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ITM,VASHI 
Service Marketing 
The Low Cost Airline: AirAsia 
Arun Balkrishna Khedwal 
2nd August 2014 
Ref No: VAS2012XMBA25P001
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Chapter No 
Topic details 
Page No 
1 
Introduction – Service Management 
3-24 
o Reasons for Growth of Services 
o The 7Ps of marketing 
o Service Quality 
o The GAP Model 
2 
Airlines Management 
25-34 
o Decision levels of airline management 
o Airline Planning and Operations 
o Airport Facility and Staff Planning 
3 
AirAsia Case Study 
35- 54 
o Market Size, Road ahead & Government Initiative 
o Top aviation companies in India 
o History of low cost airlines 
o AirAsia 
o Challenges faced by AirAsia in light of external development 
o Critical success factors in the Low cost airlines in Asia 
o Low-cost airline principles 
o Limit personnel costs 
o Simplicity 
4 
Conclusion and Recommendation 
55-56 
o Conclusion
3 
1.1 Introduction 
Consensus has not yet been reached on a definition of a service. Some definitions have been broad, such as that by the often quoted Economist which defines services as 'those fruits of economic activity which you cannot drop on your toe; anything from banking to butchery, acting to accountancy' and one referred to by the Australian Coalition of Service Industries that services are 'all economic activity other than mining, manufacturing and agriculture'. 
Two similar definitions that are easy to remember and capture the essence of a service are those by Rathmell (1974) who states that 'goods are produced: services are performed'; and Berry’s (1980) definition that 'a good is an object, a device; a service is a deed, a performance, an effort'. 
Services definition:- 
The term “services” covers a heterogeneous range of intangible products and activities that are difficult to encapsulate within a simple definition. Services are also often difficult to separate from goods with which they may be associated in varying degrees. 
Early conceptualisations of services marketing focused on how services differed from tangible products. Some researchers at the time doubted that any differences existed. Today, services have been accepted as being different on many grounds some of which area as having characteristics that distinguish them from tangible products. 
In simple words, services are deeds, processes, and performances. But, the increasing interest in the services sector has been accompanied by considerable disagreement and debate as to what constitutes a service and whether service marketing is a distinctive subject area. In order to develop clarity on service as a concept, it is desirable to look at the way various researchers and scholars have defined it over the years. 
One of the first to define services was the American Marketing Association which as early as in 1960 defined services as “activities, benefits, or satisfactions which are offered for sale, or provided in connection with the sale of goods”. This definition took a very limited view of services as it proposed that services are offered only in connection with the sale of goods. 
The other definition which was proposed in 1963 by Regan suggested that “services represent either intangible yielding satisfactions directly (transportation, housing etc.), or intangibles yielding satisfactions jointly when 
Chapter 1: Introduction
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purchased either with commodities or other services (credit, delivery, etc.)”. For the first time services were considered as pure intangibles - capable of providing satisfaction to the customer and can be marketed like tangible products. 
Robert Judd defined service as “a market transaction by an enterprise or entrepreneur where the object of the market transaction is other than the transfer of ownership of a tangible commodity”. 
In 1973 Bessom proposed that “for the consumer, services are activities offered for sale that provide valuable benefits or satisfactions; activities that he cannot perform for himself or that he chooses not to perform for himself”. 
Another definition given by Blois in 1974 says that, “a service is an activity offered for sale which yields benefits and satisfactions without leading to a physical change in the form of a good”. 
Stanton proposed a definition in 1974 and defined service as “Separately identifiable, intangible activities which provide want satisfaction when marketed to consumers and/or industrial users and which are not necessarily tied to the sale of a product or another service”. 
Kotler and Bloom in 1984, defined service as, “any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product”. 
Gronroos defined a service as “an activity or series of activities of more or less intangible nature that normally, not necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solution to customer problems”. 
We may conclude service as, “an activity or series of activities rather than things which has some element of intangibility associated with it, which involves some interaction between the customer and the service provider, and does not result in a transfer of ownership. Customer has a vital role to play in the production process as the services are provided in response to the problems of customers as solution. The production of the service may or may not be closely associated with a physical product”.
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Table 1.1.1 Differences between physical goods and services 
Figure 1.1.1.Characteristics of Services Compared to Goods 
Service definition:- 
The generic clear-cut, complete and concise definition of the service term reads as follows: 
A service is a set of singular and perishable benefits delivered from the accountable service provider, mostly in close coaction with his service suppliers, generated by functions of technical systems and/or by distinct activities of individuals, respectively, commissioned according to the needs of his service consumers by the service customer from the accountable service
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provider, rendered individually to an authorized service consumer at his/her dedicated trigger,and, finally, consumed and utilized by the triggering service consumer for executing his/her upcoming business or private activity 
Figure 1.1.2 Contributions of Service Industries to U.S. Gross Domestic Product (Source: Inside Sam’s $100 Billion Growth Machine, by David Kirkpatrick, Fortune, June 14, 2004, p 86). 
Service characteristics 
Services can be paraphrased in terms of their generic key characteristics. 
1. Intangibility:- 
Services are intangible and insubstantial: they cannot be touched, gripped, handled, looked at, smelled, tasted or heard. Thus, there is neither potential nor need for transport, storage or stocking of services. Furthermore, a service cannot be (re)sold or owned by somebody, neither can it be turned over from the service provider to the service consumer nor returned from the service consumer to the service provider. Solely, the service delivery can be commissioned to a service provider who must generate and render the service at the distinct request of an authorized service consumer.
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2. Perishability:- 
Services are perishable in two regards 
The service relevant resources, processes and systems are assigned for service delivery during a definite period in time. If the designated or scheduled service consumer does not request and consume the service during this period, the service cannot be performed for him. From the perspective of the service provider, this is a lost business opportunity as he cannot charge any service delivery; potentially, he can assign the resources, processes and systems to another service consumer who requests a service. Examples: The hair dresser serves another client when the scheduled starting time or time slot is over. An empty seat on a plane never can be utilized and charged after departure. 
When the service has been completely rendered to the requesting service consumer, this particular service irreversibly vanishes as it has been consumed by the service consumer. Example: the passenger has been transported to the destination and cannot be transported again to this location at this point in time. 
3. Inseparability:- 
The service provider is indispensable for service delivery as he must promptly generate and render the service to the requesting service consumer. In many cases the service delivery is executed automatically but the service provider must preparatorily assign resources and systems and actively keep up appropriate service delivery readiness and capabilities. Additionally, the service consumer is inseparable from service delivery because he is involved in it from requesting it up to consuming the rendered benefits. Examples: The service consumer must sit in the hair dresser's shop & chair or in the plane & seat; correspondingly, the hair dresser or the pilot must be in the same shop or plane, respectively, for delivering the service. 
4. Simultaneity:- 
Services are rendered and consumed during the same period of time. As soon as the service consumer has requested the service (delivery), the particular service must be generated from scratch without any delay and friction and the service consumer instantaneously consumes the rendered benefits for executing his upcoming activity or task. 
5. Variability:-
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Each service is unique. It is one-time generated, rendered and consumed and can never be exactly repeated as the point in time, location, circumstances, conditions, current configurations and/or assigned resources are different for the next delivery, even if the same service consumer requests the same service. Many services are regarded as heterogeneous or lacking homogeneity and are typically modified for each service consumer or each new situation (consumerised). Example: The taxi service which transports the service consumer from his home to the opera is different from the taxi service which transports the same service consumer from the opera to his home - another point in time, the other direction, maybe another route, probably another taxi driver and cab. 
Each of these characteristics is retractable per se and their inevitable coincidence complicates the consistent service conception and make service delivery a challenge in each and every case. Proper service marketing requires creative visualization to effectively evoke a concrete image in the service consumer's mind. From the service consumer's point of view, these characteristics make it difficult, or even impossible, to evaluate or compare services prior to experiencing the service delivery. 
Mass generation and delivery of services is very difficult. This can be seen as a problem of inconsistent service quality. Both inputs and outputs to the processes involved providing services are highly variable, as are the relationships between these processes, making it difficult to maintain consistent service quality. For many services there is labor intensity as services usually involve considerable human activity, rather than a precisely determined process; exceptions include utilities. Human resource management is important. The human factor is often the key success factor in service economies. It is difficult to achieve economies of scale or gain dominant market share. There are demand fluctuations and it can be difficult to forecast demand. Demand can vary by season, time of day, business cycle, etc. There is consumer involvement as most service provision requires a high degree of interaction between service consumer and service provider. There is a customer-based relationship based on creating long-term business relationships. Accountants, attorneys, and financial advisers maintain long- term relationships with their clientes for decades. These repeat consumers refer friends and family, helping to create a client-based relationship. 
1.2 Reasons for Growth of Services 
Manufacturing industries grew because they produced tangible goods which satisfied man’s physiological needs of food, shelter and clothing. As the basic need was fulfilled there was demand for improved satisfaction, and this led to a proliferation of variations of the same product and a number of companies involved in its manufacture. The growth of service industries can be traced to
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the economic development of society and the socio-cultural changes that have accompanied it. Changing environmental forces brought out the various types of services in forefront of the economy. These environmental forces separately or in combination create new type of service. The following environmental fac- tors are responsible to make a new service. 
1. Consumer affluence: - Due to the fast rise in the income of consumers, they are attracted towards the new areas like clubs, health clubs, domestic services, travel and tourism, entertainment, banking, investment, retailing, insurance, repairs, etc. and these are growing much faster than ever before. There is a significant change in the pattern of family expenditure. 
2. Working women: - During the recent times a large number of women have come up in a variety of professions. The work performance of women in most of services sector like bank, insurance, airlines, etc. is highly appreciable. In short, women are getting involved in almost all male dominated activities. Due to increasing involvement of women in commercial activities, the services like domestic activities, fast food restaurants, marriage counselling, personal care, financial services, retailing, etc. have emerged in the recent times. 
3. Double income no kids (DINK):- Dinks are the working couples who have consciously postponed parenthood plans indefinitely or in an increasing number of cases, have decided not to have any children ever. The dink culture is getting stronger and spreading wider day by day. The realisation that parenthood is likely to result in more commitments at home and demands on their time, thereby slowing down their career plans and ambitions, make them postpone their parenthood plans. Whatsoever be their life style, they have double income and no kids, resulting in the emerging and enhancing of services like, entertainment, hotels and restaurants, career institutes, domestic services, travel resorts, personal care, etc. 
4. Leisure time: - People do get some time to travel and holiday, and therefore, there is a need for travel agencies, resorts, hotels and entertainment. There are others who would like to utilise this time to improve their career prospects, and therefore, there is a need for adult education, distance learning, part time courses, etc. 
5. Greater life expectancy: - According to the World Development Report and World Human Resource Index, the life expectancy of people has increased significantly all over the world barring few developing countries. It may be due to the advancement in the medical technology, and greater awareness about health and education. Greater life expectancy invites opportunities in services like hospitals, Nursing Homes, entertainment, leisure services, investment banking and so on.
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6. Product innovations: - In the changing time the consumers have become more conscious of quality than cost. They need high quality goods at par with international standards. Having this in mind the manufacturers have focused their attention on quality improvement, innovations, etc. In this process many more services have emerged on account of product innovation. Some of them are servicing services, repairs, computer, training and development, education, etc. 
7. Product complexity: - A large number of products are now being purchased in households which can be serviced only by specialised persons e.g. water purifiers, microwave oven, computers, etc., giving rise to the need for services. The growing product complexities create greater demand for skilled specialists to provide maintenance for these complex products and brings out other services like expert advise, consultancy services, etc. 
8. Complexity of life: - Certain product and services have made human life more comfortable and complex as well. Also, life itself has become more complex due to the socio-economic, psycho-political, technological and legal change. This has brought about the emergence of services like legal aid, tax consulting, professional services, airlines, courier services, insurance, banking, etc. 
9. New young youth: - Every new generation has its own characteristics and enjoys a different life style. There is a lot of difference between the generations in respect to their living conditions/ styles, maturity, thinking, attitudes, behaviour, beliefs, satisfactions, performance values and so on. Today’s generation with all these changes provide more opportunities to services like entertainment, fast food, computers, travel, picnic resorts, educational institution, counselling, retailing, etc. 
10. Resource scarcity and ecology: - As the natural resources are depleting and need for conservation is increasing, we have seen the coming up of service providers like pollution control agencies, car pools, water management, etc. 
11. Corporate crowd: - The phenomena of globalisation, privatisation and liberalisation coupled with faster urbanization have created the corporate world crowd and its support services. This crowd is responsible in bringing the new services, and redefining the old ones. The services like hotels and restaurants, banking, insurance, travel and tourism, advertising, airlines, courier services, marketing research, health care, legal services, etc. will emerge and flourish more and more. 
1.3 Services in India 
Services lie at the very hub of economic activity in any society. Our welfare and the welfare of our economy are now based on services. Almost all countries of globe look interested in utilising this sector of the economy. For
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the developing countries like India, the need of the hour is to assign due weightage to the development of service sector. The service sector is assuming increasing importance in the Indian economy. 
In the recent past, we have seen the transition from agrarian nature of economy to agro-based industry to industrial growth, now we tend to think in terms of developing the service sector. Probably it is because this sector can create more jobs at a low cost. Service sector has significant contribution for income generation and employment creations. In India, service sector is one of the fastest growing sectors today. It provides more than 55 per cent of the jobs and about 40 per cent export is from service sector. The service sector dominates the Indian economy today, contributing more than half of our national income. According to National Accounts Statistics and RBI in 1999- 2000 the share of Agriculture, industry and services in GDP are 25.5, 22.1 and 52.4 per cent respectively. 
1.4 Service specification 
Any service can be clearly, completely, consistently and concisely specified by means of the following 12 standard attributes which conform to the MECE principle (Mutually Exclusive, Collectively Exhaustive) 
 Service Consumer Benefits 
 Service-specific Functional Parameters 
 Service Delivery Point 
 Service Consumer Count 
 Service Delivering Readiness Times 
 Service Support Times 
 Service Support Languages 
 Service Fulfillment Target 
 Service Impairment Duration per Incident 
 Service Delivering Duration 
 Service Delivery Unit 
 Service Delivering Price 
The meaning and content of these attributes are 
1. Service Consumer Benefits describe the (set of) benefits which are triggerable, consumable and effectively utilizable for any authorized service consumer and which are rendered to him as soon as he triggers one service. The description of these benefits must be phrased in the terms and wording of the intended service consumers. 
2. Service-specific Functional Parameters specify the functional parameters which are essential and unique to the respective service and which describe the most important dimension(s) of the servicescape, the service output or the
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service outcome, e.g. maximum e-mailbox capacity per registered and authorized e-mail service consumer. 
3. Service Delivery Point describes the physical location and/or logical interface where the benefits of the service are triggered by and rendered to the authorized service consumer. At this point and/or interface, the preparedness for service delivery readiness can be assessed as well as the effective delivery of the service itself can be monitored and controlled. 
4. Service Consumer Count specifies the number of intended, clearly identified, explicitly named, definitely registered and authorized service consumers which shall be and/or are allowed and enabled to trigger and consume the commissioned service for executing and/or supporting their business tasks or private activities. 
5. Service Delivering Readiness Times specify the distinct agreed times of every day of the week when the described service consumer benefits are triggerable for the authorized service consumers at the defined service delivery point consumable and utilizable for the authorized service consumers at the respective agreed service level all the required service contributions are aggregated to the triggered service the specified service benefits are comprehensively rendered to any authorized triggering service consumer without any delay or friction. 
The time data are specified in 24 h format per local working day and local time, referring to the location of the intended and/or triggering service consumers. 
6. Service Support Times specify the determined and agreed times of every day of the week when the triggering and consumption of commissioned services is supported by the service desk team for all identified, registered and authorized service consumers within the service customer's organizational unit or area. The service desk is/shall be the so called the Single Point of Contact (SPoC) for any service consumer inquiry regarding the commissioned, triggered and/or rendered services, particularly in the event of service denial, i.e. an incident. During the defined service support times, the service desk can be reached by phone, e-mail, web-based entries and/or fax, respectively. The time data are specified in 24 h format per local working day and local time, referring to the location of the intended service consumers. 
7. Service Support Languages specifies the national languages which are spoken by the service desk team(s) to the service consumers calling them. 
8. Service Fulfillment Target specifies the service provider's promise of effectively and seamlessly delivering the specified benefits to any authorized service consumer triggering a service within the specified service times. It is expressed as the promised minimum ratio of the counts of successful
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individual service deliveries related to the counts of triggered service deliveries. The effective service fulfillment ratio can be measured and calculated per single service consumer or per service consumer group and may be referred to different time periods (workday, calendar week, work month, etc.) 
9. Service Impairment Duration per Incident specifies the allowable maximum elapsing time [hh:mm] between the first occurrence of a service impairment, i.e. service quality degradation, service delivery disruption or service denial, whilst the service consumer consumes and utilizes the requested service, the full resumption and complete execution of the service delivery to the content of the affected service consumer. 
10. Service Delivering Duration specifies the promised and agreed maximum period of time for effectively rendering all specified service consumer benefits to the requesting service consumer at his currently chosen service delivery point. 
11. Service Delivery Unit specifies the basic portion for rendering the defined service consumer benefits. The service delivery unit is the reference and mapping object for the Service Delivering Price, for all service costs as well as for charging and billing the consumed service volume to the service customer who has commissioned the service delivery. 
12. Service Delivering Price specifies the amount of money the service customer has to pay for the distinct service volumes his authorized service consumers have consumed. Normally, the service delivering price comprises two portions a fixed basic price portion for basic efforts and resources which provide accessibility and usability of the service delivery functions, i.e. service access price a price portion covering the service consumption based on fixed flat rate price per authorized service consumer and delivery period without regard on the consumed service volumes, staged prices depending on consumed service volumes, fixed price per particularly consumed service delivering unit. 
1.5 Service delivery 
The delivery of a service typically involves six factors: 
 The accountable service provider and his service suppliers (e.g. the people) 
 Equipment used to provide the service (e.g. vehicles, cash registers, technical systems, computer systems) 
 The physical facilities (e.g. buildings, parking, waiting rooms) 
 The requesting service consumer 
 Other customers at the service delivery location
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 Customer contact 
The service encounter is defined as all activities involved in the service delivery process. Some service managers use the term "moment of truth" to indicate that defining point in a specific service encounter where interactions are most intense. 
Many business theorists view service provision as a performance or act (sometimes humorously referred to as dramalurgy, perhaps in reference to dramaturgy). The location of the service delivery is referred to as the stage and the objects that facilitate the service process are called props. A script is a sequence of behaviors followed by all those involved, including the client(s). Some service dramas are tightly scripted, others are more ad lib. Role congruence occurs when each actor follows a script that harmonizes with the roles played by the other actors. 
