2019

MANAGERIAL
ECONOMICS
Report on Airline Industry Market Structure
LT-02
ARCHANA MAHALWAL
KUMAR VAIBHAV
MOHAMMAD AMAAN
NIKITA SINGH
RAGHAV KAKKAR
RISHABH SRIVASTAVA

archanamahalwal108@outlook.com
[Type the company name]
17-Sep-19
 INTRODUCTION TO THE
INDUSTRY

The Airline Industry of India has emerged one of the fastest growing
Industry in the country from last three years. India is considered third
largest domestic civil aviation market in the world. India has become the
third largest domestic aviation market in the world and is expected that
it will overtake UK to become the third largest air passenger market by
2024.
 MARKET SIZE
Indian passenger grew at sixteen percent year and reached three
hundred eight million by year 2018. It grew at a CAGR of 12.72 % from
year 2006 to 2018.

Domestic traffic grew by 18.28 % to reach 243 million in year 2018 and
expected to become 293.28 million in year 2020. International
passenger grew by 10.43 percent to reach 65.48 million in year 2018
and traffic is expected to become 76 million in year 2020. In year 2018 ,
domestic freight traffic stood at 1213.06 million tonnes, while
International traffic was at 2143.19 million tonnes.
India’s domestic and international aircraft movement grew 7.93 percent
and 6.3 percent to 2153 thousand and 453.61 thousand during 2018-
19.
In year 2019, passenger traffic in India stood at 3.44 million . Out of
which domestic passenger stood at 275.22 million while International
traffic stood at 69.48 million. Total freight traffic handled was3.56 million
tonnes.
From March 2019 , India 103 operational airports and government
planning to take it to 190 airports from till 2020. Rising demand has
pushed the number of airplanes operating in this sector , by july 2018
there were 620 airplanes operated in India. Now it is expected that
number may grow to 1100 plnes by the year 2027.
 INVESTMENT
According to Department of Industrial policy and promotion, FDI inflows
in India in airline sector has reached to dollar 1817.23 million from April
2000 to 2018. Government has allowed 100 percent FDI under
Automatic route in schedule air transport service and domestic schedule
passenger Airline. Indian airline Industry is expected to witness 35000
crore investment in next four years. Indian government is planning to
invest 1.83 billion for development of new airports by the year 2026.
General performance of aviation Industry
In current Airline sector is in trouble because of high cost and technical
issues . these two factors has pushed airline sector in most precarious
phase in last five years. In year 2018 was the year of profit for airlines
but in year 2019 great looses have taken place and resulted
recapitalisation. Problems that are going in Airline Industry .
 Temporary suspension of operation by Jet Airways – Jet airways was
the second largest Airline company of India and its downfall caused a
great loss to airline Industry.
 Air India has debt of 9000 crore lined up to pay in this financial year.
 GO AIR has grounded at least 10 of its 48 flight
 All most every top position of CEO is empty in many airlines
companies
 Spice jet planes are facing technical glitches.
 Grounding of Go Airline and Spice Jet Aircraft has increased burden
on Airline sector
 Long pending order of Aircrafts for domestic airlines
 Delay in technical issues is causing delay and cancellation of flights
and increasing burden airline industry
 Growth of only 4 percent in year 2019 which was 15 to 20% in
previous years.

Factors which led to the decline of Airline Industry which was in profit
slowly moved to downfall because of –
 HIGH COST AND LOW YIELDS: Jet fuel comprises of 40% of
the cost in India and taxes are very high as compared to other
 countries of the world. Fuel prices have risen by 9% this year in the
month Jan and March. About 51percent of transport expenditure
during 2018 was on airline tickets , compared with 2015 . But the
yields are lower than expenditure.

 GOVERNMENT APATHY : Fuel prices in India 35 to 40 percent more

than other countries and Indian market of aviation industry is price
sensitive market due to which companies are not able to.

