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On a bright sunny morning of May 2011, Naresh Goyal, the founder chairman of Jet Airways was going through the financial reports for the year ended March 2011 while having his regular cup of coffee. Jet Airways had posted losses for the quarter ended March ’11 while it had posted a meager profit of 9.69 crores for the FY’11 after three years of consecutive losses. The company was thinking of ways to bring the airlines back into consistent profit-making ways.

The company currently offered three brands of airline services: the premium service- Jet and the low cost models- JetLite and JetKonnect. The company’s main competitor in the premium space was Air India and Kingfisher while it had a lot of competitors in the low cost carrier segment. JetLite had contributed 75% to the group’s domestic revenue in the June quarter but a lot of questions were raised about the logic behind operating two low cost models at the same time when such intense competition was there in the segment. Naresh Goyal had to take a decision soon about the future that his company should take in relation to these low cost models.

Indian Airlines Industry

Pre-liberalization Era

At the time of independence in India, there were eight companies were in service within and outside the country namely Tata Airlines (renamed as Air India), Indian National Airways, Air service of India, Deccan Airways, Ambica Airways, Bharat Airways and Mistry Airways. In 1953, the government nationalized the airlines via the Air Corporations Act, 1953, which gave birth to Indian Airlines and Air India. Indian Airlines came into being with the merger of eight domestic airlines to operate domestic services, while Air India International was to operate the overseas services. Furthermore, the Act gave monopoly power to Indian Airlines to operate on domestic scheduled services ruling out any other operator. Air India became the single Indian carrier to operate on international itinerary excluding some routes to the neighboring countries which were given to Indian Airlines.

Liberalization and Private Players’ Entry

The services offered by the two state-owned airlines were not up to the mark. So, in the early 1990s, Indian government initiated liberalisation of Indian airlines industry and relaxation in rules and regulations for private players to operate in this industry. As a consequence to this the Air Corporations Act was repealed in 1994 and private players were allowed to operate scheduled services. In 1995, Air Sahara, Jet Airways, Damania Airways, East West Airlines, Modiluft and NEPC Airways were granted scheduled carrier status. But only four operators- Jet Airways, Air Sahara, Jagsons and Spicejet (previously operated as Modiluft) started operations by 1997 and continued to operate. Eventually, by 1998, at least six private airlines, East- West, Modi-Luft, NEPC, Damania, Gujarat Airways and Span Air were closed.

The arrival of private players in the aviation industry improved the services offered by the players as competition created an incentive to improve services offered. By 2003, only two private carriers survived to see the sunrise of the new century, i.e. Jet and Sahara. The survival of Jet Airways could be attributed to its sound financial planning and extraordinary management team since its inception.

Arrival of Low Cost Carriers

In 2003, a major breakthrough happened in the airlines industry when Air Deccan started its operations as India’s first Low Cost Career (LCC). The arrival of Air Deccan gave competition to the extant duopoly of Jet Airways and Sahara Airlines. It also changed the fare structure in the industry from two-way economy and business class fares into multiple options of including check fares, web fares, APEX fares, internet auctions, Special discounts, corporate plans, last day fares, promotional fares etc. Since the entry of Air Deccan, the passenger traffic in the airlines industry has grown tremendously. In the next two years, Kingfisher, Spice Jet, Indigo, Go Air and Paramount also started as LCCs in India.

The consolidation phase in the Indian Airlines Industry

In 2007, Jet acquired Sahara, Kingfisher acquired Air Deccan and Indian Airlines and Air India were merged to form a single entity named Air India.

A comparative account of aircraft movements, passenger count and freight in the first quarter of 2011-12 over that of the previous year is given in Exhibit 1.

Company History

Jet Airways

Company founder Naresh Goyal completed his graduation in Commerce in 1967 and joined the travel business at the age of 18 as a general sales agent (GSA) for the Lebanese International Airlines. From 1967 to 1974 he learnt the intricacies of the travel business through his association with several foreign airlines. In May 1974, he formed his own company, Jetair (Private) Limited, to market other foreign airlines in India. When the Indian government reopened the domestic aviation market to private carriers, it provided an opportunity to Goyal who established Jet Airways (India) Private Limited in 1991.

