Performance Analysis Of The Inbound And Outbound Flights, Ex-

Bangalore, Of ‘The RNAC’, June - 2005

Performance Analysis Of The Inbound And

Outbound Flights, Ex-Bangalore, Of ‘The
RNAC’

Submitted to

Bangalore University

In partial fulfillment of
the requirements for the award
of the degree of

Masters of Business Administration

Under the guidance of

Prof. S. RAMGOPAL

Submitted By
Abhishek THAKUR
(Reg no. 03XQCM6001)

M.P. Birla Institute of Management,

Associate Bharatiya Vidya Bhavan,
No 53, Race Course Road,
Bangalore 560001.
June-2005
 DECLARATION

I hereby declare, that this dissertation titled, Performance Analysis Of The

Inbound And Outbound Flights, Ex-Bangalore, Of ‘The RNAC’’ is a bonafide
study, completed under the guidance and supervision of Prof. S RAMGOPAL,
Faculty, MPBIM-BVB, and Mr. Adhikari, Regional Manager, Royal Nepal Airlines,
Bangalore, in partial fulfillment of the requirements for the award of MASTERS OF
BUSINESS ADMINISTRATION Degree at Bangalore University. I further declare
that this dissertation is the result of my own efforts and that it has not been submitted
to any other university or institute for the award of a degree or diploma or any
degree or other similar title of recognition.

Place: Bangalore
Date: June 15, 2005
Abhishek THAKUR
03XQCM6001
MBA, 4th Sem
MPBIM - BVB
 ACKNOWLEDGEMENT

I am extremely grateful to all those who have shared their views, opinions, ideas and
experiences which have significantly improved my research work embodied in this
dissertation. I like to express my sincere thanks to Mr. ADHIKARI, Regional
Manager – Southern India, Royal Nepal Airlines, for his untiring guidance
throughout my research journey. I have been benefited greatly from the excellent
advices extended by Mr. komal Bikram RANA, without which this dissertation
would not have seen the light. I am indebted to Mr. Mohan KHANAL, who has
been very understanding and encouraging throughout my research work. Very special
thanks to the passengers for their kind co-operation. I would also like to express
thanks to the entire staff Royal Nepal Airlines, M G Road, for their constant support.

I am grateful to Prof. S. RAMGOPAL, faculty, MPBIM, for his valuable

suggestions which added value to this research work. I would be failing in my duty, if
I do not extend my sincere gratitude towards our beloved Principal,
Prof. Dr.N.S. MALAVALLI , and Prof. Dr. PRABHAKAR for their support.

Finally I would like to extend my warm respects and regards to my family, friends
and well-wishers for their constant support and valuable suggestions.

Abhishek THAKUR
 CONTENT SHEET

Particulars Page No.

EXECUTIVE SUMMARY 01
COUNTRY AND PEOPLE 03
HISTORY AND GOVERNMENT 03
NEPAL AT A GLANCE 04
INTRODUCTION 05
FOREIGN DIRECT INVESTMENT 05
INFRASTRUCTURE 07
CULTURE 07
ECONOMY 08
NEED AND SIGNIFICANCE OF THE STUDY 09
EVENTS THAT MARRED NEPAL’s TOURISM 11
AVIATION INDUSTRY 14
THE AIRLINE INDUSTRY 15
NEPALESE COMMERCIAL AVIATION HISTORY 16
RNAC NETWORK AND SCHEDULE 21
RESEARCG METHODOLOGY 22
REASONS SIGHTED FOR FLYING WITH THE RNAC 34
MAJOR FINDINGS OF RESEARCH 36
SWOT ANALYSIS - RECOMMENDATIONS 39
STRATEGIES TO MAKE NEPAL A TOURIST DESTINATION 43
DIRECTIONS FOR FURTHER RESEARCH 50
ANNEXURE: 51

Questionnaires 51
Select Bibliography 55
Collateral 56
LIST OF TABLES AND GRAPHS
Title Page

FDI PROJECTS IN NEPAL: STATUS AS OF NOV. 2003 06

TWENTY EVENTS THAT MARRED NEPAL'S TOURISM 11

COLUMN-GRAPH SHOWING THE ACCESSIBILITY AND RESERVATION 26

COLUMN- GRAPH SHOWING, PRE-FLIGHT:- CHECK-IN PROCEDURE 27

COLUMN- GRAPH SHOWING, PRE-FLIGHT:- BOARDING PROCEDURE 33

COLUMN- GRAPH SHOWING IN-FLIGHT SERVICE 29

COLUMN- GRAPH SHOWING IN-FLIGHT FOOD 31

COLUMN- GRAPH SHOWING POST FLIGHT: DISEMBARKATION 32

PIE-CHART SHOWING THE OVERALL EXPERIENCE 33

DAILY MONITOR OF FLIGHT ARRIVAL AND DEPARTURE TIMINGS 35

A COMPARISON OF FARES 35
 EXECUTIVE SUMMARY

Royal Nepal Airlines – Is a monopoly in Bangalore-Kathmandu sector. It launched its

service in 2000. It was set up with the objective of becoming the most preferred
airline in Bangalore by providing high quality and reliable air travel in India. Over
the past 4 years Royal Nepal Airlines has been striving towards maintaining its
position as the market leader and has had to withstand and weather many a
challenging and tough times, especially the slump in the aviation industry on the
whole, due to the 9/11 attacks.
Recently, an issue of concern for Royal Nepal Airlines has been a new
existing entrant into the industry ( Jet Airways and Air Sahara) – one which cannot be
under-estimated – one that is using a completely different approach towards the
industry – one which could pose as a threat to the Royal Nepal Airlines if not
analyzed and scrutinized in the initial stages itself. Air Deccan – India’s first low cost
no frills carrier has launched its service on August 25th, 2003 from its hub at
Bangalore. Air Deccan is currently facing initial operational hitches.Though once Air
Deccan launches its full operations in the coming future, first in South India and then
throughout the country, with a fleet of 6 aircrafts and 75 flights daily, it can be a
major threat to Royal Nepal Airlines in the highly price sensitive Indian market, if
they too in the coming years start their operations Bangalore-Kathmandu sector.
The research work in this dissertation is an attempt to quantify this threat and
counter the effect of Jet Airways and Air Sahara on Royal Nepal Airlines seat factor.
To this effect, an exploratory and conclusive research was carried out on a sample of
70 passengers, who have actually traveled by Royal Nepal Airlines.
The responses were generated with the help of separate questionnaires for the
sample type, which contained qualitative questions.These were administered in
person at the airport in the case of the passenger survey.

The conclusion drawn from the perceptions of the sample clearly stated that
Royal Nepal Airlines was only catering to the needs to Small scale businessmen and
Pilgrims, Newly wed couples, and Tourists who had to travel to Kathmandu on
personal expense and were willing to compromise on quality for the sake of the
saving some money and time. Also students and housewives who were occasional
fliers found Royal Nepal Airlines to be more cost effective than traveling by train or
bus. Most passengers of Royal Nepal Airlines would previously travel to their
destination through train or bus. They had upgraded themselves to traveling by air as
the prices of both were more or less the same. This means that the core passengers of
Royal Nepal Airlines – Small scale business holders, Professionals, Students and
International Fliers still continue to prefer and support Royal Nepal Airlines which is
a more reliable and professional airline. They are satisfied with the services provided
by Royal Nepal Airlines and they would not be too sensitive to the changes in price.
Strategies to strengthen its position have been recommended to Royal Nepal
Airlines for retaining their current passengers by direct marketing and by attracting
the new passenger segment Jet Airways and Air Sahara would be creating.

Country and people

 Nepal is a landlocked country of about 24 million people, covering an area of
147,181 square kilometers which borders Tibet, the autonomous region of China to
the north and several Indian states to the east, south and the west. Geographically, it is
divided into three parallel ecological zones: the mountain region, the hilly region and
the Terai region. The mountain region lies more than 4,900 meters above sea level
and covers an area of about 50,000 square kilometer, the hilly region, 600 – 4,900
meters above sea level, covers an area of about 60,000 square kilometers, and the
Terai region has an average elevation of 300 meters above sea level, covers about
37,000 square kilometers. The Terai is where the most economic activities are
concentrated. The nearest sea coast is 1,127 kilometers from the southern border.

The population is ethnically and culturally diverse. The predominant religion

is Hinduism, with Buddhism a distant second. There are also small minorities of
Muslims and adherents to other religions.

History and Government

Although this part of South Asia has a long history, Lumbini in the western
Terai is where the Buddha is said to have born in the sixth century BC. The modern
kingdom of Nepal was created by Prithvi Narayan Shah in 1768. His descendants
have reigned over Nepal ever since. Although there was a brief period of Multy-party
democracy some 40 years ago, a new constitution guaranteeing democracy under a
constitutional monarchy was only put in place in 1990.

The king is now primarily a symbol of Nepali unity. Although executive

power is vested in the king and the Council of ministers, the responsibility for issuing
general directives and controlling day-to-day administrations lies with the Council,
which is headed by the Prime Minister.