 PILOT SHORTAGE: There is a great shortage of pilot , number of

pilots in India are 7963. Coming 10 years airlines would have to hire
17164. Demand is very high and supply is very low and this will lead
to 14 % shortage of pilots . Recently due to shortage of pilots Indigo
has started cutting flights from its daily schedule.

 FUTURE DEMAND AND SUPPLY OF THE INDUSTRY

Indian airline industry is largely untapped with huge growth
opportunities, considering that air transport is still expensive for majority
of the countries population , of which are nearly 40% is the upwardly
mobile middle class. Stakeholders have good chances to engage and
collaborate with policy makers and implement efficient decision that can
boost India’s civil aviation industry.

 NUMBER OF FIRMS IN INDIAN AIRLINE INDUSTRY

Airline industry is the one of the fast growing industry of India. It is
expected that by 2024, India will become world’s third largest market in
terms of passengers. By the improvement in standard of living, the
demand of airline is affected positively as there is an increase in working
group and middle class preferring airline to travel.
Also with the liberalisation of the policies in the country, the number of
private airlines in India has increased in the number of airline firms
present industry. There are many firms entering the industry. At present
there are approximately 20-25 airlines in the industry of all the
categories including full service, low cost, regional and charter airlines.
However, there are 10 airlines that have a visible share in the industry.
The dominant players of this industries are:
 1. Indigo
2. Air India
3. Spicejet
4. GoAir
5. Vistara

 INDIGO
The Indigo airline has most dominant market share in Indian Airline
Industry. It is fastest growing airline in India. It is owned by the
InterGlobe Enterprises. It has market share of more than 39% of the
industry with the revenue of two hundred thirty nine billion. It serves
all the metropolitan cities of the country ie New Delhi, Bengaluru,
Mumbai, Kolkata, Chennai. However, the Indigo airline is considered
to have largest fleet size in all the private airlines with 167 aircraft.
 AIR INDIA
The Air India s one of the oldest airline company in India. It was
established by Tata’s in 1932. It is another dominant firm in the airline
industry. It has market share of more than 13% of the industry with
the revenue of two hundred twenty two billion. It serves all the major
and small cities of India. Also, Air India has fleet size of 118 aircrafts.
 SPICEJET
Another airline firm with dominant market share in the industry is
SpiceJet. It was founded in 1933. Previously the airline was owned by
NRI group and later it was acquired by Kalanithi Maran. It has market
share of 13% with the revenue of seven thousand nine hundred thirty
three billion. It serves many cities of the country like New Delhi,
Mumbai, Goa, Chennai, Ahmedabad and many more. The SpiceJet
airline has fleet size of 58 aircraft at present.

 GOAIR
GoAir Airline also have a dominant market share in the industry. It is
promoted by Wadia group. It has market share of 8.5% of the industry
with the revenue of three thousand five hundred thirteen billion. It
serves in more than twenty three destinations across the country.
The GoAir airline has fleet size of 38 aircrafts.
 VISTARA
Vistara airline is another airline with dominant market share in the
industry. It is an Indian airline established in 2013, which has Tata
Sons and Singapore Airlines as its promoters. It has a market share
of 3.5% in the industry. It serves twenty two destinations across the
country. The Vistara airline has fleet size of 22 aircrafts in present.

 ANALYSIS OF MARKET STRUCTURE ON THE BASIS OF C4

CONCENTRATION RATIO
According to the C4 ratio which measures the concentration of four
dominant firms in the market share of industry. The dominant firms of
airline industry comprises of approximately 77% of the market share.
However as per the concentration ratio, the airline industry is
concentrated with medium concentration which means that the industry
is an oligopoly market.

