent of the total world exports and 8.3 per cent of global
employment in the year 2005. For 2006, it forecasted that travel and tourism
would generate 234 million direct and indirect jobs worldwide, accounting for
8.7 per cent of global employment, and contribute up to 10.3 per cent of global
GDP. According to the same estimate, the global travel and tourism activity is
expected to increase by 4.7 per cent between 2007 and 2016.

Thus, Indian travel and tourism industry has been on rise and is gaining
popularity amongst travellers all over the world. It is an engine of growth for
Indian economy and helps to promote sustained development of infrastructure,
such as airports, railways and roads, leading to connectivity of various tourist
destinations. Besides, improvement and expansion of existing and new tourism
products such as cultural and heritage tourism, rural tourism, adventure
tourism, health and healing tourism, etc; promotion of 'Incredible India'
campaigns; as well as active participation of State Governments therein
establishes India's competitive advantage in the sector. This has enhanced the
foreign exchange earnings of the country as well as improved its trade relations
with other nations. All such measures and incentives, undertaken by public and
private sectors, are a source of several investment opportunities in the industry.

31
Tourism has always been a major social phenomenon of any society. It is
motivated by the natural urge of every human being for new experience,
adventure, education, knowledge and entertainment. In order to understand
each other's cultures and values as well as to cater several other social, religious
and business interests, it has resulted in development of many tourist and
infrastructure facilities. This, along with the progress of proper transportation
network globally, especially of airways and waterways, has encouraged people
to venture out to the foreign lands. It has facilitated the trade and commerce
between the different regions of a country and between the different countries.
As a result, over the years, it has acquired the status of a service industry.

Tourism, being one of the largest industry, plays a key role in achieving the
socio-economic goals of the development plans of a nation. It is an important
service-oriented sector which has made rapid strides globally in terms of gross
revenue and foreign exchange earnings. It is a composite of service providers,
both public and private, which includes travel agents and tour operators; air, rail
and sea transportation operators; guides; owners of hotels, guest houses and
inns, restaurants and shops; etc. They are involved in meeting the diverse
interests and requirements of domestic and international tourists. The tourism
industry provides incentives to foster the quality of environment, generates more
employment opportunities (particularly in remote and backward areas) as well
as develops necessary infrastructure facilities like roads, telecom and medical
services, in the economy.

In India, tourism industry holds special position as it not only have potential to
grow at a high rate, but also stimulate other economic sectors through its
backward and forward linkages and cross-sectional synergies with sectors like
agriculture, horticulture, poultry, handicrafts, transport, construction, etc. That
is, it can provide impetus to other industries in the country and generate enough
wealth to help pay off the international debt. It is the third largest net earner of
foreign exchange for the country. The travel and tourism sector contributes to the

32
national integration; preserves natural and cultural environments; as well as
enriches social and cultural lives of the people. It has the capacity to create
substantial job opportunities, particularly for unskilled and semi-skilled workers
as well as to alleviate the poverty in the country. That's why, it has been
regarded as the core sectors of the Indian economy.

Given India's unique endowments of biodiversity, forests, rivers, mountains,

historical places, temples and pilgrims, caves, museums, monuments and
culture, the industry holds immense strength for obtaining higher growth rate.
The challenges in the sector lie in successfully preserving these in their original
form, and making them accessible to domestic and international travellers. India
offers various categories of tourism products, such as adventure tourism;
medical tourism (ayurveda and other forms of Indian medications), eco-tourism;
rural tourism; cruise tourism meetings, incentives, conferences, and exhibitions
(MICE) tourism; etc.

The Ministry of Tourism acts as the nodal agency for the development and
promotion of tourism in the country. It plays a crucial role in formulating
national policies and programmes as well as coordinating and supplementing
the efforts of the State/Union Territory Governments and private sector in
improving the quality of tourism infrastructure. It catalyzes private investment,
strengthens promotional and marketing efforts and helps in providing trained
manpower resources. As regards the domestic market, the Ministry aims to
popularize the culture and natural beauty of different regions, pilgrim sites and
various new tourism products. The Ministry has a public sector undertaking,
namely the 'India Tourism Development Corporation (ITDC)' for carrying out its
various functions, along with the following autonomous institutions:-

 Indian Institute of Tourism and Travel Management (IITTM)

 National Institute of Water Sports (NIWS)

33
  National Council for Hotel Management and Catering Technology
(NCHMCT) and

 Institutes of Hotel Management (IHM).

The Ministry has been undertaking several policy measures and incentives so as
to boost growth of the sector and attract the investors the world over. The most
important being the National Tourism Policy (formulated in the year 2002),
which aims to develop tourism in India in a systematic manner. It envisages a
framework, within which the Government helps to create the basic infrastructure
and legislative set up for tourism development, while the private sector helps to
provide the quality products and offer active support services. The broad
objectives of the policy are to:-

 Position tourism as a major engine of economic growth;

 Harness the direct and multiplier effects of tourism for employment

generation, economic development and providing impetus to rural
tourism;

 Focus on domestic tourism as a major driver of tourism growth;

 Position India as a global brand to take advantage of the burgeoning

global travel trade and the vast untapped potential of India as a
destination;

 Acknowledge the critical role of private sector with Government working

as a pro-active facilitator and catalyst;

 Create and develop integrated tourism circuits based on India’s unique

civilization, heritage and culture in partnership with States, private sector
and other agencies; and

34
  Ensure that the tourists to India gets physically invigorated, mentally
rejuvenated, culturally enriched, spiritually elevated and 'feel India from
within'.

With these objectives, the Ministry of Tourism has been broadly implementing/
implemented the following schemes/programmes:-

 Scheme for Product/ Infrastructure Development and Destination and

Circuits

 Scheme for Integrated Development of Tourist Circuit

 Scheme of Assistance for Large Revenue Generating (LRG) Projects

 Scheme of Capacity Building for Service Providers (CBSP)

 Scheme of Rural Tourism

 Scheme of Financial Assistance to States for Organization Tourism Related

Events

 Scheme of Central Financial Assistance for Information Technology (IT)

Projects

 Scheme for Support to Public Private Partnership in Infrastructure

Development (Viability Gap Funding)

 Scheme of Market Development Assistance (MDA)

 Capital Subsidy

 Time Share Resorts (TSR)

CONTRIBUTION TO THE INDIAN ECONOMY

It is not hidden that tourism is among India's important export industries. Even
with comparatively low levels of international tourist traffic, tourism has already

35
emerged as an important segment of the Indian economy The year 2004-05 saw
tourism emerging as one of the major sectors for growth of Indian economy, the
foreign exchange earnings increased from Rs. 16,429 crore to 21,828 crore up to
December.

Similarly in the last year, tourism industry registered a growth rate of 17.3% in
foreign tourist arrivals, which has been the highest in last 10 years. Foreign
exchange earnings grew at an even higherate30.2%.

India's tourism industry is thriving due to an increase in foreign tourists arrivals

and greater than before travel by Indians to domestic and abroad destinations.
The visitors are pouring in from all over the world: Europe, Africa, Southeast
Asia and Australia. At the same time, the number of Indians traveling has also
increased. Some tourists come from Middle East countries to witness the
drenching monsoon rains in India, a phenomenon never Domestic tourists are
also fueling the industry's revival. Many of them escape from the summer heat
on the plains to resorts in the Himalayan Mountains. One of the major
beneficiaries this year is Kashmir, where a cease-fire between India and Pakistan
has reduced violence, if not completely, Interesting feature of this growth is that
it has come even as global tourism has dropped, due to the September 11
terrorist attacks in the United States, the outbreak of Severe Acute Respiratory
Syndrome in East Asia, and the Iraq war. Even the disastrous tsunami didn't
affect India's tourism industry, as tourist arrivals in India rose 23.5 percent in Dec
2004 and tourist arrivals crossed 3 million mark for the first time in 2004.. The
disaster was expected to have a negative impact on India's tourism in terms of
large-scale cancellations of tourists to India but nothing of that sort was seen.

There could be several reasons for the buoyancy in the Indian tourism industry.
First, the upward trend observed in the growth rate of Indian economy has
raised middle class incomes, prompting more people to spend money on
vacations abroad or at home. Also, India is booming in the information

36
technology industry and has become the IT center. Aggressive advertising
campaign " Incredible India" by the government has also had contribution in
changing India's image from that of a land of snake charmers, and sparking new
interest among overseas travellers.

Tourism also contributed to the economy indirectly through its linkages with
other sectors like horticulture, agriculture, poultry, handicrafts and construction.