Nepal At a Glance
Official Name:____________________________________Kingdom of Nepal
Political System:________Constitutional monarchy and multy-party democracy

Head of State:___________His Majesty King Gyanendra Bir Bikram Shah Dev

Head of Government:__________________________________Prime Minister

Political Parties in Parliament:____________Parliament is currently dissolved

Next election date:________________________________________Not yet set

Surface area:________________________________147,181 square kilometers

Population:______________________________________________24 million

Population density:____________________________163 per square kilometer

GDP per capita:________________$240 ( at purchasing power parity $1,400 )

Currency:________________________________________Nepali Rupee (NR)

Exchange rates: $1 = NRs 74

INR 1 = NRs 1.60

Official language:____________Nepali and English is widely used in business,

higher education and professions

Other principal languages:______________Maithili, Bhojpuri, Newari, Magar

Prinicipal religions:____________________Hindu (80.6%), Buddhists (10.7%)

Muslim (4.2%), Kirati (3.6%), Other (0.9%)

Time zone:____________________________________________GMT + 5 : 45

Main cities/number of ____________________________Kathmandu: 671,846

Inhabitants: Lalitpur: 162,991
Biratnagar: 166,674
Pokhara: 156,312
Birgunj: 112,484
Introduction
 “21st century appears to us as a period of prospects and challenges. The
developed countries are making more concentrated efforts in all economic forum to
retain their strong position. Thus the developing and marginalized countries are found
to stay at periphery of the world economic scenario. Globalisation, which was termed
by many as a rescue vehicle for distribution of the world wealth proportionality, could
not meet the anticipated results. Consequently, the World Trade Organisation (WTO)
has become a forum of confrontation than cooperation between the developed and the
developing countries.”
Dr. Rambhakta Prasad THAKUR
Chief of Protocol, MEA, Kathmandu, Nepal.

In this background, it is but natural for the developing countries, particularly the
Asian, to develop a strong bond of economic and commercial relations and also a
meaningful partnership building, so that, more than 2.5 billion population of this region
could uplift their standard of living. Paradoxically, about 40% of the world poor people
live in this region. Proportionately very low foreign trade, tourism and foreign
investment are the features of this region.
Source:
Dr. Rambhakta Prasad THAKUR
Chief of Protocol, MEA, Kathmandu, Nepal.

Foreign Direct Investment

Nepal has been receiving some foreign direct investment (FDI), but the amount
has been insignificant when compared with that received by other developing countries,
including South Asian. The list of foreign investors includes such renowned companies
British – American Tobacco, Unilever, Coca-Cola, Standard Chartered and Hyatt.
However, most foreign investors in Nepal are individuals.

FDI PROJECTS IN NEPAL: STATUS AS OF NOV. 2003

No. of Total Cost
Status Industries NRs Foreign Investment Employment
1. Operaion 272 36014.87 6749.97 41412
2. Under Construction 49 5499.58 1665.26 6210
3. Licensed 134 14349.55 4557.38 15399
4. Approved 179 12126.82 4878.42 13042
5. Cancelled 68 8246.94 222.21 8564
Total 702 76237.76 20079.54 84627
Source: UNCTAD

India is the major source of FDI in Nepal so far ( about 40% ), followed by the
United States of America, China, the Brish Vermin Islands, Norway, Japan, Republic of
Korea, Canada, and Hong Kong.

The major area of FDI has been manufacturing followed by services and in
particular, tourist. More recently there has been significant FDI in hydropower.The
country has the capacity to generate nearly 83000 MW of Hydro-electricity, of which
about 44000 MW is thought to be economically feasible. At present, only 528 MW (
less than 1.5 % of the feasible capacity) is being generated, of which about 100 MW is
from the independent power developers.

Hydro-electricity sector is a highly profitable sector, having a huge market, with

India in the south.

Infrastructure
 It has a greater scope in Nepal. Right from road, airport, telecommunication,
tourism, and information technology, Nepal needs a huge investment. All necessary
infrastructures are at a low level seal which needs to be developed for achieving the
desired goal envisaged in the economic plan ( 10th plan :- 2002 – 2007 ). Nepal’s
peace oriented and non-aligned diplomatic status in the world, particularly in relation
to the countries within the region ( China, India and Pakistan) may offer business
opportunities.

Nepal has only one international airport, located in Kathmandu. A feasibility

study is under way on a second and third international airport outside Kathmandu.
Possibly at Bhairhawa, which adjoins Lumbini, the birthplace of Lord Budha and
third at Pokhara, the most tourist destination in Nepal.

Culture
The diverse geography of Nepal ranging from Himalayas in the north to the
southern Terai region renders it home to a wide range of culture. Customs and
traditions differ from one part of Nepal to another. A conglomeration lies in capital
city Kathmandu where cultures are blending to form a national identity.
A prominent factor in a Nepali's everyday life is religion. The natives of Nepal still
follow age-old customs of Hindu and Buddhist religious practices. Adding color to
the lives of Nepalese are festivals the year round which they celebrate with much
pomp and joy. It is said that Nepal has more number of festivals than the days in a
year. Food plays an important role in the celebration of these festivals.
Nepal is a patriarchal society. Men usually go out to work while women are
homemakers. However in cities, roles can differ. Most Nepalese abide by the caste
system in living habits and marriage. Rural Nepal is mostly agrarian, while some
aspects of urban life carry glitz and glamour of the ultra-modern world.
 Economy
The overwhelming majority of Nepal's people engage in agriculture, which
contributes about 40% of the GDP. In the Terai, the main agricultural region, rice is
the chief crop; other food crops include pulses, wheat, barley, and oilseeds. Jute,
tobacco, cotton, indigo, and opium are also grown in the Terai, whose forests provide
sal wood and commercially valuable bamboo and rattan. Large quantities of
medicinal herbs, grown on the Himalayan slopes, are sold worldwide.

Transportation and communication difficulties have hindered the growth of

industry and trade. Biratnagar and Birganj, in the Terai, are the main manufacturing
towns, and Katmandu also has some industry. Products include carpets, textiles,
shoes, cigarettes, cement, and bricks; there are rice, jute, sugar, and oilseed mills.
Wood and metal handicrafts are also important. Significant quantities of mica and
small deposits of ochre, copper, iron, lignite, and cobalt are found in the hills of
Nepal. Hydropower is the main source of electricity in Nepal, and there are plans to
further develop the potential of the nation's rivers.

Tourism, a chief source of foreign exchange (along with international aid and
Gurkha pensions), has been hurt by the escalation of the conflict with the country's
Maoist rebels. Nepal's trade is overwhelmingly with India. In recent years,
significant deforestation and a growing population have greatly affected the country.
NEED AND SIGNIFICANCE OF THE STUDY
RNAC’s problems:

Royal Nepal Airlines Corporation (RNAC), is highly influenced by the

Ministry, Civil Aviation Authority and politicians, and has fallen sick ever since the
dawn of democracy because of a series of scandals.

As the changing of the management followed by the change in the

government has become normal, the tendency of giving stable management should
formally start and any management committee should be given a chance to complete
its term. It is certain that simply changing management will not give fruitful results.
The frequent changes in the management may affect its economy by jeopardising
smooth running of day to day administration.

Whenever RNAC made agreements for appointing the agents, they did so with
inexperienced agents without security deposit. Such agreement has caused heavy
losses to RNAC.

Without considering the interest of national carrier, the government has

granted a permission favouring Qatar Airways to operate eleven schedule flights,
three cargo flights in a week and they are trying for more flights. It is the general
system for the foreign airlines that they can operate the flights beyond the approved
number, which is not agreed in the Fifth Freedom only subject to permission granted
by the national carrier. Without such permission, Civil Aviation Authority should not
allow foreign airlines to operate the flights but it is not in practice.

Human smuggling, lower productivity, unreasonable influences, inactive

financial checking, lack of accountability of the staff, lack of absolute transparency
administratively and financially, lack of study for the allocation of the staff on duty
for the flights, lack of procedures for providing academic and technical training, lack
of proper scheduling of flights, lack of equality administratively and financially and
proper evaluation, treating it as white elephant and lack of action against the wrong
doers are a few reasons behind the present situation of RNAC.

Recently the new management said good bye to hundreds of experienced staff.
It was not a wise option and may be a campaign to create vacancy for the party
cadres. The party workers, who are recruited in the past, neither work themselves nor
let other to work peacefully. If the time compelled to cur off staff, the management
should think to include names of those who lack discipline, obedience, ability and
qualification.

It is a time to ascertain, keeping owns’ hand on the chest, whether RNAC is

on the verge of collapse because of overstaffing or scandals aroused.

Twenty Events that Marred Nepal's Tourism

(Time-line of negative events that led to the damage of tourism industry in Nepal)


