Case 2: Star Airlines: Has it launched their inaugural services with flying colors?
Prof. Prasad Kulkarni Asst Professor, Department of MBA, Belagavi-590008.
Dr. Joel Gnanapragash, Faculty, Christ University, Bengaluru.
Mr. Sujay Inamdar HR Manager, Swami Vivekananda Youth Movement Dharwad
About Star Air
Star Air is a Scheduled Commercial Airline with an aim to connect PAN India. It is the Aviation arm of strategically diversified Sanjay Ghodawat Group (SGG), which is present in several high- value industry segments like Aviation, Agro, Floriculture, Food processing, Energy, Mining, Realty, Consumer Products, Textiles, and Education. Backed by a workforce of over 10,000 employees and state of the art infrastructure, the group is headquartered near Kolhapur, (Maharashtra State) India. Over the past 5 years, the company has become a best in class helicopter operator in India with the impeccable dedication to safety. Star Air is the latest offering of the group. An upcoming Airline with a firm proposal to even connect the unconnected. The airline will provide a very reliable, safe and comfortable travel experience. Truly the group’s ‘Star in the Air’.
Beginning:
The Star Air started its commercial services from January 25, 2019. Initially, this Bengaluru headquartered company began its flights between Hubli and Bengaluru. The company later began the flights between Tirupati and Hubli. Further, on February 5th, 2019, the company announced its flight between Belgaum and Bengaluru. "What we aim for is to create the right balance between a common man's pocket and the expectations which he holds from an airline," quoted Capt. Simran Singh Tiwana, CEO of Star Air. "In due course time, we aim to provide an all jet engine fleet connecting new city pairs," he added.
Indian Aviation Industry;
The Indian aviation industry will become the third largest aviation industry in the world by 2024.The traffic for air travel likely to reach 421 million by 2020(Table 2 in the appendix). Further, the business and leisure travel business is expected to reach $432 billion and $24.41billion from current $201billion and $11.61 billion (Table 3, Appendix). According to the Airport Authority of India (AAI), the Indian aviation industry has 225 aircraft operating from 50 airports. There are 66 domestic airports, 7 custom airports and 17 international airports in India. Among these airports, 70% of them are managed by AAI and the rest are private airstrips. Further, major airlines operating from these airports include SpiceJet, Jet Airways, Indian Airlines, Indigo and Go air. Added to this, Delhi and Mumbai airports are carrying 110 million passengers every year. In addition to this, Indian domestic and international passenger airlines demand, capacity and utilization have reached 87% and 81% respectively (Table 4, Appendix). Indian passenger traffic has experienced a CAGR of 12.72% over the period (table 5, Appendix). The Indian government is encouraging the Public Private Partnership (PPP) model to expand airports and maintain them. On a policy side, the government of India started open sky policy and national civil aviation policy 2016.
Fleet Types:
Star Air got certificates for flights in two categories. In the first category, scheduled commuter (small) can have a load factor of 5700 KG. Further, in the second category, the operator is
certified in the scheduled commuter (large) can operate up to 40,000 KG weight. The company currently has two aircraft and details are as under:
The company will be using Rolls- Royce engine AE-3007 in their aircraft. It has agreed to take long term total care service support from the Rolls Royce. “As a rapidly growing airline, it is key that we meet customers’ demands for the best travel experience through providing the best product and service offerings at the right price,” Captain Simran Singh Tiwana, Star Air’s CEO, said.
Ticket Booking
Star Air has adopted different methods for booking. Here, the customer can book seats on the web, through online agents and designated ticket counters. Customers are allowed to make payments using debit cards, credit cards, internet banking, and cash. However, in the case of cash payments, the customer should pay the money in the company designated sales counters at the airports. Added to this, the company never allows multiple cards for booking. Hence, a customer has to use a single card either debit or credit card at the time of booking. Further, the company never allows a customer for booking and holding. Thus, a customer has to pay the amount instantly. Apart from this, the customer gets an electronic ticket once the booking process is over. They can change, modify or cancel the tickets through the company portal. In case of a customer losing a ticket, it can be retrieved at the booking counter by paying $2. In addition to this, the company restricts the change of ticket to some other party from a customer.