Besides being an important foreign exchange earner, tourism industry also

provides employment to millions of people in India both directly and indirectly (
through its linkage with other sectors of the economy.) It is estimated that total
direct employment in the tourism sector is around 20 million. Recently, Indian
government adopted a multi-pronged approach for promotion of tourism, which
includes new mechanism for speedy implementation of tourism projects,
development of integrated tourism circuits and rural destinations, special
capacity building in the unorganized hospitality sector and new marketing
strategy A nation wide campaign, for creating awareness about the effects of
tourism and preservation of our rich heritage & culture, cleanliness and warm
hospitality through a process of training and orientation was launched during
2004-05. The aim was to rebuild that sense of responsibility towards tourists
among Indians and re-enforces the confidence of foreign tourist towards India as
a preferred holiday destination. More than 6500 taxi drivers, restaurant owners
and guides trained under the programme
Government also took several other initiatives to promote Indian tourism
industry and increased the plan allocation for tourism i.e. from Rs 325 crore in
2003-04 to Rs. 500 crore in 2004-05. Road shows in key source markets of Europe,
Incredible India campaign on prominent TV channels and in magazines across
the world were among the few steps taken to advertise Indian tourism. In
addition a task force was set up to promote India as prominent health tourism
destination. However, in order to attract more visitors, India still needs to
upgrade its airports, roads and other infrastructure to global standards. Even
37
with the recent surge, tourist arrivals are just a mere percentage of those in such
popular Asian destinations like Bangkok and Thailand
India Tourism office at Tokyo won two International Awards in Tour Expo held
at Daegu in Korea for excellent tourism promotion. Indian Pavilion won the Best
Booth Design Award as well as Best Folklore Performance Award competing
with major players in tourism such as China, Japan, Thailand.

The theme of pavilion was the Buddhist pilgrimage in India. Multi promotional
activities undertaken by Tokyo office drew a large crowd to India Pavilion,
which added colours to the entire travel show. The Korea’s leading newspapers
published on the front page the Incredible India booth’s photographs
highlighting various aspects. The live Yoga performance and Indian traditional
snacks at the pavilion were enjoyed very much by the visitors.

MARKET RESEARCH- PROFESSIONAL SERVICES Besides, the Ministry has

been running a scheme of giving 'National Tourism Awards' to various segments
of the travel and tourism industry every year. These awards are presented to
State Governments, classified hotels, heritage hotels, approved travel agents,
tour operators and tourist transport operators, individuals and other private
organizations in recognition of their performances in their respective fields. For
instance, awards for best adventure tour operator, best domestic tour operator,
most innovative tour operator, best MICE operator, best tourist transport
operator, best hotels in the different categories, etc. Awards are also given to the
meritorious students of the Institutes of Hotel Management as well as Indian
Institute of Tourism and Travel Management. The selection of the awardees have
been made by the Committees constituted for the purpose. The decision of the
Ministry is final and binding.

There has been a remarkable growth, in the recent years, in foreign tourist
arrivals to India due to the various efforts made by the Ministry, including
promoting India through the 'Incredible lndia' campaign in overseas markets.

38
Incredible India is a multi-pronged promotional campaign launched by the
Ministry in order to position the country as a preferred tourist destination for the
travellers the world over. As a result of all such efforts, India's share in
international tourist arrivals, which was 0.34 per cent in 2002, has increased to
0.49 per cent during 2005. The foreign tourist arrivals has increased by about 65
per cent from a level of 2.38 million in 2002 to 3.92 million in 2005. In the year
2006, it has risen to 4.43 million, registering an impressive increase of around 13
per cent. Similarly, the foreign exchange earnings from tourism have also shown
a phenomenal growth from US$ 5730.86 million in 2005 to US$ 6569.34 million in
2006, achieving an increase of 14.6 per cent. According to the World Tourism
Organisation (WTO), in the year 2005, about 808 million tourists travelled
internationally (registered a growth of 5.6 per cent over 2004) and the tourism
receipts have been about US$ 682 billion.

To give recognition to tourism as a source of income and employment generator

in the economy, a 'Tourism Satellite Accounting (TSA)' has been developed. TSA
enables the Ministry to quantify the benefits of tourism in terms of contribution
to gross domestic product (GDP) and employment (both direct and indirect
impacts). India is among the few countries in the world to develop TSA. As per
the TSA study, the contribution of tourism in GDP of the country has been 5.90
per cent in 2003-04, while employment in tourism sector (both direct and
indirect) has been 41.8 million in the same year, thus accounting for 8.78 per cent
of total employment in the country.

'WORLD TRAVEL AND TOURISM COUNCIL (WTTC)' is the forum for

business leaders in the travel and tourism industry. It addresses challenges and
opportunities that affect all sectors of the industry globally. It works to raise
awareness of travel and tourism as one of the world's largest industries,
employing approximately 231 million people and generating over 10.4 per cent
of world GDP. It is firmly committed to realizing Indian tourism industry's
potential for growth and ensuring maximum and sustainable benefits for

39
everyone involved. According to the WTTC, tourism accounted for 10.6 per cent
of global GDP, 12.0 per cent of the total world exports and 8.3 per cent of global
employment in the year 2005. For 2006, it forecasted that travel and tourism
would generate 234 million direct and indirect jobs worldwide, accounting for
8.7 per cent of global employment, and contribute up to 10.3 per cent of global
GDP. According to the same estimate, the global travel and tourism activity is
expected to increase by 4.7 per cent between 2007 and 2016.

Thus, Indian travel and tourism industry has been on rise and is gaining
popularity amongst travellers all over the world. It is an engine of growth for
Indian economy and helps to promote sustained development of infrastructure,
such as airports, railways and roads, leading to connectivity of various tourist
destinations. Besides, improvement and expansion of existing and new tourism
products such as cultural and heritage tourism, rural tourism, adventure
tourism, health and healing tourism, etc; promotion of 'Incredible India'
campaigns; as well as active participation of State Governments therein
establishes India's competitive advantage in the sector. This has enhanced the
foreign exchange earnings of the country as well as improved its trade relations
with other nations. All such measures and incentives, undertaken by public and
private sectors, are a source of several investment opportunities in the industry

The small scale industries (SSI) sector accounts for 95 per cent of industrial units,
40 per cent of value addition, 35 per cent of exports, and 80 per cent of
manufacturing employment. Registered SSI units provide nearly 18 million jobs
in the country at this time. Among manufacturing sectors, the single largest
employment potential is in textiles, which is slated to generate 7 million jobs over
the next five years alone. More than 40 per cent of these jobs are in garment
production units in the SSI sector. A healthy and rapidly expanding small sector
is essential for a vibrant growth of the Indian economy as a whole. This sector
serves as the field for entrepreneurship to flourish, as an entry point for new
entrepreneurs who can start small and then grow, as a vehicle for extending the

40
regional spread of industry, as a laboratory for development of innovative
products and services, and as an essential support to attract large manufacturing
assembling industries from overseas. Since SSIs are generally more employment
intensive per unit of capital than large scale industry, they are also a source of
much needed employment. Employment in the registered SSI sector has nearly
tripled over the past 20 years. A repetition of this performance would generate
an additional 36 million jobs over the next 20 years. A comprehensive package of
venture capital, credit, liberalisation of controls, technical training, marketing
and management measures is needed to ensure the continuous expansion of this
sector.

By far, the largest number of new jobs will be in the services sector. Over the past
100 years, the US economy has more than quadrupled the total number of those
employed, yet the percentage of the US workforce engaged in manufacturing is
now back to the same level as it was in 1850, while agricultural employment has
shrunk to less than 3 per cent of the US workforce. Today, the fastest growing job
categories in the USA are in services industries such as financial services,
insurance, education, health, construction and real estate. Rapid growth is slated
for a wide range of services in India, including professional, computer-related
research and development, real estate, leasing, advertising, printing and
packaging, marketing, telecommunications, postal and courier, audiovisual,
engineering and construction, wholesale and retail distribution, all levels and
types of education, environment, banking, insurance, health, travel, sports and
recreation, and all categories of transport services. By the year 2020 more than
120 million jobs will come from the services sector alone.

Tourism-related occupations, including hotels and restaurants, employ 10.8 per

cent of workers globally, compared to only 5.6 per cent in India. Domestic
tourism will rise rapidly as living standards increase. India’s domestic tourist
sector is the fastest growing in the world, but with the lowest level of investment.

