Aviation Growth Case Studies, Paramount Business Case Studies India

Today, India has one of the fastest growing aviation sectors in the world. With the liberalization of the Indian aviation sector, the aviation industry in India has undergone a rapid structural change. It has experienced tremendous growth not only in passenger and cargo traffic but also in the number of aircrafts and airlines.

From being primarily dominated by government-owned airlines, Air India and Indian Airlines, it is now dominated by private airlines, both full-service airlines and low-cost or no-frills airlines. Now, private airlines control around 75 per cent share of the domestic aviation industry. Lower air fares as a result of increased competition have made air travel accessible to a large number of people which has fueled the growth of the aviation sector in India.

Brewing since July 2007, the global financial crisis started showing its true colors in the fourth quarter of 2008. The financial melt down hit the world aviation industry including the Indian aviation hard. As per estimates of the International Air Transport Association, International passenger traffic declined 1.3% in October 2008 and by 2.9% in September 2008. Fall in demand is forcing airlines to reduce capacity next year. Delta Airlines plans to reduce capacity by 6%, United Airlines by 8%, US Air by 6-8% and American Airlines by 12%.

In addition, higher fuel costs due to surging aviation turbine fuel (ATF) prices and falling yields per passenger-kilometre (PKM) have adversely impacted the profitability of the airlines especially low-cost carriers (LCCs). According to International Air Transport Association (IATA), the financial crisis combined with the tremendous surge in oil prices has placed the global aviation industry in a crisis mode. The global airline industry is expected to lose $5.2 billion in 2008 and $4.1 billion next year.

With record high fuel costs, airlines are taking drastic actions to survive. Some of these measures include suspension of flights, charging luggage fees, raising fuel surcharges, switching to smaller more efficient planes, grounding older and inefficient aircrafts as well as raising fares.

In the last 2-3 years, India's airlines industry has been growing at a fast pace. It has been a boom period for them. Most traveling Indians gave up trains and opted for low cost airlines to reach their destinations. However, the financial crisis and the surging oil prices have drastically changed the dynamics of the airline industry in India in the last quarter of 2008. According to Wolfgang Prock Schauer, CEO of Jet Airways Limited, "We have turned into an industry with negative growth rates." He further added that Indian aviation industry’s growth has slowed from 33% in 2007 to 7.5% for the first 6 months of 2008 and that in the last two months it has experienced negative growth. The number of domestic passengers carried by airlines declined by 25% during third quarter of 2008 (July - September) as compared with the second quarter this year.

With prices hovering at an astronomical $110 per barrel (approx.), it has become a challenge not only for the Indian airline industry but for all the sectors of the economy. India has the most expensive aviation turbine fuel (ATF) rates in the world mainly because of high taxes. ATF in India is 60% higher as compared to global prices. Fuel cost account for about 40-45% of the cost of airline tickets in India as compared to 35% globally. In the last six months, higher oil prices have forced nearly all the airlines in India to raise ticket prices.

Air traffic will experience negative growth in the year 2008. During January to November 2008, airlines carried 377.30 lakh passengers as compared to 392.40 lakhs in the same period last year, a decline of 3.8%.

Decline in demand and fast increasing oil prices have adversely affected the financial position of airlines in India. Indian government has come to the rescue of the airlines with a bailout package.

However, in these adverse conditions, one airline, that is, Paramount Airlines seemed to be flourishing. In the last quarter of 2008, when all the airlines including major players like Kingfisher and Jet were reducing flight frequency, cutting costs and retrenching staff to stay afloat, Paramount Airways was quietly expanding into the western region. It is also introducing a series of valued-added features including in-flight shopping, a frequent-flier program, concierge services and gifts for passengers.

It seems that the success of Paramount Airlines in highly adverse conditions would have some lessons for others to learn. This case would assist in highlighting some of the basic concepts of marketing and more.

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