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Business News/ Companies / The price of flash sales for airlines

The price of flash sales for airlines

Experts discuss how leaders of companies face peer pressure when most rivals follow a particular strategy

There was a 50% discount sale in January, 75% discount in February, 30% off in March and Rs1 fares in April. Photo: Ramesh Pathania/MintPremium
There was a 50% discount sale in January, 75% discount in February, 30% off in March and Rs1 fares in April. Photo: Ramesh Pathania/Mint

Since January, Indian airlines have launched at least 12 flash sales or limited-duration cheap fare offers. There was a 50% discount sale in January, 75% discount in February, 30% off in March and Rs1 fares in April. July is witnessing its second round of flash sales. Leaders of companies face peer pressure when most rivals follow a particular strategy. Three experts discuss this strategy.

Focus on fundamentals

Amber Dubey, partner and India head—Aerospace and Defence , KPMG

In August 2006, a start-up entered the ailing Indian aviation sector. It followed a strategy completely different from its peers. It focused on operational excellence over glamour and flamboyance. “Where 30-60 minute delay was considered normal, it focused on before-time-landing as its USP (unique selling proposition). It offered new aircraft, all on a 5-6 year leaseback model, that reduced operating costs and improved passenger satisfaction," says Dubey.

The airline would not pamper you, give you lounge access or mileage benefits. It allowed you to block seats months in advance, even if you were not a frequent flyer. It focused on frequency than geographical footprint.

“On many flights, it priced tickets higher than its full-service peers, and got away with it. It dared to appoint a corporate lawyer as chief executive officer, all of 32, with no experience of running an airline. Peers sneered, expecting it to fall by the wayside like many upstarts before it," says Dubey.

In six short years, the unthinkable happened—IndiGo dethroned the market leader, hitherto considered invincible. It made profits year after year—a rare occurrence. The lessons are simple, just like the airline—focus on fundamentals and never give up. Respect your peers, but dare to be different!

Customer service is taking a hit

Abhishek Goel, assistant professor, behavioural sciences group, IIM-Calcutta

I don’t see measures like these as a result of peer pressure, but more as a lack of confidence in their own strategy," says Goel. Decisions should be led by what is good for the airline and customers, but here, they are looking at achieving just one parameter, which is number of seats, says the professor who authored a paper on strategic airline alliances.

While that is an important parameter, it is more important that airlines benchmark each other on service, which is taking a hit. In the long run, customers will switch if they don’t like the service, warns Goel. Also, such offers come from companies that are forced to produce results which are not always in their long-term interest. “Sales like these may send airline stocks up and companies may end up making money for shareholders in the short run, but destroy long-term value," he added.

Leaders face the dilemma of whom to please—internal stakeholders like board of directors, shareholders, employees or external ones like consumers and regulators. “Whose side do you take is a question leaders are always faced with. But it is the customers who end up creating revenue," says Goel. It is never easy to resolve this dilemma. Leaders must think differently and argue in favour of what is good for long-term organizational growth, he says.

A flash sale may work if the company has great service and is generating profits, but when most of the airlines are in dire straits, generating a lot of traffic without any focus on quality probably shows lack of conviction in your strategy, Goel adds. Flash sales are reminiscent of the mid-2000s, when India’s first low-fare airline Air Deccan sold tickets at 1. It was not able to sustain what it started and was eventually sold to Kingfisher Airlines Ltd, which is now grounded, says Goel.

Stick to core strengths

Prashanth Prakash, partner at Accel Partners

A leader is a trendsetter. Being reactive to the strategies that are followed by rival firms sends a wrong message to team members. A leader always leads and not merely follows, says Prakash.

If at all the strategy is being changed to fall in line with peers, it is important to articulate the reason behind the change clearly to team members, he says.

“Is something wrong with the current strategy that is being followed? Why should the firm follow the same strategy as that of the rivals? These are a few things that should be answered before making any decision and communicating it to the team," says Prakash.

Leadership is about conviction and belief in oneself. Rivals may succeed in the short term, but it is important for the leader to communicate effectively why the firm should not overreact to noise being made by the peers.

Strategies being followed by them could be around pricing and brand positioning, among others. But the leadership should be able to calm the nerves of shareholders. The leader, Prakash says, should be able to rearticulate and reinform them about the firm’s current strategy and instill faith in them instead of being defensive.

Leadership is about demonstrating faith in the plan that is being executed by the team. It is important to stick to a firm’s core strengths and not lose focus. Being over-reactive is disturbing. Making minor tweaks and tactfully adjusting strategies to compete are beneficial, Prakash says.

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Published: 29 Jul 2014, 05:26 PM IST
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