Cancellation and refund:
Star air had a clear cancellation and refund policy on a ticket. If the customer has paid the booking amount through the cash, the booking counter will refund it with cash. Similarly, debit card and credit card account bookings will get their refunds to the mode of payments.
Check-in facility:
Star air allows the customer to have check in facility before the airline departure. This customer can do it before 12 hours of the departure. This will help the customer to have fewer hassles in the journey cycle.
Meals in the airline;
The customer of star Air is allowed to have the meals booked during their journey. To avail this facility, a customer has to book the seat 8 hours before the departure.
Seat selection:
Star Air believes in operating in the regional connectivity scheme and it anticipates 90% of future services will be in this route. Further, it allows the customer to select the seats through their portal. This facility a customer can avail by paying the extra fee.
Problems of Star Air:
Not having the slot in bigger Airports: Star Air currently does not have a slot in the bigger Airports like Mumbai which is affecting its growth prospects. “We are trying to get some slots in bigger airports. We are trying to get at least one slot in Mumbai," Tiwana said.
Rising pilot salaries in the industry: The captains of aircraft in India are getting on average 8 lakh rupees per month. Further, a pilot in the early stage of the career gets Rs 1 lakh per month. Added to this, UDAN(Udega Aam Nagarik) scheme has allowed many other small players in the low-cost airline segment resulting in the exodus of airline employees to competitors(Money control,2019),(max itch,2019). Apart from this, the majority of pilots operating in the Indian airlines are expats and there is dearth need of talented Indian pilots (Telegraph, 2019)
Price variation: The company offered its initial tickets from Hubli to Tirupati at Rs 1299. However, Star –Air recently added a convenience fee for booking online. The fee sometimes touched the 15% of the ticket value which customers didn’t take easily. Some of these passengers instead went directly to the airport office of the Star Air and booked via cash payment mode (Facebook, 2019). Apart from these airlines, companies in India halved their operation to forego their losses. This resulted in the hike in the price of a few airlines for a certain route. This brought the dilemma to the Star –Air, should the company go with the existing price or increase the price in the existing routes.
Rescheduling cost: Star Air has asked customers to pay Rs 2000 towards rescheduling that is exuberant in the route they are currently operating. This has increased the churn rate for the company (Star Air, 2019).
Increase in the fuel cost: Airlines are struggling to adjust the changes in the fuel prices. The fuel cost is roughly 45% of airline cost. Further, the government of India charges 11% import duty on air fuel. Added to this, the government increases the fuel price whenever the crude price globally and never decreases whenever the crude market experiences the fall in the prices (Civil services, 2019). The new entrant like StarAir is struggling to maintain the operation cost due to its increase in the fuel cost (max itch, 2019).
Airport cost: Indian government charges higher airport charges. These are even higher for international airports compared to domestic airports. In fact, the airport cost in India is the highest in Asia. (Civil services, 2019).
Aircraft rentals: Many of the Indian airline companies are getting the aircraft on a rental basis. Amongst these, a few have ordered heavily for the requirement of aircraft. If the order executed sooner, these companies will add routes and slash prices to gain the market share and result in t further bleeding of capital(telegraph,2019),(Max, itch2019)
External and internal environment and their implication on finance: Most of the airlines in India are struggling with heavy debt in their balance sheet. For instance, Jet airways alone have Rs 8000 crore debt. (Heavy debt, 2019). This had consequences on the company by ending up with lesser profitability. Further, the company requires huge capital to expand its network to fight fiercely in this fragmented industry (Max itch, 2019). Added to these wounds, the rupee has depreciated in the international market complicating the issues further for Star- air (Livemint, 2018)
Intensive rivalry: The rivalry in the industry has peaked after the entry of a plethora of airlines under the UDAN scheme. Many luxury airlines have reduced the price of tickets by 15-20 %.( Civil Services, 2019).
