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Can Jet-Etihad deal revive media spends in the cautious airline market?

Can Jet-Etihad deal revive media spends in the cautious airline market?

Author | Abhinav Trivedi | Wednesday, May 08,2013 9:53 PM

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Can Jet-Etihad deal revive media spends in the cautious airline market?

The Indian aviation sector is expected to be the third largest market by 2020 and is expected to handle 330 million domestic and 85 million international passengers by then. Post liberalisation, the sector has seen enormous entry of private players.

The aviation sector so far has not been very aggressive on the media spends side. The reason attributed by most experts is the lack of money. Sharan Lilaney, Aviation Analyst, IIFL mentioned, “This is a cash crunch sector. There is no money with the airlines. Whatever money comes is used in paying off debts. Hardly any money is spared for advertising.”

Change of air
In September 2012, the government liberalised the FDI policy and allowed foreign airlines to buy up to 49 per cent stake in Indian carriers under the government approval route. The liberalisation has been made to open gates to additional avenues of finance for Indian carriers which are currently paralysed by mammoth operating costs and mounting debt.

After the FDI norms were relaxed, a number of talks were on between Indian and foreign players and the Jet-Etihad deal has finally materialised. The deal is expected to fetch Jet about Rs 2000 crore. The deal has not only ensured an international airline buy a huge stake in an Indian airline but has also changed the policy structures of the government. The seat carrying capacity on Dubai-India route has increased to 36,670 from current 13,300.

Market experts and analysts predict that the price war which would surge post the deal will make the competition very intense and this would have a vital affect on media spends. “If you notice, as soon as the news of Jet-Etihad deal was in the papers, interview of Rohit Nandan, CMD, Air India was carried by two leading business newspapers of the country. This was done to reinstate the brand equity. Clearly the deal is a potential threat to Air India majorly. Also, other airlines would follow suit in terms of advertisements or informative ads,” said Wasim Sheikh, an independent aviation analyst.

Lilaney cautioned, “The media spends would primarily depend upon new route announcements, changes in the flight structure or some new service. These changes would in turn drive advertising, but players would stick to short-term and cheaper platform of advertising i.e. OOH and print. I am not very bullish on TVCs.”

Another aviation analyst emphasised, “See, action is bound to happen in all the airlines post the deal – be it in terms of new route additions or operation overhaul or better services. Everyone would like to have their share of pie. The action in the airlines would be communicated through media. No airline would want to lose their customers to another one. So if one airline advertises, the other one will have to communicate its message. Even if it is a branding exercise, it will happen.”

In 2009, when the Low Cost Carrier (LCC) market was inundated with intense competition and promotional offers for passengers, the LCC players had almost doubled their ad budget. Spice Jet had doubled its ad spending from two per cent of its turnover in 2008 to close to five per cent in 2009. GoAir had increased the frequency of its promotional offers to every fortnight, increasing its load factor from 5.4 to 5.7 in one month.
 
GoAir had also gone in for a complete new look that included a logo change, new uniforms for its staff, changing the look from informal to formal attire. Indigo Airlines launched its first TV commercial during the same period, showcasing the airline running a smooth operation and catering to demanding consumers’ service expectations even though it offered a low-cost service. But that was in 2009, and the market scenario has changed drastically since then.

Ankur Bhatia, member of CII Aviation Committee said, “I don’t think there will be any significant change. In my view Air-Asia (if the deal materialises) will be a bigger advertiser than Jet-Etihad. In today’s scenario, every airline has its own positioning and a deal like Jet-Etihad might not have any significant effect on media spends.”

“The player with more money is likely to advertise more. One may expect a decent marketing budget from Jet due to the deal they are in now. One had seen the amount of communication they made post the deal i.e. advertisements in all the daily newspapers, etc. Now if one player would keep making changes and advertise, it would compel other players to follow suit. I am not expecting irrational price wars, which at the end affect every player, but I am expecting a decent revival in the pricing structure and marketing budgets of airlines,” said Aviation Analyst Nitish Sharma.

Nobody is certain about the future but experts believe that the Jet-Etihad deal is likely to have impact on the basics of the Indian aviation sector, and media spends could be one of them.
 

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