An organization’s success depends on its management’s ability to identify and react to potential factors that may affect its performance. At Air Deccan, the practice has enabled the management to recognize opportunities for additional profits. Air Deccan, India’s low-cost airline, can succeed in the market by conducting a thorough internal and external assessment of its operations, addressing the controllable variables, and revising its strategies. A SWOT analysis of Air Deccan reveals that the firm should take advantage of the growing customer base, review its flight schedules, and utilize debt financing to purchase additional airplanes in order to thrive in the aviation industry.
Air Deccan’s core advantage is its price leadership, which is different from that of other firms that operate in the air travel business. Since launching its operations in May 2003, Air Deccan has offered convenient flight costs to middle-income travelers. For instance, the firm charges Rs490 for a flight from Mumbai to Delhi, which is 10% lower than the standard economy airfare (Chandrasekhar & Sridharan, 2007). Besides, Air Deccan offers price discounts whereby passengers can book seats for relatively reduced costs weeks before the final schedule is posted (Chandrasekhar & Sridharan, 2007). The corporation’s pricing strategy is its primary source of competitive advantage, which enables the firm to attract a broader customer base.
Air Deccan experiences internal difficulties that prevent it from operating optimally. The company’s primary source of vulnerability is its management, which faces several dilemmas regarding steps that the firm should take to retain its market position. For instance, Captain Gorur, Air Deccan’s CEO, has such ambitions for the corporation as leasing an additional aircraft and reducing prices further, but he is unsure whether the plans would be profitable (Chandrasekhar & Sridharan, 2007). In addition, the CEO is yet to determine future measures that the establishment should take to capitalize on its core competency. The administration’s inability to make such crucial decisions is a potential hindrance to Air Deccan’s capability to perform at its maximum capacity.
The organization can utilize several promising factors to maximize its revenue and profits in the industry. One of these opportunities is the progressive growth in the Indian Aviation market. Since 1996, the number of domestic passengers in the country has increased significantly from 10.4 million travelers in 1996 to 19.9 million air travel consumers in 2005 (Chandrasekhar & Sridharan, 2007). With the company’s vision of further reducing its airfare and other industrial entrants following a similar trend, the market is expected to expand further. Air Deccan can utilize price differentiation to increase its operations within and outside the country to meet the growing demand for aviation services.
Air Deccan is prone to multiple risks despite being well-positioned in the industry. The major external challenge to the firm’s operations is increasing competition from existing and new transport providers. Since 2005, the aviation sector has registered several new players, including Spicejet and Kingfisher (Chandrasekhar & Sridharan, 2007). Furthermore, additional airlines might be established in the future. The industrial entrants threaten Air Deccan’s activities because they have a similar business strategy: cost leadership. The organization also faces stiff competition from railway operators. Railway fare from Mumbai to Delhi is relatively lower than Air Deccan’s air ticket price, standing at $401 and $490, respectively (Chandrasekhar & Sridharan, 2007). Stiff competition from transport providers is a significant disruptor of Air Deccan’s operations.
Plan for Future Growth
Based on internal and external factors, Air Deccan should proceed to lease an aircraft similar to those in its fleet, such as types ATR 42, ATR 72, Airbus, or A320, to reduce its frequency of flying in a single route. Operating fewer aircraft categories would easily save the resources required to purchase and maintain a wide range of spare parts. In addition, the practice would enable the company to mitigate high indirect costs associated with leasing an aircraft that requires comprehensive downtime for inspection and repair. Minimizing the frequency of flights would also allow the establishment to optimize its rate of occupancy per trip, which may translate to lower traveling costs.
The Best Approach
The best way for the company to adopt the proposed plan is to identify the most suitable financing strategy and develop a standard traveling schedule. Air Deccan should utilize the existing equity and debt markets to fund its new lease of Rs8 million per month. Debt financing would be the best method of raising capital because the management can retain total control of the firm’s shares while paying interest on the borrowed money. Given an average passenger target of 8 million in 2005/06, the establishment could repay the periodic installments. The corporation’s management team should also establish a consistent traveling program for single routes to ensure that each plane maximizes its passenger capacity. For instance, regions with fewer travelers should operate an average of one flight every two days. The strategy would help the organization to optimize its operations and retain its market position as a low-cost airline.
Overall, Air Deccan’s success depends on both internal and external factors. Managerial challenges and the effectiveness of its business strategy are some of the controllable factors that influence the company’s operations. However, the adverse effects of dynamic industrial competition are beyond the firm’s control. The corporation should utilize its growing customer base to optimize its revenues and profits. The administration may utilize debt financing to purchase additional aircraft and review its flight schedules to become successful.
Chandrasekhar, R., & Sridharan, S. (2007). Air Deccan (B): From creating to changing creatively. London, Ontario: Ivey Publishing.