High maintenance cost: The maintenance of the aircraft is very important to the safety of passengers and the longevity of airlines. However, airlines in India are facing challenges of higher taxes for aircraft maintenance.Thus, a few of these airlines are getting maintenance of aircraft done from China and other countries (Telegraph, 2019)
References:
After Bandipur, m., Manjhi may join NDA, r., & Aero India: Air crash, f. (2019). Star Air to use Rolls Royce engines. Deccan Herald. Retrieved 25 February 2019, from https://www.deccanherald.com/national/star-air-use-rolls-royce-719856.html
Business News, Shares and Stock Markets News Live - Latest IPO, Mutual Funds, Budget, Income Tax and Finance News. (2019). https://www.livemint.com. Retrieved 25 February 2019, from https://www.livemint.com/
Star Air. (2019). Starair.in. Retrieved 21 February 2019, from https://starair.in/Home/companyoverview
Star Air - A new Airline by Sanjay Ghodawat Group is all set to Takeoff. (2019). Udayavani - ಉದಯ ಾå. Retrieved 21 February 2019, from https://www.udayavani.com/english/news/business/302994/star-air-new-airline-sanjay- ghodawat-group-all-set-takeoff
Star Air to begin flights from January 25. (2019). The Economic Times. Retrieved 22 February 2019, from https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/star-air- to-begin-flights-from-january-25/articleshow/67522282.cms
Mid-air crises: Why Indian aviation sector's problems go far beyond the Boeing 737 Max itch. (2019). Businesstoday.in. Retrieved 27 March 2019, from https://www.businesstoday.in/sectors/aviation/boeing-737-max-issue-fuel-prices-loads-of- debt-factors-affecting-indian-aviation-industry/story/328425.html
Opinion | The Indian aviation sector’s many problems. (2018). https://www.livemint.com. Retrieved 27 March 2019, from https://www.livemint.com/Opinion/63uRs1nOypm4GVPUBXFbYJ/The-Indian-aviation- sectors-many-problems.html
Life of an Indian pilot: Extra hours, high EMIs and a fat salary that's often delayed. (2019). Moneycontrol. Retrieved 28 March 2019, from https://www.moneycontrol.com/news/business/companies/life-of-an-indian-pilot-extra- hours-high-emis-and-a-fat-salary-thats-often-delayed-3549891.html
Heavy debt of Indian airlines a problem: IATA Chief. (2019). The Economic Times. Retrieved 28 March 2019, from https://economictimes.indiatimes.com/industry/transportation/airlines-/- aviation/heavy-debt-of-indian-airlines-a-problem-iata- chief/articleshow/67581273.cms?from=mdr
Problems in Indian Aviation industry. (2019). Civilserviceindia.com. Retrieved 28 March 2019, from https://www.civilserviceindia.com/current-affairs/articles/problems-in-indian-aviation- industry.html
Why the Indian aviation industry is nosediving. (2019). Telegraphindia.com. Retrieved 28 March 2019, from https://www.telegraphindia.com/business/why-the-aviation-industry-is-in- nosedive/cid/1676400
STAR AIR. (2019). Facebook.com. Retrieved 3 April 2019, from https://www.facebook.com/OfficialStarAir.
Appendix
Table 1: Manage Booking
(Source: Company website)
Table 2: Air Passenger traffic in India
(Source: World Travel and Tourism Council, Airport Authority of India
Table 3: Business and Leisure travel in India
(Source: World Travel and Tourism Council, Airport Authority of India)
Table 4: domestic and international passenger airlines demand, capacity and utilization.
(Source: Directorate General of Civil Aviation, Aranca Research)
Table 5: Indian passenger airline growth
(Source: India Brand Equity Foundation)
Table 6: Fare rules in Star Air
(Source: Company website)
