Nottingham University Business School

MBA Programme

[MARKETING (N14M04-E1)]

AirAsia: The Indian Challenge

(48 Hour Individual Exam Report)

[Racha Zohour Adi]; Student ID: [013142]

Original Copy [1]

Word Count: 3,030 (Excluding Table of contents, Executive Summery, Tables, References and Appendix)

AirAsia: The Indian Challenge

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Table of Contents

Executive Summary: ................................................................................................................................ 3

Introduction: ........................................................................................................................................... 4

Marketing Environment Analysis: ............................................................................................................ 4

1. Political-Legal: .............................................................................................................................. 5

2. Economical: ................................................................................................................................. 5

3. Sociocultural: ............................................................................................................................... 6

4. Technological: .............................................................................................................................. 6

5. Natural: ....................................................................................................................................... 6

6. Demographics: ............................................................................................................................. 7

AirAsia Situational Analysis against the Marketing Environment .............................................................. 8

SWOT Analysis ..................................................................................................................................... 8

Strength........................................................................................................................................... 8

Weakness ........................................................................................................................................ 8

Opportunities .................................................................................................................................. 8

Threats ................................................................................................................................................ 9

Product Market Growth: ...................................................................................................................... 9

Market Positioning ................................................................................................................................ 11

Integrated Marketing Communications Strategy .................................................................................... 12

Conclusion:............................................................................................................................................ 15

References: ........................................................................................................................................... 15

Appendix ............................................................................................................................................... 18

Background information about Indian Economy ............................................................................ 18

Business Scenarios of TATA-SIA Joint Venture ................................................................................ 19

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Executive Summary:

AirAsia, the leading low cost carrier in Asia-Pacific region, has started its new expansion plan

into the massive Indian aviation market as an LCC domestic and international operator. As the

first foreign operator in this huge competitive market, it’s crucial for AirAsia to implement

efficient marketing strategies in order to meet its objectives. The marketing environment is

threatening but promising and has high potentials and opportunities, and with the strengths of

AirAsia the decision of entering the Indian market is a worthy challenge. However, AirAsia

should position itself basing on its competitive advantage as an ultra-low cost carrier who is

going to develop the connectivity of Indian aviation routs and with keeping costs as low as

possible by efficient aircraft utilisation. In order to build its brand identity in India, AirAsia must

employ all marketing communication platforms basing on Indian consumers behaviours and

what they are mostly affected with.

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Introduction:

The aviation sector is a major contributor to India’s economy, it provides 1.7 million jobs

through its long supply chain and which are 10 times higher than average jobs in terms of

productivity and income (Oxford Economics, 2011). The aviation market has 150 million

travellers through its airports and is expected to reach 450 million by year 2020 which will make

it the third largest aviation market globally. (IATA-The International Air Transport Association)

These numbers are tempting for any foreign airline operator and indicate a promising

opportunity, according to United Nations Conference on Trade and Development, India is the

second most important foreign investment destination after China. But until late 2012, the

Foreign direct investment policies in relating to foreign companies did not allow these

companies to own more than 20% of stake in Indian carriers, as soon as the 1996 policy has

been revised to allow up to 49%, the major leading low cost carrier in Asia-Pacific (AirAsia)

announced its aggressive expansion plan into the Indian market by forming a joint venture with

TATA Sons and Amit Bhatia by 49%,30% and 21% of holding respectively, forming the subsidiary

(AirAsia India).

Entering the Indian aviation market as the first foreign operator is a huge multi-faceted stride

for AirAsia and upsurges crucial questions. Given the marketing environment forces in India and

the new customers base, is it a feasible opportunity for AirAsia to enter this challenge? What

are the procedures which can be taken by this leading operator to dominate or even survive

this predatory market and how they can be implemented? And what types of marketing

strategies and communications can be employed to gain its market position especially under

the situation where one of its shareholders TATA Sons owns another airline operating in the

same market?

This report is aiming towards addressing those key questions, by analysing the Indian aviation

market environment against AirAsia’s situational analysis, and obtains findings in order to reach

recommendations for strategies which could be implemented to serve the objectives of the

expansion plan of AirAsia.

Marketing Environment Analysis:

An extremely competitive market with 21 currently operational airlines varying between Full Service Carriers (FSC) such as the national flag carrier Air India and Jet Airways (which offers low fares on regular basis) and mostly to Low Cost Carriers (LCC) which are currently dominated by

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SpiceJet, IndiGo and GoAir. Multiple other airlines have exited the market due to this stiff competition which caused financial losses to airlines like (Kingfisher), which was a major operator but exited the market in 2012.