41
The potential for international tourism too has not yet been exploited properly.
China currently attracts more than five times as many foreign tourists, excluding
visitors from Hong Kong. Thailand, Malaysia, and Turkey attract three to four
times as many. By one estimate, development of India’s tourism infrastructure
such as roads, airports and medium priced hotels, combined with modifications
in air and hotel pricing and tax policies, could generate more than 20 million
additional employment opportunities in tourist related businesses within a
decade. THE travel and tourism industry in India is going through a boom
period this summer. Mr Anil Bhandari, Managing Director, International Travel
House Ltd, said that there has been a substantial growth both in domestic visits
as well as international arrivals.

During 2004, India for the first time breached the three million mark and the
number of tourists who came to this country stood at 3.37 million reflecting an
increase of 23.5 per cent over 2003.

Foreign exchange earnings did better with Rs 21,828 crore, up by 32.9 per cent.
He said that this momentum has continued during the first half of 2005.

Till May end, arrivals have increased to 1.52 million, a growth of 23.5 per cent
over the corresponding period in 2004 and foreign exchange earnings touched Rs
10,571 crore, an increase of 26.7 per cent.

Mr Bhandari said that domestic tourism has continued to be upbeat. During

2004, domestic visits, according to provisional figures crossed the 360 million
mark compared to the 2003 record of 309 million.

He pointed out that more Indians are travelling abroad also, much more than
inbound travellers. During 2003, the number of Indians going abroad was 5.3
million but this grew to 6.2 million in 2004 according to provisional estimates
showing a growth of 15.2 per cent.

42
For instance, the number of Indian visitors to Malaysia in April 2004 was 10,480;
this went up by 47.5 per cent in the corresponding period in 2005 to 15,464.

Increasingly, people have been looking at the Net to plan their leisure travel for
both international and domestic sectors. This trend is on the rise with growing
Internet penetration (about 5 million) in the country. In India, most of the
booking is still done through travel agents though the airlines are now ready
with e-ticketing platforms.

The travel trade in India has understood the importance of the Net and now has
comprehensive information on fares, packages and other travel related matter on
their Web sites, said Mr Sylvester Thomas, Managing Director, Around the
World Travel and Tours Pvt Ltd. The information on the Web helps anyone with
access to an Internet connection see what is available in the market.

Another trend is that more families are travelling together. This is because family
get-togethers are getting rarer as family members find it difficult to take time off
to visit parents and siblings.

Mr Thomas said that family groups consisting of 30 and more, along with
grandparents, from places such as Hyderabad, Bangalore and even interior
Tamil Nadu have opted to travel overseas.

Short stays are another new travel trend. Executives employed in high pressure
jobs, which do not allow them to take long vacations, are more likely to take
short holidays, closer to their place of work. Sri Lanka, Singapore, Maldives are
some such getaways, sources said.

According to a press release from the Sri Lanka Tourist Board, India topped the
list of arrivals into Sri Lanka in April 2005 at 9,024 compared to the 5,784 in April
last year.

43
The dynamics of the Indian travel scene has changed with the coming of the low-
cost airlines. The low fares have changed the way people look at air travel. Air
travel is no longer considered a luxury but a necessity.

India ranks 50th in the global growth ranking by the World Travel and Tourism
Council, below Malaysia which is ranked third and China which is ranked 11th.

To fall in line with internationally benchmarked tourism models, India needs at

least 90,000 more rooms (in the five star segment) and therefore an investment of
Rs 80,000 crore. India also needs to increase inbound traffic from 3.3 million to at
least 10 million in the next six to seven years, Mr Bhatia said.

ECOMONICS OF
AVIATION IN INDIA

44
 ECOMONICS OF AVIATION IN INDIA

There is certainly nothing wrong with small entrepreneurs thinking big, but
the nature of aviation poses particular difficulties when trying to get off the
ground, whereas start-ups in most other industries have a much easier go of it.

For example, it is a hugely capital intensive industry requiring investment to

the tune of several hundreds of crores of rupees, both in equity and debt. A 150-
seater Boeing-737, which is favored by the private operations for example, costs
close to Rs 150 crore to buy and around Rs 20 crore a year to lease. In contrast,
the strain capital of name of the current private Indian operations exceeds Rs 70
crore, and hence it is not surprising that not one of them actually own an aircraft
- all are leasing.

An even more undermining factor is that almost everything that is involved in

the running of an airline is imported. Practically all of the aviation industry
except manpower is overseas technology. Aircraft, engines, avionics, simulators,
navigation equipment, seat upholstery - nothing is produced indigenously. Fuel
is imported at dollar prices and duty is built on top of that. Navigation and
landing fees are determined in dollars by the airport authority of India in
keeping with International aviation practice. Insurance premiums are in dollars
as aircrafts are normally issued at near-replacement cost stipulated in dollars.
Further, all the private airlines have to send their aircraft overseas for scheduled
checks and repairs, which is a further drain on their dollar resources. Given this
structure in India with its own aircraft, all these externally determined elements
add up to 80 to 90 percent of the total cost of operation. This dollar denomination

45
plays havoc in two ways. On the one hand air carriers have had to suffer the
consequences of depreciating rupee, and on the other are subject to changing
global aviation market pressures. So while the dollar has appreciated by close to
20 per cent against the rupee over the last two years, the price of aviation turbine
fuel has also gave up in keeping with the rising trend in crude prices.

Fuel accounts for almost 40 per cent of an airline's cost of operations in India,
whereas it varies between 10 to 12 per cent in most other countries. Even foreign
airlines refueling in India pay 40 per cent less for the fuel.

All this, combined with a lack of management expertise in a specialized

industry and mandatory flights in the uneconomical social sector routes, has but
killed the private airline industry. Also, the government's interference in the
airlines running is a constant irritant.

46
DOMESTIC AIRLINES

47
 DOMESTIC AIRLINES

This is a market that betrays a muddled approach to liberalization. To be

blamed in part, on the fact that many developed countries are still to open up
their skies. In 1991, Indian Airlines was all there was pressing some of its 50 -
aircraft fleet into service on routes dictated by politicians rather than the market.
Domestic traffic in 1990-91 stood at 7.5 million passengers, a fifth lower than the
previous year. Indian airspace was thrown open to private operations soon after,
and there was a rush for licenses.

Entrants had guessed right : that there would be a gap on how many the fliers
were permitted, so getting in was critical, not formulating a strategy that would
keep them there.

Almost six years later, the Indian flier is relieved person. One can actually
punish an airline for poor service by flying another one. Service quality has
discernibly gone up (though it has fallen from its peak). Domestic passengers’
traffic crossed the 10 million marks for the first time ever in 1994-95. Indian
Airlines has shaped upto to quite on extent, and even though it maintains a tight
first over the best airport facilities - including landing sheets - its performance
has been commendable.

The market has started punishing poor business too, as it is evident form the
going best of East-West and ModiLuft, which had to shut down due to the
inability to compete in the competitive market but now Modi Luft has again
started it’s operations . Jet Airways appears to be doing well, it wants to enlarge
its fleet and plans to become the largest fleet owner in the country. Jet Airways
plans to buy 10 Boeing aircraft, through a hire-purchase arrangement with the
US-based Exim Bank. The deal is expected to cost USD325 million. Two of the 10

48
planes will be delivered in the next two months, along with two Boeing 737-400s
taken on dry lease. The addition of four aircraft will raise the strength of Jet’s
fleet to 22. This is the maximum number of planes that a private operator is
permitted to operate, according to DGCA guidelines. This means that Jet will
have to apply to the government for permission to expand its capacity when it
adds the remaining eight Boeing aircraft to its fleet.

But regulation is still a frustrating thicket of paper, with unprofitable routes

being thrust down the throats of the carriers. With aircraft imports, lots are still
at the discretion of ministers, bureaucrats and committees. Those who want to
enter the fray are embittered by the government's reluctance to allow in any
more players and thus let the natural shake-up process fix things.

The thwarted Tata-Singapore International Airlines joint venture is a case in

point. It was approved by the folk who scrutinize investments, but blocked by
the ministry of civil aviation. The nay-sayers cite rusty security reasons, arguing
that few countries, Jet Airways with foreign equity into their airspace.

