A Report On IndiGo Airlines

Submitted By: Debi Prasanna Jena Dileep Dora Dinesh Koppuravuri

Introduction
India is one of the fastest growing aviation industries in the world. Because of the introduction of liberalization policy in the Indian aviation sector, the industry has witnessed a vast difference with the entry of the privately owned full service airlines and low cost carriers. In 2006, the private carriers accounted for around 75% share of the domestic aviation market. Besides, there was significant increase in the number of domestic air travel passengers. Some of the factors that have resulted in higher demand for air transport in India include the growing purchasing power of middle class, low airfares offered by low cost carriers and the growth of the tourism industry in India. In addition to the liberalization policy, the deregulation policy has also played a major role to encourage private players in the aviation industry. Below graph shows the gradual growth in the domestic air traffic: The growth in the aviation industry looked promising and hence attracted many low cost carriers like SpiceJet, GoAir and IndiGo after the success of Air Deccan in 2003. On one hand, the booming opportunities incited players to expand capacity but on the other hand, rising fuel costs and taxation rates, increased the operational costs. Thus the low-cost players found it difficult to maintain their commitment. In their urge to survive, they were compelled to increase prices, add free refreshments and beverages on-board, etc. Some players sought refuge in mergers, whereas some survived by modifying their business model. However, amidst this aviation turmoil, IndiGo continued to fly high. In its endeavor to consistently maintain low costs, IndiGo resorted to measures like outsourcing and having a homogeneous fleet. These efforts helped IndiGo to offer its passengers low air fares. IndiGo is the latest entrant as a low cost carrier in the aviation industry of India. It started its operations on August 4, 2006. InterGlobe Enterprises, a renowned travel

corporation, is the owner of IndiGo. The IndiGo team uses all of these resources to design processes and rules that are safe and simple, that make sense, and that cut waste and hassles, which in turn ensures a uniquely smooth, seamless, precise, gimmick-free customer experience at fares that are always affordable. It was awarded the title of Best Domestic Low Cost Carrier in India for 2008. The airline currently operates 120 daily flights with a fleet of nineteen brand new Airbus A320 aircraft and flies to 17 destinations. IndiGo plans to serve approximately 30 Indian cities by 2010, with a fleet of approximately 40 A320s.

Below are the key factors of the business model of IndiGo airlines: A single passenger class. Single type of airplane to reduce training and service cost. No frills such as free food/drinks, lounges.

Emphasis on direct sale of ticket through Internet to avoid fee and commissions paid to travel agents. Employees working in multiple roles. Unbundling of ancillary charges to make the headline fare lower.

External Analysis Airline Industry Attractiveness

1. Foreign equity allowed: Foreign equity up to 49 per cent and NRI (Non-Resident Indian) investment up to 100 per cent is permissible in domestic airlines without any government approval

2. Attraction of foreign shores: After five years of domestic operations, many domestic airlines too will be entitled to fly overseas by using unutilized bilateral entitlements to Indian carriers.

3. Rising income levels and demographic profile: Demographically, India has the highest percentage of people in age group of 20-50 among its 50 million strong middle class, with high earning potential.

4. Untapped potential of India's tourism: Tourist arrivals in India are expected to grow exponentially, especially due to the open sky policy between India and the SAARC countries and the increase in bilateral entitlements with European countries, and US.

5. Glamour of the airlines: No industry other than film-making industry is as glamorous as the airlines. Airline tycoons from the last century, like J. R. D. Tata and Howard Hughes, and Sir Richard Branson and Dr. Vijay Mallya today, have been idolized.

Internal Environment Analysis:

Market Share of IndiGo

Industry capacity growth, excluding IndiGo, has flattened:

Industry capacity has grown at a CAGR of 22% 2004 2008 Seat capacity for Industry excluding IndiGo dipped by 5%, while IndiGo grew by 23% for 2009 15% passenger growth expected to exceed the 10% expected growth in capacity in 2010

Increasing market share:

Expected market share in FY10/11 is 20%

Sustainable Competitive Advantage

There are some circumstances where sustainability is possible at least for a period of time and this can be achieved by Sustaining differentiation- Based advantage which is the strategy applied to IndiGo and it is explained below.

Sustaining differentiation- Based advantage

Resources, Capabilities and Core Competencies are the key elements of the Internal Environment. The resources are tangible and intangible.

Tangible resources Aircrafts: The airline currently operates 120 daily flights with a fleet of nineteen brand new Airbus A320 aircraft and flies to 17 destinations.

Human Resources: 1. The human resources are the pilots, crew members and ground staff.

2. No airline can recruit a trainee pilot and directly assign him to fly an airplane carrying around 500 passengers. The labor-force has to be trained and then assigned with tasks to perform after proper evaluation.

Fuel: 1. Porters five forces model does not cover the importance of complementary product. 2. ATF is the complementary product for airplane and it constitutes approximately 35% of the production costs.