On April 1, 1992, Jet Airways was incorporated as an air-taxi operator in India. It started out its domestic operations on 5th May 1993. With an initial fleet comprising of 4 leased Boeing 737 aeroplanes, Jetairways soon expanded to include international operations with its maiden international flight from Chennai to Colombo.

Jet presently connects 52 domestic destinations. Jet strengthened its position as the airline for the business community considerably during 90s. 80%of its passengers were business class passengers who chose its services because of its punctuality and excellent service. 95% of its passengers rated the airline as good or excellent. In March 2004, Jet Airways acquired license to fly over international routes and it presently connects 24 international destinations.

Formation of JetLite and JetKonnect

On 12 April 2007, Jet acquired Air Sahara for USD 340 million. Air Sahara was renamed as JetLite and was positioned to serve the segment that was emerging to be new customers of airline services offered at low prices.

During the recession of 2008, Jet was facing falling revenues. Hence it decided to allocate some of its aircraft from Jet Airways to cater to the LCC segment as purchasing power of people was low at that time. There were regulatory delays in transferring aircrafts from Jet Airways to JetLite as these two had different operator codes. On 8 May 2009, Jet Airways launched a new low-cost brand called Jet Konnect to operate on sectors that had less than 50% or less load factor.

Competitive Landscape

In the phase from 2003-2006, the entry of Air Deccan marked a new point in Indian aviation: India had its first low cost/no frills airline. By matching aircraft fares with upper class railway fares, this was an era where passenger traffic went up and intense competition among the players started. Spurred by the success of Air Deccan, other LCCs such as Spicejet, Indigo, GoAir began operations. Air Deccan was acquired by Kingfisher airlines and became the LCC called Kingfisher Red. Some of the major players providing competition to Jet today are Indigo and SpiceJet. Kingfisher, which once used to be a tough competitor in the non-LCC segment is now a very weak competitor.

Indigo

Currently, this LCC is the market leader and the only profitable airline service in India. Their main focus is on on-time performance and service which are main consumer needs. Through this and a whole host of cost cutting measures, they have ensures that they remain profitable. The airline is on an expansion mode to other major cities of the country as well as international destinations. Indigo scores better than the low cost JetLite and JetKonnect on the service dimension.

In terms of communication, Indigo ads focus mainly on their own time performance and the hassle-free experience. To break the ad clutter, Indigo differentiated its ads: it came up with an innovative ad picturised on the form of a Broadway musical. The ad also showed uniformed stewards and air hostesses in Indigo’s blue uniform which was a great way to portray their brand identity. [1] 

Kingfisher

Owned by Vijay Mallya, it’s the most flamboyant airline in India and fares much better than Jet in terms of in flight and on ground services. It is a major luxury airline operating an extensive network and had expansion plans for regional and long-haul services. Currently, it is in bad financial health due to which its flights have been plagued by delays and as a consequence, its image has taken a severe beating.

In terms of communication, “Flying High” was the tagline used in the Kingfisher video ad2 that exhibited liberation and flying through its picturization2. Kingfisher was positioned as a luxury brand and this was conveyed clearly through the video. However, similar to Jet, Kingfisher didn’t release any video ad for the low cost carrier (Kingfisher Red) it started operating after acquiring Air Deccan. The luxury positioning of Kingfisher, which resulted in confusion when Red started operations, was one of the factors that was leading to its growing unpopularity. Its future, at least in Goyal’s point of view, looked bleak. Hence he focussed more on other competitors while strategizing for the future of Jet.

SpiceJet

It is India’s second largest low cost airline and third largest in terms of market share. It was originally started as Modiluft airways back in 1993 in partnership with Lufthansa. Over the years, it changed hands and got rebranded as SpiceJet and operates as a low cost carrier.

SpiceJet’s communication focuses on the main attributes of the airline: service to unaccompanied minors, option of choosing your own seat etc. But, these features fall either in the categories of basic/performance attributes that any airline should have. SpiceJet hasn’t taken any measures in their service to upgrade these features to the excitement category so as to be differentiated from other players.

