Strategy For Business Group Based Assignment: Air India Express
The increasing number of Indian nationals travelling to Gulf states has decreased by almost 50% from 2015 to 2017. The decrease in demand for flights to these destinations have a major impact in Air India Express as the company has about 90% of their fleet being allocated to Gulf states. This has resulted in the decrease of load factor, which serves as an indication for Air India Express to take measures to fully utilize its capacity by maximizing load factor.
On the other hand, the number of Indian nationals traveling to countries in Southeast Asia such as Thailand and Singapore has increased. This suggests that there is a potential of higher flight demands to other countries, and Air India Express can make use of such opportunity by exploring new flight routes to cater to the needs of the passengers or assigning more planes to the designated destinations. In order to generate more profits for the company, Air India Express seeks to develop network plans that best serve the interest of the airline. The proposed strategy for Air India Express to build strong networks with existing market players to leverage on their advantages is to enter the Sky Team alliance. Consisting of 20 airlines, the Sky Team network can provide Air India Express gain more exposure to new markets and potentially expand into other countries; reduce costs; and share best practices with other airlines in order to improve business efficiency.
Introduction
Launched as a low-cost carrier in April 2005; Air India Express (previously known as Air India Charters Limited) is a wholly-owned subsidiary of Air India located in Kochi, Kerala. This airline is also India’s first international budget airline, providing convenient connectivity to short and medium haul international routes in the Gulf and South East Asia countries. Presently, Air India Express have dominated 6. 2% market share for international traffic to and from India. Operating around 583 flights per week, the airline offer flights to 18 flights within India and 13 international flights to countries mainly to the Middle East and Southeast Asia such as Singapore, Kuwait, and Bahrain. Below is the vision statement of Air India Express: To become India’s most efficient and preferred low cost carrier on regional and international routes; constantly exceeding passengers; expectations in terms of quality, affordability, convenience and comfort.
Based on its financial performance, there was a 12. 08% increase total revenue from 2016 to 2017. There was also an increase of 17. 92% in total expenses, which resulted in a decrease in overall net profit from Rs 3616. 82 million in 2016 to Rs 2967. 45 million in 2017. On the other hand, the decrease in load factor of the flights to Gulf states in recent years signifies the need for Air India Express to seek for other opportunities to enjoy increasing net profits annually.
Trends
Based on past data, Dammam, Muscat and Salalah had the highest annual growth of 17. 8% and 13. 8% for both countries respectively. Singapore, on the other hand, had shown a growth rate of 12. 8%. However, this data was last recorded in 2015. According to India Times news report, the number of Indian nationals working in Gulf areas have dropped by about 50% since 2015 to 2017. Thus, this suggests that the number of Indian nationals’ outbound departures to Gulf areas would fall. Hence, this shows that Air India Express Limited should seek to have proper planning of their fleet requirements to Gulf areas. In addition, Air India Express Limited can consider looking into introducing new flight routes to countries such as Thailand. With reference to the data from 2008 to 2015, the number of Indian nationals travelling to Thailand has a CAGR of 15. 8%. This indicates that there is a potential for high demand of flights to Thailand.
Proposed strategy #1- Planning of fleet requirements and new flight routes
Due to slowing economies and weaker oil prices in Gulf areas, there has been a significant decline in the number of Indian workers working in Gulf areas. Air India Express Limited has been focusing their fleet on Gulf routes due to the large number of Indian national workers working in these areas previously. Currently, the company has about 90% of their fleet being allocated to Gulf areas, which led the company to suffer a decline in revenues and passenger load factor on these routes. Therefore, there is a need for the company to have proper fleet planning to the Gulf routes and allocate their fleet to other routes with higher demands or introduce new flight routes. One of the ways is for Air India Express Limited to consider cutting down on the number of flights travelling to Gulf areas due to the drop in demand for these areas. Although the data of Indian nationals outbound departures in Table 1 was last updated in 2015, it is observed that the number of Indian nationals travelling to Gulf states is a lot. With reference to the India Times report, there has been a significant decline in the number of Indian nationals travelling to Gulf states. Since the load factor of the company had decreased from 82. 3% in 2016 to 75. 9% in 2017, Air India Express Limited should identify the demand for flights of Indian nationals travelling to Singapore. On the other hand, there was a significant number of Indian nationals travelling to Thailand. As Air India Express Limited currently does not fly to Thailand, they should consider introducing a new flight route. The company can obtain information through surveys and website cookies to monitor the demand of flights to Thailand before they decide whether to start a new route. After which, the company can decide on the size of the plane that should be used for their new route so that the load factor would be high. In the meantime, Air India Express Limited should still focus on increasing the load factor for existing routes before planning on starting a new route.