49
 NEW SAFETY MEASURES

The most important feature any passenger looks for while selecting the airline to
travel by is safety. Therefore the Airport Authority of India (AAI) has recently
instructed air traffic controllers to double the distance by which aircraft are
separated in order to ensure their safety. It is understood that the decisions to
double the separation minima was taken after a few airpox (two aircraft’s
coming more close to each other then safe limits) incidents were reported over
Nagpur and Belgaum recently.
Apart from this the Directorate - General of Civil Aviation, has recently
passed an order, making it mandatory for all aircraft operating over Indian
airspace to install airborne collision avoidance systems (ACAS) before December
31, 1998. The responses noted from representatives of foreign and domestic
airlines were quite positive. The installation of ACAS would alert commanders
of planes to potential mid-air collisions. The implementation of the new norms
could make India only the second country after the US, which requires all planes
flying over its airspace to be mandatory equipped with the collision avoidance
system.

PROBLEMS FACED BY AIRLINES

1. Air safety problem faces by airlines. These include :-

 Lack of training facilities

 Poor maintenance facilities
 Low inventory of spares due to prohibitive costs of importing spares.
 No proper monitoring cell for analyzing information.

50
 Lack of skilled pilots and engineers.
 High costs of operations.
 Pore infrastructure at airports.

2. Other Problems

 Unfair regulations announced by the government from time to time.

 Lack of infra structure facilities
 Need for Government intervention
 Inadequate finances available.
 Abolition of IATT
 To operate on uneconomic routes
 To operate on non-metro routes
 Governments natural bias towards the national carrier.

STEPS TAKEN BY PRIVATE AIRLINES TO COMPETE WITH

INDIAN AIRLINES

 Incentive Schemes
 Jet Airways tied up with Airfrance enabling passengers to travel to Europe on
free tickets etc.
 Alliance between private airlines. One of the major alliances which took place
as that of Damania & NEPC, which is now NEPC Skyline.
 Not only national alliances but even international alliances have taken place
such as one of Jet Airways with Kuwait Airways and Gulf Air.
 Special attention to timing and punctuality is given i.e. all the private airlines
do their check in at the right time and try to maintain their flight schedules
as indicated.

51
 On-board and on-ground service provided by private airlines is far superior
to that provided by IA as perceived by passengers.
 Their staff is more warm and friendly.
 Fleet and technical regularity of private operators is far more superior to that
of IA.

52
 A RAY OF HOPE

Following a plea by civil Aviation Minister C.M. Ibrahim, Reserve Bank

officials have agreed to consider relaxation of the cap on term loans granted by
financial institutions and banks so that fleet expansion plans of domestic airlines
could be supported.
The civil aviation minister is of the view that scheduled air taxi operators
should be encouraged to buy their own aircraft rather than going in for leasing
arrangements, which prove costlier in the long run. This, it is felt, was one of the
reasons behind many air taxi operators encashing to a halt during the recent past.
The aircraft obtained on lease usually prove to be economically unavailable as
many of them consume too much fuel.

Apart from fleet expansion and working capital requirements, the loan
facilities needed to build necessary inventory, instead of totally depending on
overseas suppliers.

Sources said the airlines were also demanding that the aviation sector should
be granted the status of `infrastructure' industry. This will enable these
companies to benefit from various incentives available to infrastructure sector.

Another major problem facing the domestic aviation sector is the high cost of
the Aviation turbine fuel (ATF). ATF is about four times costlier in India than the
International price. Therefore recently the civil aviation ministry had proposed
that the ATF price for the domestic airlines be bought down to atleast the level
being paid by Air India i.e. at the International price. Earlier even the Union
cabinet had decided that ATF should be treated as deemed export and thus no
duty including sales tax could be levied on it. The issued has been hanging fire
for nearly a year after the Maharashtra Government and other states imposed

53
sales tax on ATF. This led to protests from the International Air transport
Association (IATA) which said that ATF was covered under aviation bilaterals
and thus no tax could be unilaterally imposed on turbine fuel.

The civil aviation Ministry in its proposal pointed out that the actual cost of
refined ATF was just Rs 2,200 per Kilo liter and this did not justify the
administered price of Rs 14000 per kilo liter for domestic operations.

54
 AVIATION REVIEW

NEW CIVIL AVIATION MINISTER TO REVIEW OPEN SKY POLICY

The new civil aviation minister, Mr. Ananth Kumar, announced plans to review
the ‘open sky policy’ with a view to fine tune and improve its implementation.
The ‘fine tuning’ of the domestic aviation policy may provide a fresh impetus to
the Tata Group’s stymied attempt to launch a domestic airline, possibly in
collaboration with Singapore Airlines. Modiluft’s plan to fly again, with technical
assistance from Speedwings, a British Airways subsidiary, could also be
influenced by the interpretation of the policy by the new minister.

Meanwhile, the secretary level talks on the draft civil aviation policy ended in a
stalemate on the contentious issue of foreign investment in domestic airlines
since the views of the new government on this matter have not yet been formally
communicated.

Civil aviation minister promises to review proposed Devanahalli international

airport
The civil aviation minister, Mr Ananth Kumar, who hails from Karnataka, has
promised to take a ‘fresh look’ at all aspects of the proposed Devanahalli
international airport project in Bangalore. The minister will examine issues such
as the status of the existing HAL airport in Bangalore, the extent of land required
by the Tata led consortium of private developers and other related aspects. The
Devanahalli international airport is the first airport proposed to be developed by
the private sector. The fate of this project could influence other private
investment in the airport sector where government expenditure is steadily
diminishing.

55
AAI lowers hike in terminal charges for domestic airlines

The Airports Authority of India (AAI) has lowered its proposed hike in landing
and navigational charges for domestic airlines from 22.5 per cent to 10 per cent.
International airlines, however, will have to pay an increased 22.5 per cent for
these charges. The fee hike is expected to increase AAI’s revenue by Rs 100
crores. However, this is only the first phase of AAI’s efforts to shore up its
bottom line. The second phase hike will take place on February 1, 1999, when
service charges will increase by a further 7.5 per cent.

AAI board plans to decentralise

AAI will delegate more powers to regional executive directors, airport directors
and field officers to enhance operational efficiency at airports. The discretionary
spending limits on the capital budget for regional offices will also be enhanced,
enabling the regional officers to upgrade airport facilities on their own.

Stringent safety norms for non-scheduled operators

The Director General of Civil Aviation (DGCA) was to meet with all non-
scheduled airline operators on March 17 to discuss enhanced safety norms for
private aircraft. The new norms will apply to all private aircraft operators using
their aircraft for commercial or charter services, state as well as government
aircraft and corporate firms that own aircraft. At present, there are 26 such non-
scheduled operators. Enhancement of the safety measures on these aircraft has
gained importance in the wake of the crash of an aircraft belonging to the Steel
Authority of India Ltd (SAIL) in January 1998. To increase safety, the DGCA is
considering conducting frequent scheduled and unscheduled checks of an
aircraft’s safety systems. It is also reportedly considering making it mandatory

56
for all turbine engine aircraft to have a ground proximity warning system
(GPWS) installed. Such a system announces the presence of obstacles in the
vicinity of the aircraft and thus forewarns the pilot.

New department to monitor air traffic control operations

In another move to enhance air safety systems, the Airports Authority of India
(AAI) will set up an air traffic directorate to monitor air traffic control (ATC)
operations. The new department will be set up along the lines of the air safety
departments in Indian Airlines and Air India and will begin functioning in
around two months’ time. It is expected to increase internal accountability
among ATC staff. It will certainly ease the work of the DGCA, which currently
receives all AAI’s reports on air traffic. The reports will be sent to the new air
traffic directorate, once it is set up. The new department will coordinate with the
DGCA in the event of an air accident or near miss.

Airlines to have in-house safety divisions

The DGCA has made it compulsory for all scheduled airlines and aviation bodies
to set up air safety and safety audit divisions in-house. These divisions will
monitor the safety aspects of operations and aircraft maintenance of their airline
on a daily basis, along guidelines provided by the DGCA. This has become
necessary in view of the increase in the number of scheduled airlines operating in
the country. By making airlines themselves responsible for daily safety checks,
with the DGCA restricted to a guiding and monitoring role, the civil aviation
body is poised to become more dynamic in its functioning.

57
AAI to use Air Force personnel to tackle future strikes

Frequent strikes by air traffic control (ATC) personnel have had a drastic effect
on civil aviation in the last few years. The AAI plans to tackle the problem by
training a group of ex-Air Force personnel that can be deployed in the event of
an ATC agitation. This will ensure that air services continue uninterruptedly
during a go-slow or strike. In the past, ATC strikes for better wages and working
conditions have brought air services to a halt, and meant the loss of several
working days. The stand-by ex-Air Force personnel will be given extensive
training in handling civilian aircraft movements and AAI equipment, with
refresher courses to keep their ratings current.