Events Date Details

1. Indian December IC-814 flying KTM-DEL sector with 178 passengers

Airlines 24, 1999 and 11 crew members high jacked
Highjack
2. Negative December Massive negative publicity in Indian media citing
Publicity 1999- Nepal as an unsafe destination to visit
January
2000
3. Travel January Major tourist generating countries like US, Canada,
Advisories 2000 Japan, UK and Australia issued travel warning against
onwards Nepal citing security threats due to Maoist insurrection
4. Suspension of December IC on an average carried 20% of non-Indian tourists to
Indian 1999 to May Nepal. Its non-operation for six months cut down
Airlines 2000 visitor numbers to marked extent
5. Hotel Crisis December The hotels were shutdown for one day causing series of
11, 2000 prior and post cancellations and alarming occupancies
in forthcoming days
6. Hritik Roshan December The Street Riots popularly known as Hritik Roshan
Scandal 26 and 27, Scandal, was against the Indian movie star Hritik
2000 Roshan's alleged derogatory remarks on Nepal. It
sparked a national outburst resulting in rioting and loss
of life and temporary hostility towards Indians
7. The Royal June 1, 2001 The royal tragedy of Nepal in June 1st 2001 led to the
Tragedy periods of mourning and curfews leading to slackness
in economy and tourism. Its international coverage
exacerbated the declining safety image on Nepal
8. RNAC closes May 2001 Ever since RNAC, the national carrier stopped
for European operating in the European sector, it created a huge
sector barrier in the accessibility to Nepal from Europe
9. September September The September 11th terrorist attack in the United States
11th attack 11, 2001 of America had a huge impact in tourism. It developed
a big security threat and reluctance in long haul travel.
The Afghan attack by US and Iraq crisis also led to
slackness in international tourism
10. Declaration of November After the Maoist attack in RNA barrack in Ghorahi,
State of 26, 2001 Dang, the government announced State of Emergency.
Emergency Although the mobilization of security forces was to
ensure safety, the word "emergency" sent negative SN
message that Nepal was an unsafe destination and
travel reluctance grew
11. Five Day April 2002 The news of five days long strike (Bandh) in first week
Strike of April 2002 affected the arrival scenario leading to
cancellations and postponements
12. Emergency May 2002 The imposition of emergency continued to create a
Continues false sense of apprehension in tourist before coming to
Nepal
 Continues false sense of apprehension in tourist before coming to
Nepal
13. Singapore May 31, The pull out had a negative effect on arrival numbers.
Airlines pulls 2002 The airlines contributed almost 3% in bringing tourists
out to Nepal and arrival in summer used to increase even
further
14. Travel June 2002 Due to Indo-Pak tension, negative travel advisories
Advisories were issued by various countries (like USA, UK,
negative for Canada, Germany and Japan) against India. And since
India most of the tourists fly to Nepal via India and both
countries are included in many package tours, it
severely affected the arrivals
15. Spread of March 2003 With the impact of SARS escalating worldwide and air
SARS connectivity cut off to major routes, Nepal’s tourism
till April was still performing satisfactorily but slowly
started being affected from May
16. Outbreak of November The outbreak of Bird Flu first reported in Thailand and
Bird Flu 2003 its spread in the South East Asia affected the arrival
pattern to the region and also in Nepal.
17. Continued 2004 The various blockades, protests, demonstrations and
political crisis closures as well as travel advisories of some tourist
generating countries damaged the arrival trend in 2004
18. Transporter's June 1-4, The transporters strike called during June 1-4th and
Strike 2004 Bandh called on June 2nd as well as further confusion
of strikes led to series of cancellations
19. Iraq tragedy September 1, The riots of 1st September in Kathmandu that followed
2004 the brutal killings of 12 Nepalese workers in Iraq and
the negative coverage of media further deteriorated
arrival scenario again
20. State of February 1, The declaration of state of emergency and international
Emergency 2005 pressure as well as negative coverage on Nepal has
further tarnished the destination image of Nepal

Note: Besides the above factors series of incidents of street protests, ‘Chakkajam’,
Nakabandi, Nepal Bandh, close down of industries also carried continued negative
image about Nepal.

Source: Mr Tek Bahadur Dangi, CEO, Nepal Tourism Board.

In this ever-competitive and ever-changing world, absolutely nothing is
constant. One has to be well aware of one’s competitors – as the market follows the
rule of SURVIVAL OF THE FITTEST. It has become a must, to ensure that one is
always a step above the rest – even if it means being marginally better than that one’s
competitors. It has been established, over the years that Jet Airways has been the
leader of the Indian Domestic Airline Industry, with whopping share of close to 46 –
48% of the market. Many small-scale players had to perish, as they were not able to
face the competition from the market leader. They succumbed to the enormous
pressure of survival and had no choice but to liquidate. With this as a background,
one player (Air Deccan) has tried to make an entry into this fierce aviation market.
Recently there has been an advent of a new type of Airline – A “NO FRILLS”
Airline - The first one of its kind in a totally different league altogether has decided to
adopt a frontal attack on the market leader and thereby assuming the market
challengers role. The attack posed by the market challenger has scaled new
dimensions in the Indian civil aviation industry with regards to price sensitivity. The
Unique Selling Proposition strategy of the Market Challenger has been to provide Air
travel that fits common man’s pocket and thereby leveraging the cost of travel over
other modes of transport like train, road – within common man’s reach .

AVIATION INDUSTRY
Overview of the Aviation Industry
The Civil Aviation occupies a significant place in the transport management
of today’s world. It plays an important role in pricing decisions also. The operational
expenses are found increasing fast to improve the quality of services or to follow
safety norms. The air transport authorities find it difficult to rationalize the fare and
freight structures since the falling occupancy ratio is found throwing a big impact on
the revenue position. The users expect a lot for the charges they pay and are not in a
position to pay more. However the ministry of Civil Aviation bears the responsibility
of rationalizing the fare and freight structures in such a way that the revenue position
is increased.

The setting of International pricing is found much more complicated since it is

not only on Air India to set fare and freight structures. The International Airport
Authority of India, International Air Transport Association (IATA), & International
Civil Aviation is some of the important organizations playing a decisive role in
making the pricing decisions for the international air transport business. IATA divides
the world in to three areas, such as:

In the Area 1, the countries are North and South American continents, islands
adjacent there to like Greenland, Bermuda, West Indies, Caribbean area, Hawaiian
island, Midway.

In the Area 2, the countries like Europe, Africa, Islands thereto like
Ascensian, the part of Asia situated west including Iran.

In the Area 3, the countries are remaining part of Asia and island adjacent
thereto East Indies, Australia, New Zealand, Islands of Pacific Ocean.

The Airline Industry

The airline industry has never had it so bad, in India or abroad. Because of
recession in the economy, most of the airlines were in loss and now the attacks on the
World Trade Center and Pentagon in the United States has worsened the situation.
According to recent study, it is understood that forty percent of the people have
cancelled their plans and sixty percent have postponed their trips indefinitely. Leisure
travel was dead but now is slowly recovering.

The airline industry is a multi-dimensional industry which offers intangible

services like passenger services, cargo services, mail services etc. The services of
airline industry are commercial as well as social. The sophistication of airline
industry technologies determines the quality of services or standard specification

Aircraft Manufacturers
It is quite interesting to note that there are only two aircraft’s manufacturers
for the whole world with so many bustling airlines around. These two largest giants
are: -

• Boeing
• Airbus

Boeing
The Boeing Company is the world’s leading aerospace c ompany, with its
heritage mirroring the history of flight. It is the largest manufacturer of satellites,
commercial jetliners, and military aircraft’s. The company is also a global market
leader in missile defense, human space flight, and launch services. In terms of sales,
Boeing is the largest U.S. exporter. Total company revenues for 2000 were $51
billion.

Airbus
Airbus is the first European Company, one of the aircraft’s manufacturers in
the market for large commercial airlines. It designs and builds sells and supports
aircraft’s of 100 seats or more.
 Nepalese Commercial Aviation History

RNAC: A Profile
The aviation history of Nepal started in early 1950's.Initially, neighboring
Indian aircraft used to land on a mere cow grazing place called ‘Gaucharan’ in
Kathmandu. There are tales that a pilot waiting to land there had to buzz the airfield
several times to shoo the cows off it before landing.

Until 1951, only a few foreigners had penetrated into Nepal. They were
mainly British officers of the Gurkha troops, a few stray scholars and friends of the
Royal family. Later on, Indian air companies started their operation for business
purposes, and connected Nepal with Indian cities. After the establishment of the
national flag carrier, the RNA, the route expansion of civil aviation made extensive
progress domestically and internationally.

The civil aviation service started in Nepal in 1953 with three old American -
made DC-3 Dakotas belonging to an Indian company. After five years, Nepal
established her own registered airline, Royal Nepal Airlines Corporation in July 1958
with one DC-3. There were only 96 personnel then. At present around 1600 personnel
are working for the corporation. At the beginning, its service was limited to Indian
cities like Patna, Kolkata and Delhi in the International Sector and to Simara, Pokhara
and Biratnagar in the Domestic Sector. The facilities provided at that time were
limited.

Royal Nepal took over an international schedule in 1960. Starting with a fleet
of Douglas DC-3's, the airline quickly moved on to the turboprop Fokker -F27.

By the early 1970s the airline had introduced Hawker Siddeley HS-748
turboprops, and Boeing 727 jet airliners were introduced in 1972 after Kathmandu's
runway had been extended for medium sized jet operations. The Boeing 727s were
gradually replaced by Boeing 757s.

At present RNAC operates 10 international destinations namely Bangalore,

Delhi and Mumbai in India, Bangkok, Hong Kong, Shanghai, Osaka, Singapore and
Kuala Lumpur in South East /Far East Asia and Dubai in Middle East. Direct flights
to and from Dubai were resumed from June 17, 2002 and flights to Singapore and
Kuala Lumpur are recently operated from March, 31st, 2003 this year. In Domestic
operations it connects more than 30 destinations inside Nepal

More than 90 percent of Nepal's area is covered by mountains. Moreover,

Nepal is also landlocked. Without the use of air transport, remote places are cut off
from point of view of tourism, food supply and other essential requirement. There are
places in Nepal where there are airports, where even though that particular district
does not have even a decent road to use bicycles.

The transport system being the main factor for the economic development of
the country, and RNAC is a strong vehicle for national integration and has proved to
be a symbol of freedom movement, both within and outside the country. It is the pride
of Nepal.

Nepal is a landlocked country the size of Arkansas, lying between India and
the Tibetan Autonomous Region of China, Nepal contains Mount Everest (29,035 ft;
8,850 m), the tallest mountain in the world.

Indian Commercial Aviation Industry

The Indian aviation industry has two distinct sectors - Commercial and
Military. Commercial aviation includes passenger airlines and cargo planes,
international air services, air taxi and charter operations being major functions. Indian
air Force and the aviation arms of the Navy and Army are included.

Commercial airlines have a typical organizational structure. This includes

airlines operations, maintenance, marketing and finance divisions. The role of the
operations division is to conduct day to day activities of the airline, overseeing the
pilots and flight attendants, the flight dispatches, flight schedulers and ground crew.
Engineering and technical division handles the maintenance of avionics and
mechanics of the aircraft’s, they perform daily inspections, carry out routine repairs
etc.
The marketing function involves selling services of the airline, creating
market strengths, and supply through advertising, charting new programmes /
services, attracting customers and controlling ticket reservations and managing
material purchases. The finance division is concerned with managing the money flow.