In some service industries, especially health care, dispute resolution, and social services, a popular concept is the idea of the caseload, which refers to the total number of patients, clients, litigants, or claimants that a given employee is presently responsible for. On a daily basis, in all those fields, employees must balance the needs of any individual case against the needs of all other current cases as well as their own personal needs. 
Under English law, if a service provider is induced to deliver services to a dishonest client by a deception, this is an offence under the Theft Act 1978. 
1.6 Service-Goods continuum 
The dichotomy between physical goods and intangible services should not be given too much credence. These are not discrete categories. Most business theorists see a continuum with pure service on one terminal point and pure commodity good on the other terminal point. Most products fall between these two extremes. For example, a restaurant provides a physical good (the food), but also provides services in the form of ambience, the setting and clearing of the table, etc. And although some utilities actually deliver physical goods — like water utilities which actually deliver water — utilities are usually treated as services. 
In a narrower sense, service refers to quality of customer service: the measured appropriateness of assistance and support provided to a customer. This particular usage occurs frequently in retailing. 
List of economic services:- 
The following is an incomplete list of service industries, grouped into rough sectors. Parenthetical notations indicate how specific occupations and
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organizations can be regarded as service industries to the extent they provide an intangible service, as opposed to a tangible good. 
1. business functions (that apply to all organizations in general) 
2. consulting 
3. customer service 
4. human resources administrators (providing services like ensuring that employees are paid accurately) 
5. childcare 
6. cleaning, repair and maintenance services 
7. janitors (who provide cleaning services) 
8. gardeners 
9. mechanics 
10. construction 
11. carpentry 
12. electricians (offering the service of making wiring work properly) 
13. plumbing 
14. death care 
15. coroners (who provide the service of identifying cadavers and determining time and cause of death) 
16. funeral homes (who prepare corpses for public display, cremation or burial) 
17. dispute resolution and prevention services 
18. arbitration 
19. courts of law (who perform the service of dispute resolution backed by the power of the state) 
20. diplomacy 
21. incarceration (provides the service of keeping criminals out of society) 
22. law enforcement (provides the service of identifying and apprehending criminals) 
23. lawyers (who perform the services of advocacy and decision making in many dispute resolution and prevention processes) 
24. mediation 
25. military (performs the service of protecting states in disputes with other states) 
26. negotiation (not really a service unless someone is negotiating on behalf of another) 
27. education (institutions offering the services of teaching and access to information) 
28. library 
29. museum 
30. school 
31. entertainment (when provided live or within a highly specialized facility) 
32. gambling
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33. movie theatres (providing the service of showing a movie on a big screen) 
34. performing arts productions 
35. sexual services 
36. sport 
37. television 
38. fabric care 
39. dry cleaning 
40. Self-service laundry (offering the service of automated fabric cleaning) 
41. financial services 
42. accountancy 
43. banks and building societies (offering lending services and safekeeping of money and valuables) 
44. real estate 
45. stock brokerages 
46. tax preparation 
47. foodservice industry 
48. personal grooming 
49. hairdressing 
50. manicurist / pedicurist 
51. body hair removal 
52. dental hygienist 
53. health care (all health care professions provide services) 
54. hospitality industry 
55. information services 
56. data processing 
57. database services 
58. Interpreting 
59. Translation 
60. risk management 
61. insurance 
62. security 
63. social services 
64. social work 
65. transport 
66. Public utility 
67. electric power 
68. natural gas 
69. telecommunications 
70. waste management 
71. water industry
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1.7 The 7Ps of marketing 
Successful marketing depends upon addressing a number of key issues. These include what a company is going to produce, how much it’s going to charge, how it is going to deliver its product or services to the customer and how it’s going to tell its customers about its products or services. 
These are known as the 7 Ps of marketing, which are also referred to as the marketing mix. 
Figure 1.7 Expanded Marketing Mix for Services 
Product:- 
A perfect product (service) must provide value for the customer. Give them what they want not what you think they want. 
Ask yourself if you’ve got a system in place to regularly check what customers think of your product. What’s your Unique Selling Point (USP)? 
Beware of going too far. Don’t try to sell a Rolls Royce when all they want is a Micra. Quality may be too expensive for the amount you are charging.
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Parents may also want just 1 session on a Monday. Can you afford to block a fulltime place? 
Place:- 
Where your setting is. Is it a purpose built nursery / Church or village hall? it must be appropriate and convenient for your customers. Is it in a one mile radius! / near a school or on a route to work? 
Price:- 
The price needs to be competitive but this doesn’t mean the cheapest. You need to know how many children you need to break even. 
Existing customers are less sensitive about price than new customers. 
Price positions you in the market place. The more you charge the more value or quality customers will expect. If you charge a higher price, customers will assume a higher quality service and anything that can be seen by the customer must be consistent with these higher expectations including promotional materials / prospectus / layout of setting / equipment / meals etc. 
Promotion:- 
Is the way you communicate what you do and what you offer 
Promotion must 
 Gain attention 
 Be appealing 
 Tell a consistent message 
 Give the customer a reason to choose you 
Promotion should communicate the benefits, not just the features 
Whatever type of promotion method used it should grab the attention of your customers, be easy to read and ensure the customer buys your service. 
Promotion is deciding what channels you will use, how you will generate positive PR and what discounts or special offers to implement 
Promotion is not just for customers. You need to communicate with your staff the values and attributes of your provision so they can be knowledgeable and share expertise with customers.
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People:- 
Anyone that comes into contact with your customers will make an impression good or bad! Ensure that all staff who come into contact with your customers are trained and are the right people for the job. 
The level of support after a child is in your setting can give you a competitive advantage over your competitors. Look regularly at the customers who are using the most places. Are you ensuring they are happy with the service? Could you enhance your support at little or no cost? 
Processes:- 
The process of giving a service and the behaviour of staff are crucial to customer satisfaction. 
Issues such as waiting times, information given to customers and the helpfulness of staff are vital to keep customers happy. How do you keep parents informed, how often and in what format? 
You could have the best setting in the country but if potential customers are trying to reach your company by phone and no one answers or they get an answer phone message you could lose that vital source of income. 
Physical Evidence:- 
For a parent, choosing a nursery / playgroup is a risky business. So a setting has to reduce that perceived risk. The uncertainty can be reduced by helping potential customers ‘SEE’ what they are buying. 
Case studies and testimonials provide evidence. Facilities such as a clean, tidy well decorated reception area can also reassure. 
The physical evidence must confirm the assumption of the customer. A setting should be welcoming, happy, safe and secure.
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1.8 Service quality 
Service quality is a recent concept in the services marketing literature. In fact there was little academic research in service quality until the 1980s. However, the area of service quality is now one of the largest areas of research. 
From your understanding of the characteristics of services you will no doubt also appreciate that achieving consistent, high quality delivery of services is not a simple matter. The interactive nature of the service experience effectively precludes it, quite aside from whether or not we could reach agreement on just what service quality actually means. 
Most of the definitions of quality are derived from manufacturing environments where it is easy to determine which products are suitable for sale or rejected. However, these are not always suitable for services as manufacturers do not have to contend with the customer being a participant in the production process. 
Definitions of service quality have included:- 
'[Service] quality refers to the extent to which a service is what it claims to be and does what it claims to do' (Mudie and Cottam 1993). 
'Service quality is an intuitively integrated value of the appropriateness of the service offerings to the customers' (Sasser et al. 1978). 
'Quality can be defined only by customers and occurs where an organisation supplies goods and services to a specification which satisfies their needs' (Palmer 1994). 
'Service quality is a measure of how well the service level delivered matches customer expectations. Delivering quality service means conforming to customer expectations on a consistent basis' (Lewis and Booms 1983, cited in Parasuraman et al. 1985). 
In contrast to the first definition that is goal oriented, the last three have a customer focus, which is now seen as being a necessity when discussing service quality. Service quality then can be defined as the extent to which any service meets customers' needs requiring the focus of the entire organisation and being ongoing. 
If service quality is defined by the customer, AND we know that customers require services to satisfy different wants and needs, AND customers have different expectations of the service experience, it becomes clearer then that service quality will mean different things to each customer. 
When we then consider that achieving consistent high quality is difficult due to the interactive nature of the service experience (remember the servuction
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model and the heterogeneity characteristic), it becomes clearer why Parasuraman et al. (1985) claim service quality is elusive and indistinct. 
If you are beginning to think this is all beginning to sound like customer satisfaction, well do not be too concerned because the two concepts are related. Customer satisfaction is a short-term measure and is the outcome of the customer's evaluation of a specific transaction. Service quality can be differentiated because it is an attitude that pertains to the customer's global evaluation of the service offering. That is, the evaluation is formed from a series of evaluated service experiences. 
You may find Parasuraman et al.'s (1985) definition useful in clarifying service quality as being: 
Consumer's judgement [across multiple service encounters] about the firm's overall excellence or superiority. It is a form of attitude related, but not equivalent to satisfaction. 
Read now what your text has to say about quality, noting that where we have approached quality from the perspective of service quality, your text examines quality from a broader approach. This will provide an introduction to the much deeper discussion on quality that you will gain in the Quality Systems and Customer Service unit during your studies. We will come back to Parasuraman et al's (1985) view of service quality shortly. 
Conceptual model of service quality 
In their model of service quality, Parasuraman et al. (1985) describes the service quality process in terms of 'gaps'. That is, gaps between expectations and perceptions of management, employees and customers. Parasuraman et al. (1985) proposed five gaps in all as illustrated in Figure1.8.1 
1.9 The Gap Model 
Customers compare the service they 'experience' with what they 'expect' and when it does not match the expectation, a gap arises. 
Key Points:- 
GAP 1:- Gap between consumer expectation and management perception: arises when the management or service provider does not correctly perceive what the customers wants or needs. 
GAP 2:- Gap between management perception and service quality specification: this is when the management or service provider might correctly perceive what the customer wants, but may not set a performance standard.
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GAP 3:- Gap between service quality specification and service delivery: may arise pertaining to the service personnel. This could arise due to there being poor training, incapability or unwillingness to meet the set service standard. 
GAP 4:- Gap between service delivery and external communication: consumer expectations are highly influenced by statements made by company representatives and advertisements. The gap arises when these assumed expectations are not fulfilled at the time of service delivery. 
GAP 5:- Gap between expected service and experienced service: this gap arises when the consumer misinterprets the service quality. 
The Service Quality Model, also known as the GAP Model, was developed in 1985. It highlights the main requirements for delivering a high level of service quality by identifying five ‘gaps' that can lead to unsuccessful delivery of service. 
The figure below shows the "GAP" model of service quality. This model offers an integrated view of the consumer-company relationship. It is based on substantial research amongst a number of service providers. In this case expected service is a function of word of mouth communication, personal need and past experience, and perceived service is a product of service delivery and external communications to consumers. 
Figure 1.9.1 The diagram shows the different gaps in the model, including the Knowledge Gap discussed here.
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GAP 1: 
Gap between consumer expectation and management perception: This gap arises when the management or service provider does not correctly perceive what the customer wants or needs. For instance – hotel administrators may think guests want better food or in-house restaurant facilities, but guests may be more concerned with the responsiveness of the staff or the cleanliness of their rooms. 
Factors that affect the size of the knowledge gap include: 
Market research 
Before introducing a new product or service into the market, a company must conduct market research to understand whether there would be any demand for the product, and what features should be incorporated. The better this process is conducted, the smaller the knowledge gap will be. 
There are methods of ensuring that customer desires are taken on board. These include: comprehensive studies, gauging satisfaction after individual transactions (surveys immediately after a purchase is made), customer panels and interviews, and through customer complaints. 
Communication channels 
The fewer the layers between management and customer contact personnel, the more likely that customer preferences will be incorporated into higher-level decision making on the product. 
GAP 2:- 
Gap between management perception and service quality specification: This is when the management or service provider might correctly perceive what the customer wants, but may not set a performance standard. An example the hospital administrators may tell the nurse to respond to a request ‘fast', but may not specify ‘how fast'. 
GAP 3:- 
Gap between service quality specification and service delivery: This gap may arise in situations pertaining to the service personnel. It could happen due to poor training, incapability or unwillingness to meet the set service standard. An example would be when a doctor's office has very specific standards of hygiene communicated but the hired staff may have been poorly trained on the need to follow these strict protocols. 
GAP 4:-
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Gap between service delivery and external communication: Consumer expectations are highly influenced by statements made by company representatives and advertisements. The gap arises when these assumed expectations are not fulfilled at the time of delivery of the service. For example – a hospital printed on its brochure may have clean and furnished rooms but in reality, it may be poorly maintained – in this case the patient's expectations are not met. 
GAP 5:- 
Gap between expected service and experienced service: This gap arises when the consumer misinterprets the service quality. The physician may keep visiting the patient to show and ensure care, but the patient may interpret this as an indication that something is really wrong. 
However the GAP model goes further in its analysis of these key contributory factors. It not only provides a more rigorous description of the contributory Gaps, it lists key drivers for each gap and generic breakdown of each of these drivers. These are illustrated below in summary form below. 
Gap 1 
 Inadequate market research orientation 
 Lack of upward communication 
 Insufficient relationship focus 
Gap 2 
 Absence of customer driven standards 
 Inadequate service leadership 
 Poor service design 
Gap 3 
 Deficiencies of human resource policies 
 Failure to match supply and demand 
 Customers not fulfilling roles 
Gap 4 
 Ineffective management of customer expectations 
 Overpromising 
 Inadequate horizontal communications
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2.1 Airline Management 
Airlines have evolved over the past 70 years from simple contract mail carriers into sophisticated businesses. The current airline environment is very competitive and dynamic. Maintaining consistent profitability requires that appropriate trade-offs made between the often competing objectives within planning, marketing and operations. Airlines have led other industries in the application of operations research and information technology to deal with these issues. The real-time solution of large-scale optimization models has played a significant role in shaping today’s airline industry. This role will increase as the industry becomes more competitive and flight characteristics change due to the implementation of new technologies. Airline planning and scheduling represents an excellent example of the application of operations research and mathematical modelling to solve complex and real industry problems. 
2.2 Challenges of Airline Management 
Impact of Other Players in the Industry 
Airline management does not work independently of other players in the air transportation industry. Indeed, the decisions of airline management are very much affected by these other players. Figure 2.2.1 depicts the different entities that interact with airline management and affect decisions concerning government, airports, customers, alliances, suppliers, unions, and competitors. 
Figure 2.2.1 The different players in the air transportation industry 
Chapter 2: Airline Management
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First, airline management must comply with the regulations of the airline’s home country. It must also take into consideration and comply with the regulations of the governments of the countries where the airlines fly to and from, and whose airspace they cross. Governments typically watch competition between airlines and control airlines’ strategic decisions, such as merging, acquisition between carriers, market entry or exit and pricing, environmental regulations, security regulations, maintenance, and safety requirements. Second, airline management should carefully consider the terms of their agreements with the different airports they serve. Several factors affect these agreements, including available infrastructure (gates, runways, baggage handling, and so on), expected traffic, airport charges and incentives, competition from nearby airports, available landing slots, congestion, and operational curfews. Third, an airline should consider the needs and preferences of its potential customers, the travellers. For instance, the airline should consider schedule convenience, competitive fares, on-board services, punctuality, and efficient customer service. Failing to fulfil the needs and preferences of customers might lead to losing them to other competing carriers or other modes of transportation. Fourth, in many cases, an airline participates in one or more alliances to expand its network coverage or share resources with other airlines. Several forms of alliance are available that reflect the level of cooperation between participating airlines. It is important for an airline to decide which alliance to participate in and how to share its resources efficiently with each member in the alliance to promote profitability. Typically, the airline has to maintain a certain level of operating standards to serve within a worldwide alliance. 
Fifth, suppliers are crucial to the continuation of the airline’s operation. Airlines depend on suppliers to provide important items such as aircraft, fuel, spare parts, meals, employee uniforms, and so on. Also, in many cases, airlines outsource to vendors some of their jobs and services, such as aircraft maintenance, aircraft cleaning, ground handling, and sales. Therefore, an airline has to keep healthy relationships with its suppliers to continue operating successfully. Another entity in the air transportation industry that an airline has to deal with is unions. Different groups of workers form unions to achieve stronger negotiation power with airline management in terms of salary, benefits, or working rules. Keeping a good relation with labor in order to guarantee smooth operation of the business is one of the main objectives of airline management. Conflicts with unions might typically lead to negative actions by the unions, such as work slowdown or strikes, which usually impair the airline’s operation significantly. Finally, in most markets, there is tough competition between several airlines. Typically, airlines continuously monitor the decisions of their competitors that relate to providing capacity, fare levels, fare restrictions, and departure times. In many situations, the decisions of the competing airlines proceed in a leader-follower pattern, where one airline takes
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an action and the other competing airlines try to find the best way to respond to this action. 
Interacting Layers of Decisions:- 
Like many other businesses, airlines management faces three levels of interacting decisions. These levels, as shown in Figure 1.2, include strategic, planning, and operations decisions. Strategic decisions typically require a long lead time before implementation and require a considerable monetary investment. They are also expected to have a significant impact on the form of the airline in the long term. Examples of strategic decisions include growth and expansion, fleet sizing (aircraft orders), hub locations, merging with other airlines, alliance participation, and location of maintenance facilities. Planning decisions are within a few months horizon, and can be defined as the process of efficiently using airline’s available resources to maximize its revenue. The resources available to an airline include the facilities and the personnel that operate the business, including, for example, aircraft in different fleets, pilots with different qualifications, flight attendants, maintenance facilities, mechanics, gates, customer service agents, and ramp agents. The planning decisions include forecasting the demand between every origin-destination (OD), flight schedule development, assignment of flights to the different aircraft fleet (if the airline has more than one fleet type), aircraft routing across the different airports’ with its maintenance consideration, planning the line of flight for pilots and cabin crew, crew accommodations, flight-gate assignment, and catering. Other planning decisions include the number of staff required to operate flights at different airports including customer service, ramp agents, baggage handlers, and so on. They also include decisions regarding fare levels in each OD market, fare restrictions, and seat inventory control for each flight. It should be mentioned here that these planning decisions are very dependent on each other, which makes the planning process complex. 
The operations decisions for the airlines are those decisions that need to be verified or updated on an hourly or maximally on a daily basis. They include, for example, the response to unanticipated incidents such as adverse weather conditions, flights delays and cancellations, aircraft breakdown, and absence of crew or staff due to illness. Operations decisions also include watching revenues, bookings, and anticipated demand levels in the different markets, matching prices with competitors, and managing seat inventory on each flight on a daily basis. 
