From the Knowledge@Wharton today blog.

The Indian aviation sector may be in turbulence mode, but that hasn’t shaken the spirits of G.R. Gopinath, the father of low-cost air travel in India. Gopinath, who sold India’s first low-cost airline Air Deccan to Vijay Mallya, the owner of Kingfisher Airlines, is gearing up for action once again. “I have been preparing for a national launch for the past year, and I hope to be ready next year,” an upbeat Gopinath told India Knowledge@Wharton.

The provocation for Gopinath to take to the skies again is simple: Kingfisher is in a financial mess. The airline is running a sharply reduced service, and if it does not manage to raise funds, it could shut down anytime. Gopinath, who sold Air Deccan to Mallya in 2006, sees this as an opportunity for his re-entry into the sector. He points out that when Kingfisher bought out Air Deccan, the two brands together had 36% market share. “I believe that the market is still largely untapped. This is an unfinished story, and I see a huge opportunity still there.”

In the meantime, he has reentered the skies with a different avataar. Gopinath recently launched Deccan Shuttle, a regional airline in the state of Gujarat in Western India. Gopinath points out that apart from the big cities and towns that are connected by the Airbuses and the ATRs, India has around 500 small airstrips which are not well connected. “Gujarat, for instance, has nine airports. While all of them are linked to Mumbai (India’s financial capital in the neighboring state of Maharastra), they are not linked to state capital Ahmedabad, or to each other. My idea is to open up a new market. I am passionate about providing easy access and connectivity.”

Gopinath has launched Deccan Shuttle under the banner of Deccan Charters, an aviation services firm that he set up in 1995. This was his first venture in the aviation sector. It currently has 20 aircraft (helicopters, turboprops and business jets) and operates out of 16 locations. Under Deccan Shuttle, Gopinath will begin by deploying around six 10-to-18-seater aircraft in Gujarat. Over the next three years, he plans to have 25 such small aircraft across five states. Gopinath’s plan is primarily to offer intra-state connectivity. But in routes where there is significant demand due to cultural or trade reasons, he will also look at inter-state connectivity.

Other recent entrants in this space include Air Mantra, a unit of the Religare Group. Air Mantra launched in July, connecting Amritsar and Chandigarh in North India. Spirit Air, which operates in Eastern states like Jharkhand, Bihar and Orissa, is planning to start operations in the Southern states soon. Air Pegasus, from Décor Aviation, an airport ground handling agency, is expected to start operations later this year.

Analysts are watching the space keenly. “There is a lot of potential in the regional airlines business provided the states offer the required infrastructure and policies, and the companies have the appropriate business model by way of routes, pricing strategy, etc.,” says Vishwas Udgrikar, senior director and partner, infrastructure and transport at consulting firm Deloitte. He warns, however, that “given the current environment in the country’s overall aviation sector, players need to be cautious and enter the regional airlines sector with the right preparation.”

Jasdeep Walia, an analyst at Kotak Institutional Equities, suggests that running a regional airline could be tough. “For distances of around 250-300 kilometers, the demand will be limited, especially if the roads are good and people can cover it by car. And for distances of 500 kilometers to 600 kilometers, there is always the risk that as the demand picks up, bigger airlines will [step in].”

Gopinath’s comeback is also evoking interest. Udgirkar points out that any new entrant at the national level, despite prior experience, will find it very challenging. “There are inherent challenges in this sector and formidable competition, too.” Walia adds: “This space is very competitive, and the government policies are not at all conducive. And Gopinath could not sustain his earlier venture. ”

Gopinath’s Air Deccan changed the face of aviation in India, but as a business per se it got grounded. His foray into logistics with Deccan 360 also ran into trouble. Whether or not he can take off this time round remains to be seen.

Dean Wilkie

I have been thinking about Qantas’s moves to start a new airline up in Asia.

Starting a new airline from scratch means that consumers will hold absolutely no information about the new brand. Nothing beats a fresh start right?

Wrong.

I really question Qantas’s approach from this perspective. Qantas as a brand has strong positive associations, which consumers will use in forming brand judgments and in comparing to alternatives. A quick search of the internet and you can see that in 2006 it was voted the 2nd best airline in the world. In 2011 it was voted the 8^th best. A dramatic drop but still, Qantas is seen as the eight best airline in the world and it currently has a 14% share of the Asian market.The point is that Qantas has equity where as a new brand has none.

 The next thing I want you to consider is something called the order of entry effect. Essentially, in many categories a brand’s market share has been shown to decrease with its entry position. The later a brand enters, the lower the brand’s share. There are several economic reasons but from a marketing perspective, consumers will learn more about earlier entrants than later entrants. The more you know about a brand, the more likely you are to purchase it. To illustrate, the market share of airlines in the domestic market is roughly Qantas (65%), Virgin Blue (20%), Jetstar (10%), Tiger (5%). It is no coincidence that it follows the order in which these brands entered the market.

 My rough calculations have it that this new brand into the Asian market will be at least the 20^th entrant. Using the average order of entry estimate, the 20^th entrant into a category will get about 2.4% share. This is based on having parity with all other entrants on every other variable. In the airline category, this would be advertising, number of planes, flights, price, service, lounges etc. If this new airlines was at a disadvantage in any of these (which it will be), the market share will be even lower. In addition, the connection we have to Qantas because it is an Australian airline is the same connection every consumer will have with its local airline carrier. (Another barrier to consider).

 So you have to ask the question, does it make sense to launch a new airline or should they try and improve the competitiveness of its existing brand which has 14% share.

Lecturer Dean Wilkie is an expert in branding at the Australian School of Business.