Trade-offs in the Market

Aviation Industry
Content
Introduction
Factor Affecting Tradeoff
Market Analysis
Case of Cessna & Gulfstream
Case of Kingfisher
Conclusion
Recommendation
Introduction
Trade-offs:
A trade-off is a situation that involves
balance between two different
quantity
Exchange of one quantity for others

Factor affecting tradeoff in Airline Industry
1. Fare
2. Speed
3. Range
4. Delay
5. Reliability
Fare
Low ticket prices attracts customers
Refundable ticket attracts customers
Speed
Speed matter to business class
Faster flight attracts customer as travel
duration small
Range
Long range attracts customers
Long range implies less travel duration
which attracts customers
Matters much international routes
Delay
Customer want efficient services
Delays in flight evades customers
A delayed flight can ruin the schedule of
customers
Customer resists in travelling in flights that
are delayed every now and then.
Reliability
Reliability of service attracts customers
Better and reliable services helps firm gain
loyal customers
Case

To Fly far or to Fly fast
Introduction of Cessna Aircraft
The Cessna Aircraft Company is an American
Aircraft manufacturing
Founded in 1927
Its headquarter in Wichita, Kansas
In March 2014 Cessna became a brand of
Textron Aviation
Cessna built the fastest Aircraft Citation X,
with a speed up to 600 miles per hour
Introduction of Gulfstream Aircraft
Gulfstream Aerospace Corporation is a wholly
owned subsidiary of General Dynamics.
Gulfstream designs, develops, manufactures,
markets, and services business-jet aircraft.
Started in 1950
Gulfstream has produced more than 2,000 aircraft
since 1958
Gulfstream builds the longest-range business jet
Gulfstream V, with a range up to 7,500 miles.


Problem Statement
Cessna and Gulfstream wanted
to increase their Market Share
Cessna Market Analysis
Marginal rate of substitution between speed and
range high
Believed customer would trade-off lot of range
for more speed

Cessna
Indifference
Curve

Decision at Cessna
Introduced fastest business jet
Hoped to increase its market share
Gulfstream Analysis
Marginal rate of substitution between speed
and range low
Customer wont trade-off lot of range for speed


Gulfstream
Indifference
Map

Decision at Gulfstream
Introduced longest range business jet
Hoped to increase its market share
Result
Gulfstream market share increased from
14% to 21.2%
Cessnas market share dropped from a
market-leading 26.9% to 20.5%
0
5
10
15
20
25
30
2012 2013
Market Share
26.9
20.5
Gulfstream vs. Cessna
Gulfstream Cessna
0
5
10
15
20
25
2012 2013
Market Share
14
21.2
Market Analysis
Customer Value range more than speed
Customer not willing to tradeoff lot of
range for speed
Importance of Market Analysis
Important because it help managers to
make correct decision about consumer
behavior
Wrong market analysis by Cessna let to fall
in its market share.
Correct market analysis by Gulfstream
resulted in increase of its market share

Case

Tradeoff between Service and Fares
Introduction to Kingfisher
Kingfisher Airlines Limited was an airline
group based in India
Head office: Andheri (East), Mumbai
Registered office: UB City, Bangalore
Founded in 2003
Bought Deccan Airlines which was low cost
carrier

Strategy
Focused on business class customer
Few low cost flight
Ticket Costly
Decisions at Kingfisher
Changed its business model from low cost
carrier (Deccan Airlines) to business class
carrier
Focused business class customer
Increased Fare
Contd
Believed Customer would pay more for
better service
Ignored the Indias booming low cost
carriers market segment

Result
Market Share declined
Customers switched to Low cost carrier
such as IndiGo
2011, Debt 7057 crore
Other Factor for failure
No Constant Business Model
Large no. of Cancellation of flights
Unreliable service

Market Analysis
Indian Customer prefer low fare to better services
Customer want reliability of service offered
Conclusion
Marginal rate of substitution for range over speed
is low
Customer prefer low fares over better service
Recommendation
Market should be analyzed thoroughly
Customer tradeoff for different quantities should
be determined correctly
Manager should take decision with respect to
local consumer behavior
Any Question?
Managerial Economics:
Case Study Power Point Presentation
Presenters Roll Number
Yogendra Kumar Pal RE3110-A33
Ankit Kumar Swami RE3110-A34
Vikash Swami RE3110-A35
Faiz Rahman RE3110-A36
Abhilash Gautam RE3110-A37
Thank You