Strategic decisions are expected to impact on planning decisions, which, in turn, affect the operations decisions. In addition, there is a reverse feedback from the operations phase to the planning phase, which also, in turn, may provide feedback to the strategic decisions phase. For example, the observation of a frequent delay of a certain flight waiting for its inbound aircraft
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might alert schedule planning to alter the schedule of this flight to give enough connection time for its inbound aircraft. Also, strong demand forecasting in markets might call for a change in the strategic plan regarding expansion and increase of fleet size. As explained in the next section, this book covers in detail the tactics currently practiced by airline management for the planning and operations phase. 
2.2.3 Decision levels of airline management 
Surrounding Events:- 
The air transportation industry is characterized by the effects of rapid and significant impacts from surrounding events and economic and social changes. The negative impact on air transportation of factors such as wars, civil unrest, terrorist actions, increasing fuel prices, and epidemics has been clearly observed in several areas across the world. These events necessitate that airline management respond quickly and efficiently to study the impact of these events and take actions to alleviate their impact. To survive in business, in many situations, airlines may be forced to cut schedules, reduce fares, lay off employees, and cut salaries and benefits. Impacts on passenger demand, revenue, average fare, and average yield (revenue per seat mile) for airlines in the domestic. 
US markets following the September 11, 2001 (9/11) terrorist attack. It is clear that these four measures were affected significantly because of this event. At that time, most domestic airlines considered significant actions such as cutting capacity, lowering fares, and discharging employees to respond to these market changes.
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Many Groups to Contribute:- 
Another challenge of airline operations is the interaction process among several groups of workers who work together to operate the flights. The product that an airline generates is a passenger seat or a space for cargo. This passenger seat or cargo space is typically a part of a flight that connects between two airports. The number of flights that an airline operates depends on the size of the airline. For large air carriers, the number of flights reaches a few hundred flights a day. Operating each flight requires significant cooperation among several groups of workers who all share the same objective of making the flight ready for departure on time. There are about 12 different groups who work on each flight before its departure. These groups include pilots (cockpit crew), flight attendants (cabin crew), maintenance crew, ramp agents, baggage-handling crew, cargo agents, fueling agents, customer service agents, gate agents, catering agents, aircraft, cleaning agents, and operations agents or dispatchers. While the personnel in these groups differ in their qualifications, nature of work, workloads, and salary, they are all equally important for the departure of the flight. It is important for airline management to adequately set the work plan for each group, facilitate their work and alleviate any possible conflict between them. 
A pilot is a certified person who flies the aircraft of a certain aircraft fleet. Typically, each type of aircraft requires a certain number of pilots with certain specified qualifications. Flight attendants are airline staff employed primarily for the safety of passengers onboard. Their secondary function is the care and comfort of the passengers. The maintenance crew (maintenance) is responsible for servicing and repairing the aircraft to make sure that it is operational. Typically, maintenance performs several pre-specified mandatory service checks on the aircraft before departure, as specified by the manufacturers. Maintenance also performs several scheduled service checks on each aircraft in operation. Ramp agents help guide the aircraft to taxi in, park, and taxi out at the gate. Baggage handlers and cargo agents transport, load, and unload baggage and other cargo to and from the aircraft. Fueling agents provide fuel to the aircraft before departure or at intermediate stops in the flight. Customer service agents assist passengers with check-in, seat assignments, seat upgrades, and itinerary changes. Gate agents ensure that only authorized persons and passengers have access to the aircraft. 
Catering agents provide meals and beverages to be consumed on the flight. Aircraft cleaning agents clean the aircraft and the lavatories. The operations’ agent or dispatcher coordinates the flight plan, weight, fuel requirements, and any weather-related or operations delays that are issued to the flight.
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Airline Planning and Operations:- 
Planning starts by recording the anticipated demand and supply (available airline resources). Next, a set of interrelated planning processes is considered, including schedule planning, time banking, fleet assignment, aircraft routing, crew scheduling, airport facility planning, airport staff scheduling, pricing and seat inventory control, and sales and marketing initiatives. The planning processes are typically completed by a month to a few months before the implementation of the schedule, and they are repeated on a frequent basis as long as the airline is in business. The operations phase of the airline is concerned with implementing the planned airline schedule, while taking into consideration recovery for any unanticipated incidents such as adverse weather conditions, aircraft breakdown, crew absence, and so on. The operations phase is where decisions are made to recover the airline schedule from flight delay and cancellations, to compensate for missing or delayed aircraft and crew, and to reaccommodate stranded passengers. The operations phase also monitors seat bookings in the different markets and updates seat inventory control and pricing decisions. It should be mentioned that the current practice of airline planning and operations might differ to some extent, based on airline size and network structure. 
In the next subsection, the main objectives of each of the planning and operations processes are highlighted. 
Network Structure:- 
Airlines are typically classified as scheduled airlines or charter airlines. Scheduled airlines have a predefined flight schedule that is published through designated channels. In this schedule, the airline specifies the markets it flies to and the departure time and capacity of each flight in the schedule. Charter airlines, on the other hand, do not have a predefined schedule and typically operate on a demand basis. This book focuses on the business process of scheduled airlines, although many of these processes are also applicable to charter airlines. 
Typically each scheduled airline has a predefined network structure. Selecting a network structure is considered one of the major strategic decisions of the airline. Most common network structures include 1) hub-and-spoke, 2) point-to- point, or 3) a combination of both. The hub-and-spoke network structure is one in which the airline considers one or more stations in the network to be its hub. Accordingly, any flight that is operated by this airline either starts or terminates at one of those hubs. 
The hub station is characterized by having numerous departures and arrivals every day for the airline. The spoke station has only a few departures and arrivals each day.
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Fleet Assignment:- 
The fleet assignment process is necessary for airlines that have more than one type of aircraft. It is the process of assigning the different flights in the schedule to the different fleet types. The process matches the characteristics of the aircraft and the flight to minimize the total cost of the flight to the airline. For example, the aircraft travel range must be consistent with the distance between the flight origin and destination. Also, in terms of the economics of fuel consumption, each aircraft type has an optimal range of travel distance in which it produces the best fuel consumption performance. Furthermore, the seat capacity of the aircraft should be consistent with the expected passenger count for the flight. Also, airport characteristics at the origin and the destination of the flight, including runway, gates, allowed noise levels, and curfews should be considered in the fleet assignment. Another logical constraint is maintaining continuity of fleet types at the different airport stations. The number of inbound flights assigned to a certain fleet type at any station should equal the number of outbound flights that are assigned to this fleet type. Other constraints related to the location of maintenance facilities and crew bases should be considered. Understandably there is a strong relationship between schedule design and fleet assignment. For example, an airline might decide to schedule and operate two small flights from point A to point B using two small aircraft or to schedule and operate one large flight using a large aircraft. 
Aircraft Routing:- 
Aircraft routing, as the name implies, means determining a route for each aircraft. The route of an aircraft consists of a sequence of flights and maintenance activities that extend over a few days (5–7 days). The flights are selected to ensure there is enough time between them to complete an aircraft turn or a maintenance activity. An aircraft turn is the time difference between the arrival time of a flight and the departure time of the next flight. An aircraft turn time should be long enough for deplaning passengers of the inbound flight from the aircraft, unloading cargo and baggage, cleaning the aircraft, boarding passengers of the outbound flight, loading cargo and baggage, fueling, catering, exchanging crew, and so on. At the same time, the aircraft turn should not take long; long aircraft turns cause the aircraft to remain idle or unused over long periods of time. Longer idle time on the ground is expected to significantly dilute the revenue of the airline, as the throughput of its fleet declines. 
Each aircraft must undergo certain maintenance activities, as specified by its manufacturer. Typically, the manufacturer specifies that a maintenance activity should be performed either after a few departures, certain flying hours, or
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certain operational hours. The maintenance activity of the aircraft extends over a few hours and is usually performed overnight at one of the airline’s maintenance stations. Airlines usually position their maintenance facilities at one or more of their hub stations. Each aircraft must be scheduled for the required maintenance activities at the right time and at the right maintenance station. 
Crew Planning:- 
It is important for the crew (pilots and flight attendants) to know their traveling schedule ahead of time, so that they can plan their other life activities accordingly. The crew’s work plan is typically extended over a period of one month. During the month, the crew member is classified either as a line crew or a reserve crew. A line crew gets a sequence of predefined trippairs over the month. A trippair represents a sequence of flights (segments), the first of which originates from the home city (domicile) of the crew and the last flight of which ends at the domicile. The trippair typically extends over two to seven days and consists of several duty periods followed by a rest (layover) period. A crew connection time occurs between every two successive flights in the same duty period, to enable the crew to connect from the gate of the inbound flight to the gate of the outbound flight. The duration of the minimum connection time, the maximum duty period, and the minimum layover period is pre-specified by the aviation authorities and the crew contract. Reserve crew members are not given a line of flying. However, they are used as backup in case of system irregularity. It should be clear that the crew cost is one of the major cost components of the airlines. Efficient scheduling of the airline crew is expected to make considerable savings in airline costs. 
Airport Facility and Staff Planning:- 
During the planning phase, the scheduler must consider the different facilities at the different airports, including gates and baggage-handling facilities. The facilities at the airports should be planned efficiently to accommodate the planned flight schedule economically. The processes of facility planning are more crucial at the airline hub, where the airline operates many flights, and the usability of each resource is critical. The scheduling of airport facilities should take into consideration schedule disruptions that typically result from adverse weather conditions. Airport staff includes customer service agents, gate agents, baggage handlers, and ground agents. Typically, this staff works on shifts of about eight to ten hours every day. It is important for the airline to position the adequate number of staff at the appropriate times to operate the planned schedule economically and efficiently. The airport staff should also be adequate enough to manage any unplanned schedule disruptions at the airport due to adverse weather conditions or any other unforeseen factors.
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Revenue Management 
Airlines apply advanced revenue management (RM) techniques to maximize the revenue of their flights in different markets. RM is defined as selling the right seat to the right customer at the right price and at the right time. The idea behind RM is that traveller’s have different characteristics and primarily have different requirements for their travel. Basically, traveller’s can be classified as business traveller’s and leisure traveller’s. Business traveller’s are traveling for a work-related trip or a business meeting. This group of traveller’s is typically less sensitive to the price of the ticket, because, in most cases, they are reimbursed for the cost of their travel by their employers. Business travelers have rigid travel plans that are typically constrained by predefined dates and times that usually span weekdays. They also tend to spend shorter periods of time at their destinations. 
They do not book their tickets far in advance and prefer flexible tickets that can be changed or cancelled to match any possible changes in their travel plans. Leisure traveller’s, as the name implies, travel for recreational purposes or to visit family or friends. These traveller’s are sensitive to ticket prices. They also have flexible travel plans and tend to spend longer periods of time, including weekends, at their destinations. 
Given that business traveller’s are more profitable to the airlines, the objective of RM is to ensure that enough seats are always available for these travelers, while the remaining seats on each flight are filled with low-revenue leisure passengers. The RM process involves three main modules, including pricing, demand forecasting, and seat inventory control. The main objective of pricing is to determine the right price for each market, taking into consideration competition from other carriers in the market. Demand forecasting means predicting the number of travelers by type in each market. Finally, the objective of seat inventory control is to assign seats on each flight to the different demand streams to maximize total revenue. The RM process is implemented for each future flight. The decisions of the RM process are updated on a daily basis until the day of the flight departure. 
Sales and Distribution:- 
Airlines expend considerable effort on sales and distribution initiatives that improve their market share and enhance profitability. These initiatives include, for example, relations with travel agents, global distribution systems, online ticket distribution channels, travellers’ mileage plans, sales agreements with major businesses and promotions, and alliances and code sharing. Each of these initiatives needs proper evaluation in order to understand its impact on the airline profitability.
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Irregular Operations Management:- 
It is almost rare that an airline schedule is implemented as planned. Airline schedules are usually subject to disruptions due to adverse weather conditions, aircraft breakdowns, crew delays, and security breaches. When the airline schedule is disrupted, it is important for the airline to alleviate the impact of this disruption and recover the schedule in order to return to normal operations. When recovering the schedule, several objectives are considered by the airline. For example, the airline must minimize the deviation from the planned schedule by minimizing flight delays, cancellations, and crew swapping. In addition, it must not only adhere to the maintenance requirements of different aircraft at the right time, but also follow the regulations that govern the work rules of the crew on different flights. Furthermore, the airline must comply with air traffic control regulations and programs that manage traffic in the airspace and at airports. Last but not least, it must minimize the total cost of recovery by avoiding expensive decisions such as flight cancellations, calling additional crew, and passenger rebooking on other airlines.
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3.1 Brief Introduction 
India’s aviation sector is enjoying a steady growth. Passenger output rose to 144 million in FY 2011 from 73 million in FY 2006, as per a joint study by FICCI–KPMG (2012). This positive growth path can be attributed to the 11th Five-Year Plan (2007–2012). This period witnessed the completion of four international airport projects through the public–private partnership (PPP) mode; it was also during this period that five Indian carriers began to function on international routes. 
Air transport in India today supports 56.6 million jobs and produces over US$ 2.2 trillion of the global gross domestic product (GDP). Air passenger traffic is also increasing at a healthy rate, a development driven by modern facilities and infrastructure. 
The Centre had set aside an investment of US$ 12.1 billion in the airports sector during the 12th Five-Year Plan period, of which US$ 9.3 billion is projected to come from India’s private sector for construction of new and low- cost airports and development of existing ones. 
Market Size:- 
India would be the third largest aviation market by 2020, as per Mr Ajit Singh, Minister for Civil Aviation, Government of India. 
Passenger throughput increased to 159 million and cargo to 2.19 million metric tonnes (MMT) in FY 2013, a compound annual growth rate (CAGR) of 13 per cent and 10 per cent respectively over the period FY 2003–2013, as per data from the Airports Authority of India (AAI). 
The Indian civil aviation industry is among the top 10 globally with a size of around US$ 16 billion, as per a KPMG report. 
Investments:- 
The foreign direct investment (FDI) inflows in air transport (including air freight) during April 2000 to March 2014 stood at US$ 495.24 million, as per data released by Department of Industrial Policy and Promotion (DIPP). 
The following are some of the major investments and developments in the Indian aviation sector: 
 Tata-Singapore Airlines plans to launch its services in India from September 2014, with 87 weekly flights in its first year of operations, as 
Chapter 3: AirAsia Case Study
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stated in the airline’s application for an air operator’s permit to the Directorate General of Civil Aviation (DGCA). These flights will link Delhi with Ahmedabad, Bangalore, Chandigarh, Goa, Hyderabad, Jammu, Mumbai, Patna, and Srinagar. 
 Bengaluru-based GMR Infrastructure has won a contract to upgrade Mactan-Cebu international airport in the Philippines. GMR Infra and its partner, Philippine firm Megawide Construction will make an upfront concession payment of US$ 325 million and invest US$ 375 million over the next five years to build a new terminal and upgrade the current one. 
 The DGCA granted an air operator’s permit (AOP) to AirAsia on May 7, 2014, opening the path for the airline company to launch low-cost services in India. AirAsia India will launch services with three Airbus A320 aircraft, from its Chennai hub. 
 Trichy in Tamil Nadu has, over the past few years, become the fastest growing international airport in India. International passenger traffic in the town increased 382 per cent to 773,423 between 2006–07 and 2012–13. This year, it is expected to become the 10th biggest international airport in the country. 
 Low-cost airline SpiceJet is changing its network strategy in order to be more cost effective and have better yields. The airline signed a US$ 4.4- billion deal in March 2014, for 42 fuel-efficient Boeing 737 Max planes which would be delivered from 2018 onwards. 
Government Initiatives:- 
India’s Ministry of Civil Aviation revised the bilateral air traffic entitlements with Dubai in February 2014, permitting them a 20 per cent increase in seats to India. “We have allocated Dubai 11,000 seats in three phases till the summer schedule of 2015. Dubai has agreed to grant change-of-gauge facility for Indian carriers at the existing airport,” as per a senior official of the Ministry. 
The Ministry has also signed a Memorandum of Understanding (MoU) with AAI for FY 2014–15, which lists targets to be achieved by AAI on some key performance areas during the fiscal. The main features of the MoU include parameters such as risk management, implementation of Enterprise Resource Planning (ERP) tools and development of disaster management plan. 
Delhi Airport will soon become a zero-diversionary airport. The Committee set up by the DGCA to look into the matter, has presented its report with 27 recommendations. There were 57, 89 and 143 diversions in 2011, 2012 and 2013, respectively. Chances of diversions of flights at Delhi Airport are expected to come down drastically after the recommendations have been implemented.
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Road Ahead 
The aviation industry’s potential in India is massive. The market already caters to about 150 million passengers passing through its many airports, with the potential to grow further. By 2020, traffic at airports in India is anticipated to reach 450 million. The aviation industry presently supports about 0.5 per cent of the India’s GDP. 
A KPMG report notes that the industry will continue to grow in India on the back of the performance of regional airports. Currently, there are about 450 used/un-used/abandoned airports and airstrips spread across India. Many Indian states, particularly in Eastern India, have begun taking steps to promote air connectivity. Still, more needs to be done. Today, many Tier II and Tier III cities are unconnected. The proposed Essential Air Services Fund (EASF) by the Ministry of Civil Aviation needs to be established as quickly as possible. All this will have a multiplier effect with regards to higher growth of tourism, employment and local economic activities in the country. 
Future:- 
By 2020, passenger traffic at Indian airports is expected to touch US$ 450 million from 159.3 million in 2012–13. The travel & tourism industry is predicted to grow 7.9 per cent to US$ 270.5 billion in 2023 from US$ 119.4 billion in 2012. 
India is the ninth largest civil aviation market in the world and fourth in terms of domestic passenger volumes (116.3). The country’s civil aviation market is also set to become the world’s third largest by 2020. Total freight traffic registered a compound annual growth rate (CAGR) of 6.6 per cent over FY 06- 13; it stood at 2.19 million tonnes in FY 13. Domestic freight traffic also increased at a CAGR of 7.1 per cent over FY 06-13 while international freight traffic rose 6.2 per cent over the same period. In FY13, domestic freight traffic was 0.78 million tonnes, while international freight traffic was at 1.41 million tonnes. 
The government has done its bit to support the airport sector in the country. It has focused on infrastructure as well as liberalised policies. One such policy is, the Open Sky Policy – a concept that calls for the liberalisation of the rules and regulations of the international aviation industry (especially commercial aviation) so as to foster a free-market environment for the airline industry. Furthermore, it has constantly provided policy sops and encouraged foreign direct investment. 
The Indian aviation sector is likely to see investments totalling US$ 12.1 billion during the Twelfth Five Year Plan. It aims to boost MRO business in India,
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which is currently worth US$ 500 million and is estimated to grow over US$ 1.5 billion by 2020. 
