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Playing a fare game
Will Air Deccan`s value proposition it sustain a change in weather?
Gouri Shukla / Mumbai January 11, 2005
It was the kind of launch all marketers dread. In September 2003, the inaugural flight of Air Deccan, from Hyderabad to Bangalore, was grounded after the aircraft caught fire in front of the media and the VIP crowd that had turned up for the high-profile event.
No one was hurt, but Air Deccan’s image took a severe beating. Despite that less than flying start, though, Air Deccan shines in the ninth Brand Derby as the second-most successful brand launch — 25 per cent of the respondents voted it as the most successful brand launch.
The overwhelming response in the Derby is that Air Deccan is a clear winner, mainly because it was a new, innovative product — India’s first low-cost airline.
Says G R Gopinath, co-promoter and managing director, Air Deccan, “When you’re launching a new product in any competitive market, your idea has to be unique and powerful. More than that, it has to be really innovative so that it will capture the imagination of the masses.”
That was especially true in a market that has been more or less divided between national carrier Indian Airlines and private airline Jet Airways. Gopinath’s strategy was simple — make air travel simpler and affordable.
“Only then will it appeal to the masses,” he explains. To carry that idea through to its logical conclusion, Air Deccan’s strategy rested on three propositions.
One, that it was meant to be a lowest-cost, no-frills service provider. Two, it would focus on connecting smaller towns and areas that were not really covered by other airlines frequently.
The third part of the strategy was, as Gopinath puts it, audacious. If the airline was to offer lowest fares, it also had to be low on costs. So from day one, Air Deccan junked paper and operated on a 100 per cent e-transaction ticketing model. True, 40 per cent of its ticket sales happen through travel agents, but even there, all the booking and transactions are online.
The paperless transaction model has helped save costs by 18 to 20 per cent compared to other airlines, claims Gopinath.
Also, like international low-cost airlines, Air Deccan is exploiting every possible revenue source. The complimentary in-flight meal has been done away with; instead, the airline sells food and beverages on flight.
Then, advertising is permitted inside the aircraft and even the in-flight movies have sponsors who advertise during commercial breaks.
While advertising contributes 3 to 5 per cent of the total revenues currently, in-flight sales contribute 5 or 6 per cent. Gopinath plans to double both revenue streams in the next one year.
With tariffs at least 50 per cent cheaper than scheduled airlines and only a little higher than rail travel, Air Deccan also limited (25 per cent) seats at Rs 500 to Rs 700.
That certainly has helped, since currently the airline flies 96 to 100 flights a day, utilising almost full capacity, claim company sources.
The branding proposition was even easier, since it reflected the core strategy of the brand — make air travel simpler. Since its launch in 2003, Air Deccan has been moderately visible in low-cost print and outdoor media (business and travel magazines and select dailies as well as limited outdoor media).
The ads simply carry the logo, a single word tagline — “Simplify” — and flight schedules and ticket rates. “There was no special effort towards branding in the first year. We rested on our differentiated offerings (cheap air travel and access to smaller towns) to create the brand,” says Gopinath.
Air Deccan has recently started advertising on television as well, which must have considerably increased the company’s ad spend from the earlier Rs 2 crore.
The simple consumer proposition and an eagle eye on costs has helped Air Deccan take off in a big way.
Despite a thin fleet of 12 ATRs and three Airbuses, the company has already grabbed 7 per cent of the market (going by the number of passengers the airlines flies every year).
Gopinath says Air Deccan’s costs are at least 50 per cent lower than that of the bigger airlines, which is why it can aim to earn Rs 450 crore by March 2005.
But Air Deccan may be up for some turbulence ahead. For one, so far, over half of Air Deccan’s flights connect small towns where there is little or no competition.
But as it strives to become a pan-Indian player, the airline may find its current strengths insufficient. For instance, Air Deccan leased turbo-prop ATRs, which suited its small-scale operations, but are not the right aircraft for metro routes.
To be fair, the airline has beefed up its fleet by adding new Airbuses, but that creates its own set of problems — it’s not easy to maintain a huge fleet on a low-cost budget.
Then there’s the competition. Air Deccan’s success has ushered in a horde of low-cost airlines like Vijay Mallya’s Kingfisher Airlines, Yamuna Airways, Indus Air and Bombay Dyeing.
Meanwhile, the existing players have become aggressive in their pricing as well; recently Indian Airlines dropped its tariffs to match Air Deccan and offered Fly Select fares (discounts on select tickets) on three flights from Delhi and Mumbai. And Air Sahara is repositioning itself as an economy airline with schemes like StealFare.
The second-biggest launch of the year needs to brace itself for all this. After all, price is what brought in passengers, price is what may fly them elsewhere, too.
From Business Standard
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Ribandar
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