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7/31/2019 S1 Group4 IndiGo

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IndiGo Airlines


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ANALYSIS OF BUSINESS STRATEGY

By

Group 4 Section S1

Team Members:Gaurav Varshney (FT13127)

Gajendra Sisodia (FT13125)

Manshi Gandhi (FT13144)

Pankaj Kamani (FT13152)

Rishabh Baiswar (FT13159)


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Introduction

IndiGo is a Gurgaon-based carrier launched in 2006.

Set up by Rakesh Gangwal and Rahul Bhatia, of InterGlobe Enterprises.

InterGlobe holds 51.12% stake in IndiGo and 48% is held by CaelumInvestments, US based firm, run by Rakesh Gangwal.

IndiGo placed a order of 100 Airbus A320-200 aircraft during June 2005.

First international service was launched 2011 after completing 5 years as per

state regulations. Placed the largest order in commercial aviation history during 2011, when

Airbus won the US$ 15 billion deal for 180 aircraft.

Awarded Skytrax, Central Asia's best low-cost airline award for last threeyears.


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Trends in Indian Airline Industry


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Indias GDP grew by 5.3% in the fourth quarter of fiscal year 2011-2012,

recording its worst performance in last nine years. Indian aviation industry had a good year in terms of passenger traffic growth

but one of the worst years in terms of profitability. All scheduled Indian aircarriers except IndiGo, incurred losses in the year.

Low cost carriers gained significant market share during the first six months ofyear 2012. IndiGo became the second largest carrier in the domestic market

with a share of 26% while SpiceJet became third with a share of 18.6%.Together, the low cost carriers held a market share of more than 58%.Kingfisher saw substantive erosion in its market share and slipped to the sixthposition, below GoAir.

Outlook for Indian Aviation is stable as far as low cost carriers are concerned.The full service carriers will probably struggle to maintain their profitability andsolvency.

Trends Contd.


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High airport charges, deprecation of Indian rupee, expensive aircraft turbinefuel and low air fares were the main reasons cited by the companies for thesuccessive losses faced by them. The combined debt of Indian airlinescompanies was around INR 831 Billion as of March 2012.

All was not bad as Indian aviation witnessed growth, both in domestic as wellas international passenger traffic in first six months of calendar year 2012.

Domestic passenger traffic grew by 11% in calendar year 2011

And by 4% in first six months of calendar year 2012.

International passenger traffic registered 8% growth in first six months ofcalendar year 2012 after contracting by 19% in calendar year 2011.

The working group on civil aviation for 12th Five Year Plan expects the

international passenger traffic to touch 60 million and domestic passengertraffic to touch 209 million by year 2016

Trends Contd.


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IndiGos Success Mantra

IndiGo is the first low cost carrier inIndia to become the largest airline inIndia in terms of market share(27%),dethroning Jet Airways whichhad held the position for manyyears. It has achieved that feat just

6 years after it began operations.IndiGo is the only airline in Indiamaking profits. It has booked profitsof Rs 650 crore in 2010-11 from Rs551 crore in 2009-10. This successhas been made possible by adifferentiating model adopted by

IndiGo thats discussed here.


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IndiGo Business Model

IndiGo's low cost leadership through strong adherence to the low cost model,buying only one type of aircraft and keeping operational costs as low aspossible.

Currently in organic growth mode as well as international expansion mode.

Heavy emphasis on punctuality; claimed to be the only domestic airline usinga technological tool to monitor its departure and arrival times while otherswhich keep manual records.

Courteous hassle-free travel experience. People shouldnt feel cheap when they buy cheap.

No frills and a single passenger class model.

Single type of airplane reducing training and service cost.

Focus on customer service.

Calling customers by their first name thats usually a feature of international

business class on reputed carriers like Singapore Airlines. Measured and Professional approach towards airline management.


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Porters Five Strategic Forces


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Bargaining Power of Buyers

IndiGo is a low cost carrier and price plays the most important role inattracting customers of this segment.

Since there are at least 4 other LCCs (Jet Lite, Spice Jet, Go Air, Kingfisher)targeting the aviation space hence it gives consumers sufficient options to shiftto another airlines if Indigo raises it air fare.

So it can be concluded that consumers have a strong bargaining power indealing with Indigo.


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Substitutes

Threat from substitute is very less.

TELECOMMUNICATIONS: Business meeting with the help of 3G and 4Gdevices are feasible.

VIDEO CONFERENCING: Takes away from the personal aspect of theconversation and issue to schedule sessions in different time zones.

HIGH-SPEED RAILROADS:

Boarding and departure have stolen much of the time advantage conferred

by higher point-to-point speeds but still rise in 2nd and 1st AC fair of trainhas reduced the price gap.

Roads specially National Highways condition in India is still not good both incondition and in traffic


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Threat from New Entrants

The major entry barriers could be:1. Government Regulations - Some of the regulations are:

Private sector is allowed to operate scheduled and non-scheduled services butthe operator should be a citizen of India or a company or a body corporatewhich is registered in India and whose principal base of business is in India.

As regards safety and security arrangements, the operators must ensure

compliance with relevant regulatory requirements stipulated respectively by theDirector General of Civil Aviation (DGCA) and the Bureau of Civil AviationSecurity (BCAS).

Foreign airlines are not permitted to pick up equity. Foreign financialinstitutions and other entities who seek to hold equity in the domestic airtransport sector shall not have foreign airlines as their shareholders.