AAI takes over ATC systems upgradation at IGI Airport from Raytheon of the
US

The AAI has decided to take over the much delayed Delhi airport ATC
modernisation project from Raytheon Corporation of the US in order to expedite
its commissioning. It will settle the remaining 10 per cent of the monies due to
the American major at a later date as officials are dissatisfied with the
performance of the instrument landing systems supplied by Raytheon against
the Rs 423 crore modernisation of air traffic services project.

The project is nearly three years behind schedule resulting in cost escalations
from Rs 200 crores in 1993, when it was awarded, to over Rs 456 crores at
present. The project was to be commissioned by October 1995. It is estimated that
the final cost may touch Rs 480 crores. The liquidated damages alone for this
delay work out to USD 6 million. Opinion is divided among AAI officials on

58
imposing the full extent of the penal charges on Raytheon because the AAI itself
delayed the project at the initial stages during the acquisition of the land and
commissioning of the civil works connected with it.

59
 MARKETING STRATEGIES

FREQUENT FLYER SCHEME (FFS)

Indian Airlines have a flying return scheme in collaboration with Air India. It
is tailor made for Indian travellers, who fly within India and abroad. It offers an
opportunity to earn free tickets to over a 100 destinations.

The main features are :

 To log 30,000 mileage to start earning free tickets

 It has more flight options and direct flights compared to any other airline.

 If both husband & wife are members than mileage points can be claimed.

 Even excursion/promotional/concession tickets earn mileage points.

Jet Airways have the Jet privilege scheme which is similar to the above
scheme. It provides access to business class lounges, excess baggage allowances,
priority services. They have certain eligibility requirements for getting the
privilege card. The cards are categarizied on the basis of the Mileage travelled:
Blue, Silver & Golden cards and then discounts and gift hampers on the basis of
the kind of card posed by the customer. There is also provision for the Jet Club
Card , only for the business and the executive class.

60
Sahara has also started such programmes to be able to fight competition.
1. GSA (General Sales Agents)
2. Main Agents
3. Sub Agents

All these agents are taken care off by giving them more incentives. Due to
increase in competition they are allowed to give heavy concessions to the
customers. Now the GSA network is being expanded. These agents are the ones
who do the maximum selling. Many of the competitors have appointed their
own employees who work as agents i.e. they have their own franchises e.g. the
Indian Airlines booking office in every zone of Delhi etc. These booking offices
are linked to different agents with the help of a computer terminal.

61
 DISCOUNT & CONCESSION

Pricing of fares is yet another problem faced by different airlines due to stiff
competition. Thus many airlines give discounts and concessions depending on
the class of customers.

The various configuration of customers are classified into :

Y = Economy class
J = Business class
C = Executive class
F = First class

Similarly other airlines provide concessions to increase their sales.

With the summer holiday season round the corner Sahara Airliners is at the
discount war game again to woo customers with the host of freebees. Free
shopping vouchers , home appliances, watches, star hotel stays and holiday
packages are on the cards, with the company entering into tie ups with Titan ,
Philips , Super markets chains and the Taj Group of hotels.

ADVERTISING
It has also played an important role in marketing of the product of airlines.
The private airlines have different airlines such as :

 Sunrise flights
 Sunset flights
 Morning flights
 Afternoon flights

62
 Midday flights
 Luncheon flights
 Tea flights
 Dinner flights

These flights attract the attention of business executives. They provide

efficient in-flight service, convenient flight time, drinks, and exquisite cuisine.
These are some of the features due to which the ATO's sell their service. Quality
service has been the battle cry of each private operator.

These airlines have certain slogans for high achievement like.

East West used to say “We don't fly planes, We fly people.”
Damania “Expect the world of us”.
Modiluft “Fly world class.”
Jet Airlines “Service with Smile”

63
 MARKETING STRATEGY IN THE PRESENT SCENARIO

Increasing competition has led to segmentation of customers into different

classes. Although East West had arrived first but it had only one class believing
that the service in its economy class was far better than that in the same class in
even some international airlines. The first to exploit the fact that there were
customers with differing needs was Damania. It was found that most of the
passengers on the metro routes are business travellers or executives travelling on
their company account. The advantage was that the business segment did not
witness the cyclical down turn the tourist segment had.

Like Damania, Modiluft had limited itself to the major routes and its business
traveller appeal was strong. Following the foot steps of its partner, Lufthansa, it
offered gold and silver seats, 13 destinations and incentives such as "miles and
smiles" and a high punctuality rate, claimed at 98.5% being the highest in
India.Jet Airways too, caters mainly to the business segment has a network of
destinations, extra space in the business class and round the clock reservation.
Faster access for foreign tourists is its promise to the other segment. One of the
ATO's going to smaller centers is the Madras base NEPC airline. It has the
additional advantage of not facing too much competition and coupled with this it
has the time. It focuses on the tourist circuit, and the hill stations as the centre
piece of their operations.

These small airlines are also expanding their market by way of introducing
charters. They recognize that besides corporate and the film industry traveller,
emergency operations like evacuation and medical flights, casual trips and
festival celebrations also need charters.

64
 Differentiating a brand is a problem with airline marketing worldwide. After
all the aircraft largely comes from one or two manufacturers-Boeing or Airbus
and the only difference that can be built in, is through service and food apart
from fares. Early morning and late evening flights particularly draw in heavy
traffic in India. Timing and punctuality has gained importance. The age of the
fleet can also emerge as a major selling point.

The new innovations are to pamper the business traveller with audio-video
entertainment plus facilities like sky phone and air maps. Indian Airlines even
after facing fierce competition still has an overwhelming market share. It has
introduced frequent flier programs a zero ticket cancellation rate until an hour
before the flight apart from a consciously improved services and an concern
for punctuality.

Tieing up with airlines overseas is yet another strategy to attract the foreign
customer segment. Thus the open skies policy has lead to greater competition
in the air and hopefully will result in higher benefits at the customer's end.

65
 MARKETING STRATEGIES

Marketing plays an important role in the service industry. There are peculiar
features of the service industry (Airlines) which create challenges and
opportunities. Some of these are as follows :

(1) Perishability The most important attribute is the time factor. If the service
in an airline is not used today it is then lost forever. It can not be stored or carried
forward. Unutilized services are economic losses.

(2) Changing Demand The demand of the service fluctuates and never remain
the same. The fluctuations may be due to festival seasons, holidays etc. when
demand is quite high.

(3) Intangibility This is something you cannot grasp but can only perceive.
E.g - the safety of an airline is relative, as each airline is supposed to be safe. It is
something you cannot acquire or own.

(4) Heterogeneity The quality of service offered by different airlines cannot

be standardized. This brings in price fluctuations. The price and quality of the
actual performance may not have perfect correlation. Each act of service is
different, it depends on the type of interaction between the employee and the
customer.

66
 4PS ADOPTED BY TOURISM COMPANIES

This form of co-ordination between the company employees and the

customers is very important to sell services and earn maximum profits. The
customer today is very sensitive and no longer expects the kind of service that he
received at the time there was no competition among the firms.

Awareness of this differentiated service has been the battle cry of each private
airline. This include the 4 Ps of marketing :

PRODUCT
(Seat/Schedule). It is designed to match customer needs. This includes the
comfort given when the service was provided. It is a perishable product.
The product objectives are to be kept in mind:

(a) Type of customer to be satisfied

The customers vary from children to old people to sick or some with special
problems. As the main product of airline industry is seats we can actually
customise them according to our customers. Like there are many
recommendations and ideas which could push the sales of the seats.

1. (a) attraction for children by way of having certain seats on the craft
designed for them.
(b) surprises for children such as toys gifts and children magazines.

2. provision for creation of medical unit to be created in the craft for patients e.g.
seats which could be converted into beds screens could be used for partisions
for more privacy.

67
3. Conducting fashion shows on the craft, which could attract a lot of young
customers and lots of entertainment.

4. Surprises for newly wed couples in the form of champagne , flowers,

chocolates etc

(b) Product and product lines to be offered.

 In such a busy world where corporate would not like to waste time, like
flying from one place to another. The air line could seek this as a great
opportunity and have the craft designed which would have the ambience of a
corporate office where people could utilize the time to have conferences ,
board meetings or some discussions on the craft itself.
 Since India is a country where health care is very low and it so requires that
medical facilities are reached to every part of the country. Crafts could be
used with facilities of a hospital to reach out to remote areas.

(c) Product tuned with customer expectations.

 Although the craft has facilities such as providing of magazines the airline
could also have t.v screen fitted in front, with micro phones on the seats for
the entertainment of the customer.

