Air Deccan: The First Low Cost Airline in India


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Case Details:

Case Code : BSTR134
Case Length : 20 Pages
Period : 2003 - 2004
Organization : Air Deccan
Pub Date : 2004
Teaching Note :Not Available
Countries : India
Industry : Aviation

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"I believe that for India to be a developed country, every Indian should be able to fly. In all developed countries, the common man flies." 1

- GR Gopinath, Managing Director, Air Deccan.

Introduction

On September 24, 2003, Air Deccan, the first low cost airline (LCA)2 in India, was ready to take off on its inaugural flight from Hyderabad to Vijayawada. The flight had 33 passengers, who included the Bharatiya Janata Party president, Venkaiah Naidu (Naidu), the then civil aviation minister Rajiv Pratap Rudy (Rudy) and some journalists. A few seconds before take-off one of the aircraft engines caught fire and panic gripped everyone.

The fire was extinguished and the passengers had a miraculous escape. The flight had to be aborted. Analysts felt that the accident would earn a bad name for Air Deccan, which had started business, just a month back. An analyst commented that the accident was "Enough to hurt consumer sentiment. Fragile consumer sentiment! Enough to cause a consumer to associate the otherwise USP of cost advantage (low fares) to low quality and therefore high risk to life."3 Despite the initial setback, in December 2003, Air Deccan announced that it was expanding its fleet and introducing flights on several new routes. The airline, which had started operations mainly in South India, said it would foray into Western India before entering the Northern and Eastern routes.

The fares for Air Deccan flights were 40% to 50% less than that of other leading full service airlines (FSAs) in the country. Stressing the safety aspect, Gopinath said, "We assure that our low fares come with high standards of flight safety. We have very stringent safety regulations in place, approved by the regulatory authorities."4

Soon, Air Deccan services attracted a positive response from customers. In July 2004, Air Deccan stunned FSAs and industry experts by announcing its 'Dynafares' wherein it introduced tickets for as low as Rs 700 for flights between major metropolitan cities in India. Economy class fares between these cities ranged between Rs 6,500 and Rs 10,000 on FSAs. Analysts and aviation industry experts began discussing the implications of such low fares and wondered whether other carriers would enter the LCAs market. One analyst described the impact of LCAs on the Indian civil aviation industry saying, "A full service airline will not be able to compete with no-frills carriers due to comparatively high operating cost. Hence, all existing full service airlines will have to respond to the new challenge."5

Air Deccan: The First Low Cost Airline in India - Next Page>>

1] N. Bhanutej, Common man should also fly, www.the-week.com, August 08, 2004.

2] A low-cost airline offers air travel at low fares but eliminates services such as food, special passenger classes and so on.

3] Harish Bijoor, Ouch! It hurts! , Business Line, December 11, 2003.

4] Air Deccan plans state, Gujarat runs, Business Standard, April 16, 2004.

5] Rajeev Jayaswal, Alliance Air likely to go low-cost, The Financial Express, August 10, 2004.

 

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