E N T R Y S T R A T E G I E S worth $6 billion with North America leading the pack of losers with $9 billion in losses. <strong>The</strong> other minor loser was Africa with just $150 million in losses. Among the profit-makers were Asia raking-in $2.6 billion, Europe with $1.4 billion and Middle East with $100 million. Just looking at the figures provided, we would question why airlines in North America (US & Canada) which have such high per capita incomes (and therefore according to our analysis, since their trips per capita being consequently high) would run into losses <strong>The</strong> trick here is not to isolate our empirical analysis and gather understanding from it but to view it harmonically with the four most important current external environmental factors – competition (low-cost and normal fare carriers), fluctuations in global aviation fuel price, population (rise/fall) and immigration/emigration volumes and finally, government regulations. <strong>The</strong> trick here lies in viewing our analysis while allowing the environmental factors to serve as foil. <strong>The</strong>refore when read in the sanest manner, we can well understand that capital expenditure in the aviation industry in US or Canada does not make entrepreneurial sense for the reason that though per capita income (PPP) in these regions are very high and demand for air travel equally encouraging, the number of competing players, i.e. especially competition from low-cost carriers (which often operate on operating losses for many years) serves as the major roadblock for a positive outlook. We have to understand that the aviation industry in US made losses due to no other negative factor other than unhealthy competition, whereby the industry suffered as a whole and many low-cost fliers continued luring customers even while they filed for Chapter 11 and continued running on huge operating losses in the face of rising jet-fuel prices. Hence indubitably there exists no business sense to enter such a geographical area of operation! Ideally investment should be made in a region (or country) where the number of trips per capita is low (ideally below 0.5) so that we ideally get the first mover advantage and build a market share and brand in that region. Secondly, for an international airline setup, the country should be such that the passenger/human influx and outflux should not be desiccated. If any region can be traced that serves as an ideal trading hub, it could be the best choice among all. Besides, legal restrictions should also be kept in mind while deciding the location for the set-up. As a matter of fact, once the trips per capita crosses the ‘abnormal growth’ level, the level of competition also intensifies with umpteen and a variety of carriers in the arena. <strong>The</strong>refore, ideally one should invest directly in the aviation industry much before the industry in that region (or country) reaches the ‘abnormal growth stage’ Recommendations to the Indian aviation industry In the face of the huge growth potential For an international airline setup, the country should be such that the passenger influx and outflux should not be desiccated that stares at the aviation industry in the face, quite a few steps could actually be taken to ensure that the success dream run is not shattered by the fatal ‘unhealthy’ pricewars (by ‘unhealthy’, we mean operating at prices lower than the actual operating costs) which inevitably causes more damage to the sector than to the competitors. <strong>The</strong> various recommendations for ensuring a secure future to the Indian aviation industry are: 1. India ought to adopt an ‘Open Skies’ policy: Strictly speaking, the concept of ‘Open Skies’ means unobstructed admittance of any carrier into the sovereign territory of a country without any (legal) agreement in black and white identifying capacity, ports of call or schedule of services. In other words it would permit the airline belonging to any country or ownership to land at any port on any number of occasions and with unlimited seat capacity. <strong>The</strong>re would be no restriction whatsoever, on the variety of aircraft, no requirement for certification, no mandatory frequency of service and no call whatsoever for specifying the airports at which they would land. Time and again, an argument arises that the current policy limits the access of foreign airlines thereby giving a pseudo-protection to the Indian aviation players. This would therefore work dually as a medium of earning foreign exchange for the country coupled with acting as a stimulator to the foreign carriers of India to work better. While the 180 bilateral aviation agreements have done their bit to improve the herd of international air carriers, even today, both domestically and internationally, there are immense pressures on seats, particularly during peak hours Whilst this does improve their profitability in the short run, it has a long-term adverse effect in that it deprives the country of much needed air bridges to bring in tourists and carry trade. Thus there is a substantial outgo of foreign exchange and loss of business to our own nationals on account of the non-utilization of designated rights which are also not very healthy for the GDP health of the country. 2. A strong focus should also be given to strengthening and promoting short haul tourism for the overall well-being of the sector and business development. 3. Encouraging the pro active involvement of overseas investors and technical managers in the sector would definitely improve the state of affairs. 4. Privatization of the airports should happen freely despite the opposition from various bodies. 5. Encouraging commercial activities within airports such as hotels, restaurants, duty free, etc. that serve as a means to earn monetary benefits. Steven Philip Warner is a Professor of Business Economics at <strong>The</strong> Indian Institute of Planning and Management, New Delhi An <strong>IIPM</strong> Intelligence Unit Publication STRATEGIC INNOVATORS 17
S T R A T E G I C I S S U E S MNC Brands 21st Century survival strategies in Asia Pacific
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