TYPES OF PRODUCT

 HOMOGENEOUS PRODUCT
Homogeneous product are the product that have similar physical quality
and similar physical characteristic from the competitor or the from similar
supplier. They cannot be distingued from competing firms and can be
easily substituted with other products.
 HETEROGENEOUS PRODUCT
A heterogeneous products are those product that are can be
distinguished from the competing products and cannot be easily
substituted from one another. Which means that what features are the
most important that we have to decide. As a buyer, this means that
you have to decide which features are the most important to you.
 In Airline sector product and services offered are Homogeneous in
nature because services offered by airline companies are similar in
physical characteristic from the competitor. In airline industry all
companies are offering same service but way of offering differ from
company to company. There main service is Mobiblity In case of
Aircraft all companies are using same aircraft of Boeing series but
only modelis different. We can see that Air India is using Boeing 777-
200LR|777-300ER and Boeing 747-400 aircraft for long haul
flights. Boeing 787 Dreamliner and Airbus A321 for domestic flight.
Spicejet is Boeing 737-800 and 737MAX and other remaining
companies are having the same aircraft of Boeing series only some
features may differ. In Airline Industry all companies are offering
similar services and sometimes price may be same. In Airline
industry some services offered which are similar in nature for all
airline in India are:

 CABIN SERVICE: In cabin services all companies have similar

services provided like private suit facility, personal Led services and
seat comfort as per different class of flight. Companies are giving all
over same facility to the passengers, only difference is name has
changed only and price may differ only. As Jet Airways provide some
special facility to the passengers like carry of pets allowed, special
attention to young Patrons and 36 months pregnant womens are
allowed to have the journey

 FREQUENT FLYER PROGRAMME: In this some companies are

providing almost same services only difference is the way of
presentation , which means that companies are giving some extra
facility or they have different names like Go Airlines run the
programme with the name Go Club but all over product and service
are similar only matter is the quality and satisfaction.

 AIRPORT LOUNGE FACILITY :This service is provided by all

airlines in the sector and all over service is same only the way of
providing is different or some extra facility or feature are given by the
companies like Air India named its lounge facility as maharaja and
 Vistara airline name is club Vistara. The major service provided by
them same.

 IN FLIGHT ENTERTAINMENT

Every Airline Companies provide in flight entertainment to the customers

only the way of providing the facility changes from airline to airline like
Air India provides five Hindi and English channel entertainment for the
customers and Vistara airline provide with 70 hours Hollywood and
Bollywood of various genres and wireless -wifi service. The main aim of
airline companies is provide entertainment and all providing only
difference is the features that they are giving.
 CARGO SERVICE: Cargo service provided by airline companies is
almost same the only difference is the way the service is rendered or
extra service provided. Spice jet provides the cargo service named
as Spice express and air India named its service as cargo Air India.
We can see that the service provided is similar only the name is
different in some case area covered by them differs but product and
services are homogenous.

EASE OF ENTRY AND EXIT IN THE INDUSTRY

 LOW ENTRY BARRIERS:

The airline industry is profoundly focused and capital serious. Rivalry in
the airlines business is serious as hindrances to section are low because
of advancement of market get to, a consequences of globalization. As
indicated by the IATA( International air transport association), around
thirteen thousand new carriers were built up over the most recent 40
years. The following are the summarized point of the nature of
competition in the aviation industry:
 Low entry barriers increase competition in aviation industry. The
airline industry is highly competitive and capital concentrated.
Because of its capital concentrated nature, fixed cost and barriers to
exit are high.
 The requirement of capital for airline acquisition is high and can be
discourage new airlines from entering. The effect of this would be
 decrease because of the availability of leasing options and outer
accounting from banks, financial specialists and flying machines
maker( airlines manufacturers).
 Exchanging cost is low for clients. Despite the fact that dedication
projects are valuable to hold clients crosswise over coalitions, they,re
not exceptionally helpful in holding clients between aircraft inside a
collusion.

 EXIT BARRIERS.

Exit barriers(or boundaries to exit) are impediments that stop or the

exit of a firm from a particular market. It is related with firms that are
bringing about in some type of misfortunes, yet can't leave the market
because of exit barriers that would further build their degree of
misfortune. In Michael Porter's model of focused investigation,
barriers are an essential component to check the degree of rivalry in
an area, and characterizes the market structure in that industry. He
also identified the following exit barriers:

 NON TRANSFERABLE ASSETS: At the point when a firm contributes

on particular resources, which can be utilized in different businesses,
leaving the market infers losing those benefits.