Intangible resources
Brand Equity/Reputation

IndiGo is the most reputed low cost carrier due to the following reasons: 1. On time arrivals is the key differentiating factor for IndiGo Airlines. 2. IndiGo keeps implementing new and innovative ideas to increase the quality of customer service. Recent example is: IndiGo has roving check-in counters where passengers with only cabin baggage can check-in with an IndiGo official with a handheld device, rather than lining up at the check-in counter. 3. It gives the customers the freedom to carry their own eatables and snacks on board. 4. Compared to the direct competitors, that is, the other low cost carriers like SpiceJet, Jetlite, etc. IndiGo offers the lowest airfare.

Social Capital:

1. IndiGo has amicable relationship with the other organizations that contribute to the value addition for the service provided to the customers. 2. IndiGo has engaged many Travel web-portals and regional travel agents with incentives like booking commissions, etc. There have been no instances of distress between IndiGo and its other collaborators, that is, suppliers. 3. Collaboration with hotels: Mumbai-based hotel chain operator Sarovar Hotels and IndiGo Airlines announced a marketing tie-up for frequent travelers. The highlights are: a. The arrangement will allow guests staying at select Sarovar Hotels across 26 destinations in India to avail a 10 per cent discount on their next travel booking with IndiGo. b. While IndiGo flyers can avail up to 25 per cent discount on published room tariff, 10 per cent discount on holiday stay packages and 10 per cent discount on restaurant dining at select Sarovar properties. Hence IndiGo has a remarkable Social Capital.

Brand Awareness: IndiGo is a well-known Low Cost Carrier in India. The following points contribute to the brand awareness of IndiGo: 1. Advertising using print media like newspapers, billboards, etc. 2. It may not pay for an advertisement in a newspaper, but has been covered in news for its low cost strategy implementation. 3. As IndiGo provides better value added services to the customers, Word of Mouth promotion also works in its favor.

Employee Relationship: Good Employee Relationship is a key factor to sustain competitive advantage. IndiGo provides several incentives to its employees. As per the news article published in The Hindu Business Line

IndiGo officials claimed that they have been seeing a healthy growth in passenger numbers and had no plans to defer delivery of any of the 100 Airbus it has ordered. Hence, it is clearly evident from the above statement that IndiGo is optimistic about its long term growth. Also, it is planning to expand its employee strength and at the same time there is no indication of downsizing the current staff. Quoted below are some comparisons about the different approaches implemented by various airlines at the time of recession stated in the same article: At a time when several domestic airlines are looking to prune their staff strength, the Delhi -based low cost airline, IndiGo, is on the lookout for more pilots, cabin attendants, customer service and airport service agents. In the recent past, both Kingfisher Airlines and Jet Airways have asked their staff to leave. While Jet Airways offered a voluntary retirement scheme to more than 300 of its staff, it was also planning to lay off about 1,900 of its staff. In late September, Kingfisher announced that 300 employees had parted ways with the company. The above facts show that IndiGo has taken a positive approach while dealing with its loyal employees at the time of economic slowdown.

Strengths IndiGo has high brand awareness and brand equity. Cost leadership: Successful implementation of low cost strategy. Highly efficient management that ensures high rate of on- time arrivals. Continuous innovation to improve on non price factors. Tie-up with hotels. Ease of ticket booking for customers.

Weaknesses Scope of product differentiation is less. Benefits of the innovations implemented by IndiGo to provide better services to the customers are short-lived, as these can be easily imitated by the competitors. IndiGo is not exploring the untapped domestic air cargo market.

PESTEL FRAMEWORK
This model proposes that the relevant factors should be divided into the categories of Political, Economic, Social, Technological and Environmental. These factors are not mutually exclusive but then the classification helps in understanding each ones influence. POLITICAL Open Sky Policy and Deregulations have impact 100 per cent FDI under automatic route is permissible for Greenfield airports 49 per cent FDI is permissible in domestic airlines under the automatic route, but not by foreign airline companies. 100 per cent equity ownership by Non-Resident Indians (NRIs) is permitted 100 per cent tax exemption for airport projects for a period of 10 years... Airport Infrastructure Mumbai and Delhi airports have already been privatized and are being upgraded at an estimated investment of US$ 4 billion over 2006-16 Over the next five years, AAI has planned a massive investment of US$ 3.07 billion 43 per cent of which will be for the three metro airports in Kolkata, Chennai and Trivandrum, and the rest will go into upgrading other non-metro airports and modernizing the existing aeronautical facilities

ECONOMIC: The rising income of the Indians will see a rise in the air travelers Consistent GDP growth of more than 8% Periods of economic stagnation see a significant slowing of the rate of increase in demand

SOCIAL: Change in Lifestyle the changing demographics have profound effect on the marketing strategies of the airlines The Indian population is going through a transition phase. The high percentage of youth coupled with increasing job avenues certainly hints at the growing income and the aspirations Significant rise in the number of the tourists in the country

The Female business Traveler Female population has shown a higher numbers the business scenario.

TECHNOLOGICAL Growth of e-commerce and e-ticketing - Internet has enabled to provide real time information of flight schedules and availability Modernization and privatization of airports - The CAT technology employed in International airports of the country has helped the pilots to take off and move in even during the low visibility hours Developing Greenfield airports with private sector

ENVIRONMENTAL Increase in global warming Sudden and unexpected behavior of atmosphere and the dependency on atmosphere Shortage of infrastructural capacity.