Crowding the Skies 
Figure 3.1.1 Crowding the Skies Players 
Aviation provides the only transportation network across the globe and it is crucial for global business development and tourism enrichment. Air transportation is one of the most important services to offer both significant social and economic benefits. By serving tourism and trade, it contributes to economic growth. It also provides jobs and increases tax revenues. Air transportation is essential for the fast movement of people and cargo shipments around the world. Finally, air transportation improves the quality of people’s lives by broadening their leisure and cultural experiences. It gives a broad choice of holiday destinations around the world and is an affordable means to visit distant friends and relatives (ATAG 2005). 
The use of commercial aviation has grown significantly over the last few decades, estimated to be more than seventy-fold since the first jet airliner flew in 1949 (ATAG 2005). This rapid growth is attributed to a number of factors. First, rising disposable income and quality of life in many parts of the world have encouraged more people in these areas to travel and explore opportunities overseas. Second, deregulation of aviation laws, and bilateral
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and open-sky agreements between governments have opened new markets for airlines, which make travel easier and cheaper. Third, demand is increasing because of growing confidence in aviation as a safe mode of travel. Fourth, increased efficiency and increasing competition have reduced world airfares and the cost of travel. Finally, globalization has increased the average distance travelled, as people do business in countries which now have improved political and social environments. The impact of these factors is expected to continue, however, at different levels in different parts of the world. The number of air travellers and the volume of air cargo is expected to continue to grow, increasing the pressure on all the contributors to the air transportation service to take advantage of opportunities and efficiently manage their service. 
A major player in the air transportation industry is the airline. Current records indicate that there are more than 900 commercial airlines around the world, with a total fleet of nearly 22,000 aircraft (ICAO 2006). Commercial airlines serve nearly 1,670 airports through a route network of several million kilometres. 
These airlines transport close to 2 billion passengers annually and 40 percent of interregional exports of goods (by value). Also, an estimated 2.1 million people are employed by airline or handling agents: for example, as flight crew, checkin staff, and maintenance crew (ICAO 2006). Airline services are categorized as being intercontinental, continental, regional, or domestic, and may be operated as scheduled services or charters. In terms of size, airlines vary from those with a single airplane carrying mail or cargo, through full- service international airlines operating many hundreds of airplanes. In many parts of the world, airlines are government-owned or supported. In recent decades, however, the trend has been to move toward independent, commercial public companies by giving more freedom to non-government ownership of airlines. 
The increasing number of commercial airline companies has put more pressure on their management to continually seek profits, reduce cost, and increase revenues. Increasing demand for air transportation service has compelled airline management to take advantage of opportunities in different markets. At the same time, increasing competition among airlines necessitates that airline management seek efficiency in all their decisions to promote their profit. It is no surprise that many airlines throughout aviation history have been unable to remain in business, and in most cases, it is agreed that the demise of these airlines has been attributable to deficient management. 
Airline management practice has evolved significantly over the past three decades. The development of this practice has contributed to recent advances in computation and communication technologies and, more importantly, the
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need to reduce costs and increase revenues. Nowadays airlines seek to perform efficiently in a competitive environment that only provides marginal profits. The airline business is characterized as being one of the most complex, involving multiple conflicting decisions that all need to be optimized at the same time. Several tactics have been developed and used to better plan and operate airlines. These tactics bank on scientific approaches available in operations research and mathematics literature to optimize airlines’ decision- making processes, and are usually modelled within computerized systems that can automate decision making. Therefore, these scientifically-based tactics promise an easier decision-making practice for the airlines. The need for these tactics becomes more crucial as the size of the airline increases, and making decisions based on individuals’ judgment or experience becomes more difficult. The next section highlights the main challenges of airline management that elaborate the complexity of the airline decision-making process. 
Top aviation companies in India:- 
 Air Charter Services Pvt Ltd: - Air Charter Services Pvt. Ltd. performs its business operations with private business aircrafts, executive and corporate air charters, helicopter tours, VIP charter flights, and photo and video flights. Its client list incorporates VIPs, corporate firms, tour co-ordinators, travel agents and air medical evacuation professionals. It provides services such as relief, VIP, air ambulance and privacy services. 
 Air Charters India: - Air Charter India is owned by the STIC Travel Group and has around 100 airplanes in India. It covers several international destinations with an unmatchable logistics support. The aviation company has 40 offices with a highly skilled manpower of above 1000 people. It offers services like heli-skiing, charter flights for pilgrimage in India, heli-sightseeing, corporate jets, executive jets, etc. Air Charter India provides airplanes such as helicopters, business aircrafts, and aircrafts for corporates, individuals and group traveller’s. 
 Air India: - National Aviation Company of India Limited (NACIL) was the first Indian aviation company which led the way for other companies in the aviation sector. It was initiated before the India gained its independence. Later it collaborated with Indian Airlines and gained the reputation of being the largest airline in South Asian airline. Air India Cargo, Air India Express and Air India Regional are its subordinates in aviation market. It offers First class, Executive class and Economy class services and has code sharing pacts with companies like Air France, Austrian Airlines, Aeroflot, Air Astana, Emirates Airline, Air Mauritius, Kuwait Airways, etc. 
 Aviation India: - Aviation India provides services like cargo services, flight operation, air charter services, passenger services, freight control,
41 
advisory and consultancy, aircraft preservation and renovation, international flight operation, air supervision and helipad engineering, etc. The airlines has skilled workforce and offers total control and functional back-up to several international schedule / non-schedule operations. 
 Deccan Aviation Ltd: - The aviation company has its presence in 8 places namely, Mumbai, Ranchi, Surat, Hyderabad, Bangalore, Katra, Colombo (Sri Lanka) and Delhi. It has 350 daily departures and covers 65 destinations in India. It offers the benefit of no-cost travel to infants, ticketing counters, lavish aircraft interiors and ticketing flexibility. 
 Indigo: - Indigo is a utilitarian low-price domestic airline which offers feasible flying alternatives for millions. The airline was facilitated by the Air Passengers Association of India (APAI) as the “Best Low-Fare Carrier in India for the year 2007”. Indigo has 120 daily departures and a fleet of 19 Airbus A320. The airline covers 17 destinations namely, Agartala, Bangalore, Bhubaneshwar, Ahmedabad, Delhi, Chennai, Guwahati, Hyderabad, Goa, Imphal, Kolkata, Mumbai, Vadodara, etc. 
 Paramount airways: - Paramount Airways is a business class airline which has its base in India and headquarters at Chennai. Endorsed by Madurai-based Paramount Group and Paramount Railways was inaugurated in 19th October 2005. Its fleet comprises 5 aircrafts and it operates in 8 destinations. 
 Go Air Airlines: - Like SpiceJet, a Go Air airline is also a low price airline endorsed by the Wadia group. It was inaugurated in Mumbai in June 2004. It operates in 11 cities with 61 daily departures. It has started its functions in Ahmedabad, Chennai, Bangalore, Coimbatore, Goa, Cochin, Jaipur, Mumbai, Pune, Delhi, Srinagar, etc. 
 Kingfisher Airlines: - It is the one and only 5-star airline in India which offers excellent first class service on domestic itineraries also. A part of UB group, Kingfisher Airlines has received 30 awards for its novelty and customer satisfaction. After its tie-up with Deccan, the airline covers 64 cities and has 484 daily departures. 
 Spice Jet: - Spice Jet is basically a low cost airline which incorporates many Boeing 737-800 airplanes in its fleet. It covers 14 destinations in India. 
 Jet Airways: - Jet Airways was established on May 5, 1993. It earns yearly revenue of Rs 2502.89 and total income of approx ` 117868.8 Million. At present it id India's biggest private domestic airline with 62 aircrafts and a market share of 25%. It covers 50 destinations with 340 regular departures. Jet Airways has pacts with foreign airlines, such as Lufthansa, Swiss, Gulf Air, Austrian Airlines, Qantas and Thai
42 
Liberalisation in aviation:- 
The revolutionizing effects of liberalization swept India with dynamic changes in the aviation sector. From being a service that few could afford, the sector has now graduated to being a fiercely competitive industry with the presence of a number of private and public airlines and several consumer-oriented offerings. In ten years of competition in the aviation sector, private airlines have changed the rules of the game, and they now account for more than 60 % of the domestic aviation market. More and more middle class families in India now prefer air travel to the more traditional travel by train. 
A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline or cheap flight) is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc 
3.3 Introduction 
History of low cost airlines:- 
The low-cost concept became a money maker in the United States, where it was pioneered in the 1970s by Southwest Airlines, the model for budget carriers elsewhere like Ryanair and easy Jet in Europe. 
Definition of low cost airlines:- 
A low cost airline generally has many features that differentiate it from the traditional carriers. These features include ticketless travel, online ticket sales, no international offices, no frequent flyer points, no free food and beverages, no inflight magazines, no club lounges, use of secondary city airports. 
Not all low cost airlines have these features, and not all airlines that have some of these features are low cost airlines. For example, Virgin Express is a low cost airline, but it still offers complimentary coffee and inflight magazine, and they are based at Brussels primary airport. 
Story of AirAsia:- 
Air Asia, as the second Malaysian National Airline, provides a totally different type of service in line with the nation's aspirations to benefit all citizens and worldwide travellers. Such service takes the form of a no frills - low airfares flight offering, 40%-60% lower than what is currently offered in this part of Asia. Their vision is "Now Everyone Can Fly" and their mission is to provide 'Affordable Airfares' without any compromise to Flight Safety Standards.
43 
The story of emergence of AirAsia is similar to Ryanair, since both carriers underwent a remarkable transformation from a money-losing regional operator to a profitable, low cost airline. 
AirAsia was initially launched in 1996 as a full-service regional airline offering slightly cheaper fares than its main competitor, Malaysia Airlines. Before 2001, AirAsia fail to either sufficiently stimulate the market or attract enough passengers from Malaysia Airlines to establish its own niche market. The turnaround point of AirAsia is in 2001, while it was up to sale and bought by Tony Fernandes. Tony Fernandes then enrolled some of the lending low-cost airline experts to restructure AirAsia’s business model. He invited Connor McCarthy, the former director of group operation of Ryanair, to join the executive team. In late 2001, AirAsia was re-launched in Malaysia as a trendy, no-frills operation with three B737 aircraft as a low-fare, low-cost domestic airline. 
Figure 3.3.1 AirAsia Values 
Opportunities faced by AirAsia in light of external development:- 
1. Low fare of Indonesia-Malaysia trip:- 
The fare for a Jakarta-Johor Baru trip costs Rp 100,000 (RM 88.88 one way). And charge Rp 150,000 for a Bandung-Kuala Lumpur flight and Rp 300,000 for a Surabaya-Kuala Lumpur trip, whereas a Jakarta-Kuala Lumpur air ticket from Malaysia Airlines available at travel agents cost Rp 1.4 million. Meanwhile, Lion Air on the same route, charged Rp 1.05 million. The low fare provided by AirAsia helps it open the Indonesia market. 
2. Low fare of Singapore-Bangkok service 
AirAsia will increase its services between Singapore & Bangkok by introducing a 2nd daily flight to its existing schedule. This recent development came barely a month after Thai AirAsia operations started its first international flight to Singapore in early February this year. AirAsia is offering its guests promotional fares to/from Singapore- Bangkok from SGD$23.99 (THB 499) one way from the 28th March to 30th Oct, 2004. It is much lower than the lowest fare SGD$56 offered by full-service carrier. This helps it open the Singapore market.
44 
3. Political connections 
AirAsia hold 49% of Thai AirAsia with 1% being held by a Thai individual. The remaining 50% is held by Shin Corp. which is owned by the family of Thailand’s Prime Minister, Thaksin Shinawatra. Shin Corp. has financial strength, synergy in information technology and telecommunications, which support AirAsia Internet and mobile phone bookings. Shin Corp. allows subscribers of the Shin mobile phone flagship, Advanced Information Service, being able to reserve tickets through its short-messaging service (SMS). AirAsia with its politically powerful backer may well grow up to bite. This helps it open the Thailand market. 
4. Malaysian government support 
The Malaysian government supported the establishment of AirAsia in 2001 to help boost the under-used Kuala Lumpur International Airport. AirAsia’s flights from Senai are meant to develop Johor into a transport hub to rival Singapore. AirAsia, therefore, can provide an alternative route to travel to Bangkok, by using Senai Airport in Johor Bahru, in southern Malaysia. 
Opportunities faced by AirAsia in light of internal development:- 
1. Issue of IPO 
Kamarudin Meranun, AirAsia's Executive Director announced the appointment of Credit Suisse First Boston (CSFB) and RHB Sakura Merchant Bankers (RHB) as the book runners for the company's upcoming Initial Public Offering (IPO). 
The IPO strengthens AirAsia balance sheet, further cuts its existing low costs at 2.5 US cents per ASK and accelerates our growth plans throughout Asia. The IPO also allows AirAsia to expand its fleet of 18 Boeing 737-300s. 
2. Political connections 
Thai AirAsia is a join venture established by AirAsia with Shin Corp. Shin Corp. is owned by the family of Thailand’s Prime Minister, Thaksin Shinawatra, and about 900 million baht will be invested in Thai AirAsia over a five-year period. Shin Corp. Oversees the finance and administration of Thai AirAsia while AirAsia shoulders the responsibility for marketing and operations. Shin Corp. has financial strength and supports AirAsia to grow. AirAsia with its politically powerful backer may well grow up to bite. 
Challenges faced by AirAsia in light of external development:- 
1. Indonesian habit
45 
Preferences of Indonesian passengers are quite different from the concept of cheap air travel without extra service for the passengers (free snacks and drinks), and also their reluctance to bring light baggage. 
AirAsia prefers passengers with very light and minimum baggage. If this is the case, it may not last long. 
But Indonesian domestic airline companies are able to provide value-added extras like food and beverages as part of their service to the passengers, although at a relatively higher cost. 
The comparative edge of Indonesian domestic airline companies compared to AirAsia concerns habit (culture). 
Furthermore, Indonesian domestic airlines were already trained with the low- cost air travel concept, known as tariff war. They have proved themselves as immune, and managed to survive. 
Last but not least, the Indonesian government or domestic airline companies had never announced the availability of a low-cost airline company of the country. All these affect AirAsia growth in Indonesia. 
2. Singapore government rejection 
Initially, AirAsia wanted to start flights from the southern state of Johor, near Singapore, it hoped to attract passengers by running a convenient bus service to the city-state. However, Singapore quickly quashed that idea. The Singapore government said it would not approve a bus link for AirAsia because it was not ‘in her national interest’, reflecting fears that Singapore’s Changi airport would lose business to Johor’s new Senai airport. This makes AirAsia cannot abandon the use of Changi airport, and therefore suffer from a higher cost. 
This is because AirAsia flying to Singapore needs to suffer from flight congestion of Changi. Changi has drawbacks of flight congestion that could prevent the quick turnarounds essential to keeping down costs. AirAsia finds it stuck between big planes and circling to wait for a slot to open up, which means extra fuel costs. Moreover, the SGD$21 departure and security tax of Changi is too high for AirAsia low-cost operation. AirAsia had asked the Singapore government to waive the fees, however, a request that was not only rejected but also criticized. 
Besides Singapore – Bangkok, AirAsia now provides an alternative route to travel to Bangkok, by using Senai Airport in Johor Bahru, in southern Malaysia. Seeking to cater to the different markets, fares for Johor Bahru- Bangkok are generally 20 % lower in comparison to Singapore - Bangkok. AirAsia currently operate daily flights to Bangkok from Johor Bahru. However, the choice
46 
proved unpopular, as the route failed to attract Singaporeans because of the additional cost and inconvenience of having to travel in and out of Malaysia by road. All these affect AirAsia external growth. 
3. Minimum air-fare rates 
AirAsia faces challenges finding open take-off and landing slots at opportune times, and Thailand’s regulation that sets minimum air-fare rates. Although Transport Minister Suriya Jungrungreangkit said the current minimum air-fare regulations will be scrapped to open up the market, he couldn’t name a date when this will be done. This seems to be favouritism toward Thai Airways International’s domestic operations, and affects Thai AirAsia to compete in the Thailand market. 
External Changes which have impact on AirAsia 
1. Asia’s middle class growth 
Low cost airlines are anticipated to have greater potential in Asia as there are many Asian cities with a population above one million people each as well as a rising middle class population. This growth of middle class in Asia provides a huge market potential for AirAsia to grow. 
However, as the market is becoming larger, more airlines or new comers would like to get a piece of the action. For example, Budget airlines, it is estimated, will capture at least 25% of Asia’s air travel market within next 10 years and a lot of that will be new, not diverted, traffic. Therefore, AirAsia will face more competitions at the same time. 
Besides the low cost airlines, AirAsia still needs to compete with the conventional carriers. Although extra passengers of the low cost airlines will be coming from the new demand to be created by the low fares, the growth may not be entirely ‘stolen’ from big flag carriers. 
2. Actions of Changi and nearby airports 
The growth of low cost airlines in south-east Asia has a significant effect on which airports will dominate the regional aviation market. Low cost airlines are seen as helping funnel more passengers to airport hubs. Therefore, there is a realization among regional governments that they need smashing airports and feisty carriers or they are going to miss out big time. Therefore, these governments are more willing to support low cost airlines. For example, the Malaysian government supported the establishment of AirAsian in 2001 to help boost the under-used Kuala Lumpur International Airport, and Thai premier’s Shin Corp. forms a join venture with AirAsia that would benefit Bangkok’s new airport and create a new hub at Chiang Mai. Therefore, under this situation, it helps AirAsia grow in Asia.
47 
Moreover, as there is a growth of several south-east Asian airports, this poses a challenge to the status of Singapore’s Changi airport as a regional aviation hub. These airports include Johor’s new Senai airport in southern Malaysia, Bangkok’s new Suvarnabhumi airport which will be able to handle 45 million passengers when it opens in 2005, Bangkok Don Muang which recently overtook Changi in passenger numbers, etc. To maintain Changi’s position as the air hub in the region, Singapore is proposing a budget airline terminal at Changi by 2005 and lower passenger taxes to attract low cost airlines. This helps AirAsia grow and lower the cost. 
3. Actions of existing airlines 
The existing airlines in south-east Asia have several actions to compete with AirAsia, for example, some have launched a low cost airline to fight with AirAsia. 
Singapore Airlines launched a low cost airline subsidiary, Tiger Airways, in the second half of 2003, only months after the scheduled launch of ValuAir set up by one of its former executives. 
Orient Thai Airlines launched a new low cost airline subsidiary, One-To-Go. One-To-Go operates with a fleet of six Boeing 757-200s and match any fares that Thai AirAsia offers. 
Thai Airways have frequency and capacity to offer to their 13 domestic destinations. They also have, during the past two years, worked to improve operational efficiency, slashing unprofitable domestic routes, increasing flights on busy routes, strengthening yield management and controlling costs. 
All these make AirAsia face a huge competition. 