Interior decorators are other professionals who work for airlines. They are
assigned the task of decorating passenger lounges at airports and also aircraft’s
interiors. Uniforms of pilots, aircrew, check in personnel and others are designed by
fashion designers. Commercial aircraft’s operate from the civil airports while military
aircraft’s operate from military airfields and in exceptional circumstances from civil
aerodromes. Airports are large and have its own security and rescue services, fire
department, retail outlets, restaurants, construction and maintenance teams,
warehouses for cargo and an independent transport system.

A very important part of the airline industry is the aircraft’s manufacturers.

While most of the commercial aircraft’s are bought from foreign manufactures the
Hindustan Aeronautics Ltd. as well as the National Aeronautics Ltd. are the main
Indian manufacturers. Though their major work is related to maintenance these units
have manufactured some indigenous airplanes. In the manufacturing sector work
physicists, biologists, engineers, mathematicians, design engineers, technicians,
accountants, lawyers and administrative staff. Industries supplying components and
electronics also employ a range of specialists. Manufacturers of parachutes, skydiving
equipment’ s are the other equipment’s.

DGCA -The Director General of Civil Aviation in India governs the

commercial aviation industry. It controls, standardizes, gives licenses of aircrews and
investigates any incidents and accidents. It also certifies the airworthiness of
aircraft’s.

Indian Airline Industry

The news on the domestic front, however, is bad and has been grim for the
past six months; recession has eaten in to business travel in a big way and practically
killed leisure travel. Osama bin Laden’s act ion in the U.S. has hit the Indian travel
industry below the belt. It has become the least preferred destination. The Airline
industry already feeling the pinch of the general economic slow down and the slump
in the Information Technology industry. With war clouds hovering over the region,
the airline industry appears to be in jitters. “When there is a big contract to be signed,
and normally eight people would go now only two are traveling” says Asgar Ali,
director of Universal Express Travels and Tours, whose business has dwindled by
nearly 35-45 percent.

The recession is not solely responsible for the airlines suffering red ink.
Reasons for the Recent Recession in the Indian Domestic Airline Industry:

¾There is too much capacity to Delhi, Calcutta, Mumbai and Bangalore sectors.
Indian Airlines shuttles together with Jet Airways flights added up to 2,000
seats a day to Delhi, besides the Air Sahara and Air India’s discounted flights.

¾The Mumbai-Bangalore sector also suffers from excess capacity. The total
current capacity is almost is almost 1,800 seats often making aircraft’s travel
lighter by as much as 40 percent. The extra seats may have come in two years
late. æ For, when the domestic and global economy was scaling new heights
 each day. Flights between Mumbai and Bangalore or between Delhi and
Mumbai were operating with a highly profitable eighty percent load.

¾By the time Airlines woke up to the reality of the need for more seats and
obtained necessary schedules and permissions, the recession had set in
emptying out the flights.

¾The much hyped disinvestments in flagship carrier – Indian Airlines is finally

off.

¾The finance ministry has given its had to the infusion of funds came into force
as there was no bidder for the national carrier and the airline could not be run
anymore without upgrading and modernizing its feet.
 RNAC

NETWORK

AND

SCHEDULE

RESEARCH METHODOLOGY
RESEARCH PARADIGM:
Any Research follows the Research paradigm that includes three important
stages
A TYPICAL RESEARCH PROCESS INVOLVES:

1. Identifying the problem/ opportunity and defining research objectives

2. Developing the research design
3. Collecting the data (or information)
4. Process and Analyzing the data (or information)
5. Presenting the research findings (or report)

DEVELOPING A RESEARCH DESIGN:

The marketing researcher develops research design, which basically indicates the
procedure and cost of conducting the research study. It contains:

• Information type
• Sources of data
• Research methods
• Sampling Plan
• Methods of contacts
• Data collection methods (i.e. Research Instruments)

Research Methodology undertaken for the project:

Performance Analysis of the Inbound and Outbound Flights, Ex-bangalore of,
‘The RNAC’.

OBJECTIVES OF THE STUDY:

™To determine the influence of RNAC over other upcoming players.

™To analyze passengers’ perception of Royal Nepal Airlines.
 ™To identify the ever changing tastes and preferences of the passengers
especially relating to other service offerings.

TYPE OF RESEARCH:

The research process adopted for the study is a typical survey based research
process which is ideally exploratory and conclusive in nature.

SAMPLING TECHNIQUE:-

ƒRandom Sampling.

Random Sampling has been adopted for Passengers:

¾At the Airport (70 Passengers)

SAMPLE DESCRIPTION:-

The target population includes:-

¾All the passengers from Bangalore City who have availed/ availing the
services of Royal Nepal Airlines.

Appropriate samples have been drawn from the target population

SAMPLE SIZE:-

The sample size is restricted to:

™70 passengers.

INSTRUMENTATION TECHNIQUE:
 ¾Structured Questionnaires and Telephonic interview sessions have been used
as instrumentation techniques to carry out the work assignment.

¾Since our research investigation is highly qualitative, we could not subject the
data to rigorous statistical treatment. In overview, the qualitative research is as
significant as quantitative.

Primary Data collection:

Primary data collection refers to data collection through,

ƒ Through structured questionnaires for Passengers.

ƒ Through personal interviews with the Passengers.

Secondary Data collection:

This refers to indirect means of data collection through,

• Browsing through the internet

• Company intranet

• Newspapers

LIMITATIONS OF THE STUDY

♦ Research investigations are beset with Time and Resource constraints.

♦ Research investigations are based on company information and information
generated through passenger response.
♦ Research is limited to the Bangalore city only, and also it is limited to
passengers of Royal Nepal Airlines only.
♦ Hence limitations of generalization become obvious.
 Accessibility and Reservation

Excellent Good Average Poor

Reservation 4 44 20 8
Enquiry 4 24 32 0
Airport 4 32 32 0
Staff Efficiency 12 36 16 4
Staff Courtesy 8 32 28 0
 Accessibility and Reservation
50
40

Score
30
20
10 Excellent
0
Good

sy
ry

y
or
Average

io

nc
i
qu

rte
rp
t
rva

ie
Ai
En

ou
ffic
Poor

se

fC
fE
Re

af
af

St
St
Variable

(Source: Field Investigation)

o The expectation of the passengers regarding Accessibility and Reservation

toggles between average and good, and are therefore satisfied with the service
provided by Royal Nepal Airlines, but this does not ensure consistent quality
and service. In order to ensure consistency the RNAC needs to be accessible
at all times which would ensure excellence.

o The reservation, enquiry, airport proximity, staff efficiency and courtesy are
pleasing enough to retain the existing passengers.

Preflight:- Check-In Procedure

Excellent Good Average Poor

Easy Check-In 4 48 12 4
Waiting time in Queue 0 44 20 4
Ground Staff Grooming 0 44 20 0
Staff Efficiency 4 36 28 0
Personal Attention 0 40 24 4
 Preflight:- Check-In Procedure
60
50
40 Excellent
Score 30
Good
20
Average
10
Poor
0
Easy Waiting Ground Staff Personal
Check-In time in Staff Efficieny Attention
Queue Grooming Variable
(Source: Field Investigation)

o The check-in procedure, time spent waiting in queue, personal attention

received by the passengers and the staff efficiency are well accepted by the
passengers.

o Since the company is ranked good in all the above variables for check-in
procedures, they should strive for excellence, in order to sustain in this
competitive environment, by continuously serving above par.

Preflight:- Boarding Procedure

Excellent Good Average Poor

Boarding Announcement 0 32 28 8
Complaint Handling 0 16 40 12
Baggage Screening 0 52 16 0
Handling Flight Delays 0 32 28 8
Flight Punctuality 0 24 16 28
 Preflight:- Boarding Procedures
60
50
40
Score

30
20
10
Excellent
0
Good
Boarding Complaint Baggage Handling Flight Flight
Announcement Handling Screening Delays Punctuality Average
Poor
Variable

(Source: Field Investigation)

o This column graph indicates that the service was found good in four of the
five variables namely, boarding announcement, baggage screening, handling
of flight delays and flight punctuality, but was found just average as far as
complaint handling was concerned.

o As the RNAC was found to be good in dealing with boarding procedures, I

would suggest that, in this competitive environment they should try to
achieve excellence by providing training to the ground staff to enhance
excellence.

Inflight Service

Excellent Good Average Poor

Greeting On-Board 24 40 4 0
Help during Embarkation 8 40 20 0
Professional Service 4 44 20 0
Grooming of Cabin Crew 4 48 16 0
Clarity of Cabin Crew
4 40 20 4
Announcement
 Inflight - Service

Score 60
40
20 Excellent
0 Good
Greeting On- Help during Professional Grooming of Clarity of Cabin Average
Board Embarkation Service Cabin Crew Crew Poor
Announcement
variable

(Source: Field Investigation)

o The passengers find in flight service to be good. However for an airline

company to gain recognition and competitive edge it needs to achieve
excellence and beat it’s own best.

o Royal Nepal Airlines needs to find ways to serve the passengers better during
the journey.

Inflight Service

Excellent Good Average Poor

Inflight Magazine 8 36 16 8
Cockpit Crew Announcement 0 60 8 0
Handling of Flight 0 56 12 0
Temparature inside the cabin 4 13 3 0
Cleaniliness of Washroom 4 56 4 4
in-flight Entertainment 0 12 44 12
 Inflight Service

80
Score 60
40
20 E xc ellent
0
Good

Handling

E ntertain
of Flight

Tem parat
Magaz ine

ure ins ide

C leaniline
Announc e

W as hroo
the c abin
Average

in-flight
C oc kpit
Inflight

m ent
s s of
m ent
C rew

m
P oor

Variable

(Source: Field Investigation)

o The in flight service with respect to the above mentioned attributes lies
between average and good. This does not do any good to the betterment of the
service provided by the RNAC.

o The RNAC needs to seriously look into this matter and introduce new and
innovative concepts of entertainment, which would make the journey
memorable.