LEGAL FDI limits Bilateral strategies, Airlines acquisitions and leasing costs

SWOT Analysis:
Strengths(S) 1. IndiGo has high brand Awareness and brand equity. 2. Cost leadership: Successful implementation of low cost Strategy. 3. Highly efficient management that ensures high rate of onetime Arrivals. 4. Continuous innovation to Weaknesses(W) 1. Scope of product Differentiation is less. 2. Benefits of the innovations implemented by IndiGo to provide better services to the customers are short-lived, as these can be easily imitated By the competitors. 3. IndiGo is not present in

Improve on non-price factors. 5. Tie-up with hotels. 6. Ease of ticket booking for Customers. Opportunities(O) 1. Freight market 2. Increase in domestic air traffic 3. International market 4. Chartered flight services 5. Promotion of regional air connectivity 6. Development of airport infrastructure Threats(T) 1. Rising ATF prices 2. Increasing competition 3. Economic slowdown 4. Poaching 5. Government interference 6. Scarcity of trained pilots ST 1. Sign anti-poaching Agreements with competitors. 2. Effective incentive programmers to avoid talent Drain. 3. Hire well trained pilots from other countries as well as Retired Air Force personnel. SO 1. Increase domestic destinations for flights 2. Upgrade to long haul aircrafts as per demand

Domestic air cargo market. 4. Not present in International Market

WO 1. IndiGo can plan to go International. 2. IndiGo can expand its services To freight/cargo. 3. Diversify to chartered flight Services.

WT 1. Continuous innovation of Value added services.

Key Success Factors

Low Price, not low quality

Operational Efficiency
Turnaround Time On an average, an IndiGo aircraft flies for around 12 hours a day, compared to eight to 10 hours logged by most competitors. The extra hours allow it to undertake one extra flight daily, which translates into more seats and revenue Aircraft Utilization

On-time performance for time-sensitive travelers Single model usage All the planes have exactly the same configurations, having the same engines, same number of seats in one class configuration. They can use the same crew (Pilots; Cabin crew) for their entire fleet

Based on demand the aircrafts can be allocated on routes without worrying about the type of aircraft Makes the maintenance much less costly No additional staff training for diff routes or aircraft Young fleet of aircraft (hence less maintenance issues)

Positioning
Limited Passenger service Low price tickets Point to Point routes Frequent & Reliable departures

Feasible Alternatives

1. Increase domestic operation:

There are a number of initiatives taken up by government to encourage aviation industry, e.g., promotion of regional air connectivity, Open Sky policy and policy of Greenfield airports. In addition to this, government has also made plans for the development of airport infrastructure. 35 airports have been selected for this purpose, of these 24 airports would be taken up for city side development through PPP

including maintenance and operation of the terminal buildings, cargo operations and real estate development. All these factors indicate towards a favorable environment for growth in the domestic aviation sector. Hence it would be a wise option for IndiGo to increase its domestic operations. IndiGo must increase the number of destinations and can start long haul aircrafts.

2. Extension

Currently, IndiGo is concentrating only in domestic passenger flights. However, the freight/cargo market and charted plane service are the areas that can prove to be good potential market for IndiGo. As per the reports from an economic survey this year, it was stated that domestic cargo showed a growth of 14.55%15. Besides, chartered flight services are an untapped market for IndiGo. Thus, IndiGo has a huge opportunity to expand in both these arenas.

Conclusion

Low cost airlines have huge potential in Indian market and they are many players entering the market targeting at the price sensitive segment. Open sky policy and deregulation have further opened space for many players to enter the market. Despite of the fact that product differentiation in low cost carriers is very less with many established players in the market, Indigo has successfully implemented the low cost strategy with its value added services but still it has huge potential to capture more market if it can

establish itself internationally, expand its services to cargo, Upgrade to long haul aircrafts as per demand and Continuous innovation of value added services.

Final Recommendation
As inferred from the above two solution analysis, we recommend that IndiGo must increase its domestic operations by starting flights connecting to new destinations and long haul flights. As the opportunities are vast for this purpose, the other low cost carriers may also venture in this area. So using the cost leadership strategy, IndiGo can gain competitive advantage over its competitors as the first mover. Once the above strategy is successful and results in promising revenue growth, IndiGo can use extension to freight and chartered services as the next objective for further expansion.

BIBLIOGRAPHY
Websites www.indigoairtickets.com India Ministry of Civil Aviation - http://civilaviation.nic.in India Directorate of Civil Aviation - http://dgca.nic.in/ Airport Authority of India - www.airportsindia.org.in/ Bureau of Civil Aviation Security (India) http://bcasindia.gov.in/ Centre for Asia Pacific Aviation www.centreforaviation.com www.cleartrip.com www.infrstructure.gov.in www.interglobe.com www.civilaviation.nic.in www.business-standard.com www.thehindubusinessline.com