Critical success factors in the Low cost airlines in Asia:- 
Reduction in operational cost 
Low cost airlines strive to achieve the lowest possible price for their products and services. Low prices cannot sustain unless the company maximizes its operational efficiency. 
The success factors of Asian low cost airlines in reducing their operational cost include: 
1. Service savings (no frills cabin service and extensive use of outsourcing) 
No-frills include: 
NO drinks, NO food, NO headphones, NO newspapers, NO movies, NO VIP lounges, NO expensive offices, NO mileage programs, NO seat allocation, NO
Service Management
Service Management
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Service Management

  • 1. 1 ITM,VASHI Service Marketing The Low Cost Airline: AirAsia Arun Balkrishna Khedwal 2nd August 2014 Ref No: VAS2012XMBA25P001
  • 2. 2 Chapter No Topic details Page No 1 Introduction – Service Management 3-24 o Reasons for Growth of Services o The 7Ps of marketing o Service Quality o The GAP Model 2 Airlines Management 25-34 o Decision levels of airline management o Airline Planning and Operations o Airport Facility and Staff Planning 3 AirAsia Case Study 35- 54 o Market Size, Road ahead & Government Initiative o Top aviation companies in India o History of low cost airlines o AirAsia o Challenges faced by AirAsia in light of external development o Critical success factors in the Low cost airlines in Asia o Low-cost airline principles o Limit personnel costs o Simplicity 4 Conclusion and Recommendation 55-56 o Conclusion
  • 3. 3 1.1 Introduction Consensus has not yet been reached on a definition of a service. Some definitions have been broad, such as that by the often quoted Economist which defines services as 'those fruits of economic activity which you cannot drop on your toe; anything from banking to butchery, acting to accountancy' and one referred to by the Australian Coalition of Service Industries that services are 'all economic activity other than mining, manufacturing and agriculture'. Two similar definitions that are easy to remember and capture the essence of a service are those by Rathmell (1974) who states that 'goods are produced: services are performed'; and Berry’s (1980) definition that 'a good is an object, a device; a service is a deed, a performance, an effort'. Services definition:- The term “services” covers a heterogeneous range of intangible products and activities that are difficult to encapsulate within a simple definition. Services are also often difficult to separate from goods with which they may be associated in varying degrees. Early conceptualisations of services marketing focused on how services differed from tangible products. Some researchers at the time doubted that any differences existed. Today, services have been accepted as being different on many grounds some of which area as having characteristics that distinguish them from tangible products. In simple words, services are deeds, processes, and performances. But, the increasing interest in the services sector has been accompanied by considerable disagreement and debate as to what constitutes a service and whether service marketing is a distinctive subject area. In order to develop clarity on service as a concept, it is desirable to look at the way various researchers and scholars have defined it over the years. One of the first to define services was the American Marketing Association which as early as in 1960 defined services as “activities, benefits, or satisfactions which are offered for sale, or provided in connection with the sale of goods”. This definition took a very limited view of services as it proposed that services are offered only in connection with the sale of goods. The other definition which was proposed in 1963 by Regan suggested that “services represent either intangible yielding satisfactions directly (transportation, housing etc.), or intangibles yielding satisfactions jointly when Chapter 1: Introduction
  • 4. 4 purchased either with commodities or other services (credit, delivery, etc.)”. For the first time services were considered as pure intangibles - capable of providing satisfaction to the customer and can be marketed like tangible products. Robert Judd defined service as “a market transaction by an enterprise or entrepreneur where the object of the market transaction is other than the transfer of ownership of a tangible commodity”. In 1973 Bessom proposed that “for the consumer, services are activities offered for sale that provide valuable benefits or satisfactions; activities that he cannot perform for himself or that he chooses not to perform for himself”. Another definition given by Blois in 1974 says that, “a service is an activity offered for sale which yields benefits and satisfactions without leading to a physical change in the form of a good”. Stanton proposed a definition in 1974 and defined service as “Separately identifiable, intangible activities which provide want satisfaction when marketed to consumers and/or industrial users and which are not necessarily tied to the sale of a product or another service”. Kotler and Bloom in 1984, defined service as, “any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product”. Gronroos defined a service as “an activity or series of activities of more or less intangible nature that normally, not necessarily, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solution to customer problems”. We may conclude service as, “an activity or series of activities rather than things which has some element of intangibility associated with it, which involves some interaction between the customer and the service provider, and does not result in a transfer of ownership. Customer has a vital role to play in the production process as the services are provided in response to the problems of customers as solution. The production of the service may or may not be closely associated with a physical product”.
  • 5. 5 Table 1.1.1 Differences between physical goods and services Figure 1.1.1.Characteristics of Services Compared to Goods Service definition:- The generic clear-cut, complete and concise definition of the service term reads as follows: A service is a set of singular and perishable benefits delivered from the accountable service provider, mostly in close coaction with his service suppliers, generated by functions of technical systems and/or by distinct activities of individuals, respectively, commissioned according to the needs of his service consumers by the service customer from the accountable service
  • 6. 6 provider, rendered individually to an authorized service consumer at his/her dedicated trigger,and, finally, consumed and utilized by the triggering service consumer for executing his/her upcoming business or private activity Figure 1.1.2 Contributions of Service Industries to U.S. Gross Domestic Product (Source: Inside Sam’s $100 Billion Growth Machine, by David Kirkpatrick, Fortune, June 14, 2004, p 86). Service characteristics Services can be paraphrased in terms of their generic key characteristics. 1. Intangibility:- Services are intangible and insubstantial: they cannot be touched, gripped, handled, looked at, smelled, tasted or heard. Thus, there is neither potential nor need for transport, storage or stocking of services. Furthermore, a service cannot be (re)sold or owned by somebody, neither can it be turned over from the service provider to the service consumer nor returned from the service consumer to the service provider. Solely, the service delivery can be commissioned to a service provider who must generate and render the service at the distinct request of an authorized service consumer.
  • 7. 7 2. Perishability:- Services are perishable in two regards The service relevant resources, processes and systems are assigned for service delivery during a definite period in time. If the designated or scheduled service consumer does not request and consume the service during this period, the service cannot be performed for him. From the perspective of the service provider, this is a lost business opportunity as he cannot charge any service delivery; potentially, he can assign the resources, processes and systems to another service consumer who requests a service. Examples: The hair dresser serves another client when the scheduled starting time or time slot is over. An empty seat on a plane never can be utilized and charged after departure. When the service has been completely rendered to the requesting service consumer, this particular service irreversibly vanishes as it has been consumed by the service consumer. Example: the passenger has been transported to the destination and cannot be transported again to this location at this point in time. 3. Inseparability:- The service provider is indispensable for service delivery as he must promptly generate and render the service to the requesting service consumer. In many cases the service delivery is executed automatically but the service provider must preparatorily assign resources and systems and actively keep up appropriate service delivery readiness and capabilities. Additionally, the service consumer is inseparable from service delivery because he is involved in it from requesting it up to consuming the rendered benefits. Examples: The service consumer must sit in the hair dresser's shop & chair or in the plane & seat; correspondingly, the hair dresser or the pilot must be in the same shop or plane, respectively, for delivering the service. 4. Simultaneity:- Services are rendered and consumed during the same period of time. As soon as the service consumer has requested the service (delivery), the particular service must be generated from scratch without any delay and friction and the service consumer instantaneously consumes the rendered benefits for executing his upcoming activity or task. 5. Variability:-
  • 8. 8 Each service is unique. It is one-time generated, rendered and consumed and can never be exactly repeated as the point in time, location, circumstances, conditions, current configurations and/or assigned resources are different for the next delivery, even if the same service consumer requests the same service. Many services are regarded as heterogeneous or lacking homogeneity and are typically modified for each service consumer or each new situation (consumerised). Example: The taxi service which transports the service consumer from his home to the opera is different from the taxi service which transports the same service consumer from the opera to his home - another point in time, the other direction, maybe another route, probably another taxi driver and cab. Each of these characteristics is retractable per se and their inevitable coincidence complicates the consistent service conception and make service delivery a challenge in each and every case. Proper service marketing requires creative visualization to effectively evoke a concrete image in the service consumer's mind. From the service consumer's point of view, these characteristics make it difficult, or even impossible, to evaluate or compare services prior to experiencing the service delivery. Mass generation and delivery of services is very difficult. This can be seen as a problem of inconsistent service quality. Both inputs and outputs to the processes involved providing services are highly variable, as are the relationships between these processes, making it difficult to maintain consistent service quality. For many services there is labor intensity as services usually involve considerable human activity, rather than a precisely determined process; exceptions include utilities. Human resource management is important. The human factor is often the key success factor in service economies. It is difficult to achieve economies of scale or gain dominant market share. There are demand fluctuations and it can be difficult to forecast demand. Demand can vary by season, time of day, business cycle, etc. There is consumer involvement as most service provision requires a high degree of interaction between service consumer and service provider. There is a customer-based relationship based on creating long-term business relationships. Accountants, attorneys, and financial advisers maintain long- term relationships with their clientes for decades. These repeat consumers refer friends and family, helping to create a client-based relationship. 1.2 Reasons for Growth of Services Manufacturing industries grew because they produced tangible goods which satisfied man’s physiological needs of food, shelter and clothing. As the basic need was fulfilled there was demand for improved satisfaction, and this led to a proliferation of variations of the same product and a number of companies involved in its manufacture. The growth of service industries can be traced to
  • 9. 9 the economic development of society and the socio-cultural changes that have accompanied it. Changing environmental forces brought out the various types of services in forefront of the economy. These environmental forces separately or in combination create new type of service. The following environmental fac- tors are responsible to make a new service. 1. Consumer affluence: - Due to the fast rise in the income of consumers, they are attracted towards the new areas like clubs, health clubs, domestic services, travel and tourism, entertainment, banking, investment, retailing, insurance, repairs, etc. and these are growing much faster than ever before. There is a significant change in the pattern of family expenditure. 2. Working women: - During the recent times a large number of women have come up in a variety of professions. The work performance of women in most of services sector like bank, insurance, airlines, etc. is highly appreciable. In short, women are getting involved in almost all male dominated activities. Due to increasing involvement of women in commercial activities, the services like domestic activities, fast food restaurants, marriage counselling, personal care, financial services, retailing, etc. have emerged in the recent times. 3. Double income no kids (DINK):- Dinks are the working couples who have consciously postponed parenthood plans indefinitely or in an increasing number of cases, have decided not to have any children ever. The dink culture is getting stronger and spreading wider day by day. The realisation that parenthood is likely to result in more commitments at home and demands on their time, thereby slowing down their career plans and ambitions, make them postpone their parenthood plans. Whatsoever be their life style, they have double income and no kids, resulting in the emerging and enhancing of services like, entertainment, hotels and restaurants, career institutes, domestic services, travel resorts, personal care, etc. 4. Leisure time: - People do get some time to travel and holiday, and therefore, there is a need for travel agencies, resorts, hotels and entertainment. There are others who would like to utilise this time to improve their career prospects, and therefore, there is a need for adult education, distance learning, part time courses, etc. 5. Greater life expectancy: - According to the World Development Report and World Human Resource Index, the life expectancy of people has increased significantly all over the world barring few developing countries. It may be due to the advancement in the medical technology, and greater awareness about health and education. Greater life expectancy invites opportunities in services like hospitals, Nursing Homes, entertainment, leisure services, investment banking and so on.
  • 10. 10 6. Product innovations: - In the changing time the consumers have become more conscious of quality than cost. They need high quality goods at par with international standards. Having this in mind the manufacturers have focused their attention on quality improvement, innovations, etc. In this process many more services have emerged on account of product innovation. Some of them are servicing services, repairs, computer, training and development, education, etc. 7. Product complexity: - A large number of products are now being purchased in households which can be serviced only by specialised persons e.g. water purifiers, microwave oven, computers, etc., giving rise to the need for services. The growing product complexities create greater demand for skilled specialists to provide maintenance for these complex products and brings out other services like expert advise, consultancy services, etc. 8. Complexity of life: - Certain product and services have made human life more comfortable and complex as well. Also, life itself has become more complex due to the socio-economic, psycho-political, technological and legal change. This has brought about the emergence of services like legal aid, tax consulting, professional services, airlines, courier services, insurance, banking, etc. 9. New young youth: - Every new generation has its own characteristics and enjoys a different life style. There is a lot of difference between the generations in respect to their living conditions/ styles, maturity, thinking, attitudes, behaviour, beliefs, satisfactions, performance values and so on. Today’s generation with all these changes provide more opportunities to services like entertainment, fast food, computers, travel, picnic resorts, educational institution, counselling, retailing, etc. 10. Resource scarcity and ecology: - As the natural resources are depleting and need for conservation is increasing, we have seen the coming up of service providers like pollution control agencies, car pools, water management, etc. 11. Corporate crowd: - The phenomena of globalisation, privatisation and liberalisation coupled with faster urbanization have created the corporate world crowd and its support services. This crowd is responsible in bringing the new services, and redefining the old ones. The services like hotels and restaurants, banking, insurance, travel and tourism, advertising, airlines, courier services, marketing research, health care, legal services, etc. will emerge and flourish more and more. 1.3 Services in India Services lie at the very hub of economic activity in any society. Our welfare and the welfare of our economy are now based on services. Almost all countries of globe look interested in utilising this sector of the economy. For
  • 11. 11 the developing countries like India, the need of the hour is to assign due weightage to the development of service sector. The service sector is assuming increasing importance in the Indian economy. In the recent past, we have seen the transition from agrarian nature of economy to agro-based industry to industrial growth, now we tend to think in terms of developing the service sector. Probably it is because this sector can create more jobs at a low cost. Service sector has significant contribution for income generation and employment creations. In India, service sector is one of the fastest growing sectors today. It provides more than 55 per cent of the jobs and about 40 per cent export is from service sector. The service sector dominates the Indian economy today, contributing more than half of our national income. According to National Accounts Statistics and RBI in 1999- 2000 the share of Agriculture, industry and services in GDP are 25.5, 22.1 and 52.4 per cent respectively. 1.4 Service specification Any service can be clearly, completely, consistently and concisely specified by means of the following 12 standard attributes which conform to the MECE principle (Mutually Exclusive, Collectively Exhaustive)  Service Consumer Benefits  Service-specific Functional Parameters  Service Delivery Point  Service Consumer Count  Service Delivering Readiness Times  Service Support Times  Service Support Languages  Service Fulfillment Target  Service Impairment Duration per Incident  Service Delivering Duration  Service Delivery Unit  Service Delivering Price The meaning and content of these attributes are 1. Service Consumer Benefits describe the (set of) benefits which are triggerable, consumable and effectively utilizable for any authorized service consumer and which are rendered to him as soon as he triggers one service. The description of these benefits must be phrased in the terms and wording of the intended service consumers. 2. Service-specific Functional Parameters specify the functional parameters which are essential and unique to the respective service and which describe the most important dimension(s) of the servicescape, the service output or the
  • 12. 12 service outcome, e.g. maximum e-mailbox capacity per registered and authorized e-mail service consumer. 3. Service Delivery Point describes the physical location and/or logical interface where the benefits of the service are triggered by and rendered to the authorized service consumer. At this point and/or interface, the preparedness for service delivery readiness can be assessed as well as the effective delivery of the service itself can be monitored and controlled. 4. Service Consumer Count specifies the number of intended, clearly identified, explicitly named, definitely registered and authorized service consumers which shall be and/or are allowed and enabled to trigger and consume the commissioned service for executing and/or supporting their business tasks or private activities. 5. Service Delivering Readiness Times specify the distinct agreed times of every day of the week when the described service consumer benefits are triggerable for the authorized service consumers at the defined service delivery point consumable and utilizable for the authorized service consumers at the respective agreed service level all the required service contributions are aggregated to the triggered service the specified service benefits are comprehensively rendered to any authorized triggering service consumer without any delay or friction. The time data are specified in 24 h format per local working day and local time, referring to the location of the intended and/or triggering service consumers. 6. Service Support Times specify the determined and agreed times of every day of the week when the triggering and consumption of commissioned services is supported by the service desk team for all identified, registered and authorized service consumers within the service customer's organizational unit or area. The service desk is/shall be the so called the Single Point of Contact (SPoC) for any service consumer inquiry regarding the commissioned, triggered and/or rendered services, particularly in the event of service denial, i.e. an incident. During the defined service support times, the service desk can be reached by phone, e-mail, web-based entries and/or fax, respectively. The time data are specified in 24 h format per local working day and local time, referring to the location of the intended service consumers. 7. Service Support Languages specifies the national languages which are spoken by the service desk team(s) to the service consumers calling them. 8. Service Fulfillment Target specifies the service provider's promise of effectively and seamlessly delivering the specified benefits to any authorized service consumer triggering a service within the specified service times. It is expressed as the promised minimum ratio of the counts of successful
  • 13. 13 individual service deliveries related to the counts of triggered service deliveries. The effective service fulfillment ratio can be measured and calculated per single service consumer or per service consumer group and may be referred to different time periods (workday, calendar week, work month, etc.) 9. Service Impairment Duration per Incident specifies the allowable maximum elapsing time [hh:mm] between the first occurrence of a service impairment, i.e. service quality degradation, service delivery disruption or service denial, whilst the service consumer consumes and utilizes the requested service, the full resumption and complete execution of the service delivery to the content of the affected service consumer. 10. Service Delivering Duration specifies the promised and agreed maximum period of time for effectively rendering all specified service consumer benefits to the requesting service consumer at his currently chosen service delivery point. 11. Service Delivery Unit specifies the basic portion for rendering the defined service consumer benefits. The service delivery unit is the reference and mapping object for the Service Delivering Price, for all service costs as well as for charging and billing the consumed service volume to the service customer who has commissioned the service delivery. 12. Service Delivering Price specifies the amount of money the service customer has to pay for the distinct service volumes his authorized service consumers have consumed. Normally, the service delivering price comprises two portions a fixed basic price portion for basic efforts and resources which provide accessibility and usability of the service delivery functions, i.e. service access price a price portion covering the service consumption based on fixed flat rate price per authorized service consumer and delivery period without regard on the consumed service volumes, staged prices depending on consumed service volumes, fixed price per particularly consumed service delivering unit. 1.5 Service delivery The delivery of a service typically involves six factors:  The accountable service provider and his service suppliers (e.g. the people)  Equipment used to provide the service (e.g. vehicles, cash registers, technical systems, computer systems)  The physical facilities (e.g. buildings, parking, waiting rooms)  The requesting service consumer  Other customers at the service delivery location
  • 14. 14  Customer contact The service encounter is defined as all activities involved in the service delivery process. Some service managers use the term "moment of truth" to indicate that defining point in a specific service encounter where interactions are most intense. Many business theorists view service provision as a performance or act (sometimes humorously referred to as dramalurgy, perhaps in reference to dramaturgy). The location of the service delivery is referred to as the stage and the objects that facilitate the service process are called props. A script is a sequence of behaviors followed by all those involved, including the client(s). Some service dramas are tightly scripted, others are more ad lib. Role congruence occurs when each actor follows a script that harmonizes with the roles played by the other actors. In some service industries, especially health care, dispute resolution, and social services, a popular concept is the idea of the caseload, which refers to the total number of patients, clients, litigants, or claimants that a given employee is presently responsible for. On a daily basis, in all those fields, employees must balance the needs of any individual case against the needs of all other current cases as well as their own personal needs. Under English law, if a service provider is induced to deliver services to a dishonest client by a deception, this is an offence under the Theft Act 1978. 1.6 Service-Goods continuum The dichotomy between physical goods and intangible services should not be given too much credence. These are not discrete categories. Most business theorists see a continuum with pure service on one terminal point and pure commodity good on the other terminal point. Most products fall between these two extremes. For example, a restaurant provides a physical good (the food), but also provides services in the form of ambience, the setting and clearing of the table, etc. And although some utilities actually deliver physical goods — like water utilities which actually deliver water — utilities are usually treated as services. In a narrower sense, service refers to quality of customer service: the measured appropriateness of assistance and support provided to a customer. This particular usage occurs frequently in retailing. List of economic services:- The following is an incomplete list of service industries, grouped into rough sectors. Parenthetical notations indicate how specific occupations and
  • 15. 15 organizations can be regarded as service industries to the extent they provide an intangible service, as opposed to a tangible good. 1. business functions (that apply to all organizations in general) 2. consulting 3. customer service 4. human resources administrators (providing services like ensuring that employees are paid accurately) 5. childcare 6. cleaning, repair and maintenance services 7. janitors (who provide cleaning services) 8. gardeners 9. mechanics 10. construction 11. carpentry 12. electricians (offering the service of making wiring work properly) 13. plumbing 14. death care 15. coroners (who provide the service of identifying cadavers and determining time and cause of death) 16. funeral homes (who prepare corpses for public display, cremation or burial) 17. dispute resolution and prevention services 18. arbitration 19. courts of law (who perform the service of dispute resolution backed by the power of the state) 20. diplomacy 21. incarceration (provides the service of keeping criminals out of society) 22. law enforcement (provides the service of identifying and apprehending criminals) 23. lawyers (who perform the services of advocacy and decision making in many dispute resolution and prevention processes) 24. mediation 25. military (performs the service of protecting states in disputes with other states) 26. negotiation (not really a service unless someone is negotiating on behalf of another) 27. education (institutions offering the services of teaching and access to information) 28. library 29. museum 30. school 31. entertainment (when provided live or within a highly specialized facility) 32. gambling
  • 16. 16 33. movie theatres (providing the service of showing a movie on a big screen) 34. performing arts productions 35. sexual services 36. sport 37. television 38. fabric care 39. dry cleaning 40. Self-service laundry (offering the service of automated fabric cleaning) 41. financial services 42. accountancy 43. banks and building societies (offering lending services and safekeeping of money and valuables) 44. real estate 45. stock brokerages 46. tax preparation 47. foodservice industry 48. personal grooming 49. hairdressing 50. manicurist / pedicurist 51. body hair removal 52. dental hygienist 53. health care (all health care professions provide services) 54. hospitality industry 55. information services 56. data processing 57. database services 58. Interpreting 59. Translation 60. risk management 61. insurance 62. security 63. social services 64. social work 65. transport 66. Public utility 67. electric power 68. natural gas 69. telecommunications 70. waste management 71. water industry
  • 17. 17 1.7 The 7Ps of marketing Successful marketing depends upon addressing a number of key issues. These include what a company is going to produce, how much it’s going to charge, how it is going to deliver its product or services to the customer and how it’s going to tell its customers about its products or services. These are known as the 7 Ps of marketing, which are also referred to as the marketing mix. Figure 1.7 Expanded Marketing Mix for Services Product:- A perfect product (service) must provide value for the customer. Give them what they want not what you think they want. Ask yourself if you’ve got a system in place to regularly check what customers think of your product. What’s your Unique Selling Point (USP)? Beware of going too far. Don’t try to sell a Rolls Royce when all they want is a Micra. Quality may be too expensive for the amount you are charging.