Tipping points in the history

Sahara acquisition – Spreading wings

In year 2005-06, when Air Sahara was exploring the opportunities for private placements of its equity, several airlines like SpiceJet and Kingfisher showed their interest for stake in the company. However the deal couldn’t be made because Kingfisher thought the price set was too high given the not so strong financials of Sahara. Later, Jet Airways came into the picture and showed strong interest in buying out the airline. This merger had several strategical objectives behind it:

Jet will have a strong position in the Indian Airline industry with almost 50% of the market share.

Jet would become the only private carrier to fly international with no competition for 3 years because other carriers were relatively new. And as per regulations, it would have needed minimum of 3 years of domestic operation before going international.

Jet would have a complete dominance of parking bays and airport infrastructure.

Jet could now easily increase its capacity without expanding supply.

The merger happened in 2007 and Jet Airways branded Air Sahara as JetLite and positioned it as low cost carrier to compete against low cost carrier at that time. If we look at this merger strategy from Ansoff’s matrix framework, we can say that the move was more of ‘Diversification’ strategy. This can be justified by the fact that JetLite was positioned as low cost carrier as a new product for Jet (Jet was known as full cost carrier) and they targeted new market segment which was low cost.

However, this turning point for Jet proved to be too costly as it moved from a profit-making airline to a loss-maker and hasn’t recovered yet. (Refer Exhibit 2 for sales and profit trends).

Jet Konnect – Another Jet brand

In year 2009, when Indian economy was not doing well, the international operations of Indian airlines were affected too. At the same time, Jet Airways was facing stiff competition from low cost carriers and JetLite was not doing well in the domestic market with just around 7% of market share. Thus in the same year, Jet launched low cost brand named Jet Konnect to fight with the low cost carriers on routes with higher passenger load factor. Instead of expanding the existing brand JetLite, the decision to establish a new subsidiary was to avoid the regulatory delays associated with moving excess aircraft from Jet Airways to JetLite which had separate operating codes. Jet Konnect offered no-frill services. Almost 3 years after its introduction, positioning of Jet Konnect seems to be working for the fact that 70% of all the seats that Jet sells in the domestic market come from Jet Konnect itself.

But even after the introduction of JetKonnect, the company has been making losses. Thus, though Jet Konnect strategy may have helped Jet to retain its market share near 28%, clearly it failed to make a long term business plan.

Issues-

Increasing Sales; Decreasing Profits

The financials indicate that sales have been increasing throughout the past 12 years, but the profits have not followed the trend. The company which had started to make increasing and positive profits since the internationalization of its operations in 2004, started showing declining profits that soon dwindled into losses after the acquisition of Air Sahara. Recovery from the losses has been very slow. Goyal wondered if this was because of the inability of transferring the synergies from Jet’s primary business of full service to no-frills service.

Brand Confusion

Goyal also wondered if having two low-cost brands was a good idea, as it could have possibly led to people not being able to differentiate between JetLite and JetKonnect. At the time of inception of JetKonnect it had seemed like the best option possible to earn revenues in a slowing market and it had to be implemented quickly without waiting for the settlement of legal issues of including Jet’s fleet under JetLite’s name. But now, thinking back, Goyal wondered if he had moved too fast.

Brand Dilution

Jet used to be considered a premium brand offering full services. With the extension of the name “Jet” to the new no-frills brands JetLite and JetKonnect, Goyal wondered if there has been a dilution in the brand’s equity.

Ideally, JetLite and JetKonnect were meant to be downgraded versions of Jet. Did the market perceive it this way? Or was Jet being seen as an upgraded version of the low-cost carriers (and thus occupying only a second place in the mindspace of the consumer)? Has the extension resulted in cannibalization of Jet?

The way forward- Alternatives

Entry into LCC segment had started off the loss-making phase for Jet and the introduction of a new LCC brand hadn’t helped the company make positive profits. If the LCC segment were to be still operated by Jet, streamlining the product portfolio of the group to offer the guests a single superior in-flight product in the full-service and low-fare categories respectively was the only viable option as seen in the alternatives he jotted down to be discussed with his strategy team.

Merge JetLite and Jet Konnect; brand it as JetLite.

Merge JetLite and Jet Konnect; brand it as Jet Konnect.

Merge JetLite and Jet Konnect; brand it as a different new brand.

Exit the Low Cost Carrier segment to overcome brand dilution.

