Discuss the reasons for national airlines losses and debate capacity utilization/allocation and pricing

Operations Management

Discuss the reasons for national airlines losses and debate capacity utilization/allocation and pricing

case study (20 Marks)

In 1953, the Government of India, under the Air Corporations Act, nationalized and merged the eight private airlines that existed then and created two State run airlines out of them. One was Air India, for serving international travelers to and from India, and the other was Indian Airlines, dedicated to serving domestic passengers. For almost 40 years, these two carriers enjoyed a monopolistic position in their respective passenger segments. They were protected from competition within India by the Air Corporations Act which did not permit any other airline to provide scheduled services to and from or within India. Three distinct phases can be identified in the recent industry trends and developments. . The first phase during 20032007can be characterized as one of significant growth in demand and capacity (Figure 1). India’s GDP had grown at the rate of about 6% in 20002004 but by around9% during 20052010.This economic growth had a significant impact on commercial aviation in India. It boosted business and leisure travel (both domestic and international). India was becoming a major origin and destination for international travel. The second phase started in 2007, when the industry witnessed a wave of consolidations, primarily to stem the tide of red ink. Jet Airways too saw its market share and profits decline and stock price plummet by 40% since 2005. Kapil Kaul of the Center for Asia Pacific Aviation (1), said, “But the aggressive expansion of the LCC segment comes at a cost to the whole sector. India’s airlines are expected to post a combined loss of approximately USD500 million in the current financial year ending 31Mar07.”During the third phase, in 2008, there was a steep fall in air travel due to the slowdown in the Indian economy, the H1N1 flu scare, and the terrorist attacks in Mumbai in November 2008. There was excess capacity all around and the airlines responded by developing plans to lay off employees and by offering deeply discounted fares to stimulate demand. Rival airlines Jet Airways and Kingfisher formed a strategic alliance for code sharing and cutting costs.

Answer the following question.

 

Q1. Discuss the reasons for national airlines losses and debate capacity utilization/allocation and pricing.

 

Q2. Give your views on the case.

 

Discuss the reasons for national airlines losses and debate capacity utilization/allocation and pricing

 

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