Modeling Strategic Decisions: The Case of Airlines in India

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Three distinct phases can be identified in the recent industry trends and developments. Phase1: Growth The first phase during 2003-2007 can 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 2000-2004 but by around 9% during 2005-2010. 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 31-Mar-07.” ...

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.

Exhibit I: This is a Hoarding of Jet Airways at a Busy Road in Mumbai (Bandra Road)

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