  • 18. 18 Parents may also want just 1 session on a Monday. Can you afford to block a fulltime place? Place:- Where your setting is. Is it a purpose built nursery / Church or village hall? it must be appropriate and convenient for your customers. Is it in a one mile radius! / near a school or on a route to work? Price:- The price needs to be competitive but this doesn’t mean the cheapest. You need to know how many children you need to break even. Existing customers are less sensitive about price than new customers. Price positions you in the market place. The more you charge the more value or quality customers will expect. If you charge a higher price, customers will assume a higher quality service and anything that can be seen by the customer must be consistent with these higher expectations including promotional materials / prospectus / layout of setting / equipment / meals etc. Promotion:- Is the way you communicate what you do and what you offer Promotion must  Gain attention  Be appealing  Tell a consistent message  Give the customer a reason to choose you Promotion should communicate the benefits, not just the features Whatever type of promotion method used it should grab the attention of your customers, be easy to read and ensure the customer buys your service. Promotion is deciding what channels you will use, how you will generate positive PR and what discounts or special offers to implement Promotion is not just for customers. You need to communicate with your staff the values and attributes of your provision so they can be knowledgeable and share expertise with customers.
  • 19. 19 People:- Anyone that comes into contact with your customers will make an impression good or bad! Ensure that all staff who come into contact with your customers are trained and are the right people for the job. The level of support after a child is in your setting can give you a competitive advantage over your competitors. Look regularly at the customers who are using the most places. Are you ensuring they are happy with the service? Could you enhance your support at little or no cost? Processes:- The process of giving a service and the behaviour of staff are crucial to customer satisfaction. Issues such as waiting times, information given to customers and the helpfulness of staff are vital to keep customers happy. How do you keep parents informed, how often and in what format? You could have the best setting in the country but if potential customers are trying to reach your company by phone and no one answers or they get an answer phone message you could lose that vital source of income. Physical Evidence:- For a parent, choosing a nursery / playgroup is a risky business. So a setting has to reduce that perceived risk. The uncertainty can be reduced by helping potential customers ‘SEE’ what they are buying. Case studies and testimonials provide evidence. Facilities such as a clean, tidy well decorated reception area can also reassure. The physical evidence must confirm the assumption of the customer. A setting should be welcoming, happy, safe and secure.
  • 20. 20 1.8 Service quality Service quality is a recent concept in the services marketing literature. In fact there was little academic research in service quality until the 1980s. However, the area of service quality is now one of the largest areas of research. From your understanding of the characteristics of services you will no doubt also appreciate that achieving consistent, high quality delivery of services is not a simple matter. The interactive nature of the service experience effectively precludes it, quite aside from whether or not we could reach agreement on just what service quality actually means. Most of the definitions of quality are derived from manufacturing environments where it is easy to determine which products are suitable for sale or rejected. However, these are not always suitable for services as manufacturers do not have to contend with the customer being a participant in the production process. Definitions of service quality have included:- '[Service] quality refers to the extent to which a service is what it claims to be and does what it claims to do' (Mudie and Cottam 1993). 'Service quality is an intuitively integrated value of the appropriateness of the service offerings to the customers' (Sasser et al. 1978). 'Quality can be defined only by customers and occurs where an organisation supplies goods and services to a specification which satisfies their needs' (Palmer 1994). 'Service quality is a measure of how well the service level delivered matches customer expectations. Delivering quality service means conforming to customer expectations on a consistent basis' (Lewis and Booms 1983, cited in Parasuraman et al. 1985). In contrast to the first definition that is goal oriented, the last three have a customer focus, which is now seen as being a necessity when discussing service quality. Service quality then can be defined as the extent to which any service meets customers' needs requiring the focus of the entire organisation and being ongoing. If service quality is defined by the customer, AND we know that customers require services to satisfy different wants and needs, AND customers have different expectations of the service experience, it becomes clearer then that service quality will mean different things to each customer. When we then consider that achieving consistent high quality is difficult due to the interactive nature of the service experience (remember the servuction
  • 21. 21 model and the heterogeneity characteristic), it becomes clearer why Parasuraman et al. (1985) claim service quality is elusive and indistinct. If you are beginning to think this is all beginning to sound like customer satisfaction, well do not be too concerned because the two concepts are related. Customer satisfaction is a short-term measure and is the outcome of the customer's evaluation of a specific transaction. Service quality can be differentiated because it is an attitude that pertains to the customer's global evaluation of the service offering. That is, the evaluation is formed from a series of evaluated service experiences. You may find Parasuraman et al.'s (1985) definition useful in clarifying service quality as being: Consumer's judgement [across multiple service encounters] about the firm's overall excellence or superiority. It is a form of attitude related, but not equivalent to satisfaction. Read now what your text has to say about quality, noting that where we have approached quality from the perspective of service quality, your text examines quality from a broader approach. This will provide an introduction to the much deeper discussion on quality that you will gain in the Quality Systems and Customer Service unit during your studies. We will come back to Parasuraman et al's (1985) view of service quality shortly. Conceptual model of service quality In their model of service quality, Parasuraman et al. (1985) describes the service quality process in terms of 'gaps'. That is, gaps between expectations and perceptions of management, employees and customers. Parasuraman et al. (1985) proposed five gaps in all as illustrated in Figure1.8.1 1.9 The Gap Model Customers compare the service they 'experience' with what they 'expect' and when it does not match the expectation, a gap arises. Key Points:- GAP 1:- Gap between consumer expectation and management perception: arises when the management or service provider does not correctly perceive what the customers wants or needs. GAP 2:- Gap between management perception and service quality specification: this is when the management or service provider might correctly perceive what the customer wants, but may not set a performance standard.
  • 22. 22 GAP 3:- Gap between service quality specification and service delivery: may arise pertaining to the service personnel. This could arise due to there being poor training, incapability or unwillingness to meet the set service standard. GAP 4:- Gap between service delivery and external communication: consumer expectations are highly influenced by statements made by company representatives and advertisements. The gap arises when these assumed expectations are not fulfilled at the time of service delivery. GAP 5:- Gap between expected service and experienced service: this gap arises when the consumer misinterprets the service quality. The Service Quality Model, also known as the GAP Model, was developed in 1985. It highlights the main requirements for delivering a high level of service quality by identifying five ‘gaps' that can lead to unsuccessful delivery of service. The figure below shows the "GAP" model of service quality. This model offers an integrated view of the consumer-company relationship. It is based on substantial research amongst a number of service providers. In this case expected service is a function of word of mouth communication, personal need and past experience, and perceived service is a product of service delivery and external communications to consumers. Figure 1.9.1 The diagram shows the different gaps in the model, including the Knowledge Gap discussed here.
  • 23. 23 GAP 1: Gap between consumer expectation and management perception: This gap arises when the management or service provider does not correctly perceive what the customer wants or needs. For instance – hotel administrators may think guests want better food or in-house restaurant facilities, but guests may be more concerned with the responsiveness of the staff or the cleanliness of their rooms. Factors that affect the size of the knowledge gap include: Market research Before introducing a new product or service into the market, a company must conduct market research to understand whether there would be any demand for the product, and what features should be incorporated. The better this process is conducted, the smaller the knowledge gap will be. There are methods of ensuring that customer desires are taken on board. These include: comprehensive studies, gauging satisfaction after individual transactions (surveys immediately after a purchase is made), customer panels and interviews, and through customer complaints. Communication channels The fewer the layers between management and customer contact personnel, the more likely that customer preferences will be incorporated into higher-level decision making on the product. GAP 2:- Gap between management perception and service quality specification: This is when the management or service provider might correctly perceive what the customer wants, but may not set a performance standard. An example the hospital administrators may tell the nurse to respond to a request ‘fast', but may not specify ‘how fast'. GAP 3:- Gap between service quality specification and service delivery: This gap may arise in situations pertaining to the service personnel. It could happen due to poor training, incapability or unwillingness to meet the set service standard. An example would be when a doctor's office has very specific standards of hygiene communicated but the hired staff may have been poorly trained on the need to follow these strict protocols. GAP 4:-
  • 24. 24 Gap between service delivery and external communication: Consumer expectations are highly influenced by statements made by company representatives and advertisements. The gap arises when these assumed expectations are not fulfilled at the time of delivery of the service. For example – a hospital printed on its brochure may have clean and furnished rooms but in reality, it may be poorly maintained – in this case the patient's expectations are not met. GAP 5:- Gap between expected service and experienced service: This gap arises when the consumer misinterprets the service quality. The physician may keep visiting the patient to show and ensure care, but the patient may interpret this as an indication that something is really wrong. However the GAP model goes further in its analysis of these key contributory factors. It not only provides a more rigorous description of the contributory Gaps, it lists key drivers for each gap and generic breakdown of each of these drivers. These are illustrated below in summary form below. Gap 1  Inadequate market research orientation  Lack of upward communication  Insufficient relationship focus Gap 2  Absence of customer driven standards  Inadequate service leadership  Poor service design Gap 3  Deficiencies of human resource policies  Failure to match supply and demand  Customers not fulfilling roles Gap 4  Ineffective management of customer expectations  Overpromising  Inadequate horizontal communications
  • 25. 25 2.1 Airline Management Airlines have evolved over the past 70 years from simple contract mail carriers into sophisticated businesses. The current airline environment is very competitive and dynamic. Maintaining consistent profitability requires that appropriate trade-offs made between the often competing objectives within planning, marketing and operations. Airlines have led other industries in the application of operations research and information technology to deal with these issues. The real-time solution of large-scale optimization models has played a significant role in shaping today’s airline industry. This role will increase as the industry becomes more competitive and flight characteristics change due to the implementation of new technologies. Airline planning and scheduling represents an excellent example of the application of operations research and mathematical modelling to solve complex and real industry problems. 2.2 Challenges of Airline Management Impact of Other Players in the Industry Airline management does not work independently of other players in the air transportation industry. Indeed, the decisions of airline management are very much affected by these other players. Figure 2.2.1 depicts the different entities that interact with airline management and affect decisions concerning government, airports, customers, alliances, suppliers, unions, and competitors. Figure 2.2.1 The different players in the air transportation industry Chapter 2: Airline Management
  • 26. 26 First, airline management must comply with the regulations of the airline’s home country. It must also take into consideration and comply with the regulations of the governments of the countries where the airlines fly to and from, and whose airspace they cross. Governments typically watch competition between airlines and control airlines’ strategic decisions, such as merging, acquisition between carriers, market entry or exit and pricing, environmental regulations, security regulations, maintenance, and safety requirements. Second, airline management should carefully consider the terms of their agreements with the different airports they serve. Several factors affect these agreements, including available infrastructure (gates, runways, baggage handling, and so on), expected traffic, airport charges and incentives, competition from nearby airports, available landing slots, congestion, and operational curfews. Third, an airline should consider the needs and preferences of its potential customers, the travellers. For instance, the airline should consider schedule convenience, competitive fares, on-board services, punctuality, and efficient customer service. Failing to fulfil the needs and preferences of customers might lead to losing them to other competing carriers or other modes of transportation. Fourth, in many cases, an airline participates in one or more alliances to expand its network coverage or share resources with other airlines. Several forms of alliance are available that reflect the level of cooperation between participating airlines. It is important for an airline to decide which alliance to participate in and how to share its resources efficiently with each member in the alliance to promote profitability. Typically, the airline has to maintain a certain level of operating standards to serve within a worldwide alliance. Fifth, suppliers are crucial to the continuation of the airline’s operation. Airlines depend on suppliers to provide important items such as aircraft, fuel, spare parts, meals, employee uniforms, and so on. Also, in many cases, airlines outsource to vendors some of their jobs and services, such as aircraft maintenance, aircraft cleaning, ground handling, and sales. Therefore, an airline has to keep healthy relationships with its suppliers to continue operating successfully. Another entity in the air transportation industry that an airline has to deal with is unions. Different groups of workers form unions to achieve stronger negotiation power with airline management in terms of salary, benefits, or working rules. Keeping a good relation with labor in order to guarantee smooth operation of the business is one of the main objectives of airline management. Conflicts with unions might typically lead to negative actions by the unions, such as work slowdown or strikes, which usually impair the airline’s operation significantly. Finally, in most markets, there is tough competition between several airlines. Typically, airlines continuously monitor the decisions of their competitors that relate to providing capacity, fare levels, fare restrictions, and departure times. In many situations, the decisions of the competing airlines proceed in a leader-follower pattern, where one airline takes
  • 27. 27 an action and the other competing airlines try to find the best way to respond to this action. Interacting Layers of Decisions:- Like many other businesses, airlines management faces three levels of interacting decisions. These levels, as shown in Figure 1.2, include strategic, planning, and operations decisions. Strategic decisions typically require a long lead time before implementation and require a considerable monetary investment. They are also expected to have a significant impact on the form of the airline in the long term. Examples of strategic decisions include growth and expansion, fleet sizing (aircraft orders), hub locations, merging with other airlines, alliance participation, and location of maintenance facilities. Planning decisions are within a few months horizon, and can be defined as the process of efficiently using airline’s available resources to maximize its revenue. The resources available to an airline include the facilities and the personnel that operate the business, including, for example, aircraft in different fleets, pilots with different qualifications, flight attendants, maintenance facilities, mechanics, gates, customer service agents, and ramp agents. The planning decisions include forecasting the demand between every origin-destination (OD), flight schedule development, assignment of flights to the different aircraft fleet (if the airline has more than one fleet type), aircraft routing across the different airports’ with its maintenance consideration, planning the line of flight for pilots and cabin crew, crew accommodations, flight-gate assignment, and catering. Other planning decisions include the number of staff required to operate flights at different airports including customer service, ramp agents, baggage handlers, and so on. They also include decisions regarding fare levels in each OD market, fare restrictions, and seat inventory control for each flight. It should be mentioned here that these planning decisions are very dependent on each other, which makes the planning process complex. The operations decisions for the airlines are those decisions that need to be verified or updated on an hourly or maximally on a daily basis. They include, for example, the response to unanticipated incidents such as adverse weather conditions, flights delays and cancellations, aircraft breakdown, and absence of crew or staff due to illness. Operations decisions also include watching revenues, bookings, and anticipated demand levels in the different markets, matching prices with competitors, and managing seat inventory on each flight on a daily basis. Strategic decisions are expected to impact on planning decisions, which, in turn, affect the operations decisions. In addition, there is a reverse feedback from the operations phase to the planning phase, which also, in turn, may provide feedback to the strategic decisions phase. For example, the observation of a frequent delay of a certain flight waiting for its inbound aircraft
  • 28. 28 might alert schedule planning to alter the schedule of this flight to give enough connection time for its inbound aircraft. Also, strong demand forecasting in markets might call for a change in the strategic plan regarding expansion and increase of fleet size. As explained in the next section, this book covers in detail the tactics currently practiced by airline management for the planning and operations phase. 2.2.3 Decision levels of airline management Surrounding Events:- The air transportation industry is characterized by the effects of rapid and significant impacts from surrounding events and economic and social changes. The negative impact on air transportation of factors such as wars, civil unrest, terrorist actions, increasing fuel prices, and epidemics has been clearly observed in several areas across the world. These events necessitate that airline management respond quickly and efficiently to study the impact of these events and take actions to alleviate their impact. To survive in business, in many situations, airlines may be forced to cut schedules, reduce fares, lay off employees, and cut salaries and benefits. Impacts on passenger demand, revenue, average fare, and average yield (revenue per seat mile) for airlines in the domestic. US markets following the September 11, 2001 (9/11) terrorist attack. It is clear that these four measures were affected significantly because of this event. At that time, most domestic airlines considered significant actions such as cutting capacity, lowering fares, and discharging employees to respond to these market changes.