 Picking up facilities could be arranged for the people who have bought bulk
tickets or are staying in near by places

 Special help could be provided with help to those people who are planning to
shift their whole house or has lot of stuff.

PRICE

68
Price is fixed in terms of the customer segments aimed at. But with the increase
in competition discounts are provided by different ATO's.

The price objectives include :

(a) Market share
(b) Meeting price competition
(c) Price leadership
(d) Fair and reasonable price

PROMOTION
It is done by adequate selling, sales promotion and public relations.

The promotion objectives are :

(a) Consumer awareness
(b) Dealer interest and support
(c) Bright company image
(d) Meeting non-price competition

PLACE
(Distribution)Adequate channels of distribution.

There are three different methods adopted :

(1) Direct selling
(2) Agents
(3) Inter Line-selling

Distribution objective :
(a) Intensive/selective/exclusive distribution

69
(b) Channel management
(c) Desirable level of customer service

PROCESS
 The process for traveling could be more consumer friendly making booking
on the net and also delivering on your foot steps.

 The process of travelling could be made more easier in way of reducing the
check in time . in normal procedure person has to report one hour prior to the
flight . this could be reduced which could make the whole procedure time
saving and less cumbersome for the consumer.

PEOPLE
 more helpful and cooperative and friendly staff

 other service procedures could be made more pleasant and try 5the best to
make the customers more comfortable

PHYSICAL EVIDENCE
 craft should be so designed as to reflect the image of the company. Say for
conducting the meeting in the craft. Craft should have the necessary
equipment and typical corporate ambience to be created.

COMPARISON BETWEEN INDIAN

AIRLINES & PRIVATE AIRLINES

70
 Different airlines have different ways to attract consumers. These airlines
follow their own rules and regulation but these are all restricted and under the
control of DGCA, (Directorate General of Civil Aviation). The tables on the next
few pages show the comparison of these airlines on the basis of different product
features such as :

 Station Network
 Validity of Tickets
 Check in Time
 Cancellation procedures
 Concessions
 Meals
 Market Position

THIS DATA IS COLLECTED FROM THE MARKET RESEARCH CARRIED

OUT BY MC KINSEY FOR THEIR CUSTOMER

Thus the highest score was given to them with a percentage of 28% followed by
Jet-Airways, Sahara and NEPC. Aggressive selling for a particular airline is done
only when the incentives given to the agents is comparatively higher vis-a-vis
other airlines.

PREFERENCE FOR DEALING

Among different airlines, the preference for dealing is given firstly to Indian
Airlines, then to jet Airways followed by Sahara. This may be due to their
booking methods, seat availability problems and the incentives given to the
agents.

71
CLIENT PREFERENCES
According to the agents most clients still preferred Indian Airlines, followed by
Jet airways who were ranked second after which Sahara were marked. The
reason being that seats are easily available at Indian Airlines due to larger
number of flights available, more frequent schedules etc. Jet Airways is also
preferred by a number of clients due to good flight timings and easy seat
accessibility.

MAXIMUM TURNOVER
This is where the airlines are judged according to their overall performance.
The rating was the highest for Indian airlines i.e. 76% as compared to others
where Jet had a score of 20% followed by Sahara at 4%

This shows that Indian airlines has not lost its performance level and is coping
up with the problems faced by them.

BEST BUSINESS PROPOSITION

The airline which provides the best business preposition to the agents is
Indian airlines who have a score of 48% as against Jet who are ranked Second at
36% followed by Sahara score of 8% . The airline providing the best business
proposition is one, which has the maximum sale, and give the highest
commission to the agents. The travel agents quoted that Indian Airlines
commissions are according to the government's rules but the private airlines are
facing neck to neck competition on the commission schemes.

RANKING OF AIRLINES ON A FEW CHARACTERISTICS

The four characteristics taken into consideration were ease of making booking,
commissions, seat accessibility and sales support. There were 25 agents who

72
were contacted and the response to this question was phenomenal. The result
obtained from the data available is as follows :

INDIAN AIRLINES
The airline received high scores on almost every parameter. The first rank was
given to seat accessibility because they have a large fleet of planes and also
bigger planes such as Boeing 747 which have higher capacity compared to other
private airlines. They also received first ranks on ease of making bookings and
sales support provided to the agents, as the agents who work for IC have a
computer terminal attached with them and hence do not face much problem in
making bookings. But on commissions they were ranked second because of
which they are losing market share.

JET AIRWAYS
It is one of the newer airlines on which bookings can be made easily and private
good commissions to agents. It is ranked second on seat accessibility and sales
support given by them to the agents.
The airline has developed very fast and have provided computer terminals to
all these agents i.e. why it is a profitable airline and its procedures are found
very satisfactory.

SAHARA
It is ranked highest on commissions that means they are giving higher incentives
to travel agents to maintain their market share. On the other hand, sales support
provided by them is not satisfactory and seat accessibility is ranked second.

But again making bookings with them is easy and thus have been ranked first
on it.

73
METHOD OF BOOKING
Bookings are generally made on computer by most of the travel agents.
Telephones are however, equally important for making booking as sometimes
due to electricity failure the only medium left for booking is through telephones.
Written request are not in much use and the fax takes quite sometime for making
bookings. Thus, the fastest made of booking is through computers.

ATTRIBUTE RANKING BY CLIENTS

There are various attributes which clients look for while booking a particular
airline. The agents in the order of importance ranked the client preferences. It
was found that Punctuality and Flight timings were the two most important
features desired by the clients. This was followed by service standard, frequency
of flights and safety standard of the airlines which were ranked second, Fares
and discounts offered obtained the lowest scores which implies that clients do
not give much weightage to these two attributes while choosing a particular
airline.

PREFERENCE OF AIRLINES BY AGENTS

The agents were asked to answer a open ended question on which airline they
would recommend to the clients and for what reason. It was found that Jet
Airways was most preferred by agents. The reason as quoted by the agents was
that the service provided by them is very good and also that their flights are
mostly on time.
They do not cancel their flights often and have less rescheduling in their
flights. They are also known for their all round service and courtesy. But in the
case of corporate clients their preferences still lie will Indian airlines, since they
also have improved their performance in the past few months. Indian airlines is
preferred by some agents since their flying network is more advanced. They
have the most convenient and comfortable connections and cover maximum

74
sections vis-a-vis the private airlines. Clients also prefer them for their safety and
seat availability.

75
 ANALYSIS OF PASSENGER SURVEY

AGE OF PASSENGERS

REASON OF TRAVEL
During the survey, the respondents were asked the reason of travel, it was
found that 73% of the passengers travelled for Business reasons whereas only
17% travelled due to personal reasons.

USE OF AIRLINES
The study showed that maximum number of people travelled by Indian Airlines.
This could be due to the fact, that many private airlines such as East-West,
ModiLuft have closed down their operations but now they have started again. It
could also be due to the fact that Indian Airlines have a larger fleet of aircrafts
and therefore more frequent flights. This was followed by Jet Airways which has
30% of the target respondents travelling by it.

OVERALL PERFORMANCE OF THE AIRLINES

In terms of overall performance of the airlines, the study revealed that Jet
Airways was awarded the highest ranks followed by Indian Airlines.
This could be due to the fact that passengers give the utmost importance to
punctuality and service standard which was found to be the best in Jet Airways.

RANKING OF THE PRODUCT FEATURES BY PASSENGERS

During the study, passengers were asked to rank a list of attributes they looked
for while travelling.
It was found that safety was ranked the highest by most passengers.

76
 This was followed by punctuality and service standard. After which
frequently of flights and seating comfort are given third and fourth ranks
respectively.

DECISION MAKER OF THE CHOSEN AIRLINE

During the survey, the respondents were asked as to who decides the airline they
fly by. It was found that 73% of the respondents decided the airline on their own.
This could be due to the fact that most respondent belonged to private or
multinational corporations who have the liberty of flying by their choice of
airline. This was followed by few who said that their organisation chose the
airline they fly by. These could be government or public sector employees who
are obliged to fly by the national carrier. Very few consulted travel agents or
secretaries.

Therefore, there is a lot of potential for new players to come in.

COMPARISON OF PRIVATE AIRLINES VIS-A-VIS INDIAN AIRLINES

RANKING OF AIRLINES ON VARIOUS FACTORS

Different attributes were ranked differently for each of the four airlines by the
respondents.

Jet Airways was awarded the highest ranks in this aspect. This was followed by
Indian Airlines, Sahara and NEPC.

