IT’S GETTING REALLY HOT UP THERE

Disclaimer: Contents in the blog are strictly based on my opinions and are not meant to offend anyone. You are most welcome to agree or disagree on any of the points. Also please ignore the grammar mistakes, if any.

Yes guys I know it’s getting really hot but I am not talking about the season but the Indian Airline Industry, especially the low cost carriers. Few days back, we saw a new player in the airline industry i.e. AirAsia and it not just simply entered but entered with a bang. It initiated the price war even before its debut in the market. They offered the flight ticket from Bangalore to Goa in just 990 bucks i.e. just 100 bucks extra compared to a 3^rd AC train fare.

AirAsia was a new entrant in India and what they chose as their USP – Lowest Fare. No doubt, they are famous world over for their frugal cost structure. But I am afraid that by offering lowest fare they will be able to gather any loyal customers. AirAsia really had an advantage as it was the “NEW” thing. They could have differentiated themselves on the basis of service or something else but price. This initiated a price war between low cost carriers. But AirAsia didn’t know that other low cost carriers are the older players in this race.

Other low cost carriers also reduced their fares to hold on to their market share as in this industry market share is given utmost importance over profits. This is also clear from their annual reports. Many low cost carriers have reported annual losses from past 3 to 4 years. And still they are fighting the price war. In Business world, there is a saying – “Aggressive competition is good till the time it doesn't hurt you.”

But there is one very important point which we are missing. Suppose you need to book an air ticket. So what you will do, you will go to an online travel website, type in the source, destination, travel date and class. And then you select the airline offering lowest fare. And let’s suppose if the fares are exactly same (rare case, there is always some difference), then you see the timings but never the Brand. The emotional contact between the Brand and the customer is missing here. Till now, all the low cost carriers focused upon the promotional fares. They never tried to build a relationship with their customers. There is no differentiation among so many brands existing currently in the market and I wonder why no one is even trying to do it. Even their official websites are almost alike and look what Virgin America has done with its official website here. They have tried to better the flight booking experience of their customers.

Doing a little extra doesn't mean that you really need to hike your fare to compensate for. No not at all. For e.g. when people wait in cues to get their boarding passes or when they are waiting for their flight, do something to entertain them like Disney does so that they don’t feel bored. Flight journey is very boring, and so you can try to do something different to make it memorable. All this will make an emotional bond between your brand and the customer. And the next time when the customer will book the tickets, most likely he/she will favor your brand because they have some good memories related to your brand. Here, I would like to quote an example of WestJet Airlines. It is a Canadian low cost carrier which surprised their customers by fulfilling their Christmas wishes. Here's the video.

Although AirAsia have now increased their fares (may be they have foreseen the future impact on their operational profits) but on the contrary its competitors are still keeping their fares comparatively low. As if they are saying – “So what if you initiated the war, it will be ended by us.” But will this strategy be profitable for them.

We all know Game Theory. We know that in an infinite game, it is in the benefit of the players to compromise with each other. This is also an infinite game. Airlines can give indirect signals to their competitors to increase their prices. And if all agree then just focus on your services and try to build a relationship with your customer. So that next time someone needs to travel, he/she travels by your flight.

The only point which I am trying to make is that just by differentiating yourself on price, may help you a little in short run but won’t be beneficial for you in the long run. Also if you will increase your prices afterwards, your customers may shift to other brands as they were not Brand Loyal. So you need to create an identity, an image, a perception from the start, which no other brand can copy.

Think Different. Do Different. Be Different.

Thank You

Rishabh Bhardwaj

PGDM 2013-15

IIM