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Sectors like civil aviation and retail are integral part of India's growth story

While "aviation retail" is rather niche, it has more potential than it is given credit for, writes Nitant Vartakavi, CA and student at the Indian School of Business.

Nitant Vartakavi, Chartered Accountant and a student of PGP Class of 2015 at the Indian School of Business Nitant Vartakavi, Chartered Accountant and a student of PGP Class of 2015 at the Indian School of Business

Indian aviation has evolved into a bustling, rapidly growing industry with a true global footprint.

There was a time frowning airhostesses hurled stale biscuits at passengers, flights were seldom on time and the only guarantee was a harrowing experience.

Airports across the country were no different. This, however, is a story of the past.

Today, over 154.5 million passengers take to Indian skies every year, and air travelers are no longer willing to put up with inflated fares or lukewarm service.

At a CAGR of 5.6 per cent in recent years, the $16-billion Indian civil aviation industry has indeed come of age and has brought with it a host of opportunities beyond the realms of the conventional aviation business, many of which lie in the lucrative retail sector.

The Indian retail sector was pegged at a massive $490 billion in 2013, and is projected to grow at 13 per cent.

While "aviation retail" is rather niche, it certainly has more potential than it is given credit for. I believe that this sector rides on drivers that can be categorised as economic and behavioral.

On the economic front, privatisation of the civil aviation sector has opened up the skies to the middle-class Indian, and passenger traffic has increased exponentially.

Regional players like Air Costa have already sprung up, and big names like the Tata Group are poised to take the plunge. This augers well for an associated sector like aviation retail. Furthermore, sanctioning of new airports and more passenger-friendly terminals has worked wonders for aviation in India.

On the behavioral spectrum, the mindset of the Indian air passenger has changed. Income levels have risen considerably, and this has brought about not just the power but also the intent to loosen the purse strings.

Another major behavioral aspect, pertinent to retail aviation, is what I will term as the "wallet in the sky" phenomenon. An air ticket a few years ago meant an all-inclusive package: a hot towel, a meal, beverages and more! Today, domestic air travel is all about no-frills.

As a result, passengers have opened up their minds to paying for their food and privileges. Paying an airhostess for a sandwich would have seemed ridiculous a decade ago, today it's a common business model and the conventional passenger is comfortable shelling out cash in the air. The "wallet in the sky" phenomenon paves the way for greater in-flight spending.

Another key driver is sheer size. Airport terminals is India are no longer the run-down, utilitarian sheds that they used to be. Delhi's T3, Mumbai's T2 and Hyderabad are testimony to where Indian terminals are headed: massive, gleaming buildings that are more mall than airport!

A customer-friendly, ambient atmosphere, frequented by people who have at least an hour of waiting to do, is a retailer's recipe for success. Aircraft too have evolved, the 747 was once King of the Skies.

Today it is dwarfed by the A380, which even boasts a lounge and shower on board! More space means more retail opportunity!

Retail is infinite. It can encompass any number of sub-segments, and the same holds true for aviation retail. The food and beverage industry is already booming in most air terminals.

SpiceJet, Indigo and AirCosta sell food and beverages on their flights. F&B comprises over 60 per cent of the market. The rest of the market today is limited to specialty goods and the usual duty-free wares.

In my opinion, retailers treat their airport outlets as mere advertisement opportunities. Seldom is the product portfolio or the customer service up to the mark.

This needs to change. Seek out the customer, cater to his needs, and keep him engaged! Air travelers have the time and the money to purchase more than just chocolate or magazines.

A good example to emulate is the Singapore Changi. Considered one of the best airports of the world, the Changi has taken shopping to the next level and focuses on enhancing customer experience.

The Dubai airport is renowned for its shopping and discounts while Bangkok's Suvarnabhoomi is renowned for its "buy one get one" offers. The number of footfalls at Indian airport terminals is tremendous; we just need to awaken to the idea that these can be tapped.  

Another gold mine is, as the title suggests, at 35,000 feet. A few airlines have made a rather half-hearted attempt at in-flight shopping in Indian skies.

As passengers, we do see catalogues in seat pockets, but how often do we actually make a purchase on board? Every economy seat offers a square foot of advertising space and an hour of time to seduce the customer into making a purchase. Genuine discounts and a wider portfolio of products is the key.

There are avenues for collaboration and joint ventures too! For example, this opportunity could in fact entice our famed "e-tailers" as well: picture the latest full-fledged catalogue of Flipkart in the seatback of an Indigo flight, all you need to do is select a product and submit the form; with options like "cash on delivery", who wouldn't be tempted to place an order?

To make this work, airlines need to think beyond selling food, and look to collaborate with experienced retailers to create a shopping experience in the air. Gimmicks like lucky draws and scratch cards don't work anymore, they need to look at genuine discounting and make up for it on the increased volumes.

Full service airlines have an additional opportunity to capitalize on the benefits of differentiated portfolio and pricing: first class could focus on luxury goods and premium pricing while economy could revolve around a genuine "value for money" proposition.

India is at the forefront of the emerging world, and sectors like civil aviation and retail are an integral and lucrative part of our growth story. Combining these is a heady mix with all the ingredients of success.

As retail goes, in the swanky new terminals that adorn our metros and the super-jumbo aircraft that roar across our skies, "sky is the limit".

ABOUT THE AUTHOR
Nitant Vartakavi is a Chartered Accountant and a student of PGP Class of 2015 at the Indian School of Business.
*A few statistics regarding the aviation and retail sectors have been drawn from www.ibef.org and www.Forbes.com. Views are personal.