2. Set up costs

It is estimated that venture capital of INR 556,300,000 or less is sufficient tolaunch an airline. An airline company bears the cost of purchasing an aircraft ifit wants to start or expand its fleet. However, leasing allows the cost to bespread across several years.


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3. High Aviation Turbine Fuel

Aviation Turbine Fuel prices constitute around 80% of the total operating costsof Airline Industry. The industry has lately been plagued with high ATF pricesthat have demonstrated the inverse relationship between profitability ofairlines and fuel prices.


4. Resource Issues

In airline sector, finding appropriate labor-force is very costly. The aviation

industry in India suffers a shortfall of pilots. Some of the reasons are:

The aspirants could receive Commercial Pilot Licence (CPL) only if theyundertake training abroad.

There is a lack of dedicated flight instructors in India.

There are decade-old aircrafts and poor quality training is offered at a pricemuch higher than what is offered by flying schools in USA, Canada and

Australia.


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Switching Cost

Customers can easily choose other low cost carriers as they are relatively lessconscious about brand but primarily concerned about prices and on-timeservice.

The switching cost of an airline company to other business/industry is high asthe exit cost is high.

Product DifferentiationIn low cost carriers, much differentiation is not there in the basic service that isbeing provided to the customers. Differentiation could only be achieved byValue-Added Services. IndiGo provides check-in kiosks, stair-free ramps, Q-Busters, lowest cancellation rate among domestic airlines. All these serviceswork in favor of IndiGo.



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Rivalry among Competitors

Highly competitive industry

Difficult to earn high returns

Very high fixed costs

Low marginal costs

Switching costs very high as no brand loyalty

Little scope of differentiation between products/services offered

Indigos focus is low-cost airline

Major competitors

SpiceJet

GoAir

Jet Lite

Market leader in LCC segment since past few years


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Market Share of Domestic Airlines


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Passenger Load Factor


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Three tenets for success of Indigo

Affordable fares,

On-time performance,

Hassle-free travel

E.g. Indigo has roving check-in counters using handheld check-in devices

Multiple short haul point to point flights

Using only one type of aircraft to minimize maintenance overheads

Minimum turnaround time, keeping aircraft in air most of the time

Indigo Advantage


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Indian Flyers : Customer Satisfaction


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All focusing on pricing factors. Differentiating factors can be easily imitated.

Just started with international flights.

Would have to focus on non-price factors, e.g., VAS to stay high.

Rivalry among Competitors


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Bargaining Power of Suppliers

AircraftManufacturers

AviationTurbine Fuel

Labour

Primary Supplies and Suppliers


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The airlines of the world have to facethe oligopoly in this area.

Few manufacturers enable them withthe power to bargain and dictateprices and delivery schedules.

IndiGo with its expansion plans feelsthe pinch.

Indigo is a low cost carrier and has

this as a non-negotiable condition tolead the market share.

At Paris Air Show in Jan, 2011IndiGo ordered 180 Airbus aircrafts,the biggest order in the history.

Experts say that this is a strategicstep to manage costs and fleet

optimisation. Airbus has order books full of IndiGo

deliveries as far fetched in future asthe year 2025.

Aircraft Manufacturers


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Limited suppliers

Because of limited number of suppliers, there

is hardly any alternate choice for the airlineindustry, with these state owned oil companiesfixing the ATF price on a mutually agreedcommon formula among them. This is anexample of backward integration in suppliers.

Almost all Indian carriers reeling under thepressure and are resorting to desperate

measures like cutting routes and increasingfuel surcharge.

ATF suppliers in India have the highest pricescompared to other suppliers across the globe.

To tackle such pressures IndiGosigned a deal with engine makerPratt & Whitney for PurePowerPW1100G-JM engines for the low-cost airline's 150 A320neo familyaircraft. Benefits including double-digit reductions in fuel burn,environmental emissions, enginenoise and operating costs.

Aviation Turbine Fuel


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The dearth of skilled employees in Indian Aviation is being exposedincreasingly as the industry is growing at a ever increasing pace.

The stringent and demanding requirement of domestic pilot (According toDGCA norms,200 hours of flying are required for pilots to qualify) is makingit difficult for the industry to cope with the increasing demand in pilot, crewcabin or Ground Staff.

As per a study India currently has about 3,500 pilots and the industry isexpecting to grow by another 400 airplane. Each plane will need more than10 pilots and 20 engineers which come to as many as 4000 pilots and 8000engineers. Thus giving very strong pull power to its current employee. Astudy done by Boeing shows the forecasted demand to be 12,000 pilots bythe year 2025.

The average domestic pilot salary is about INR 4,45,000 as compared to theINR 778,000 for foreign pilots. Therefore the percentage of Foreign Crew isreducing and consequently relying more and more on its Indian crew.

Due to shortage of commercial aircraft pilots in India the supply of pilots isconcentrated, hence increasing their power.

Labour


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Success story of IndiGo can be attributed to its successful implementation ofthree generic strategies approach i.e.

Overall cost leadership: Since its inception IndiGo has been providingthe Low Cost Carrier services to its consumers and no other airlines hasbeen able to challenge its price lines. Also it has the best in industrypassenger load factor which makes it much more cost efficient.

Differentiation: Though being a LCC , IndiGo has a best in Industry OnTime Performance and quality and detailing are given the primeimportance while serving customers.

Focus: IndiGo has focussed on a single business model from thebeginning and has always targeted only the economy class customers.

Conclusion


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Thank You!!

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