The next day, he put forth these to the team and asked for a solution to the issue at hand and a suggestion for the way forward.

Analysis- Arriving at a solution

After the meeting with Goyal, the strategy team split themselves into sub-groups: one analyzing the communications of Jet’s brands and one conducting market research to understand people’s brand associations with respect to Jet. They aimed to view the current position of the brands with respect to the value as well as price perceived by the market.

Communications of Jet’s brands

Jet Airways

A set of formal ads was released in 2007, without any celebrity attraction [ [2] ]. These ads focussed on the various attributes featured in the three classes of air travel, without any voice-over. The tagline used was “Change the way you fly”.

This was followed by a set of TV Commercials (storyboards in Exhibit 3) released in 2008, starring Bollywood actor Shah Rukh Khan, for the First Class, Premiere Class and Economy Class of Jet Airways. The airline was positioned as a service-oriented one that took care of the little things that add to the good experience of the customer.

In addition, there were hoardings speaking about connectivity as well as reinforcing the taglines of the video advertisements. An interesting case in point was when Kingfisher took an ambush initiative and put up a hoarding over Jet’s hoarding (that spoke about Jet having changed and asking people to visit their site to know more); Kingfisher took credit saying that it was responsible for the change. This was followed by GoAir’s ambush of Kingfisher and Jet, by putting up a hoarding on top of the two existing hoardings, saying that they haven’t changed and still remain the smartest way to fly. This campaign resulted in publicity for all three brands.

JetLite & JetKonnect

Not much of advertising was done for these two brands- a possible reason for the confusion between the two, prevailing among people.

A few print ads for JetKonnect were released when the airline was introduced (Ref. Exhibit 4-a). One of them had personnel wearing the same attire as Jet Airways’ personnel. This was aimed at reinforcing the good service quality in JetKonnect (by linking it to the service of Jet Airways) but it resulted in brand dilution and cannibalization of Jet Airways, when a low cost carrier (JetKonnect’s ads spoke about “Low Fares”) was perceived to offer an equally good service. The print ad of JetLite (Ref. Exhibit 4-b) reinforced the low-cost feature by displaying the price (Rs. 1001) prominently, for a few domestic routes.

Brand Associations

Depth Interviews-

Depth interviews conducted across six people in the age group of 22-27 who had travelled by Jet Airways, JetLite and JetKonnect. This segment was chosen because they would be part of the major class of air travellers in the coming decades. Questions were posed (Ref. Exhibit 5) to understand their requirements from airlines’ services and their views on the three brands that Jet had.

The respondents could be classified into two major categories:

Those who expect comfortable travel and service quality and are willing to pay for these

Those who are very price-conscious and do not care much for service

The people in the former category associated Jet with comfortable travel and thus preferred it for long journeys; those in the latter category did not associate anything exceptionally good with Jet. Some even felt that they were too high priced for the quality of service they offered.

None of the people interviewed had seen the advertisements of Jet Airways with Bollywood actor Shah Rukh Khan starring in them. Some recalled seeing hoardings that spoke about good connectivity and some recalled the attire of the personnel and the logo.

All the interviewed people used the online mode of checking prices via sites like makemytrip.com, yatra.com or cleartrip.com. Booking was made by some people at the respective airline’s website while it was done by some others at the price checking portal. All were aware of the Jet Privilege Card program but only one was a user of it.

Punctuality was a key expected attribute by all interviewees and all gave a positive feedback about IndiGo on that aspect. Jet’s brands were seen to be neither significantly good nor significantly bad with respect to punctuality.

The comfort and quality-sensitive people gave Jet Airways a higher rating than JetLite or JetKonnect, while the price-sensitive people rated JetLite and JetKonnect over Jet Airways. No difference was perceived or observed between JetLite and JetKonnect.

Is Jet an upgraded version of JetLite/Konnect (or) is JetLite/Konnect a downgraded version of Jet?

