Costing (of the) Couch …

As the Virgin Group founder Richard Branson once famously said: "The safest way to become a millionaire is to start as a billionaire and invest in the airline industry."
In the previous post , I discussed what exactly is the business strategy of Air Deccan. One of them is to keep the costs low, and in turn, passing the savings to the customer.
The biggest P of Marketing, Price, is in fact, the biggest driver for the entire Low-cost airline.
Covered in Business Line Air Deccan operates a low-cost, no-frills, point-to-point service. Air Deccan has benchmarked its fares against first-class rail fares. The company wants even blue- collar workers to fly.

But, how does Air Deccan go about cutting costs and passing it on? More analysis follows (some of them indeed are pretty interesting !)

(a) Ticketing is done largely through the Internet to avoid travel agency costs. Air Deccan passengers can print out their tickets and exchange them for a boarding pass when checking in
(b) The agents are asked to pay upfront through Cash or credit card, thereby reducing the capital locked within the system itself.
(c) A cabin crew that consists as a rule of a single, polite flight attendant who wheels a trolley selling cookies, munchies and non-alcoholic drinks. It has first-come-first-served seating, neither business class nor frequent flier mileage bonuses.
(d) no-frills airlines enjoy frills such as the Airports Authority of India offering discounts to aircraft below 21 tonnes. It helps slash their landing, navigation and baggage charges by 50 percent
(e) The pilots are instructed not to apply breaks earlier. They should go to the end of exit and only then turn, thereby increasing the longevity of tyres.

(f) Air Deccan turned its six leased aircraft into billboards to draw revenue. The Sun Microsystems logo gleams on the fuselage. NDTV has also been one of the big advertisers.

(g) More utilization of its aircraft, and flying them more than the others. As long as they are maintained properly, the costs would reduce and the cash inflow per aircraft would be more.
Air Deccan flies its aircrafts for 11 hours on an average, in comparison to the industry-wide 9 hour practice.

Personally, I have experienced a few points, wherein Air Deccan cuts costs, that is,
(i) The Air hostesses are mostly from the North-east, thus reducing the salaries one needs to pay,
(j) The airport staff taken at non-metros comprises College students, especially for the post of the front-line exectives.
(k) Air Deccan has a tighter restriction on the Baggage allowed per ticket, over which, an extra charge needs to be paid.

(l) It has its own reservation system, created through HCL, using the current optic network.
(m) It has one number per state to connect to its call centre in Bangalore. This reduces the costs further as the connectivity is routed through a single channel from each state.

(n) The model on which Air Deccan works is a point-to-point service, than a hub-and-spoke model followed by the Big As of the industry. So, while changing flights, one has to check out the baggage, and then check in again for another destination. This reduces the operational and logistics costs.
A paper in Marketing Mastermind covers the cost-aspect of LCCs ( Low Cost Carriers) pretty well, and there is a case study on Air Deccan itself in the March issue of Marketing Mastermind. Haven’t read it so far, since I purchased it last night only. Will add in case I missed out something.
Of course, a case published in Harvard Business Review is recommended to read. ICMR also has published a case on Air Deccan .
There are other ways also, whereby the Airlines works on wafer thin margins, but has still managed to come in black just after 2 years of its service, which is commendable. The business model has definitely been a success, and is catching everyone’s interest gradually.
But, is everything in place for Air Deccan? No red signals, no pitfalls, no loopholes in the whole process? Can the Business Model be replicated in its entirety?
Let me take this in the next post …
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