Inflight Food

Excellent Good Average Poor

Quality of the Meal 0 44 20 0
Quantity of the Meal 8 56 4 0
Presentation of the Meal 12 44 12 0
Appropriateness of Meal & Time 4 44 16 4
Overall Satisfaction with meal 4 40 24 0
 Inflight:- Food

Score 60
40
20 Excellent
0
Good

Presentati

Satisfacti
Quantity
Quality of

Appropria
teness of
the Meal

on of the

Overall

on with
of the

Meal &
Meal

meal
Average

Time
Meal
Poor

Varaible

(Source: Field Investigation)

o The food served during the flight appears to be satisfactory, in terms of

appropriateness of meal and the time it is served, the presentation ( eye-
appeal) of the meal, and not to forget the quality and the quantity served.

o The airline needs to maintain the same quality and also try and continuously
improve the same.

Post flight: Disembarkation

Excellent Good Average Poor

Luggage Handlilng 0 44 12 12
Time Taken to Receive Luggage 0 36 28 4
Handling Misplaced Luggage 0 36 28 0
 Postflight:- Disembarkation

Handling Misplaced
Luggage Poor
Time Taken to Receive Average
Variable
Luggage Good
Excellent
Luggage Handlilng

0 10 20 30 40 50

(Source: Field Investigation)

o The process of post flight: disembarkation, stands between average and good.
The airline needs to improve on this and achieve excellence, failing which
there is high chances of passenger defects.

o It would also lead to negative word of mouth.

Overall Experience

Excellent Good Average Poor

Overall Experience 4 40 24 0
 Overall Experience

0% 6%
Excellent
35%
Good
Average
59% Poor

(Source: Field Investigation)

o From the above pie-chart, it is evident that the overall service provided by the
RNAC is good and makes the journey pleasant.

o However, to retain the existing customers and to attract new potential

customers, RNAC needs to improve in all quarters, which would enable it to
compete with the best in the industry.

Reasons sighted for flying with Royal Nepal Airlines:

• Most people are adventurous enough to try out venture into Nepal.
• It is more of enthusiasm to travel through Royal Nepal Airlines than measure and
Gauge the service expectation of the new airways player.
• Many desire to see whether this is a smart way of cost cutting while traveling by
air.
• Others feel this is an affordable/ cheaper way of traveling by air.
• Some people desire to experience a journey by Air, which is otherwise not so
affordable.
• Some are drawn by the destinations which could be covered in less than an hour
by air, which would otherwise take them at least four to five days by road or rail.
• Most passengers possess the zeal and enthusiasm to experience what the new
airline has to offer.
• Some have personal reasons for travel/ emergency travel which is catered to in an
inexpensive manner by Royal Nepal Airlines.

Source: Personal enquiry notes

Observations - On-time performance:
• All the Jet Airways flights were on-time.
• Almost all the Air Sahara flights were on-time.
• Most of the Air Deccan flights were delayed.
• A few Air Deccan flights suffered from technical snags.

A COMPARISON OF THE FARES

Observations - Fares:

¾Air Deccan fares are very competitive and reasonable.

¾So are that of Royal Nepal Airlines.

¾Jet Airways fares are justified.

¾Air Deccan fares are at least half of the Jet Airways fares.

MAJOR FINDINGS OF RESEARCH

¾Royal Nepal Airlines has a very appealing pricing strategy.

¾RNAC has a monopoly in the southern Indian region.

¾Royal Nepal Airlines alone cannot be held responsible for its performance, for
there exists issues which are beyond its control.

¾Royal Nepal Airlines has to work hand in hand with Nepal Tourism Board to
sustain its presence in the industry.

¾Since Tourism is the main source of national income and 70% of the tourists
happen to be from India; Nepal Tourism Board has to strategically move to
 India and create demand for people in the Southern India to go to Nepal, and
in the similar lines, the RNAC should also join hands with the ‘ITDC’ ( Indian
Tourism Development Corporation ) in order to create demand for tourism
destination for the Nepalese in this region.

o They should tap the Shivaiites segment, who go for pilgrimage to

Nepal.
o They should also look into corporate bookings.
o Encourage exchange programs ( Schools and institutes )

¾RNAC understands the importance of the increase in disposable income of the

youths, who are rather more adventurous and love to travel abroad.

¾Jet Airways has been rated as the “Best Indian Domestic Airline”.

¾RNAC is yet to make its presence felt to the inhabitants of the southern region
in India.

¾Passengers are satisfied and delighted with the services provided by this
Airline.

¾Jet Airways has been recognized as the most “time conscious and
professional” airline.

¾They have tapped the international fliers, as these passengers prefer to travel
by Jet Airways for connecting flights within India.

¾Although RNAC has loads of international fliers, the dual policy and the law
of the land has tied their hands in servicing international fliers in India, as they
cannot operate in two domestic stations.
¾Jet Airways is slowly broadening its base to international destination.
It now has a regular flight to Colombo, Sri Lanka.

¾Their Apex and Super Apex scheme is a runaway success. These

tickets are almost always sold out!

¾RNAC has yet to startegise their prices to compete head on with the upcoming
competitors Jet Airways and Air Sahara, who would be starting their flights to
Kathmandu from Bangalore.

¾Unlike RNAC, Jet Airways and Sahara at any point of time would not have
direct flights from Bangalore to Kathmandu, as they would just be adding
another international destination to their existing flight.

o Bangalore - Hyderabad – Delhi – Kathmandu ( Air Sahara, Jet

Airways )
o Bangalore – Kathmandu ( RNAC )

¾Air Sahara can prove to be a threat for Jet Airways in the near future.

¾The advantage for Jet Airways is its wide market coverage.

¾The advantage for Air Sahara is its other benefits.

¾Jet Airways will continue to reign as the market leader in the near future.
(Visualization on the basis of the current scenario)
 RECOMMENDATIONS

Since our recommendations have emerged from SWOT Analysis, we give

below the SWOT Analysis, followed by the recommendations:

SWOT ANALYSIS

STRENGTHS:

• STRONG FINANCIAL BACK-UP

• This company is a government undertaking, therefore, all essential

expenses are looked after. Thus, in order to sustain in this competitive
market, it needs to upgrade itself in various field, the expense of which
would be definitely taken care of

• PROACTIVE SAFETY MEASURES

• The slightest technical fault is taken care of prior to the take off of the
flight, safety is always on top.
• EXPERIENCED WORK FORCE

The entire workforce is very experienced. For a pilot to fly a Boeing, he/she
first needs to fly to smallest of the aircrafts, and upon experience he/she is
given permission to fly bigger jets. Nobody gets a shortcut to the top.

WEAKNESSES:

• Royal Nepal Airlines currently is not operationally sound either in terms of its
capacity or efficiency.

• The company should also have Internet booking and eventually sale of tickets
through chains such as Shoppers’ Stop , petrol bunks and Food World would give
the passengers flexibility to book tickets at their convenience and also increases
the reach of the airline to the middle class an estimated 40% of the urban
population in metros.

o This mass reach will increase the air passengers by converting them
from train travelers and will also convert some current Jet Airways
passengers from the SOHO and leisure segment.

• In-flight services such as entertainment are missing in Royal Nepal Airlines

flights.

• Average age of the fleet is 7 years, which can be perceived as a safety threat by
the passengers.

o Royal Nepal Airlines should soothe the passengers’ perception by

highlighting that safety of their passengers is of prime importance to the
company. This fact again can be used to the advantage of Royal Nepal
Airlines.
o Royal Nepal Airlines does not have any loyalty programmes or any accrued
benefits for its customers.

OPPORTUNITIES:

• There is a vast untapped travel market which is hitherto untapped by airlines,

primarily due to high fares for air travel, which Royal Nepal Airlines can easily
tap.

o Once these train travelers are converted into air travelers, Royal Nepal
Airlines can also hope to increase its market share by converting these
passengers to their apex and super-apex passengers. Strong
promotions will be in order to get these passengers to fly by the
company and also an efficient yield management system will have to
be put in place to ensure seat allocation to apex and super apex
utilizes the availability of these passengers to the maximum.

• MONOPOLY

o Till date, the RNAC enjoys the privilege of being the only airline
company that operates directly between Kathmandu and Bangalore.

• INCREASE IN DISPOSABLE INCOME IN THE MIDDLE CLASS INCOME

GROUP IN INDIA
o Younger generation are willing to explore new places specially
nearby foreign land.

• PROXIMITY
o Citizens of India and Nepal need not have a passport in their
possession, or get a visa to enter either country.
THREATS:

o An old fleet leading to frequent technical snags and lack of initial financial
muscle will forbid Royal Nepal Airlines from hiring superior talent either as pilots
or as engineers and can lead to a permanent damage to its image.

o POLITICAL ENVIRONMENT/RELATIONS
o These are beyond control of the company and cannot always be foreseen,
which shall remain a threat at any point in time. Peace and harmony in
either country is very essential for the airline and the tourism industry to
flourish.

o COMPETITORS
o The entry of new players can be expected at any point in time, therefore
the RNAC should be fully prepared to respond to such a situation.

OVERALL CONCLUSIONS

Based on the above SWOT analysis, we can draw the following overall conclusions
regarding the Market Challenger – Air Sahara and the Jet Airways.

AIR SAHARA

o Air Sahara has taken position as the “market challenger”.

o It is developing a very “homely and caring” image for itself.

o They have adopted several flanking strategies in order to topple the Market
Leader. This includes various offers, add ons like, bidding, coupons etc
Jet Airways

o Jet Airways definitely is the “market leader”.

PROPOSED STRATEGY TO MAKE

NEPAL
A TOURIST DESTINATION
1. Media Campaign:

Owing to Nepal's declining image chiefly due to coverage in prin

t and electronic
media, it is imperative to plan a focused media campaign. It shall be done through
three activities viz., Advertisements, FAM Trips and PR exercises.