 FIXED EXIT COST: reimbursements paid to the workers, cancelation

costs in contracts with providers and so forth.

 SYNERGIES: When creating one great take into consideration lower

cost in generation of different merchandise; leaving an industry may
suggest greater expenses when producing that good.

Despite of the fact that boundaries may have negative consequences

for certain organizations, for other people, they will be sure. Where
the few firm free other win, it very well may be viewed as a lose-lose
situation. For unusual benefits to happen in a market, obstruction
need to exit. Utilizing Joe Bain’s definition, “ Boundaries enable firms
to keep up in the long haul costs higher than normal expense.”
 EXAMPLE RELATED TO ENTRY BARRIER FACED BY
VISTARA WHILE ENTERING INDIAN AIRLINE INDUSTRY.

Vistara , as well experienced a couple of mirror bumps in its pre

launched stage with private aircrafts campaigning against its
endorsement, and delays in securing permit. The federation of Indian
Airlines, which represent almost all the domestic airlines, went to
court saying the new policy allowed foreign airlines to invest in the
exiting barriers, while vistara was a start up. The government
dismissed the opposition.
For their airmail services, the TATA has look for their appropriation of
Rs. Rs 1.25 lakh from the government yet got none. In 1932,
following three years of arrangement, an agreement was marked
between the group and the government that the Tatas may be paid
an expense based on weight and distance flown.

AIRLINE COMPANY THAT HAVE WINDED UP THE BUSINESS IN

THE RECENT YEARS.

Jet airways, the beset Indian airline, confirmed on Wednesday that it

would close down activities. Jet the second biggest transporter in
India by travelers served, has being racking on unpaid liability for the
month.

The 5 biggest problems that jet airways have to face are:

 Cost purchase
 Budget airlines
 Poor management
 Fluctuating crude
 Failure to attract investors.

PRICE STRATEGY OF INDIAN AIRLINE INDUSTRY

It’s been a far cry situation from the early years of commercial airline. At
first, it was a tightly regulated industry. The international routes were
operated by just one national carrier. This lack of options had led to
uncompetitive fares for the customers in the country.
Removal of government controls over routes, fares and market entry for
new airlines. When new airlines entered the market, competition
increased. This led to the dependent pricing, based upon the
competitors and market bearable prices. Prices are dependent on the
competitors in this industry. They fluctuate the prices as per the factors
mentioned below.
Determination of prices, as per the following factors-
 CUSTOMER
Airlines profile their regular customers, so that they could help them
adjust the air fares. These airlines firms categorize their customers into
two types. These are-

