Aviation Industry in India - Strategy Management

Acknowledgement

One of the pleasant aspect of preparing project report is the opportunity to thank those who have contributed to make this project possible.

We express our sincere gratitude to Prof. Ajit Prasad , Director, Indian Institute of Management , Lucknow whose active interest in the project and insights on the course on Strategic Management helped us to access our understanding of strategy through this project.

We are also thankful of our college library as well as the seen and unseen hands for the direct and indirect help in the completion of project.

Thankyou.

INTRODUCTION

Indian aviation industry

Aviation Industry in India is among one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a huge and rapid transformation. From being primarily a government-owned industry in earlier days to privately owned full service airlines and low-cost carriers. Private airlines are the major players and account for around 75% share of the domestic aviation market. Earlier air travel was a privilege, only a few people could afford, but nowadays due to advancement in technology and changes in airline strategies, air travel has become much cheaper and can be afforded by many people.

The Air Corporations Act, 1953 made sure that IAC and AI had monopoly over the Indian skies. A third government-owned airline, Vayudoot, which generally provided feeder services between smaller cities, was merged into IAC in 1994. These government-owned airlines dominated most of the Indian aviation industry till the mid-1990s. In April 1990, the Government adopted an open-sky policy and allowed air taxi- operators to operate flights from any airport, both on a charter and a non-charter basis and let them to decide their own flight schedules, respective cargo and passenger fares. In 1994, the Indian Government, as part of its open sky policy, ended the monopoly of IAC and AI in the air transport services by repealing the Air Corporations Act of 1953. It got replaced with the operators Air Corporations (Transfer of Undertaking and Repeal) Act of 1994. As per this act, Private airlines were allowed to provide air transport services. Foreign direct investment (FDI) of maximum of 49 percent equity stake and NRI (Non-Resident Indian) investment of up to 100 percent equity stake were permitted through an automatic FDI route in the domestic air transport sector. However, under no circumstances foreign airline could directly or indirectly hold equity in a domestic airline company.

DYNAMIC PRICING

Dynamic pricing is a pricing strategy in which prices of the product and services change in response to real-time supply and demand. Dynamic Price Optimisation Models are used to generate tailor pricing for various customer segments by simulating how targeted customers will react to any price changes. Dynamic pricing is an innovative technique and flexible pricing mechanism was made possible by recent advancements in pricing software that helps companies to immediately adjust the prices of respective goods and services accordingly to prevailing market conditions. This kind of price modelling helps to forecast future demand, develop pricing and promotion strategies according to it, control stock levels and improve the overall customer satisfaction.

By pricing products based on its market demand, companies can enjoy greater profitability on each item compared to without it. Just because prices can move down with dynamic pricing doesn't necessarily mean profits will also decline. The price changes involved are controlled by software. The software takes into account various factors like, the level of demand, your competitors' prices, customer location, time of day and day of the week. By collecting and analysing data about a particular customer, a vendor can more accurately predict what price the customer is willing to pay and adjust prices accordingly.

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Dynamic Pricing in Airline Industry

Dynamic pricing is about finding elasticity points (finding the balance points between what user is willing to pay and what seller wants to get). Dynamic pricing has the propensity to help producers increase their profit in items with high demand and low competition and helps consumers to get a better pricing on items that has low demand and high competition. Airliners that use dynamic pricing optimize profit in accordance with the demand curve.

Focus of dynamic pricing in airline markets is typically on how fares evolve over the booking period that precedes a flight’s take-off. Research that such a definition is lacking because it fails to connect fare changes to some guiding principles of revenue management, defined as the combined methods used by carriers to set their fares. Once such a connection is made, counter-intuitive instances of dynamic pricing can be highlighted where, on the one hand, the fare of the seat on sale, the one prospective buyer observe, does not change, or, on the other, the fare change does not correspond to a form of dynamic pricing.

the main aim is to make the market as efficient as possible. For example, if number of seats available is low, the willingness of the consumer to pay is higher and the Airliners can capitalize on that. On the flip side, if an airliner has large number of vacant seats, they can drop the price I order to increase demand. 

Dynamic pricing generally involves monitoring of the competitors, and although it’s not always about the lowest price, it many times result in better pricing for the consumer, which is a potential win-win situation for both. Sales can go flat if your pricing is flat or fixed. Fixed pricing is not necessarily dead, but it doesn't tend to give returns much unless you're selling a very high-level product. This type of dynamic pricing strategy is becoming common these days. Although it is typically associated with the travel or sports ticketing, it’s now being used in different industries. 

One of the industries that’s experiencing high growth through dynamic pricing implementation is the Airlines industry. In order to develop and execute such a pricing strategy, online Airliners must make sure that they have the necessary competitive intelligence tools to make well informed decisions based on market supply and demand.  Airliners these days are investing in Price intelligence platforms - they are about providing the tools and data you need to successfully compete, but of course the human element is essential to make sure those the technology of tools are working in alignment with your business strategy.