Each two of three seats flying through domestic routes are operated by LCCs which makes it of the highest percentage in the world. This is a very competitive market and each airline is striving to provide high levels of quality service and more focus on customer satisfaction. LCC on-time performance and reliability, consistency, cabin crew service standards and ground product mostly on IndiGo, are equivalent with or even better than on FSCs. The Baggage allowances on discount fares are the same on all carriers.

However, the costing structure for these airlines is significantly different, which will lead to these operators shaping distinguished market propositions which may range from the ultra-low cost model to the hybrid and the premium full service level.

There are major environmental forces which affect the marketing environment for aviation

sector in India, these factors are as following:

1. Political-Legal:

The new updated rule by FDI of allowing 49% for foreign airline investments rather than only

institutional and individual investors has shifted Indian aviation sector from regional to global. It

will open the Indian airlines to more opportunities but also to high threats. The foreign

operators will be able to control their revenue from Indian market and thus control the local

growth ambition, strategic and financial gains. All in all, the local airlines are not under the

protection of the state anymore, and foreign investments are queuing to enter the market. The

government has also allowed the code sharing policy to take place among certain airlines,

which increases flight costs efficiency.

2. Economical:

Indian aviation sector counts for 1.5% of the GDP. The strong growth for passenger traffic by

19% (ICRA 2012) is aided by floating economy, higher disposing income and low penetration

levels compared to the US where a person takes 2 trips per year in average, this shows a large

gap between the current penetration levels and potentials which indicates an enormous growth

opportunity.

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3. Sociocultural:

The travel trends in the diverse Indian society are rapidly changing. Google India latest

travel trends perspective indicated growing number of Indians preferring destinations

outside India. However, the same survey showed that travellers are looking for budget

trips through long haul low cost carriers. Also new untapped destinations are being

explored more by Indian travellers where most of these places lack airline connectivity

or airport infrastructure.

Large numbers of Travellers in south India still use railways and do not afford flight

tickets even on LCCs; another reason is the lack of full connectivity in this part.

Millions of Indians work in the gulf countries and they perform regular trips to India

during holidays. Long haul low cost airlines in India still do not provide full routes to

these destinations.

Furthermore, the merging of Indian LCC and FSC products has resulted in a rising

acceptance of LCCs, even amongst business travellers.

4. Technological:

The aviation sector in India is continuing to operate in a high cost environment: High taxes

on Aviation Turbine Fuel (ATF), high charges for using airports, high congestion in major

airports, , increased fleets by airlines.

The issue of shortage of operational, managerial and commercial experienced pilots has

been addressed by Indian government, and the process of establishing an aviation

university has been started. Where advanced aviation studies and professional training,

research and development will be offered and endorsed. (Indian Government National

Portal)

5. Natural:

Besides the uncontrollable whether conditions, the ministry of environment in India sets

policies on airports to ensure meeting environmental objectives. However, these policies are

still not strictly enforced especially in secondary airports where it decrease costs in comparing

to European airports. This overall affects the surcharges of airports on airlines.

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6. Demographics:

The major impact on aviation sector in India is the income and occupation, where education

level has no impact. It affects the prices charged by airlines and the media platform of

advertisement. (The Journal of Sri Krishna International Research & Educational Consortium)

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AirAsia Situational Analysis against the Marketing Environment

SWOT Analysis

Strength

A well established regional brand with a long experience as a low cost airline and it is successful at utilization efficiency

The larger LCC in Asia with 122 aircrafts

It holds operational freedom and full control in the joint venture

It has operations in a good number of destinations and hubs in many airports internationally

It has subsidiaries in other countries in Asia-Pacific which serves its operations

AirAsia is a strong promoter and has a successful history in marketing communications

It has the advantage of the first LCC airline to expand out of its market and the first mover into the Indian market

A business model depends on economies of scale where volume matters over yield

Weakness

Not too many routes especially in comparison to Indian market leaders

Intense competition from other rivals especially SpiceJet, AirGo and IndiGo

Opportunities

Many LCCs are moving towards hybrid model, such as IndiGo and GoAir where they provide low cost flights and also full service flights, this means those airlines are moving up the value chain and leaving a space for an ultra-low cost business model to be occupied. (CAPA)

Long haul flights on Indian LCC has been proved to be underperformance such as IndiGo when it exited Delhi/Mumbai-Singapore routes, this is an advantage for AirAsia as it became experienced in long haul flights through AirAsia x with more aircraft utilization.