 LEISURE & BUSINESS

Leisure is being the class of customers that travel without urgencies.
They pre-plan their air travel, relatively high.
Business is being the class of customers that travel regularly for wor, on
business routes. There will be low prices at first to fill the minimum
capacity of the craft. Then, steeply the prices increase for the last minute
bookings of seats.
 COMPETITOR
Indian Airline market is a competitive market, with cut throat competition.
It is an obvious thing in the competitive market, that the cost of air fares
will be based on the existing or emerging airlines. The customer always
goes for a cheaper option. So, airlines do try to be close or lesser than
the costs of their competitors.
 TECHNOLOGY
With enhancements of technology, the pricing systems have been made
according to the benefits of the airlines firms. It has created Basic
Economy Fare with limited facilities and low cost carriers. This strategy
helps them to appear on search engines like Google. As the prices get
low, they appear on the first page on search engines.
 GOVERNMENT
Regulations by the governments, in terms of fuel prices and policies
have a great impact on the prices of the flights.
 CURRENT SITUATION
Last year, it is seen that the Indian airline industry is a competitive
market. It was expected to become the 3rd largest airline market by
2025. With such cut throat competition, India’s intensely competitive
market has made profits scarce. The existence of the weaker airlines
was seen at risk.
In the current scenario, we see downfall of certain airlines and founders
resigning the firms etc. As India pays the world’s highest jet fuel prices,
these kind of situations was meant to happen in terms of pricing and
profits.
The shakeout mode of Indian airline industry is being visible after Indian
govt. had enjoyed it’s monopoly in 1994. Kingfisher being in debt
burden, had ended it’s operations in 2012. So, prices plays a vital role
with the factors above mentioned. It is not independent of the fact that
competitors exist and people will go for cheaper options.
As rightly mentioned above, India pays the world’s highest jet furl prices,
because of the local tax structure {30%}.
With the entries of budget airlines like IndiGo and SpiceJet Ltd. since the
2000’s, full service carriers like Jet Airways that have higher prices (in-
flight meals and entertainment) – had to offer discounts to the customer
looking for cheaper flights. So, the pricing strategies of airlines firms are
highly competitive in the Indian market.
It is visible that the running cost of an airline in India, is noy
compensated by fare inputs. This downfall of the airlines in India is
because of the poor pricing strategies in the past few years.

 PRICE DISCRIMINATION
The price of the tickets, tend to increase as per the timings of booking by
the customers. Time urgency can lead to expensive tickets, whereas a
ticket booked somedays before iwll have a less price than the urgent
one. The customers that book the ticket in the neck fot ime, will have to
pay more. This price discrimination is seen widely by the Airline industry.
 STRATEGIES ADOPTED FOR NON PRICE COMPETITION
BETWEEN COMPETING FIRMS
The Airline Industry Compete through various advertisement and
promotional techniques:
 SOCIAL MEDIA: Airlines connect with its customers through social
media, they work to strengthen customer relationship by making
customer more inclined towards their social media pages and to
make them brand loyal.
Airline company uses social media in various ways ie., to provide
customer service , offer certain kinds of updates in sales and
promotions.
Example, Indigo frequently shares Instagram updates on
community initiatives in which the company participates to satisfy a
customer.

 UNIQUE ADVERTISING: Many Airlines have their unique advertising

strategies to promote different kind of products as well as their own
products to the customers these are referred to as the Traditional
Advertising Methods. Example JET focused too much on promoting
their headphones which they merged out with BOAT and sell it to the
customers.
These creative advertising strategies work further to develop a
brand.

 LOYALTY PROGRAMS: Airlines loyalty programs help the customer

to book there tickets with the same airline company. Many airlines
charge similar kind of fares for the identical trips, so this is yet another
way to gain a competitive advantage. When the customer reaches to
a certain score he can avail certain offers by the company such as
free fares, seat upgrades, Advance bookings. Loyalty Customers
book there tickets exclusively from one or two airlines to earn
benefits.
 DISTINCTIVE FLIGHT PERKS: Some of the other benefits which the
airlines are providing, is they are giving various kinds of flight perks to
its customers. This includes features like seat entertainment systems,
programmed with television web series and games. Like British
Airways is providing IPADS in its selected flights. Companies do such
things so that it can make its customers more inclined and brand
loyal.

SOME INNOVATIVE PRODUTS IN AIRLINE INDUSTRY

 Airlines installs portable wireless network, Estonian air is the first

company to install air-fi service in its aircraft a compact battery
enabled Wi-fi solution that can be kept inside a luggage locker and
requires no modification. The net would be easily accessible.
 China eastern has launched an airline specific version of Microsoft
‘XIAOLCE’ an intelligent personal assistant which allows people to
socialize within the flight it is a kind of Artificial Intelligence.
 In many Asian countries contactless payments card are a common
phenomenon. Now two airlines are allowing make payments on spot
as they use to pay same in every day payments via smart card. It is
just like that and easily accessible.
 Air-New Zealand offers its customers waiting in lounge are to order
barista’s fresh brewed coffee via its app service through
smartphones.
 Air Astana introduces an economy sleeper class service in its
aircrafts, this is another level of innovation for the customers the
customers who are unable to avail the tickets of business class they
can now afford to travel in economy sleeper class.
 The Delta Airlines have come up with a new kind of concept called as
pre loading of the luggage which will avoid congestions during the
process of boarding this will provide customer satisfaction and they
are not into any kind of confusion with regards to their luggage.
 CONCLUSION