SAFETY
This was found to be the best in Indian Airlines. This could be due to the fact
that they have been in this field for a much longer period and thus have more
experience and better expertise. They have more reliable aircrafts and pilots and

77
also the number of accidents they have had in their life span is less compared to
the newer entrants in this field. This was followed by Jet Airways who were
ranked second.

SCHEDULE / FREQUENCY
Indian Airlines scored the highest in this aspect. This could be due to the fact that
they have a larger fleet of aircrafts compared to the private players. Therefore,
the number of flights they have in a day would definitely be much more. Jet
Airways, NEPC and Sahara followed after which.

SERVICE STANDARD
Jet Airways was awarded the best scores in this aspect. This was followed by
Sahara who were ranked second, after which came Indian Airlines and NEPC.

SEATING COMFORT
The respondents were asked to note the seating comfort of each of the airlines
in terms of leg space, overhead space, double clubbed seat etc. It was found that
Indian Airlines received the highest scores in this aspect. This could be due to
the fact that they have much larger planes such as A-320's in comparison to the
private players who basically have only 737's. The larger planes therefore have
much more room space, leg space etc. and therefore offer the best seating
comfort.
This was followed by Jet Airways receiving the second rank and Sahara the
third rank

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SEAT AVAILABILITY
Due to larger number of aircraft’s and more frequent flights, Indian Airlines
scored the highest in this aspect too. This was followed by Jet Airways and,
Sahara

TO SUM UP
With the advent of the open sky policy introduced by the government, the
national carrier has now stopped operating as a monopoly in its field and is
thrown open to competition. But even today it scores the highest in terms of
safety, frequency of flights, fares, seating comfort and seat. Availability among
the existing airlines. It now faces some competition from Jet Airways who scored
better then them in terms of punctuality and service standard, the two most
important attributes as perceived by passengers.

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 SHORTCOMINGS OF THE OPEN SKY POLICY

The respondents were asked to present their views on the shortcomings of the
open sky policy introduced by the government.

Some did not feel there were any shortcomings and felt that there were only
advantages to it. The rest had different views on this topic, such as the following
:

 40% of the respondents said that it would jeopardise the vested interests of
the political parties and the national carrier.

 60% of the respondents said that it would lead to delivery safety standards or
Air safety measures could get released. This could be due to fact that few
entrants are using outdated aircrafts and not adhering to proper safety
measures.

 Many felt that due to lack of infrastructure, funds and number of aircrafts
most of the new players keep closing down operations or satisfactory
manner.

 The aircrafts in India are not equipped adequately to handle heavy traffic and
therefore it could lead to utter confusion at the airports concerned.

 This policy has not led to any new routes being introduced and some felt that
there was discrimination in route allotment among various airlines.

 Others felt that frequency of flights and sectors were still restricted.

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 This policy has yet not helped the consumers in the real sense such that the
fares have not been reduced as yet controlled by IATA. All the existing
airlines still charge similar fares.

 Many complained that due to the wide choice available it would be difficult
to accrue mileage in one particular airline.

 Most respondents said that the policy must ensure a level playing ground for
all the airlines.

 Most respondents said that the policy was resistant to allow foreign equity in
the domestic sector and therefore the liberalisation exercise has been done
only in the partial sense in this sector.

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 PROPOSED MARKETING STRATEGY

The business of airlines industry is with respect to the passengers and these
passengers travel due to particular reasons such as tourism, trade promotion,
meetings, conferences or certain emergency. Airlines provide both tangible and
intangible benefits to the customer. The tangible part includes the food they
serve, the seating comfort, leg space and maintenance of cabin etc. The intangible
part includes the experience of a passenger. If his experience is good with a
particular airline not only will he use it again but pass a good word around.

In such a business people make their choice according to their past

experiences. The main aim of the airlines should be to tangabilise the intangible
part of the product offered. This can be done by various ways such as :

 A "Feel at home" attitude on part of the cabin even,

 birthday cards and mailers sent on special occasions.

 An airline personnel informing the passenger in case of a flight delay.

 Special attention given to passengers not keeping good health such as a

special menu prepared for them or seeing to them from time to time.

 Tokens given to passengers at the time they leave the aircraft such as an after
shave or a small perfume.

In order to develop a unique selling proposition, the airlines need to develop

different strategies for different market segments. This would help to provide a
more customized service to each of their segments.

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Segmentation can be done on different parameters such as :-
 Age
 Occupation
 Reason of travel
 Travel Budgets

Segmentation on the Basis of Age

The passengers can be divided into different age-groups such as –
 Below 20
 21-40
 40 and 60
 60 and above

The characteristics and requirements of each age groups is going to be different.

People in the age group of 0-20 say kids would always prefer their seats to be
more comfortable with handy things like chocolates cartoon magazines things to
play with while sitting on seat. Their seats can actually make them feel at home.
“my room concept” seats could be modified as mentioned in the product
category. A teenager would have a different need and expectations in this flight
might prefer an ambience or the facilities provided suited according to their
requirement.

Those in the age group of 21-40 years would prefer more business oriented
reading material, as they are start of their career their career requires them to be
abrished with their latest happening in the world. Any airline at this stage can
cater to their particular needs and prove that they are class apart: all the
magazines which are generally kept are very general this could be improved by
providing very specific magazines according to their profession.

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Those between the age of 41-60 years should be given more entertainment
oriented material.and more relaxed atmospere . and people above 60 should be
given very special care and should not disturbed frequently .
So airlines need to analyze what major kind of customers they are catering to
then they need to promote themselves accordingly

Such as those in the age group of 60 and above, should be provided with more
leg space, special food, etc.

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SEGMENTATION ON THE BASIS OF OCCUPATION
The passengers can be put into three categories in terms of their occupation
such as -

Pvt/MNC

Public/Govt.

Trade and Professionals

The Government and public sector employee are most concerned of the
quality of food and beverages rather than other features. Thus they should be
given their meals among the first and asked to give their feedback. Those in trade
and professions or private and multinational corporations are more concerned of
other facilities like seating comfort, courtesy, presentation of meals etc. This
should be taken care of.

SEGMENTATION ON THE BASIS OF REASONS FOR TRAVEL

These are divided into two categories such as -

 Tourists
 Business travelers
Business travelers are more influenced by attributes such as punctuality of
flights, flight timing etc. Whereas the leisure traveler is more concerned with
discounts and schemes offered.
We could give more tourist information to these travelers by providing extra
information like hotel information, good restaurants list, and car rental. Also
explain them the grey areas of that city.

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And to the business travelers we can provide them with laptops in plane,
magazines of their concerned field

Therefore direct mailers of innovative schemes and discounts should be

directed towards these travelers, whereas information on flight details, new
technology being used etc. should be sent to the business travelers.

SEGMENTATION ON THE BASIS OF TRAVEL BUDGETS

Passengers can be divided again into two groups. One is the low budget
traveler who wants just the basics and no fills. These would look for discounts
and schemes. The other group consists of those who look for that extra comfort,
service and facilities and are willing to pay an extra price for that.

The first group could be offered cheaper flights, which may be shout-hopping
flights with the barest of in-flight service. While the other group need five star
facilities like air phones, facilities to use lap tops, movies during the flight etc.

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 RECOMMENDATIONS

 Airlines are not just a means of transportation, they are a vital and integral
part of the country's infrastructure. The demand for business travel far
outstrips the capacity available. The largest numbers of beneficiaries of civil
aviation are people who never see the inside of an air terminal. We need to
get our priorities right.

 Routes should be decided according to its economical and financial viability

rather than by political exigencies.

 Most of the ATO's have rushed in without any prior experience or even a
strategy. Therefore ATO's should tie up to gain management expertise and
should draw up critical strategies. The Government should allow foreign
airlines to tie up with the ATO’s in order to facilitate a larger flow of equity.

 Most of the ATO's operate on a very slender capital base. They have a very
high financial leverage and therefore even a small turn of fortune could be
disastrous.

 Therefore it is recommended that these airlines should either increase their

equity base through public issues or should consolidate by merges or
acquisitions.

 Offering an equity stake is the most economical and cost-effective approach

available. If the joint venture airline does not make a profit, then naturally the

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 foreign partner does not receive any dividend on his investment. That
encourages the partner to do his best in helping the airline to grow and
become profitable,

 The aviation turbine fuel (ATF) which accounts for 40-45% of the total
operational costs of ATO's is available to them at a price higher than the
international price level. This should be brought down to at least the level
being paid by Air India.

 The ATO's complain about high agency commission, which erode their
profits. It is recommended that a ceiling should be placed on these agency
commissions to avoid unhealthy inducements given to agents in order to gain
a competitive edge.