1.1 Advertisements: Advertisements through print and electronic media shall be

targeted in volume generating markets like India, Bangladesh and China. It shall
carry the message of destination as well as special offers in the form of discounted
packages etc. A joint partnership with corporate houses shall also be sought for.
Major publications, broadsheet and life style magazines as well as travel related
publications and TV channels shall be chosen for print advertisements.

1.2 Media FAM Trips: The objective behind organizing FAM trips from print
and electronic media is to ensure that the tourism component of the destination
gets a proper exposure and espouses on extenuating the unsafe image created
from media sources. Lifestyle magazines with longer shelf life shall be targeted
 for better coverage on destination. 24 different FAM trips from all the major
markets like India, Japan, UK, USA, Germany, Netherlands, France and East
Europe shall be invited. To tap the upcoming high season from Italy and Spain a
special FAM trip from the market shall be immediately organized.

International Airlines will be approached for complimentary or discounted air

passages and the accommodation shall be done in partnership with hotels and
ground service providers.

1.3 Press Meet: As part of strengthening the public relation network various press
meet programs shall be organized in major markets by also mobilizing the Nepalese
missions abroad. The press shall be regularly briefed about the development in
tourism and tourist friendliness of the destination. Such meet shall be held in 4 major
cities of India as well as in markets like Germany, UK, France, Netherlands, Japan,
and China. In the Southern European Market (Italy and Spain), a press meet has to be
immediately organized considering the upcoming season.

2. Trade Campaign:

2.1 Agents FAM trip: It is very important to invite travel agents, exclusively in
terms of giving them first hand destination experience, i.e., Trade FAM Trips, the
key player for achieving the results for destination promotion in partnership with
travel trade associations in Nepal. That is why as a part of awareness and
promotion campaign for the international travel trade FAM trips of operators and
agents shall be organized. Such trips would be organized from major markets like
Germany, UK, France, Netherlands, Japan, China and South East Asia (Malaysia,
Singapore and Thailand). 10 such trips shall be organized covering major Nepal
selling and potential agents for Nepal from each country.
 International Airlines will be approached for complimentary or discounted air
passages and the accommodation shall be done in partnership with hotels and
ground service providers and associations.

2.2 Agents Motivation: Even the campaigns or packages floated in the market
shall make it a point to directly involve the agents and motivate them for
promoting. As an example, basically applicable in the case of Indian agents, they
could be given a target for selling certain packages and upon reaching it; the
whole of agents' family could be awarded a complimentary trip to Nepal. Or
certain number of FOC room nights in exclusive contract with partner hotels shall
be given. This is expected be a two-way policy to achieve continued better results.

2.3 Tour Packages: More varieties of packages shall be floated in conjunction

with trade and airlines. According to the market need packages shall be devised
and promoted. For example in Indian market, where travelers are familiar with
concept of package tours and are willing to pay a standard price for it, an
inclusive package shall be floated. Airlines, Hotels and agents shall be
incorporated in bringing out the package.

Such packages shall specially be promoted through various ads mentioned

above in print and electronic media.

2.4 Sales Missions: High-level Sales Missions under the aegis of HMG's
incorporating Nepalese trade partners shall be organized in major generating
countries. Such mission shall be carried out in India, Germany, UK, France,
Netherlands, Japan and China. It is expected that the missions would give ample
opportunity for the Nepalese trade to develop more partnership and generate
business. More importantly it will carry the positive message that not only the
private travel trade but the government of Nepal is also interested to retain the
tourism industry of the country.
 2.5 Brochure Support to Tour Operators: Tour operators in some major tourist
generating markets of Nepal are gradually putting off Nepal from their brochures,
manuals or catalogues. If it goes on, it will ultimately result in taking Nepal out of
world tourism map. In order to encourage operators retain Nepal in their brochure,
a matching fund needs to be developed. Thus with this special budget provision
operators shall be encouraged to continue destination coverage on Nepal in their
brochures and help save Nepal's destinationidentity.

2.6 Appointing Marketing PR Representatives: Appointing a paid marketing

PRR in some of Nepal's major generating markets would be a strong step to
supplement and materialize the proposed activities mentioned above. At present
NTB has hired only two marketing PRRs in India and in China, but there is
greater need of having a PRR in Europe keeping in view the value and volume of
the market. The better NTOs like Singapore Tourism Board, Tourism Authority
of Thailand or Tourism Malaysia have their own offices abroad since long.

To start with, owing to the budget constraint, NTB shall hire a PRR at
Germany who will also oversee the other markets of Europe like France,
Netherlands, UK, Belgium, etc. But then in the forthcoming years such PRRs can
be extended to other markets like USA, Japan and Australia too. A standard TOR,
with proper terms and conditions, and result-oriented targets shall be used to
ensure the selection of right PRR in Germany. However with the improvement in
the budgets, NTB can also open its own overseas offices in future.

In order to optimize the cost incurred in carrying out these proposed activities,
programs shall be planned and budgeted with contribution from private sector
also.

3. Tourism Diplomacy
 3.1 Mobilization of Nepalese Missions: Royal Nepalese Embassies and
Diplomatic Missions abroad shall be approached for active promotion of Nepalese
tourism. The head of the missions shall be approached to address the press as well
as Nepal selling agents on a regular basis and a provision of dedicated Tourism
Promotion Cell at the office premises. The missions shall be assisted with funds
and other needs to achieve the same. Embassies in Germany, UK, France,
Netherlands, Japan, China and USA shall be approached for the same.

It should be noted that such an approach would serve as a powerful diplomatic

move for Nepal and its popularity in the present context.

3.2 Stimulators: The missions abroad shall also be sought for to spark tourism
stimulators to visit Nepal. For instance, influencing the film producers to shoot in
Nepal or good writer to write in Nepalese context etc. Because throughout the
history of successful destinations, there have been stories of key stimulators as a
crowd pullers. This has either been a movie location, film shoot, a good book
depicting the history, a documentary or anything of this sort. Indian outbound
market's love for Switzerland resulted after series of film chose to be shot in the
country.

4. Strengthening the Airlines

4.1 Airlines: In this slack period airlines can be encouraged to keep flying to
Nepal by giving them some reduction in ground handling costs. This can be
achieved by either temporarily subsidizing ground handling or parking fees or
through other terms and conditions. The international online carriers shall have to
be given 50% reduction for next six months as a token of encouragement and also
encourage them to use the reduced fees for destination promotion and developing
attractive packages. Please refer to Annex III for complete recommendation

4.2 National Carrier: RNAC being our major carrier in the recent history, its
present operation mechanism has affected in the loss of almost 25-30% visitor
 numbers in overall tourist arrival in Nepal. The present scenario is much worse
due to its low frequency and mostly single aircraft in running condition. There is a
strong need for additional aircraft for RNAC and run it in more reliable and
efficient way to save Nepal's tourism at this hour. Similarly, the airlines should
also be advised to restructure the fares especially where better alternatives are
available from airlines connecting South East Asian markets of Nepal. And lastly
competitive packages should be floated by the airlines.

In the event when packages from competitive markets like Singapore,

Malaysia and Thailand for India, US and China are available in cheap rates
(equivalent to airfare to fly to Nepal), it is quite obvious that the market would
shift to Singapore, Malaysia or Thailand. Thus the price of RNAC’s airfares
should also be restructured as per the market competition.

N.B: These confidence-building measures as noted before will probably not enhance
visitor's arrival number drastically but is a concerted effort to rebuild destination
image and confidence in Nepal as a secure holiday destination and counter the
declining travel trend of Nepal. If the stated programs are not approved immediately,
the proposed budget may differ later subject to price fluctuations.

The strengthening of position will be as a function of retaining their current

passengers by direct marketing and by attracting the new passenger segment. RNAC
is creating direct marketing, which highlights facts such as a younger fleet, on board
safety, on time performance, better service, benefits in terms of redeemable miles
etc., will be a way to reestablish the Jet brand in the current passengers’ minds.

Royal Nepal Airlines has to match the fares offered by Jet Airways and Air
Sahara. Since they cannot reduce their current fares in keeping with the long term
view, their brand and product and their primary target customers – pilgrims, business
travelers, honey-mooners, holiday destination seekers, and an alternate would be to
introduce a new 3 tier apex fare structure: –
Tier one a 5 days New Apex,
Tier two the 15 day Apex and
Tier three the 30 day Super Apex.

This primary survey to gauge passenger perception on Royal Nepal Airlines is

very fruitful. Also market data gathered by interaction with travel agencies is very
beneficial. Similar surveys must be compiled on a fortnightly basis and analyzed.
This market intelligence will aid RNAC in fine tuning the above mentioned strategy.

The bilateral talks between the two countries could help enhance mutual
benefits for the RNAC, if for example the ‘DUAL POLICY’ is exempt from a few
sector, or if, the RNAC is duly allowed to operate in more than one station for the
same fleet. With this, the RNAC would have an upper hand to make it’s presence felt,
well positioned to the customers, and finally sustain in the industry.
 DIRECTIONS FOR FURTHER RESEARCH
This research entitled Performance Analysis of the Inbound and Outbound
Flights, Ex-Bangalore, of ‘The RNAC’ , dealt more with the changes in tastes and
preference of the Indian air travelers with regards to price sensitivity and mode of
travel preferred. However this research has been carried out as a “testing waters”
strategy in order to have a feel of customer perceptions with regards to the new
entrant and its services.

Hence this research is more strategic and a macro level focus rather than a
tactical one, and in its whole does not suffice entirely the requirements for developing
a counter offensive (responsive) attack on the market players. Further research is
proposed to be carried out in this category with respect to SERVQUAL parameters; it
could be carried out in the form of a multi attribute analysis with various attributes to
customer satisfaction. The company needs to carry out a more expansive, extensive,
in-depth micro level analysis of this domain. This could be carried out again in a
similar fashion with additional attributes to service quality like:

¾Tangibles

¾Reliability

¾Responsiveness

¾Assurance

¾Empathy
Perhaps the line of thinking on which our research investigation is based may give
scope for further research in this important area.

