Air France: The Load Factor Puzzle in Business Class - Case Solution

1. What challenges does Nayar, marketing head at Air France India, face

in terms of consumer behavior in an emerging market like India compared with developing countries?

As per the case, India has a high potential for the air travel business. However, luxury airlines like Air France India had to address a lot of issues, especially in connection with the consumer behavior of this emerging market.

There are some challenges that the company faces when it comes to its consumers. For one, in the case of Air France India, the majority of the passengers have emotional drives rather than rational drives.

To maintain this connection, it would be necessary to provide special offers or frequent traveler loyalty benefits, which can cause further cost escalation.

Another issue is that the company depends on its channel partners, like travel agencies, to a greater extent. About 90% of the business is through such agencies only.

This can be an obstacle to feeling the real organizational culture of the company to the customers. How to get rid of this overdependence on the agencies is a challenge to the company.

Also, various socio-economic factors like devaluation of the Indian currency, hike in fuel price, higher interest rates, etc., are having an impact on the air travel business. This can have a greater effect on Air France India since their major segment is business class passengers.

The business class fares offered by the company were quite higher than almost all the competitors except British Airlines. All other international and Indian companies are less than them. Their price is about 30% more than the Indian companies. Hence, the competition was too high.

The passenger load factor (Average Number of Passengers per aircraft / Total seats) was about 79%. For two consecutive years, in 2014 and 2015, there was not much improvement in this fact. This can lead to a reduction in operational profit.

Air France is likewise looking into how to approach target groups like medical tourists and young entrepreneurs. This would add to its target customers and realize income when they avail of the services of the airlines.

The company is also in a quandary regarding how to realize the tie-ups with state-owned and reputed tourism promotion companies and agencies to address the target group very easily but without compromising on a win-win strategy.

At the same time, the company seeks to optimize the dependency factor in such collaborations.

Another challenge that Air France India also seeks to overcome is the…