From the customer’s ticket purchase behaviour (all of them used makemytrip.com or cleartrip.com or the likes), it was seen that they would first be shown the cheapest flights first (which is how those sites are programmed to function). Hence, a typical customer would first see JetLite / JetKonnect’s prices and then see the incremental price to be paid for Jet and then compare the price versus quality / extra features received from the full-service airline. Thus, it was observed that the LCC brands were becoming the anchor brands and Jet was seen as an upgrade. This was substantiated further in the analysis of a survey that was conducted (as explained below). A low-cost carrier being seen as an anchor brand is degenerative to the parent brand as brand dilution occurs and people associate even the parent with the LCC’s attributes.

Survey

A survey (Ref. Exhibit 8 for the survey) of air travellers was conducted to identify the importance of various attributes to people and the rating of airlines on those attributes (Ref. Exhibit 6). This helped arrive at the Market Perceived Quality (MPQ) and Market Perceived Price (MPP) of the airlines relative to one another, which aided our comparative analysis and inferences regarding brand perceptions.

Weight attached to attributes

The attributes, in the order of importance, was seen to fall into 3 buckets. The first bucket has punctuality with a highest weightage of 21%. The second bucket has flight connectivity, baggage allowance and flight crew’s attitude, all with weights around 17-18%. The third bucket contains food-on board and in-flight entertainment with weights around 13-14%. (Ref. Exhibit 6-a). Punctuality has always been of paramount importance in any mode of transport. However, the interesting thing is the reduced weights given to the third bucket – this was a direct result of the communication strategies followed by the low-cost carriers.

Existence of Brand Confusion

An MPQ as well as MPP analysis of JetLite versus JetKonnect throws up a score of 1.00, implying that there is no perceivable difference in the minds of the customer in terms of the two brands, leading to brand confusion and dilution.

JetLite-Jet: Quality versus Price

MPQ analysis (Ref Exhibit 6-e) of JetLite versus Jet shows that JetLite is only 89% of Jet with respect to quality, whereas an MPP (Ref Exhibit 6-f) analysis shows that Jetlite’s perceived price is 97% of that of Jet. Heence, people can easily perceive Jet to be priced only marginally higher than JetLite for a relatively better offer of quality. Hence they think that Jet is an upgraded version of JetLite.

Indigo- Better Quality than Jet

MPQ analysis of Jet versus IndiGo shows that Jet is marginally perceived to be of a lower quality than IndiGo, despite Jet being a full-service airline and IndiGo being a no-frills airline. This is indicative of the fact that people perceive punctuality (in which IndiGo excels) to be a very important quality. Thus a relatively new airline has managed to change the weight attached by people to “punctuality”, by showing them the value it can create for them by offering it.

Perceptual Maps

Also, based on the interview and survey responses, perception maps were constructed for airlines in India (Ref. Exhibit 7). It is seen that IndiGo offers very good price-value performance with respect to the top three attributes that people expect in airline service. No carrier operated in the Premium price-high connectivity quadrant, as it was not economical to offer full-service over short routes (that offer high / direct connectivity).

Current brand name connotations

–

(Lite signifies that it is a stripped down version of Jet; gives a negative connotation to the customer that he/she is losing some services of the original Jet airways)

+

(Gives the reliability of the parent brand, and the extension “Konnect” tries to point out to an additional attribute of connectivity, which according to the survey is highly valued)

n/a

(A name which would not include Jet in it)

n/a

Parent brand enhancement

–

(A premium product and a stripped down product with the same brand name will lead to dilution)

–

(A premium product and a stripped down product with the same brand name will lead to dilution)

+

(A name which would not include Jet in it; being a completely independent thing it would not tarnish Jet’s image with a low cost tag)

+

(Exiting from the LCC segment and just concentrating on the traditional segment completely eliminates the chances of brand dilution)

Anchoring in the mind of the customer -Jet Airways versus LCC brand name

–

(Jet is seen as the upgraded version of Jetlite (the perceived anchor, as shown in the analysis- Ref Exhibit 6-e,f))

–

(Jet is seen as the upgraded version of Jetkonnect, which is perceived to be the same as JetLite, (LCC is the perceived anchor, as shown in the analysis- Ref Exhibit 6-e,f))

+

(With the LCC not having ‘Jet’ in its brand name – the first customer contact with Jet happens with Jet Airways and hence Jet remains the anchor brand)

+

(Completely exiting LCC, eliminates the whole threat of being anchored as a low-priced brand in customer’s mind)