As AirAsia has hubs in Kuala Lampur, Bangkok and Jakarta, AirAsia India can aggressively expand on short haul international routes from points such as Chennai and Cochin in south India and offer one stop service to various destinations across Asia.

Chennai is the capital of Tamil Nadu and has large movement thru Southeast Asia and Gulf countries, it has a big potential to be a robust LCC hub which connects the ASEAN, South Asia and the Middle East

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with one stop flights on routes such as Jakarta-Riyadh.

The other two foreign entries into the market: Etihad-Abu Dhabi with Jet Airways and TATA-SIA will focus on using Abu Dhabi and Singapore airports as hubs and will provide full premium service and align their strategies with their partners, this is an opportunity for AirAsia to operate as a new long haul nonstop competitive LCC flights using India ‘a LCC hubs and advantages from its geographical location. (CAPA)

Three billion unserved potential travellers in poor connectivity locations, AirAsia can create the demand in this market.

Threats

The rising on fuel costs and government taxes and airports surcharges

New other foreign or local Entrants into the market especially after the new FDI policy

Table 1: SWOT Analysis of AirAsia India

Product Market Growth:

According to the Product-Market Growth Matrix by Ansoff, the combination of which AirAsia

India is now considering is the market penetration strategy. Here, AirAsia India is entering an

existing aviation market for LCC offering an existing product by other competitors. The best way

to accomplish this is by acquisition of competitors' customers (meaning acquiring part of

competitors’ market share). Another way is acquiring consumers who did not use the product

before and in this case AirAsia India is the candidate to target the three billion potential

travellers in poor connectivity locations such as South India. Airasia is a strong advertiser and

promoter and is able to achieve this, giving it’s the minimum risky technique for a company to

grow.

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Figure 1: the position of Airasia India in Product/Market Growth Matrix

Based on the previous analysis for the Indian aviation marketing environment and AirAsia India

situational analysis, we can notice that the factors in the marketing environment and the

opportunities and strengths of AirAsia nominates and recommends the decision of entering the

market. First, AirAsia will offer its service in locations underserved by other Indian LCC airlines,

it will gain new customers base by providing (ultra-low costs) which are not provided by other

airlines, it will also use a secondary airport which reduces high airport surcharges in New Delhi

and Mumbai airports, it will avoid high congestion and therefore improve efficiency utilization

and with its long experience in managing the lowest costs and efficient supply chain, AirAsia is

likely to successfully deal with the costs of fuel and other supplies. The future opportunities for

expanding its fleet size and offering long haul services as mentioned earlier is promising giving

that AirAsia has international hubs. The partnership with TATA group will ease its governmental

procedures and provide aid in dealing with local market suppliers. Airasia has a high potential of

being the market leader in India giving its experience in its business model and marketing

communications. However, AirAsia entry will increase the competition in the market intensively

towards the end of 2014 and must consider exceptionally firm marketing strategies to meet its

expansion objective.

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Market Positioning

Airasia India is segmenting its marketing towards customers based on geographical and

demographics segmentation. First, it will focus on south India like no other rival has done

before. It will open new routes and tourist destinations in the region. Travel Trade experts

indicated that most travellers to Southeast Asia are from southern Indian states.

Second, based on demographics segmentation, AirAsia is planning to target the segment of

customers who has a low income in a way they cannot afford an airline flight ticket even on the

lowest fares and depend only on roads and railways. Airasia is benchmarking its fares to first

class rail tickets in order to offer the ultra-low cost fares. Yet it will still keep 20 of 185 seats on

its aircrafts for fliers who are willing to pay extra cost for higher services.

However, AirAsia will need an innovation plan for positioning and marketing itself in the

aviation market. The competition is high and differentiation strategies must be employed as

following:

Airasia firstly need to identify its competitive frame of reference, which are the LCC rivals in

India such as SpiceJet, IndiGo and AirGo.

Then it needs to analyse the points where it can differentiate itself from its competitors

(Point Of Difference POD) where it needs to create strong, favorable and unique brand

associations based essentially on low cost and new untapped routs options.