  • 29. 29 Many Groups to Contribute:- Another challenge of airline operations is the interaction process among several groups of workers who work together to operate the flights. The product that an airline generates is a passenger seat or a space for cargo. This passenger seat or cargo space is typically a part of a flight that connects between two airports. The number of flights that an airline operates depends on the size of the airline. For large air carriers, the number of flights reaches a few hundred flights a day. Operating each flight requires significant cooperation among several groups of workers who all share the same objective of making the flight ready for departure on time. There are about 12 different groups who work on each flight before its departure. These groups include pilots (cockpit crew), flight attendants (cabin crew), maintenance crew, ramp agents, baggage-handling crew, cargo agents, fueling agents, customer service agents, gate agents, catering agents, aircraft, cleaning agents, and operations agents or dispatchers. While the personnel in these groups differ in their qualifications, nature of work, workloads, and salary, they are all equally important for the departure of the flight. It is important for airline management to adequately set the work plan for each group, facilitate their work and alleviate any possible conflict between them. A pilot is a certified person who flies the aircraft of a certain aircraft fleet. Typically, each type of aircraft requires a certain number of pilots with certain specified qualifications. Flight attendants are airline staff employed primarily for the safety of passengers onboard. Their secondary function is the care and comfort of the passengers. The maintenance crew (maintenance) is responsible for servicing and repairing the aircraft to make sure that it is operational. Typically, maintenance performs several pre-specified mandatory service checks on the aircraft before departure, as specified by the manufacturers. Maintenance also performs several scheduled service checks on each aircraft in operation. Ramp agents help guide the aircraft to taxi in, park, and taxi out at the gate. Baggage handlers and cargo agents transport, load, and unload baggage and other cargo to and from the aircraft. Fueling agents provide fuel to the aircraft before departure or at intermediate stops in the flight. Customer service agents assist passengers with check-in, seat assignments, seat upgrades, and itinerary changes. Gate agents ensure that only authorized persons and passengers have access to the aircraft. Catering agents provide meals and beverages to be consumed on the flight. Aircraft cleaning agents clean the aircraft and the lavatories. The operations’ agent or dispatcher coordinates the flight plan, weight, fuel requirements, and any weather-related or operations delays that are issued to the flight.
  • 30. 30 Airline Planning and Operations:- Planning starts by recording the anticipated demand and supply (available airline resources). Next, a set of interrelated planning processes is considered, including schedule planning, time banking, fleet assignment, aircraft routing, crew scheduling, airport facility planning, airport staff scheduling, pricing and seat inventory control, and sales and marketing initiatives. The planning processes are typically completed by a month to a few months before the implementation of the schedule, and they are repeated on a frequent basis as long as the airline is in business. The operations phase of the airline is concerned with implementing the planned airline schedule, while taking into consideration recovery for any unanticipated incidents such as adverse weather conditions, aircraft breakdown, crew absence, and so on. The operations phase is where decisions are made to recover the airline schedule from flight delay and cancellations, to compensate for missing or delayed aircraft and crew, and to reaccommodate stranded passengers. The operations phase also monitors seat bookings in the different markets and updates seat inventory control and pricing decisions. It should be mentioned that the current practice of airline planning and operations might differ to some extent, based on airline size and network structure. In the next subsection, the main objectives of each of the planning and operations processes are highlighted. Network Structure:- Airlines are typically classified as scheduled airlines or charter airlines. Scheduled airlines have a predefined flight schedule that is published through designated channels. In this schedule, the airline specifies the markets it flies to and the departure time and capacity of each flight in the schedule. Charter airlines, on the other hand, do not have a predefined schedule and typically operate on a demand basis. This book focuses on the business process of scheduled airlines, although many of these processes are also applicable to charter airlines. Typically each scheduled airline has a predefined network structure. Selecting a network structure is considered one of the major strategic decisions of the airline. Most common network structures include 1) hub-and-spoke, 2) point-to- point, or 3) a combination of both. The hub-and-spoke network structure is one in which the airline considers one or more stations in the network to be its hub. Accordingly, any flight that is operated by this airline either starts or terminates at one of those hubs. The hub station is characterized by having numerous departures and arrivals every day for the airline. The spoke station has only a few departures and arrivals each day.
  • 31. 31 Fleet Assignment:- The fleet assignment process is necessary for airlines that have more than one type of aircraft. It is the process of assigning the different flights in the schedule to the different fleet types. The process matches the characteristics of the aircraft and the flight to minimize the total cost of the flight to the airline. For example, the aircraft travel range must be consistent with the distance between the flight origin and destination. Also, in terms of the economics of fuel consumption, each aircraft type has an optimal range of travel distance in which it produces the best fuel consumption performance. Furthermore, the seat capacity of the aircraft should be consistent with the expected passenger count for the flight. Also, airport characteristics at the origin and the destination of the flight, including runway, gates, allowed noise levels, and curfews should be considered in the fleet assignment. Another logical constraint is maintaining continuity of fleet types at the different airport stations. The number of inbound flights assigned to a certain fleet type at any station should equal the number of outbound flights that are assigned to this fleet type. Other constraints related to the location of maintenance facilities and crew bases should be considered. Understandably there is a strong relationship between schedule design and fleet assignment. For example, an airline might decide to schedule and operate two small flights from point A to point B using two small aircraft or to schedule and operate one large flight using a large aircraft. Aircraft Routing:- Aircraft routing, as the name implies, means determining a route for each aircraft. The route of an aircraft consists of a sequence of flights and maintenance activities that extend over a few days (5–7 days). The flights are selected to ensure there is enough time between them to complete an aircraft turn or a maintenance activity. An aircraft turn is the time difference between the arrival time of a flight and the departure time of the next flight. An aircraft turn time should be long enough for deplaning passengers of the inbound flight from the aircraft, unloading cargo and baggage, cleaning the aircraft, boarding passengers of the outbound flight, loading cargo and baggage, fueling, catering, exchanging crew, and so on. At the same time, the aircraft turn should not take long; long aircraft turns cause the aircraft to remain idle or unused over long periods of time. Longer idle time on the ground is expected to significantly dilute the revenue of the airline, as the throughput of its fleet declines. Each aircraft must undergo certain maintenance activities, as specified by its manufacturer. Typically, the manufacturer specifies that a maintenance activity should be performed either after a few departures, certain flying hours, or
  • 32. 32 certain operational hours. The maintenance activity of the aircraft extends over a few hours and is usually performed overnight at one of the airline’s maintenance stations. Airlines usually position their maintenance facilities at one or more of their hub stations. Each aircraft must be scheduled for the required maintenance activities at the right time and at the right maintenance station. Crew Planning:- It is important for the crew (pilots and flight attendants) to know their traveling schedule ahead of time, so that they can plan their other life activities accordingly. The crew’s work plan is typically extended over a period of one month. During the month, the crew member is classified either as a line crew or a reserve crew. A line crew gets a sequence of predefined trippairs over the month. A trippair represents a sequence of flights (segments), the first of which originates from the home city (domicile) of the crew and the last flight of which ends at the domicile. The trippair typically extends over two to seven days and consists of several duty periods followed by a rest (layover) period. A crew connection time occurs between every two successive flights in the same duty period, to enable the crew to connect from the gate of the inbound flight to the gate of the outbound flight. The duration of the minimum connection time, the maximum duty period, and the minimum layover period is pre-specified by the aviation authorities and the crew contract. Reserve crew members are not given a line of flying. However, they are used as backup in case of system irregularity. It should be clear that the crew cost is one of the major cost components of the airlines. Efficient scheduling of the airline crew is expected to make considerable savings in airline costs. Airport Facility and Staff Planning:- During the planning phase, the scheduler must consider the different facilities at the different airports, including gates and baggage-handling facilities. The facilities at the airports should be planned efficiently to accommodate the planned flight schedule economically. The processes of facility planning are more crucial at the airline hub, where the airline operates many flights, and the usability of each resource is critical. The scheduling of airport facilities should take into consideration schedule disruptions that typically result from adverse weather conditions. Airport staff includes customer service agents, gate agents, baggage handlers, and ground agents. Typically, this staff works on shifts of about eight to ten hours every day. It is important for the airline to position the adequate number of staff at the appropriate times to operate the planned schedule economically and efficiently. The airport staff should also be adequate enough to manage any unplanned schedule disruptions at the airport due to adverse weather conditions or any other unforeseen factors.
  • 33. 33 Revenue Management Airlines apply advanced revenue management (RM) techniques to maximize the revenue of their flights in different markets. RM is defined as selling the right seat to the right customer at the right price and at the right time. The idea behind RM is that traveller’s have different characteristics and primarily have different requirements for their travel. Basically, traveller’s can be classified as business traveller’s and leisure traveller’s. Business traveller’s are traveling for a work-related trip or a business meeting. This group of traveller’s is typically less sensitive to the price of the ticket, because, in most cases, they are reimbursed for the cost of their travel by their employers. Business travelers have rigid travel plans that are typically constrained by predefined dates and times that usually span weekdays. They also tend to spend shorter periods of time at their destinations. They do not book their tickets far in advance and prefer flexible tickets that can be changed or cancelled to match any possible changes in their travel plans. Leisure traveller’s, as the name implies, travel for recreational purposes or to visit family or friends. These traveller’s are sensitive to ticket prices. They also have flexible travel plans and tend to spend longer periods of time, including weekends, at their destinations. Given that business traveller’s are more profitable to the airlines, the objective of RM is to ensure that enough seats are always available for these travelers, while the remaining seats on each flight are filled with low-revenue leisure passengers. The RM process involves three main modules, including pricing, demand forecasting, and seat inventory control. The main objective of pricing is to determine the right price for each market, taking into consideration competition from other carriers in the market. Demand forecasting means predicting the number of travelers by type in each market. Finally, the objective of seat inventory control is to assign seats on each flight to the different demand streams to maximize total revenue. The RM process is implemented for each future flight. The decisions of the RM process are updated on a daily basis until the day of the flight departure. Sales and Distribution:- Airlines expend considerable effort on sales and distribution initiatives that improve their market share and enhance profitability. These initiatives include, for example, relations with travel agents, global distribution systems, online ticket distribution channels, travellers’ mileage plans, sales agreements with major businesses and promotions, and alliances and code sharing. Each of these initiatives needs proper evaluation in order to understand its impact on the airline profitability.
  • 34. 34 Irregular Operations Management:- It is almost rare that an airline schedule is implemented as planned. Airline schedules are usually subject to disruptions due to adverse weather conditions, aircraft breakdowns, crew delays, and security breaches. When the airline schedule is disrupted, it is important for the airline to alleviate the impact of this disruption and recover the schedule in order to return to normal operations. When recovering the schedule, several objectives are considered by the airline. For example, the airline must minimize the deviation from the planned schedule by minimizing flight delays, cancellations, and crew swapping. In addition, it must not only adhere to the maintenance requirements of different aircraft at the right time, but also follow the regulations that govern the work rules of the crew on different flights. Furthermore, the airline must comply with air traffic control regulations and programs that manage traffic in the airspace and at airports. Last but not least, it must minimize the total cost of recovery by avoiding expensive decisions such as flight cancellations, calling additional crew, and passenger rebooking on other airlines.
  • 35. 35 3.1 Brief Introduction India’s aviation sector is enjoying a steady growth. Passenger output rose to 144 million in FY 2011 from 73 million in FY 2006, as per a joint study by FICCI–KPMG (2012). This positive growth path can be attributed to the 11th Five-Year Plan (2007–2012). This period witnessed the completion of four international airport projects through the public–private partnership (PPP) mode; it was also during this period that five Indian carriers began to function on international routes. Air transport in India today supports 56.6 million jobs and produces over US$ 2.2 trillion of the global gross domestic product (GDP). Air passenger traffic is also increasing at a healthy rate, a development driven by modern facilities and infrastructure. The Centre had set aside an investment of US$ 12.1 billion in the airports sector during the 12th Five-Year Plan period, of which US$ 9.3 billion is projected to come from India’s private sector for construction of new and low- cost airports and development of existing ones. Market Size:- India would be the third largest aviation market by 2020, as per Mr Ajit Singh, Minister for Civil Aviation, Government of India. Passenger throughput increased to 159 million and cargo to 2.19 million metric tonnes (MMT) in FY 2013, a compound annual growth rate (CAGR) of 13 per cent and 10 per cent respectively over the period FY 2003–2013, as per data from the Airports Authority of India (AAI). The Indian civil aviation industry is among the top 10 globally with a size of around US$ 16 billion, as per a KPMG report. Investments:- The foreign direct investment (FDI) inflows in air transport (including air freight) during April 2000 to March 2014 stood at US$ 495.24 million, as per data released by Department of Industrial Policy and Promotion (DIPP). The following are some of the major investments and developments in the Indian aviation sector:  Tata-Singapore Airlines plans to launch its services in India from September 2014, with 87 weekly flights in its first year of operations, as Chapter 3: AirAsia Case Study
  • 36. 36 stated in the airline’s application for an air operator’s permit to the Directorate General of Civil Aviation (DGCA). These flights will link Delhi with Ahmedabad, Bangalore, Chandigarh, Goa, Hyderabad, Jammu, Mumbai, Patna, and Srinagar.  Bengaluru-based GMR Infrastructure has won a contract to upgrade Mactan-Cebu international airport in the Philippines. GMR Infra and its partner, Philippine firm Megawide Construction will make an upfront concession payment of US$ 325 million and invest US$ 375 million over the next five years to build a new terminal and upgrade the current one.  The DGCA granted an air operator’s permit (AOP) to AirAsia on May 7, 2014, opening the path for the airline company to launch low-cost services in India. AirAsia India will launch services with three Airbus A320 aircraft, from its Chennai hub.  Trichy in Tamil Nadu has, over the past few years, become the fastest growing international airport in India. International passenger traffic in the town increased 382 per cent to 773,423 between 2006–07 and 2012–13. This year, it is expected to become the 10th biggest international airport in the country.  Low-cost airline SpiceJet is changing its network strategy in order to be more cost effective and have better yields. The airline signed a US$ 4.4- billion deal in March 2014, for 42 fuel-efficient Boeing 737 Max planes which would be delivered from 2018 onwards. Government Initiatives:- India’s Ministry of Civil Aviation revised the bilateral air traffic entitlements with Dubai in February 2014, permitting them a 20 per cent increase in seats to India. “We have allocated Dubai 11,000 seats in three phases till the summer schedule of 2015. Dubai has agreed to grant change-of-gauge facility for Indian carriers at the existing airport,” as per a senior official of the Ministry. The Ministry has also signed a Memorandum of Understanding (MoU) with AAI for FY 2014–15, which lists targets to be achieved by AAI on some key performance areas during the fiscal. The main features of the MoU include parameters such as risk management, implementation of Enterprise Resource Planning (ERP) tools and development of disaster management plan. Delhi Airport will soon become a zero-diversionary airport. The Committee set up by the DGCA to look into the matter, has presented its report with 27 recommendations. There were 57, 89 and 143 diversions in 2011, 2012 and 2013, respectively. Chances of diversions of flights at Delhi Airport are expected to come down drastically after the recommendations have been implemented.