 In order to improve the passenger load factor airlines should use smaller fuel-
efficient aircrafts for serving the uneconomical feeder routes.

 Currently the ATO's are required to maintain facilities for repair and
maintenance of the aircraft. These facilities put a heavy burden on the
profitability of the ATO's.

 Therefore it is recommended that either the ATO's can pool in their resources
to maintain these facilities or perhaps the Government could take up this
venture and provide centralized services to the airlines.

 With the proliferation of airlines there is a wide gap between technical and
non-technical personnel. There is an urgent need for more training centers to
be set up in the country.

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 Airlines should strive to provide better services to passengers both on ground
and in-flight to make their flight comfortable and enjoyable. Such as:

 Check in over the telephone.

 In case of flight delays timely information to the passengers should be

provided.

 More music channels should be provided so that each passenger could hear
his choice of music.

 Small libraries of books for those who want to keep themselves busy.

 All airline personnel right from the check in counter to the cabin crew need to
improve their services in terms of courtesy and efficiency. A database should
be maintained of passengers flying frequently so that they could be sent
birthday cards, mailers, information on improvements made and new
schemes introduced. This will help in developing long term relationships
with passengers.

 The airlines should introduce better connections to feeder routes.

 The airlines should be move professional and punctual in their attitude.
 The procedures should be standardized across the industry.
 Most agents complained that it was next to impossible to make bookings with
the airlines via the telephone, therefore it is suggested that the airlines
increase the number of telephone connections and reservation offices.
 The airlines should work in close cooperation with agents and passengers.

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 SWOT ANALYSIS

STRENGTHS:
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• Pleasant weather which is ideal for the tourists to come for the annual summer
holiday to escape the scorching heat of the plains.
• Scenic beauty of the Himalayas, which draws tourists away from the crowded
and polluted towns and cities.
• Terrain is ideally suited for various adventure activities.
• Some very well known tourist hill- stations.
• It can attract tourists all throughout the year.
• Hospitable people

WEAKNESSES:

• Inadequacy of transport facilities

• Funds constraining the development of regions.
• Inadequacy of information channels.
• Overcrowding of popular tourist centres.
• Some places are inaccessible, especially in winter.
• Inadequacy of marketing.
• Lack of adequate infrastructural support.

OPPORTUNITIES:

• The concept of holidaying is gaining popularity in India among various classes

of people.
• Increased disposable incomes of the Indian middle class.
• Adventure sports and trekking.
• Eco- tourism is gaining popularity.
THREATS:

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• Kashmir is being opened up and could divert a large portion of tourists to itself.
• Various other places in India are providing stiff competition.
• Environmental factors also impose a threat.

CONCLUSION
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 CONCLUSION

While the open skies policy had seen a spate of private air taxi operators jump
into the ring, increasing overheads, thin margins, high monthly cash outgo due
to operational leases for aircraft, dipping load factors and expensive in-flight
frills have all but crippled the domestic aviation industry. All this, coupled with
a disconcerting regulations such as the compulsion to fly non-profitable feeder
routes and the government's open bias towards the national carrier, Indian
Airlines have proved to be a thorn in the flesh of most ATO's.

The nature of the aviation industry poses great difficulties for new entrants.
Prominent among these difficulties are its huge capital intensive requirements.
Not only is the high capital requirement a major hindrance but so is the reliance
on imported technology. Practically all of the aviation industry except
manpower is overseas technology. Aircraft, engines, avionics, simulators,
navigation equipment, seat upholstery - nothing, is produced indigenously. Fuel
is imported at dollar prices and duty is built on top of that. Further, all the
private airlines have to send their aircraft overseas for scheduled checks and
repairs which is a further drain on their dollar resources.

To enable the private ATO's to meet their foreign exchange requirements and
to import technology and know-how, government has permitted foreigners
except foreign airlines to acquire 40% equity in domestic airlines. The private
airlines are allotted routes according to the route categorization scheme of the
government. The rationale of this scheme seems to be that an airline which
operates on the profitable routes must also serve the socially and economically
backward and areas. The domestic fares are not subject to regulations.

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 Within this industry the main players are Indian Airlines, Jet Airways, Sahara
India and NEPC. Indian Airlines is the largest domestic airline in India. It is
owned by the government. It has a fleet of 58 aircrafts and operates on about 130
routes within India. It links 68 cities around the world. Indian airlines will
embark on a new fleet acquisition programme from 1998-99. It is currently
commanding a market share of 61% followed by the closing down of some of the
private airlines.

Jet Airways is a Delhi based airline launched recently by Mr. N. Goyal.

Though it is a fairly new airline it has given stiff competition to the national
carrier. Their crew have gained their expertise at Malaysia Airlines and Ansett -
ranked among the leading aviation training centres in the world. They have the
quickest baggage system and have 69 interline agreements with other airlines.

Sahara India started with a small capital of Rs. 2000 and today it has business
worth Rs. 16,000 crores. They have a team of 60 highly experienced engineers
including 10 from Europe. They have a special security expert team and state of
the art explosive detection equipment.

The present capacity of all the scheduled domestic airlines, including Indian
airlines, works out to 12,000 seats as they physically exist. And going by the
planning commissions growth forecast of 12 per cent a year, the country would
require close to 21,000 seats by the year 2001. That means 60 new aircrafts, worth
roughly Rs. 6,000 crore.

The government has responded by raising the `equity floor' for companies
operating small aircrafts from Rs. 3 crore to Rs. 5 crore, and those operating large
aircraft from Rs. 10 crore to Rs. 30 crore. Also, the minimum required strength of
a an airline has been raised from three to five aircraft. In its current form, the
policy does allow `foreign participation', but forbids `direct investment by

94
foreign airlines'. Freedom to enter and exit at will, among the first hallmarks of a
free market, is light years away.

Based on a survey conducted for air passengers it was found that the features
considered essential for an airline to gain a competitive edge in the descending
order of importance are safety punctuality, service standard, schedule /
frequency, seating comfort, fares and seat availability.

Based on the above features the passengers ranked Jet Airways as the most
preferred airlines in terms of their overall performance. Since they received the
highest ranks for punctuality and service standard, the two most important
attributes as perceived by the passengers. Followed by this was Indian Airlines
who was ranked second in terms of their overall performance. This was due to
the fact that they received the highest ranks on five attributes namely safety
standards, fares, frequency of flights, seating comfort and seat availability.
Sahara India and NEPC followed in the third and fourth rank respectively.

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 The above survey revealed that the largest proportion of passengers were males
in the age-group of 41-50 years (36%). Approximately 25 per cent were in the age
group of 31-40 years and 26% were in the age group of 51-60 years. In terms of
occupation about 44 per cent of the passengers belonged to the private sector or
multinational corporations and 25% were from the public or Government sector.
Most of the passengers (73%) travelled for Business purposes. Maximum
passengers were found to be flying once in a month (37%), this was followed by
those who travelled once in six months (28%).

From the above findings, we can conclude that the profile of a typical Business
traveller would be someone in the age-group of 41-50 years working in a
multinational or a large private sector company, who travels approximately once
in a month.

At a younger age not many executives would be holding senior enough

positions requiring them to travel frequently. People from other professions such
as trade and other professionals have very limited areas of operations and so do
not require to travel frequently.

The study also reveals that most of the passengers (68%) were aware of the
different fares engaged by different airlines but did not consider it a significant
factor influencing their purchase decision.

Similarly, discounts and special schemes did not induce them while making
their choice of airline.

A typical business traveller does not show any brand loyalty for a particular
airline. They are willing to change to other options for new and innovative
product features.

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 Service quality has discernibly gone up and domestic passenger traffic crossed
the 10 million monk for the first time ever in 1994-95. But once again with two of
the major airlines closing down operations and the new aviation policy
introduced by the government not allowing foreign airlines to enter the domestic
market, it could once again lead to the monopolistic situation prevailing earlier
in the country.

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BIBLIOGRAPHY

98
BOOKS
 MARKETING MANAGEMENT - PHILIP KOTLER

MAGAZINES
 India Today
 Business World
 Business Today
 Aviation Week
 TOUR & TRAVEL INDUSTRY - AN OVERVIEW
 A&M

NEWS PAPERS
 The Economic Times
 The Hindustan Times
 The Hindu Business Standard Line

WEBSITES

 www.travelindia.com
 www.tourismindustry.com
 www.tourworld.com
 www.worldtourismindustry.com
 www.googlesearchengine.com

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