It needs to educate the targeted customers on the favourability of the ultra-low cost flights

it offers on roads and rail options. It needs to communicate its PODs clearly for potential

travelers and create the customer advantage with its competitive advantage which

eventually will lead to customer value and satisfaction and expanding its customer base.

For example AirAsia can consider its competitive advantage is offering the lowest fares,

consuming under-utilized airports and improving the connectivity within India.

In Malaysia and other Asian countries where AirAsia operates, it applies the policy of zero

allowed baggage and relies on the revenue from ancillaries. The situation in India is

different. Airlines are not permitted to charge a fee for preferential seats or baggage.

Airasia have to create a “distinctive identity” to compensate for this absence of its ancillary-

revenue stream. AirAsia cannot create a brand identity on the foundation of gaps in the

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market. It will need to create a conclusive differentiator in the value proposition of the

airline. In India small segments, a source of concern for the travellers is the absence of a

guarantee that the supposed flight will even take off. In busier airports there are many

flights at diverse times during the day. Secondary and Smaller airports have less clutter of

flight boards. Sometimes only a single flight is taking off in a day. And if that doesn't

happen, the traveller is trapped. AirAsia India can build its brand as a reliable operator that

ensures operational efficiency.

An airline Brand identity saturates commencing the entire experience a traveller has with

the airline. Begins from the check-in counter and encompasses to the time of landing at

destination. The Designing of the facilities uniquely and giving attention to the airline visual

identity is the key success factor for building the brand perception in the mind of the

traveller

The tie-up between AirAsia and TATA can strongly serve AirAsia’s identity building if for

example TATA name was used as suffix or prefix or at any particular manner through its

marketing communications, it will boost the credibility characteristics of AirAsia India.

India is a wholly different subcontinent from south East Asian countries which hosts

different cultures. Indians consider food as an equivalent of respectable hospitality. Airasia

India can differentiate itself by adding complementary food which is suitable with the Indian

palette. A traveller may forget everything related to his trip but surely not the food he/she

has been served. It can by this way or by adding other cultural relevant services to form an

“all- inclusive Asian brand identity”; Indian travellers will be far more comfortable in

accepting the airline and narrate to it.

Integrated Marketing Communications Strategy

Under the expected circumstances and scenarios of business models of TATA-SIA (please see

appendix for further information), AirAsia should prepare the right strategy to secure its

position in the market by differentiating itself on all possible levels and by using the correct

marketing communication mix to attract the largest number of customers.

As its focus on a new segment in areas of poor connectivity, AirAsia should follow an aggressive

marketing communications which has the highest impact on low income consumers. Based on

the previous marketing environment in India and situational analysis for AirAsia India, it should

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educate potential customers on its products and services and clearly differentiate itself of other

competitive airlines. It should make sure to raise the awareness among its targeted customers

Word of mouth is the first communication method to focus on. Consumers in this

segment are more affiliated with their groups as a source of reliable information and

reference. There are cultural differences between this segment and high-income

segment as the second segment feel more individualism to generate an independent

purchasing decisions (Burgess and Steenkamp, 2011), (Cayla and Arnould, 2008). The

first key success factor for AirAsia is fulfilling its promises of providing ultra-low costs

and value for money without compromising quality of service. This will be spread into

the targeted segment firstly by word of mouth of travellers.

Hiring Indian cabin crew and customer service representatives is essential to emerge

within Indian market and better communicate and understand customers’ needs and

pursue their satisfaction.

Advertising through billboards, posters, display signs and print ads in these areas with

large images, bright colours and less text will attract customers and deliver the message

to recall when deciding on a travel trip.

Sales promotions through contests and lotteries can be of high impact. For example,

when a customer purchases a ticket online this entitles him to enter a draw to win

another free ticket to a desired destination, or offering two tickets in price of one ticket

on seasonal basis. Consumers perceive this as value for money.

Direct and interactive marketing communications through weekly or monthly online

newsletters which advertises upcoming promotions and discounts on flight fares and

services is an effective method and low in cost.

Indians love watching the TV, movies and music. And this is a huge field for AirAsia to

benefit in. In-film branding featuring AirAsia especially in movies released by languages

dominant in south India is a powerful technique for building the brand connection with

customers. TV advertisements and Radio advertisements are also an essential type of

communications.