The airline industry of India is one of the fastest growing industry in the
country since last three years. The airline market is a market in which
the industry is dominated by less number of large sellers. The
competition here is low but the prices are high. In accordance with the
game theory the decision of one company effects the strategy of the
other firm. An oligopolistic kind of competition gives raises to both wide
range and diverse results.
Some of the characteristics of an oligopoly market are-
1) There are small number of large firms. This provides the operating
firms substantial control over the market.
2) There are differentiate or identical products. The market can be
identical product oligopoly or differentiate product oligopoly.
3) There are barriers to entry. Some of the barriers are exclusive
ownership of resources, copyrights and patents of the
organization, restriction by the government, high start-up and
operational costs.

 NUMBER OF FIRMS: Oligopoly is a market structure where there

are small number of firms. In oligopoly market such as airline
industry, there is no upper limit for the number of firms in an
oligopoly, however the number of firms must be low enough that
the actions of an organization influences or impacts the working of
another organization.

In context of Indian airline industry, there are few players in the

market. They are Indigo, Air India, Spice Jet, Go Air, Vistara.

 TYPE OF PRODUCT: An oligopoly market serves homogenous

products. In the airline industry, the product and services offered
belongs to the homogenous category. In case of aircraft industry
 the main service provided to the customers is the mobility service.
This service of mobility is common to all the firms mentioned
above. Other services of airlines which are common to the firms
are Cabin Service, Frequent Flyer Programme, Airport lounges, in
flight entertainment, cargo services etc.

 ENTRY OF FIRM: The airline industry is focussed on capital

investment. There are low entry barriers which increase the
competition in aviation industry. The market is highly competitive
and capital concentrated, due to which the entry into the industry is
not easy. The exchanging cost is low for the clients and
customers.

 EXIT FROM INDUSTRY: The exit from an oligopolistic market

such as airline industry is quite difficult. Some reasons for this can
be non-transferrable assets, fixed exit cost, synergies etc.
Problems which can be seen during the exit of the company from
the market are – inability to sell the assets, reimbursements which
are to be made to the employees, workers, cancellation costs in
transactions etc.

 PRICING STRATEGY: In an oligopolistic market, as there are few

players the strategy of one firm affects the pricing strategy of
another firm. Airline is a competitive market. The cost of air fares
are based on existing or emerging airlines. Therefore the
companies try to price their services close to the opponents price
or even lesser. This helps the firms get more market share.

With enhancements in technology the pricing systems have been

made in accordance with the airline firms and consumers. There
are also some government regulations with which the airlines
prices are effected in terms of fuel and service charges.

Price discrimination is also observed in the airline industry. The

prices of the tickets tend to increase as per the timings of booking.
The behaviour shown by the firms here is opportunistic and this
way the firms increase their revenue as well.
 NON PRICING STRATEGY : Airlines compete with each other at
different levels in terms of non-price strategy. Social media
advertising, makes potential customers aware of the companies
and firms and the offers the company bring for the customers. This
brings increment in the sales for the company.

Loyalty programs are another way of keeping in good touch with

the customers. Loyalty programs bring different offers for the
existing customers which enables the customer to avail the
services offered by the company more often. There are various
discounts offered as well.

Flight Perks are some other benefits which airlines provide to their
customers. This includes entertainment systems, television, games
etc.

Promoting a company in a non-traditional way helps a firm in

getting more attention of the customers which in-turn brings more
customers to the company. As an example discussed above, Jet
Airways collaborated with Boat (Music and entertainment
company) and manufactured Jet exclusive headphones for the
customers.