Island Aviation Services (IAS) Analysis
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Published: Wed, 11 Oct 2017
Strategically located at the heart of Indian Ocean, Island Aviation Services (IAS) was incorporated on 13th April 2000 as a limited liability company, fully owned by the government of Maldives. IAS is the one and only local company that provides aviation services in Ibrahim Nasir Male’ International Airport. IAS is committed in providing premium services to its principal airlines as well as for the passengers, through trained and motivated team of staff. IAS is the largest company in the nation which provides aviation services to the in Ibrahim Nasir International Airport.
The company concentrates on the following businesses:
- Airline services: ‘Maldivian’ the nation’s carrier operates to 7 domestic destinations connecting to capital Male’ (Ibrahim Nasir International Airport). In addition Maldivian flies to international destinations ie; Trivandrum, Chennai and Dhaka.
- Airport lounge services: IAS provides finest services to business class passengers. The lounges are equipped with light refreshments, reading materials, internet, television etc.
- Airport management: The newly opened Dharavandhoo airport is the first airport that is managed by IAS, covering all the aspects of aerodrome services such as fire and rescue, airport security, passenger and ramp handling, terminal services and DCS check-in.
- Engineering services: IAS has remained providing aircraft maintenance services at the highest possible standard. IAS commits in providing quality services through well trained, highly qualified and dedicated engineering staff.
- Cargo services: IAS provides cargo services to 7 different local regions connecting to capital Male’. IAS facilitate cargo services through excellent customer service, network connectivity and technology.
Aviation industry is relatively a young industry in the Maldives. The largest airline which provides national flights is Maldivian”, the leading domestic carrier of the country. Maldivian fleet comprises of 1 Airbus A320, 2 Dash8-200 series and 3 Dash8-300series aircrafts. Today Maldivian operates daily flights to 7 domestic airports in Maldives and plus operates daily flights to Trivandrum, Chennai-India and Dhaka Bangladesh. Also in July 2013 Maldivian will be starting schedule flights to China “Chongqing City”. In addition to commercial flights Maldivian also operates charter flights, special medical evacuation flights and freighter flights.
Since Maldivian is dominating the domestic airline market, the airline is often the ‘price makers’ in the airline market in Maldives. Maldivian continues to be a leader in the market rather than a follower. The primary market of Maldivian is local people and the secondary market is international tourists who fly to distant atolls where regional airports are available. The consumers are segmented according to medical tourism, business travel and leisure market.
The demand for air transport is largely determined by the spending capacity of customers. The primary determinant of consumers demand for Maldivian is the price of the ticket. If the price of Maldivian airline goes up the potential consumers switches to substitutes like travelling in speed boats and local dhoanis. This only happens in Northern atolls since it doesn’t take much time for the travelling to capital. However people residing in most Southern Atolls have no choice since it takes a long time to reach to capital Male’ if they choose to travel by sea. The price of the tickets mainly rises due to fluctuations in world oil prices. The other determinants of consumers demand for ‘Maldivian’ are:
- Sufficient disposable income: an increase in income of the consumers will increase the sales of Maldivian. Likewise when the income is reduced due to recession the demand falls for Maldivian airline
- Substitute good: travel on one airline with same intercity route is very close substitute for travel on the other. Accordingly an increase in the price of the substitute good or service causes an increase in demand for Maldivian.
- Services and Consumers expectations: Proving excellent inflight services will increase demand for Maldivian. For eg lounge services to Business Class and VIP passengers.
The competitors of Maldivian are FLYME, Air Taxi and Trans Maldivian. FLYME is the key rivalry competing initially with 2 local destinations. The other two companies mainly provide air transportation for tourists from Hulhule’ International Airport to their designated resort. The aircraft used are sea planes as almost all the islands do not have runways. Recent government plan on starting seaplanes to inhabited islands is major factor to be concerned by Maldivian
Government is also encouraging development of resorts in all the atolls, which means the demand for Maldivian will increase in future. However the inception of ‘FLYME’ the second local carrier, Maldivian is forced to reduce the prices and improve their services. Although they concentrate only to 3 local destinations, one of them to be ALIF ATOLL which is not a destination of Maldivian, they have strengthened their services to most of the resorts in this atoll.
One of the strengths of Maldivian is that it’s already an established company, with ticket prices the same, consumers generally chose the older and more established companies. Maldivian also provides lounge services to business and VIP passengers. There are various other strategies that firm can utilise to increase their sales. Following are some of them
- Maldivian could let the customer choose what else they wanted to pay for. They could pay to change their original booking, they could select seat of choice, prority boarding and even fast track through security.
- They could increase the travel add on’s such as extending travel insurance where substantial travel insurance can be earned. They could also offer airport parking, airport-city transport, currency exchange, telephone cards, city tours and tickets for events.
- On board sales can be offered (duty free inflight shopping) such as perfume, cosmetics, watches and jewelry.
- Customer loyalty programmes can be offered to ensure loyalty of frequent flyers. Maldivian can facilitate loyalty programmes by partnering with hotels, resorts and branded retailers to offer airline miles. Also they could facilitate purchasing of additional miles by existing members enabling them to reach a higher status, get free trips sooner or upgrade to business class or transferring miles as gifts or awards.
Price elasticity of demand measures the change in quantity demanded of particular good or service to the changes in price. The elasticity of air travel demand varies according to the coverage and location of the market in which prices are changed and importance of air travel price. Demand for Maldivian is relatively inelastic, as there are few substitutes. People are ready to buy the ticket at any price, especially in the peak season from November till end of February (Tourist season and school holidays). During this period the supply is relatively inelastic since the demand is higher than the supply. Usually in this period due to high demand Maldivian operates extra flights to local destinations as well as to Trivandrum. Air travel is often a luxury good with demand elasticity for income. The expenditure on air transport would form a smaller share of the disposable income for consumers with a higher disposable income level than for consumers with less disposable income. Assuming increase in ticket fare for Maldivian would mean that utility loss as a result of a fare increase will be lower for consumers with a higher disposable income. As a result, consumers with a higher disposable income would be less price-sensitive implying a negative relation between income level and the extent of the price elasticity of demand for air transport.
Before an airline gets that far it needs to ensure that it understands its customer needs and wants, as well as what its competitors can and will do in response. It used to be that legacy carriers sought to maximise average fares but that’s all changing. Nowadays low-cost airlines and more progressive traditional airlines are looking to maximise revenue per flight, which implicitly includes all ancillary revenues as well as the airfares paid.
http://papers.tinbergen.nl/01047.pdf FOR POINT 6
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