  • 37. 37 Road Ahead The aviation industry’s potential in India is massive. The market already caters to about 150 million passengers passing through its many airports, with the potential to grow further. By 2020, traffic at airports in India is anticipated to reach 450 million. The aviation industry presently supports about 0.5 per cent of the India’s GDP. A KPMG report notes that the industry will continue to grow in India on the back of the performance of regional airports. Currently, there are about 450 used/un-used/abandoned airports and airstrips spread across India. Many Indian states, particularly in Eastern India, have begun taking steps to promote air connectivity. Still, more needs to be done. Today, many Tier II and Tier III cities are unconnected. The proposed Essential Air Services Fund (EASF) by the Ministry of Civil Aviation needs to be established as quickly as possible. All this will have a multiplier effect with regards to higher growth of tourism, employment and local economic activities in the country. Future:- By 2020, passenger traffic at Indian airports is expected to touch US$ 450 million from 159.3 million in 2012–13. The travel & tourism industry is predicted to grow 7.9 per cent to US$ 270.5 billion in 2023 from US$ 119.4 billion in 2012. India is the ninth largest civil aviation market in the world and fourth in terms of domestic passenger volumes (116.3). The country’s civil aviation market is also set to become the world’s third largest by 2020. Total freight traffic registered a compound annual growth rate (CAGR) of 6.6 per cent over FY 06- 13; it stood at 2.19 million tonnes in FY 13. Domestic freight traffic also increased at a CAGR of 7.1 per cent over FY 06-13 while international freight traffic rose 6.2 per cent over the same period. In FY13, domestic freight traffic was 0.78 million tonnes, while international freight traffic was at 1.41 million tonnes. The government has done its bit to support the airport sector in the country. It has focused on infrastructure as well as liberalised policies. One such policy is, the Open Sky Policy – a concept that calls for the liberalisation of the rules and regulations of the international aviation industry (especially commercial aviation) so as to foster a free-market environment for the airline industry. Furthermore, it has constantly provided policy sops and encouraged foreign direct investment. The Indian aviation sector is likely to see investments totalling US$ 12.1 billion during the Twelfth Five Year Plan. It aims to boost MRO business in India,
  • 38. 38 which is currently worth US$ 500 million and is estimated to grow over US$ 1.5 billion by 2020. Crowding the Skies Figure 3.1.1 Crowding the Skies Players Aviation provides the only transportation network across the globe and it is crucial for global business development and tourism enrichment. Air transportation is one of the most important services to offer both significant social and economic benefits. By serving tourism and trade, it contributes to economic growth. It also provides jobs and increases tax revenues. Air transportation is essential for the fast movement of people and cargo shipments around the world. Finally, air transportation improves the quality of people’s lives by broadening their leisure and cultural experiences. It gives a broad choice of holiday destinations around the world and is an affordable means to visit distant friends and relatives (ATAG 2005). The use of commercial aviation has grown significantly over the last few decades, estimated to be more than seventy-fold since the first jet airliner flew in 1949 (ATAG 2005). This rapid growth is attributed to a number of factors. First, rising disposable income and quality of life in many parts of the world have encouraged more people in these areas to travel and explore opportunities overseas. Second, deregulation of aviation laws, and bilateral
  • 39. 39 and open-sky agreements between governments have opened new markets for airlines, which make travel easier and cheaper. Third, demand is increasing because of growing confidence in aviation as a safe mode of travel. Fourth, increased efficiency and increasing competition have reduced world airfares and the cost of travel. Finally, globalization has increased the average distance travelled, as people do business in countries which now have improved political and social environments. The impact of these factors is expected to continue, however, at different levels in different parts of the world. The number of air travellers and the volume of air cargo is expected to continue to grow, increasing the pressure on all the contributors to the air transportation service to take advantage of opportunities and efficiently manage their service. A major player in the air transportation industry is the airline. Current records indicate that there are more than 900 commercial airlines around the world, with a total fleet of nearly 22,000 aircraft (ICAO 2006). Commercial airlines serve nearly 1,670 airports through a route network of several million kilometres. These airlines transport close to 2 billion passengers annually and 40 percent of interregional exports of goods (by value). Also, an estimated 2.1 million people are employed by airline or handling agents: for example, as flight crew, checkin staff, and maintenance crew (ICAO 2006). Airline services are categorized as being intercontinental, continental, regional, or domestic, and may be operated as scheduled services or charters. In terms of size, airlines vary from those with a single airplane carrying mail or cargo, through full- service international airlines operating many hundreds of airplanes. In many parts of the world, airlines are government-owned or supported. In recent decades, however, the trend has been to move toward independent, commercial public companies by giving more freedom to non-government ownership of airlines. The increasing number of commercial airline companies has put more pressure on their management to continually seek profits, reduce cost, and increase revenues. Increasing demand for air transportation service has compelled airline management to take advantage of opportunities in different markets. At the same time, increasing competition among airlines necessitates that airline management seek efficiency in all their decisions to promote their profit. It is no surprise that many airlines throughout aviation history have been unable to remain in business, and in most cases, it is agreed that the demise of these airlines has been attributable to deficient management. Airline management practice has evolved significantly over the past three decades. The development of this practice has contributed to recent advances in computation and communication technologies and, more importantly, the
  • 40. 40 need to reduce costs and increase revenues. Nowadays airlines seek to perform efficiently in a competitive environment that only provides marginal profits. The airline business is characterized as being one of the most complex, involving multiple conflicting decisions that all need to be optimized at the same time. Several tactics have been developed and used to better plan and operate airlines. These tactics bank on scientific approaches available in operations research and mathematics literature to optimize airlines’ decision- making processes, and are usually modelled within computerized systems that can automate decision making. Therefore, these scientifically-based tactics promise an easier decision-making practice for the airlines. The need for these tactics becomes more crucial as the size of the airline increases, and making decisions based on individuals’ judgment or experience becomes more difficult. The next section highlights the main challenges of airline management that elaborate the complexity of the airline decision-making process. Top aviation companies in India:-  Air Charter Services Pvt Ltd: - Air Charter Services Pvt. Ltd. performs its business operations with private business aircrafts, executive and corporate air charters, helicopter tours, VIP charter flights, and photo and video flights. Its client list incorporates VIPs, corporate firms, tour co-ordinators, travel agents and air medical evacuation professionals. It provides services such as relief, VIP, air ambulance and privacy services.  Air Charters India: - Air Charter India is owned by the STIC Travel Group and has around 100 airplanes in India. It covers several international destinations with an unmatchable logistics support. The aviation company has 40 offices with a highly skilled manpower of above 1000 people. It offers services like heli-skiing, charter flights for pilgrimage in India, heli-sightseeing, corporate jets, executive jets, etc. Air Charter India provides airplanes such as helicopters, business aircrafts, and aircrafts for corporates, individuals and group traveller’s.  Air India: - National Aviation Company of India Limited (NACIL) was the first Indian aviation company which led the way for other companies in the aviation sector. It was initiated before the India gained its independence. Later it collaborated with Indian Airlines and gained the reputation of being the largest airline in South Asian airline. Air India Cargo, Air India Express and Air India Regional are its subordinates in aviation market. It offers First class, Executive class and Economy class services and has code sharing pacts with companies like Air France, Austrian Airlines, Aeroflot, Air Astana, Emirates Airline, Air Mauritius, Kuwait Airways, etc.  Aviation India: - Aviation India provides services like cargo services, flight operation, air charter services, passenger services, freight control,
  • 41. 41 advisory and consultancy, aircraft preservation and renovation, international flight operation, air supervision and helipad engineering, etc. The airlines has skilled workforce and offers total control and functional back-up to several international schedule / non-schedule operations.  Deccan Aviation Ltd: - The aviation company has its presence in 8 places namely, Mumbai, Ranchi, Surat, Hyderabad, Bangalore, Katra, Colombo (Sri Lanka) and Delhi. It has 350 daily departures and covers 65 destinations in India. It offers the benefit of no-cost travel to infants, ticketing counters, lavish aircraft interiors and ticketing flexibility.  Indigo: - Indigo is a utilitarian low-price domestic airline which offers feasible flying alternatives for millions. The airline was facilitated by the Air Passengers Association of India (APAI) as the “Best Low-Fare Carrier in India for the year 2007”. Indigo has 120 daily departures and a fleet of 19 Airbus A320. The airline covers 17 destinations namely, Agartala, Bangalore, Bhubaneshwar, Ahmedabad, Delhi, Chennai, Guwahati, Hyderabad, Goa, Imphal, Kolkata, Mumbai, Vadodara, etc.  Paramount airways: - Paramount Airways is a business class airline which has its base in India and headquarters at Chennai. Endorsed by Madurai-based Paramount Group and Paramount Railways was inaugurated in 19th October 2005. Its fleet comprises 5 aircrafts and it operates in 8 destinations.  Go Air Airlines: - Like SpiceJet, a Go Air airline is also a low price airline endorsed by the Wadia group. It was inaugurated in Mumbai in June 2004. It operates in 11 cities with 61 daily departures. It has started its functions in Ahmedabad, Chennai, Bangalore, Coimbatore, Goa, Cochin, Jaipur, Mumbai, Pune, Delhi, Srinagar, etc.  Kingfisher Airlines: - It is the one and only 5-star airline in India which offers excellent first class service on domestic itineraries also. A part of UB group, Kingfisher Airlines has received 30 awards for its novelty and customer satisfaction. After its tie-up with Deccan, the airline covers 64 cities and has 484 daily departures.  Spice Jet: - Spice Jet is basically a low cost airline which incorporates many Boeing 737-800 airplanes in its fleet. It covers 14 destinations in India.  Jet Airways: - Jet Airways was established on May 5, 1993. It earns yearly revenue of Rs 2502.89 and total income of approx ` 117868.8 Million. At present it id India's biggest private domestic airline with 62 aircrafts and a market share of 25%. It covers 50 destinations with 340 regular departures. Jet Airways has pacts with foreign airlines, such as Lufthansa, Swiss, Gulf Air, Austrian Airlines, Qantas and Thai
  • 42. 42 Liberalisation in aviation:- The revolutionizing effects of liberalization swept India with dynamic changes in the aviation sector. From being a service that few could afford, the sector has now graduated to being a fiercely competitive industry with the presence of a number of private and public airlines and several consumer-oriented offerings. In ten years of competition in the aviation sector, private airlines have changed the rules of the game, and they now account for more than 60 % of the domestic aviation market. More and more middle class families in India now prefer air travel to the more traditional travel by train. A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline or cheap flight) is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc 3.3 Introduction History of low cost airlines:- The low-cost concept became a money maker in the United States, where it was pioneered in the 1970s by Southwest Airlines, the model for budget carriers elsewhere like Ryanair and easy Jet in Europe. Definition of low cost airlines:- A low cost airline generally has many features that differentiate it from the traditional carriers. These features include ticketless travel, online ticket sales, no international offices, no frequent flyer points, no free food and beverages, no inflight magazines, no club lounges, use of secondary city airports. Not all low cost airlines have these features, and not all airlines that have some of these features are low cost airlines. For example, Virgin Express is a low cost airline, but it still offers complimentary coffee and inflight magazine, and they are based at Brussels primary airport. Story of AirAsia:- Air Asia, as the second Malaysian National Airline, provides a totally different type of service in line with the nation's aspirations to benefit all citizens and worldwide travellers. Such service takes the form of a no frills - low airfares flight offering, 40%-60% lower than what is currently offered in this part of Asia. Their vision is "Now Everyone Can Fly" and their mission is to provide 'Affordable Airfares' without any compromise to Flight Safety Standards.
  • 43. 43 The story of emergence of AirAsia is similar to Ryanair, since both carriers underwent a remarkable transformation from a money-losing regional operator to a profitable, low cost airline. AirAsia was initially launched in 1996 as a full-service regional airline offering slightly cheaper fares than its main competitor, Malaysia Airlines. Before 2001, AirAsia fail to either sufficiently stimulate the market or attract enough passengers from Malaysia Airlines to establish its own niche market. The turnaround point of AirAsia is in 2001, while it was up to sale and bought by Tony Fernandes. Tony Fernandes then enrolled some of the lending low-cost airline experts to restructure AirAsia’s business model. He invited Connor McCarthy, the former director of group operation of Ryanair, to join the executive team. In late 2001, AirAsia was re-launched in Malaysia as a trendy, no-frills operation with three B737 aircraft as a low-fare, low-cost domestic airline. Figure 3.3.1 AirAsia Values Opportunities faced by AirAsia in light of external development:- 1. Low fare of Indonesia-Malaysia trip:- The fare for a Jakarta-Johor Baru trip costs Rp 100,000 (RM 88.88 one way). And charge Rp 150,000 for a Bandung-Kuala Lumpur flight and Rp 300,000 for a Surabaya-Kuala Lumpur trip, whereas a Jakarta-Kuala Lumpur air ticket from Malaysia Airlines available at travel agents cost Rp 1.4 million. Meanwhile, Lion Air on the same route, charged Rp 1.05 million. The low fare provided by AirAsia helps it open the Indonesia market. 2. Low fare of Singapore-Bangkok service AirAsia will increase its services between Singapore & Bangkok by introducing a 2nd daily flight to its existing schedule. This recent development came barely a month after Thai AirAsia operations started its first international flight to Singapore in early February this year. AirAsia is offering its guests promotional fares to/from Singapore- Bangkok from SGD$23.99 (THB 499) one way from the 28th March to 30th Oct, 2004. It is much lower than the lowest fare SGD$56 offered by full-service carrier. This helps it open the Singapore market.
  • 44. 44 3. Political connections AirAsia hold 49% of Thai AirAsia with 1% being held by a Thai individual. The remaining 50% is held by Shin Corp. which is owned by the family of Thailand’s Prime Minister, Thaksin Shinawatra. Shin Corp. has financial strength, synergy in information technology and telecommunications, which support AirAsia Internet and mobile phone bookings. Shin Corp. allows subscribers of the Shin mobile phone flagship, Advanced Information Service, being able to reserve tickets through its short-messaging service (SMS). AirAsia with its politically powerful backer may well grow up to bite. This helps it open the Thailand market. 4. Malaysian government support The Malaysian government supported the establishment of AirAsia in 2001 to help boost the under-used Kuala Lumpur International Airport. AirAsia’s flights from Senai are meant to develop Johor into a transport hub to rival Singapore. AirAsia, therefore, can provide an alternative route to travel to Bangkok, by using Senai Airport in Johor Bahru, in southern Malaysia. Opportunities faced by AirAsia in light of internal development:- 1. Issue of IPO Kamarudin Meranun, AirAsia's Executive Director announced the appointment of Credit Suisse First Boston (CSFB) and RHB Sakura Merchant Bankers (RHB) as the book runners for the company's upcoming Initial Public Offering (IPO). The IPO strengthens AirAsia balance sheet, further cuts its existing low costs at 2.5 US cents per ASK and accelerates our growth plans throughout Asia. The IPO also allows AirAsia to expand its fleet of 18 Boeing 737-300s. 2. Political connections Thai AirAsia is a join venture established by AirAsia with Shin Corp. Shin Corp. is owned by the family of Thailand’s Prime Minister, Thaksin Shinawatra, and about 900 million baht will be invested in Thai AirAsia over a five-year period. Shin Corp. Oversees the finance and administration of Thai AirAsia while AirAsia shoulders the responsibility for marketing and operations. Shin Corp. has financial strength and supports AirAsia to grow. AirAsia with its politically powerful backer may well grow up to bite. Challenges faced by AirAsia in light of external development:- 1. Indonesian habit
  • 45. 45 Preferences of Indonesian passengers are quite different from the concept of cheap air travel without extra service for the passengers (free snacks and drinks), and also their reluctance to bring light baggage. AirAsia prefers passengers with very light and minimum baggage. If this is the case, it may not last long. But Indonesian domestic airline companies are able to provide value-added extras like food and beverages as part of their service to the passengers, although at a relatively higher cost. The comparative edge of Indonesian domestic airline companies compared to AirAsia concerns habit (culture). Furthermore, Indonesian domestic airlines were already trained with the low- cost air travel concept, known as tariff war. They have proved themselves as immune, and managed to survive. Last but not least, the Indonesian government or domestic airline companies had never announced the availability of a low-cost airline company of the country. All these affect AirAsia growth in Indonesia. 2. Singapore government rejection Initially, AirAsia wanted to start flights from the southern state of Johor, near Singapore, it hoped to attract passengers by running a convenient bus service to the city-state. However, Singapore quickly quashed that idea. The Singapore government said it would not approve a bus link for AirAsia because it was not ‘in her national interest’, reflecting fears that Singapore’s Changi airport would lose business to Johor’s new Senai airport. This makes AirAsia cannot abandon the use of Changi airport, and therefore suffer from a higher cost. This is because AirAsia flying to Singapore needs to suffer from flight congestion of Changi. Changi has drawbacks of flight congestion that could prevent the quick turnarounds essential to keeping down costs. AirAsia finds it stuck between big planes and circling to wait for a slot to open up, which means extra fuel costs. Moreover, the SGD$21 departure and security tax of Changi is too high for AirAsia low-cost operation. AirAsia had asked the Singapore government to waive the fees, however, a request that was not only rejected but also criticized. Besides Singapore – Bangkok, AirAsia now provides an alternative route to travel to Bangkok, by using Senai Airport in Johor Bahru, in southern Malaysia. Seeking to cater to the different markets, fares for Johor Bahru- Bangkok are generally 20 % lower in comparison to Singapore - Bangkok. AirAsia currently operate daily flights to Bangkok from Johor Bahru. However, the choice
  • 46. 46 proved unpopular, as the route failed to attract Singaporeans because of the additional cost and inconvenience of having to travel in and out of Malaysia by road. All these affect AirAsia external growth. 3. Minimum air-fare rates AirAsia faces challenges finding open take-off and landing slots at opportune times, and Thailand’s regulation that sets minimum air-fare rates. Although Transport Minister Suriya Jungrungreangkit said the current minimum air-fare regulations will be scrapped to open up the market, he couldn’t name a date when this will be done. This seems to be favouritism toward Thai Airways International’s domestic operations, and affects Thai AirAsia to compete in the Thailand market. External Changes which have impact on AirAsia 1. Asia’s middle class growth Low cost airlines are anticipated to have greater potential in Asia as there are many Asian cities with a population above one million people each as well as a rising middle class population. This growth of middle class in Asia provides a huge market potential for AirAsia to grow. However, as the market is becoming larger, more airlines or new comers would like to get a piece of the action. For example, Budget airlines, it is estimated, will capture at least 25% of Asia’s air travel market within next 10 years and a lot of that will be new, not diverted, traffic. Therefore, AirAsia will face more competitions at the same time. Besides the low cost airlines, AirAsia still needs to compete with the conventional carriers. Although extra passengers of the low cost airlines will be coming from the new demand to be created by the low fares, the growth may not be entirely ‘stolen’ from big flag carriers. 2. Actions of Changi and nearby airports The growth of low cost airlines in south-east Asia has a significant effect on which airports will dominate the regional aviation market. Low cost airlines are seen as helping funnel more passengers to airport hubs. Therefore, there is a realization among regional governments that they need smashing airports and feisty carriers or they are going to miss out big time. Therefore, these governments are more willing to support low cost airlines. For example, the Malaysian government supported the establishment of AirAsian in 2001 to help boost the under-used Kuala Lumpur International Airport, and Thai premier’s Shin Corp. forms a join venture with AirAsia that would benefit Bangkok’s new airport and create a new hub at Chiang Mai. Therefore, under this situation, it helps AirAsia grow in Asia.
  • 47. 47 Moreover, as there is a growth of several south-east Asian airports, this poses a challenge to the status of Singapore’s Changi airport as a regional aviation hub. These airports include Johor’s new Senai airport in southern Malaysia, Bangkok’s new Suvarnabhumi airport which will be able to handle 45 million passengers when it opens in 2005, Bangkok Don Muang which recently overtook Changi in passenger numbers, etc. To maintain Changi’s position as the air hub in the region, Singapore is proposing a budget airline terminal at Changi by 2005 and lower passenger taxes to attract low cost airlines. This helps AirAsia grow and lower the cost. 3. Actions of existing airlines The existing airlines in south-east Asia have several actions to compete with AirAsia, for example, some have launched a low cost airline to fight with AirAsia. Singapore Airlines launched a low cost airline subsidiary, Tiger Airways, in the second half of 2003, only months after the scheduled launch of ValuAir set up by one of its former executives. Orient Thai Airlines launched a new low cost airline subsidiary, One-To-Go. One-To-Go operates with a fleet of six Boeing 757-200s and match any fares that Thai AirAsia offers. Thai Airways have frequency and capacity to offer to their 13 domestic destinations. They also have, during the past two years, worked to improve operational efficiency, slashing unprofitable domestic routes, increasing flights on busy routes, strengthening yield management and controlling costs. All these make AirAsia face a huge competition. Critical success factors in the Low cost airlines in Asia:- Reduction in operational cost Low cost airlines strive to achieve the lowest possible price for their products and services. Low prices cannot sustain unless the company maximizes its operational efficiency. The success factors of Asian low cost airlines in reducing their operational cost include: 1. Service savings (no frills cabin service and extensive use of outsourcing) No-frills include: NO drinks, NO food, NO headphones, NO newspapers, NO movies, NO VIP lounges, NO expensive offices, NO mileage programs, NO seat allocation, NO