Analysis of Operational Performance
The ASK for Air India Express Limited had increased from 8, 730 million in FY 2015-16 to 11, 574 million in FY 2016-17. This constitutes to an increase of 33%. However, the passengers carried had only increased by 22%. At the same time, the RPK had also realized a 22% increment. The load factor decreased from 82. 3% to 75. 9%, which is a decrease of 7. 8%. This suggests that Air India Express Limited has failed to attract sufficient passengers despite having their capacity increased. The passenger yield had also realized a decrease of 6. 3% from Rs3. 97 in 2016 to Rs3. 72 in 2017. On the other hand, the RASK excluding oil had also seen a decrease of 13. 8%. As the decrease in cost did not match with the change in passenger yield, it is critical for Air India Express Limited to increase their passenger yield. Passenger yield will increase along with increasing number of passengers being carried on the plane. Profits will increase when the cost per ASK decreases. Thus, Air India Express Limited should have efficient measures taken to increase the number of passengers carried; which will increase the load factor, leading to more profits being generated.
Streamlining of flights
With reference to the 2017 annual report, the load factor of Air India Express Limited is low at 75. 9%. This is a decrease of 7. 8% from the 82. 3% in load factor in 2016. As there are fixed costs being incurred for each flight - i. e. the crews, pilots and the fuel regardless of the number of passengers on board, it is important that Air India Express Limited increases the load factor so that they can reduce the overall cost per passenger and increase the revenue per flight at the same time. Air India Express Limited can accomplish this by analyzing their data. Through data analysis, Air India Express Limited can identify which flights and routes have high or low load factor. The company can then determine if they are able to match the size of the aircraft according to the load factor. For example, smaller planes can be used for routes that has low load factor. This will enable Air India Express Limited to increase their load factor. Additionally, flying a smaller aircraft implies lower costs for the company. Hence, this will lead to an increase in profits.
Proposed Strategy #2 - Develop and strengthen networks
In the long run, Air India Express Limited have the intention to develop network plans that best serve the interest of the airline and implement the strategy for growth. On the other hand, Sky Team, an airline alliance consisting of 20 carriers from five mainlands are seeking to strengthen their network to meet the flight demands of their customers from countries like India and Brazil. Therefore, Air India Express Limited should attempt to enter the alliance with Sky Team. Founded in June 2000, the Sky Team network schedules up to 17343 daily flights to 1074 destinations in 177 countries through its existing 20 carriers. The alliance and its members have a total of 564 lounges worldwide to serve an annual amount of 588 million passengers and total workforce of 459, 781. Sky Team can also offer extended network benefits to the customers of Airlines that are not flying certain routes or market. The airlines can also share actual applications or ideas to improve its operations such as IT system.
Sky Team Airline Member Benefit
Air India Express Limited can benefit themselves by gaining greater brand recognition, improved market position, able to reach out to new destinations and provide better service to their customer. On top of that, they will be able to cut down on costs and share best-practices with Sky Team. Air India Express Limited can increase their brand awareness as a member of Sky Team is mainly due to the exposure to new markets and expansion into key regions of the world. This will provide network to their customer and increases Sky Team’s global presence at the same time. Sky Team Airline Customer Benefit As stated in the annual report, Air India Express Limited’s mission is to exceed passenger expectations in terms of quality, convenience and comfort. Through the alliance with Sky Team, they will be able to serve their customers better.
Sky Team Carriers are fully committed to improve customer experience. With almost 600 lounges, passengers can relax at the lounge area while waiting for their flights. The Sky Priority is a service that was implemented to serve their customer better by shortening their check-in, boarding and collection of their baggage processes. Aside, the Sky Transfer - which provides for a seamless and straightforward transfer - allows passengers to skip the queues during check-in with Sky Priority. Passengers can drop off their baggage conveniently at the specific lanes at the Sky Priority drop-off points. They can also provide priority transfers by issuing a specific lane on their boarding passes. Lastly, they provide priority boarding which allow their customers to board first without queuing.
Benefits for frequent passengers
Passengers are able to earn miles by flying on any qualifying Sky Team flight. They can just simply provide membership ID to book a flight, reserve their preferred seats, and to check-in. As such, the miles will be automatically calculated and credited into their account. Customers are able to redeem their miles easily for rewards such as free flight tickets on any Sky Team-operated flight.
Conclusion
In order to ensure load factor does not decrease, and enjoy annual increment in profit, it is important for Air India Express to remain up-to-date with the changing demands for flights to different destinations; as well as the changing needs and wants of passengers. In order to achieve both objectives, the company should strive to better manage their fleet allocation; and maintain strong networks with existing market players in order to remain competitive and improve its business operations to meet the expectations of their passengers. In support of the two proposed strategies - introducing new flight routes and reallocation of fleet, and developing new networks by entering the Sky Team alliance - Air India Express should also adopt initiatives to improve the performance of the company. For example, they can increase the number of passengers taking the flight, cargo, excess baggage revenue through marketing activities or better sales strategy. They may also explore restructuring their human resources such as to reduce on contractual employment or to outsource agencies. Lastly, they can consider phasing out old fleet and consequent reduction in maintenance cost.