QUESTIONNAIRE
I, Abhishek THAKUR, am a student pursuing MBA Degree program at
M.P.Birla Institute of Management, Bangalore. As a part of the MBA curriculum,
I have taken up a research project entitled Performance Analysis of the Inbound
and Outbound Flights, Ex-Bangalore, of ‘The RNAC’. This is a survey based
research project and I have been duly authorized to carry out the survey. Below is
the questionnaire. Kindly give your response to the questions in the questionnaire.
Your response will be of immense use to my research project and to Royal Nepal
Airlines. I sincerely assure you that your response will be kept strictly
confidential and will be used for academic purpose only. I greatly appreciate for
sparing your valuable time.

1. Name : Mr. / Mrs. / Ms.

__________________________________

2. Class of Travel: Business Economy

Excellent Good Average Poor

3. Accessibility:
(a) Accessibility

( i ) Reservation

( ii ) Inquiry

(iii ) Airport

(b) Reservations

( i ) Staff efficiency

( ii ) Staff courtesy
4. Airport Services
(a) Check – in procedures

( i ) Ease in finding the Check-in

counter for this flight
( ii ) Time taken in queue to reach
the counter
 ( iii ) Grooming of the ground staff

( iv ) Staff efficiency

( v ) Personal attention at Check-in

counter
(b) Boarding procedures

( i ) Boarding announcements
and procedures
( ii ) If your flights was delayed,
how well was it handled
( iii ) Your overall satisfaction with
our airport staff and services
( iv ) Time taken for baggage
screening
( v ) How well was the information
regarding delay taken care of
( vi ) How well does the company
stick to their timings
5. In-flight

(a)Service

( i ) Friendly welcome / Greeting

at the time of boarding
( ii ) Help during embarkation
phase ( guidance, hand luggage stowage)
( iii ) Courteous and professional
service
( iv ) Grooming of the cabin crew

( v ) Cabin crew announcements:

clarity / content

(b) Your overall satisfaction with our

in-flight services

(c) Reading material

(i) In-flight magazine

( ii ) Selection of newspapers/
magazines

(d) Cockpit crew announcements:

 clarity / content

(e) Handling of flight:

Quality of flying

(f) Others

( i ) Temperature in the cabin

( ii ) Cleanliness of the cabin

( iii ) Cleanliness of the washroom

( iv ) In-flight entertainment:
(Movies, music, drinks…..)

6. Food

( i ) Type of meal enjoyed on this flight Veg. NonVeg.

( ii ) Quality (taste) of the meal

( iii ) Quantity of the meal

( iv ) Presentation (eye appeal) of

the meal
( v ) Appropriateness of the menu
for the time of day
( vi ) Your over satisfaction with
your meal
( vii ) Did you receive the type of
meal you requested for, at the
time of making your reservation?

Yes No Did not request

7. Post flight

(a) Disembarkation

(i) Luggage handling

( ii ) Time taken to receive the

luggage
 ( iii ) How well are misplaced
luggage taken care of

8. Overall Experience

How do you rate your total

experience with
Royal Nepal Airlines

If you rate us average or poor in any of the attributes, please give us

your suggestions to improve

¾Frequent Flyer Program

___________________________________________________
___________________________________________________
¾Accessibility
___________________________________________________
___________________________________________________
¾Airport Services
___________________________________________________
___________________________________________________
¾In-flight
___________________________________________________
___________________________________________________
¾Food
___________________________________________________

¾Post flight
___________________________________________________
___________________________________________________
¾Overall Experience
___________________________________________________

THANK YOU VERY MUCH

 SELECT BIBLIOGRAPHY
Internet sites:

www.jetairways.com

www.visitnepal.com

www.nepal-guide.com

www.airsahara.net

www.indian-airlines.nic.in

www.airdeccan.net

Books

Marketing Management by Philip Kotler

Services Marketing by Christopher Lovelock and Lauren Wright

Newspapers

Times of India

Economic Times

Nepal Tourism Board

AVIATION INDUSTRY: THE NEW LOW-COST WARRIORS

The hugely successful low-cost airline model is now in India.------------- AIR

DECCAN

Will it change the way Indians travel?

Captain G.R. Gopinath looks more like a mild-mannered research scientist
than the CEO of an airline - hardly the sort of person who would send shivers down a
competitor's spine. Eventhough he launched Air Deccan'sservices in September
2003, not many in the aviation industry have taken him seriously so far. That's not
surprising, given that Air Deccan operates with just seven French-made, 48-seater
ATRs, largely in the South, on routes that his bigger competitors like Jet Airways and
Air Sahara wouldn'tcare about. Besides, not too many people in his top management
have any real experience of the aviation business. Gopinath himself would seem like
a bit of a rolling stone, having dabbled in many things, including the army, multi-crop
farming, sericulture, agri-consultancy and then a helicopter charter service.
Well, some of that perception could change soon. This year, Air Deccan has
expanded its service to high-traffic destinations like Mumbai, Delhi, Bangalore,
Hyderabad and Chennai at fares that are 30-70 per cent of the standard fare of
existing airlines. That's wh
en aviation experts expect that Deccan could incur the
wrath of its competitors - Jet, Sahara and Indian Airlines. There's no real evidenceyet
of exactly how the battle will play out, but aviation experts are betting that Jet and
Sahara could start a debilitating price war to push the fledgling airline off the tarmac -
permanently.

Captain Gopinath …the man who has scripted the entire tale of “Price war the new
twist to air-flying”

Almost as a precursor to the impending battle, intense lobbying with the civil
aviation ministry has begun. Last year, Praful Patel, the minister of civil aviation, met
the heads of all the domestic airlines in the capital. At that meeting, the
representatives from Jet and Sahara sprung a surprise by arguing for a new level-
playing field. They wanted the government to increase the minimum equity needed to
start an airline from Rs 30 crore to Rs 250 crore-300 crore. Also, fleet sizes ought to
be at least 7-10 planes, not five, they argued.

While both Jet and Sahara were unwilling to comment on this, aviation
experts say the two operators of what the industry calls full-service airlines are trying
to erect entry barriers. After all, it could well be a matter of their survival. Anyone
with even a passing knowledge of recent aviation history will know how, the world
over, low cost airlines have begun to radically change the rules of the business. In
market after market - be it in the US, Europe and, now, Australia and South-east Asia
– the low-cost model has expanded the market, and gained significant share.

Full service airlines have responded in one of three ways: restructure their
operations, launch their own low-cost airline. or simply get crippled. For the past five
years, low-cost airlines have been growing at more than 40 percent a year, while the
full service airlines are yet to recover from the crisis that hit them post 9/11. Many of
these low-cost airlines, be it Southwest Airlines, easy Jet, Ryan air or even Air Asia,
have had such a great run that they are taught as case studies at leading business
schools across the world. And the CEOs of these low cost airlines now see
themselves as a tightly-bound community of evangelists who have an avowed
mission: to make air travel accessible to more and more people.

Last year, Richard Branson, the founder of the Virgin Group and the man
behind Virgin Blue, invited a select group of 10 CEOs of low-cost airlines to an
exotic island off the Australian coast. Captain Gopinath was among the invitees. The
idea behind the two-day retreat: learn from each other'sexperiences and brainstorm
on the way forward.
 Gopinath says he learned a fair deal from Virgin Blue's experience ni
Australia, where the low-cost carrier has grabbed a 30 per cent share in just 3-4 years.

As Gopinath says: "Originally, everyone wanted to be a full-service airline,

but now everyone wants to be a low-cost carrier." At last count, at least four
companies were in the process of starting up. There is Royal Airlines, the new avatar
of ModiLuft, and AirOne and Visa, both of which are promoted by former Indian
Airlines employees. Then there is Vijay Mallya's UBGroup, which has launched its
Kingfisher Airline. "We plan to charge the fares in such a way that we will be able to
attract those people who don't want totravel by rail, but are unable to afford air
travel," says Subhash R. Gupte-, executive vice-chairman, UB Group, and ex-CEO,
Air India. There are other companies, too, that are still testing the waters, doing their
initial market studies, and waiting for the civil aviation policy to finally reveal itself,
before stepping into the fray.

The entry of these low-cost carriers will have several far-reaching

implications for the aviation sector in India and, to a wider extent, on the mass
transportation industry and domestic tourism. In a country of a billion people, the
Indian aviation industry is puny. We have 12 million people who travel by air every
year against 3 million passengers who fly everyday in the US, even though its
population is one fourth that of India. The number of daily flights in India averages
just about 400 a day, as against 40,000 flights a day in the US. Ryan air, among the
low-cost pioneers in Europe, flies 25 million people in a year and still has less than 5
per cent market share. Closer home, in Malaysia, there are 12 million people who
travel by air yearly. Look at it another way: India's 200
-million middle-class
population is equal to that of the whole of Europe. Even if we assumed that only one
fourth of that large middle-class could afford and would be willing to travel by air, it
would call for at least a 5-6-fold increase in capacity.

Why do we have such a malnourished civil aviation sector?

 Since Independence, the sector has been largely a public sector monopoly.
Even when it was opened up in the early 1990s, the civil aviation policy has remained
opaque. A new policy has been in the making for over five years now. "In the absence
of a clear civil aviation policy, the government's stance on thesubject has changed
every time a new minister or secretary has taken charge," says a Delhi-based advocate
who specialises in aviation. The result: airfares in India are among the highest in the
world. For instance, a typical Delhi-Bangalore round trip costs Rs 18,000 - the same
as it would from Delhi to Singapore! Moreover, despite the fact that India has close to
400 airstrips, airport infrastructure is very weak for the most part. "Even a bigger
airport like Mumbai faces regular congestion and causes flight delays, even though it
handles less than half the number of flights as, say, Hong Kong. That, too, when the
Hong Kong airport operates for less than half the day because of concerns of noise
pollution," says Shekhar Damle, president (funds business), Feedback Ventures.