Recommendations by the strategy team

The evaluation of the options indicates that the 3rd option (Merge Jetlite & Jetkonnect; spin off with a new brand name) is the most viable, as it scores positively on all criteria. Currently the brands of jet are positioned as in Fig- 2. This can be modified to create a positioning map such that there are two different brands that are clearly separated, with distinct brand names that do not result in brand dilution or confusion. The positioning should be as in Fig-3:

cid:[email protected]

Fig 3: Current Jet Situation Fig 3: Jet – after brand fusion

Operational Recommendations for both brands of the company

Punctuality-

This is the most important attribute to the customers. Hence this has to be provided by both the full-service as well as the low-cost service airlines. Otherwise they would soon lose out to IndiGo.

Connectivity-

The new LCC brand should aggressively increase the number of directly connected locations to compete with IndiGo and SpiceJet.

Communications-

Clear and distinct communication strategy should be developed for both brands. For example, crew attire, colours in the print ads and such visible brand elements should be distinct, to avoid brand dilution.

First Class Ad1

The description of the features such as a comfortable lie-flat bed, personal wardrobe, table for two and a door (that provides privacy) is done by a voice-over, accompanied by the visuals that show the protagonist experiencing them in an imaginary place of luxury, correlating each scene with the experience inside the flight. The comfort and luxury are communicated effectively and the ad ends with a tagline- “Filled with the little touches that count” and a written line displaying “More than 400 international flights per week”.

Economy Class Ad2

The features- such as more space between rows of seats, more legroom (with a special leg-rest) and a cushion for back-rest- are shown as being enjoyed on board a flight by the protagonist, while a voice-over describes each one. The ad ends with a tagline “It’s the little touches that go a long way” and a display of the words “More than 400 international flights per week”.

Premiere Class Ad3

The features such as wider seats and more space for passengers are shown figuratively with a widening of a sofa on which the protagonist is seated and pushing the sofa down the room to create more space between the protagonist and another person. The features of a lie-flat bed and direct aisle access from all seats are shown in an in-flight environment. The possible absence of a figurative comparison for a lie-flat be [3] d could be to avoid confusion with the first class ad. The ad ends with the tagline “It’s the little touches that make a big difference” and a display of the words “More than 400 international flights per week”.

How frequently do you travel and for what purpose?

While working- once in 3 weeks; purpose was official

12-13 times per year; personal(going home & vacation)

Once in 4-5 months; personal

Do you have any preference for specific purposes; if so, why?

Official- jet (to take advantage of frequent flier); Personal- Whichever is the cheapest(except Air India)

Indigo over spicejet because of timely departure and arrival; likes jetlite as well because of the same reason; doesn’t prefer jet because of food (as that adds to cost)

Indigo any day- both personal & business; punctuality is the best

What comes to your mind when we say “Jet” ?

Logo, nothing else

High price. Jet was good once upon a time; Now, Jet doesn’t give value for the amount charged

Nothing premium; in-flight entertainment doesn’t always work; food is the only differentiating factor, but it doesn’t matter to me

What 3 attributes make you choose JetLite over Jet Airways?

Only Price

Price, Punctuality (think Jetlite is better), Newer seats

Only Price

What 3 attributes make you choose Jet over JetLite ?

Wont prefer; cost sensitive

Will chose jet over jetlite in case there is no jetlite flight in that route+ if Jet travels quicker (can accept price that is higher by a max of Rs 1000)

Only if I am not paying for it

Have you seen ads of Jet?

Remembers Hoarding; “connects to (…) ; (…) flights to NY/SA”; airhostess dress color;

Yes; haven’t seen them in recent times; doesn’t remember much

Not recently; Kingfisher’s ambush-known due to prior academic input

How do you book your tickets?

Online-search for yatra coupons; Book the cheapest mode

Check prices through makemytrip; book through the travel agent. Doesn’t trust giving the card no. in the website

Cleartrip.com site only

Do you know about Jet’s loyalty programme?

Yes; registered but didn’t get the card /make use of it

Heard about the reward points system from other people

Yes; not a member as I don’t fly regularly

Do you perceive any difference between JetLite & JetKonnect? If so, what?

No

Not much; jetlite has been more punctual and more sophisticated air crew; no change in food options

No

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