Celebrity endorsements and celebrity ambassadors to AirAsia India has a great effect on

promoting the airline. Consumers in India are affected by celebrities of desired qualities

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and it affects the buying behaviour, it attracts and rises purchasing of the product

(Shekhar, B. Raja & Bhaskar, N. Udaya., 2009). The spirit of the AirAsia brand is always

promoted as innovative, bold, progressive and dynamic. And it affects every aspect of

AirAsia, aircrafts, cabin crew attires, website, etc. The brand ambassador to be chosen

should also represent those criteria, and must be recognized across the nation,

especially in south India. She/he could be an actor and a performer/singer that reflects

the spirit of Airasia and fits in the Indian culture.

Airasia can sponsor sporting events and sport teams in India which gives a great opportunity to massively reach the market. Indians love sports-especially cricket- and are greatly attached to the Indian premier league tournaments. This national obsession cannot be replaced towards other sports like football; therefor the ownership of Queens Park Rangers club by AirAsia will not benefit its objective in the Indian market. Unless the trend moved towards football in the near future. But the nationwide passion to cricket will remain and hence Airasia must sponsor a team in the IPL and promote events for it.

AirAsia India can partner with the famous Indian travel websites to sell its tickets to Indian market with no added fees. Through its presence in these websites and all online advertising mediums it can guarantee a larger range of distribution and customer reach.

Social media such as Facebook and twitter should be vital in AirAsia’s IMC plan, Indian customers are heavy users of social media. Here, marketing intelligence can be effectively used. By tracking the preferences of customers and place ads accordingly.

Mobile communications such as customised AirAsia application that enables the customer to book a flight through mobile, receive e-ticket barcodes and scan it at airport.

Tie-in with famous national brands will keep the brand in the customer’s memory for longer period.

The proposed strategies should be creatively executed and results should be assessed and

evaluated consistently to ensure sustaining a differentiation marketing strategy for AirAsia

among its competitors.

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Conclusion:

Airasia entry into the Indian market as a domestic and future international low cost carrier is a

great but promising challenge. The environmental and situational analysis shows a horizon of

opportunities for AirAsia to grow in Indian aviation market. However, the competition is fierce

and increasing by time and the newly formed joint venture should be prepared with aggressive

market positioning plans and market communications strategy. India is a sub-continent with a

highly diverse culture which differentiates it from Southeast Asian countries where AirAsia has

experience in. It is a tough mission for Airasia to create the brand identity and loyalty.

Executives should carefully study the Indian market and understand customers’ behaviours,

wants and needs and act upon results. By following precise strategies, AirAsia can achieve

customer value and satisfaction and therefore obtain its competitive advantage.

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Appendix

Background information about Indian Economy

India is a sub-continent with population exceeded 1.2 billion, it’s ranked as tenth largest in the

world by nominal GDP, and has the third largest PPP (Purchasing Power Parity). (International

AirAsia: The Indian Challenge

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Monetary Fund,2013). It has a fast growing economic rate and expected to surpass the United

States in the coming decades (Goldman Sachs, 2007). It has a great diverse geography, culture

and societies, which makes it a huge potential market with a stiff competition on all levels.

However, India will continue to stay a low-income country which will always affect the

consumer behaviour and purchasing decisions.

Business Scenarios of TATA-SIA Joint Venture

In light on the tie-up between TATA and Singapore airlines, there are two scenarios of expected future business between the two. The first scenario, and as declared, is that Singapore airlines will serve in full service segment which is not the same segment where AirAsia is operating and there for the two airlines will not compete with each other.

However, the competition is difficult to avoid in domestic routes. If TATA-SIA offered a hybrid service rather than premium to match the market realities, the differentiation gap with AirAsia will be reduced. Giving that AirAsia is pursuing an aggressive expansion and growth plan; the two carriers are probably going to come up against each other.

It could be easier to segment the traveler markets on the international routes as there is a great differentiation between both airlines in long haul services and destinations. Airasia must focus on labour and leisure routes. TATA-SIA will target corporate markets. In terms of destinations, TATA-SIA will operate to major airports while Airasia will operate to secondary and smaller airports. (CAPA)

The other scenario is that TATA-SIA may end up like Jet Airways, which initiated as a full-service

carrier, and then had ventured into the LCC market (with JetLite and Konnect), to retort to the

changing market conditions, and now almost 50% of Jet Airways capacity is in LCCs. Singapore

airlines have also two LCC (Tiger Air and Scoot) and locked with Airasia in intensive competition

in Southeast Asia, China and Australia, and if both airlines started international flights from

India, the competition is going to be more intense.