It is a vicious circle. Scheduled airlines are not willing to fly to smaller towns,
primarily because they fly mostly Boeings and Airbuses, which are uneconomical for
short-haul flights. And unless there are adequate flights into these smaller towns,
getting enough private investment to modernize airports will not be feasible.

But mostly, the scheduled airlines have preferred to concentrate on the more
profitable trunk routes, because that's where70 per cent of the traffic, which primarily
comprises business travellers, originates. Since airfares are high, most leisure
travellers are forced to use an already overburdened train system.

The emergence of the low-cost airlines could trigger a new virtuous circle -
provided the government sees its virtue. Making air travel accessible to the common
man could well make for good politics. Talking to Business world, a senior
bureaucrat in the civil aviation ministry said that the department is all for low-cost
airlines. "Our mandate is two-fold - to make air travel affordable, and penetrate deep
into the country. That cannot be done without encouraging low-cost airlines."
 As the Virgin Group founder Richard Branson once famously said: "The
safest way to become a millionaire is to start as a billionaire and invest in the airline
industry." The mortality rate in the airline business is very high. That'sequally true
for any low-cost airline model. It requires adequate staying power to buy aircraft and
take losses in the initial years. Experts say it takes nearly $60 million-70 million (Rs
270 crore-315 crore) to float a full service airline. This includes everything, even the
losses that you have to sustain for the first two years. In contrast, a low-cost airline
takes $30 million (Rs 135 crore) to start up, if you want to ply the trunk routes. And if
you want to be on the feeder routes, you just need $10 million-15 million (Rs 45
crore-67.5 crore). So far, Air Deccan has been funded through contribution by
directors and cash accruals. Gopinath and his close aide and executive director K.J.
Samuel hold 26 per cent each, while Vishnu Rawal, an old Hong Kong based friend
of Gopinath, owns 8 per cent. Golden Ventures, promoted by an NRI Group, holds
another 20 per cent.

Then, Bangalore-based Brindavan Beverages has taken up an 18 per cent

stake. Deccan has raised funds from investors (equity: Rs 30 crore) and taken a debt
of Rs 70 crore from Bank of Baroda. That adds up to Rs 100 crore. The high
mortality rates and wafer-thin margins in the airlines business make it hard for
entrepreneurs to raise money.

Will a low-cost model fly in India?

There's a simple way to understand how a low

-cost airline works. Think of a
traditional airline with all its attendant frills - hot meals, frequent flyer programmes,
decent legroom, and a full complement of air-hostesses. Now delete each of these.

No meals on board means you don't ne

ed the extra space for storage. Instead,
you can add seats. In the typical Jet and Indian Airlines layouts, one could increase
the seat factor by as much as 20 per cent by pulling out the business class, reducing
the seat pitch (how far the seat can incline), and throwing out a couple of galleys.
"Now, if you can put in three extra rows, then you get (6x3) 18 seats more. In a 120-
seater aircraft, if you get 18 seats more, you are up by 15 per cent," says Cyrus
Guzder, CEO, Airfreight Ltd, and a well-known aviation expert. Besides, there's no
time wasted on cleaning the aircraft. The result: quicker turnarounds at the airports.
Also, there's no need for a crew of more than six, or even four,members.

While most full-service airlines like Jet take at least an hour to leave an airport
after landing there, Deccan can do it in 15-20 minutes for ATRs (and about 30
minutes for its new A320 service.) So, if Deccan does six sectors a day, it can fly one
additional sector a day. This allows it to fly 20-30 per cent more than a full-service
airline. On an average, the conventional airlines fly their aircraft for 8-9 hours a day,
while a low-cost carrier is able to keep its planes airborne for 11 hours a day. "It is
only by more hours of flying that you can give a lower price," says Gopinath. In fact,
it is able to make the same revenue with fewer aircraft. Now, squeezing out more
from the capital asset simply lowers the fixed costs.

Even other costs, like costs of the crew, hangerage or even finance costs are
somewhat lower, in these airlines. All this tots up to close to 40-45 per cent less
depending, of course, on how much extra the airline can fly. And if the airline uses
the same type of aircraft in its fleet, it can move pilots and cabin crews around, and
won't have to worry about carrying spares for threedifferent kinds of aircraft. That
generates economies of scale.

In Europe as well as the US, low-cost airlines have one more way to shave off
costs - but one that Deccan or its followers will not have in India for some time to
come. These airlines avoid flying into mainland airports and, therefore, don't incur
high parking and landing fees. So, instead of Heathrow in London, a low-fare airline
would use Luton or Stansted. India doesn'thave too many secondary airports, and this
is considered a major constraint. The Naresh Chandra Committee, however, has
suggested a compromise - lower landing and parking charges for low-cost airlines. A
low-cost airline then tries to save on distribution costs, which can be 11-15 per cent in
a conventional airline. They do this by not going through the travel agents and the
existing central reservation systems like Amadeus and Galileo. Instead, they sell
through the Internet and call centres - easy Jet in Europe even has its website address
painted on its plane. These airlines don't is
sue a ticket, as it costs to print, mail and
process tickets. What you get instead is a booking number when you make a
reservation. Passengers have to quote this number at airport check-ins, and present
their photograph ID to collect their boarding pass. Even the logistics model works
differently. A low-cost airline offers a point-to-point service, rather than the hub-and-
spoke concept followed by conventional airlines like Jet.

In fact, a Jet aircraft would fly out from Mumbai only when all the
connecting flights come in. This is true more for interline traffic. So Jet handles
Emirates' interli
ne traffic, and hence picks up the passenger bags and sorts them out -
a process that often causes delays. But in a point-to-point service, a passenger
travelling on two separate connecting flights isn't issued a single ticket."We will say,
you will have to get out of the aircraft, you have to take out your bag and again you
have to check in. It is a bit of a hassle, but your bag will never get lost. You have to
carry it, but it is half the fare, so you have to do it yourself," says Gopinath. If you
miss your onward flight because the first flight was delayed, Deccan will not owe you
an explanation. "Our contract is to take you from point A to point B, and if we don't
take you from point A to point B, we refund you the money," he adds. On paper, it
does look like a very nifty model. What'smore, the model could transpose well into
India. It is partly a question of discomfort. People may not want to sit for too long in
cattle class, without meals. Which is why, globally, low cost airlines ply on short-haul
routes. "The longest flight in this country, between Delhi and Thiruvananthapuram, is
close to three hours. Even the regional flights - to the Asean countries, fall in this
band," says Kapil Kaul, senior vice-president (Indian sub-continent), Centre for Asia
Pacific Aviation. Pricing will be crucial. UB Group's Guptesays they plan to charge
fares that are at a slight premium over train fares, but not high enough to preclude
travellers from thinking air travel. Deccan has already pitched its fares slightly higher
than AC II-class fares, but lower than AC I-class fares. The idea: if you have return
flights to a town the same day, the traveller could come in the morning and go back in
the evening. By doing so, he manages to save on his overnight hotel bills. In the past
few years, rail fares, especially in the higher classes, have gone up.

Despite that, a quarter of a million passengers travel on AC trains every day.

So if the differential isn't much, there'spossibility
a that a large number of them could
well upgrade.

So, what are the possible future scenarios?

Over the next few years, one can expect to see a complex system of low-cost
airlines. Depending on the amount of capital they are able to raise and the business
plan they formulate, some will ply on the trunk routes, others on the Class A and B
towns and then, some will operate purely as air taxis. As for Deccan, Gopinath is
committed to being a serious player in the high sweepstakes game. "We don't want to
be a regional airline. We want to be a known as a national airline, going to the
regions. If you want to be a major player, you have to be a national player," he says.

For the moment though, Deccan remains a small player, flying just about
1,600-1,700 passengers a day. Jet, on the other hand, had an operating revenue of Rs
2,876 crore in 2002-03 with a fleet size of 41. So the critical question is: does Deccan
have the deep pockets needed to withstand a price war? Much will depend on how Jet
and Sahara react. One possibility is that they could begin offering more seats under
the apex scheme fares than the current level of 5-10 per cent.

Fortunately, a low-cost airline has the advantage of being a model that throws
up cash much faster than its full-service counterparts.

So, if Deccan can survive the price war for the first few years or so and scale
up, it will soon reach a size where Jet and the rest cannot undercut without losing
massively in the bargain. "It is always simpler to drop prices if you are trying to take
on a company with just three planes. If, Air Deccan, however, scales up fast to 100
planes or so, the others cannot undercut it without maiming themselves," says Kaul.

Even if it does scale up, there's another possibility: success will soon attract
imitators. In Europe, the original pioneers, Ryan air and easy Jet, are suddenly faced
with too many new competitors in the same low-price segment, sparking off an
intense price war. "To attract customers, they are cutting prices to unreasonable
levels, impacting the profitability of the entire sector," says Nirmalya Kumar,
professor of marketing and director of the Aditya Birla India Centre at the London
Business School. Kumar, who wrote a prize-winning paper on easyJet, says some
low-cost airlines also lose their bearing and begin adding frills like assigned seatings,
hot meals and in-flight entertainment to attract some of the more comfort-seeking
customers. But that leaves them exposed to being undercut by a new competitor who
focuses exclusively on price. "Anything (like frills) that adds costs and reduces price
competitiveness is a bad trade-off. After all, if you get them on price, you could lose
them on price too," says Kumar.

In the low-price sector, only those with the lowest costs survive in the long
run, and scale does matter in delivering the lower costs. "In the short run, all sorts of
dislocations happen until the newcomers start running out of money," says Kumar.